Mentor Graphics Corporation (NASDAQ: MENT) today announced
financial results for the company’s fiscal first quarter ended
April 30, 2014. The company reported revenues of $252.2 million,
non-GAAP earnings per share of $0.11, and a GAAP loss per share of
$0.02.
“First quarter results were better than our guidance, driven
largely by strong revenue growth in scalable verification,
particularly emulation,” said Walden C. Rhines, chairman and CEO of
Mentor Graphics. “During the quarter Mentor introduced a
revolutionary new Enterprise Verification Platform - one of
the most significant verification product announcements in Mentor’s
history. We also acquired Berkeley Design Automation, a recognized
leader in analog, mixed-signal and RF circuit verification. This
high-impact acquisition, along with the increase in our quarterly
dividend and continued share repurchases, demonstrates Mentor’s
balanced approach to capital deployment.”
The Mentor® Enterprise Verification Platform combines Questa®
advanced verification solutions, Veloce® OS3 global emulation
resourcing technology, and the Visualizer™ debug environment into a
globally accessible high-performance data center resource. The new
platform eliminates barriers to hardware acceleration and combines
the functionality and observability of simulation-based
verification with the speed of emulation.
During the quarter the company also launched the first phase of
a new systems design enterprise platform, starting with innovative
Xpedition™ printed circuit board (PCB) layout technology. Mentor
also released Valor® “new product introduction” software which
seamlessly links PCB design and manufacturing operations to deliver
the industry’s first integrated, automated flow for the design,
fabrication and assembly of PCBs. The company also announced that
LEONI, a leading supplier of cables and cable systems to the
automotive sector and other industries, has expanded its use of
Mentor’s Capital® software throughout its worldwide facilities. In
other news, Mentor’s IC solutions, including Calibre® and
Olympus-SoC™ software as well as the Pyxis™ custom IC design
platform and the ELDO® spice simulator, have achieved certification
for TSMC 16 nm FinFET family production.
“Mentor’s business performed well in the first quarter,” said
Gregory K. Hinckley, president of Mentor Graphics. “Strict
attention to cost control enabled the company to exceed our
non-GAAP operating income target by over $7 million and beat
non-GAAP EPS guidance by $0.05 on a $7 million hardware-driven
revenue upside. The company is executing well and we expect
strength in transportation applications and core EDA demand as the
year progresses.”
Outlook
For the second quarter of fiscal 2015, the company expects
revenues of about $250 million, non-GAAP earnings per share of
about $0.15 and GAAP earnings per share of approximately $0.07. For
the full year fiscal 2015, the company expects revenues of about
$1.237 billion, non-GAAP earnings per share of about $1.75, and
GAAP earnings per share of approximately $1.46.
Dividend and Share Repurchase
The company announced a quarterly dividend of $0.05 per share.
The dividend is payable on June 30, 2014 to shareholders of record
as of the close of business on June 10, 2014.
During the quarter the company repurchased approximately 2
million shares for $45 million.
Fiscal Year Definition
Mentor Graphics Corporation’s fiscal year runs from February 1
to January 31. The fiscal year is dated by the calendar year in
which the fiscal year ends. As a result, the first three fiscal
quarters of any fiscal year will be dated with the next calendar
year, rather than the current calendar year.
Discussion of Non-GAAP Financial Measures
Mentor Graphics’ management evaluates and makes operating
decisions using various performance measures. In addition to our
GAAP results, we also consider adjusted gross profit, operating
income, operating margin, net income, and earnings per share which
we refer to as non-GAAP gross profit, operating income, operating
margin, net income, and earnings per share, respectively. These
non-GAAP measures are derived from the revenues of our product,
maintenance, and services business operations and the costs
directly related to the generation of those revenues, such as cost
of revenue, research and development, sales and marketing, and
general and administrative expenses, that management considers in
evaluating our ongoing core operating performance. These non-GAAP
measures exclude amortization of intangible assets, special
charges, equity plan-related compensation expenses, interest
expense associated with the amortization of original issuance debt
discount on convertible debt, the equity in earnings or losses of
unconsolidated entities (except Frontline PCB Solutions Limited
Partnership (Frontline)), and the impact on basic and diluted
earnings per share of changes in the calculated redemption value of
noncontrolling interests, which management does not consider
reflective of our core operating business.
Management excludes from our non-GAAP measures certain recurring
items to facilitate its review of the comparability of our core
operating performance on a period-to-period basis because such
items are not related to our ongoing core operating performance as
viewed by management. Management considers our core operating
performance to be that which can be affected by our managers in any
particular period through their management of the resources that
affect our underlying revenue and profit generating operations
during that period. Management uses this view of our operating
performance for purposes of comparison with our business plan and
individual operating budgets and allocation of resources.
Additionally, when evaluating potential acquisitions, management
excludes the items described above from its consideration of target
performance and valuation. More specifically, management adjusts
for the excluded items for the following reasons:
- Identified intangible assets consist
primarily of purchased technology, backlog, trade names, and
customer relationships. Amortization charges for our intangible
assets can vary in frequency and amount due to the timing and
magnitude of acquisition transactions. We consider our operating
results without these charges when evaluating our core performance
due to the variability. Generally, the most significant impact to
inter-period comparability of our net income is in the first twelve
months following an acquisition.
- Special charges may include expenses
related to certain litigation costs, employee severance,
acquisitions, excess facility costs, and other asset related
charges. Special charges are incurred based on particular facts and
circumstances and can vary in size and frequency. Litigation costs
classified as special charges consist of professional service fees
related to patent litigation involving us, EVE S.A., and Synopsys,
Inc. These costs are included in special charges because of their
unusual nature due to the significance in variability of timing and
amount. Restructuring costs included in special charges include
costs incurred for employee terminations, including severance and
benefits, driven by modification of business strategy or business
emphasis. Special charges are not ordinarily included in our annual
operating plan and related budget due to unpredictability, driven
in part by rapidly changing technology and the competitive
environment in our industry. We therefore exclude them when
evaluating our managers’ performance internally.
- Equity plan-related compensation
expenses represent the fair value of all share-based payments to
employees, including grants of employee stock options and
restricted stock units, and purchases made as a result of the
employee stock purchase plan. We do not consider equity
plan-related compensation expense in evaluating our managers’
performance internally or our core operations in any given
period.
- Interest expense attributable to
amortization of the original issuance debt discount on convertible
debt is excluded. Management does not consider this charge as a
part of our core operating performance. We do not consider the
amortization of the original issuance debt discount on convertible
debt to be a direct cost of operations.
- Equity in earnings or losses of
unconsolidated entities represents our equity in the net income
(loss) of common stock investments accounted for under the equity
method. The carrying amounts of our investments are adjusted for
our share of earnings or losses of the investee. We report our
equity in the earnings or losses of investments in other income
(expense), net (with the exception of our investment in Frontline
as discussed below). The amounts are excluded from our non-GAAP
results as we do not control the results of operations for the
investments and we do not participate in regular and periodic
operating activities; therefore, management does not consider these
investments as a part of our core operating performance.
- The Company maintains a 50% interest in
Frontline, a joint venture. We report our equity in the earnings or
losses of Frontline within operating income. Although we do not
exert control, we actively participate in regular and periodic
activities such as budgeting, business planning, marketing and
direction of research and development projects. Accordingly, we do
not exclude our share of Frontline’s earnings or losses from our
non-GAAP results as management considers the joint venture to be
core to our operating performance.
- Income tax expense is adjusted by the
amount of additional tax expense or benefit that we would accrue if
we used non-GAAP results instead of GAAP results in the calculation
of our tax liability, