Any of these changes, changes in immigration policies, government intervention in currency valuation or other government policy changes may adversely impact our ability to sell software and services, which could, in turn, harm our revenues and our business. We are headquartered in the United States and may be particularly impacted by changes affecting the United States.

Our use of open source technology could impose limitations on our ability to commercialize our software.

We use open source software in some of our software and expect to continue to use open source software in the future. Although we monitor our use of open source software to avoid subjecting our software to conditions we do not intend, we may face allegations from others alleging ownership of, or seeking to enforce the terms of, an open source license, including by demanding release of the

open source software, derivative works, or our proprietary source code that was developed using such software. These allegations could also result in litigation. The terms of many open source licenses have not been interpreted by United States courts. There is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our software. In such an event, we may be required to seek licenses from third parties to continue commercially offering our software, to make our proprietary code generally available in source code form, tore-engineer our software or to discontinue the sale of our software ifre-engineering could not be accomplished on a timely basis, any of which could adversely affect our business and revenue.

The use of open source software subjects us to a number of other risks and challenges. Open source software is subject to further development or modification by anyone. Others may develop such software to be competitive with or no longer useful by us. It is also possible for competitors to develop their own solutions using open source software, potentially reducing the demand for our software. If we are unable to successfully address these challenges, our business and operating results may be adversely affected, and our development costs may increase.

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We currently open source certain of our software and may open source other software in the future, which could have an adverse effect on our revenues and expenses.

We offer our open matrix language, or OML, source code and a portion of our Altair PBS workload management software in an open source version to generate additional usage and broaden user-community development and enhancement of the software. We offer related software and services on a paid basis. We believe increased usage of open source software leads to increased purchases of these related paid offerings. We may offer additional software on an open source basis in the future. There is no assurance that the incremental revenues from related paid offerings will outweigh the lost revenues and incurred expenses attributable to the open sourced software.

Our revenue mix may vary over time, which could harm our gross margin and operating results.

Our revenue mix may vary over time due to a number of factors, including the mix of term-based licenses and perpetual licenses. Due to the differing revenue recognition policies applicable to our term-based licenses, perpetual licenses and professional services, shifts in the mix between subscription and perpetual licenses from quarter to quarter, or increases or decreases in revenue derived from our professional engineering services, which have lower gross margins than our software services, could produce substantial variation in revenues recognized even if our billings remain consistent. Our gross margins and operating results could be harmed by changes in revenue mix and costs, together with other factors, including: entry into new markets or growth in lower margin markets; entry into markets with different pricing and cost structures; pricing discounts; and increased price competition. Any one of these factors or the cumulative effects of certain of these factors may result in significant fluctuations in our gross margin and operating results. This variability and unpredictability could result in our failure to meet internal expectations or those of securities analysts or investors for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our common stock could decline.

The estimates of market opportunity and forecasts of market growth included in our periodic reports or other public disclosures may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

Market opportunity estimates and growth forecasts included in our periodic reports or other public disclosures, including those we have generated ourselves, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Even if the market in which we compete meets the size estimates and growth forecasted in our periodic reports or other public disclosures, our business could fail to grow for a variety of reasons, which would adversely affect our results of operations.

We are subject to governmental export and import controls that could impair our ability to compete in international markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.

Our software, services and hardware are subject to export control and import laws and regulations. As a company headquartered in the United States we are subject to regulations, including the International Traffic in Arms Regulations, or ITAR, and Export Administration Regulations, or EAR, United States Customs regulations and various economic and trade sanctions regulations administered by the United States Treasury Department’s Office of Foreign Assets ControlsControl, presenting further risk of unexpected reporting and compliance costs. Compliance with these regulations may also prevent and restrict us from deriving revenue from potential customers in certain geographic locations for certain of our technologies.

If we fail to comply with these laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges, fines which may be imposed on us and responsible employees or managers and, in extreme cases, the incarceration of responsible employees or managers. Obtaining the necessary authorizations, including any required license, for a particular sale may be time-consuming, is not guaranteed and may result in the delay or loss of sales opportunities. In addition, changes in our software or changes in applicable export or import regulations may create delays in the introduction and sale of our software in international markets, prevent our customers with international operations from deploying our software or, in some cases, prevent the export or import of our software to certain countries, governments or persons altogether.

We incorporate encryption technology into portions of our software. Various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our software or could limit our customers’ ability to implement our software in those countries. Encrypted software and the underlying technology may also be subject to export control restrictions. Governmental regulation of encryption technology and regulation of imports or exports of encryption products, or our failure to obtain required import or export approval for our software, when applicable, could harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our software, including with respect to new releases of our software, may create delays in the introduction of our software in international markets, prevent our customers with international operations from deploying our software throughout their globally-distributed systems or, in some cases, prevent the export of our software to some countries altogether.

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United States export control laws and economic sanction programs prohibit the shipment of certain software and services to countries, governments and persons that are subject to United States economic embargoes and trade sanctions.sanctions, including, but not limited to, Iran, Cuba, North Korea, Syria and Sudan. Any violations of such economic embargoes and trade sanction regulations could have negative consequences, including government investigations, penalties and reputational harm.

Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in decreased use of our software by, or in our decreased ability to export or license our software to, existing or potential customers with international operations. Any decreased use of our software or limitation on our ability to export or license our software could adversely affect our business.

Our business is subject to a wide range of laws and regulations, and our failure to comply with those laws and regulations could harm our business.

Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety and environmental laws, privacy and data protection laws, financial services laws, anti-bribery laws, import and export controls, federal securities laws and tax laws and regulations. In certain foreign jurisdictions, these regulatory requirements may be more stringent than those in the United States. These laws and regulations are subject to change over time and thus we must continue to monitor and dedicate resources to ensure continued compliance.Non-compliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results, and financial condition could be materially adversely affected. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees. Enforcement actions and sanctions could harm our business, operating results and financial condition.

If we or any of our employees violate the United States Foreign Corrupt Practices Act,FCPA, the U.K. Bribery Act or similar anti-bribery laws we could be adversely affected.

The United States Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act and similar anti-bribery laws generally prohibit companies and their intermediaries from authorizing, offering or providing, directly or indirectly, improper payments or benefits for the purpose of obtaining or retaining business to government officials, political parties and private-sector recipients. United States based companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. We operate in areas of the world that potentially experience corruption by government officials to some degree and, in certain circumstances, compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure that our employees, resellers or distributors will not engage in prohibited conduct. If we are found to be in violation of the FCPA, the U.K. Bribery Act or other anti-bribery laws, we could suffer criminal or civil penalties or other sanctions.

Business interruptions could adversely affect our business.

Our operations and our customers are vulnerable to interruptions by fire, flood, earthquake, power loss, telecommunications failure, terrorist attacks, wars and other events beyond our control. A catastrophic event that results in the destruction of any of our critical business or information technology systems could severely affect our ability to conduct normal business operations, including system interruptions, reputational harm, delays in our software development, breaches of data security and loss of critical data.

We rely on our network and third-party infrastructure and applications, internal technology systems, and our websites for our development, marketing, operational support, hosted services and sales activities. If these systems were to fail or be negatively impacted as a result of a natural disaster or other event, our ability to deliver software and training to our customers could be impaired.

Our business interruption insurance may not be sufficient to compensate us fully for losses or damages that may occur as a result of these events, if at all.

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Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.

GAAP are subject to interpretation by the Financial Accounting Standards Board, or FASB, the United States Securities and Exchange Commission, or the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results for periods prior and subsequent to such change. We will need to comply with the FASB issued Accounting Standards UpdateNo. 2014-09, Revenue from Contracts with Customers.Customers (Topic 606). 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 companyCompany expects to be entitled in exchange for those goods and services. We expect the timing of revenue recognition to be accelerated because we anticipate that license revenue will be recognized at a point in time, rather than over time, which iswas our current practice. Generally, the license revenue component of an arrangement represents a significant portion of the overall fair value of a software arrangement. While we continue to assess the potential impacts, under the new standards there is the potential for significant impacts on the consolidated financial statements.

The application of this new guidance may resulthas resulted in a change in the timing and pattern of revenue recognition, including the retrospective recognition of revenue in historical periods that may negatively affect our future revenue, trend,comparable performance, reduce revenue visibility and increase quarterly variability in results, which, despite no change in associated cash flows, could have a material adverse effect on our net income (loss). in any particular period. The adoption of new standards may potentially requirehas required enhancements or changes in our systems and will continue to require significant time and cost on behalfeffort of our financial management.

As an “emerging growth company” the JOBS Act allows us an extended transition period for complying with new and revised accounting standards that have different effective dates for public and private companies until the earlier of the date (i) we are no longer an emerging growth company, or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. We have elected to use this extended transition period under the JOBS Act, including with respect to ASU2014-09.management team.

We cannot predict the impact of all of the future changes to accounting principles or our accounting policies on our consolidated financial statements going forward, which could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of the change. In addition, if we were to change our critical accounting estimates, including those related to the recognition of license revenue and other revenue sources, our operating results could be significantly affected.

If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings, which could harm our business.

Under GAAP, we review our intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill is required to be tested for impairment at least annually. As of December 31, 20172018, and 2016,2017, respectively, we had $62.7$210.8 million and $36.6$62.7 million of goodwill and $24.5$69.8 million and $11.2$24.5 million of other intangible assets—net. An adverse change in market conditions, particularly if such change has the effect of changing one of our critical assumptions or estimates, could result in a change to the estimation of fair value that could result in an impairment charge.

We have significant deferred tax assets in the United States, which we will not use in future taxable periods.

As of December 31, 20172018 and 2016,2017, we had gross deferred tax assets, or DTAs, of $73.6$92.6 million and $75.0$73.6 million, respectively, primarily related to net operating loss carryforwards, tax credits, share-based compensation, deferred revenue, and capitalized research and development expenses. We are entitled to a United States federal tax deduction whennon-qualified stock options, or NSOs, are exercised. In connection with our IPO, a significant number of NSOs were exercised resulting in a tax deduction for United States income tax purposes. This deduction, in conjunction with our other expected deferred tax asset reversals, resulted in our needing to establish a valuation allowance for $47.0 million in 2017 for the United States DTAs. Our ability to utilize any net operating losses or tax credits may be limited under provisions of the Internal Revenue Code of 1986, or the Code, if we undergo an ownership change after our IPO (generally defined as a greater than50-percentage-point cumulative change, by value, in the equity ownership of certain stockholders over a rolling three-year period). We also inherited net operating losses, or NOLs, from the acquisition of Datawatch, which are subject to specific limitations on usage. We may or may not be able to realize the benefits of the acquired NOLs due to a number of factors, including those enumerated above. We may also be unable to realize our tax credit carryforwards as they beginprior to expire in 2018.their expiry.

If our global tax methodology is challenged our tax expense may increase.

As a global business headquartered in the United States, we are required to pay tax in a number of different countries, exposing us to transfer pricing and other adjustments. Transfer pricing refers to the methodology of allocating revenue and expenses for tax purposes to particular countries. Taxing authorities may challenge our transfer pricing methodology, which if successful could increase our professional expenses and result inone-time or recurring tax charges, a higher worldwide effective tax rate, reduced cash flows, and lower overall profitability of our operations.

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Our tax expense could be impacted depending on the applicability of withholding and other taxes including taxes on software licenses and related intercompany transactions under the tax laws of jurisdictions in which we have business operations. Our future income taxes may fluctuate if our earnings are either lowerthere is a change in countries that have low statutorythe mix of income in the applicable tax rates or higherjurisdictions in countries that have high statutory tax rates.which we operate. We are subject to review and audit by the United States and other taxing authorities. Any review or audit could increase our professional expenses and, if determined adversely, could result in unexpected costs.

Sales and use, value-added and similar tax laws and rates vary by jurisdiction. Any of these jurisdictions may assert that such taxes are applicable, which could result in tax assessments, penalties and interest.

New legislation ortax-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.

We are subject to income tax in the numerous jurisdictions in which we operate. Reforming the taxation of international businesses has been a priority for politicians, and a wide variety of potential changes have been proposed. Some proposals, several of which have been enacted, impose incremental taxes on gross revenue, regardless of profitability. Furthermore, it is reasonable to expect that global taxing authorities will be reviewing current legislation for potential modifications in reaction to the implementation of the 2017 Tax Cuts and Jobs Act (the “Tax Act”) in the U.S. Due to the large and expanding scale of our international business activities, any changes in the taxation of such activities may increase our worldwide effective tax rate and the amount of taxes we pay and seriously harm our business.

In the U.S., the Tax Act enacted on December 22, 2017 significantly affected U.S. tax law by changing how the U.S. imposes income tax on multinational corporations. The U.S. Department of Treasury has broad authority to issue regulations and interpretative guidance that may significantly impact how we will apply the law and impact our results of operations in the period issued.

The Tax Act requires complex computations not previously provided in U.S. tax law. As such, the application of accounting guidance for such items is currentlyremain uncertain. Further, compliance with the Tax Act and the accounting for such provisions requirerequires an accumulation of information not previously required or regularly produced. As additional regulatory guidance is issued by the applicable taxing authorities, as accounting treatment is clarified, and as we perform additional analysis on the application of the law, and as we refine estimates in calculating the effect, our final analysis, which will be recorded in the period completed, may be different from our current provisional amounts, which could materially affect our tax obligations and effective tax rate.rate could be materially different.

In addition to our software, we manufacture, distribute and sell products, which may expose us to product liability claims, product recalls, and warranty claims that could be expensive and harm our business.

We manufacture, distribute and sell products through two wholly owned subsidiaries, Altair Product Design, Inc., which we refer to as APD, and Ilumisys, Inc. doing business as toggled and which we refer to in this annual report as toggled. Generally, APD supports our customers with engineering and design services, which may include the fabrication of equipment and prototypes that are sold to businesses but not sold to consumers. From time to time, certain customers may contract directly with us for services similar to those provided by APD. toggled designs, sources through contract manufacturers, and assembles in our own facilities LED lighting and related products for sale to consumers and businesses.

To the extent these products do not perform as expected, cause injury or death or are otherwise unsuitable for usage, we may be held liable for claims, including product liability and other claims. A product liability claim, any product recalls or an excessive warranty claim, whether arising from defects in design or manufacture or otherwise could negatively affect our APD or toggled sales or require a change in the design or manufacturing process of these products, any of which may harm our reputation and business.

Failure to protect and enforce toggled’s proprietary technology and intellectual property rights could substantially harm toggled’s lighting business.

Part of the success of toggled’s lighting business depends on our ability to protect and enforce toggled’s proprietary rights, including its patents, trademarks, copyrights, trade secrets and other intellectual property rights. As of December 31, 2017,2018, toggled had 141168 issued patents and 4541 published patent applications worldwide. We attempt to protect toggled’s intellectual property under patent, trademark, copyright, and trade secret laws. However, the steps we take to protect its intellectual property may be inadequate. We will not be able to protect toggled’s intellectual property if we are unable to enforce its rights or if we do not detect unauthorized use of its intellectual property. It may be possible for unauthorized third parties to copy toggled’s technology and use information that it regards as proprietary to create products that compete with toggled’s products. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of toggled’s technology may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States.

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The process of obtaining patent protection is uncertain, expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, issuance of a patent does not guarantee that we have an absolute right to practice our patented technology, or that we have the right to exclude others from practicing our patented technology. As a result, we may not be able to obtain adequate patent protection or to enforce our issued patents effectively.

From time to time, toggled enforces its patents and other intellectual property rights including through initiating litigation. Any such litigation could result in substantial costs and diversion of resources and could negatively affect toggled’s business, operating results, financial condition and cash flows. If toggled is unable to protect toggled’s intellectual property rights, its business, operating results and financial condition will be harmed.

Assertions by third parties of infringement or other violations by toggled of their intellectual property rights, or other lawsuits brought against toggled, could result in significant costs and substantially harm toggled’s business.

Patent and other intellectual property disputes are common in the markets in which toggled competes. Some of toggled’s competitors, own large numbers of patents, copyrights, trademarks and trade secrets, which they may use to assert claims of infringement, misappropriation or other violations of intellectual property rights against toggled or its customers. As the number of patents and competitors in this market increases, allegations of infringement, misappropriation and other violations of intellectual property rights may increase. Any allegation of infringement, misappropriation or other violation of intellectual property rights by a third party, even those without merit, could cause toggled to incur substantial costs and resources defending against the claim, which could have an adverse effect on toggled’s business.

Some of our businesses may collect personal information and are subject to privacy laws.

Companies that collect personal information are required to comply with the privacy laws adopted by United States and various state and foreign governments, including member states of the European Union. These privacy laws regulate the collection, use, storage, disclosure and security of data, such as names, email addresses and, in some jurisdictions, Internet Protocol addresses, that may be used to identify or locate an individual, including a customer or an employee.

Our Company includes the WEYV business, a consumer music and content service, which in the course of providing its service directly to consumers, collects and stores consumer information. Currently we expect to operate WEYV only within the United States and are only subject to the United States privacy laws. To the extent we expand our WEYV offering beyond the United States we will need to comply with the privacy laws of every country in which we operate. Some of our other products may collect personal data and would also be subject to these privacy laws.

These laws and regulations may require us to implement privacy and security policies, permitend-customers to access, correct and delete personal information stored or maintained by us, inform individuals of security breaches that affect their personal information, and, in some cases, obtain individuals’ consent to use personally identifiable information for certain purposes. Governments could require that any personally identifiable information collected in a country not be disseminated outside of that country. We also may find it necessary or desirable to join industry or other self-regulatory bodies or other information security, or data protection, related organizations that require compliance with their rules pertaining to information security and data protection. We may agree to be bound by additional contractual obligations relating to our collection, use and disclosure of personal, financial and other data. Our failure to comply with these privacy laws or any actual or suspected security incident may result in governmental actions, fines andnon-monetary penalties, which may harm our business.

Additionally, California recently enacted legislation, the California Consumer Privacy Act, or the CCPA, which goes into effect in January 2020, with a lookback to January 2019, and places additional requirements on the handling of personal data. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. The potential effects of this legislation are potentially far-reaching and may require us to modify our data processing practices and policies and incur substantial costs and expenses in an effort to comply. Legislators have stated that they intend to propose amendments to the CCPA before it goes into effect, and it remains unclear what, if any, modifications will be made to this legislation or how it will be interpreted. We may also from time to time be subject to, or face assertions that we are subject to, additional obligations relating to personal data by contract or due to assertions that self-regulatory obligations or industry standards apply to our practices. Our failure to comply with these privacy laws or any actual or suspected security incident may result in governmental actions, fines and non-monetary penalties, which may harm our business.

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Proposed or new legislation and regulations could significantly affect our business.

The new European General Data Protection Regulation, or GDPR, will taketook effect in May 2018 and will applyapplies to all of our business conducted in Europe. Generally acceptedThe GDPR introduces a number of new obligations for subject companies and we will need to continue dedicating financial resources and management time to GDPR compliance policiesin the coming months. The GDPR enhances the obligations placed on companies that control or process personal data including, for example, expanded disclosures about how personal data is to be used, new mechanisms for obtaining consent from data subjects, new controls for data subjects with respect to their personal data (including by enabling them to exercise rights to erasure and processes are not yet well established,data portability), limitations on retention of personal data and mandatory data breach notifications. Additionally, the GDPR places companies under new obligations relating to data transfers and the security of the personal data they process. The GDPR provides that supervisory authorities in the European Union may impose administrative fines for certain infringements of the GDPR of up to EUR 20,000,000 or 4% of an undertaking’s total, worldwide, annual turnover of the preceding financial year, whichever is higher. Individuals who have suffered damage as a result of a subject company’s non-compliance with the GDPR also have the right to seek compensation from such company. Given the breadth of the GDPR, compliance with its requirements is likely to continue to require significant expenditure of resources on an ongoing basis, and there can be no assurance that the measures we have taken for the purposes of compliance will be successful in preventing breach of the GDPR. Given the potential fines, liabilities and damage to our reputation in the event of an actual or perceived breach of the GDPR, such a breach may have an adverse effect on our business and operations.

Catastrophic events may adversely affect our business

Our company is a highly automated business which relies on our network infrastructure and enterprise applications, cloud-based services, internal technology systems and website for development, marketing, operational, support and sales activities. A disruption or failure of these systems or in those of our external service providers, in the event of a major storm, earthquake, fire, telecommunications failure, cyber-attack, terrorist attack or other catastrophic event could cause system interruptions, reputational harm, delays in our product development and loss of critical data and could impose significant new requirements on how we collect, processmaterially and transfer personal data, as well as impose significant fines fornon-compliance. Compliance with GDPR or changes in privacy and information security laws and standards in European Union member states or other countries in which we transactadversely affect our business may result in significant expense dueability to increased investment in technology and the development of new operational processes and failure to comply with GDPR may harmoperate our business.

Risks related to ownership of our Class A common stock

An active public trading market for our Class A common stock may not be sustained.

Prior to our initial public offering in the fourth quarter of 2017, there had been no public market or active private market for trading shares of our Class A common stock. Our Class A common stock is listed on the Nasdaq Global Select Market under the symbol “ALTR.” However, we cannot assure you that an active trading market will be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active

market may also reduce the price of shares of Class A common stock. An inactive market may impair our ability to raise capital by selling shares and our ability to use our capital stock to acquire other companies or technologies. We cannot predict the prices at which our Class A common stock will trade.

Our Class A common stock has only recently become publicly traded, and theThe market price of our Class A common stock maycan be volatile.

The market price of our Class A common stock has fluctuated substantially since our IPO. Our market price may continue to fluctuate substantially depending on a number of factors, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our Class A common stock, since you might not be able to sell your shares at or above the price you paid for our Class A common stock. Factors that could cause fluctuations in the market price of our Class A common stock include the following:

price and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole;

volatility in the market prices and trading volumes of technology stocks;

changes in operating performance and stock market valuations of other technology companies generally, or those in our industryindustries in particular;

the expiration of marketstand-off or contractuallock-up agreements and sales of shares of our Class A common stock by us or our stockholders;

the volume of shares of our Class A common stock available for public sale;

additional shares of our Class A common stock being sold into the market by our existing stockholders, or the anticipation of such sales, including sales of our Class A common stock upon exercise of outstanding options or upon conversion of our Class B common stock into shares of Class A common stock;

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failure of financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

announcements by us or our competitors of new software or new or terminated significant contracts, commercial relationships or capital commitments;

public analyst or investor reaction to our press releases, other public announcements and filings with the SEC;

rumors and market speculation involving us or other companies in our industry;

actual or anticipated changes or fluctuations in our operating results;

actual or anticipated developments in our business, our customers’ businesses, or our competitors’ businesses or the competitive landscape generally;

litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors;

developments or disputes concerning our intellectual property or our solutions, or third party proprietary rights;

announced or completed acquisitions of businesses or technologies by us or our competitors;

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

changes in accounting standards, policies, guidelines, interpretations or principles;

any major changes in our management or our board of directors;

general economic conditions and slow or negative growth of our markets; and

other events or factors, including those resulting from war, incidents of terrorism or responses to these events.

In addition, the stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may affect the market price of our Class A common stock, regardless of our actual operating

performance. In the past, following periods of volatility in the overall market and the market prices of a particular company’s securities, securities class action litigation has often been instituted against that company. We may become the target of this type of litigation in the future. Securities litigation, if instituted against us, could result in substantial costs and divert our management’s attention and resources from our business.

We do not intend to pay dividends in the foreseeable future. As a result, your ability to achieve a return on your investment will depend on appreciation in the price of our Class A common stock.

We have never declared or paid any cash dividends on our Class A common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our Class A common stock in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors. Consequently, your only opportunity to achieve a return on your investment in our company will be if the market price of our Class A common stock appreciates and you sell your shares at a profit. There is no guarantee that the price of our Class A common stock that will prevail in the market will ever exceed the price that you paid.

Our management team has limited experience managing a public company.

Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors, and complying with laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to beingrole as a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and couldmay divert their attention away from theday-to-day management of our business, which could adversely affect our business, financial condition, and operating results.

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We are incurring increased costs and devote additional management time as a result of operating as a public company.

As a public company, we are incurring legal, accounting and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are required to comply with the applicable requirements of the Sarbanes-Oxley Act of 2002, or SOX, and the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank, as well as rules and regulations subsequently implemented by the SEC and the Nasdaq Global Select Market, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that

As of December 31, 2018, we ceased to be an “emerging growth company”, as defined by the JOBS Act, which has the effect of expanding disclosure and other obligations applicable to us, including, but not limited to, enhanced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved, along with accelerated compliance with SOX and earlier implementation of certain changes in GAAP such as revenue recognition and leasing standards. Compliance with these requirements will increaseincreases our legal and financial compliance costs and will make makes some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote additional time to these public company requirements. In particular, we have incurred, and expect to continue to incur, additional expenses and have devoted, and expect to continue to devote, additional management effort toward ensuring compliance with the requirements of Section 404 of SOX, which will increase when we are no longeras a result of our ceasing to be an emerging growth company, as defined by the JOBS Act. We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of June 30, (ii) the end of the fiscal year in which we have total annual gross revenues of $1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1.0 billion in non-convertible debt in a three-year period or (iv) December 31, 2022.company. Although we have already hired additional employees to help comply with these requirements, we may need to further expand our legal and finance departments in the future, particularly after we are no longer an emerging growth company, which will increase our costs and expenses.

If we fail to maintain effective internal controls, we may not be able to report financial results accurately or on a timely basis, or to detect fraud, which could have a material adverse effect on our business or share price.

Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent financial fraud. Pursuant to SOX, we will beare required to periodically evaluate the effectiveness of the design and operation of our internal controls. Internal controls over financial reporting may not prevent or detect misstatements because of inherent limitations, including the possibility of human error or collusion, the circumvention or overriding of controls, or fraud. If we fail to maintain an effective system of internal controls, our business and operating results could be harmed, and we could fail to meet our reporting obligations, which could have a material adverse effect on our business and our share price.

As a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. Section 404 of SOX requires annual management assessments of the effectiveness of our internal controls over financial reporting beginning with ourthis Annual Report for the year ending December 31, 2018.Report. We are in the process of designing, implementing,have designed, implemented and testingtested the internal control over financial reporting required to comply with this obligation, which was and is time consuming, costly, and complicated. We have identified material weaknesses in our internal controls over financial reporting for the fiscal years ended December 31, 2015, 2016 and 2017.2017, one of which has not been remediated as of our fiscal year 2018. If we identify material weaknesses in our internal control over financial reporting in the future or if we are unable to successfully remediate the identified material weaknesses or, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, which could require additional financial and management resources.

We are an emerging growth company and we cannot be certain if (i) the reduced disclosure requirements or (ii) extended transition periods for complying with new or revised accounting standards applicable to emerging growth companies will make our common stock less attractive to investors.

We qualify as an emerging growth company. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company, or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

For as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held bynon-affiliates exceeds $700.0 million as of June 30, (ii) the end of the fiscal year in which we have total annual gross revenues of $1.07 billion or more during such fiscal year, (iii) the date on which we issue more than $1.0 billion innon-convertible debt in a three-year period or (iv) December 31, 2022.

We cannot predict the impact our capital structure may have on our stock price.

In July 2017, S&P Dow Jones, a provider of widely followed stock indices, announced that companies with multiple share classes, such as ours, will not be eligible for inclusion in certain of their indices. As a result, our Class A common stock will likely not be eligible for these stock indices. Additionally, FTSE Russell, another provider of widely followed stock indices, recentlyhas stated that it plans to require new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders. Many investment funds are precluded from investing in companies that are not included in such indices, and these funds would be unable to purchase our Class A common stock. We cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future. ExclusionGiven the sustained flow of investment funds into passive strategies that seek to track certain indexes, exclusion from indices could make our Class A common stock less attractive to investors and, asinvestors. As a result, the market price of our Class A common stock could be adversely affected.

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If financial or industry analysts do not publish research or reports about our business or if they issue inaccurate or unfavorable commentary or downgrade our Class A common stock, our stock price and trading volume could decline.

The trading market for our Class A common stock willmay be influenced by the research and reports that industry or financial analysts publish about us or our business. We do not control these analysts, or the content and opinions included in their reports. As a relatively new public company, we may be slow to attract research coverage, and the analysts who publish information about our Class A common stock willstill have had relatively little experience with our company, which could affect their ability to accurately forecast our results and make it more likely that we fail to meet their estimates. In the event we obtain industry or financial analyst coverage, ifIf any of the analysts who cover us issue an inaccurate or unfavorable opinion regarding our stock price, our stock price would likely decline. In addition, the stock prices of many companies in the technology industry have declined significantly after those companies have failed to meet, or often times exceeded,failed to exceed, the financial guidance publicly announced by the companies or the expectations of analysts. If our financial results fail to meet, or fail to significantly exceed, our announced guidance or the expectations of analysts or public investors, analysts could downgrade our Class A common stock or publish unfavorable research about us. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Future sales of substantial amounts of our Class A common stock may cause our stock price to decline.

Future sales of a substantial number of shares of our Class A common stock, particularly sales by our directors, executive officers and significant stockholders could adversely affect the market price of our Class A common stock and may make it more difficult to sell Class A common stock at a time and price that you deem appropriate. As of December 31, 2017,2018, we had an aggregate of 26,725,48438,348,711 shares of Class A common stock and 36,507,67632,170,732 shares of Class B common stock outstanding.

All of the shares of Class A common stock sold in our initial public offering and June 2018 follow-on public offering are freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act.

A substantial majority our outstanding shares of common stock outstanding prior to our initial public offering are currently restricted from resale as a result of market standoff and“lock-up” agreements.

These shares will become available to be sold in the second quarter of 2018. Shares held by directors, executive officers and other affiliates will beare subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements. In addition, the underwriters may, in their sole discretion, release all or some portion of the shares subject to market standoff orlock-up agreements prior to the expiration of thelock-up period. Sales of a substantial number of such shares upon expiration of the market standoff andlock-up agreements, or the perception that such sales may occur, or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.

We have registered the offer and sale of an aggregate of approximately 15,948,25217,845,247 shares of Class A common stock that have been issued or reserved for future issuance under our equity compensation plans on a FormS-8 registration statement. These shares can be freely sold in the public market upon issuance, subject to the market standoff orlock-up agreements or unless they are held by “affiliates,” as that term is defined in Rule 144 of the Securities Act. Additionally, the number of shares of Class A common stock available for grant and issuance under our 2017 Equity Incentive Plan is subject to an automatic annual increase on January 1 of each year beginning in 2018 by an amount equal to the lesser of (i) 3% of the number of shares of all classes of our common stock outstanding on December 31 of the preceding calendar year or (ii) a lesser number of shares of Class A common stock determined by our board of directors. We also intend to register the offer and sale of any shares of Class A common stock resulting from such increases. If the holders of these shares choose to sell a large number of shares, they could adversely affect the market price for our Class A common stock.

We may also issue shares of our Class A common stock or securities convertible into shares of our Class A common stock from time to time in connection with a financing, acquisition, investment or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our Class A common stock to decline.

The dual class structure of our common stock has the effect of concentrating voting control with certain stockholders who hold shares of our Class B common stock, including our founders, certain of our directors and executive officers and affiliates, who hold in the aggregate approximately 95%90% of the voting power of our capital stock. This will limit or preclude your ability to influence corporate matters, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval.

Our Class B common stock was grantedhas ten votes per share, and our Class A common stock has one vote per share. Our Class B stockholders, including our founders, certain of our directors and executive officers, and affiliates, hold, in the aggregate approximately 95%90% of the voting power of our capital stock. Theten-to-one voting ratio between our Class B and Class A common stock, results in the holders of our Class B common stock collectively controlling a majority of the combined voting power of our common stock and therefore being able to control all matters submitted to our stockholders for approval until 2029, or upon the occurrence of a triggering event at which time all shares of our Class B common stock will automatically convert into shares of our Class A common stock, or on an earlier date, as set forth in our Delaware certificate of incorporation.

This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future, including the election of directors, amendments of our organizational documents, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring stockholder approval. In addition, this may prevent or discourage unsolicited acquisition proposals or offers for our capital stock that you may feel are in your best interest as one of our stockholders.

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Future transfers by holders of our Class B common stock will generally result in those shares converting to Class A common stock, subject to the specific exceptions set forth in our Delaware certificate of incorporation, such as certain transfers effected for estate planning purposes and between or among our founders. The conversion of Class B common stock to Class A common stock will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long-term.

Certain provisions in our charter documents and Delaware law could prevent an acquisition of our company, limit attempts by our stockholders to replace or remove members of our board of directors or current management and may adversely affect the market price of our Class A common stock.

Our Delaware certificate of incorporation and bylaws contain provisions that could delay or prevent a change in control of our company that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions may also prevent or delay attempts by stockholders to replace or remove our current management or members of our board of directors. These provisions include:

providing for a dual class common stock structure for 12 years following the completion of our IPO;

providing for a classified board of directors with staggered three-year terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

authorizing our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval;

the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, our chief executive officer, our president, or a majority vote of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

requiring the affirmative vote of holders of at least 66  2 / 3 % of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to adopt, amend, or repeal provisions of (i) our certificate of incorporation relating to the issuance of preferred stock without stockholder approval, voting rights of our Class A common stock and our Class B common stock, and management of our business, and (ii) our bylaws relating to the ability of stockholders to call a special meeting and amending our bylaws in their entirety, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;

•

requiring the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to adopt, amend, or repeal provisions of (i) our certificate of incorporation relating to the issuance of preferred stock without stockholder approval, voting rights of our Class A common stock and our Class B common stock, and management of our business, and (ii) our bylaws relating to the ability of stockholders to call a special meeting and amending our bylaws in their entirety, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt;

the ability of our board of directors, by majority vote, to amend our bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend our bylaws to facilitate an unsolicited takeover attempt; and

requiring advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time.

These and other provisions in our certificate of incorporation, our bylaws and under Delaware law could discourage potential takeover attempts, reduce the price that investors might be willing to pay for shares of our Class A common stock in the future and result in the market price being lower than it would be without these provisions.

Item 1B. Unresolved Staff Comments

None.

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Item 2. PropertiesProperties

Our corporate headquarters are located in Troy, Michigan. We own our corporate headquarters facility consisting of 132,900 square feet of office space. In addition, we maintain 1721 domestic offices some of which are subject to master leases or subleases with multiyear lease terms in Alabama, Arizona, California, Massachusetts, Michigan, New York, North Carolina, Texas, Virginia, Washington, and Wisconsin. We maintain an office in ArizonaNew York which is leased under an annual lease.

In 2016, we acquired an undeveloped parcel of land adjacent to our headquarters, which we expect to develop over the next few years. In 2010, we acquired 136,000 square feet of industrial space in Troy, Michigan that is now used as the headquarters of our wholly-owned subsidiary toggled. We plan to sell this facility and move toggled into our corporate headquarters building.

We maintain 5260 international offices in Australia, Austria, Brazil, Canada, China, Finland, France, Germany, Greece, India, Israel, Italy, Japan, Malaysia, Mexico, Philippines, Singapore, South Africa, South Korea, Spain, Sweden, Taiwan, the United Kingdom and Vietnam. We lease all of our international facilities and do not own any real property outside of the United States. We expect to add facilities as we grow our employee base and expand geographically. We believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available to accommodate expansion of our operations.

Item 3. Legal Proceedings

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We have received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, enforceability and validity of third party proprietary rights, or to establish and enforce our proprietary rights. The results of any current or future litigation cannot be predicted with certainty and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Swedish Tax Litigation

The Swedish Tax Authorities, or STA, have assessed tax, penalties and interest in the amount of $6.7 million related to the acquisition of Panopticon AB by Datawatch Corporation, or Datawatch, in 2013 for the years 2013, 2014 and 2015. The STA, upon auditing the acquisition transaction, reached a conclusion that post acquisition, certain assets were removed from Sweden, triggering the tax obligation. The STA is also of the opinion that some services related to product development provided to the new parent company in the U.S. were performed by Panopticon AB at a price below market price triggering a tax obligation. Datawatch contested the findings by the STA throughout the audit process and is now contesting the STA position in the first level of administrative courts. An Administrative Court hearing had been set for January 2019; however, upon Altair acquiring Datawatch and engaging new Swedish tax counsel, the Administrative Court agreed to a short postponement. A new hearing date is expected to be established no earlier than May or June of 2019. This tax controversy is a long-standing tax matter related to a unique combination of complex tax laws and regulations coupled with unusual facts and circumstances for which there appears to be little or no precedence in prior case law in this jurisdiction. Ultimate resolution of this matter, which could be several years from this point, inclusive of applicable appellate procedures, will be based upon significant judgment and interpretation by the parties involved, especially as this matter progresses through the court process.

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 contractualnon-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 August 21, 2017, the court granted Altair’s motion to strike the testimony of MSC’s damage expert. On October 11, 2017, the court mooted the remainingpre-trial motions and allowed us to file a motion for summary judgment on the issue of whether MSC can prove 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. No briefing schedule or argument date has been set byThe Sixth Circuit referred the Appeals Court.case to mediation. On August 28, 2018, the parties filed stipulations of dismissal with both the District Court and the Court of Appeals. The matter is settled.

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 4. Mine Safety Disclosures

Not applicable.

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PART II

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information for Common Stock

Our Class A common stock began trading on the Nasdaq Global Select Market under the symbol “ALTR” on November 1, 2017. Prior to that date, there was no public trading market for our Class A common stock.

The following table sets forth for the indicated periods the high and low sales prices of our Class A common stock as reported by the Nasdaq Global Select Market since our initial public offering, or IPO:

		High				Low
Year ended December 31, 2017
Fourth quarter (beginning November 1, 2017)		$	25.59			$	16.55

Our Class B common stock is not listed nor traded on any stock exchange.

Holders

As of December 31, 2017,February 15, 2019, there were 474 registered stockholders of record of our Class A common stock, 54 registered stockholders of record of our Class B common stock, and we believe a substantially greater number of beneficial owners who hold shares through brokers, banks or other nominees.

Dividends

We have never declared or paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future. The terms of our 2017 Credit FacilityAgreement also restrict our ability to pay dividends, and we may also enter into credit agreements or other borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our capital stock. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may deem relevant. There can be no assurance that any dividends will be paid in the future.

Use of Proceeds

Initial public offering

On October 31, 2017, the Registration Statement on FormS-1 (FileNo. 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.

Unregistered Sales of Equity Securities

None.

On October 15, 2018, in connection with the acquisition of SIMSOLID Corporation, a Canadian corporation, or SIMSOLID, the Company issuedto shareholders of SIMSOLID145,000 shares of our Class A common stock and two convertible promissory notes convertible into an aggregate of 41,537 shares of our Class A common stock with a maturity date of October 16, 2021, or the Notes, and obligated itself to issue, pursuant to contractual covenants, an additional 103,463 shares of the Company’s Class A common stock. With respect to the shares issuable pursuant to the Notes, if the principal amounts of the Notes are converted on or after October 16, 2019, the holder of the Note is entitled to one-half of the total shares underlying such Note and if the principal amounts of the Notes are converted on or after October 16, 2020 the holder of the Note is entitled to the total shares underlying the Note. With respect to the shares issuable pursuant to the contractual covenants, or the Deferred Shares, one-half of such shares will be issued on October 16, 2019 and the remaining shares will be issued on October 16, 2020. The Deferred Shares are subject to acceleration in the event of a change of control of us, and therefore may be issued earlier than the dates stated above. The Deferred Shares are also subject to a reduction as a set-off to any indemnification obligations, and therefore all or a portion of the Deferred Shares may not be issued on the dates stated above or at all. The issuance of securities was exempt from registration under the Securities Act of 1933, as amended, or the Securities Act, pursuant to Section 4(a)(2) of the Securities Act. We relied on the written recipients of the shares as to their statuses as “accredited investors” as defined in Rule 501(a) of Regulation D.

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Performance Graph

The following shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any of our other filings under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended..

The graph below compares the cumulative total stockholder return on our Class A common stock with the cumulative total return on the Nasdaq Composite Index and the Nasdaq Computer Index. The graph assumes $100 was invested at the market close on November 1, 2017, which was our initial trading day, in our Class A common stock, the Nasdaq Composite Index and the Nasdaq Computer Index.

Data for the Nasdaq Composite Index and the Nasdaq Computer Index assumes reinvestment of dividends. The offering price of our Class A common stock in our IPO, which had a closing stock price of $18.31, was $13.00 per share.

The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our Class A common stock.

 

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Item 6. Selected Financial Data

The following tables summarize the consolidated financial data for our business. You should read this summary of consolidated financial data in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form10-K. We derived the The consolidated statements of operations data for the fiscal years ended December 31, 2018, 2017 and 2016, and the consolidated balance sheet data as of December 31, 2018 and 2017 are derived from our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The consolidated statements of operations data for the fiscal year ended December 31, 2015, and the consolidated balance sheet data as of December 31, 2017 and 2016 are derived from our audited consolidated financial statements that are not included elsewhere in this Annual Report on Form10-K. Our historical results are not necessarily indicative of the results that may be expected in the future. The summary consolidated financial data in this section are not intended to replace our consolidated financial statements and the related notes, and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this Annual Report on Form10-K.

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		Year ended December 31,
(in thousands, except share data)		2017				2016				2015
Consolidated statements of operations data:
Revenue:
Software		$	244,817			$	223,818			$	205,567
Software related services			35,397				35,770				37,294
Total software			280,214				259,588				242,861
Client engineering services			46,510				47,702				45,075
Other			6,609				5,950				6,193
Total revenue			333,333				313,240				294,129
Cost of revenue:
Software(1)			36,360				31,962				27,406
Software related services			26,888				27,653				30,079
Total software			63,248				59,615				57,485
Client engineering services			38,131				38,106				36,081
Other			5,212				4,879				5,642
Total cost of revenue			106,591				102,600				99,208
Gross profit			226,742				210,640				194,921
Operating expenses:
Research and development(1)			93,234				71,325				62,777
Sales and marketing(1)			79,958				66,086				63,080
General and administrative(1)			87,979				57,202				54,069
Amortization of intangible assets			5,448				3,322				2,624
Other operating income			(6,620	)			(2,742	)			(2,576	)
Total operating expenses			259,999				195,193				179,974
Operating (loss) income			(33,257	)			15,447				14,947
Interest expense			2,160				2,265				2,416
Other expense (income), net			994				(520	)			782
(Loss) income before income taxes			(36,411	)			13,702				11,749
Income tax expense			62,996				3,539				818
Net (loss) income		$	(99,407	)		$	10,163			$	10,931
(Loss) income per share:
Net (loss) income per share attributable to common stockholders, basic(2)		$	(1.89	)		$	0.21			$	0.23
Net (loss) income per share attributable to common stockholders, diluted(2)		$	(1.89	)		$	0.18			$	0.19
Weighted average shares outstanding:
Weighted average number of shares used in computing net (loss) income per share, basic(2)			52,466				48,852				46,609
Weighted average number of shares used in computing net (loss) income per share, diluted(2)			52,466				57,856				58,709
Other financial information:
Net cash provided by operating activities		$	16,431			$	21,385			$	10,838

 

		Year ended December 31,
(in thousands, except share data)		2018 (1)				2017 (1)				2016 (1)				2015 (1)
Consolidated statements of operations data:
Revenue:
License		$	207,164
Maintenance and other services			97,197
Total software			304,361			$	244,817			$	223,818			$	205,567
Software related services			36,945				35,397				35,770				37,294
Total software and related services			341,306				280,214				259,588				242,861
Client engineering services			47,852				46,510				47,702				45,075
Other			7,221				6,609				5,950				6,193
Total revenue			396,379				333,333				313,240				294,129
Cost of revenue:
License			16,119
Maintenance and other services			29,655
Total software (1)			45,774				36,360				31,962				27,406
Software related services			26,415				26,888				27,653				30,079
Total software			72,189				63,248				59,615				57,485
Client engineering services			38,979				38,131				38,106				36,081
Other			4,805				5,212				4,879				5,642
Total cost of revenue			115,973				106,591				102,600				99,208
Gross profit			280,406				226,742				210,640				194,921
Operating expenses:
Research and development (2)			97,592				93,234				71,325				62,777
Sales and marketing (2)			80,277				79,958				66,086				63,080
General and administrative (2)			79,751				87,979				57,202				54,069
Amortization of intangible assets			7,739				5,448				3,322				2,624
Other operating income			(9,597	)			(6,620	)			(2,742	)			(2,576	)
Total operating expenses			255,762				259,999				195,193				179,974
Operating income (loss)			24,644				(33,257	)			15,447				14,947
Interest expense			200				2,160				2,265				2,416
Other (income) expense, net			(2,580	)			994				(520	)			782
Income (loss) before income taxes			27,024				(36,411	)			13,702				11,749
Income tax expense			13,309				62,996				3,539				818
Net income (loss)		$	13,715			$	(99,407	)		$	10,163			$	10,931
Income (loss) per share:
Net income (loss) per share attributable to common stockholders,    basic (2)		$	0.20			$	(1.89	)		$	0.21			$	0.23
Net income (loss) per share attributable to common stockholders,    diluted (2)		$	0.18			$	(1.89	)		$	0.18			$	0.19
Weighted average shares outstanding:
Weighted average number of shares used in computing net income    (loss) per share, basic (3)			67,468				52,466				48,852				46,609
Weighted average number of shares used in computing net income    (loss) per share, diluted (3)			74,878				52,466				57,856				58,709
Other financial information:
Net cash provided by operating activities		$	36,230			$	16,091			$	21,385			$	10,838

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(1)

(1)

The year ended December 31, 2018 has been reported under ASC 606, and the years ended December 31, 2017, 2016, and 2015, have been reported under ASC 605 and have not been adjusted under the modified retrospective approach. See Note 3 in the Notes to consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

(2)	Includes stock-based compensation expense as follows:

		Year ended December 31,
(in thousands)		2017				2016				2015
Cost of revenue—software		$	350			$	22			$	44
Research and development			12,540				1,370				149
Sales and marketing			7,693				775				109
General and administrative			26,698				2,965				295
Total stock-based compensation expense		$	47,281			$	5,132			$	597

 

		Year ended December 31,
(in thousands)		2018				2017				2016				2015
Cost of revenue—software		$	31			$	350			$	22			$	44
Research and development			740				12,540				1,370				149
Sales and marketing			910				7,693				775				109
General and administrative			1,658				26,698				2,965				295
Total stock-based compensation expense		$	3,339			$	47,281			$	5,132			$	597

(2) (3)

See Note 1415 to our consolidated financial statements for an explanation of the method used to calculate basic and diluted net income (loss) income per share attributable to common stockholders.

 

		As of December 31,												As of December 31,
(in thousands)		2017				2016				2015				2018				2017				2016
Consolidated balance sheet data:
Cash and cash equivalents		$	39,213			$	16,874			$	13,756			$	35,345			$	39,213			$	16,874
Working capital		$	(53,575	)		$	(52,902	)		$	(55,097	)		$	26,276			$	(53,575	)		$	(52,902	)
Total assets		$	287,871			$	250,776			$	221,850			$	483,216			$	287,871			$	250,776
Deferred revenue, current andnon-current		$	139,762			$	113,929			$	106,516			$	66,519			$	139,762			$	113,929
Debt		$	410			$	85,241			$	83,177			$	31,748			$	410			$	85,241
Total stockholders’ equity (deficit)		$	60,591			$	(34,653	)		$	(42,039	)		$	286,782			$	60,591			$	(34,653	)

Key metrics

We monitor the following keynon-GAAP, (United States generally accepted accounting principles), financial and operating metrics to help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. In addition to our results determined in accordance with GAAP, we believe the followingnon-GAAP financial and operating metrics are useful in evaluating our operating performance.

Billings.Billings consists of our total revenue plus the change in our deferred revenue, in a givenexcluding deferred revenue from acquisitions during the period. AsGiven that we generally bill our customers at the time of sale but typically recognize a majorityportion 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. While we believe that billingsBillings provides valuable insight into the cash that will be generated from sales of our software and services, this metric may vary fromperiod-to-period for a number of reasons including the impact of changes in foreign currency exchange rates and the potential impact of acquisitions. See the section entitled “Reconciliation ofnon-GAAP financial measures” for a reconciliation of Billings to revenue, the most directly comparable financial measure calculated in accordance with GAAP.

Our Billings were as follows:

 

		Year ended December 31,												Year ended December 31,
(in thousands)		2017				2016				2015				2018				2017				2016
Billings		$	359,166			$	320,653			$	297,358			$	401,913			$	357,212			$	320,299

Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) income 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. We believe that Adjusted EBITDA is a meaningful measure of performance as it is commonly utilized by us and the investment community to analyze operating performance in our industry. See the section entitled “Reconciliation ofnon-GAAP financial measures” for a reconciliation of Adjusted EBITDA to net income (loss) income,, the most directly comparable financial measure calculated in accordance with GAAP.

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Our Adjusted EBITDA was as follows:

 

		Year ended December 31,												Year ended December 31,
(in thousands)		2017				2016				2015				2018				2017				2016
Adjusted EBITDA		$	22,517			$	30,830			$	22,949			$	50,180			$	22,517			$	30,830

Free Cash Flow. Free Cash Flow is anon-GAAP financial measure that we calculate as cash flow provided by operating activities less capital expenditures. We believe that Free Cash Flow is useful in analyzing our ability to service and repay debt, when applicable, and return value directly to stockholders. See the section entitled “Reconciliation ofnon-GAAP financial measures” for a reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP.

Our Free Cash Flow was as follows:

 

		Year ended December 31,												Year ended December 31,
(in thousands)		2017				2016				2015				2018				2017				2016
Free Cash Flow		$	8,569			$	11,941			$	5,605			$	29,571			$	8,569			$	11,941

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 subscriptions, maintenance and perpetual license billings from all customers for that period. For the years ended December 31, 2018, 2017 2016 and 2015,2016, our recurring software license rate was 89%, 90%89% and 88%90%, respectively.

Thesenon-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures included in the tables below, may provide a more complete understanding of factors and trends affecting our business. Thesenon-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 thenon-GAAP measures disclosed herein are only useful as an additional tool to help management and investors make informed decisions about our financial and operating performance and liquidity. By definition,non-GAAP measures do not give a full understanding of the Company. To be truly valuable, they must be used in conjunction with the comparable GAAP measures. In addition,non-GAAP financial measures are not standardized. It may not be possible to compare these financial measures with other companies’non-GAAP financial measures having the same or similar names. We strongly encourage investors to review our consolidated financial statements and the notes thereto in their entirety and not to rely on any single financial measure.

Reconciliation ofnon-GAAP financial measures

The following tables provide reconciliations of revenue to Billings, net income (loss) income to Adjusted EBITDA and net cash provided by operating activities to Free Cash Flow:

Billings

 

		Year ended December 31,												Year ended December 31,
(in thousands)		2017				2016				2015				2018				2017				2016
Revenue		$	333,333			$	313,240			$	294,129			$	396,379			$	333,333			$	313,240
Ending deferred revenue			139,762				113,929				106,516				66,519				139,762				113,929
Adoption of ASC 606 on beginning deferred revenue															82,909				—				—
Beginning deferred revenue			(113,929	)			(106,516	)			(103,287	)			(139,762	)			(113,929	)			(106,516	)
Acquisition related deferred revenue															(4,132	)			(1,954	)			(354	)
Billings		$	359,166			$	320,653			$	297,358			$	401,913			$	357,212			$	320,299

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Adjusted EBITDATable of Contents

 

		Year Ended December 31,
(in thousands)		2017				2016				2015
Net (loss) income		$	(99,407	)		$	10,163			$	10,931
Income tax expense			62,996				3,539				818
Stock-based compensation			47,281				5,132				597
Interest expense			2,160				2,265				2,416
Interest income and other(1)			(2,260	)			(249	)			(191	)
Depreciation and amortization			11,747				9,980				8,378
Adjusted EBITDA		$	22,517			$	30,830			$	22,949

Adjusted EBITDA

 

		Year Ended December 31,
(in thousands)		2018				2017				2016
Net income (loss)		$	13,715			$	(99,407	)		$	10,163
Income tax expense			13,309				62,996				3,539
Stock-based compensation			3,339				47,281				5,132
Interest expense			200				2,160				2,265
Interest income and other (1)			4,883				(2,260	)			(249	)
Depreciation and amortization			14,734				11,747				9,980
Adjusted EBITDA		$	50,180			$	22,517			$	30,830

(1)

Includes for the year ended December 31, 2018 a) nonrecurring costs from the acquisition of Datawatch of $10.4 million, b) gain on the sale of a building of $4.4 million and c) impairment charges for royalty contracts and trade names resulting in $2.8 million of expense. Includes for the years ended December 31, 2018 and 2017, a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income forin each year.

		Three months ended
		ASC 606
(in thousands)		March 31, 2018				June 30, 2018				September 30, 2018				December 31, 2018
Net income (loss)		$	24,684			$	(1,080	)		$	934			$	(10,823	)
Income tax expense			2,345				1,387				1,885				7,692
Stock-based compensation			216				434				563				2,126
Interest expense			16				45				31				108
Interest income and other (1)			(1,255	)			536				(4,384	)			9,986
Depreciation and amortization			3,543				3,982				3,370				3,839
Adjusted EBITDA		$	29,549			$	5,304			$	2,399			$	12,928

(1)	Includes the year ended December 31, 2017.following items:

March 31, 2018 includes a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income and an impairment charge for royalty contracts resulting in $0.9 million of expense.

June 30, 2018 includes an impairment charge for royalty contracts resulting in $0.9 million of expense.

September 30, 2018 includes a gain on the sale of a building for $4.4 million and an impairment charge for royalty contracts and trade names resulting in $0.8 million of expense.

December 31, 2018 includes a non-recurring costs from the acquisition of Datawatch of $10.4 million and an impairment charge for royalty contracts resulting in $0.2 million of expense.

Free Cash Flow

 

		Year ended December 31,												Year ended December 31,
(in thousands)		2017				2016				2015				2018				2017				2016
Net cash provided by operating activities		$	16,091			$	21,385			$	10,838			$	36,230			$	16,091			$	21,385
Capital expenditures			(7,522	)			(9,444	)			(5,233	)			(6,659	)			(7,522	)			(9,444	)
Free Cash Flow		$	8,569			$	11,941			$	5,605			$	29,571			$	8,569			$	11,941

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Item 7.Management’s7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements (and notes thereto) for the year ended December 31, 20172018 included elsewhere in this Annual Report on Form10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Risk factors” and “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Annual Report on Form10-K.

Overview

We are a leading providerglobal technology company providing software and cloud solutions in the areas of enterprise-class engineering software enabling innovationproduct design and development, high performance computing, or HPC, and data intelligence. We enable organizations across the entire product lifecycle from concept designbroad industry segments toin-service operation. compete more effectively in a connected world while creating a more sustainable future.

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 analyticsintelligence andtrue-to-life visualization and rendering.

Our engineeringAltair’s software products represent a comprehensive, open architecture solution for simulation, data intelligence and cloud computing to empower decision making for improved product development, manufacturing, energy management and exploration, financial services, health care, and retail operations. We believe our products offer a comprehensive set of technologies to design platform offers a wide range of multi-disciplinary computer aided engineering, or CAE, solutions which we believe is one of the mostand optimize high performance, efficient, innovative and comprehensive offerings availablesustainable products and processes 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:

an increasingly connected world. Our products are categorized by:

Solvers & Optimization;

Design, Modeling & Visualization;

Physics Simulation;

Industrial & Concept Design;

Data Intelligence;

High Performance Cloud Computing; and

Internet of Things, or IoT; andIoT.

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.

We had total revenue of $333.3 million, $313.2 million and $294.1 million for the years ended December 31, 2017, 2016 and 2015, respectively, reflecting year-over-year increases of 6% and 7%. We had a net loss of $99.4 million for the year ended December 31, 2017, and generated net income of $10.2 million and $10.9 million for the years ended December 31, 2016 and 2015, respectively.

Our business model

WeAltair pioneered a patented units-based subscription licensing subscription model for software and other digital content. This units-based subscription licensing model allows flexible and shared access to our offerings, along with over 150 partner products. Our HyperWorks customers license a pool of units for their organizations which allowsgiving individual users within the organization to have flexible and shared access to our entire portfolio of software applications along with over 150as well as our growing portfolio of partner products. Our primarily mid-market solidThinking customers have access to a subset of the portfolio at a lower price point. We believe our units-based subscription licensing model lowers barriers to adoption, creates broad engagement, encourages users to work within our ecosystem, and increases revenue. This, in turn, helps drive our recurring software license rate which has been on average approximately 88% over the past five years. Each yearIn each of the last three fiscal years, approximately 60% of new software revenue comes from expansion within existing customers.

Initial public offering

On November 3, 2017, we closed our 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. We received net proceeds of $114.4 million, after deducting underwriting discounts, commissions and offering expenses.

Follow-on public offering

On June 11, 2018, we closed our follow-on public offering and sold 4,056,004 shares of our Class A common stock at a public offering price of $35.00 per share for an aggregate offering price of approximately $142.0 million. We received net proceeds of $135.2 million, after deducting underwriting discounts, commissions and offering expenses.

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The follow-on public 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 Class B common stock into an equivalent number of shares of Class A common stock, and the exercise of 257,000 options to purchased Class A common stock. We 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. See Part I, Item 1A. – Risk Factors included elsewhere in this Annual Report on Form10-K.

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 fromquarter-to-quarter which may cause our reported results to fluctuate significantly. In addition, we may choose to grow our business for the long-term rather than to optimize for profitability or cash flows for a particular shorter-term period. This seasonality or the occurrence of any of the factors above may cause our results of operations to vary and our financial statements may not fully reflect the underlying performance of our business.

Integration of recent acquisitions

We believe that our recent acquisitions result in certain benefits, including expanding our portfolio of software and products and enabling us to better serve our customer’s requests for data intelligence and simulation technology. However, to realize some of these anticipated benefits, the acquired businesses must be successfully integrated. The success of these acquisitions will depend in part on our ability to realize these anticipated benefits. We may fail to realize the anticipated benefits of these acquisitions for a variety of reasons.

Foreign currency fluctuations

Because of our substantial international operations, we are exposed to foreign currency risks that arise from our normal business operations, as well as 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 year ended December 31, 2017,2018, as compared to the year ended December 31, 2016.2017. To present this information, the results for 20172018 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 2016.2017. These adjusted amounts are then compared to our current period reported amounts to provide operationally driven variances in our results.

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

 

(in thousands)		Year ended December 31, 2017				Year ended December 31, 2018
Revenue		$	967			$	4,027
Adjusted EBITDA		$	(474	)		$	1,422

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 suite of data intelligence products 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

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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.

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, data intelligence and analysis products, high performance computing, or HPC, software applications and hardware products, IoT platform and analytics tools 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 from the component level up to complete product engineering at any stage of the lifecycle.

•

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, 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 from the component level up to complete product engineering.

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

•

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 which do not meet the criteria to be separate reportable segments are combined and reported as “Other” which represents innovative services and products, including toggled, our LED lighting business. toggled is focused on developing and selling next-generation solid state lighting technology along with communication and control protocols based on our intellectual property for the direct replacement of fluorescent light tubes with LED lamps. 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 1920 in the Notes to consolidated financial statements in Item 15, Part IV of this Annual Report on Form 10-K.

Adoption of ASC 606

Effective January 1, 2018, we adopted ASC 606 as a result of no longer qualifying as an Emerging Growth Company. The adoption of ASC 606 accelerates the recognition of revenues compared to ASC 605. 10-K.Under ASC 605, we did not have vendor-specific objective evidence, or VSOE, of fair value for post-contract customer support, or PCS, sold along with software products licenses; therefore, revenues for the software products licenses (including perpetual licenses), PCS and professional services, if applicable, were considered to be one accounting unit and, once all services have commenced, were recognized ratably over the remaining period of the arrangement (the longer of the contractual service term or PCS term). Under ASC 606, the concept of assessing VSOE has been eliminated and we determined standalone selling price and allocated transaction price associated with each performance obligation within an arrangement. As a result, the timing of revenue recognition was accelerated because license revenue will be recognized at a point in time, rather than over time.

Results for reporting periods beginning on or after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with ASC 605, and other industry specific guidance. The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 requires an entity to evaluate revenue recognition by identifying a contract with a customer, identifying

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the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract, and recognizing revenue when (or as) the entity satisfies a performance obligation. Topic 606 also includes Subtopic 340-40 which provides accounting guidance for incremental costs of obtaining a contract with a customer. We refer to Topic 606 and Subtopic 340-40 collectively as “ASC 606.”  

		Year Ended December 31, 2018
(dollars in thousands)		As Reported under ASC 606				Adjustments for ASC 606				ASC 605
Revenue		$	396,379			$	11,317			$	385,062
Gross profit		$	280,406			$	11,317			$	269,089
Net income		$	13,715			$	10,816			$	2,899
Adjusted EBITDA		$	50,180			$	11,653			$	38,527

We had total revenue of $396.4 million, $333.3 million and $313.2 million for the years ended December 31, 2018, 2017 and 2016, respectively, reflecting year-over-year increases of 19% and 6%. The net increase in software revenue due to the adoption of ASC 606 was $11.3 million for the year ended December 31, 2018. Excluding the impact of ASC 606, revenue increased 16% for the year ended December 31, 2018. We reported net income of $13.7 million for the year ended December 31, 2018, a net loss of $99.4 million for the year ended December 31, 2017, and net income of $10.2 million for the year ended December 31, 2016.

The following table set forth selected quarterly information. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods in accordance with GAAP.

		Three months ended
		ASC 606
(in thousands)		March 31, 2018				June 30, 2018				September 30, 2018				December 31, 2018
Software product revenue		$	89,670			$	70,606			$	64,182			$	79,903
Total revenue		$	113,257			$	93,360			$	86,751			$	103,011
Net income (loss)		$	24,684			$	(1,080	)		$	934			$	(10,823	)
Adjusted EBITDA		$	29,550			$	5,303			$	2,399			$	12,928

Components of results of operations

Revenue

We primarily derive revenue from the licensing of our software, which includes our units-based subscription licensing model and for term and perpetual software and other digital content, other software licensing, andlicenses, as well as software related services. Our CES business derives revenue from providing engineers and data scientists to support our customers’ long-term, ongoing product design and development projects.

Software segment

Software segment revenue consists of revenue from software licenses and software related services including consulting, implementation services, training, and support. 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.

Software

Software revenue is principally comprised of subscription license agreements, typically with12-month terms, which include maintenancelicenses, and support. Software revenue is also comprised ofto a lesser extent, perpetual license agreements,licenses and associated maintenance and support agreements. Wefees. Subscriptions are typically governed by contracts with annual terms which include product updates, maintenance and support. With the adoption of ASC 606, we generally recognize software license revenue ratablyup front, while maintenance and support revenue is generally recognized over the periodterm of the arrangement. Each year approximately 60% of our new revenue comes from expansion within existing customers.contract.

Software related services

Software related services includes consulting, implementation services and training. Our software related services team is comprised of almost 700350 highly technical people globally. We focus on establishing a strong working relationship with the user community

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allowing us to offer guidance and expertise throughout their product creation process. We generally recognize revenue for software related services on a time and materials or, for fixed price arrangements, on a proportional performance basis.as those services are performed.

Client engineering services segment

We provide CES to support our customers with long-term, ongoing product design and development expertise. We operate our CES business by hiring engineers and data scientists for placement at a customer site for specific customer-directed assignments. We employ and pay the engineersthem only for the duration of the placement.

Our CES business generates revenue from placing simulation specialists, industrial designers, design engineers, materials experts, development and test engineers, manufacturing engineers, and information technology specialists and data scientists on-site with our customers in businesses operating in the virtual simulation, product design and development, software development, and high-performance computing and data intelligence spaces. We recognize CES revenue based upon hours worked and contractually agreed-upon hourly rates.

The average CES assignment was 1.5 years during the period from 2011 through 2017, with a current average length of service for all CES employees of 1.9 years. As of December 31, 2017, 53% of CES employees were in their assignments for over two years. The terms of our CES arrangements generally provide that our customers pay us within 30 days of invoice. The amount and timing of CES revenue depends on our customers demand for engineering services and the number of available qualified employees to service our customers’ needs.

Other

Our Other revenue consists primarily of revenue related to our LED lighting business operated out of our wholly-owned subsidiary, toggled. toggled designs, and sources through contract manufacturers, and assembles in our own facilities, LED lighting and related products for sale to consumers and businesses. We also generate revenue through royalties from licensing ourtoggled technology to third party manufacturers and resellers.

Cost of revenue

Software segment

Cost of software revenue consists of expenses related to software licensing, hardware sales and customer support. Significant expenses include employee compensation and related costs for support team members, travel costs, and royalties for third-party software products available to customers through our products or as part of our APA.

Software

Cost of software revenue consists of the cost of personnel and related costs, such as salaries, benefits, bonuses and stock-based compensation, as well as travel expenses, hardware costs and certain data center and facility costs, and substantially all royalty expenses.

Software related services

Cost of software related services revenue consists of the cost of personnel and related costs, such as salaries, benefits, bonuses and stock-based compensation, as well as travel expenses and certain data center and facility costs.

Cost of client engineering services

Cost of engineering services revenue consists primarily of employee compensation and related costs. We operate our CES business by hiring engineers for placement at a customer site for specific customer-directed assignments. We employ and pay the engineersthem only for the duration of the placement.placement at a customer site.

Cost of other

Cost of other revenue includes the cost of LED lighting products and freight related to products sold to retail and commercial sales channels and third-party royalty expense related to our WEYV business.channels.

Operating expenses

Operating expenses, as defined and discussed below, support all the products and services that we provide to our customers and, as a result, they are presented in an aggregate total.

Research and development

Research and development expenses consist primarily of expenses ofemployee compensation and related costs associated with our development team, including salaries, benefits, bonuses, stock-based compensation expense and allocated overhead costs. Our research and development efforts are focused on enhancing the functionality, breadth and scalability of our software, addressing new use cases, and developing additional innovative simulation technologies. Timely development of new products is essential to maintaining our competitive position, and we release new versions of our software on a regular basis. All software development costs are expensed as incurred as our current software development process is essentially completed concurrent with the establishment of technological feasibility.

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Sales and marketing

Sales and marketing expenses consist primarily of the cost of personnelemployee compensation and related costs associated with our sales and marketing staff, including salaries, benefits, bonuses, commissions and stock-based compensation, andas well as costs relating to our marketing and business development programs including trade shows and events. We intend to continue to invest resources in our sales and marketing initiatives to drive growth and extend our market position.

General and administrative

General and administrative expenses consist of personnel costsemployee compensation and related expensescosts for executive, finance, legal, human resources, recruiting, and employee-related information technology and administrative personnel, including salaries, benefits, bonuses and stock-based compensation expense, professional fees for external legal and accounting services, depreciation, facilities, recruiting and other consulting services, allocated overhead costs, and legal settlements.

services.

Amortization of intangible assets

Amortization of intangible assets consists primarily of amortization of intangibles associated with acquisitions. We expect to incur additional amortization expenses resulting from future strategic acquisitions.

Other operating income

Other operating income consists primarily of government subsidies, primarily in France, in the form of grant income associated with certain of our research and development activities.activities and other items as disclosed.

Interest expense

Interest expense consists of interest expense on our outstanding indebtedness and accretionamortization of interest expense on debt issuance costs.

Other (income) expense, (income), net

Other (income) expense, (income), net is comprised primarily of foreign currency exchange gains and losses generated from the settlement and remeasurement of transactions denominated in currencies other than the functional currency of our operating units.units and interest income on invested cash.

Income tax expense

Income tax expense is comprised primarily of income taxes related to United States, foreign, and state jurisdictions in which we conduct business. We record interest and penalties related to income tax matters as income tax expense. We expect the amount of income tax expense (benefit), if any, to vary each reporting period depending upon fluctuations in our income.quantum and tax jurisdictional mix of income (loss). We have substantial United States net operating loss carryforwards with no expiration period for losses generated 2018 onwards, and tax credit carryforwards which if not utilized, will beginbegan to expire in 2018. The ability to utilize these tax credit carryforwardsattributes is highly dependent upon our ability to generate taxable income in the United States in the future.

Our future effective annual tax rate may be materially impacted by the amount of benefits and charges from tax amounts associated with our foreign earnings that are taxed at rates different from the federal statutory rate, the taxation of the foreign earnings in the U.S. under the Global Intangible Low-Taxed Income, or GILTI, regime, changes in valuation allowances, level of profit before tax, accounting for uncertain tax positions, stock-based compensation, business combinations, closure of statute of limitations, or settlements of tax audits, and changes in tax laws including United States tax law changes that were enacted in December 2017, and change how United States multinational companies are taxed on foreign subsidiary earnings.2017. A significant amount of our earnings is generated in theour EMEA and APAC regions. Our future effective tax rates may be adversely affected to the extent earnings are lower than anticipated in countries where we have lower statutory tax rates or we repatriate certain foreign earnings on which United States taxes have not previously been provided.rates.

As of December 31, 20172018 and 2016,2017, we had gross deferred tax assets, or DTAs, of $73.6$92.6 million and $75.0$73.6 million, respectively, primarily related to net operating loss carryforwards, tax credits, share-based compensation, deferred revenue, and capitalized research and development expenses. We are also entitled to a United States federal tax deduction whennon-qualified stock options, or NSOs, are exercised. In connection with our IPO, a significant number of our NSOs were exercised, resulting in a tax deduction for United States income tax purposes. This deduction, in conjunction with other expected exercises of NSOs and deferred tax asset reversals, resulted in our needing to establish a valuation allowance for $47.0 million in 2017 for the United States DTAs. Our ability to utilize any net operating losses or tax credits may be limited under provisions of the Code if we undergo an ownership change after our IPO (generally defined as a greater than50-percentage point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year period). We also inherited net operating losses, or NOLs, from the acquisition of Datawatch, which are subject to specific limitations on usage. We may also be unable to realize our tax credit carryforwards as they beginwhich began to expire in 2018.

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Based on the evidence available, including a lack of taxable earnings in the United States, we recorded a valuation allowance against substantially all of our net deferred tax assets in the United States. If a change in judgment regarding this valuation allowance were to occur in the future, we will record a potentially material deferred tax benefit, which could result in a favorable impact on our effective tax rate in that period. The utilization of tax attributes to offset taxable income reduces the amount of deferred tax assets subject to a valuation allowance.

The enactment of the Tax Cuts and Jobs Act, (the “Tax Act”) inor the United StatesTax Act, was enacted on December 22, 2017, significantly revised2017. The Tax Act reduces the U.S. federal corporate income tax by, among other things, lowering corporate income tax ratesrate from 35% to 21% and imposing, requires companies to pay aone-time transition tax on deemed repatriated earnings of certain foreign subsidiaries. Pursuant tosubsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Previously, we applied the guidance within SECin Staff Accounting Bulletin No. 118, (“SAB 118”), asIncome Tax Accounting Implications of the Tax Cut and Jobs Act when accounting for the enactment-date effects of the Tax Act. At December 31, 2018, we have completed our accounting for the tax effects of the Tax Act; we have not recorded any adjustments to the provisional amounts recorded at December 31, 2017 related to the remeasurement of our deferred balances. At December 31, 2017, we recognizedoriginally recorded a provisional amount for its one-time transition tax of $4.2 million, which was substantially offset by available foreign tax credits. During the year ended December 31, 2018, we revised our estimate of the provisional effectsamount of the enactmentone-time transition tax. Upon further analyses of the Tax Act for which measurement could be reasonably estimated. Although we continue to analyze certain aspects of the Tax Act and refinerefinement of its assessment,calculations, we increased our provisional amount of transition tax by approximately $0.6 million. This resulted in no change to income tax expense due to the ultimate impact of theforeign tax credits.

The Tax Act may differ from these estimatessubjects a U.S. shareholder to current tax on Global Intangible Low-Taxed Income, or GILTI, earned by certain foreign subsidiaries. The impact of GILTI resulted in no incremental tax expense for the year ended December 31, 2018 due to our continued analysis or further regulatory guidance that may be issued as a result of the Tax Act. Pursuant to SAB 118, adjustments to the provisional amounts recorded by the Company as of December 31, 2017, that are identified within a subsequent measurement period of up to one year from the enactment date, will be included as an adjustment to tax expense from continuing operations in the period the amounts are determined.

We remeasured certainfull valuation allowance on U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of net deferred tax assets and deferred tax liabilities was a net tax charge of $15.4 million, which was fully offset byassets. In addition, we have made an adjustmentaccounting policy election to the valuation allowance. Additionally, we recorded a deferred tax benefit of $1.3 million for the reduction of a deferred tax liability related to an indefinite lived intangible asset. The Tax Act did not change our judgment regarding the realizability of these net deferred tax assets.

Theone-time transition tax is based on our total post-1986 earnings and profits (“E&P”) that were previously deferred from U.S. incometreat taxes and for which no deferred taxes were recorded since we previously claimed the indefinite reinvestment assertion exception on these earnings. In December 2017, we recorded a provisional amount for ourone-time transition tax liability of $4.2 million, net of foreign tax credits. We have not yet completed our calculation of the total post-1986 E&P and associated foreign tax credits for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation, and finalize the amounts held in cash or other specified assets. We anticipate that additional guidance and clarification regarding the implementation of the transition tax will be issued by federal and state taxing authorities and our estimate is, therefore, subject to future refinement. No additional income taxes (other than those related to the foreign earnings inclusion taxabledue under the transition tax) have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities,GILTI provision as these amounts provisionally continue to be indefinitely reinvested in foreign operations. We continue to apply ASC 740 based on the provisionsa current period expense.

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Table of the tax laws that were in effect immediately prior to the Tax Act being enacted since we cannot complete our analysis of whether a change in our indefinite reinvestment assertion would occur until additional guidance is available and the transition tax liability computation is complete.Contents

Additional guidance is likely to be issued providing further clarification on the application of the Tax Act. Further, it is reasonable to expect that global taxing authorities will be reviewing current legislation for potential modifications in reaction to the implementation of the U.S. legislation. This additional guidance, along with the potential for additional global tax legislation changes, could have a material adverse impact on our net income and cash flow by impacting significant deductions or income inclusions.

Results of operations

The following table sets forth our results of operations and certain financial data for the years ended December 31, 2018, 2017 2016 and 2015:2016:

 

		Year ended December 31,												Year ended December 31,
(in thousands)		2017				2016				2015				2018 (1)				2017 (1)				2016 (1)
Revenue:
Software		$	244,817			$	223,818			$	205,567
License														$	207,164
Maintenance and other services															97,197
Total software															304,361			$	244,817			$	223,818
Software related services			35,397				35,770				37,294				36,945				35,397				35,770
Total software and related services															341,306				280,214				259,588
Client engineering services															47,852				46,510				47,702
Other															7,221				6,609				5,950
Total revenue															396,379				333,333				313,240
Cost of revenue:
License															16,119
Maintenance and other services															29,655
Total software															45,774				36,360				31,962
Software related services															26,415				26,888				27,653
Total software			280,214				259,588				242,861				72,189				63,248				59,615
Client engineering services			46,510				47,702				45,075				38,979				38,131				38,106
Other			6,609				5,950				6,193				4,805				5,212				4,879
Total revenue			333,333				313,240				294,129
Cost of revenue:
Software			36,360				31,962				27,406
Software related services			26,888				27,653				30,079
Total software			63,248				59,615				57,485
Client engineering services			38,131				38,106				36,081
Other			5,212				4,879				5,642
Total cost of revenue			106,591				102,600				99,208				115,973				106,591				102,600
Gross profit			226,742				210,640				194,921				280,406				226,742				210,640
Operating expenses:
Research and development			93,234				71,325				62,777				97,592				93,234				71,325
Sales and marketing			79,958				66,086				63,080				80,277				79,958				66,086
General and administrative			87,979				57,202				54,069				79,751				87,979				57,202
Amortization of intangible assets			5,448				3,322				2,624				7,739				5,448				3,322
Other operating income			(6,620	)			(2,742	)			(2,576	)			(9,597	)			(6,620	)			(2,742	)
Total operating expenses			259,999				195,193				179,974				255,762				259,999				195,193
Operating (loss) income			(33,257	)			15,447				14,947
Operating income (loss)															24,644				(33,257	)			15,447
Interest expense			2,160				2,265				2,416				200				2,160				2,265
Other expense (income), net			994				(520	)			782
(Loss) income before income taxes			(36,411	)			13,702				11,749
Other (income) expense, net															(2,580	)			994				(520	)
Income (loss) before income taxes															27,024				(36,411	)			13,702
Income tax expense			62,996				3,539				818				13,309				62,996				3,539
Net (loss) income		$	(99,407	)		$	10,163			$	10,931
Net income (loss)														$	13,715			$	(99,407	)		$	10,163
Other financial information:
Billings(1)		$	359,166			$	320,653			$	297,358
Adjusted EBITDA(2)		$	22,517			$	30,830			$	22,949
Billings (2)														$	401,913			$	357,212			$	320,299
Adjusted EBITDA (3)														$	50,180			$	22,517			$	30,830
Net cash provided by operating activities		$	16,091			$	21,385			$	10,838			$	36,230			$	16,091			$	21,385
Free Cash Flow(3)		$	8,569			$	11,941			$	5,605
Free Cash Flow (4)														$	29,571			$	8,569			$	11,941

 

(1)

The year ended December 31, 2018 has been reported under ASC 606, and the years ended December 31, 2017 and 2016, have been reported under ASC 605 and have not been adjusted under the modified retrospective approach. See Note 3 in the Notes to consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

(2)

Billings consists of our total revenue plus the change in our deferred revenue.revenue, excluding deferred revenue from acquisitions. For more information about Billings and our othernon-GAAP financial measures and reconciliations of ournon-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, see Item 6, Selected Financial Data of this Annual Report on Form10-K.

(2) (3)

We define Adjusted EBITDA as net income (loss) income 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 othernon-GAAP

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financial measures and reconciliations of ournon-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP, see Item 6, Selected Financial Data of this Annual Report on Form10-K.

(3) (4)

We define Free Cash Flow as net cash provided by operating activities less capital expenditures. For a reconciliation of Free Cash Flow seeReconciliation ofnon-GAAPto the most directly comparable financial measuresmeasure calculated and presented in accordance with GAAP, see Item 6, Selected Financial Data of this Annual Report on Form10-K.

The following table sets forth our revenue growth on a constant currency basis for the year ended December 31, 20172018 compared to the year ended December 31, 2016:2017:

 

		Year ended December 31,								Change				Constant currency change(1)				Year ended December 31,								Change				Constant currency change (1)
(dollars in thousands)		2017				2016				%				%				2018 (2)				2017 (2)				%				%
Revenue:
Software		$	244,817			$	223,818				9%				9%			$	304,361			$	244,817				24	%			23	%
Software related services			35,397				35,770				(1%	)			(1%	)			36,945				35,397				4	%			2	%
Total software			280,214				259,588				8%				8%
Total software and related services																			341,306				280,214				22	%			20	%
Client engineering services			46,510				47,702				(3%	)			(3%	)			47,852				46,510				3	%			3	%
Other			6,609				5,950				11%				11%				7,221				6,609				9	%			9	%
Total revenue		$	333,333			$	313,240				6%				6%			$	396,379			$	333,333				19	%			18	%

_____________________________

(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.

(2)

The year ended December 31, 2018 has been reported under ASC 606, and the year ended December 31, 2017, has been reported under ASC 605 and has not been adjusted under the modified retrospective approach. See Note 3 in the Notes to consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Years ended December 31, 2018 and 2017

Revenue

Total revenue increased by $63.0 million, or 19%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. This increase was primarily attributable to an increase in subscription and software revenue, along with the impact of the adoption of ASC 606.

Software segment

Software

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Software revenue		$	304,361			$	244,817			$	59,544				24	%
As a percent of software segment revenue			89	%			87	%
As a percent of consolidated revenue			77	%			73	%

Software revenue increased by $59.5 million, or 24%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. The increase in software revenue due to the adoption of ASC 606 was $11.3 million, primarily derived from revenue related to software licenses recognized at a point in time under ASC 606 that were historically recognized over time.  Excluding the adoption of ASC 606, software revenue increased $48.2 million, or 20%. This increase was primarily the result of an expansion in the number of units licensed by our existing customers under renewed software license agreements, licensing of units to new customers pursuant to new software license agreements, and, to a lesser extent, revenue attributable to recent acquisitions.

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Software related services

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Software related services revenue		$	36,945			$	35,397			$	1,548				4	%
As a percent of software segment revenue			11	%			13	%
As a percent of consolidated revenue			9	%			11	%

Software related services revenue increased $1.5 million, or 4% for the year ended December 31, 2018, as compared to the year ended December 31, 2017. This increase was primarily the result of increased revenue from consulting services.

Client engineering services segment

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Client engineering services revenue		$	47,852			$	46,510			$	1,342				3	%
As a percent of consolidated revenue			12	%			14	%

CES revenue increased by $1.3 million, or 3%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. The increase is primarily related to the growth in the number of placements at our customers.

Other

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Other revenue		$	7,221			$	6,609			$	612				9	%
As a percent of consolidated revenue			2	%			2	%

Other revenue increased $0.6 million, or 9% for the year ended December 31, 2018, as compared to the year ended December 31, 2017. This increase was primarily due to increased demand and volume sales of toggled LED lighting tubes.

Cost of revenue

Software segment

Software

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Cost of software revenue		$	45,774			$	36,360			$	9,414				26	%
As a percent of software revenue			15	%			15	%
As a percent of consolidated revenue			12	%			11	%

Cost of software revenue increased by $9.4 million, or 26%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. This increase was due to increased employee compensation and related costs of $2.8 million, increased third party royalty costs of $1.2 million for software programs and $5.7 million in costs associated with the operations of recent acquisitions completed after the end of the previous fiscal year.

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Software related services

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Cost of software related services revenue		$	26,415			$	26,888			$	(473	)			(2	%)
As a percent of software related services revenue			71	%			76	%
As a percent of consolidated revenue			7	%			8	%

Cost of software related services revenue decreased by $0.5 million, or 2%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. The decrease in the current year period was due to a reduction in headcount driven by improved utilization of existing personnel.

Client engineering services segment

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Cost of client engineering services revenue		$	38,979			$	38,131			$	848				2	%
As a percent of client engineering services segment revenue			81	%			82	%
As a percent of consolidated revenue			10	%			11	%

Cost of CES revenue increased $0.8 million, or 2%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. This increase was due to higher compensation expenses associated with a larger number of placements hired to meet customer demand.

Other

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Cost of other revenue		$	4,805			$	5,212			$	(407	)			(8	%)
As a percent of other revenue			67	%			79	%
As a percent of consolidated revenue			1	%			2	%

Cost of other revenue decreased by $0.4 million, or 8%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. This decrease is due to a $0.7 million decrease in third party royalties, partially offset by a $0.3 million increase in manufacturing costs for toggled, our LED lighting business, driven by the increase in the number of units sold during 2018.

Gross profit

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Gross profit		$	280,406			$	226,742			$	53,664				24	%
As a percent of consolidated revenue			71	%			68	%

Gross profit increased by $53.7 million, or 24%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. This increase in gross profit was primarily attributable to the growth of our software revenue of $59.5 million driven by the factors described above, including the increase in software revenue due to the adoption of ASC 606 of $11.3 million. Excluding the impact of the adoption of ASC 606, gross profit increased by 19% from the prior year.

Operating expenses

Operating expenses, as discussed below, support all products and services that we provide to our customers and, as a result, they are reported and discussed here in an aggregate total.

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Research and development

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Research and development		$	97,592			$	93,234			$	4,358				5	%
As a percent of consolidated revenue			25	%			28	%

Research and development expenses increased by $4.4 million, or 5%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. This increase was primarily attributable to higher employee compensation and related costs of $15.2 million, resulting from annual compensation adjustments and an increase in our headcount, a significant portion due to acquisitions and a $0.6 increase in third party software maintenance expense. This increase was largely offset by a decrease in stock-based compensation expense of $11.8 million.

Sales and marketing

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Sales and marketing		$	80,277			$	79,958			$	319				—	%
As a percent of consolidated revenue			20	%			24	%

Sales and marketing expenses were essentially unchanged for the year ended December 31, 2018, as compared to the year ended December 31, 2017. While flat on an aggregate basis, an increase in employee compensation and related expenses of $6.8 million resulting from annual compensation adjustments and increased headcount, was offset by a decrease in stock-based compensation expense of $6.8 million.

General and administrative

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
General and administrative		$	79,751			$	87,979			$	(8,228	)			(9	%)
As a percent of consolidated revenue			20	%			26	%

General and administrative expenses decreased by $8.2 million, or 9%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. This decrease was primarily attributable to a $25.0 million decrease in stock-based compensation expense, partially offset by an $11.0 million increase in professional service fees, of which $8.4 million is directly attributable to the Datawatch transaction, including investment banking fees incurred, a $3.0 million increase in employee compensation and related costs, a $1.2 million increase in costs from being a public company, a $0.8 million increase in rent expense, and a $0.8 increase in third party software maintenance expense.

Amortization of intangible assets

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Amortization of intangible assets		$	7,739			$	5,448			$	2,291				42	%
As a percent of consolidated revenue			2	%			2	%

Amortization of intangible assets increased by $2.3 million, or 42%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. This was attributable to an increase in the amortization of developed technology in the current year period as a result of completed acquisitions in 2017 and 2018.

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Other operating income

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Other operating income		$	(9,597	)		$	(6,620	)		$	2,977				45	%
As a percent of consolidated revenue			(2	%)			(2	%)

Other operating income increased by $3.0 million, or 45%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. The increase is attributable to a gain on the sale of a building for $4.4 million and an increase in grant income of $1.6 million in the current year. These increases were partially offset by impairment charges for guaranteed royalty expense of $2.2 million related to our WEYV business, and impairment of trade names for $0.6 million as a result of rebranding certain products.

Interest expense

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Interest expense		$	200			$	2,160			$	(1,960	)			(91	%)
As a percent of consolidated revenue			—	%			1	%

Interest expense decreased by $2.0 million for the year ended December 31, 2018, as compared to the year ended December 31, 2017. The decrease in interest costs was due to the repayment of all outstanding balance on our prior term loan and line of credit with IPO proceeds in the fourth quarter of 2017.

Other (income) expense, net

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Other (income) expense, net		$	(2,580	)		$	994			$	(3,574	)			(360	%)
As a percent of consolidated revenue			(1	%)			—	%

Other (income) expense, net increased by $3.6 million for the year ended December 31, 2018, as compared to the year ended December 31, 2017. This increase was due to fluctuations in the United States dollar relative to other functional currencies during the year ended December 31, 2018, as compared to the prior year, coupled with an increase in interest income of $1.7 million in 2018.

Income tax expense

		Year ended December 31,								Change
(dollars in thousands)		2018				2017				$				%
Income tax expense		$	13,309			$	62,996			$	(49,687	)			(79	%)

Income tax expense decreased by $49.7 million for the year ended December 31, 2018, as compared to the year ended December 31, 2017. The decrease in the current year tax expense is primarily the result of the following non-recurring items recorded in 2017: (1) $47.0 million of tax expense related to the recording of a valuation allowance on the U.S. deferred tax assets, (2) $15.4 million of tax expense due to the remeasurement of net deferred tax assets and liabilities as part of the Tax Act, (3) $8.8 million of tax expense due to nondeductible stock-based compensation, (4) $4.2 million of tax expense due to the one-time transition tax, and (5) $1.0 million in foreign income taxes at rates other than the federal statutory rate. These decreases are partially offset by a $63.4 million increase in pre-tax income in the current year. See Note 14 in the Notes to consolidated financial statements in Item 15, Part IV of this Annual Report on Form 10-K.

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Years ended December 31, 2017 and 2016

Revenue

Total revenue increased by $20.1 million, or 6%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase was primarily attributable to an increase in subscription and software revenue.

Software segment

Software

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Software revenue		$	244,817			$	223,818			$	20,999				9%			$	244,817			$	223,818			$	20,999				9	%
As a percent of software segment revenue			87%				86%												87	%			86	%
As a percent of consolidated revenue			73%				71%												73	%			71	%

The 9% increase in our software revenue for the year ended December 31, 2017, as compared to the year ended December 31, 2016, was primarily the result of an expansion in the number of units licensed by our existing customers under renewed software license agreements and, to a lesser extent, licensing of units to new customers pursuant to new software license agreements. This increase in software revenue occurred across all regions with the largest increase derived from Europe.

Software related services

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Software related services revenue		$	35,397			$	35,770			$	(373	)			(1%	)		$	35,397			$	35,770			$	(373	)			(1	%)
As a percent of software segment revenue			13%				14%												13	%			14	%
As a percent of consolidated revenue			11%				11%												11	%			11	%

Software related services revenue decreased $0.4 million, or 1%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016.

Client engineering services segment

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Client engineering services revenue		$	46,510			$	47,702			$	(1,192	)			(3%	)		$	46,510			$	47,702			$	(1,192	)			(3	%)
As a percent of consolidated revenue			14%				15%												14	%			15	%

CES revenue decreased $1.2 million, or 3%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. CES business revenue decreased as we filled fewer open positions.

Other

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Other revenue		$	6,609			$	5,950			$	659				11%			$	6,609			$	5,950			$	659				11	%
As a percent of consolidated revenue			2%				2%												2	%			2	%

The 11% increase in other revenue for the year ended December 31, 2017, as compared to the year ended December 31, 2016, was primarily due to increased sales and royalties from toggled, our LED lighting technology.business.

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Cost of revenue

Software segment

Software

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Cost of software revenue		$	36,360			$	31,962			$	4,398				14%			$	36,360			$	31,962			$	4,398				14	%
As a percent of software revenue			15%				14%												15	%			14	%
As a percent of consolidated revenue			11%				10%												11	%			10	%

Cost of software revenue increased by $4.4 million, or 14%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase was primarily attributable to higher employee costs of $2.3 million as a result of annual compensation adjustments and the addition of new personnel in connection with acquisitions, an increase in travel expense of $0.6 million, increased stock-based compensation expense of $0.3 million and increased third party royalty costs of $0.7 million for software programs.

Software related services

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Cost of software related services revenue		$	26,888			$	27,653			$	(765	)			(3%	)		$	26,888			$	27,653			$	(765	)			(3	%)
As a percent of software related services revenue			76%				77%												76	%			77	%
As a percent of consolidated revenue			8%				9%												8	%			9	%

Cost of software related services revenue decreased by $0.8 million, or 3%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016, primarily related to a decrease in software related services revenue.

Client engineering services segment

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Cost of client engineering services revenue		$	38,131			$	38,106			$	25				—  %			$	38,131			$	38,106			$	25				—	%
As a percent of client engineering services segment revenue			82%				80%												82	%			80	%
As a percent of consolidated revenue			11%				12%												11	%			12	%

Cost of CES revenue was consistent for the year ended December 31, 2017, as compared to the year ended December 31, 2016. However, margins in our CES business were lower in 2017 due to increased salary costs relative to customer approved bill rates for certain positions.

Other

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Cost of other revenue		$	5,212			$	4,879			$	333				7%			$	5,212			$	4,879			$	333				7	%
As a percent of other revenue			79%				82%												79	%			82	%
As a percent of consolidated revenue			2%				2%												2	%			2	%

Cost of other revenue increased by $0.3 million, or 7%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This was due to an increase in third party royalty expense associated with launch of WEYV, partially offset by a decrease in manufacturing costs from negotiated reductions in pricing from suppliers for the LED lighting business.

Gross profit58

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		Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%
Gross profit		$	226,742			$	210,640			$	16,102				8%
As a percent of consolidated revenue			68%				67%

Gross profit

		Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%
Gross profit		$	226,742			$	210,640			$	16,102				8	%
As a percent of consolidated revenue			68	%			67	%

Gross profit increased by $16.1 million, or 8%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase in gross profit was primarily attributable to the growth of our software revenue of $21.0 million driven by the expansion in the number of units purchased by our existing customers and, to a lesser extent, sales to new customers. 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 products and services that we provide to our customers and, as a result, they are reported and discussed here in an aggregate total.

Research and development

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Research and development		$	93,234			$	71,325			$	21,909				31%			$	93,234			$	71,325			$	21,909				31	%
As a percent of consolidated revenue			28%				23%												28	%			23	%

Research and development expenses increased by $21.9 million, or 31%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase was attributable to higher employee costs of $9.9 million resulting from an increase in our headcount, primarily due to acquisitions and annual compensation adjustments. In addition, stock-based compensation expense increased by $11.2 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016, due to the increased value of our shares of common stock. Excluding the impact of stock-based compensation, research and development expenses increased by 15%, from $70.0 million to $80.7 million for the years ended December 31, 2016 and 2017, respectively.

Sales and marketing

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Sales and marketing		$	79,958			$	66,086			$	13,872				21%			$	79,958			$	66,086			$	13,872				21	%
As a percent of consolidated revenue			24%				21%												24	%			21	%

Sales and marketing expenses increased by $13.9 million, or 21%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. Employee compensation costs increased $4.4 million, sales and marketing campaigns to support our direct sales force increased $1.0 million, and travel and trade show related expense increased $1.4 million during the year ended December 31, 2017, as compared to the prior year. In addition, stock-based compensation expense increased by $6.9 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016, due to the increased value of our shares of common stock.  Excluding the impact of stock-based compensation, sales and marketing expenses increased by 11%, from $65.3 million to $72.3 million for the years ended December 31, 2016 and 2017, respectively.

General and administrative

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
General and administrative		$	87,979			$	57,202			$	30,777				54%			$	87,979			$	57,202			$	30,777				54	%
As a percent of consolidated revenue			26%				18%												26	%			18	%

General and administrative expenses increased by $30.8 million, or 54%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. Employee compensation cost increased $2.7 million, software maintenance expense increased $1.3

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million, rent expense increased $1.3 million from new leases and facilities acquired, and professional services increased $1.2 million primarily due to additional costs of being a public company during the year ended December 31, 2017, as compared to the prior year. In addition, stock-based compensation expense increased by $23.7 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016, due to the increased value of our shares of common stock. Excluding the impact of stock-based compensation, general and administrative expenses increased by 13%, from $54.2 million to $61.3 million for the years ended December 31, 2016 and 2017, respectively.

Amortization of intangible assets

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Amortization of intangible assets		$	5,448			$	3,322			$	2,126				64%			$	5,448			$	3,322			$	2,126				64	%
As a percent of consolidated revenue			2%				1%												2	%			1	%

Amortization of intangible assets increased by $2.1 million, or 64%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase was attributable to the amortization of intangible assets associated with acquisitions completed during the year ended December 31, 2017, and a full year of amortization related to acquisitions completed during the year ended December 31, 2016.

Other operating income

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Other operating income		$	(6,620	)		$	(2,742	)		$	3,878				141%			$	(6,620	)		$	(2,742	)		$	3,878				141	%
As a percent of consolidated revenue			2%				1%												2	%			1	%

Other operating income increased by $3.9 million, or 141%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase was due to anon-recurring adjustment of $2.0 million for a change in estimated legal expenses during the year ended December 31, 2017, and an increase in government subsidies, primarily in France, in the form of grant income, including refundable R&D credits.

Interest expense

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Interest expense		$	2,160			$	2,265			$	(105	)			(5%	)		$	2,160			$	2,265			$	(105	)			(5	%)
As a percent of consolidated revenue			1%				1%												1	%			1	%

Interest expense decreased by $0.1 million, or 5%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. The decrease in interest costs was due to paying off the term loan andline-of-credit with IPO proceeds in the fourth quarter of 2017.

Other (income) expense, (income), net

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Other expense (income), net		$	994			$	(520	)		$	1,514				NM
Other (income) expense, net																		$	994			$	(520	)		$	1,514			NM
As a percent of consolidated revenue			—  %				—  %												—	%			—	%

Other (income) expense, (income), net increased by $1.5 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase was due to fluctuations in the United States dollar relative to other functional currencies during the year ended December 31, 2017, as compared to the prior year.

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Income tax expense

 

		Year ended December 31,								Change								Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%				2017				2016				$				%
Income tax expense		$	62,996			$	3,539			$	59,457				NM			$	62,996			$	3,539			$	59,457			NM

Income tax expense increased by $59.5 million for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase is primarily due to a $47.0 million increase in tax expense related to the recording of a valuation allowance on the U.S. deferred tax assets, a $15.4 million increase due to the remeasurement of net deferred tax assets and liabilities as part of the Tax Act, an $8.8 million increase due to nondeductible stock-based compensation, a $4.2 million increase due to theone-time transition tax and a $1.0 million increase in foreign income taxes at rates other than the federal statutory rate, partially offset by a $17.5 million decrease inpre-tax income mainly in the United States. See Note 1314 in the Notes to consolidated financial statements in Item 15, Part IV of this Annual Report on Form10-K.

Net (loss) income

		Year ended December 31,								Change
(dollars in thousands)		2017				2016				$				%
Net (loss) income		$	(99,407	)		$	10,163			$	(109,570	)			NM

Net income decreased by $109.6 million resulting in a net loss of $99.4 million for the year ended December 31, 2017, as compared to net income of $10.2 million for the year ended December 31, 2016. This decrease in net income was primarily attributable to a valuation allowance on our deferred tax assets of $47.4 million, increased stock-based compensation expense of $42.1 million and increased cost of revenue which related to higher employee related costs and royalty share payments to our partners for the year ended December 31, 2017. Operating expenses increased primarily due to annual employee cost adjustments, employees who joined us in connection with acquisitions in 2017, and a full year of compensation expense for employees who joined in connection with acquisitions completed in 2016. These increased costs are partially offset by increased revenue in the Software segment.

Years ended December 31, 2016 and 2015

Revenue

Total revenue increased by $19.1 million, or 6%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This increase was primarily attributable to an increase in software revenue of $18.3 million, or 9%, for the same period, partially offset by a decrease in software related services revenue of $1.5 million, or 4%. Our CES revenue also increased by $2.6 million, or 6% for the year ended December 31, 2016, as compared to the corresponding prior year.

Software segment

Software

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Software revenue		$	223,818			$	205,567			$	18,251				9%
As a percent of software segment revenue			86%				85%
As a percent of consolidated revenue			71%				70%

The 9% increase in our software revenue for the year ended December 31, 2016, as compared to the year ended December 31, 2015, was primarily the result of an expansion in the number of units licensed by our existing customers under renewed software license agreements and, to a lesser extent, licensing of units to new customers pursuant to new software license agreements. This increase in software revenue occurred across the Americas, EMEA and APAC.

Software related services

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Software related services revenue		$	35,770			$	37,294			$	(1,524	)			(4%	)
As a percent of software segment revenue			14%				15%
As a percent of consolidated revenue			11%				13%

The 4% decrease in our software related services revenue for the year ended December 31, 2016, as compared to the year ended December 31, 2015, was primarily the result of our continued focus on higher-value projects aligned with our software.

Client engineering services segment

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Client engineering services revenue		$	47,702			$	45,075			$	2,627				6%
As a percent of consolidated revenue			15%				15%

The 6% increase in our CES revenue for the year ended December 31, 2016, as compared to the year ended December 31, 2015, was primarily due to an increase in demand for our consulting services and corresponding higher billable headcount placements during the period. Our headcount in the CES business increased 4% in 2016, as compared to the prior year.

Other

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Other revenue		$	5,950			$	6,193			$	(243	)			(4%	)
As a percent of consolidated revenue			2%				2%

Other revenue for the year ended December 31, 2015, included $2.0 million of revenue related to royalties from our licensing of intellectual property technology that did not reoccur in the year ended December 31, 2016. Excluding the impact of these royalties, our other revenue increased 42% for the year ended December 31, 2016, as compared to the prior year. This increase in our other revenue was primarily due to an increase in demand for LED lighting and increased royalties received from licensing our technology to third party manufacturers and resellers.

Cost of revenue

Software segment

Software

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Cost of software revenue		$	31,962			$	27,406			$	4,556				17%
As a percent of software revenue			14%				13%
As a percent of consolidated revenue			10%				9%

Cost of software revenue increased by $4.6��million, or 17%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily attributable to a $3.3 million increase in employee compensation costs, and increased third party royalty costs of $0.7 million for software programs we include in our APA program.

Software related services

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Cost of software related services revenue		$	27,653			$	30,079			$	(2,426	)			(8%	)
As a percent of software related services revenue			77%				81%
As a percent of consolidated revenue			9%				10%

Cost of software related services revenue decreased by $2.4 million, or 8%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015, primarily related to a reorganization of personnel and the corresponding decrease in software related services revenue and our continued focus on higher-value projects aligned with our software.

Client engineering services segment

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Cost of client engineering services revenue		$	38,106			$	36,081			$	2,025				6%
As a percent of client engineering services segment revenue			80%				80%
As a percent of consolidated revenue			12%				12%

Cost of CES revenue increased by $2.0 million, or 6%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This increase was primarily due to compensation expenses associated with a larger number of placements to meet customer demand.

Other

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Cost of other revenue		$	4,879			$	5,642			$	(763	)			(14%	)
As a percent of other revenue			82%				91%
As a percent of consolidated revenue			2%				2%

Cost of other revenue decreased by $0.8 million, or 14%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This decrease was primarily due to our introduction of new products that have a lower cost of manufacturing.

Gross profit

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Gross profit		$	210,640			$	194,921			$	15,719				8%
As a percent of consolidated revenue			67%				66%

Gross profit increased by $15.7 million, or 8%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This increase in gross profit was primarily attributable to the growth of our software revenue of $18.3 million driven by the expansion in the number of units purchased by our existing customers and, to a lesser extent, sales to new customers. Gross profit margin increased to 67% in the year ended December 31, 2016, from 66% in the year ended December 31, 2015.

Operating expenses

Operating expenses, as discussed below, support all products and services that we provide to our customers and, as a result, they are reported and discussed here in an aggregate total.

Research and development

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Research and development		$	71,325			$	62,777			$	8,548				14%
As a percent of consolidated revenue			23%				21%

Research and development expenses increased by $8.5 million, or 14%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This increase was attributable to an increase in employee costs of $6.2 million resulting from an increase in our headcount in 2016, primarily due to acquisitions and annual compensation adjustments. In addition, the share-based compensation expense component of our research and development expense increased during the year ended December 31, 2016, by $1.2 million as compared to the corresponding prior year primarily due to the increased value of our shares of common stock. Excluding the impact of stock-based compensation, research and development costs increased by 12% from $62.6 million to $70.0 million for the years ended December 31, 2015 and 2016, respectively.

Sales and marketing

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Sales and marketing		$	66,086			$	63,080			$	3,006				5%
As a percent of consolidated revenue			21%				21%

Sales and marketing expenses increased by $3.0 million, or 5%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This increase was primarily attributable to a $2.4 million increase in employee compensation costs, including stock-based compensation and a $0.7 million increase in our sales and marketing campaigns to support our direct sales force.

General and administrative

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
General and administrative		$	57,202			$	54,069			$	3,133				6%
As a percent of consolidated revenue			18%				18%

General and administrative expenses increased by $3.1 million, or 6%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This increase was primarily attributable to a $2.7 million increase in share-based compensation expense. These expenses were partially offset by decreases in professional services expenses primarily related to a decline in legal costs for outstanding legal matters. Excluding the impact of stock-based compensation, general and administrative expenses increased by 1%, from $53.8 million to $54.2 million for the years ended December 31, 2015 and 2016, respectively.

Amortization of intangible assets

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Amortization of intangible assets		$	3,322			$	2,624			$	698				27%
As a percent of consolidated revenue			1%				1%

Amortization of intangible assets increased by $0.7 million, or 27%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This increase was attributable to the amortization of intangible assets associated with acquisitions completed during the year ended December 31, 2016, and a full year of amortization related to acquisitions completed during the year ended December 31, 2015.

Other operating income

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Other operating income		$	(2,742)			$	(2,576)			$	166				6%
As a percent of consolidated revenue			(1)%				(1)%

Other operating income increased by $0.2 million, or 6%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This increase was primarily attributable to an increase in government subsidies, primarily in France, in the form of grant income associated with certain of our research and development activities.

Interest expense

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Interest expense		$	2,265			$	2,416			$	(151	)			(6%	)
As a percent of consolidated revenue			1%				1%

Interest expense decreased by $0.2 million, or 6%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This decrease was due to a reduction in our interest expense related to our credit agreement as a result of a partial debt repayment and the use of lower cost short-term borrowing contracts related to our line of credit borrowings.

Other expense (income), net

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Other expense (income), net		$	(520	)		$	782			$	(1,302	)			NM
As a percent of consolidated revenue			—  %				—  %

Other expense (income), net decreased by $1.3 million for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This decrease was due to fluctuations in the United States dollar relative to other functional currencies during the year ended December 31, 2016, compared to the prior year.

Income tax expense

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Income tax expense		$	3,539			$	818			$	2,721				333%

Income tax expense increased by $2.7 million for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This increase was primarily due to a $1.8 million increase in tax expense related to nondeductible stock-based compensation, a $0.8 million increase in the expense related to an increase inpre-tax income related to foreign operations, partially offset by certain tax deductions and credits and foreign income taxes at rates other than the federal statutory rates. See Note 13 in the Notes to consolidated financial statements in Item 15, Part IV of this Annual Report on Form10-K.

Net income

		Year ended December 31,								Change
(dollars in thousands)		2016				2015				$				%
Net income		$	10,163			$	10,931			$	(768	)			(7%	)

Net income decreased by $0.8 million, or 7%, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. This decrease in Net income was primarily attributable to increased stock-based compensation expense of $4.5 million and increased cost of revenue which related to higher employee related costs and royalty share payments to our partners for the year ended December 31, 2016. Operating expenses increased primarily due to annual employee cost adjustments and for those employees who joined us in connection with acquisitions in 2016, and a full year of compensation expense related to those employees who joined in connection with acquisitions completed in 2015. These increased costs are mostly offset by increased revenue in all segments with the largest increase in the Software segment.

Non-GAAP financial measures

In analyzing and planning for our business, we supplement our use of GAAP financial measures withnon-GAAP financial measures, including Billings as a liquidity measure, Adjusted EBITDA as a performance measure and Free Cash Flow as a liquidity measure.

Billings.Billings consists of our total revenue plus the change in our deferred revenue, in a givenexcluding deferred revenue from acquisitions during the period. AsGiven that we generally bill our customers at the time of sale, but typically recognize a majorityportion 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. While we believe that billingsBillings provides valuable insight into the cash that will be generated from sales of our software and services, this metric may vary fromperiod-to-period for a number of reasons including the impact of changes in foreign currency exchange rates and the potential impact of acquisitions. See Part II, Item 6, Selected Financial Data for information regarding the limitations of using Billings as a financial measure and for a reconciliation of Billings to revenue, the most directly comparable financial measure calculated in accordance with GAAP.

Our Billings were as follows:

 

		Year ended December 31,												2016 to 2017 Change				2015 to 2016 Change				Year ended December 31,												2017 to 2018 Change				2016 to 2017 Change
(in thousands, except percentages)		2017				2016				2015				%				%				2018				2017				2016				%				%
Billings		$	359,166			$	320,653			$	297,358				12%				8%			$	401,913			$	357,212			$	320,299				13	%			12	%

Billings increased by $38.5$44.7 million, or 13%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. This increase in Billings was attributable to an 18% increase in Software segment billings.

Billings increased by $36.9 million, or 12%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This increase in Billings was attributable to a 15% increase in Software segment billings equaling $39.0 million.billings.

Billings increased by $23.3 million, or 8%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase in Billings was primarily attributable to an 8% increase in Software segment billings equaling $20.9 million, with the remaining increase in the CES segment and our other businesses.

Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) income 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. We believe that Adjusted EBITDA is a meaningful measure of performance as it is commonly utilized by us and the investment community to analyze operating performance in our industry. See Part II, Item 6, Selected Financial Data for information regarding the limitations of using Adjusted EBITDA as a financial measure and for a reconciliation of Adjusted EBITDA to net income (loss) income,, the most directly comparable financial measure calculated in accordance with GAAP.

Our Adjusted EBITDA was as follows:

 

		Year ended December 31,												2016 to 2017 Change				2015 to 2016 Change				Year ended December 31,												2017 to 2018 Change				2016 to 2017 Change
(in thousands, except percentages)		2017				2016				2015				%				%				2018				2017				2016				%				%
Adjusted EBITDA		$	22,517			$	30,830			$	22,949				(27)%				34%			$	50,180			$	22,517			$	30,830				123	%			(27	%)

Adjusted EBITDA increased by $27.7 million, or 123%, for the year ended December 31, 2018, as compared to the year ended December 31, 2017. Approximately $11.7 million is from the adoption of ASC 606. Excluding the effect of ASC 606, Adjusted

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EBITDA increased $16.0 million. This increase in Adjusted EBITDA was primarily attributable to the increased revenue from our Software segment.

Adjusted EBITDA decreased by $8.3 million, or 27%, for the year ended December 31, 2017, as compared to the year ended December 31, 2016. This decrease in Adjusted EBITDA was primarily attributable to the Software segment. The increase in revenue was offset by the increase in operating expenses for the year ended December 31, 2017. The increase in operating expenses was primarily related to annual employee cost adjustments and increased headcount from acquisitions in 2016 and 2017.

Adjusted EBITDA increased by $7.9 million, or 34%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase in Adjusted EBITDA was primarily attributable to increases in all segments with the largest increase in the Software segment. The increase in revenue more than offset the increase in cost of revenue which related to higher employee related costs and royalty share payments to our partners for the year ended December 31, 2016. The increase in operating expenses was primarily related to annual employee cost adjustments and for those employees who joined us in connection with acquisitions in 2016 and a full year of compensation expense related to those employees who joined us in connection with acquisitions completed in 2015.

Free Cash Flow.Free Cash Flow is anon-GAAP financial measure that we calculate as cash flow provided by operating activities less capital expenditures. We believe that Free Cash Flow is useful in analyzing our ability to service and repay debt and return value directly to stockholders. See Part II, Item 6, Selected Financial Data for information regarding the limitations of using Free Cash Flow as a financial measure and for a reconciliation of Free Cash Flow to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP.

Our Free Cash Flow was as follows:

 

		Year ended December 31,												2016 to 2017 Change				2015 to 2016 Change				Year ended December 31,												2017 to 2018 Change				2016 to 2017 Change
(in thousands, except percentages)		2017				2016				2015				%				%				2018				2017				2016				%				%
Net cash provided by operating activities		$	16,091			$	21,385			$	10,838				(25%	)			97%			$	36,230			$	16,091			$	21,385				125	%			(25	%)
Free Cash Flow		$	8,569			$	11,941			$	5,605				(28%	)			113%			$	29,571			$	8,569			$	11,941				245	%			(28	%)

Free Cash Flow increased by $21.0 million, or 245%, for the year ended December 31, 2018, as compared to year ended December 31, 2017. This increase in Free Cash Flow was attributable to an increase in net cash from operating activities of $20.1 million which primarily reflects an improvement in financial performance in 2018 and net changes to our working capital position.

Free Cash Flow decreased by $3.4 million, or 28%, for the year ended December 31, 2017, as compared to year ended December 31, 2016. This decrease in Free Cash Flow was attributable to a decrease in net cash from operating activities of $5.3 million, which primarily reflects a $6.0 million increase in accounts receivable, along with net changes to our working capital position.

Free Cash Flow increased by $6.3 million, or 113%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase in Free Cash Flow was primarily attributable to the increase in net cash from operating activities of $10.5 million, which was partially offset by an increase of $4.2 million in capital expenditures. Net cash from operating activities increased primarily due to higher net income, adjusted fornon-cash items and changes in working capital. The capital expenditures increase included a $4.0 million capital expenditure for the purchase of land adjacent to our corporate headquarters. Excluding this land purchase, our capital expenditures were consistent with the prior year and our Free Cash Flow would have increased by $10.3 million.

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 years ended December 31, 2018, 2017 2016 and 2015,2016, our recurring software license rate was 89%, 90%89% and 88%90%, respectively.

Liquidity and capital resources

Our principal sources of liquidity have been the net payments received from global customers using our software and services as well as our periodic draws on our credit facilities.facilities, when needed. 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.

Revolving credit facility

On October 19,18, 2017, we entered into an amended and restated credit agreement with Altair Engineering Inc., as borrower, JPMorgan Chase Bank, N.A., as the lead arranger, sole book runner, the administrative agent, swingline lender and letter of credit issuer, and a syndicate of lenders (“2017 Credit Agreement”). The 2017 Credit Agreement became effective on satisfaction of certain conditions including the closing of the Company’s IPO and providesprovided for an initial 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 matures on October 18, 2022.

The 2017 Credit Agreement provides for an accordion feature that allows us to request thatexpand the aggregate commitments undersize of the 2017 Credit Agreement be increasedrevolving line of credit by up toan additional $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).

On October 31, 2018, we increased the revolving commitment available under the 2017 Credit Agreement from $100.0 million to $150.0 million. There were no other material changes to the terms of the 2017 Credit Agreement.

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As of December 31, 2017,2018, we had no$31.0 million in outstanding borrowings under the 2017 Credit Agreement and there was $100.0$119.0 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’sour properties and assets, and the properties and assets of the Company’sour 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’sOur 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 December 31, 2017,2018, we were in compliance with all financial covenants. For additional information about the 2017 Credit Agreement, see Note 7 in the Notes to consolidated financial statements in Item 15, Part IV of this Annual Report on Form10-K.

Secured credit agreement

Prior to entering into the 2017 Credit Agreement, the Company’s credit agreement consisted of a $65.0 million term loan (“Term Loan A”) and a $60.0 million revolving commitment (“2016 Revolving Credit Facility”) including a $5.0 million swingline subfacility, and a letter of credit subfacility (collectively, the “Secured Credit Agreement”.)

At December 31, 2016, there was $57.5 million outstanding under Term Loan A at an interest rate of 2.6% based on the LIBO rate and the applicable margin. The Company was required to make quarterly principal payments on Term Loan A of $2.5 million in 2017, 2018 and March 2019. Any outstanding principal balance was to be paid in full on the maturity date of April 18, 2019.

At December 31, 2016, the Company had $27.4 million outstanding under the 2016 Revolving Credit Facility and there was $32.6 million available for future borrowing. The 2016 Revolving Credit Facility was available for general corporate purposes, including working capital, capital expenditures, and permitted acquisitions. All borrowings under the 2016 Revolving Credit Facility were due on the termination date in April 2019. The weighted-average interest rate on borrowings under the 2016 Revolving Credit Facility was 2.6% for the year ended December 31, 2016.

On November 3, 2017, in connection with the completion of our IPO, we repaid in full all outstanding debt under the Secured Credit Agreement. We paid a total of approximately $93.1 million, which included outstanding principal, interest, and other nominal costs. Upon the repayment of the Secured Credit Agreement, all unamortized debt issuance costs were recorded as interest expense.

Cash flows

As of December 31, 20172018 and 2016,2017, respectively, we had an aggregate of cash and cash equivalents of $39.2$35.3 million and $16.9$39.2 million, which we held for working capital purposes and capital expenditures. At December 31, 2018 and 2017, and 2016, respectively, $20.1$3.1 million and $1.6$20.1 million of this aggregate amount was held in the United States and $17.5$28.9 million and $14.2$17.5 million was held in the APAC and EMEA regions with the remainder held in Canada, Mexico, and South America.

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 cash tax implications. The recent2017 changes in U.S. tax law could materially affect our tax obligations. For further discussion, please see “Item 1A. Risk Factors – New legislations ortax-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:

 

		Year ended December 31,												Year ended December 31,
(in thousands)		2017				2016				2015				2018				2017				2016
Net cash provided by operating activities		$	16,091			$	21,385			$	10,838			$	36,230			$	16,091			$	21,385
Net cash used in investing activities			(24,851	)			(16,033	)			(8,030	)			(206,210	)			(24,851	)			(16,033	)
Net cash provided by (used in) financing activities			29,558				(1,864	)			(4,697	)			167,530				29,558				(1,864	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash			1,641				(362	)			(1,639	)			(1,443	)			1,641				(362	)
Net increase (decrease) in cash, cash equivalents and restricted cash		$	22,439			$	3,126			$	(3,528	)
Net (decrease) increase in cash, cash equivalents and restricted cash														$	(3,893	)		$	22,439			$	3,126

Net cash provided by operating activities

Net cash provided by operating activities for year ended December 31, 2018 was $36.2 million, which reflects an increase of $20.1 million compared to the year ended December 31, 2017. This increase was primarily a result of our improved financial performance and changes to our working capital position for the year ended December 31, 2018, as compared to the year ended December 31, 2017.

Net cash provided by operating activities for the year ended December 31, 2017 was $16.1 million which reflects a decrease of $5.3 million compared to the year ended December 31, 2016. This decrease primarily reflects a $6.0 million increase in accounts receivable, along with net changes to our working capital position for the year ended December 31, 2017, as compared to the year ended December 31, 2016.

Net cash provided by operatingused in investing activities

Net cash used in investing activities for the year ended December 31, 20162018 was $21.4$206.2 million, which reflects an increase in cash used of $10.5$181.4 million compared to the year ended December 31, 2015.2017. This increase was primarily reflects a $3.1 million improvementthe result of business acquisitions in deferred taxes along, with net changes to our working capital position, as compared to the prior year.

Net cash used in investing activitiesyear ended December 31, 2018.

Net cash used in investing activities for the year ended December 31, 2017 was $24.9 million which reflects an increase in cash used of $8.8 million compared to the year ended December 31, 2016. This increase was the result of an increase in cash payments for business acquisitions in the year ended December 31, 2017, as compared to the year ended December 31, 2016.

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Net cash used in investingprovided by (used in) financing activities

Net cash provided by financing activities for the year ended December 31, 20162018 was $16.0$167.5 million, which reflects an increase in cash usedprovided of $8.0$138.0 million compared to the year ended December 31, 2015. This reflects a $4.02017. We received aggregate proceeds of $135.6 million purchasefrom our follow-on public offering, net of real property adjacent to our corporate headquarters. The remaining $4.0underwriters’ discount and commissions and we had an increase in net borrowings of $30.8 million primarily relates to increased use of cash for acquisitions.

Net cash provided by (used in) financing activitiesthe year ended December 31, 2018.

Net cash provided by financing activities for the year ended December 31, 2017 was $29.6 million, which reflects an increase in cash provided of $31.4 million compared to the year ended December 31, 2016. We received aggregate proceeds of $119.3 million from our IPO, net of underwriters’ discounts and commissions. We paid offering costs for our IPO of $4.6 million and we had an increase in net debt payments of $87.3 million for the year ended December 31, 2017 compared to the year ended December 31, 2016 resulting from the use of IPO proceeds to pay off our prior term loan and line of credit.

Net cash used in financing activities for the year ended December 31, 2016 was $1.9 million which reflects a decrease in cash used of $2.8 million compared to the year ended December 31, 2015. This reflects a $4.8 million decrease in net debt payments compared to the prior year partially offset by a $1.3 million increase in redemptions of our common stock, and a $0.7 million return of capital in the year ended December 31, 2016.

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 $1.4 million for the year ended December 31, 2018, compared to a favorable effect of exchange rate changes on cash, cash equivalents and restricted cash of $1.6 million for the year ended December 31, 2017, primarily due to currency fluctuations in the Euro.

The positive effect of exchange rate changes on cash, cash equivalents and restricted cash for the year ended December 31, 2017, increased $2.0 million from the year ended December 31, 2016, primarily due to currency fluctuations in the Euro.

The adverse effect of exchange rate changes on cash, cash equivalents and restricted cash for the year ended December 31, 2016 decreased by $1.3 million as compared to the prior year due to the decreased effect from fluctuations in foreign currency exchange rates.

Commitments and contractual obligations

Our principal commitments and contractual obligations at December 31, 20172018 consisted of obligations under operating leases for our office facilities and other debt obligations. As of December 31, 2017,2018, the futurenon-cancelable minimum lease payments under these obligations, and our futurenon-cancelable minimum payments under our other contractual obligations, were as follows:

 

						Payments due by period																				Payments due by period
(in thousands)		Total				Less than 1 year				1-3 years				3-5 years				More than 5 years				Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Operating lease obligations		$	27,854			$	8,946			$	11,716			$	4,825			$	2,367			$	33,179			$	10,661			$	13,979			$	5,392			$	3,147
Long-term debt obligations (excluding interest)			203				126				77				—				—				31,025				75				—				30,950				—
Capital lease obligations			207				106				96				5				—				813				256				382				175				—
Royalties			628				448				180				—				—				1,884				1,470				414				—				—
Related parties			119				119				—				—				—
Other long-term liabilities			17,670				15,254				2,316				100				—				4,873				3,647				1,226				-				—
Total		$	46,681			$	24,999			$	14,385			$	4,930			$	2,367			$	71,774			$	16,109			$	16,001			$	36,517			$	3,147

This table does not include contractual obligations associated with our pension and post-retirement benefit plans. As of December 31, 2017,2018, we had recognized a net benefit liability of $8.0$9.6 million. For additional information on pension and other post-retirement benefits, including expected benefit payments for the next 10 years, see Note 1516 in the Notes to consolidated financial statements included elsewhere in this Annual Report on Form10-K.

_{The table also does not include liabilities associated with uncertain tax positions due to the high degree of uncertainty regarding the future cash outflows associated with these amounts. For additional discussion of uncertain tax positions, see Note 1314 in the Notes to consolidated financial statements included elsewhere in this Annual Report on Form10-K.}

Off-balance sheet arrangements

Through December 31, 2017,2018, 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 offacilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical accounting policies and estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results

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of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. For further discussion on our significant accounting policies, see Note 2 in the Notes to consolidated financial statements in Item 15, Part IV of this Annual Report on Form10-K.

Revenue recognition

We generate revenue from our Software and CES segments and our other businesses. Revenue is recognized by identifying a contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract, and recognizing revenue when persuasive evidence of an agreement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collection of the fee is probable or reasonably assured.(or as) we satisfy a performance obligation.

Software

Software revenue includes product revenue from software product licensing arrangements, related services consisting of software and software maintenance and support in the form of post-contract customer support (PCS or PCS.

Our softwaremaintenance) and professional services such as consulting and training services. Software products are sold to customers primarily through our patented units-based subscription licensing model throughunder a term-based software licensing model and to a lesser degree, perpetual software licensing. Thislicenses. We enter into contracts that include combinations of products, maintenance and services, which are accounted for as separate performance obligations with differing revenue recognition patterns.

Most term-based software license agreements include our patented units-based subscription licensing model which allows customers to license a pool of units for their organizations, providing individual users flexible access to our entire portfolio of engineering software applications as well as to our growing portfolio of partner products. These arrangements are referred to as “unit” arrangements. Units are a fixed means of measuring usage. The amount of software usage is limited by the number of the units licensed by the customer. Revenue from these arrangements is fixed (based on the units licensed) and is not based on actual customer usage of each software product.

Software productRevenue from term-based software licenses is classified as license arrangements may includesoftware revenue. Term-based licenses are sold only as a bundled arrangement that includes the rights to a term software license and PCS, which includes unspecified technical enhancements and professional services, such as consulting, implementation services, training, and support, which represent multiple-element arrangements. We have analyzedcustomer support. Maximizing the elements included in our multiple element arrangements and haveuse of observable inputs, we determined that we do not have vendor-specific objective evidence, or VSOE, of fair value to allocate revenue to our software products license, PCS, and professional services including consulting, implementation services, training and support. Revenue from 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 perioda majority of the arrangement which consistsestimated standalone selling price of the longerterm-based license is attributable to the term license and a minority is attributable to the PCS. The license component is recognized as revenue upon the later of delivery of the contractual service termlicensed product or PCS term. If the professional services are essential to the functionalitybeginning of the software products, thenlicense period. The PCS is classified as maintenance revenue recognition does not commence until such services are completed.

Our term-based software license arrangements typically have a term of 12 months and include PCS, including the right to receive unspecified software upgrades, when and if available during the license term. We do not charge separately for PCS. Revenues for software licenses sold on a term-based model basis areis recognized ratably over the term of the contract, as we provide the PCS benefit over time.

In addition to term-based software licenses, we sell perpetual licenses. Typically, our perpetual licenses are sold with PCS, which includes unspecified technical enhancements and customer support. Revenue from the software component is classified as license arrangement, oncesoftware revenue and is recognized upon the later of delivery of the licensed product or the beginning of the license period. We allocate values in bundled perpetual and PCS arrangements based on the standalone selling prices of the perpetual license and PCS. Revenue from PCS is classified as maintenance revenue and is recognized ratably over the term of the contract, as we satisfy the PCS performance obligation over time.

Revenue from training, consulting and other services is recognized as the services are performed. For contracts in which the service consists of a single performance obligation, such as providing a training class to a customer, we recognize revenue upon completion of the performance obligation. For service contracts that are longer in duration and often include multiple performance obligations (for example, both training and consulting), we measure the progress toward completion of the obligations and recognizes revenue accordingly. In measuring progress towards the completion of performance obligations, we typically utilize output-based estimates for services with contractual billing arrangements that are not based on time and materials, and estimate output based on the total tasks completed as compared to the total tasks required for each work contract. Input-based estimates are utilized for services that involve general consultations with contractual billing arrangements based on time and materials, utilizing direct labor as the input measure.

We also execute arrangements through indirect channel partners in which the channel partners are authorized to market and distribute our software products to end users of our products and services in specified territories. In sales facilitated by channel partners, the channel partner generally bears the risk of collection from the end-user customer. We recognize revenue from transactions with channel partners when the channel partner submits a purchase commitment, collectability from the channel partner is probable, and the performance obligation was met, at a point in time or over time as appropriate, provided that all other revenue recognition criteria have been met.are satisfied. Revenue from channel partner transactions is the amount remitted to us by the channel partners. This amount includes a fee for PCS that is compensation for providing technical enhancements and the second level of technical support to the end user, which is recognized over the period that PCS is to be provided. We do not offer right of return, product rotation or price protection to any of its channel partners.

Some of our contracts with customers contain multiple performance obligations. Judgment is required in determining whether each performance obligation is distinct. We alsoallocate the transaction price for each contract to each performance obligation based on the

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relative standalone selling price, or SSP, for each performance obligation within each contract. The SSP is the price that we would sell perpetual licensesa promised service separately to certainone of our customers. Judgment is required to determine the SSP for each distinct performance obligation. We estimate SSP using information such as past transactions, internally approved pricing guidelines related to the performance obligations and other information reasonably available to us.

Non-income related taxes collected from customers and remitted to governmental authorities are recorded on the consolidated balance sheet as accounts receivable, net and other accrued expenses and current liabilities. These amounts are reported on a net basis in the consolidated statements of operations and do not have VSOE of fair value for the PCS, which is sold along with the perpetual licenses. As a result, revenue from these perpetual arrangements is recognized ratably over the initial PCS term.

Software related servicesimpact reported revenues or expenses.

Software related services revenue is derived

Consulting services from our consulting, implementation services and training for product design and development projects.

Software servicesprojects are considered distinct performance obligations and are provided to customers on a time and materialstime-and-materials, or T&M, or fixed-price basis. We recognize softwareAltair recognizes services revenue for time and materialsfrom our T&M contracts based upon hours workedusing input-based estimates, utilizing direct labor and contractually agreed-upon hourly rates. Revenue fromrates as the input measure. For fixed-price engagementscontracts, software services revenue is recognized over time using a method that measures the proportionalextent of progress towards completion of a performance obligation, generally using a cost-input method where revenue is recognized based on the ratioproportion of coststotal cost incurred to theestimated total estimated project costs. Project costs are based on standard rates, which vary by the consultant’s professional level, plus all direct expenses incurred to complete the engagement thatat completion. If output or input measures are not reimbursed by the client. Project costs are typically expensed as incurred. The use of the proportional performance method is dependent upon management’s ability to reliably estimate the costs to complete a project. We use historical experience as a basis for future estimates to complete current projects. Additionally, we believe that costs are the best available measure of performance. If the costs to complete a project are not estimable or the completion is uncertain, thecannot be reasonably estimated, revenue is recognized upon completion of the services.

Client engineering services

CES revenue is derived from our hiring of engineers and data scientists for placement at a customer site for specific customer-directed assignments. These engineersprofessional services are hiredconsidered distinct performance obligations and paid only for the duration of the placement.are provided to customers on a T&M basis. We recognize client engineering services revenue based upon hours worked and contractually agreed-upon hourly rates.

Other

Other revenue is derivedincludes product revenue from the sale of LED products for the replacement of fluorescent tubes. Revenue from the sale of LED products for the replacement of fluorescent tubes is recognized when all revenue recognition criteria stated above are met, which is generally when the products are transferreddelivered to resellers or to end customers. We recognize revenues from royalties for licensing our technology when received.Sales returns, which reduce revenue and cost of revenue, are estimated using historical experience.

Goodwill and indefinite-lived intangible assets

In accordance with ASC Topic 360, we assess the carrying value of goodwill each year, based on weighting estimates of future cash flows from the reporting units or estimates of the market value of the reporting units, based on comparable companies. We also perform impairment analyses whenever events or circumstances indicate that goodwill or certain intangibles may be impaired. These estimates of future discounted cash flows are based upon historical results, adjusted to reflect our best estimate of future market and operating conditions. Historically, actual results have occasionally differed from our estimated future cash flow estimates. In the future, actual results may differ materially from these estimates. In addition, the comparable companies used to establish market value for our reporting units is based on management’s judgment.

The timing and size of any future impairment charges involves the application of our estimates and judgment and could result in the impairment of all, or substantially all, of our goodwill or intangible assets.

Stock-based compensation

Stock-based compensation expense, consisting of stock options expected to be settled by issuing shares of our common stock, are recorded as equity awards. The fair value of these awards on the date of grant is measured using the Black-Scholes option pricing model. The fair value of restricted stock units, or RSUs, is measured using the fair value of our common stock on the date of the grant.

Our use of the Black-Scholes option pricing model requires the input of many assumptions, some highly subjective, assumptions, including the fair value of our underlying common stock, expected term of the option, expected volatility of the price of our common stock, risk-free interest rates, and expected dividend yield. The assumptions used in our option pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.

These assumptions and estimates are as follows:

• Fair value of common stock. Due to the absence of an active market for our common stock prior to our IPO, our board of directors, with the assistance of a third-party valuation specialist, determined the fair value of our common stock. The 66 Table of Contents valuation methodology included estimates and assumptions including forecasts of future cash flows that require significant judgments. These valuations considered a number of objective and subjective factors, including our actual operating and financial performance, external market conditions, performance of comparable publicly traded companies, comparable transactions, business developments, likelihood of achieving a liquidity event, such as an initial public offering or sale, and common stock transactions, among other factors. Prior to the IPO, we utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid,Valuation of Privately-Held Company Equity Securities issued as Compensation, to estimate the fair value of our common stock. Significant changes to the key assumptions used in the valuations could result in different fair values of our common stock at each valuation date. Expected term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. To determine the expected term, we generally apply the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the award as we do not have sufficient historical exercise data to provide a reasonable basis for an estimate of expected term. • Expected term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. To determine the expected term, we generally apply the simplified approach in which the expected term of an award is presumed to bethe mid-point between the vesting date and the expiration date of the award as we do not have sufficient historical exercise data to provide a reasonable basis for an estimate of expected term. Risk-freeinterest rate. We base the risk-free interest rate on the yields of United States Treasury securities with maturities approximately equal to the term of employee stock option awards. • Risk-free interest rate. We base the risk-free interest rate on the yields of United States Treasury securities with maturities approximately equal to the term of employee stock option awards. Expected volatility. As we do not have a long trading history for our common stock as a new public company, the expected volatility for our common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option awards. Industry peers consist of several public companies in our industry which are either similar in size, stage of life cycle or financial leverage. • Expected volatility. As we do not have a long trading history for our common stock as a new public company, the expected volatility for our common stock was estimated by taking the average historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option awards. Industry peers consist of several public companies in our industry which are either similar in size, stage of life cycle or financial leverage. Our forfeiture rate is based on actual forfeitures. We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis, although the judgments surrounding fair value of common stock are no longer applicable as a public company going forward.where such judgement is required. As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense. Employee stock-based awards, consisting of stock options with repurchase features that allow them to be settled in cash at a purchase price that is less than the current fair value, are considered liability-based awards. These awards are initially recorded at fair value and remeasured to fair value at the end of each reporting period until settled. Our 2001 ISO and NQSO Plan was terminated in 2011. Options granted under the 2001 ISO and NQSO Plan were accounted for as liability awards as the terms of the awards could require or allow repurchase of the shares at amounts different than fair value. We made the accounting policy election to use the intrinsic value method of accounting to determine stock-based compensation liabilities for these awards. During the quarter ended June 30, 2017, in accordance with ASC 718 as we no longer met the definition of a nonpublic entity, we changed our accounting policy to measure the fair value of our liability awards using the Black-Scholes option pricing model. The impact of the change in accounting policy was not material to the financial statements. The 2001 ISO and NQSO Plan also included stock-based compensation liability for our Class A redeemable common shares outstanding resulting from our call feature with a purchase price that may be set at less than the fair market value at the redemption date. We utilized the fair value of the outstanding Class A redeemable common shares to determine the stock-based compensation liabilities for these redeemable common shares. As a result of our IPO in the fourth quarter 2017, the call feature terminated which resulted in the liability associated with our Class A redeemable common shares and the liability associated with stock options outstanding under the 2001 ISO and NQSO Plan to be reclassified to equity as of December 31, 2017, in accordance with ASC 718. Accounting for income taxes We utilize the asset and liability method of accounting for income taxes in accordance with ASC Topic 740,Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basesbasis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates and statutes that will be in effect when those differences are expected to reverse. Deferred tax assets can result from unused operating losses, research and development credits, foreign tax credit carryforwards, and deductions recorded for financial statement purposes prior to them being deductible on a tax return. Valuation allowances are provided against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. 67 Table of Contents The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of taxable temporary differences. We consider, among other available information, scheduled reversals of deferred tax liabilities, projected future taxable income, limitations on the availability of tax credit carryforwards, and other evidence assessing the potential realization of deferred tax assets. Adjustments to the valuation allowance are included in the tax provision in our consolidated statements of operations in the period they become known or can be estimated. Significant management judgment is required in determining any valuation allowance recorded against deferred tax assets and liabilities. The valuation allowance is based on our estimates of taxable income for jurisdictions in which we operate and the period over which our deferred tax assets may be recoverable. Historically, we have had substantial United States tax credit carryforwards which if not utilized, will beginbegan to expire in 2018. The ability to utilize these DTAs is highly dependent upon our ability to generate taxable income in the United States in the future. We apply amore-likely-than-not recognition threshold to our accounting for tax uncertainties. We review all of our tax positions and make determinations as to whether our tax positions are more likely than not to be sustained upon examination by the relevant taxing authorities. Only those benefits, or exposures, that have a greater than fifty percent likelihood of being sustained upon examination by taxing authorities are recognized. Interest and penalties related to uncertain tax positions are recorded in income tax expense (benefit) in the consolidated statements of operations. JOBS Act Accounting Election We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Recently issued accounting pronouncements For information regarding recent accounting guidance and the impact of this guidance on our consolidated financial statements, see Note 2 of the Notes to consolidated financial statements in Item 15, Part IV of this Annual Report on Form10-K, which is incorporated by reference. Item 7A. 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. Interest Rate Risk We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. As of December 31, 2017 and 2016, we had cash, cash equivalents and restricted cash of $39.6 million and $17.1 million, respectively, consisting primarily of bank deposits and money market funds. As of December 31, 2017, we had no amounts outstanding under our 2017 Credit Agreement. As of December 31, 2016, we had $57.5 million outstanding on Term Loan A and $27.4 million outstanding on our Revolving Credit Facility. Such interest-bearing instruments carry a degree of interest rate risk; however, historical fluctuations of interest expense have not been significant. Interest rate risk relates to the gain/increase or loss/decrease we could incur on our debt balances and interest expense associated with changes in interest rates. It is our policy not to enter into derivative instruments for speculative purposes, and therefore, we hold no derivative instruments for trading purposes. 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,operations, we do not plan on engaging in hedging activities in the near future. Interest Rate Risk As of December 31, 2018, and 2017, we had cash, cash equivalents and restricted cash of $35.7 million and $39.6 million, respectively, consisting primarily of bank deposits and money market funds. As of December 31, 2018, we had $31.0 million outstanding under our 2017 Credit Agreement. Such interest-bearing instruments carry a degree of interest rate risk; however, historical fluctuations of interest expense have not been significant. As of December 31, 2017, we had no amounts outstanding under our 2017 Credit Agreement. 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 8. Financial Statements and Supplementary Data. The financial statements required by this Item 8 are included in our consolidated financial statements and set forth in the pages indicated in Part IV, Item 15(a) of this Annual Report on Form 10-K and are incorporated herein by reference. The supplementary financial information required by this Item 8 is included in Note 20 of the Notes to consolidated financial statements and set forth in the pages indicated in Part IV, Item 15(a) of this Annual Report on Form 10-K and is incorporated herein by reference. 68 Table of Contents Item 9. Changes in and Disagreements with AccountantsAccountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures.Procedures (a) Evaluation of Disclosure Controls and Procedures.Procedures Under The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the supervision andExchange Act) that are designed to ensure that information required to be disclosed in periodic reports filed with the participationSEC under the Securities Exchange Act of our1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including theits Chief Executive Officer and Chief Financial Officer, we haveas appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule13(a)-15(e) under the Exchange Act as of the end of the period covered by this report.December 31, 2018.  Based onupon that evaluation, the Company concluded that its disclosure controls and procedures were ineffective as of December 31, 2018 due to the material weakness described below. (b) Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) and 15d(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that these disclosure controls and procedures were not effectiveconducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2017 due2018 based on the criteria established by Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). In accordance with guidance issued by the Securities and Exchange Commission, companies are permitted to material weaknessesexclude acquisitions from their assessment of internal control over financial reporting for the first fiscal year in which the acquisition occurred. Accordingly, we have excluded from our assessment the internal control over financial reporting of: Datawatch Corporation, Simsolid Corporation and FluiDyna GmbH, which are included in our December 31, 2018 consolidated financial statements and constituted 5% and 1% of total and net assets (excluding acquired goodwill and intangible assets), respectively, as of December 31, 2018 and 2% of revenues for the year then ended. We have excluded these three entities from our annual assessment of and conclusion on the effectiveness of our internal control over financial reporting. Management has identified a material weakness over the income tax process as of December 31, 2018.  We determined that management’s review controls over income taxes are not operating effectively to detect a material misstatement in the financial statement close processstatements related to income tax accounting around acquisitions, as well as routine and non-routine transactions. Based on the material weakness described above, we have concluded that internal control over financial reporting was ineffective as of December 31, 2018. The effectiveness of our internal control over financial reporting at December 31, 2018 has been audited by Ernst & Young LLP, an independent registered public accounting for income taxes.firm, as stated in their report which is included elsewhere herein. Remediation Efforts with Respect to Material Weakness We have performed additional analyses and other procedures to enable management to conclude that, notwithstanding the existence of the material weaknesses, the consolidated financial statements included in this Form10-K present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP. Additionally, corrective actions continuedeveloped a remediation plan to address the material weaknessesweakness described above. The plan includes enhancing our preparation and review procedures around income tax accounting, which includes supplementing our resources using an independent consultant with technical expertise in our internal controls.the tax accounting over acquisitions and routine and non-routine transactions. (c) Changes in Internal Control Over Financial Reporting.Reporting 69 Table of Contents There was no change in our internal control over financial reporting (as defined in Rules13a-15(f) and15d-15(f)) under the Exchange Act) that occurred during the fourth quarter ended December 31, 2017,2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reportingreporting. Management’s Report on Internal Control over Financial Reporting This Annual Report on Form10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our independent registered public accounting firm due to a transition period established by the rules of the SEC for newly public companies. Inherent Limitations on Effectiveness of Controls. Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected. Item 9B. Other Information. None. PART III70 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance. The information called for by this item will be set forth in our Proxy Statement for the 20182019 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2017,2018, or Proxy Statement, and is incorporated herein by reference. Item 11. Executive Compensation. The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this item will be set forth in our Proxy Statement and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this item will be set forth in our Proxy Statement and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services. The information required by this item will be set forth in our Proxy Statement and is incorporated herein by reference. 71 PART IVTable of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. (a) Documents Filed as Part of This Annual Report on Form10-K: Documents Filed as Part of This Annual Report on Form 10-K:   (1) Financial Statements:The following consolidated financial statements and reports of the independent registered account firm are filed as part of this report:   Page Report of independent registered public accounting firmIndependent Registered Public Accounting Firm 67 73 Consolidated financial statements Consolidated balance sheets 68 76 Consolidated statements of operations 69 77 Consolidated statements of comprehensive (loss) income 70 78 Consolidated statement of changes in stockholders’ equity 71 79 Consolidated statements of cash flows 72 80 Notes to consolidated financial statements 73 82   (2) Financial Statement Schedule: The following financial statement schedule is filed as part of this report and should be read in conjunction with the consolidated financial statements. Schedule II – Valuation and Qualifying Accounts (in thousands)      Balance at beginning of year      Additions      Deductions      Balance at end of year     Balance at beginning of year     Additions     Deductions     Balance at end of year   Allowance for Doubtful Accounts                                             Year ended December 31, 2018   $ 798     $ 394     $ (42 )   $ 1,150   Year ended December 31, 2017    $ 565      $ 610      $ (377 )     $ 798     $ 565     $ 610     $ (377 )   $ 798   Year ended December 31, 2016    $ 937      $ 291      $ (663 )     $ 565     $ 937     $ 291     $ (663 )   $ 565   Year ended December 31, 2015    $ 1,439      $ 145      $ (647 )     $ 937   Schedules not listed above have been omitted because they are not applicable, are not required or the information required to be set forth therein in included in the consolidated financial statements or notes thereto.   (3) Exhibits:The exhibits listing in the accompanying Exhibit Index immediately following the financial statements are filed as part of, or incorporated by reference into, this Annual Report on Form10-K. (b) Exhibits: (b) Exhibits:See Item 15(a)(3) as set forth above. (c) Financial Statement Schedules: See Item 15(a)(2) as set forth above. (c) Financial Statement Schedules:See Item 15(a)(2) as set forth above.72 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors and Stockholders of Altair Engineering Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Altair Engineering Inc. and subsidiaries (the Company) as of December 31, 20172018 and 2016,2017, the related consolidated statements of operations, comprehensive (loss) income, changes in stockholders’stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2017,2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172018 and 2016,2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2018, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 1, 2019 expressed an adverse opinion thereon. Adoption of Accounting Standards Update (ASU) No. 2014-09 As discussed in Note 2 and 3 to the consolidated financial statements, the Company changed its method of accounting for revenue from contracts with customers, and incremental costs to acquire contracts with customers in each period presented, due to the Company’s adoption of ASU No. 2014-09, Revenue from contracts with customers, effective January 1, 2018. Basis for Opinion These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2015. Detroit, Michigan March 1, 2019 March 21, 2018 73 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Altair Engineering Inc. Opinion on Internal Control over Financial Reporting We have audited Altair Engineering Inc. and subsidiaries Consolidated balance sheets internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).  In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Altair Engineering Inc. and subsidiaries (the Company) has not maintained effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.        December 31,   (in thousands)    2017     2016   CURRENT ASSETS:      Cash and cash equivalents    $ 39,213     $ 16,874   Accounts receivable, net      86,635       70,498   Inventory, net      1,980       1,227   Income tax receivable      6,054       9,069   Prepaid expenses and other current assets      10,006       7,435                    Total current assets      143,888       105,103   Property and equipment, net      31,446       29,708   Goodwill      62,706       36,625   Other intangible assets, net      24,461       11,168   Deferred tax assets      8,351       62,896   Other long-term assets      17,019       5,276                    TOTAL ASSETS    $ 287,871     $ 250,776                    LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)      CURRENT LIABILITIES:      Current portion of long-term debt    $ 232     $ 10,435   Accounts payable      4,880       5,009   Accrued compensation and benefits      26,560       22,955   Obligations for acquisition of businesses      13,925       2,649   Other accrued expenses and current liabilities      21,744       16,296   Deferred revenue      130,122       100,661                    Total current liabilities      197,463       158,005   Long-term debt, net of current portion      178       74,806   Deferred revenue,non-current      9,640       13,268   Stock-based compensation awards      —         22,236   Other long-term liabilities      17,647       17,114                    TOTAL LIABILITIES      224,928       285,429                    Commitments and contingencies      MEZZANINE EQUITY      2,352       —     STOCKHOLDERS’ EQUITY (DEFICIT):      Preferred stock ($0.0001 par value), authorized 45,000 shares, none issued and outstanding as of December 31, 2017; none authorized, issued or outstanding as of December 31, 2016      —         —     Common stock ($0.0001 par value)      Class A common stock, authorized 513,797 shares, issued and outstanding 26,725 as of December 31, 2017; authorized 76,000 shares, issued and outstanding 8,900 as of December 31, 2016      2       1   Class B common stock, authorized 41,203 shares, issued and outstanding 36,508 as of December 31, 2017; authorized 44,000 shares, issued and outstanding 41,204 as of December 31, 2016      4       4   Additionalpaid-in capital      232,156       39,688   Accumulated deficit      (166,499 )      (67,092 )  Accumulated other comprehensive loss      (5,072 )      (7,264 )                   Total Altair Engineering Inc. stockholders’ equity (deficit)      60,591       (34,663 )  Noncontrolling interest      —         10                    TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)      60,591       (34,653 )                   TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)    $ 287,871     $ 250,776                    A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. Management has identified a material weakness in its internal controls over accounting for income taxes. As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Datawatch Corporation, Simsolid Corporation and FluiDyna GmbH, which are included in the December 31, 2018 consolidated financial statements of the Company and constituted 5% and 1% of total and net assets (excluding acquired goodwill and intangible assets), respectively, as of December 31, 2018 and 2% of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of all current year acquisitions. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2018 consolidated financial statements of the Company. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2018 consolidated financial statements, and this report does not affect our report dated March 1, 2019, which expressed an unqualified opinion thereon.   Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 74 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Detroit, Michigan March 1, 2019 75 Table of Contents ALTAIR ENGINEERING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS     December 31,   (in thousands, except per share data)   2018     2017   ASSETS                 CURRENT ASSETS                 Cash and cash equivalents   $ 35,345     $ 39,213   Accounts receivable, net     96,803       86,635   Inventory, net     1,964       1,980   Income tax receivable     4,431       6,054   Prepaid expenses and other current assets     15,491       10,006   Total current assets     154,034       143,888   Property and equipment, net     30,153       31,446   Goodwill     210,532       62,706   Other intangible assets, net     69,836       24,461   Deferred tax assets     1,373       8,351   Other long-term assets     17,288       17,019   TOTAL ASSETS   $ 483,216     $ 287,871   LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY                 CURRENT LIABILITIES                 Current portion of long-term debt   $ 331     $ 232   Accounts payable     8,357       4,880   Accrued compensation and benefits     31,740       26,560   Obligations for acquisition of businesses     1,218       13,925   Other accrued expenses and current liabilities     26,347       21,744   Deferred revenue     59,765       130,122   Total current liabilities     127,758       197,463   Long-term debt, net of current portion     31,417       178   Deferred revenue, non-current     6,754       9,640   Other long-term liabilities     28,153       17,647   TOTAL LIABILITIES     194,082       224,928   Commitments and contingencies     ��           MEZZANINE EQUITY     2,352       2,352   STOCKHOLDERS’ EQUITY                 Preferred stock ($0.0001 par value), authorized 45,000 shares, none issued and outstanding     —       —   Common stock ($0.0001 par value)                 Class A common stock, authorized 513,797 shares, issued and outstanding 38,349    and 26,725 shares as of December 31, 2018 and 2017, respectively     4       2   Class B common stock, authorized 41,203 shares, issued and outstanding 32,171    and 36,508 shares as of December 31, 2018 and 2017, respectively     3       4   Additional paid-in capital     379,832       232,156   Accumulated deficit     (82,005 )     (166,499 ) Accumulated other comprehensive loss     (11,052 )     (5,072 ) TOTAL STOCKHOLDERS’ EQUITY     286,782       60,591   TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY   $ 483,216     $ 287,871   See accompanying notes to consolidated financial statements. 76 Altair Engineering Inc. and subsidiaries Consolidated statementsTable of operationsContents        Year ended December 31,   (in thousands, except per share data)    2017     2016     2015   Revenue:        Software    $ 244,817     $ 223,818     $ 205,567   Software related services      35,397       35,770       37,294                            Total software      280,214       259,588       242,861   Client engineering services      46,510       47,702       45,075   Other      6,609       5,950       6,193                            Total revenue      333,333       313,240       294,129                            Cost of revenue:        Software      36,360       31,962       27,406   Software related services      26,888       27,653       30,079                            Total software      63,248       59,615       57,485   Client engineering services      38,131       38,106       36,081   Other      5,212       4,879       5,642                            Total cost of revenue      106,591       102,600       99,208                            Gross profit      226,742       210,640       194,921   Operating expenses:        Research and development      93,234       71,325       62,777   Sales and marketing      79,958       66,086       63,080   General and administrative      87,979       57,202       54,069   Amortization of intangible assets      5,448       3,322       2,624   Other operating income      (6,620 )      (2,742 )      (2,576 )                           Total operating expenses      259,999       195,193       179,974                            Operating (loss) income      (33,257 )      15,447       14,947   Interest expense      2,160       2,265       2,416   Other expense (income), net      994       (520 )      782                            (Loss) income before income taxes      (36,411 )      13,702       11,749   Income tax expense      62,996       3,539       818                            Net (loss) income    $ (99,407 )    $ 10,163     $ 10,931                            (Loss) income per share:        Net (loss) income per share attributable to common stockholders, basic    $ (1.89 )    $ 0.21     $ 0.23   Net (loss) income per share attributable to common stockholders, diluted    $ (1.89 )    $ 0.18     $ 0.19   Weighted average shares outstanding:        Weighted average number of shares used in computing net (loss) income per share, basic      52,466       48,852       46,609   Weighted average number of shares used in computing net (loss) income per share, diluted      52,466       57,856       58,709   ALTAIR ENGINEERING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS     Year ended December 31,   (in thousands, except per share data)   2018 (1)     2017 (1)     2016 (1)   Revenue                         License   $ 207,164                   Maintenance and other services     97,197                   Total software     304,361     $ 244,817     $ 223,818   Software related services     36,945       35,397       35,770   Total software and related services     341,306       280,214       259,588   Client engineering services     47,852       46,510       47,702   Other     7,221       6,609       5,950   Total revenue     396,379       333,333       313,240   Cost of revenue                         License     16,119                   Maintenance and other services     29,655                   Total software     45,774       36,360       31,962   Software related services     26,415       26,888       27,653   Total software     72,189       63,248       59,615   Client engineering services     38,979       38,131       38,106   Other     4,805       5,212       4,879   Total cost of revenue     115,973       106,591       102,600   Gross profit     280,406       226,742       210,640   Operating expenses                         Research and development     97,592       93,234       71,325   Sales and marketing     80,277       79,958       66,086   General and administrative     79,751       87,979       57,202   Amortization of intangible assets     7,739       5,448       3,322   Other operating income     (9,597 )     (6,620 )     (2,742 ) Total operating expenses     255,762       259,999       195,193   Operating income (loss)     24,644       (33,257 )     15,447   Interest expense     200       2,160       2,265   Other (income) expense, net     (2,580 )     994       (520 ) Income (loss) before income taxes     27,024       (36,411 )     13,702   Income tax expense     13,309       62,996       3,539   Net income (loss)   $ 13,715     $ (99,407 )   $ 10,163   Income (loss) per share:                         Net income (loss) per share attributable to common stockholders, basic   $ 0.20     $ (1.89 )   $ 0.21   Net income (loss) per share attributable to common stockholders, diluted   $ 0.18     $ (1.89 )   $ 0.18   Weighted average shares outstanding:                         Weighted average number of shares used in computing net income (loss)    per share, basic     67,468       52,466       48,852   Weighted average number of shares used in computing net income (loss)    per share, diluted     74,878       52,466       57,856   (1) The year ended December 31, 2018 has been reported under ASC 606, and the years ended December 31, 2017 and 2016 have been reported under ASC 605 and have not been adjusted under the modified retrospective approach. See Note 3 – Revenue from contracts with customers for the effect of the adoption of ASC 606 on the Company’s consolidated financial statements. See accompanying notes to consolidated financial statements. 77 Altair Engineering Inc. and subsidiaries Consolidated statementsTable of comprehensive (loss) incomeContents        Year ended December 31,   (in thousands)    2017     2016     2015   Net (loss) income    $ (99,407 )    $ 10,163     $ 10,931   Other comprehensive income (loss), net of tax:        Foreign currency translation (net of tax effect of $0, $(60) and $953, respectively)      2,351       20       (2,115 )  Retirement related benefit plans (net of tax effect of $0, $195 and $(36), respectively)      (159 )      (576 )      (253 )                           Total other comprehensive income (loss)      2,192       (556 )      (2,368 )                           Comprehensive (loss) income      (97,215 )      9,607       8,563   Less: comprehensive loss attributable to noncontrolling interest      —         —         (1 )                           Comprehensive (loss) income attributable to Altair Engineering Inc.    $ (97,215 )    $ 9,607     $ 8,564                            ALTAIR ENGINEERING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME     Year ended December 31,   (in thousands)   2018     2017     2016   Net income (loss)   $ 13,715     $ (99,407 )   $ 10,163   Other comprehensive (loss) income, net of tax:                         Foreign currency translation (net of tax effect of $0, $0 and   ($60) respectively)     (5,211 )     2,351       20   Retirement related benefit plans (net of tax effect of $318, $0 and   $195, respectively)     (769 )     (159 )     (576 ) Total other comprehensive (loss) income     (5,980 )     2,192       (556 ) Comprehensive income (loss)   $ 7,735     $ (97,215 )   $ 9,607                                                       See accompanying notes to consolidated financial statements. 78 Altair Engineering Inc. and subsidiaries Consolidated statementsTable of changes in stockholders’ equity (deficit)Contents        Common stock(1)                  Accumulated     Total Altair Engineering               (in thousands, except share data)    Class A voting      Class B voting      Additional paid-in     Accumulated     other comprehensive     Inc. stockholders’     Non- controlling     Total stockholders’      Shares     Amount      Shares     Amount      capital     deficit     loss     equity (deficit)     interest     equity (deficit)   Balance at January 1, 2015      4,284     $ 1        41,564     $ 4      $ 41,525     $ (87,461 )    $ (4,341 )    $ (50,272 )    $ 11     $ (50,261 )  Net income      —         —          —         —          —         10,931       —         10,931       —         10,931   Issuance of common stock      1,728       —          200       —          1,036       —         —         1,036       —         1,036   Stock redemptions      (264 )      —          (84 )      —          (1,221 )      —         —         (1,221 )      —         (1,221 )  Return of capital      —         —          —         —          —         (725 )      —         (725 )      —         (725 )  Stock-based compensation      —         —          —         —          569       —         —         569       —         569   Foreign currency translation, net of tax      —         —          —         —          —         —         (2,114 )      (2,114 )      (1 )      (2,115 )  Retirement related benefit plans, net of tax      —         —          —         —          —         —         (253 )      (253 )      —         (253 )                                                                                     Balance at December 31, 2015      5,748       1        41,680       4        41,909       (77,255 )      (6,708 )      (42,049 )      10       (42,039 )  Net income      —         —          —         —          —         10,163       —         10,163       —         10,163   Issuance of common stock      3,484       —          —         —          456       —         —         456       —         456   Stock redemptions      (332 )      —          (476 )      —          (3,291 )      —         —         (3,291 )      —         (3,291 )  Stock-based compensation      —         —          —         —          614       —         —         614       —         614   Foreign currency translation, net of tax      —         —          —         —          —         —         20       20       —         20   Retirement related benefit plans, net of tax      —         —          —         —          —         —         (576 )      (576 )      —         (576 )                                                                                     Balance at December 31, 2016      8,900       1        41,204       4        39,688       (67,092 )      (7,264 )      (34,663 )      10       (34,653 )  Net loss      —         —          —         —          —         (99,407 )      —         (99,407 )      —         (99,407 )  Initial public offering, net of issuance costs of $4,830      13,800       1        (2,200 )      —          114,437       —         —         114,438       —         114,438   Shares converted upon Delaware incorporation      2,496       —          (2,496 )      —          —         —         —         —         —         —     2001 ISO Plan modification      —         —          —         —          66,510       —         —         66,510       —         66,510   Issuance of common stock for acquisitions      988       —          —         —          8,712       —         —         8,712       —         8,712   Exercise of stock options      541       —          —         —          1,792       —         —         1,792       —         1,792   Purchase of noncontrolling interests      —         —          —         —          (19 )      —         —         (19 )      (10 )      (29 )  Amortization of mezzanine equity      —         —          —         —          (8 )      —         —         (8 )      —         (8 )  Stock-based compensation      —         —          —         —          1,044       —         —         1,044       —         1,044   Foreign currency translation, net of tax      —         —          —         —          —         —         2,351       2,351       —         2,351   Retirement related benefit plans, net of tax      —         —          —         —          —         —         (159 )      (159 )      —         (159 )                                                                                     Balance at December 31, 2017      26,725     $ 2        36,508     $ 4      $ 232,156     $ (166,499 )    $ (5,072 )    $ 60,591     $ —       $ 60,591                                                                                      ALTAIR ENGINEERING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)   (1) All references to Common stock refer to the Company’s currently existing Class A and Class B shares following theRecapitalization as described in Note 10.                           Accumulated     Total Altair Engineering                       Common stock     Additional             other     Inc.     Non-     Total   (in thousands)   Class A     Class B     paid-in     Accumulated     comprehensive     stockholders’     controlling     stockholders'       Shares     Amount     Shares     Amount     capital     deficit     loss     equity (deficit)     interest     equity (deficit)   Balance at January 1, 2016     5,748     $ 1       41,680     $ 4     $ 41,909     $ (77,255 )   $ (6,708 )   $ (42,049 )   $ 10     $ (42,039 ) Net income     —       —       —       —       —       10,163       —       10,163       —       10,163   Issuance of common stock     3,484       —       —       —       456       —       —       456       —       456   Stock redemptions     (332 )     —       (476 )     —       (3,291 )     —       —       (3,291 )     —       (3,291 ) Stock-based compensation     —       —       —       —       614       —       —       614       —       614   Foreign currency translation,    net of tax     —       —       —       —       —       —       20       20       —       20   Retirement related benefit plans,    net of tax     —       —       —       —       —       —       (576 )     (576 )     —       (576 ) Balance at December 31, 2016     8,900       1       41,204       4       39,688       (67,092 )     (7,264 )     (34,663 )     10       (34,653 ) Net loss     —       —       —       —       —       (99,407 )     —       (99,407 )     —       (99,407 ) Initial public offering,    net of issuance costs of    $4,830     13,800       1       (2,200 )     —       114,437       —       —       114,438       —       114,438   Shares converted upon    Delaware incorporation     2,496       —       (2,496 )     —       —       —       —       —       —       —   2001 ISO Plan modification     —       —       —       —       66,510       —       —       66,510       —       66,510   Issuance of common stock    for acquisitions     988       —       —       —       8,712       —       —       8,712       —       8,712   Exercise of stock options     541       —       —       —       1,792       —       —       1,792       —       1,792   Purchase of noncontrolling    interests     —       —       —       —       (19 )     —       —       (19 )     (10 )     (29 ) Amortization of mezzanine    equity     —       —       —       —       (8 )     —       —       (8 )     —       (8 ) Stock-based compensation     —       —       —       —       1,044       —       —       1,044       —       1,044   Foreign currency translation,    net of tax     —       —       —       —       —       —       2,351       2,351       —       2,351   Retirement related benefit plans,    net of tax     —       —       —       —       —       —       (159 )     (159 )     —       (159 ) Balance at December 31, 2017     26,725       2       36,508       4       232,156       (166,499 )     (5,072 )     60,591       —       60,591   Cumulative effect of an accounting change     —       —       —       —       —       70,779       —       70,779       —       70,779   Net income     —       —       —       —       —       13,715       —       13,715       —       13,715   Follow-on public offering,    net of offering costs of $370     5,731       1       (1,675 )     (1 )     135,201       —       —       135,201       —       135,201   Adjustment for acquisitions     —       —       —       —       (96 )     —       —       (96 )     —       (96 ) Conversion from Class B to Class A     2,662       —       (2,662 )     —       —       —       —       —       —       —   Issuance of common stock    for acquisitions     145       —       —       —       8,681       —       —       8,681       —       8,681   Exercise of stock options     3,086       1       —       —       2,076       —       —       2,077       —       2,077   Stock-based compensation     —       —       —       —       1,814       —       —       1,814       —       1,814   Foreign currency translation,    net of tax     —       —       —       —       —       —       (5,211 )     (5,211 )     —       (5,211 ) Retirement related benefit plans,    net of tax     —       —       —       —       —       —       (769 )     (769 )     —       (769 ) Balance at December 31, 2018     38,349     $ 4       32,171     $ 3     $ 379,832     $ (82,005 )   $ (11,052 )   $ 286,782     $ —     $ 286,782   See accompanying notes to consolidated financial statements. 79 Altair Engineering Inc. and subsidiaries Consolidated statementsTable of cash flowsContents        Year Ended December 31,   (in thousands)    2017     2016     2015   OPERATING ACTIVITIES:        Net (loss) income    $ (99,407 )    $ 10,163     $ 10,931   Adjustments to reconcile net (loss) income to net cash provided by operating activities:        Depreciation and amortization      11,747       9,980       8,378   Provision for bad debt      610       291       145   Write-down of inventory to net realizable value      270       179       1,003   Stock-based compensation expense      47,281       5,132       597   Deferred income taxes      52,571       (6,076 )      (9,131 )  Other, net      28       86       124   Changes in assets and liabilities:        Accounts receivable      (10,397 )      (4,397 )      (8,120 )  Prepaid expenses and other current assets      1,559       (2,337 )      (5,115 )  Other long-term assets      (11,288 )      (930 )      (1,526 )  Accounts payable      (1,087 )      (1,321 )      558   Accrued compensation and benefits      2,060       2,366       2,006   Other accrued expenses and current liabilities      6,207       (1,173 )      2,488   Deferred revenue      15,937       9,422       8,500                            Net cash provided by operating activities      16,091       21,385       10,838                            INVESTING ACTIVITIES:        Payments for acquisition of businesses      (15,582 )      (6,499 )      (2,757 )  Capital expenditures      (7,522 )      (9,444 )      (5,233 )  Payments for acquisition of developed technology      (2,120 )      (154 )      —     Other investing activities, net      373       64       (40 )                           Net cash used in investing activities      (24,851 )      (16,033 )      (8,030 )                           FINANCING ACTIVITIES:        Payments on revolving commitment      (154,187 )      (136,087 )      (91,673 )  Borrowings under revolving commitment      126,832       151,928       103,186   Proceeds from issuance of Class A common stock in initial public offering, net of underwriting commissions      119,268       —         —     Principal payments on long-term debt      (59,869 )      (16,232 )      (15,950 )  Payments for IPO offering costs      (4,644 )      —         —     Proceeds from issuance of common stock      1,792       456       291   Proceeds from issuance of debt      1,541       2,030       1,248   Payments for redemption of common stock      (1,045 )      (3,049 )      (1,744 )  Payment for return of capital      —         (725 )      —     Other financing activities      (130 )      (185 )      (55 )                           Net cash provided by (used in) financing activities      29,558       (1,864 )      (4,697 )                           Effect of exchange rate changes on cash, cash equivalents and restricted cash      1,641       (362 )      (1,639 )                           Net increase (decrease) in cash, cash equivalents and restricted cash      22,439       3,126       (3,528 )  Cash, cash equivalents and restricted cash at beginning of year      17,139       14,013       17,541                            Cash, cash equivalents and restricted cash at end of period    $ 39,578     $ 17,139     $ 14,013                            Supplemental disclosures of cash flow:        Interest paid    $ 2,092     $ 2,190     $ 2,261   Income taxes paid    $ 5,893     $ 5,909     $ 5,626   Supplemental disclosure ofnon-cash investing and financing activities:        Promissory notes issued and deferred payment obligations for acquisitions    $ 12,352     $ 4,182     $ 750   Issuance of common stock in connection with acquisitions    $ 8,712     $ —       $ 745   Issuance of common stock with put rights    $ 2,352     $ —       $ —     Property and equipment and developed technology in accounts payable, other accrued expenses and current liabilities, and other liabilities    $ 582     $ 1,777     $ 178   Initial public offering costs in accounts payable    $ 186     $ —       $ —     Capital leases    $ 124     $ 129     $ 270   Notes issued for stock redemptions    $ —       $ 807     $ 753   Obligations for return of capital in other current liabilities    $ —       $ —       $ 725   ALTAIR ENGINEERING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS 80 Table of Contents     Year Ended December 31,   (in thousands)   2018     2017     2016   OPERATING ACTIVITIES:                         Net income (loss)   $ 13,715     $ (99,407 )   $ 10,163   Adjustments to reconcile net income (loss) to net cash provided by    operating activities:                         Depreciation and amortization     14,734       11,747       9,980   Provision for bad debt     394       610       291   Stock-based compensation expense     3,339       47,281       5,132   Gain on sale of assets held for sale and other     (4,503 )     (244 )     35   Impairment of intangible assets     608       —       —   Deferred income taxes     763       52,571       (6,076 ) Other, net     (183 )     542       230   Changes in assets and liabilities:                         Accounts receivable     (1,394 )     (10,397 )     (4,397 ) Prepaid expenses and other current assets     204       1,559       (2,337 ) Other long-term assets     (1,660 )     (11,288 )     (930 ) Accounts payable     1,647       (1,087 )     (1,321 ) Accrued compensation and benefits     5,678       2,060       2,366   Other accrued expenses and current liabilities     (6,667 )     6,207       (1,173 ) Deferred revenue     9,555       15,937       9,422   Net cash provided by operating activities     36,230       16,091       21,385   INVESTING ACTIVITIES:                         Payments for acquisition of businesses, net of cash acquired     (203,438 )     (15,582 )     (6,499 ) Capital expenditures     (6,659 )     (7,522 )     (9,444 ) Proceeds from sale of assets held for sale and other     6,614       446       34   Payments for acquisition of developed technology     (2,727 )     (2,120 )     (154 ) Other investing activities, net     —       (73 )     30   Net cash used in investing activities     (206,210 )     (24,851 )     (16,033 ) FINANCING ACTIVITIES:                         Proceeds from issuance of Class A common stock in follow-on public    offering, net of underwriters' discounts and commissions     135,572       —       —   Borrowings under revolving commitment     37,041       126,832       151,928   Payments on revolving commitment     (6,091 )     (154,187 )     (136,087 ) Proceeds from issuance of common stock     2,077       1,792       456   Payments for follow-on public offering and IPO offering costs     (556 )     (4,644 )     —   Principal payments on long-term debt     (126 )     (59,869 )     (16,232 ) Payments for redemption of common stock     (119 )     (1,045 )     (3,049 ) Proceeds from issuance of Class A common stock in initial public    offering, net of underwriters' commissions     —       119,268       —   Proceeds from issuance of debt     —       1,541       2,030   Payment for return of capital     —       —       (725 ) Other financing activities     (268 )     (130 )     (185 ) Net cash provided by (used in) financing activities     167,530       29,558       (1,864 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash     (1,443 )     1,641       (362 ) Net (decrease) increase in cash, cash equivalents and restricted cash     (3,893 )     22,439       3,126   Cash, cash equivalents and restricted cash at beginning of year     39,578       17,139       14,013   Cash, cash equivalents and restricted cash at end of period   $ 35,685     $ 39,578     $ 17,139   Supplemental disclosures of cash flow:                         Interest paid   $ 223     $ 2,092     $ 2,190   Income taxes paid   $ 6,735     $ 5,893     $ 5,909   Supplemental disclosure of non-cash investing and financing activities:                         Issuance of common stock in connection with acquisitions   $ 8,681     $ 8,712     $ —   Promissory notes issued and deferred payment obligations    for acquisitions   $ 1,729     $ 12,352     $ 4,182   Capital leases   $ 895     $ 124     $ 129   Property and equipment in accounts payable, other accrued expenses    and current liabilities, and other liabilities   $ 330     $ 582     $ 1,777   Issuance of common stock with put rights   $ —     $ 2,352     $ —   Initial public offering costs in accounts payable   $ —     $ 186     $ —   Notes issued for stock redemptions   $ —     $ —     $ 807   See accompanying notes to consolidated financial statements. 81 Altair Engineering Inc. and subsidiariesTable of Contents Notes to consolidated financial statementsALTAIR ENGINEERING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of business Altair Engineering Inc. (“Altair” or the “Company”) incorporated in the state of Michigan in 1985 and became a Delaware corporation in October 2017. The Company is a providerglobal technology company providing software and cloud solutions in the areas of enterprise-class engineering software enabling innovationproduct design and development, high performance computing and data intelligence. Altair enables organizations across the entire product lifecycle from concept designbroad industry segments toin-service operation. compete more effectively in a connected world while creating a more sustainable future. The Company is based in Troy, Michigan. The Company’s simulation-driven approach to innovation is powered by itsthe Company’s broad portfolio of high-fidelity and high-performance physics solvers. The Company’s integrated suite of software optimizes design performance across multiple disciplines includingencompassing structures, motion, fluids, thermal management, electromagnetics, system modeling, and embedded systems, while also providing data analyticsintelligence andtrue-to-life visualization and rendering. Altair’s engineeringsoftware products represent a comprehensive, open architecture solution for simulation, data intelligence and cloud computing to empower decision making for improved product development, manufacturing, energy management and exploration, financial services, health care, and retail operations. Altair believes its products offer a comprehensive set of technologies to design platform offers a wide range of multi-disciplinary computer aided engineering (“CAE”) solutions. The Company engages with its customers to provide consulting, training, and support, especially when applying optimization.optimize high performance, efficient, innovative and sustainable products and processes in an increasingly connected world. Altair also provides Client Engineering Services to support its customers with long-term ongoing product design and development expertise. This has the benefit of embedding the Company within customers, deepening its understanding of their processes, and allowing the Company to more quickly perceive trends in the overall market, helping the Company to better tailor its research and development and sales initiatives. The Company hires simulation specialists, industrial designers, design engineers, materials experts, development and test specialists, manufacturing engineers and information technology specialistsdata scientists for placement at a customer site for specific customer-directed assignments. Initial public offering In November 2017, the Company closed its initial public offering (“IPO”), in which the Company issued and sold 9,865,004 shares of Class A common stock inclusive of the underwriters’ option to purchase additional shares that was exercised in full. The price per share to the public was $13.00. The Company received aggregate proceeds of $119.3 million from the IPO, net of underwriters’ discounts and commissions, before deducting offering costs of approximately $4.8 million. The IPO also included the sale of 3,934,996 shares of Class A common stock by certain stockholders, giving effect to the conversion of 2,200,000 shares of the Company’s Class B common stock into an equivalent number of shares of Class A common stock, and 1,734,996 stock options for Class A common stock exercised by the Company’s chief executive officer. The Company did not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders. 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. Summary of significant accounting policies Principles of consolidation The accompanying consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the results of the Company and its controlled subsidiaries. Third-party holdings of equity interests in the Company’s subsidiaries that are less than controlled represent noncontrolling interests. Intercompany accounts and transactions have been eliminated in the consolidated financial statements. 82 Table of Contents Reclassifications Certain prior period amounts included in the 2016 consolidated balance sheet2017 and 2016 consolidated statementstatements of cash flows have been reclassified to conform to the current year presentation. In the accompanying consolidated balance sheet as of December 31, 2016, Obligations for acquisition of businesses has been reclassified out of Other accrued expenses and current liabilities. Note 8 – Other liabilities has been adjusted accordingly. This reclassification had no effect on Total current liabilities. In Specifically, in the accompanying consolidated statement of cash flows for the yearyears ended December 31, 2017 and 2016, PaymentsGain on sale of assets held for acquisitionsale and other has been reclassified out of developed technologyOther operating activities. This reclassification had no effect on Net cash provided by operating activities. Additionally, Proceeds from the sale of assets held for sale and other has been reclassified out of Other investing activities. This reclassification had no effect on Net cash used in investing activities. Use of estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, management evaluates its significant estimates including the stand alone selling price, or SSP, for each distinct performance obligation included in customer contracts with multiple performance obligations, the determination of the period of benefit for capitalized costs to obtain a contract, provision for doubtful accounts, tax valuation allowances, liabilities for uncertain tax provisions, impairment of goodwill and intangible assets, retirement obligations, useful lives of intangible assets, revenue for fixed price contracts, valuation of common stock, and stock-based compensation. Actual results could differ from those estimates. Delaware Conversion On October 5, 2017, the Company became a Delaware corporation and effected afour-for-one stock split of its common stock. On the effective date of the Company becoming a Delaware corporation, (i) each share of outstanding common stock was increased to four shares of common stock, par value $0.0001 per share, (ii) the number of shares of common stock issuable under each outstanding option to purchase common stock was increased on afour-for-one basis, (iii) the exercise price of each outstanding option to purchase common stock was reduced on afour-for-one basis, and (iv) the redemption price of each outstanding put option was reduced on afour-for-one basis. All share and per share information referenced throughout the consolidated financial statements and notes thereto have been retroactively adjusted to reflect this stock split. In connection with the Company becoming a Delaware corporation, 2,495,752 shares of Class B common stock, held by holders of less than 3% of Class B common stock immediately prior to the conversion, converted into Class A common stock. Pursuant to the Company’s Delaware certificate of incorporation, the Company’s authorized capital consists of 513,796,572 shares of Class A common stock, 41,203,428 shares of Class B common stock and 45,000,000 shares of preferred stock. Foreign currency translation The functional currency of the Company’s foreign subsidiaries is their respective local currency. The assets and liabilities of the subsidiaries are translated to U.S. dollars at the exchange rate on the balance sheet date. Equity balances and transactions are translated using historical exchange rates. Revenues and expenses are translated at the average exchange rate during the period. Translation adjustments arising from the use of differing exchange rates from period to period are recorded as a component of accumulated other comprehensive loss within stockholders’ equity. All assets and liabilities denominated in a currency other than the functional currency are remeasured into the functional currency with gains and losses recognized in foreign currency losses, net, in the consolidated statements of operations. The Company has no transactions which hedge purchase commitments and no intercompany balances which are designated as being of a long-term investment in nature. Revenue recognition The Company generates revenue from the following sources: (1) Software; (2) Client engineering services;our Software and (3) Other.CES segments and our other businesses. Revenue is recognized when persuasive evidence of an agreement exists, delivery has occurred or services have been rendered,by identifying a contract with a customer, identifying the fee is fixed or determinable, and collection ofperformance obligations in the fee is probable or reasonably assured. Certain transactions require that government imposed taxes be assessedcontract, determining the transaction price, allocating the transaction price to the customer. Theperformance obligations in the contract, and recognizing revenue when (or as) the Company presents revenue net of such government imposed taxes.satisfies a performance obligation. Software revenue Software component Software revenue includes product revenue from software product licensing arrangements, related services consisting of software maintenance and support in the form of post-contract customer support (“PCS”),(PCS or maintenance) and professional services such as 83 Table of Contents consulting and training services. To a much lesser extent, software revenue also includes revenue from the sale of hardware products, primarily as a result of recent business acquisitions. Software products are sold to customers primarily under a term-based software licensing model and to a lesser degree, perpetual software licenses. SoftwareThe Company enters into contracts that include combinations of products, maintenance and services, which are accounted for as separate performance obligations with differing revenue also includes consulting services from product design and development projects.recognition patterns. Most term-based software license agreements include the Company’s patented units-based subscription model which allows customers to license a pool of units for their organizations, providing individual users flexible access to the Company’s entire portfolio of engineering software applications as well as to its growing portfolio of partner products. The amount of software usage is limited by the number of the units licensed by the customer. Revenue from these arrangements is fixed (based on the units licensed) and is not based on actual customer usage of each software product. Software productRevenue from term-based software licenses is classified as license arrangements may includesoftware revenue. Term-based licenses are sold only as a bundled arrangement that includes the rights to a term software license and PCS, which includes unspecified technical enhancements and professional services, such as consulting and training services, which represent multiple-element arrangements. Thecustomer support. Maximizing the use of observable inputs, the Company has analyzed the elements included in its multiple element arrangements and has determined that it does not have vendor-specific objective evidence (“VSOE”) of fair value to allocate revenue to its software products license, PCS, and professional services including consulting and training. For arrangements that have two or more elements such as software, PCS or professional services for which the Company has not established VSOE of fair value, the Company uses the combined services approach to recognize revenue for these transactions. Under the combined services approach, revenue from the software product licenses, including perpetual licenses, PCS and professional services, if applicable, are considered to be one accounting unit and, once the software has been delivered and the provision of each undelivered service has commenced, are recognized ratably over the remaining perioda majority of the arrangement which consistsestimated standalone selling price of the longerterm-based license is attributable to the term license and a minority is attributable to the PCS. The license component is recognized as revenue upon the later of delivery of the PCS period,licensed product or the period the professional services are expected to be performed. If the professional services are essential to the functionalitybeginning of the software products, thenlicense period. The PCS is classified as maintenance revenue recognition does not commence until such services are completed. In transactions with resellers, the Company contracts only with the reseller, in which pricing, length of licenses and support services are agreed upon. The reseller negotiates the price charged and length of licenses and support service directly with its customer. The term-based software license arrangements typically have a duration of 12 months and include PCS, including the right to receive unspecified software upgrades, when and if available during the license term. The Company does not charge separately for PCS. Revenues for software licenses sold on a term-based model areis recognized ratably over the term of the contract, as the Company provides the PCS benefit over time. In addition to term-based software licenses, the Company sells perpetual licenses. Typically, the Company’s perpetual licenses are sold with PCS, which includes unspecified technical enhancements and customer support. Revenue from the software component is classified as license arrangement, oncesoftware revenue and is recognized upon the later of delivery of the licensed product or the beginning of the license period. The Company allocates value in bundled perpetual and PCS arrangements based on the standalone selling prices of the perpetual license and PCS. Revenue from PCS is classified as maintenance revenue and is recognized ratably over the term of the contract, as the Company satisfies the PCS performance obligation over time. Revenue from training, consulting and other services is recognized as the services are performed. For contracts in which the service consists of a single performance obligation, such as providing a training class to a customer, the Company recognizes revenue upon completion of the performance obligation. For service contracts that are longer in duration and often include multiple performance obligations (for example, both training and consulting), the Company measures the progress toward completion of the obligations and recognizes revenue accordingly. In measuring progress towards the completion of performance obligations, the Company typically utilizes output-based estimates for services with contractual billing arrangements that are not based on time and materials, and estimates output based on the total tasks completed as compared to the total tasks required for each work contract. Input-based estimates are utilized for services that involve general consultations with contractual billing arrangements based on time and materials, utilizing direct labor as the input measure. The Company also executes arrangements through indirect channel partners in which the channel partners are authorized to market and distribute the Company's software products to end users of the Company's products and services in specified territories. In sales facilitated by channel partners, the channel partner generally bears the risk of collection from the end-user customer. The Company recognizes revenue from transactions with channel partners when the channel partner submits a purchase commitment, collectability from the channel partner is probable, and the performance obligation was met, at a point in time or over time as appropriate, provided that all other revenue recognition criteria have been met. Theare satisfied. Revenue from channel partner transactions is the amount remitted to the Company also sells perpetual licensesby the channel partners. This amount includes a fee for PCS that is compensation for providing technical enhancements and the second level of technical support to its customers.the end user, which is recognized over the period that PCS is to be provided. The Company does not have VSOEoffer right of fair value for PCS, which is sold along withreturn, product rotation or price protection to any of its channel partners. Non-income related taxes collected from customers and remitted to governmental authorities are recorded on the perpetual licenses. Asconsolidated balance sheet as accounts receivable, net and other accrued expenses and current liabilities. These amounts are reported on a result, revenue from these arrangements is recognized ratably overnet basis in the initial PCS term.consolidated statements of operations and do not impact reported revenues or expenses. Software related services component Consulting services from product design and development projects are considered distinct performance obligations and are provided to customers on atime-and-materials, (“ or T&M”)&M, or fixed-price basis. Altair recognizes software services revenue forfrom our T&M contracts based upon hours workedusing input-based estimates, utilizing direct labor and contractually agreed-upon hourly rates. Revenue fromrates as the input measure. For fixed-price engagementscontracts, software services revenue is recognized over time using a method that measures the proportionalextent of progress towards completion of a performance obligation, generally using a cost-input method where revenue is recognized based on the ratioproportion of coststotal cost incurred to theestimated total estimated project costs. Project costs are based on standard rates, which vary by the consultant’s professional level, plus all direct expenses incurred to complete the engagement thatat completion. If output or input measures are not reimbursed by the client. Project costs are typically expensed as incurred. The use of the proportional performance method is dependent upon management’s ability to reliably estimate the costs to complete a project. The Company uses historical experience as a basis for future estimates to complete current projects. Additionally, the Company believes that costs are the best available measure of performance. If the costs to complete a project are not estimable or the completion is uncertain, thecannot be reasonably estimated, revenue is recognized upon completion of the services. 84 Table of Contents Client engineering services CES revenue Client engineering services revenue are is derived from professional servicesour hiring of engineers and data scientists for staffing primarily representing engineers locatedplacement at a customer site.site for specific customer-directed assignments. These professional services are considered distinct performance obligations and are provided to customers on a T&M basis. The Company recognizesWe recognize client engineering services revenue for T&M contracts based upon hours worked and contractually agreed-upon hourly rates. Other revenue Other revenue includes product revenue from the sale of LED products for the replacement of fluorescent tubes. Revenue from the sale of LED products for the replacement of fluorescent tubes is recognized when all revenue recognition criteria stated above are met, which is generally when the products are delivered to resellers or to end customers. Sales returns, which reduce revenue, and cost of revenue, are estimated using historical experience. Cost of revenue Cost of software Cost of software revenue consist of expenses related to software licensing, hardware sales and customer support. Significant expenses include employee related costs for support team members, travel costs, and royalties for third-party software products available to customers through the Company’s products or as part of the Company’s Partner Alliance Program.Program, or APA. Cost of client engineering services Cost of engineering services revenue consistconsists primarily of employee compensation and related costs. We employ and pay them only for the duration of the placement. Cost of other Cost of other revenue includes the cost of LED lighting products and freight related to products sold to retail and commercial sales channels and third-party royalty expense related to the Company’s WEYV business.channels. Deferred revenue Deferred revenue consists of customer billings or payments received in advance of the recognition of revenue and is recognized as revenue when revenue recognition criteria are met. Cash, cash equivalents and restricted cash The Company considers all highly liquid investments with original or remaining maturities of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value. Restricted cash is included in other long-term assets on the consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets that sum to the total of the amounts reported in the consolidated statements of cash flows (in thousands):      December 31,     December 31,      2017      2016     2018     2017   Cash and cash equivalents    $ 39,213      $ 16,874     $ 35,345     $ 39,213   Restricted cash included in other long-term assets      365        265       340       365                 Total cash, cash equivalents, and restricted cash shown in the statement of cash flows    $ 39,578      $ 17,139     $ 35,685     $ 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. 85 Table of Contents Accounts receivable, net Accounts receivable, net consisted of the following (in thousands):     December 31,       2018     2017   Accounts receivable, trade   $ 93,073     $ 82,185   Contract assets     3,730       4,450   Accounts receivable, net   $ 96,803     $ 86,635   An allowance for doubtful accounts is recorded when amounts are determined to be uncollectible based on specific identification of customer circumstances, age of the receivable and other available information. Accounts are written off when it becomes apparent that such amounts will not be collected. Generally, the Company does not require collateral or charge interest on accounts receivable. Accounts receivable were reported net of an allowance for doubtful accounts of $0.8$1.2 million and $0.6$0.8 million at December 31, 20172018 and 2016,2017, respectively. Activity in the allowance for doubtful accounts was as follows (in thousands):      For the year ended December 31,     For the year ended December 31,      2017      2016      2015     2018     2017     2016   Balance, beginning of year    $ (565 )     $ (937 )     $ (1,439 )    $ (798 )   $ (565 )   $ (937 ) Provision charged to expense      (610 )       (291 )       (145 )      (394 )     (610 )     (291 ) Write-offs, net of recoveries      414        638        536       3       414       638   Effects of foreign currency translation      (37 )       25        111       39       (37 )     25                        Balance, end of year    $ (798 )     $ (565 )     $ (937 )    $ (1,150 )   $ (798 )   $ (565 )                      Concentrations of credit risk The Company’s financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash and trade receivables. The risk with respect to trade receivables is partially mitigated by the diversity, both by geography and by industry, of the Company’s customer base. The Company’s accounts receivable areis derived from sales to a large number of direct customers and resellers around the world. Sales to customers within the automotive industry accounted for approximately 45%, 50%, 50% and 51%, respectively,50% of the Company’s 2018, 2017 and 2016 and 2015 revenue, respectively, with no other industry representing more than 10% of revenue. No individual customer accounted for 10% or more of revenue in the years ended December 31, 2018, 2017 2016 or 2015. Inventory2016. Inventory Inventory consist of finished goods and is stated at the lower of cost and net realizable value. Cost is determined using thefirst-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):      December 31,        2017      2016   Raw materials    $ —        $ 52   Finished goods      1,980        1,175                     Total inventory – net    $ 1,980      $ 1,227                     Property and equipment, net Property and equipment are stated at cost, less accumulated depreciation and amortization. Equipment held under capital leases are stated at the present value of minimum lease payments less accumulated amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements and assets acquired under capital leases are amortized over the lease term or the estimated useful life of the related asset or improvement, whichever is shorter. Expenditures for maintenance and repairs are charged to expense in the period incurred. Major expenditures for betterments are capitalized when they meet the criteria for capitalization. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the consolidated statements of operations in the period realized. Software development costs Software development costs incurred prior to the establishment of technological feasibility are expensed as incurred. Technological feasibility is established upon the completion of a detailed program design. Capitalization of software development costs begins upon the establishment of technological feasibility and ends when the product is available for general release. Generally, the time between the establishment of technological feasibility and commercial release of software is short. As such, all internal software development 86 Table of Contents costs have been expensed as incurred and included in research and development expense in the accompanying consolidated statements of operations. Impairment of long-lived assets Long-lived assets, such as property and equipment, and definite-lived intangible assets, including developed technology and customer relationships, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company compares the undiscounted future cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models and third-party independent appraisals. No impairment losses were recognized in 2018, 2017, 2016, or 2015.2016. Goodwill and other indefinite-lived intangible assets Goodwill represents the excess of the consideration transferred for an acquired entity over the estimated fair values of the net tangible assets and the identifiable assets acquired. As described in Note 4—Acquisitions, the Company has recorded goodwill in connection with certain acquisitions. Goodwill and other indefinite-lived intangible assets are not amortized, but rather are reviewed for impairment annually or more frequently if facts or circumstances indicate that itsthe carrying value may not be recoverable. The Company has determined that there is one reporting unit with goodwill subject to goodwill impairment testing. An entity has the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount prior to performing the quantitativetwo-step impairment test. The qualitative assessment evaluates various events and circumstances, such as macro-economic conditions, industry and market conditions, cost factors, relevant events and financial trends that may impact a reporting unit’s fair value. If it is determined that the estimated fair value of the reporting unit is more likely than not less than its carrying amount, including goodwill, thetwo-step goodwill impairment test is required. Otherwise, no further analysis would be required. For 2017 and 2016, the Company performed a qualitative assessment of goodwill and determined that it was not more likely than not that the fair value of its reporting unit with goodwill was less than the carrying amounts. Accordingly, the Company determined that its goodwill was not impaired. IfThe Company may skip the qualitative assessment, or if the two-step impairment test for goodwill is deemed necessary, this quantitative impairment analysis compares the fair value of the Company’s reporting unit to its related carrying value. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed. If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists and the Company must perform step two of the impairment test. Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting units is determined using an income approach. The income approach is based on projected debt-free cash flows which are discounted to the present value using discount factors that consider the timing and risk of cash flows. The Company also takes into consideration a multiple of earnings valuation technique. The Company believes that this approach is appropriate because it provides a reasonable estimate of the price that would be received to sell the reporting unit in an orderly transaction between market participants at the measurement date. While there are inherent uncertainties related to the assumptions used in this analysis, the Company believes that this approach provides a reasonable estimate of fair value. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed. The Company performs its annual impairment review of goodwill in the fourth quarter of each year and when a triggering event occurs between annual impairment dates. For 2017, 2016 and 2015,2018, the Company performed a qualitativequantitative assessment of goodwill and determined that it was not more likely than not that the fair value of itsthe reporting unit with goodwill was less than theexceeded its carrying amounts.amount, as such, step two does not need to be performed. Accordingly, the Company determined that its goodwill was not impaired. During the quarter ended September 30, 2018, the Company performed an interim test of indefinite-lived trade names. This test was triggered by the Company’s decision during the quarter to rename and rebrand certain products in the Software segment. Upon completion of the impairment test, the Company recorded an impairment charge of $0.6 million which is included in other operating income for the year ended December 31, 2018. Three was no indication of impairment of other indefinite-lived intangible assets for the Company’s annual test which is completed in the fourth quarter. No impairment charges were recognized in 2017 and 2016. 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. The tax credit is deductible from the French income tax and any excess is carried forward for three years. After three years, any unused credit may be reimbursed to the Company by the French government. As of 87 Table of Contents December 31, 2018, the Company had approximately $11.7 million receivable from the French government related to CIR, of which $2.6 million is recorded in income tax receivable and the remaining $9.1 million is recorded in other long-term assets. As of December 31, 2017, the Company had approximately $10.2 million receivable from the French government related to CIR, of which $3.3 million iswas recorded in income tax receivable and the remaining $6.9 million iswas recorded in other long-term assets. CIR is subject to customary audit by the French tax authorities. Valuation of common stock prior to IPO Due to the absence of an active market for the Company’s common stock prior to the Company’s IPO in the fourth quarter of 2017, the Board of Directors, with the assistance of a third-party valuation specialist, determined the fair value of the Company’s common stock. The valuation methodology included estimates and assumptions including forecasts of future cash flows that required significant judgments. These valuations considered a number of objective and subjective factors, including the Company’s actual operating and financial performance, external market conditions, performance of comparable publicly traded companies, comparable transactions, business developments, likelihood of achieving a liquidity event, such as an initial public offering or sale, and common stock transactions, among other factors. The Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid,Valuation of Privately-Held Company Equity Securities issued as Compensation, to estimate the fair value of its common stock. Significant changes to the key assumptions used in the valuations could have resulted in different fair values of the Company’s common stock at each valuation date. Derivative financial instruments The Company may use derivative financial instruments, primarily interest rate swap contracts or foreign currency contracts, to hedge its exposure to interest rate or foreign exchange risk. Such derivative financial instruments are initially recorded at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value at period end. Any gains or losses arising from changes in fair value on derivative contracts during the year are recorded in other (income) expense, (income), net in the consolidated statement of operations. Hedge accounting has not been applied. Income taxes The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basesbasis and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company records net deferred tax assets to the extent it believes that these assets will more likely than not be realized. These deferred tax assets are subject to periodic assessments as to recoverability and if it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recorded which increase the provision for income taxes. In making such determination, the Company considers all available positive and negative evidence, including historical taxable income, projected future taxable income, the expected timing and reversal of existing temporary differences, ability to carryback losses, and tax planning strategies. If based upon the evidence, it is more likely than not that the deferred tax asset will not be realized, a valuation allowance is recorded. A valuation allowance is recognized to reduce deferred tax assets to the amount that management believes is more likely than not to be realized. The Company applies amore-likely-than-not recognition threshold to its accounting for tax uncertainties. The Company reviews all of its tax positions and makes determinations as to whether its tax positions are more likely than not to be sustained upon examination by the relevant taxing authorities. Only those benefits that have a greater than fifty percent likelihood of being sustained upon examination by taxing authorities are recognized. Interest and penalties related to uncertain tax positions are recorded in the provision for income taxes in the consolidated statements of operations. Research and development costs Research and development costs are expensed as incurred. Research and development expenses consist primarily of salaries and benefits of research and development employees and costs incurred related to the development of new software products and significant enhancements and engineering changes to existing software products. Research and development expenses were $97.6 million, $93.2 million, and $71.3 million for the years ended December 31, 2018, 2017 and 2016, respectively. Advertising costs Advertising costs are expensed as incurred. Advertising expenses were $4.4 million, $3.5 million $2.5 million and $2.2$2.5 million for the years ended December 31, 2018, 2017, 2016, and 2015,2016, respectively. 88 Table of Contents 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. As of December 31, 2017, the Company concluded that it is no longer probable that the put option will be exercised as the put value is substantially below market value and subsequent adjustment is not required. Classification of the of instrument shall remain as mezzanine equity until one of the following three events take place; 1) shares are sold on open market; 2) a redemption feature lapses; or 3) there is a modification of the terms of the instrument. As none of these events have taken place as of December 31, 2017,2018, the classification remains as mezzanine equity. Stock-based compensation Employee stock-based awards, consisting of stock options or restricted stock units (RSUs) expected to be settled by issuing shares of Class A common stock, are recorded as equity awards. The fair value of these awards on the date of grant is measured using the Black-Scholes option pricing model. The Company expenses the grant date fair value of its time-vested stock options subject to graded vesting using the straight-line method over the applicable service period. The fair value of RSUs, is measured using the fair value of the Company’s Class A common stock on the date of the grant. The fair value of RSUs is recognized as expense on a straight-line basis over the requisite service period, which is generally four years. Employee stock-based awards, which consisted of stock options with repurchase features that allowed them to be settled in cash at a purchase price that was less than the current fair value, were considered liability-based awards. These awards were initially recorded at fair value and remeasured to fair value at the end of each reporting period until settled. During the quarter ended June 30, 2017, the Company changed its accounting policy to measure the fair value of its liability awards using the Black-Scholes option pricing model as a result of the Company no longer meeting the definition of anon-public entity. The impact of the change in accounting policy was immaterial to the financial statements. Upon IPO effectiveness in the fourth quarter of 2017, the repurchase feature was terminated and resulted in a modification of the option awards and these options were accounted for as equity awards post the Company’s IPO. Recent accounting guidance Accounting standards adopted The Company adopted Accounting Standards Update, “ASU”No. 2015-11,Inventory: Simplifying the Measurement of Inventory, on January 1, 2017. This update amended existing guidanceceased to requirequalify as an entity to measure inventory within the scope at the lower of cost and net realizable value. Net realizable value is the estimated selling pricesemerging growth company (as defined in the ordinary courseJumpstart Our Business Startups Act of business, less reasonable predictable costs2012) as of completion, disposal and transportation. The adoption did not have a material effectDecember 31, 2018, therefore all of the 2018 public company adoptions are reflected in this Annual Report on the Company’s consolidated financial statements.Form 10-K. The Company early adopted ASUNo. 2016-09,Employee Share-Based Payment Accounting, on October 1, 2017. ASU2016-09 simplifies various aspects related to how share-based payments are accounted for and presented in the financial statements. On a prospective basis the Company recognizes excess tax benefits or deficiencies on vesting or settlement of awards as discrete items within income tax benefit or provision within net income (loss) and the related cash flows classified within operating activities. With respect to forfeiture accounting policy election, the Company elected to account for forfeitures as they occur, adopted on a modified retrospective basis. The election to account for forfeitures as they occur did not have a material effect on the Company’s consolidated financial statements. The Company early adopted ASUNo. 2016-16,Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, on January 1, 2017. Previous guidance required the tax effects from intra-entity asset transfers to be deferred until the asset is sold to a third party or recovered through use. ASU2016-16 eliminates this deferral for all intra-entity asset transfers other than inventory. The adoption did not have a material effect on the Company’s consolidated financial statements. The Company early adopted ASUNo. 2017-01,Business Combinations (Topic 805): Clarifying the Definition of a Business, on January 1, 2017. This update revised the definition of a business to assist entities with evaluating whether a set of transferred assets and activities is a business. The adoption did not have a material effect on the Company’s consolidated financial statements. Accounting standards not yet adopted Revenue Recognition—In —In May 2014, the Financial Accounting Standards Board, or “FASB”, issued ASUNo. 2014-09,Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). This standard outlines a single comprehensive modelThe Company adopted ASU 2014-09 and its related amendments, or ASC 606, effective January 1, 2018 using the modified retrospective approach for entitiesall contracts not completed as of the date of adoption. Results as of and for the year ended December 31, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to usebe reported in accountingaccordance with ASC 605, Revenue Recognition (ASC 605) and other industry specific guidance. Under ASC 605, the Company did not report “License” and “Maintenance and other services” revenue or cost of revenue. Therefore, the Company could not report these amounts for revenue arisingcomparable prior periods. See Note 3 – Revenue from contracts with customers and supersedes most existing revenue recognition guidance under GAAP. The core principlefor the effect 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. ASU2014-09 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 ASU2015-14,Revenue from Contracts with Customers: Deferral of the Effective Date that defers the effective date of ASU2014-09 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 ASU2014-09, 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 impact of adopting ASU2014-09 to have a significant impactASC 606 on the Company’s consolidated financial statements. The Company has elected to adopt this standard effective on January 1, 2019 using a modified retrospective approach. The Company is currently evaluating the impact this standard will have on its consolidated financial statements. 89 Table of Contents Financial Instruments—In —In January 2016, the FASB issued ASUAccounting Standards Update (“ASU”) No. 2016-01,Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The Company adopted this standard effective January 1, 2018. This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. The adoption did not have a material effect on the Company’s consolidated financial statements. Cash Classification —In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments2016-01 is, The Company adopted ASU 2016-15 effective January 1, 2018, on a retrospective basis. This standard provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the first quarterstatements of 2019.cash flows. The adoption did not have a material effect on the Company’s consolidated financial statements. 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.  The Company is evaluatingadopted ASU 2017-07 effective January 1, 2018. This ASU provides guidance on the impactpresentation of the service cost component and the other components of net period pension cost in the consolidated statements of operations. The adoption did not have a material effect on the Company’s consolidated financial statements. Stock Compensation – In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of ASUModification Accounting,2016-01 which 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. This change is required to be applied prospectively to an award modified on itsor after the adoption date. The Company adopted this standard on January 1, 2018, and will apply this guidance to modifications of stock-based compensation arrangements after this date. The adoption did not have a material effect on the Company’s consolidated financial statements and related disclosures.statements. Accounting standards not yet adopted Leases—In —In February 2016, the FASB issued ASUNo. 2016-02,Leases (Topic 842). This standard amends various aspects of existing accounting guidance for leases, including the recognition of aright-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. ASU2016-02 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, ASU2016-02 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 is evaluatingadopting ASU 2016-02 on January 1, 2019 and plans to elect the impactoptional transition method as well as the package of the adoption of ASU2016-02 on its financial statements and related disclosures. Cash Classification—In August 2016, the FASB issued ASUNo. 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. ASU2016-15 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. ASU2016-15 is effective for interim and annual periods beginning after December 15, 2017, for public business entities. For all other entities, including emerging growth companies, ASU2016-15 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.practical expedients upon adoption. The Company is currently in the process of completing its review of lease contracts, evaluating other contracts for potential embedded leases, and establishing new processes and revised internal controls. Upon adoption, the Company expects to record a right of use asset and a corresponding lease liability for its operating leases where the Company is the lessee. The potential impact ofon the adoption of ASUNo. 2016-15 on itsCompany’s consolidated financial statements is largely based on the present value of future minimum lease payments, the amount of which will depend upon the population of leases in effect at the date of adoption. Future minimum lease payments totaled $33.2 million as of December 31, 2018, as disclosed in Note 19 - Commitments and related disclosures.contingencies. Goodwill Impairment—In —In January 2017, the FASB issued ASUNo. 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, ASU2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2021.2019. 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. Retirement Benefits – In March 2017, the FASB issued ASU2017-07, 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, ASU2017-07 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. Stock Compensation – In May 2017, the FASB issued ASU2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU 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 new guidance is effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted for interim or annual periods. The Company is evaluating the impact of the adoption of ASUNo. 2017-09 on its financial statements and related disclosures. Derivatives and Hedging – In August 2017, the FASB issued ASU2017-12,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, theThe amendments are effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements. 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 90 Table of Contents 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. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, including in an interim period, but not before an entity adopts ASC 606, Revenue from contracts with customers. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements. Fair Value – In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements, by removing, modifying, or adding certain disclosures. The amendments are effective for fiscal years, and interim reporting periods within those annual periods,fiscal years, beginning after December 15, 2018. For all2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures. Retirement Benefits – In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits- Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU modifies the disclosure requirements for defined benefit pension or other entities, including emerging growth companies,postretirement plans. The amendments are effective for fiscal years ending after December 15, 2020, early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements. Intangibles – In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU clarifies and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, beginning after December 15, 2020. Earlyearly adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.statements and related disclosures. 3. Fair value measurementsRevenue from contracts with customers Adoption of ASC 606, Revenue from Contracts with Customers The Company adopted ASC 606 on January 1, 2018, using the modified retrospective approach for all contracts not completed as of the date of adoption. Results for reporting periods beginning on or after January 1, 2018, are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with ASC 605, and other industry specific guidance. The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the transfer of promised goods or services to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 requires an entity to evaluate revenue recognition by identifying a contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract, and recognizing revenue when (or as) the entity satisfies a performance obligation. Topic 606 also includes Subtopic 340-40 which provides accounting guidance for fair value, among other things, defines fair value, establishesincremental costs of obtaining a consistent framework for measuring fair valuecontract with a customer. The Company refers to Topic 606 and expands disclosure for each major asset and liability category measuredSubtopic 340-40 collectively as “ASC 606.” The Company elected not to apply any of the practical expedients which are allowed in the application of this new guidance.  The Company recorded a decrease to accumulated deficit of $84.6 million, or $70.8 million net of tax, on January 1, 2018, due to the cumulative effect of the ASC 606 adoption, with the impact primarily derived from revenue related to software licenses recognized at fair valuea point in time under ASC 606 that were historically recognized over time. There was no impact on either a recurringClient Engineering Services or nonrecurring basis. Fair value is defined asOther revenue upon 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 consistsadoption 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:ASC 606. 91 Table of Contents   Level 1— Quoted prices in active markets for identical assets and liabilities at the measurement date; Level 2— Observable inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3— Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. An asset’s or liability’s fair value measurement level withinRevenue recognition Software revenue Revenue is derived principally from the fair value hierarchylicensing of software products and from related maintenance contracts. The Company enters into contracts that include combinations of products, maintenance and services, which are accounted for as separate performance obligations with differing revenue recognition patterns. Revenue from term-based software licenses is based onclassified as software revenue. Term-based licenses are sold only as a bundled arrangement that includes the lowest level of any input that is significantrights to the fair value measurement. Valuation techniques used need to maximizea term software license and post-contract customer support (PCS), which includes unspecified technical enhancements and customer support. Maximizing the use of observable inputs, the Company determined that a majority of the estimated standalone selling prices of the term-based license is attributable to the term license and minimizea minority is attributable to the usePCS. The license component is classified as software revenue and recognized as revenue upon the later of unobservable inputs. delivery of the licensed product or the beginning of the license period. PCS is classified as software revenue and is recognized ratably over the term of the contract, as the Company provides the PCS benefit over time as a stand ready to perform obligation. In addition to term-based software licenses, the Company sells perpetual licenses. Software revenue is recognized upon the later of delivery of the licensed product or the beginning of the license period. Typically, the Company’s perpetual licenses are sold with PCS. The Company allocates value in bundled perpetual and PCS arrangements based on the value relationship between the software license and maintenance. Revenue from PCS is classified as software revenue and is recognized ratably over the term of the contract, as the Company satisfies the PCS performance obligation over time as a stand ready to perform obligation. ItemsRevenue from training, consulting and other services is recognized as the services are performed. For contracts in which the service consists of a single performance obligation, such as providing a training class to a customer, the Company recognizes revenue upon completion of the performance obligation. For service contracts that are longer in duration and often include multiple performance obligations (for example, point-in-time training and consulting), the Company measures the progress toward completion of the obligations and recognizes revenue accordingly. In measuring progress towards the completion of performance obligations, the Company typically utilizes output-based estimates for services with fixed fee arrangements, and estimates output based on the total tasks completed as compared to the total tasks required for each contract. Input-based estimates are utilized for services that involve general consultations with contractual billing arrangements based on time and materials, utilizing direct labor as the input measure. The Company also executes arrangements through indirect channel partners in which the channel partners are authorized to market and distribute the Company's software products to end users of the Company's products and services in specified territories. In sales facilitated by channel partners, the channel partner bears the risk of collection from the end-user customer. The Company recognizes revenue from transactions with channel partners when the channel partner submits a purchase commitment, collectability from the channel partner is probable, and the performance obligation is met, at a point in time or over time as appropriate, provided that all other revenue recognition criteria are satisfied. Revenue from channel partner transactions is the amount remitted to the Company by the channel partners. This amount includes a fee for PCS that is compensation for providing technical enhancements and the second level of technical support to the end user, which is recognized over the period that PCS is to be provided. The Company does not offer right of return, product rotation, or price protection to any of its channel partners. Non-income related taxes collected from customers and remitted to governmental authorities are recorded on the consolidated balance sheet as Accounts receivable, net and Other accrued expenses and current liabilities. These amounts are reported on a net basis in the Consolidated statements of operations and do not impact reported revenues or expenses. Significant judgments Software revenue The Company’s contracts with customers typically include promises to transfer licenses and services to a customer. Judgment is required to determine if the promises are separate performance obligations within the context of the arrangement, and if so, the allocation of the transaction price to each performance obligation. The Company’s determination of standalone selling price for performance obligations is based on the midpoint of the range of historical observable prices for goods and services sold separately. In addition, the Company estimates the standalone selling price for certain performance obligations where observable prices are not directly available or a significant portion of historical prices are not within the range. The Company estimates standalone selling price at contract inception considering all information that is reasonably available and is based on the amount of consideration for which the Company expects to be entitled in exchange for transferring the promised good or service to the customer. The corresponding revenues are recognized as the related performance obligations are satisfied. The Company’s contracts do not include a significant financing component requiring adjustment to the transaction price. Payment terms vary by contract type, however, arrangements typically stipulate a requirement for the customer to pay within 30 days. 92 Table of Contents The Company rarely enters into agreements to modify previously executed contracts, which constitute contract modifications. The Company assess’ each of these contract modifications to determine (i) if the additional products and services are distinct from the products and services in the original arrangement; and (ii) if the amount of consideration expected for the added products and services reflects the stand-alone selling price of those products and services, as adjusted for contract-specific circumstances. A contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change to the original contract and is accounted for on either (i) a prospective basis as a termination of the existing contract and the creation of a new contract; or (ii) a cumulative catch-up basis. Generally, the Company’s contract modifications meet both criteria and are accounted for as a separate contract, as adjusted for contract-specific circumstances. Software related services revenue Consulting services from product design and development projects are considered distinct performance obligations and are provided to customers on a time-and-materials (“T&M”) or fixed-price basis. Altair recognizes software services revenue for T&M contracts based upon hours worked and contractually agreed-upon hourly rates using the input method. Revenue from fixed-price engagements is recognized using the output method based on the ratio of costs incurred, to the total estimated project costs. Client engineering services and Other revenue Client engineering services revenue are derived from professional services for staffing primarily representing engineers and data scientists located at a customer site. These professional services are considered distinct performance obligations and are provided to customers on a T&M basis. The Company recognizes this revenue for T&M contracts based upon hours worked and contractually agreed-upon hourly rates using the input method. No significant judgments were made for revenue recognition related to businesses included within Other revenue. 93 Table of Contents Impact of ASC 606 on consolidated financial statement line items The following table summarizes the cumulative impact of adoption of the new revenue standard for revenue recognition on line items within the consolidated balance sheets (in thousands):     As of December 31, 2017       Prior to adoption of ASC 606     Adjustments for ASC 606     As Adjusted   Prepaid expenses and other current assets   $ 10,006     $ 1,589     $ 11,595   Deferred tax assets   $ 8,351     $ (12,352 )   $ (4,001 ) Other long-term assets   $ 17,019     $ 128     $ 17,147   Other accrued expenses and current liabilities   $ 21,744     $ 1,049     $ 22,793   Deferred revenue, current   $ 130,122     $ (77,645 )   $ 52,477   Deferred revenue, non-current   $ 9,640     $ (5,263 )   $ 4,377   Other long-term liabilities   $ 17,647     $ 445     $ 18,092   Accumulated deficit   $ (166,499 )   $ 70,779     $ (95,720 )     As of December 31, 2018       Prior to adoption of ASC 606     Adjustments for ASC 606     As Reported   Prepaid expenses and other current assets   $ 13,693     $ 1,798     $ 15,491   Deferred tax assets   $ 14,092     $ (12,719 )   $ 1,373   Other long-term assets   $ 17,077     $ 211     $ 17,288   Other accrued expenses and current liabilities   $ 25,435     $ 912     $ 26,347   Deferred revenue, current   $ 144,710     $ (84,945 )   $ 59,765   Deferred revenue, non-current   $ 13,791     $ (7,037 )   $ 6,754   Other long-term liabilities   $ 27,636     $ 517     $ 28,153   Accumulated deficit   $ (163,600 )   $ 81,595     $ (82,005 ) Accumulated other comprehensive loss   $ (9,300 )   $ (1,752 )   $ (11,052 ) The Company recorded $82.9 million of deferred revenue to accumulated deficit upon the adoption of ASC 606 on January 1, 2018. The adoption of ASC 606 accelerates the recognition of revenues compared to ASC 605. Under ASC 605, the Company did 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, were considered to be one accounting unit and, once all services have commenced, were recognized ratably over the remaining period of the arrangement (the longer of the contractual service term or PCS term). Under ASC 606, the concept of assessing VSOE has been eliminated and the Company determined standalone selling price and allocated transaction price associated with each performance obligation within an arrangement. As a result, the pattern of software license revenue recognition has changed under ASC 606. Software license revenue was typically recognized ratably over the term of the contract under the previous guidance; however, a majority of the contract is recognized upon the later of delivery of the licensed product or the beginning of the license period under ASC 606. This change in the pattern of revenue recognition, coupled with the recording of deferred revenue to 94 Table of Contents accumulated deficit as of January 1, 2018, resulted in the changes to the consolidated balance sheet line items as noted in the table above. The following table presents the effect of the adoption of ASC 606 on the consolidated statement of operations (in thousands):     Year Ended December 31, 2018       Prior to adoption of ASC 606     Adjustments for ASC 606     As Reported   Revenue                         Licenses   $ 195,847     $ 11,317     $ 207,164   Gross profit   $ 269,089     $ 11,317     $ 280,406   Operating expenses                         Sales and marketing   $ 80,613     $ (336 )   $ 80,277   Total operating expenses   $ 256,098     $ (336 )   $ 255,762   Operating income   $ 12,991     $ 11,653     $ 24,644   Income before income taxes   $ 15,371     $ 11,653     $ 27,024   Income tax expense   $ 12,472     $ 837     $ 13,309   Net income   $ 2,899     $ 10,816     $ 13,715   Income per share:                         Basic   $ 0.04     $ 0.16     $ 0.20   Diluted   $ 0.04     $ 0.14     $ 0.18   The increase to software revenue was primarily due to the upfront recognition of license revenue, which would have been recognized ratably over the contract under prior guidance. The decrease in sales and marketing expense was due to the capitalization of costs to obtain a contract that were expensed as incurred under prior guidance. The increase to tax expense was due to the tax impact of the increase in operating income. The adoption of ASC 606 had no impact on the Company’s cash flows from operations. However, with the adoption of ASC 606, there will be an acceleration of income tax payments associated with deferred revenue credited to accumulated deficit and never recognized as revenue in the financial statements. The 2019 tax payments related to the adoption of ASC 606 is expected to be approximately $1.0 million. Disaggregation of revenue The Company disaggregates its software revenue by type of performance obligation and timing of revenue recognition as follows (in thousands):     Year Ended December 31,       2018 (ASC 606)     2017 (ASC 605) (1)     2016 (ASC 605) (1)   Software revenue:                         Term licenses   $ 168,909                   Perpetual licenses     38,255                   Maintenance     86,150                   Professional services and other     11,047                   Total software revenue   $ 304,361     $ 244,817     $ 223,818   (1) As noted above, prior period amounts have not been adjusted under the modified retrospective approach. Under ASC 606, the Company derived approximately10% of its total revenue through indirect sales channels for the year ended December 31, 2018. For the year ended December 31, 2018, software related services revenue of $36.9 million, client engineering services of $47.9 million and other revenue of $7.2 million, were categorized based on the nature, timing and uncertainty of revenue and cash flows effected by economic factors.     Costs to obtain a contract 95 Table of Contents The Company pays commissions for new software product and PCS sales as well as for renewals of existing software and PCS contracts. Commissions paid to obtain renewal contracts are not commensurate with the commissions paid for new product sales and therefore, a portion of the commissions paid for new contracts relate to future renewals. The Company accounts for new product sales commissions using a portfolio approach and allocates the cost of commissions in proportion to the allocation of transaction price of license and PCS performance obligations. Commissions allocated to the license and license renewal components are expensed at the time the license revenue is recognized. Commissions allocated to PCS are capitalized and amortized on a straight-line basis over a period of four years, reflecting the Company’s estimate of the expected period that it will benefit from those commissions. As of December 31, 2018, capitalized costs to obtain a contract were $2.0 million recorded in Prepaid and other current assets and $0.2 million recorded in Other long-term assets. Amortization expense was $0.3 million for the year ended December 31, 2018 and is included in sales and marketing expense in the Company’s consolidated statement of operations. Deferred revenue Deferred revenue consists of billings made or payments received in advance of revenue recognition from software license, PCS and professional services agreements. The timing of revenue recognition may differ from the timing of billings to customers. Payment terms vary by the type and location of customer and the products or services offered. The term between invoicing and when payment is due is not significant. The Company generally invoices its customers annually for the forthcoming year of software licenses, and more frequently for other products and services. Accordingly, the Company’s deferred revenue balance does not include revenue for future years of multiple year non-cancellable contracts that have not yet been billed. Approximately $53.0 million of revenue was recognized during 2018 was included in the deferred revenue balances at the beginning of the year.   4. Acquisitions Datawatch Corporation On November 5, 2018, the Company entered into an Agreement and Plan of Merger (“Merger Agreement”) with Datawatch Corporation, a Delaware corporation (“Datawatch”), and Dallas Merger Sub, Inc., a Delaware corporation (“Purchaser”) and a wholly owned subsidiary of the Company. Datawatch provides data intelligence technologies with market leading enterprise data preparation, predictive analytics and visualization solutions that fuel business analytics. Datawatch’s products include software applications known as Monarch, Knowledge Studio and Panopticon. The data intelligence markets are evolving rapidly to leverage many of the same technologies, such as high-performance computing and visualization. Datawatch’s solutions, which include data preparation, data prediction, and real-time high-volume data visualization technologies, are highly relevant and applicable to almost any company and vertical market, including many of the industry segments currently using Altair’s technology. The Company intends to cross-sell Datawatch products into Altair’s diversified global customer base. Pursuant to the Merger Agreement, the Purchaser commenced a tender offer to purchase all of the issued and outstanding shares of Datawatch common stock, (the “Shares”) at a purchase price of $13.10 per share, net to seller in cash, without interest and less any applicable withholding taxes (the “Offer”). On December 13, 2018, the Company accepted and paid for all Shares that were validly tendered and completed the acquisition of Datawatch through the merger of Purchaser with and into Datawatch, with Datawatch surviving as a wholly owned subsidiary of the Company. As a result of the merger, subject to certain potential exceptions provided for in the merger agreement, all remaining shares of Datawatch common stock not previously tendered into Altair’s tender offer were converted into the right to receive $13.10 per share in cash, without interest and less any applicable withholding taxes. Altair completed the acquisition of Datawatch for consideration of approximately $183.4 million which consisted of consideration paid to former holders of common stock of Datawatch at $13.10 a share, or $168.2 million and approximately $6.7 million to former holders of outstanding Datawatch equity awards. In addition, Altair paid $8.0 million on the day of closing to settle all of Datawatch’s outstanding debt and incurred a liability of approximately $0.5 million payable to former holders of certain unvested Datawatch equity awards for which service had been rendered at the acquisition date. Altair financed the acquisition with cash on hand and a drawdown from its existing credit facility. 96 Table of Contents In connection with the acquisition of Datawatch, the Company incurred $10.4 million of transaction related costs, which consisted primarily of fees paid to investment bankers’ and employee severance, which were recorded to general and administrative, sales and marketing, and research and development expenses in the consolidated statement of operations for the year ended December 31, 2018.   The financial results of Datawatch have been included in the consolidated financial statements since the acquisition date. The acquisition of Datawatch has been accounted for as a business combination, under the acquisition method of accounting, which results in acquired assets and assumed liabilities being measured at their estimated fair values as of December 13, 2018, the acquisition date. As of the acquisition date, goodwill is measured as the excess of consideration transferred, which is also generally measured at fair value on a recurring basisof the net acquisition date fair values of the assets acquired and liabilities assumed. The following table sets forth a summarysummarizes the preliminary purchase consideration transferred to acquire Datawatch and the amounts of identified assets acquired and liabilities assumed at the acquisition date (in thousands): Fair value of consideration transferred   $ 183,427   Recognized amounts of identifiable assets acquired and liabilities assumed:         Cash   $ 8,278   Accounts receivable     10,784   Other assets     3,055   Property and equipment     980   Trade names     7,400   Developed technology (6-year life)     22,600   Customer relationships (10-year life)     16,400   Accounts payable and other liabilities     (5,393 ) Deferred revenue     (4,100 ) Other long-term liabilities     (7,928 ) Total net identifiable assets acquired and liabilities assumed     52,076   Goodwill (1)   $ 131,351   (1) Goodwill is primarily attributable to market synergies expected to arise after the acquisition and approximately $0.8 million is deductible for tax purposes.  All goodwill is recorded in the Software segment. The consummation of the changesmerger resulted in a change in control which accelerated vesting for certain restricted stock units (“RSUs”) of Datawatch. These RSUs were converted into the right to receive merger consideration in the amount of $6.7 million, which is included in total consideration transferred. The consummation of the merger also modified certain Datawatch RSUs without change in control provisions. These RSUs were modified such that the holder has the right to receive cash payments upon vesting at $13.10 per share in the amount of $3.9 million, of which $0.5 million was allocated to pre-combination expense and consideration transferred as it relates to service prior to the acquisition date. The remaining $3.4 million was preliminarily allocated to future services and will be expensed over the remaining service periods on a straight-line basis. The excess of preliminary purchase consideration over the preliminary fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The preliminary fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions. The deferred tax liability established was primarily a result of the difference in the book basis and tax basis related to the identifiable intangible assets. The preliminary estimated fair values of assets acquired and liabilities assumed, including current and noncurrent income taxes payable and deferred taxes, customer contract assets and liabilities and identifiable intangible assets may be subject to change as additional information is received and certain tax returns are finalized. Thus, the provisional measurements of fair value set forth above are subject to change. 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. 97 Table of Contents The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date. Unaudited Pro Forma Financial Information The unaudited pro forma results presented below include the effects of the Datawatch acquisition as if it had been consummated as of January 1, 2017. The pro forma results below include adjustments related to conforming revenue accounting policies, amortization to reflect the fair value of acquired identifiable intangible assets, share-based compensation associated with accelerated vesting, acquisition-related costs, and the associated income tax impacts. The pro forma information does not necessarily reflect the actual results of operations had the acquisition been consummated at the beginning of the fiscal reporting period indicated nor is it indicative of future operating results. The pro forma information does not include any adjustment for (i) potential revenue enhancements, cost synergies or other operating efficiencies that could result from the acquisition or (ii) transaction or integration costs relating to the acquisition. The unaudited pro forma financial information was as follows (in thousands, except per share data):     Year ended December 31,       2018     2017   Total revenue   $ 435,414     $ 363,906   Net income (loss)   $ 7,613     $ (115,010 ) Net income (loss) per share attributable to common stockholders, basic   $ 0.11     $ (2.19 ) Net income (loss) per share attributable to common stockholders, diluted   $ 0.10     $ (2.19 ) SIMSOLID Corporation In October 2018, the Company acquired all of the outstanding capital stock of SIMSOLID Corporation, a Canadian corporation (“SIMSOLID”), for aggregate consideration of $22.1 million. The consideration consisted of cash in the amount of $12.0 million, 145,000 shares of the Company’s Level 3Class A common stock and commitments (through convertible notes and deferred shares) to issue an additional 145,000 shares of the Company’s Class A common stock, one half of which will be issued on the first business day following the one year anniversary of the closing date and one half of which will be issued on the first business day following the two year anniversary of the closing date, subject to acceleration in the event of a change of control of the Company and subject to reduction as a set-off to any indemnification obligations. The convertible promissory notes will convert into 41,537 additional shares of the Company’s Class A common stock, which can be converted by either party on the first business day following the one year anniversary of the closing date and on the first business day following the two year anniversary of the closing date, subject to acceleration in the event of a change of control of the Company and subject to reduction as a set-off to any indemnification obligations. The convertible notes are accounted for as other current and non-current liabilities as of December 31, 2018. The shares associated with the convertible notes are excluded from the calculation of basic shares outstanding as of December 31, 2018. The financial results of SIMSOLID have been included in the consolidated financial statements since the acquisition date. SIMSOLID works on full-fidelity computer-aided design, or CAD, assemblies to provide fast, accurate, and robust structural simulation without requiring geometry simplification, cleanup, or meshing. The SIMSOLID computational engine is a commercial implementation of novel and unpublished mathematics based on extensions to the theory of external approximations. SIMSOLID controls solution accuracy using multi-pass adaptive analysis, which the Company believes makes the SIMSOLID solution extremely fast, accurate and memory efficient. The following table summarizes the consideration transferred to acquire SIMSOLID and the amounts of identified assets acquired and liabilities assumed at the acquisition date (in thousands): Fair value of consideration transferred   $ 22,139   Recognized amounts of identifiable assets acquired and liabilities assumed:         Current assets   $ 135   Trade names     344   Developed technology     3,291   Current liabilities     (141 ) Long term liabilities     (960 ) Total net identifiable assets acquired and liabilities assumed     2,669   Goodwill   $ 19,470          Liability for Class A redeemable common shares     Liability for stock-based compensation awards   Balance at December 31, 2015      6,692       11,033   Shares issued upon exercise of stock options      1,841       —     Repurchase of shares      (79 )      —     Exercise of stock options      —         (2,084 )  Forfeitures of stock options      —         (110 )  Change in fair value      2,178       2,765                    Balance at December 31, 2016      10,632       11,604   Exercise of stock options      432       (411 )  Forfeitures of stock options      —         (157 )  Change in fair value      19,223       25,191   Modification to stock options as a result of the Company’s IPO(1)      (30,287 )      (36,227 )                   Balance at December 31, 2017    $ —       $ —                      98 Table of Contents   (1) As a result The allocation of the Company’s IPO in the fourth quarter of 2017, the call feature terminated which resulted in the $66.5 million liability valued immediately prior to the IPO associated with the Company’s Class A redeemable common shares and with the stock options outstanding under the 2001 ISO and NQSO Plan to be reclassified to equity in the fourth quarter of 2017 in accordance with ASC 718. 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. The carrying value of the Company’s derivative financial instruments are measured at fair value on a recurring basis. The fair value of derivativespurchase consideration is determined based on inputs derived from or corroborated by observable market data pertaining to relevant interest rates and is considered a level 2 fair value measurement. See Note 9—Financial instruments for additional information regardingincomplete pending the use andfinal determination of the fair value of derivatives.assets acquired 4. Acquisitionsand 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. Goodwill is primarily attributable to market synergies expected to arise after the acquisition and is not deductible for tax purposes. 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 $2.1 million to intangibles, consisting of developed technology and customer relationships and $1.8 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 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. Runtime Design Automation On September 28, 2017, the Company acquired 100% of the shares of Runtime Design Automation (“Runtime”) for a total of $19.4 million in cash, of which $9.4 million is payable one year from the acquisition date, which includes a $0.7 million working capital adjustment, and 708,000 shares of the Company’s Class A common stock. Runtime complements Altair’s PBS Works™ suite of products for comprehensive, secure workload management for HPS and cloud environments and has solutions to manage highly complex workflows. PBS Works targets product design, weather prediction, oil exploration andbio-informatics, and Runtime primarily serves customers in electronic design automation. 99 Table of Contents The following table summarizes the consideration transferred to acquire Runtime and the amounts of identified assets acquired and liabilities assumed at the acquisition date (in thousands): Fair value of consideration transferred $ 25,508 Recognized amounts of identifiable assets acquired and liabilities assumed: Cash 564 Accounts receivable 2,257 Deferred tax assets 1,713 Other assets 257 Trade names 440 Developed technology (4-year life) 7,870 Customer relationships (7-year life) 2,490 Accounts payable and other liabilities (1,000 ) Deferred revenue (1,925 ) Deferred tax liabilities (4,645 ) Total net identifiable assets acquired and liabilities assumed 8,021 Goodwill $ 17,487   Fair value of consideration transferred    $ 25,691            Recognized amounts of identifiable assets acquired and liabilities assumed:    Cash      564   Accounts receivable      2,257   Deferred tax assets      1,713   Other assets      257   Trade names      440   Developed technology(4-year life)      7,870   Customer relationships(7-year life)      2,490   Accounts payable and other liabilities      (1,000 )  Deferred revenue      (1,925 )  Deferred tax liabilities      (4,454 )           Total net identifiable assets acquired and liabilities assumed      8,212            Goodwill    $ 17,479            Goodwill is primarily attributable to market synergies expected to arise after the acquisition and is not deductible for tax purposes. Carriots S.L. In May 2017, the Company acquired 100% of the shares of Carriots S.L. (“Carriots”) for $3.6 million cash, $2.7 million notes payable, and 80,000 shares of the Company’s Class A common stock. Carriots is an Internet of Things (“IoT”) Cloud platform that allows easy development of new IoT enabled products. Carriots complements Altair’s other product suites to provide a comprehensive solution for customers to design and implement IoT enabled products. The following table summarizes the consideration transferred to acquire Carriots and the amounts of identified assets acquired and liabilities assumed at the acquisition date (in thousands):   Fair value of consideration transferred    $ 6,657     $ 6,657          Recognized amounts of identifiable assets acquired and liabilities assumed:            Deferred tax assets      394       394   Other assets      472       472   Trade names      252       252   Developed technology(4-year life)      1,317       1,317   Customer relationships(7-year life)      296       296   Accounts payable and other liabilities      (1,015 )      (1,015 )        Total net identifiable assets acquired and liabilities assumed      1,716       1,716          Goodwill    $ 4,941     $ 4,941          Goodwill is primarily attributable to market synergies expected to arise after the acquisition and is not deductible for tax purposes. CEDRAT S.A. In April 2016, the Company completed the acquisition of all of the common shares of CEDRAT S.A. (“CEDRAT”) for $3.7 million in cash and $1.4 million in a note payable. CEDRAT is in the field of simulatinglow-frequency electromagnetics and thermal simulations for electric motor design. The acquisition of CEDRAT and its Flux technology complements Altair’s broad software coverage, including Altair’s comprehensive set of solvers for the rapidly growing electromagnetic market. The following table summarizes the consideration transferred to acquire CEDRAT and the amounts of identified assets acquired and liabilities assumed at the acquisition date (in thousands): Fair value of consideration transferred    $ 5,122            Recognized amounts of identifiable assets acquired and liabilities assumed:    Cash    $ 363   Accounts receivable      542   Income tax receivable      995   Other assets      206   Trade names      269   Developed technology(4-year life)      1,085   Customer relationships(7-year life)      938   Accounts payable and other liabilities      (2,742 )  Deferred revenue      (290 )           Total net identifiable assets acquired and liabilities assumed      1,366            Goodwill(1)    $ 3,756            (1) The goodwill included $3.5 million that was tax deductible. Other business acquisitions During the yearsyear ended December 31, 2017, 2016 and 2015, the Company completed other business acquisitions that were individually and in the aggregate insignificant. The Company has accounted for all of its acquisitions using the acquisition method. The operating results of each acquisition have been included in the consolidated financial statements since the respective dates of acquisition. The combined purchase price related to the 2017 acquisitions, excluding Runtime and Carriots, was not material. The combined purchase price related to the 2016 acquisitions, excluding CEDRAT, was $6.0 million, which consisted of cash of $3.1 million and notes payable of $2.9 million. The total consideration transferred was allocated to assets and liabilities of each acquisition based on management’s estimates of the fair values of the assets acquired and liabilities assumed. The allocation included $2.3 million to intangibles, consisting of developed technology, customer relationships, and trade names and $4.1 million to goodwill. There was no taxable goodwill associated with the Company’s other 2016 acquisitions. The combined consideration transferred related to the 2015 acquisitions was $4.4 million, which consisted of cash of $2.9 million, equity of $0.7 million and notes of $0.8 million. The total consideration transferred was allocated to assets and liabilities of each acquisition based on management’s estimates of the fair values of the assets acquired and liabilities assumed. The allocation included $1.9 million to intangibles, consisting of developed technology, customer relationships, and trade names and $2.9 million to goodwill, of which $1.0 million was tax deductible. For each of its acquisitions the Company engaged a third-party valuation firm to assist the Company in valuing certain assets and liabilities acquired. 100 Table of Contents 5. Property and equipment, net Property and equipment consistsconsisted of the following (in thousands):      Estimated useful lives      December 31,     Estimated     December 31,        2017   2016     useful lives     2018     2017     Land      Indefinite      $ 7,994     $ 7,994     Indefinite     $ 7,994     $ 7,994     Building and improvements      5-39 years        15,185     14,956     5-39 years       13,120       15,185     Computer equipment and software      3-5 years        32,103     27,461     3-5 years       34,582       32,103     Office furniture and equipment      5-15 years        6,751     5,306     5-15 years       7,958       6,751     Leasehold improvements      (1)        6,467     5,397       (1 )     6,926       6,467                     Total property and equipment         68,500 (2)      61,114 (2)              70,580   (2)   68,500   (2) Less: accumulated depreciation and amortization         37,054     31,406               40,427       37,054                     Property and equipment, net       $ 31,446     $ 29,708             $ 30,153     $ 31,446                       (1) Shorter of lease term or estimated useful life, generally ranging from five to ten years. (2) Equipment under capital lease obligations had an original carrying value of approximately $1.1$2.0 million and $1.4$1.1 million at December 31, 2018 and 2017, and 2016, respectively. On August 7, 2018, the Company consummated the sale of the building that was used as the headquarters for its toggled subsidiary. The building was previously recorded as a held for sale asset and had a book value of $2.1 million as of June 30, 2018. In connection with the sale of the building, the Company entered into a three-year lease back of part of the building, primarily for continued use as a distribution center for toggled’s operational needs. The Company recognized a gain of $4.4 million which is included in other operating income for the year ended December 31, 2018. In November 2016, the Company purchased land adjacent to Altair’s corporate headquarters for $4.0 million for future expansion of the Company’s facilities for $4.0 million.facilities. Depreciation expense, including amortization of assets under capital lease, was $7.0 million, $6.3 million $6.7 million and $5.8$6.7 million for the years ended December 31, 2018, 2017 2016 and 2015,2016, respectively. 6. Goodwill and other intangible assets Goodwill The changes in the carrying amount of goodwill, which is attributable to the Software reportingreportable segment, are as follows (in thousands):   Balance at December 31, 2014    $ 28,859   Acquisitions      2,897   Effects of foreign currency translation      (2,516 )         Balance at December 31, 2015      29,240   Acquisitions      7,855   Effects of foreign currency translation      (470 )         Balance at December 31, 2016      36,625     $ 36,625   Acquisitions      22,420       22,420   Effects of foreign currency translation      3,661       3,661          Balance at December 31, 2017    $ 62,706       62,706          Acquisitions     152,630   Effects of foreign currency translation and other     (4,804 ) Balance at December 31, 2018   $ 210,532   101 Table of Contents Other intangible assets A summary of other intangible assets is shown below (in thousands):      December 31, 2017     December 31, 2018      Weighted average amortization period      Gross carrying amount      Accumulated amortization      Net carrying amount     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     4-6 years   $ 54,530     $ 15,517     $ 39,013   Customer relationships      7 years        11,794        6,195        5,599     7-10 years     28,422       7,309       21,113   Noncompete agreements      5 years        824        824        —     Other intangibles      10 years        143        57        86     10 years     109       56       53                           Total definite-lived intangible assets         38,708        16,985        21,723           83,061       22,882       60,179                           Indefinite-lived intangible assets:                                         Trade names         2,738           2,738           9,657               9,657                           Total other intangible assets       $ 41,446      $ 16,985      $ 24,461         $ 92,718     $ 22,882     $ 69,836                                December 31, 2016     December 31, 2017      Weighted average amortization period      Gross carrying amount      Accumulated amortization      Net carrying amount     Weighted average amortization period   Gross carrying amount     Accumulated amortization     Net carrying amount   Definite-lived intangible assets:                                         Developed technology      4 years      $ 10,631      $ 5,034      $ 5,597     4 years   $ 25,947     $ 9,909     $ 16,038   Customer relationships      7 years        8,646        4,977        3,669     7 years     11,794       6,195       5,599   Noncompete agreements      5 years        824        824        —     Other intangibles      10 years        117        40        77     10 years     143       57       86                           Total definite-lived intangible assets         20,218        10,875        9,343           37,884       16,161       21,723                           Indefinite-lived intangible assets:                                         Trade names         1,825           1,825           2,738               2,738                           Total other intangible assets       $ 22,043      $ 10,875      $ 11,168         $ 40,622     $ 16,161     $ 24,461                           Amortization expense related to amortizing intangible assets was $7.7 million, $5.4 million $3.3 million and $2.6$3.3 million for the years ended December 31, 2018, 2017 and 2016, and 2015, respectively. Estimated amortization expense for the next five years as of December 31, 20172018 is as follows (in thousands):   Year ending                December 31, 2018    $ 6,692   December 31, 2019    $ 5,653     $ 13,880   December 31, 2020    $ 5,015     $ 12,959   December 31, 2021    $ 2,931     $ 10,590   December 31, 2022    $ 639     $ 7,378   December 31, 2023   $ 6,627   102 Table of Contents 7. Debt The carrying value of debt is as follows (in thousands):     December 31,      December 31,     2018     2017      2017      2016   Prior Credit Agreement:       Revolving Credit Facility    $ —        $ 27,355   Term Loan A      —          57,500   Obligations held under capital leases (Note 18)      207        196   Revolving credit facility   $ 30,950     $ —   Obligations held under capital leases (Note 19)     813       207   Other borrowings      203        330       75       203                 Total debt      410        85,381       31,838       410   Less: unamortized debt issuance costs      —          140       90       —   Less: current portion of long-term debt      232        10,435       331       232                 Long-term debt, net of current portion    $     178      $ 74,806     $ 31,417     $ 178                 Credit agreement Revolving credit facility On October 19,18, 2017, the Company entered into an amended and restated credit agreement with Altair Engineering Inc., as borrower, JPMorgan Chase Bank, N.A., as the lead arranger, sole book runner, the administrative agent, swingline lender and letter of credit issuer, and a syndicate of lenders (“2017 Credit Agreement”). The 2017 Credit Agreement became effective on satisfaction of certain conditions including the closing of the Company’s IPO and providesprovided for an initial 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 matures on October 18, 2022. The 2017 Credit Agreement provides for an accordion feature that allows the Company to request thatexpand the aggregate commitments undersize of the 2017 Credit Agreement be increasedrevolving line of credit by up toan additional $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). On October 31, 2018, the Company increased the revolving commitment available under the 2017 Credit Agreement from $100.0 million to $150.0 million. There were no other material changes to the terms of the 2017 Credit Agreement. As of December 31, 2017,2018, the Company had no$31.0 million of outstanding borrowings under the 2017 Credit Agreement and there was $100.0$119.0 million available for future borrowing. The 2017 Credit Agreement is available for general corporate purposes, including working capital, capital expenditures, and permitted acquisitions. The weighted average interest rate on borrowings under the 2017 Credit Agreement was 4.6% for the year ended December 31, 2018. Borrowings under the 2017 Credit Agreement bear interest at a rate per annum equal to an agreed upon applicable margin plus, at the Company’s option, either the Alternate Base Rate (defined as the greatest of (1) the Prime Rate (as defined in the 2017 Credit Agreement) in effect on such day, (2) the Federal Funds Effective Rate (as defined in the 2017 Credit Agreement) in effect on such day plus 1/2 of 1.00% or (3) the Adjusted LIBO Rate (as defined in the 2017 Credit Agreement) for a one month interest period on such day (or if such day is not a business day, the immediately preceding business day) plus 1.00%) or the Adjusted LIBO Rate. The applicable margin for borrowings under the 2017 Credit Agreement is based on the Company’s most recently tested consolidated total net leverage ratio and will vary from (a) in the case of Eurodollar loans, 1.25% to 2.00%, and (b) in the case of ABR loans or swingline loans, 0.25% to 1.00%. The Company pays a commitment fee ranging from 0.15% to 0.30% on the unused portion of the 2017 Credit Agreement. Collateral and guarantees 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. 103 Table of Contents Debt covenants The 2017 Credit Agreement requires the Company to maintain the following financial covenants: Maximum Net Leverage Ratio : Commencing with the fiscal quarter ending December 31, 2017 and on the last day of each fiscal quarter thereafter, the Company on a consolidated basis will not permit the ratio of total indebtedness (net of unrestricted domestic cash in excess of $20.0 million) to EBITDA, as such terms are defined in the 2017 Credit Agreement, for the rolling four quarter period ending on such date to be greater than 3.00 to 1.00 as of the last day of each fiscal quarter. • Maximum Net Leverage Ratio: Commencing with the fiscal quarter ending December 31, 2017 and on the last day of each fiscal quarter thereafter, the Company on a consolidated basis will not permit the ratio of total indebtedness (net of unrestricted domestic cash in excess of $20.0 million) to EBITDA, as such terms are defined in the 2017 Credit Agreement, for the rolling four quarter period ending on such date to be greater than 3.00 to 1.00 as of the last day of each fiscal quarter. Consolidated Interest Coverage Ratio : Commencing with the fiscal quarter ending December 31, 2017 and on the last day of each fiscal quarter thereafter, the Company on a consolidated basis will not permit the ratio of (x) EBITDA to (y) cash Consolidated Interest Expense, as such terms are defined in the 2017 Credit Agreement, in each case for the rolling four quarter period ending on such date, to be less than 3.00 to 1.00 as of the last day of each fiscal quarter. • Consolidated Interest Coverage Ratio: Commencing with the fiscal quarter ending December 31, 2017 and on the last day of each fiscal quarter thereafter, the Company on a consolidated basis will not permit the ratio of (x) EBITDA to (y) cash Consolidated Interest Expense, as such terms are defined in the 2017 Credit Agreement, in each case for the rolling four quarter period ending on such date, to be less than 3.00 to 1.00 as of the last day of each fiscal quarter. At December 31, 2017,2018, the Company was in compliance with all such financial covenants. Prior credit agreement Prior to entering into the 2017 Credit Agreement, the Company’s credit agreement consisted of a $65.0 million term loan (“Term Loan A”) and a $60.0 million revolving commitment, (“2016 Revolving Credit Facility”) including a $5.0 million swingline subfacility, and a letter of credit subfacility (collectively, the “Secured Credit Agreement”.) At December 31, 2016, there was $57.5 million outstanding under Term Loan A at an interest rate of 2.6% based on the LIBO rate and the applicable margin. The Company was required to make quarterly principal payments on Term Loan A of $2.5 million in 2017, 2018 and March 2019. Any outstanding principal balance was to be paid in full on the maturity date of April 18, 2019. At December 31, 2016, the Company had $27.4$84.9 million outstanding under the 2016 RevolvingSecured Credit FacilityAgreement and there was $32.6 million available for future borrowing. The 2016 Revolving Credit Facility was available for general corporate purposes, including working capital, capital expenditures, and permitted acquisitions. All borrowings under the 2016 RevolvingSecured Credit FacilityAgreement were due on the termination date in April 2019. The weighted-average interest rate on borrowings under the 2016 Revolving Credit Facility was 2.6% for the year ended December 31, 2016. On November 3, 2017, in connection with the completion of the Company’s IPO, the Company repaid in full all outstanding debt under the Secured Credit Agreement. The Company paid a total of approximately $93.1 million, which included outstanding principal, interest, and other nominal costs. Upon the repayment of the Secured Credit Agreement, all unamortized debt issuance costs were recorded as interest expense. Other The Company has available overdraft and line of credit facilities in several countries in which it operates. These credit facilities are with various domestic and international banks and are at quoted market rates. At both December 31, 20172018 and 2016,2017, the Company had $3.5 million of availability under these facilities and there were no outstanding commitments. Scheduled maturities of long-term debt At December 31, 2017,2018, future maturities of long-term debt, excluding capital leases, were as follows (in thousands):   Year ending December 31,                2018    $ 126   2019      77     $ 75   2020      —         —   2021      —         —   2022      —         30,950          2023     —   Total    $ 203     $ 31,025          104 Table of Contents 8. Other liabilities The following table provides the details of other accrued expenses and current liabilities (in thousands):      December 31,     December 31,      2017      2016     2018     2017   Accrued VAT    $ 3,916      $ 3,928     $ 4,536     $ 3,916   Income taxes payable      3,724        2,156       4,458       3,724   Accrued professional fees      2,500        1,389       3,165       2,500   Accrued royalties      2,037        1,583       2,613       2,037   Billings in excess of cost     1,504       832   Defined contribution plan liabilities     1,376       1,274   Government grants     915       712   Non-income tax liabilities      1,343        739       853       1,343   Defined contribution plan liabilities      1,274        1,139   Billings in excess of cost      832        1,021   Related party liabilities      119        1,045       —       119   Other current liabilities      5,999        3,296       6,927       5,287                 Total    $ 21,744      $ 16,296     $ 26,347     $ 21,744                 The following table provides the details of other long-term liabilities (in thousands):      December 31,     December 31,      2017      2016     2018     2017   Pension and other post retirement liabilities    $ 7,670      $ 5,959     $ 9,111     $ 7,670   Deferred tax liabilities      1,620        1,379       7,736       1,620   Other liabilities      8,357        9,776       11,306       8,357                 Total    $ 17,647      $ 17,114     $ 28,153     $ 17,647                 9. 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— Observable inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3— Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. 105 Table of Contents Items measured at fair value on a recurring basis The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):     Liability for Class A redeemable common shares     Liability for stock-based compensation awards   Balance at December 31, 2016   $ 10,632     $ 11,604   Exercise of stock options     432       (411 ) Forfeitures of stock options     —       (157 ) Change in fair value     19,223       25,191   Modification to stock options as a result of the Company’s IPO (1)     (30,287 )     (36,227 ) Balance at December 31, 2017   $ —     $ —   (1) As a result of the Company’s IPO in the fourth quarter of 2017, the call feature terminated which resulted in the $66.5 million liability valued immediately prior to the IPO associated with the Company’s Class A redeemable common shares and with the stock options outstanding under the 2001 ISO and NQSO Plan to be reclassified to equity in the fourth quarter of 2017 in accordance with ASC 718. 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. The carrying value of the Company’s derivative financial instruments are measured at fair value on a recurring basis. The fair value of derivatives is determined based on inputs derived from or corroborated by observable market data pertaining to relevant interest rates and is considered a level 2 fair value measurement. See Note 10—Financial instruments for additional information regarding the use and fair value of derivatives. 10. Financial instruments The Company is exposed to certain financial market risks related to its ongoing business operations. The primary risks the Company managescan manage through derivative financial instruments and hedging activities are foreign currency exchange rate risk and interest rate risk. Derivative financial instruments and hedging activities can be utilized to protect the Company’s cash flow from adverse movements in foreign currency exchange rates and to manage interest costs. Although the Company is exposed to credit loss in the event of nonperformance by the counterparty to the derivative financial instruments, the Company attempts to limit this exposure by entering into agreements directly with major financial institutions that meet the Company’s credit standards and that are expected to fully satisfy their obligations under the contracts. Interest rate swaps Interest rate exposures are reviewed periodically and the Company may enter into interest rate swap agreements to manage its exposure. The Company’s exposure to interest rate risk arises primarily from changes in the LIBOLIBOR rate. The Company will hold these derivatives for economic purposes but does not designate these derivatives to obtain hedge accounting treatment. As such, gains or losses on these contracts (including contracts that do not qualify for hedge accounting under ASC 815), are reported in earnings immediately as Other (income) expense, (income), net. These contracts limit exposure to changes in interest payments associated with variable rate debt. However, as the change in the fair value of the interest rate swaps is impacted by both realized and unrealized gains and losses on the contracts, the amount recognized in earnings may not offset the changes in the variability of interest expense during a given period. As of December 31, 2017,2018, and 2016,2017, the Company had an interest rate swap outstanding with a $4.5 million notional value. This interest rate swap matures on December 23, 2019. 106 Table of Contents Foreign currency derivatives The Company sells its products (and incurs costs) in countries throughout the world. As a result, it is exposed to fluctuations in foreign currency exchange rates. Foreign currency exposures are reviewed on a periodic basis and any natural offsets are considered prior to entering into a derivative financial instrument. The Company could enter into foreign exchange contracts to hedge portions of its foreign currency denominated forecasted revenues, purchases and the subsequent cash flows after considering natural offsets within the consolidated group. The Company will hold these derivatives for economic purposes but does not designate these derivatives to obtain hedge accounting treatment. As such, gains or losses on these contracts (including contracts that do not qualify for hedge accounting under ASC 815), are reported in earnings immediately and are substantially offset by the effect of the revaluation of the underlying foreign currency denominated transactions. There were no foreign exchange contracts outstanding at December 31, 20172018 or 2016.2017. Derivative instruments As of December 31, 20172018 and 2016,2017, the fair value of the Company’s derivative instruments included in other long-term liabilities was a liability of $0.2$0.1 million and $0.3$0.2 million, respectively. Credit-risk-related contingent features The Company has entered into International Swaps and Derivatives Association (“ISDA”) agreements with its significant derivative counterparty. These agreements provide bilateral netting and offsetting of accounts that are in a liability position with those that are in an asset position. These agreements do not require the Company to maintain a minimum credit rating in order to be in compliance and do not contain any margin call provisions or collateral requirements that could be triggered by derivative instruments in a net liability position. As of December 31, 2017,2018, the Company had not and was not required to post any collateral to support its derivatives in a liability position. 10.11. Stockholders’ equity Preferred stock As of December 31, 2017,2018, the Company had authorized 45,000,000 shares of preferred stock, par value $0.0001, of which no shares were issued or outstanding. The Board of Directors has the authority to issue the preferred stock in one or more series and to fix rights, preferences, privileges, and restrictions, including dividends and the number of shares constituting any series or the designation of such series, without any further vote or action by the stockholders. Common stock As of December 31, 2017,2018, the Company had authorized 513,796,572 shares of Class A common stock, par value $0.0001, and 41,203,428 shares of Class B common stock, par value $0.0001. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible into one share of Class A common stock. The holders of Class A and Class B common stock are entitled to dividends at the sole discretion of the Board of Directors. No common stock dividends were declared or paid in 2018, 2017 2016 or 2015.2016. Recapitalization On April 3, 2017, the Company completed a recapitalization (the “Recapitalization”) of its capital stock by filing a certificate of amendment to its articles of incorporation with the State of Michigan pursuant to which: (i) each share of the Company’s Class A voting common stock, or old Class A shares, automatically converted into one share of new Class B voting common stock entitled to ten votes per share; and (ii) each share of the Company’s Class Bnon-voting common stock, or old Class B shares, automatically converted into one share of new Class A voting common stock entitled to one vote per share, in each case, without any further action on the part of the holders thereof. Subsequent to the Recapitalization, the Company’s authorized common stock consists of 76,000,000 shares of no par, Class A common stock and 44,000,000 shares of no par, Class B common stock. Prior to the Recapitalization, the Company’s authorized common stock consisted of 99,279,884 shares of no par, Class A Voting Common Stock and 25,153,872 shares of no par, Class B Nonvoting Common Stock. Each class of common stock had equal and identical rights, preferences and limitations, other than voting. The holders of old Class A common stock were entitled to one vote per share on all matters submitted to the stockholders for a vote and holders of old Class B common stock had no voting rights. Other In October 2015, the Company acquired Altair Bellingham, LLC from significant stockholders of the Company for cash of $0.7 million, which was paid in February 2016. This transaction was reported as a return of capital for the year ended December 31, 2015. 11.12. 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 6,441,9724,337,856 stock options with an exercise price of $.000025 remain outstanding at December 31, 2017.2018. 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. 107 Table of Contents 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, 2017      6,458,472     $ 0.000025        20 years   Granted      —         —        Exercised      (16,500 )    $ —        Forfeited      —       $ —                      Outstanding at December 31, 2017      6,441,972     $ 0.000025        19 years                 Exercisable at December 31, 2017      6,441,972     $ 0.000025        19 years       Number of options     Weighted average exercise price per share     Weighted average remaining contractual term (years)     Aggregate intrinsic value (in millions)   Outstanding at January 1, 2018     6,441,972     $ 0.000025       19.0     $ 154.1   Exercised     (2,104,116 )   $ 0.000025                   Forfeited     —     $ —                   Outstanding and exercisable at December 31, 2018     4,337,856     $ 0.000025       18.0     $ 119.6   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 vest over a two to three-year period. All options have a contractual term of ten years from the date of grant. At December 31, 20172018 and 2016,2017, there were 888,864532,220 and 2,972,744888,864 options outstanding, respectively, under the ISO Plan. Until the effective date of the Company’s IPO, options granted under the ISO Plan were accounted for as liability awards as the terms of the awards could require or allow repurchase of the shares at amounts different than fair value. The Company made the accounting policy election to use the intrinsic value method of accounting to determine stock-based compensation liabilities for these awards. During the quarter ended June 30, 2017, the Company changed its accounting policy to measure the fair value of its liability awards using the Black-Scholes option pricing model as a result of the Company no longer meeting the definition of anon-public entity. The impact of the change in accounting policy was immaterial to the financial statements. The ISO Plan also included stock-based compensation liability for 2,340,596 of Class A shares outstanding at December 31, 2016, resulting from the Company’s call feature with an exercise price that may be set at less than the fair market value at date of grant under the terms of the ISO Plan. The Company utilized the fair value of the outstanding Class A shares to determine the stock-based compensation liabilities for these shares, based on the respective dates. As a result of the Company’s IPO in the fourth quarter 2017, the call feature terminated which resulted in the $66.5 million liability valued immediately prior to the IPO associated with the Company’s Class A redeemable common shares and with the stock options outstanding under the 2001 ISO and NQSO Plan to be reclassified to equity as of December 31, 2017 in accordance with ASC 718. 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, 2017      2,972,744     $ 0.64        3.4   Granted      —         —        Exercised(1)      (2,070,916 )    $ 0.63      Forfeited      (12,964 )    $ 0.53                    Outstanding at December 31, 2017      888,864     $ 0.67        2.5                 Exercisable at December 31, 2017      888,864     $ 0.67        2.5       Number of options     Weighted average exercise price per share     Weighted average remaining contractual term (years)     Aggregate intrinsic value (in millions)   Outstanding at January 1, 2018     888,864     $ 0.67       2.5     $ 20.7   Exercised     (356,644 )   $ 0.69                   Forfeited     —     $ —                   Outstanding and exercisable at December 31, 2018     532,220     $ 0.65       1.4     $ 14.3     (1) Includes 1.7 million stock options exercised in connection with the Company’s IPO. The total intrinsic value of the ISO Plan stock options exercised during the years ended December 31, 2018, 2017 and 2016 was $5.2 million, $25.6 million, and $2.7 million respectively. 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. Compensation expense related to the 2012 Plan was $0.7$0.6 million, $0.6$0.7 million and $0.6 million for the years ended December 31, 2018, 2017 2016 and 2015,2016, respectively. The following table summarizes the stock option activity under the 2012 Plan for the periods indicated as follows: 108      Number of options     Weighted average exercise price per share      Weighted average remaining contractual term (years)   Outstanding at January 1, 2017      1,797,252     $ 3.13        7.5   Granted      608,948     $ 5.18      Exercised      (189,492 )    $ 2.60      Forfeited      (33,581 )    $ 3.89                    Outstanding at December 31, 2017      2,183,127     $ 3.74        7.3                 Exercisable at December 31, 2017      1,240,692     $ 3.01        6.2   Table of Contents     Number of options     Weighted average exercise price per share     Weighted average remaining contractual term (years)     Aggregate intrinsic value (in millions)   Outstanding at January 1, 2018     2,183,127     $ 3.74       7.3     $ 44.1   Granted     —     $ —                   Exercised     (623,119 )   $ 2.76                   Forfeited     (18,843 )   $ 4.68                   Outstanding at December 31, 2018     1,541,165     $ 4.12       6.9     $ 36.2   Exercisable at December 31, 2018     975,291     $ 3.70       6.1     $ 23.3   Total compensation cost related to nonvested awards not yet recognized as of December 31, 20172018 totaled $1.5$0.9 million and is expected to be recognized over a weighted average period of 2.82.7 years. 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 Outstanding at January 1, 2018 — Granted 228,201 Vested (1,000 ) Forfeited (21,140 ) Outstanding at December 31, 2018 206,061 The weighted average grant date fair value of the RSUs was $30.96 and the RSUs generally vest in four equal annual installments. Total compensation cost related to nonvested awards not yet recognized as of December 31, 2018, totaled $5.3 million, and is expected to be recognized over a weighted average period of four years. Fair value of equity awards The Company measures the fair value of its equity awardsstock options on the date of grant using the Black-Scholes option pricing model. This valuation model requires the Company to make certain estimates and assumptions, including assumptions related to the expected price volatility of the Company’s stock, the period under which the options will be outstanding, the rate of return on risk-free investments, and the expected dividend yield for the Company’s stock. The weighted average assumptions used in the Black-Scholes option pricing model used to calculate the fair value of options granted during the years ended December 31, 2017 2016 and 20152016 are as follows:      2017 grants      2016 grants      2015 grants     2017 grants     2016 grants   Weighted average grant date fair value per share    $ 1.86-$1.94      $ 1.42-$1.65      $ 1.43     $1.86 - $1.94     $1.42 - $1.65   Expected volatility      34%        37%        37%       34 %     37 % Expected term (in years)      5.75-6.25        5.75-6.25        6.25     5.75-6.25     5.75-6.25   Risk-free interest rate      2.02%        1.37%-1.79%        1.98%       2.02 %   1.37%-1.79%   Expected dividend yield      0%        0%        0%       0 %     0 % 109 Table of Contents Prior to the IPO, the Company’s equity value was estimated utilizing a combination of the Discounted Cash Flow Method under the Income Approach, the Guideline Public Company Method, and the Transaction Method under the Market Approach. The equity value is used to derive the fair value per share which is used as an input in the Black Scholes option pricing model. The estimated volatility was derived using the historical volatility of the returns of comparable publicly traded companies. The risk-free rate was based on U.S. Treasuryzero-coupon yield curves with a remaining term equal to the expected term of the option. The Company has not historically paid dividends and does not anticipate paying cash dividends in the foreseeable future. The Company used the simplified method to determine expected term. Other In connection with the acquisition of Datawatch, all outstanding unvested Datawatch RSUs were converted into a right to receive cash (the “Replacement Awards”). The payment to the holders of unvested Datawatch RSUs will be payable on or after the date that such RSUs would have otherwise vested in accordance with its original terms. The accounting treatment for the outstanding unvested Datawatch RSUs in the context of the business combination is to allocate the fair value of the RSU’s at the date of consummation attributable to pre-combination service to the aggregate merger consideration. The difference between the fair value of the Replacement Awards and the amount allocable to pre-combination service was considered a post-combination expense to the Company after the consummation date. The estimated post combination expense to the Company as a result of the business combination was approximately $3.4 million which will be recognized on a straight-line basis over the remaining service period that was stipulated in each holder’s original RSU agreement. The weighted average remaining service period is 2.0 years. Once the vesting conditions of the service period are met, Altair will cash-settle the Replacement Awards. The liability related to the Datawatch RSUs as of December 31, 2018, was $0.6 million and is recorded in Other accrued expenses and current liabilities. In connection with the acquisition of Runtime Design Automation (“RTDA”), all outstanding stock options of RTDA became fully vested and exercisable prior to the date of consummation which represents an acceleration to full vesting of all unvested stock options as of the date of the business combination. The accounting treatment for the outstanding stock options in the context of the business combination is to allocate the fair market value of RTDA’s options at the date of consummation attributable topre-combination service to the aggregate merger consideration. The difference between the fair market value of the replacement awards and the amount allocable topre-combination service was considered a post-combination expense to the Company after the consummation date. The estimated post combination expense to the Company as a result of the business combination was approximately $2.0 million which was immediately expensed in the post combination financial statements in the third quarter of 2017, as there were no further service conditions. The Company determined that the Black-Scholes model was an appropriate valuation model for the employee share options as all of RTDA’s stock options had only service conditions. Stock-based compensation expense The stock-based compensation expense was recorded as follows (in thousands):      Year ended December 31,     Year ended December 31,      2017      2016      2015     2018     2017     2016   Cost of revenue-software    $ 350      $ 22      $ 44     $ 31     $ 350     $ 22   Research and development      12,540        1,370        149       740       12,540       1,370   Sales and marketing      7,693        775        109       910       7,693       775   General and administrative      26,698        2,965        295       1,658       26,698       2,965                        Total stock-based compensation expense    $ 47,281      $ 5,132      $ 597     $ 3,339     $ 47,281     $ 5,132                        On September 27, 2017, the Company’s board 110 Table of directors adopted the 2017 Equity Incentive Plan (“2017 Plan”), and the 2017 Plan was approved by the Company’s stockholders. The 2017 Plan became effective on October 30, 2017, which was one business day prior to the effective date of the Company’s IPO. 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 6,207,976 authorized shares of the Company’s Class A common stock reserved for issuance. No issuances have been made under the 2017 Plan as of December 31, 2017.Contents 12. 13. Other (income) expense, (income), net Other (income) expense, (income), net consists of the following (in thousands):      Year ended December 31,     Year ended December 31,      2017      2016      2015     2018     2017     2016   Foreign exchange (gain) loss    $ 1,254      $ (271 )     $ 973     $ (626 )   $ 1,254     $ (271 ) Other      (260 )       (249 )       (191 )      (1,954 )     (260 )     (249 )                      Other expense (income), net    $ 994      $ (520 )     $ 782                        Other (income) expense, net   $ (2,580 )   $ 994     $ (520 ) 13. 14. Income taxes The components of income (loss) income before income taxes are as follows (in thousands):      Year ended December 31,     Year ended December 31,      2017      2016      2015     2018     2017     2016   U.S.    $ (49,761 )     $ (2,225 )     $ (6,861 )    $ 4,228     $ (49,761 )   $ (2,225 ) Non-U.S.      13,350        15,927        18,610       22,796       13,350       15,927                          $ 27,024     $ (36,411 )   $ 13,702      $(36,411)      $13,702      $11,749                        The significant components of the income tax expense are as follows (in thousands):      Year ended December 31,     Year ended December 31,      2017      2016      2015     2018     2017     2016   Current                                  U.S. Federal    $ —        $ —        $ —       $ 2     $ —     $ —   Non-U.S.      10,290        9,413        9,893       12,552       10,290       9,413   U.S. State and Local      135        202        56       (8 )     135       202                        Total current      10,425        9,615        9,949       12,546       10,425       9,615                        Deferred                                  U.S. Federal      54,130        (5,358 )       (8,445 )      1,714       54,130       (5,358 ) Non-U.S.      (1,306 )       (610 )       (587 )      (934 )     (1,306 )     (610 ) U.S. State and Local      (253 )       (108 )       (99 )      (17 )     (253 )     (108 )                      Total deferred      52,571        (6,076 )       (9,131 )      763       52,571       (6,076 )                      Income tax expense    $ 62,996      $ 3,539      $ 818     $ 13,309     $ 62,996     $ 3,539                        111 Table of Contents The reconciliation of income taxes calculated at the U.S. Federal statutory income tax rate of 35% to income tax expense is as follows (in thousands):     Year ended December 31,      Year ended December 31,     2018     2017     2016      2017   2016   2015   U.S. federal statutory rate     21 %     35 %     35 % Income taxes at U.S. federal statutory rate    $ (12,744 )    $ 4,796     $ 4,117     $ 5,675     $ (12,744 )   $ 4,796   Foreign income taxes at rates other than the federal statutory rate      373     (584 )    (10 )      2,096       373       (584 ) U.S. state and local income taxes, net of U.S. federal tax benefit      (155 )    94     (47 )      (3,446 )     (155 )     94   U.S. Tax Cut and Jobs Act: transition tax, net of foreign tax credits      4,187       —         —         —       4,187       —   Global intangible low-taxed income     6,587       —       —   Change in valuation allowance      47,429       —         —         16,725       47,429       —   Foreign withholding taxes      4,181     4,235     3,790       5,103       4,181       4,235   Foreign dividends      —       5,077     4,152       —       —       5,077   U.S. foreign tax credit      (4,154 )    (8,786 )    (9,808 )      (4,564 )     (4,154 )     (8,786 ) Research and development tax credit      (2,999 )    (2,696 )    (1,608 )      (2,819 )     (2,999 )     (2,696 ) Domestic production activities deduction      —       (840 )    (833 )      —       —       (840 ) Non-deductible stock-based compensation      10,871     2,064     234       (14,964 )     10,871       2,064   Meals & entertainment      358     235     258       181       358       235   Other      (163 )    (91 )    125       672       (163 )     (91 ) Deferred tax on investment in subsidiary      —       (264 )    (214 )      —       —       (264 ) Uncertain tax position      446     299     662   Uncertain tax positions     903       446       299   Acquisition costs     503       —       —   Tax law changes      15,366       —         —         657       15,366       —                      Income tax expense    $ 62,996     $ 3,539     $ 818     $ 13,309     $ 62,996     $ 3,539                      The effectiveTax Cuts and Jobs Act, or the Tax Act, was enacted on December 22, 2017. The Tax Act reduces the U.S. 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 Cut and Jobs Act when accounting for the enactment-date effects of the Tax Act. At December 31, 2018, the Company has completed its accounting for the tax effects of the Tax Act; the Company has not recorded any adjustments to the provisional amounts recorded at December 31, 2017 related to the remeasurement of its deferred balances. At December 31, 2017, the Company originally recorded a provisional amount for its one-time transition tax of $4.2 million, which was substantially offset by available foreign tax credits. During the year ended December 31, 2017, as compared to December 31, 2016, was impacted by increased tax expense of approximately $15.4 million due to2018, the enactmentCompany revised its estimate of the Tax Cuts and Jobs Act (the “Tax Act”) in the United States on December 22, 2017, entirely offset by a valuation allowance. The Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering corporate income tax rates and imposing aone-time transition tax on deemed repatriated earnings of foreign subsidiaries. The impact was primarily the result of increased tax expense due to theone-time transition tax with an offset of foreign tax credits amounting to $4.2 million, and a valuation allowance in theprovisional amount of $47.0 million recorded against the net deferred tax assets in the U.S. The enactmentone-time transition tax. Upon further analyses of the Tax Cuts and Jobs Act (the “Tax Act”) in the United States on December 22, 2017, significantly revises the U.S. corporate income tax by, among other things, lowering corporate income tax rates from 35% to 21% and imposing aone-time transition tax on deemed repatriated earnings of foreign subsidiaries. Pursuant to the guidance within SEC Staff Accounting Bulletin No. 118 (“SAB 118”), as of December 31, 2017, the Company recognized the provisional effects of the enactment of the Tax Act for which measurement could be reasonably estimated. Although the Company continues to analyze certain aspects of the Tax Act and refinerefinement of its assessment,calculations, the ultimate impactCompany increased its provisional amount of the Tax Act may differ from these estimatestransition tax by approximately $0.6 million. This resulted in no change to income tax expense due to the Company’s continued analysis, or further regulatory guidance that may be issued asimpact of foreign tax credits. The Tax Act subjects a resultU.S. shareholder to current tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The impact of GILTI resulted in no incremental tax expense for the Tax Act. Pursuant to SAB 118, adjustments to the provisional amounts recorded by the Company as ofyear ended December 31, 2017, that are identified within2018 due to a subsequent measurement period of up to one year from the enactment date, will be included as an adjustment to tax expense from continuing operations in the period the amounts are determined. The Company remeasured certainfull valuation allowance on U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, the Company is still analyzing certain aspects of the Tax Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of net deferred tax assets and deferred tax liabilities was a net tax charge of $15.4 million, which was fully offset by an adjustment to the valuation allowance. Additionally,assets. In addition, the Company recordedhas made an accounting policy election to treat taxes due under the GILTI provision as a deferred tax benefitcurrent period expense. 112 Table of $1.3 million for the reduction of a deferred tax liability related to an indefinite-lived intangible asset. The Tax Act did not change the Company’s judgment regarding the realizability of these net deferred tax assets.Contents Theone-time transition tax is based on the Company’s total post-1986 earnings and profits (“E&P”) that were previously deferred from U.S. income taxes and for which no deferred taxes were recorded since the Company previously claimed the indefinite reinvestment assertion exception on these earnings. In December 2017, the Company recorded a provisional amount for itsone-time transition tax liability of $4.2 million, net of foreign tax credits. The Company has not yet completed its calculation of the total post-1986 E&P and associated foreign tax credits for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation, and finalizes the amounts held in cash or other specified assets. The Company anticipates that additional guidance and clarification regarding the implementation of the transition tax will be issued by federal and state taxing authorities and the Company’s estimate is, therefore, subject to future refinement. Deferred income tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statements purposes. The approximate tax effect of each type of temporary difference, and operating losses and tax credit carryforwards that give rise to a significant portion of the deferred tax assets and liabilities are as follows (in thousands):      December 31,     December 31,      2017      2016     2018     2017   Deferred tax assets:                       Deferred revenue    $ 19,569      $ 16,966     $ 3,063     $ 19,569   Net operating loss carryforwards      7,601        3,550       37,549       7,601   Tax credit carryforwards      22,191        17,839       30,516       22,191   Stock-based compensation      8,922        15,825       6,858       8,922   Capitalized research and development      8,798        12,492       8,266       8,798   Accrued expenses      648        1,775       —       648   Employee benefits      3,931        3,995       4,825       3,931   Other      1,905        2,527       1,777       1,905                 Total gross deferred tax assets      73,565        74,969       92,854       73,565   Less: valuation allowances      (54,331 )       (4,153 )      (76,101 )     (54,331 )               Net deferred tax assets(1)      19,234        70,816       16,753       19,234   Deferred tax liabilities:                       Prepaid royalties      6,925        5,821       7,687       6,925   Property and equipment and intangibles      4,567        2,394       13,945       4,567   Deferred tax on investment in subsidiary      272        272       329       272   Other      739        812       1,155       739                 Total deferred tax liabilities      12,503        9,299       23,116       12,503                 Total net deferred tax assets    $ 6,731      $ 61,517     $ (6,363 )   $ 6,731                   (1) Reflects gross amount before jurisdictional netting of deferred tax assets and liabilities. Deferred tax assets and liabilities are determined separately for each tax jurisdiction on a separate or on a consolidated tax filing basis, as applicable, in which the Company conducts its operations or otherwise incurs taxable income or losses. A valuation allowance is recorded when it is more likely than not that some portion or all of the gross deferred tax assets will not be realized. The realization of deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. The Company considers the following possible sources of taxable income when assessing the realization of deferred tax assets: taxable income in prior carryback years; future reversals of existing taxable temporary differences; future taxable income exclusive of reversing temporary differences and carryforwards; and prudent and feasible tax planning strategies that the Company would be willing to undertake to prevent a deferred tax asset from otherwise expiring. The Company’s accountingassessment regarding whether a valuation allowance is required or whether a change in judgment regarding the valuation allowance has occurred also considers all available positive and negative evidence, including but not limited to: nature, frequency, and severity of cumulative losses in recent years; duration of statutory carryforward and carryback periods; statutory limitations against utilization of tax attribute carryforwards against taxable income; historical experience with tax attributes expiring unused; and near‑ and medium‑term financial outlook. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Accordingly, it is generally difficult to conclude a valuation allowance is not required when there is significant objective and verifiable negative evidence, such as cumulative losses in recent years. The Company uses the actual results for the indefinite reinvestment assertion is incomplete. However, a reasonablelast two years and current year results as the primary measure of cumulative losses in recent years. 113 Table of Contents The evaluation of deferred tax assets requires judgment in assessing the likely future tax consequences of events recognized in the financial statements or tax returns and future profitability. The recognition of deferred tax assets represents the Company’s best estimate of bookthose future events. Changes in the current estimates, due to unanticipated events or otherwise, could have a material effect on the Company’s results of operations and financial condition. In certain tax basis was calculated,jurisdictions, the Company’s analysis indicates that it has cumulative losses in recent years. This is considered significant negative evidence which is objective and verifiable and, therefore, difficult to overcome. However, the cumulative loss position is not solely determinative and, accordingly, the Company madeconsiders all other available positive and negative evidence in its analysis. Based on its analysis, the Company has recorded a provisional assertion. In general,valuation allowance for the portion of deferred tax assets where based on the weight of available evidence it is unlikely to realize those deferred tax assets. Based on the practice and intentionevidence available including a lack of sustainable earnings, the Company to repatriatein its judgment previously taxed earnings and to reinvestrecorded a valuation allowance against substantially all other earnings of itsnon-U.S. subsidiaries. net deferred tax assets in the United States. If a change in judgment regarding this valuation allowance were to occur in the future, the Company will record a potentially material deferred tax benefit, which could result in a favorable impact on the effective tax rate in that period.   As parta result of the Tax Act, the Company incurred U.S.has not had a change in judgement regarding the gross book-tax basis differences in its non-U.S. consolidated subsidiaries. The Tax Act required a one-time transition tax on substantially allfor deemed repatriation of theaccumulated undistributed earnings of itsnon-U.S. subsidiaries as partcertain foreign investments. If we determine that all or a portion of our foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes, U.S. taxes on foreign currency fluctuations on these accumulated undistributed earnings, and incremental U.S. state income taxes, beyond the Tax Act's one-time transition tax. ThisThe Company continues to record deferred foreign taxes on gross book-tax basis differences to the extent of foreign distributable reserves and excess cash balances for its subsidiary in India. Determining the amount of unrecognized deferred tax increased the Company’s previously taxed earnings and will allow for the repatriation of the majority of itsliability related to any remaining undistributed foreign earnings without any residual U.S. federal tax. This assertion is subject to change as additional information is gathered to precisely compute the book and tax basis of the Company’snon-U.S. subsidiaries.not practicable. The following table summarizes the changes to the valuation allowance balance at December 31, 2018, 2017 2016 and 20152016 (in thousands):      December 31,     December 31,      2017      2016      2015     2018     2017     2016   Beginning balance    $ 4,153      $ 2,452      $ 2,858     $ 54,331     $ 4,153     $ 2,452   Additions charged to expense      47,429        177        —         16,725       47,429       177   Deductions      —          (207 )       (270 )      —       —       (207 ) Other      2,749        1,731        (136 )      5,045       2,749       1,731                        Ending balance    $ 54,331      $ 4,153      $ 2,452     $ 76,101     $ 54,331     $ 4,153                        Additions charged to expense The amount in Other for 20172018 of $47.4$5.0 million areis primarily related to the recording of a valuation allowance against deferred taxes recorded for business combinations of $12.6 million, and to accumulated deficit related to the Company’s U.S. deferred tax assets. In evaluating the needadoption of ASC 606 for a valuation allowance, Altair considered the large U.S. federal tax deduction that resulted whennon-qualified stock options were exercised in connection with the Company’s IPO in November 2017, and expected NSO exercises and determined that it was not more likely than not that the U.S. deferred tax assets would be realized.$(7.4) million. The following table summarizes the amount and expiration dates of operating loss and tax credit carryforwards at December 31, 20172018 (in thousands):      Expiration dates      Amounts     Expiration dates   Amounts   U.S. general business credits and loss carryforwards      2018-2037      $ 24,564     2019-Indefinite   $ 53,853   Foreign loss carryforwards      indefinite        2,879     Indefinite     8,030   U.S. foreign tax credits      2027        2,349     2028     6,182             Total operating loss and tax credit carryforwards       $ 29,792         $ 68,065             114 Table of Contents A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):      Year ended December 31,     Year ended December 31,      2017   2016      2015     2018     2017     2016   Unrecognized tax benefits—January 1    $ 5,604     $ 5,305      $ 4,712     $ 6,157     $ 5,604     $ 5,305   Increase in unrecognized tax benefits as a result of:                                 Additions for tax positions of current period      634     299        826       234       634       299   Additions for tax positions of prior periods     10,866       —       —   Reductions for tax positions of prior periods      (81 )      —          (233 )      (100 )     (81 )     —                       Reductions due to statute of limitations     (60 )     —       —   Unrecognized tax benefits—December 31    $ 6,157     $ 5,604      $ 5,305     $ 17,097     $ 6,157     $ 5,604                       At December 31, 2017,2018, the Company had $6.2$17.1 million of gross unrecognized tax benefits that if recognized would affect the effective tax rate and adjustments to other tax accounts, primarily deferred taxes. It is reasonably possible thatThe Company expects a change in the Company’s gross unrecognized tax benefits may occur into be approximately $0.4 million that will impact the next twelve months; however, it is not possible to reasonably estimate the effect this may have upon the gross unrecognizedeffective tax benefits.rate during 2019. The Company operates globally but considers its more significant tax jurisdictions to include the United States, India, Germany, Japan, and China. India has tax years open for examination from 20052008 through 2016.2017. All other significant jurisdictions have open tax years from 20132014 through 2016.2017. The Company records interest and penalties with respect to unrecognized tax benefits as a component of the provision for income taxes. For the years ended December 31, 20172018 and 2016,2017, accrued interest and penalties related to unrecognized tax benefits were insignificant. For the year ended December 31, 2015, accrued interest and penalties related to unrecognized tax benefits were $0.1 million. 14. (Loss) income15. Income (loss) per share Basic income (loss) income 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. Diluted income (loss) income 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 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) income per share amounts (in thousands, except per share data):        Year ended December 31,        2017     2016      2015   Numerator:         Net (loss) income    $ (99,407 )    $ 10,163      $ 10,931                             Denominator:         Denominator for basic (loss) income per share—weighted average shares      52,466       48,852        46,609   Effect of dilutive securities, stock options      —         9,004        12,100                             Denominator for dilutive (loss) income per share      52,466       57,856        58,709                             Net (loss) income per share attributable to common stockholders, basic    $ (1.89 )    $ 0.21      $ 0.23                             Net (loss) income per share attributable to common stockholders, diluted    $ (1.89 )    $ 0.18      $ 0.19                                 Year ended December 31,       2018     2017     2016   Numerator:                         Net income (loss)   $ 13,715     $ (99,407 )   $ 10,163   Denominator:                         Denominator for basic income (loss) per share—   weighted average shares     67,468       52,466       48,852   Effect of dilutive securities, stock options and RSUs     7,410       —       9,004   Denominator for dilutive income (loss) per share     74,878       52,466       57,856   Net income (loss) per share attributable to common stockholders, basic   $ 0.20     $ (1.89 )   $ 0.21   Net income (loss) per share attributable to common stockholders, diluted   $ 0.18     $ (1.89 )   $ 0.18   The computation of diluted income (loss) income 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 year. For the year ended December 31, 2018, there were no anti-dilutive shares, which were excluded from the computation of income (loss) per share. For the year ended December 31, 2017, there were 10.2 million potentially anti-dilutive shares, which were excluded from the computation of income (loss) income per share. For the year ended December 31, 2016, there were no anti-dilutive shares excluded from the computation of income (loss) income per share. For the year ended December 31, 2015, there were 0.8 million potentially anti-dilutive shares, which were excluded from the computation of (loss) income per share. 15.16. Retirement benefits The Company sponsors a 401(k)-profit sharing plan (the “Plan”) for all eligible U.S. employees. This Plan allows eligible employees to contribute up to 80% of their compensation to the Plan. The Company makes discretionary matching contributions to the Plan provided the employee is employed on the last day of the year. Such discretionary contributions vest ratably over five years of service. 115 Table of Contents The Company’s contributions to the Plan were $1.1$1.3 million, $1.1 million and $0.9$1.1 million for the years ended December 31, 2018, 2017 2016 and 2015,2016, respectively. The Company also participates in government-mandated retirement and/or termination indemnity plans, benefiting certainnon-U.S. employees. Termination benefits are generally lump sum payments based upon an individual’s years of credited service and annual salary at retirement. These plans are generally unfunded and employees receive payments at the time of retirement or termination under applicable labor laws or agreements. The amount of net benefit cost recorded in the consolidated statements of operations for these plans was $1.2 million, $1.2 million and $0.9 million in 2018, 2017 and $0.6 million in 2017, 2016, and 2015, respectively. The amount of benefits paid under these plans was $0.2$0.4 million, $0.2 million and $0.1$0.2 million in 2018, 2017 2016 and 2015,2016, respectively. The accumulated benefit obligation, unlike the projected benefit obligation, does not reflect expected benefit increases from future salary levels, and was $5.5$6.0 million and $3.0$5.5 million at December 31, 20172018 and 2016,2017, respectively, under these plans. The liability for pension benefits representing the projected benefit obligation, net of plan assets of $0.9 million, and $0.7 million, under these plans was $8.0$9.6 million and $6.3$8.0 million at December 31, 2018 and 2017, and 2016, respectively. A summary of the components of the pension benefits obligation recorded in the consolidated balance sheets are as follows (in thousands):      December 31,     December 31,      2017      2016     2018     2017   Accrued compensation and benefits    $ 368      $ 332     $ 513     $ 368   Other long-term liabilities      7,670        5,959       9,111       7,670                   $ 9,624     $ 8,038      $ 8,038      $ 6,291                 The estimated future benefit payments, which reflect expected future service, that are expected to be paid for each of the next five years are as follows (in thousands):   Year ending                December 31, 2018    $ 393   December 31, 2019    $ 282     $ 537   December 31, 2020    $ 342     $ 356   December 31, 2021    $ 211     $ 283   December 31, 2022    $ 261     $ 337   December 31, 2023   $ 519   Next five years    $ 2,217     $ 2,484   116 16.Table of Contents 17. Accumulated other comprehensive loss The components of accumulated other comprehensive loss are as follows (in thousands):      Foreign currency translation      Retirement related benefit plans      Total   Balance at December 31, 2014    $ (3,631 )     $ (710 )     $ (4,341 )  Other comprehensive loss before reclassification      (3,068 )       (217 )       (3,285 )  Tax effects      953        (36 )       917                        Other comprehensive loss      (2,115 )       (253 )       (2,368 )  Less: Other comprehensive income (loss) attributable to noncontrolling interest      (1 )       —          (1 )                         Foreign currency translation     Retirement related benefit plans     Total   Balance at December 31, 2015      (5,745 )       (963 )       (6,708 )    $ (5,745 )   $ (963 )   $ (6,708 ) Other comprehensive loss before reclassification      80        (771 )       (691 )  Other comprehensive income (loss) before reclassification     80       (771 )     (691 ) Tax effects      (60 )       195        135       (60 )     195       135                        Other comprehensive income (loss)      20        (576 )       (556 )      20       (576 )     (556 ) Balance at December 31, 2016      (5,725 )       (1,539 )       (7,264 )  ��   (5,725 )     (1,539 )     (7,264 ) Other comprehensive income (loss) before reclassification      2,351        (213 )       2,138       2,351       (213 )     2,138   Amounts reclassified from accumulated other comprehensive loss      —          54        54       —       54       54   Tax effects      —          —          —         —       —       —                        Other comprehensive income (loss)      2,351        (159 )       2,192       2,351       (159 )     2,192                        Balance at December 31, 2017    $ (3,374 )     $ (1,698 )     $ (5,072 )      (3,374 )     (1,698 )     (5,072 )                      Other comprehensive income (loss) before reclassification     (5,211 )     90       (5,121 ) Amounts reclassified from accumulated other comprehensive loss     —       (1,177 )     (1,177 ) Tax effects     —       318       318   Other comprehensive income (loss)     (5,211 )     (769 )     (5,980 ) Balance at December 31, 2018   $ (8,585 )   $ (2,467 )   $ (11,052 ) 17. 18. Related party transactions In February 2017, the Company purchased the noncontrolling interest in a consolidated subsidiary from a founder stockholder for an aggregate purchase price of $29 thousand. In January 2016, the Company redeemed 350,400546,776 shares of Class A common stock from founder stockholdersrelated parties for an aggregate purchase price of $1.3$2.1 million payable in twelve equal monthly installments. In June 2016, the Company redeemed 137,268 shares of Class A common stock from a related party for an aggregate purchase price of $0.5 million payable in two equal installments. In December 2016, the Company redeemed 59,108 shares of Class A common stock from a related party for an aggregate purchase price of $0.3 million payable in twelve equal monthly installments. In December 2016, the Company redeemed 113,388 shares of Class B common stock from a founder stockholder for an aggregate purchase price of $0.6 million payable in nine equal monthly installments. In October 2015, the Company acquired Altair Bellingham, LLC from significant stockholders of the Company for cash of $0.7 million, which was paid in February 2016. In 2015,At December 31, 2018, the Company redeemed 200,000 shares of Class A common stock for an aggregate purchase price of $0.7 million payable in equal monthly installments of principal and interest over three years. had no obligations to related parties. At December 31, 2017, and 2016, respectively, the Company had obligations to related parties for the redemptions summarized above in the amounts of $0.1 million and $1.0 million recorded in other accrued expenses and current liabilities, and nil and $0.1 million recorded in other long-term liabilities. At December 31, 2017, and 2016, respectively, the Company had receivables from an entity for which the Company had an equity investment, FluiDyna, for $0.5 million and $0.2 million recorded in other long-term assets. The Company acquired FluiDyna in May 2018; as a result, the receivable has been eliminated from the December 31, 2018 consolidated balance sheet. For additional information on the acquisition of FluiDyna, see Note 4 - Acquisitions. 18. 117 Table of Contents 19. Commitments and contingencies Swedish Tax Litigation The Swedish Tax Authorities, or STA, have assessed tax, penalties and interest in the amount of $6.7 million related to the acquisition of Panopticon AB by Datawatch, in 2013 for the years 2013, 2014 and 2015. The STA, upon auditing the acquisition transaction, reached a conclusion that post acquisition, certain assets were removed from Sweden, triggering the tax obligation. The STA is also of the opinion that some services related to product development provided to the new parent company in the U.S. were performed by Panopticon AB at a price below market price triggering tax obligations. Datawatch contested the findings by the STA throughout the audit process and is now contesting the STA position in the first level of administrative courts. An Administrative Court hearing had been set for January 2019; however, upon Altair acquiring Datawatch and engaging new Swedish tax counsel, the Administrative Court agreed to a short postponement. A new hearing date is expected to be established no earlier than May or June of 2019. This tax controversy is a long-standing tax matter related to a unique combination of complex tax laws and regulations coupled with unusual facts and circumstances for which there appears to be little or no precedence in prior case law in this jurisdiction. Ultimate resolution of this matter, which could be several years from this point, inclusive of applicable appellate procedures, will be based upon significant judgment and interpretation by the parties involved, especially as this matter progresses through the court process. 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 August 21, 2017, the court granted Altair’s motion to strike the testimony of MSC’s damage expert and on October 11, 2017, the court mooted the remainingpre-trial motions and allowed the Company to file a motion for summary judgment on the issue of whether MSC can prove 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. No briefing schedule or argument date has been set byThe Sixth Circuit referred the Appeals Court.case to mediation. On August 28, 2018, the parties filed stipulations of dismissal with both the District Court and the Court of Appeals. The Company cannot be certain of the outcome of this matter. The Company has estimated and recorded a liability for the probable loss.matter is settled. 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. Royalty agreements The Company has entered into various renewable, nonexclusive license agreements under which the Company has been granted access to the licensor’s technology and the right to sell or use the technology in the Company’s products. Royalties are payable to developers of the software at various rates and amounts, which generally are based upon unit sales or revenue. Royalty fees were $9.7 million, $9.3 million, $7.9 million, and $7.1$7.9 million for the years ended December 31, 2018, 2017 2016 and 2015,2016, respectively, and are reported in Cost of revenue-softwarerevenue—software and Cost of revenue—other. Leases The Company leases office space, vehicles, and computer equipment. Such leases, some of which are noncancelable, are set to expire at various dates. Certain of these lease arrangements contain escalation clauses whereby monthly rent increases over time. 118 Table of Contents The future minimum annual lease payments under noncancelable operating leases with an initial term in excess of one year and future minimum capital lease payments at December 31, 2017,2018, are as follows (in thousands):      Capital leases      Operating leases     Capital leases     Operating leases   Year Ending December 31,                       2018    $ 106      $ 8,946   2019      60        6,919     $ 256     $ 10,661   2020      36        4,797       209       8,306   2021      5        2,892       173       5,673   2022      —          1,933       137       3,573   2023     38       1,819   Thereafter      —          2,367       —       3,147                 Total minimum lease payments      207      $ 27,854       813     $ 33,179             Less: current installments under capital lease obligations      106          256                     Total long-term portion    $ 101        $ 557                     Rent expense for operating leases was $11.0 million, $9.9 million $8.5 million and $7.7$8.5 million for the years ended December 31, 2018, 2017 2016 and 2015,2016, respectively. 19.20. 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) income 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 lease 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. PotentialOther 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 are also included in “All other.”stages. 119 Table of Contents 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 accounting policies of the segments are the same as those described in Note 2—Summary of significant accounting policies. The following tables are in thousands:   Year ended December 31, 2017    Software      CES      All other      Total   Year ended December 31, 2018   Software     CES     All other     Total   Revenue    $ 280,214      $ 46,510      $ 6,609      $ 333,333     $ 341,306     $ 47,852     $ 7,221     $ 396,379   Adjusted EBITDA    $ 22,864      $ 4,966      $ (5,313 )     $ 22,517     $ 48,643     $ 5,155     $ (3,618 )   $ 50,180     Year ended December 31, 2016    Software      CES      All other      Total   Year ended December 31, 2017   Software     CES     All other     Total   Revenue    $ 259,588      $ 47,702      $ 5,950      $ 313,240     $ 280,214     $ 46,510     $ 6,609     $ 333,333   Adjusted EBITDA    $ 29,411      $ 5,425      $ (4,006 )     $ 30,830     $ 22,864     $ 4,966     $ (5,313 )   $ 22,517     Year ended December 31, 2015    Software      CES      All other      Total   Year ended December 31, 2016   Software     CES     All other     Total   Revenue    $ 242,861      $ 45,075      $ 6,193      $ 294,129     $ 259,588     $ 47,702     $ 5,950     $ 313,240   Adjusted EBITDA    $ 23,149      $ 4,776      $ (4,976 )     $ 22,949     $ 29,411     $ 5,425     $ (4,006 )   $ 30,830       Year ended December 31,      Year ended December 31,     2018     2017     2016      2017      2016      2015   Reconciliation of Adjusted EBITDA to GAAP (Loss) income before income taxes:          Reconciliation of Adjusted EBITDA to GAAP income (loss) before income taxes:                         Adjusted EBITDA    $ 22,517      $ 30,830      $ 22,949     $ 50,180     $ 22,517     $ 30,830   Stock-based compensation expense      (47,281 )       (5,132 )       (597 )      (3,339 )     (47,281 )     (5,132 ) Interest expense      (2,160 )       (2,265 )       (2,416 )      (200 )     (2,160 )     (2,265 ) Interest income and other(1)      2,260        249        191       (4,883 )     2,260       249   Depreciation and amortization      (11,747 )       (9,980 )       (8,378 )      (14,734 )     (11,747 )     (9,980 )                      (Loss) income before income taxes    $ (36,411 )     $ 13,702      $ 11,749                        Income (loss) before income taxes   $ 27,024     $ (36,411 )   $ 13,702     (1) Includes for the year ended December 31, 2018 a) nonrecurring costs from the acquisition of Datawatch of $10.4 million, b) gain on the sale of a building of $4.4 million, c) impairment charges for royalty contracts and trade names resulting in $2.8 million of expense. Includes for each of the years ended December 31, 2018 and 2017, a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income for the year ended December 31, 2017.in each year. 120 Table of Contents Revenue is attributed to geographic areas based on the country of origin. The following table provides sales to external customers and long-lived assets for each of the geographic areas in which the Company operates (in thousands):      Revenue      Long-lived assets(1)     Revenue     Long-lived assets (1)      Year ended December 31,      December 31,     Year ended December 31,     December 31,      2017      2016      2015      2017      2016     2018     2017     2016     2018     2017   United States    $ 142,679      $ 139,079      $ 130,791      $ 38,729      $ 25,901     $ 186,026     $ 142,679     $ 139,079     $ 63,266     $ 38,729   Other countries      6,404        6,032        4,841        116        120       8,604       6,404       6,032       11,447       116                                      Total Americas      149,083        145,111        135,632        38,845        26,021       194,630       149,083       145,111       74,713       38,845                                      Germany      43,751        39,470        37,549        2,802        2,660       45,664       43,751       39,470       4,305       2,802   France      18,128        15,729        14,057        2,176        2,175       16,154       18,128       15,729       1,583       2,176   Other countries      40,050        34,909        35,933        4,534        4,317       42,846       40,050       34,909       4,729       4,534                                      Total Europe, Middle East and Africa      101,929        90,108        87,539        9,512        9,152       104,664       101,929       90,108       10,617       9,512                                      Japan      33,686        33,198        26,795        2,237        879       35,478       33,686       33,198       2,045       2,237   Other countries      48,635        44,823        44,163        2,574        2,999       61,607       48,635       44,823       2,957       2,574                                      Total Asia Pacific      82,321        78,021        70,958        4,811        3,878       97,085       82,321       78,021       5,002       4,811                                      Total    $ 333,333      $ 313,240      $ 294,129      $ 53,168      $ 39,051     $ 396,379     $ 333,333     $ 313,240     $ 90,332     $ 53,168                                        (1) Includes property and equipment, net and definite-lived intangible assets, net. 20. 21. Supplemental quarterly financial information (unaudited) The following tables set forth selected unaudited quarterly information. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods in accordance with GAAP. This data should be read in conjunction with the Company’s audited consolidated financial statements and related notes. These quarterly operating results are not necessarily indicative of the Company’s operating results for a full year or any future period.        Three months ended   (in thousands, except per share data)    March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017   Total revenue    $ 76,882     $ 81,646     $ 84,938     $ 89,867   Gross profit    $ 50,128     $ 54,728     $ 58,636     $ 63,250   Operating loss    $ (1,990 )    $ (7,158 )    $ (20,928 )    $ (3,181 )  Net loss    $ (2,188 )    $ (7,246 )    $ (29,626 )    $ (60,347 )  Loss per share, basic    $ (0.04 )    $ (0.14 )    $ (0.59 )    $ (1.03 )  Loss per share, diluted    $ (0.04 )    $ (0.14 )    $ (0.59 )    $ (1.03 )       Three months ended   (in thousands, except per share data)    March 31, 2016     June 30, 2016     September 30, 2016     December 31, 2016   Total revenue    $ 74,829     $ 77,511     $ 78,052     $ 82,848   Gross profit    $ 49,411     $ 52,171     $ 52,431     $ 56,627   Operating income    $ 3,632     $ 3,615     $ 224     $ 7,976   Net income    $ 1,481     $ 2,472     $ 314     $ 5,896   Earnings per share, basic    $ 0.03     $ 0.05     $ 0.01     $ 0.12   Earnings per share, diluted    $ 0.03     $ 0.04     $ 0.01     $ 0.10       Three months ended       ASC 606   (in thousands, except per share data)   March 31, 2018     June 30, 2018     September 30, 2018     December 31, 2018   Total revenue   $ 113,257     $ 93,360     $ 86,751     $ 103,011   Gross profit   $ 84,216     $ 63,903     $ 59,547     $ 72,740   Operating income (loss)   $ 26,146     $ 175     $ 1,880     $ (3,557 ) Net income (loss)   $ 24,684     $ (1,080 )   $ 934     $ (10,823 ) Net income (loss) per share, basic   $ 0.39     $ (0.02 )   $ 0.01     $ (0.15 ) Net income (loss) per share, diluted   $ 0.34     $ (0.02 )   $ 0.01     $ (0.15 ) 121 Table of Contents Revenue for the first and fourth quarters of 2018 are higher than the second and third quarters of 2018 as a result of the adoption of ASC 606. The Company typically has higher billings in the first and fourth quarters of each year, and the guidance under ASC 606 accelerates revenue. Gross profit, operating income, and net income are significantly higher in the first quarter of 2018, than the second, third and fourth quarters of 2018 due to the adoption of ASC 606. See Note 3 – Revenue from contracts with customers for the effect of the adoption of ASC 606 on the Company’s consolidated financial statements. The net loss in the fourth quarter of 2018 is primarily the result of transaction costs from the acquisition of Datawatch. See Note 4 – Acquisitions.     Three months ended       ASC 605   (in thousands)   March 31, 2018     June 30, 2018     September 30, 2018     December 31, 2018   Total revenue   $ 91,731     $ 95,566     $ 93,871     $ 103,894   Gross profit   $ 62,689     $ 66,110     $ 66,667     $ 73,623   Operating income (loss)   $ 4,270     $ 2,177     $ 8,968     $ (2,424 ) Operating income in the first quarter of 2018 includes a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income. Operating income in the third quarter of 2018 includes a gain on the sale of a building for $4.4 million.     Three months ended (1)   (in thousands, except per share data)   March 31, 2017     June 30, 2017     September 30, 2017     December 31, 2017   Total revenue   $ 76,882     $ 81,646     $ 84,938     $ 89,867   Gross profit   $ 50,128     $ 54,728     $ 58,636     $ 63,250   Operating loss   $ (1,990 )   $ (7,158 )   $ (20,928 )   $ (3,181 ) Net loss   $ (2,188 )   $ (7,246 )   $ (29,626 )   $ (60,347 ) Net loss per share, basic   $ (0.04 )   $ (0.14 )   $ (0.59 )   $ (1.03 ) Net loss per share, diluted   $ (0.04 )   $ (0.14 )   $ (0.59 )   $ (1.03 ) (1) The three months ended March 31, 2017, June 30, 2017, September 30, 2017 and December 31, 2017 have been reported under ASC 605 and have not been adjusted under the modified retrospective approach. See Note 3 – Revenue from contracts with customers for the effect of the adoption of ASC 606 on the Company’s consolidated financial statements. In the second, third and fourth quarters of 2017, the Company recognized stock-based compensation expense of $11.2 million, $25.3 million, and $8.0 million, respectively. Income tax expense increased by $56.6 million for the quarter ended December 31, 2017. This increase is primarily due to a $47.0 million increase in tax expense related to the recording of a valuation allowance on the U.S. deferred tax assets, and a $15.4 million increase due to the remeasurement of net deferred tax assets and liabilities as part of the Tax Act offset by other tax accounting benefits in the U.S. in the quarter. 122 Table of Contents           Incorporated by Reference   Exhibit No.    Description    Form    File No.      Exhibit      Filing Date      Filed Herewith     3.1    Certificate of Incorporation, as amended and as currently in effect    S-1/A      333-220710        3.1        10/6/2017        3.2    Bylaws, as currently in effect    S-1/A      333-220710        3.2        10/6/2017      10.1    Form of Indemnification Agreement between the Registrant and each of its directors and executive officers    S-1      333-220710        10.1        9/29/2017      10.2+    2001 Incentive andNon-Qualified Stock Option Plan    S-1      333-220710        10.2        9/29/2017      10.3+    Form of 2001 Incentive andNon-Qualified Stock Option Plan Incentive Stock Option Agreement    S-1      333-220710        10.3        9/29/2017      10.4+    Form of 2001 Incentive andNon-Qualified Stock Option Plan Stock Restriction and Repurchase Agreement    S-1      333-220710        10.4        9/29/2017      10.5+    2001Non-Qualified Stock Option Plan    S-1      333-220710        10.5        9/29/2017      10.6+    Form of 2001Non-Qualified Stock Option PlanNon-Qualified Stock Option Agreement    S-1      333-220710        10.6        9/29/2017      10.7+    Form of 2001Non-Qualified Stock Option Plan Stock Restriction Agreement    S-1      333-220710        10.7        9/29/2017      10.8+    2012 Incentive andNon-Qualified Stock Option Plan    S-1      333-220710        10.8        9/29/2017      10.9+    Form of 2012 Incentive andNon-Qualified Stock Option Plan Option Agreement    S-1      333-220710        10.9        9/29/2017      10.10+    Form of 2012 Incentive andNon-Qualified Stock Option Plan Stock Restriction and Repurchase Agreement    S-1      333-220710        10.10        9/29/2017      10.11+    Form of 2012 Incentive andNon-Qualified Stock Option Plan Stock Restriction and Repurchase Agreement (Directors)    S-1      333-220710        10.11        9/29/2017      10.12+    2017 Equity Incentive Plan and forms of equity agreements thereunder    S-1/A      333-220710        10.12        10/6/2017      10.13+    Employment Letter, dated January 10, 2013, by and between the Registrant and Howard N. Morof as amended on July 19, 2017    S-1      333-220710        10.13        9/29/2017      10.14    2017 Second Amended and Restated Credit Agreement, dated June  14, 2017, by and among the Registrant, the foreign subsidiary borrowers, the Lenders named therein and JP Morgan Chase Bank, N.A. as administrative agent, as last amended September 28, 2017    S-1      333-220710        10.14        9/29/2017      10.15+    Consulting Agreement, effective as of January  1, 2017, by and between the Registrant and Advanced Studies Holding Future SRL, an Italian Company, as amended    S-1      333-220710        10.15        9/29/2017      10.16    2017 Third Amended and Restated Credit Agreement, dated October  18, 2017, by and among the Registrant, the foreign subsidiary borrowers, the Lenders named therein and JP Morgan Chase Bank, N.A. as administrative agent    S-1/A      333-220710        10.16        10/19/17      21.1    List of Subsidiaries of the Registrant                  X   23.1    Consent of Independent Registered Public Accounting Firm                  X   31.1    Certification of the Chief Executive Officer of Altair Engineering Inc. pursuant to Rule13a-14(a)/Rule15d-14(a) under the Securities Exchange Act of 1934, as amended                  X             Incorporated by Reference   Exhibit No.    Description    Form    File No.      Exhibit      Filing Date      Filed Herewith     2.1    Agreement and Plan of Merger, dated as of November 5, 2018, by and among the Registrant, Dallas Merger Sub, Inc. and Datawatch Corporation    8-K      333-220710        2.1        11/5/2018                            3.1    Certificate of Incorporation, as amended and as currently in effect    S-1/A      333-220710        3.1        10/6/2017                            3.2    Bylaws, as currently in effect    S-1/A      333-220710        3.2        10/6/2017                          10.1    Form of Indemnification Agreement between the Registrant and each of its directors and executive officers    S-1      333-220710        10.1        9/29/2017                          10.2+    2001 Incentive and Non-Qualified Stock Option Plan    S-1      333-220710        10.2        9/29/2017                          10.3+    Form of 2001 Incentive and Non-Qualified Stock Option Plan Incentive Stock Option Agreement    S-1      333-220710        10.3        9/29/2017                          10.4+    Form of 2001 Incentive and Non-Qualified Stock Option Plan Stock Restriction and Repurchase Agreement    S-1      333-220710        10.4        9/29/2017                          10.5+    2001 Non-Qualified Stock Option Plan    S-1      333-220710        10.5        9/29/2017                          10.6+    Form of 2001 Non-Qualified Stock Option Plan Non-Qualified Stock Option Agreement    S-1      333-220710        10.6        9/29/2017                          10.7+    Form of 2001 Non-Qualified Stock Option Plan Stock Restriction Agreement    S-1      333-220710        10.7        9/29/2017                          10.8+    2012 Incentive and Non-Qualified Stock Option Plan    S-1      333-220710        10.8        9/29/2017                          10.9+    Form of 2012 Incentive and Non-Qualified Stock Option Plan Option Agreement    S-1      333-220710        10.9        9/29/2017                          10.10+    Form of 2012 Incentive and Non-Qualified Stock Option Plan Stock Restriction and Repurchase Agreement    S-1      333-220710        10.10        9/29/2017                          10.11+    Form of 2012 Incentive and Non-Qualified Stock Option Plan Stock Restriction and Repurchase Agreement (Directors)    S-1      333-220710        10.11        9/29/2017                          10.12+    2017 Equity Incentive Plan and forms of equity agreements thereunder    S-1/A      333-220710        10.12        10/6/2017                          10.13+    Employment Letter, dated January 10, 2013, by and between the Registrant and Howard N. Morof as amended on July 19, 2017    S-1      333-220710        10.13        9/29/2017                          10.14+    Consulting Agreement, effective as of January 1, 2017, by and between the Registrant and Advanced Studies Holding Future SRL, an Italian Company, as amended    S-1      333-220710        10.15        9/29/2017            123 Table of Contents               10.15    2017 Third Amended and Restated Credit Agreement, dated October 18, 2017, by and among the Registrant, the foreign subsidiary borrowers, the Lenders named therein and JP Morgan Chase Bank, N.A. as administrative agent    S-1/A      333-220710        10.16        10/19/17                          10.16    First Amendment to 2017 Third Amended and Restated Credit Agreement, dated October 31, 2018, by and among the Registrant, the foreign subsidiary borrowers, the Lenders named therein and JP Morgan Chase Bank, N.A. as administrative agent    8-K               10.1        11/5/18                          21.1    List of Subsidiaries of the Registrant                                      X                 23.1    Consent of Independent Registered Public Accounting Firm                                      X                 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                                      X                                             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                                 X                                             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                                 X                                             EX-101.INS   XBRL INSTANCE DOCUMENT                                 X                                             EX-101.SCH   XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT                                 X                                             EX-101.CAL   XBRL TAXONOMY EXTENSION CALCULATION LINKBASE                                 X                                             EX-101.LAB   XBRL TAXONOMY EXTENSION LABELS LINKBASE                                 X                                             EX-101.PRE   XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE                                 X   31.2+ Certification of the Chief Financial Officer of Altair Engineering Inc. pursuant to Rule13a-14(a)/Rule15d-14(a) under the Securities Exchange Act of 1934, as amended X 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 X EX-101.INS XBRL INSTANCE DOCUMENT X EX-101.SCH XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT X EX-101.CAL XBRL TAXONOMY EXTENSION CALCULATION LINKBASE X EX-101.LAB XBRL TAXONOMY EXTENSION LABELS LINKBASE X EX-101.PRE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE X + Indicates management contract or compensatory plan. ** The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form10-K 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. Item 16. Form10-K Summary None. 124 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: March 21, 20181, 2019 By: /s/ James Scapa James R. Scapa Chief Executive Officer (Principal Executive Officer) Date: March 21, 20181, 2019 By: /s/ Howard N. Morof Howard N. Morof Chief Financial Officer (Principal Financial and Accounting Officer) POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James R. Scapa and Howard N. Morof, jointly and severally, his or her true and lawfulattorneys-in-fact and agent, each with the power of substitution, for him in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of saidattorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.   Name Title Date /s/ James Scapa James R. Scapa Chief Executive Officer and Director (Principal Executive Officer) March 21, 20181, 2019 /s/ Howard N. Morof Howard N. Morof Chief Financial Officer (Principal Financial and Accounting Officer) March 21, 20181, 2019 /s/ James E. BrancheauMary C. Boyce James E. BrancheauMary C. Boyce Director March 21, 20181, 2019 /s/ Brett Chouinard Brett Chouinard Director March 1, 2019 /s/ Stephen Earhart Stephen Earhart Director March 21, 20181, 2019 /s/ Trace Harris Trace Harris Director March 21, 2018 1, 2019 /s/ Jan Kowal Jan Kowal Director March 21, 2018 /s/ Richard Hart Richard Hart Director March 21, 20181, 2019 /s/ Jan Kowal Jan Kowal Director March 1, 2019   104125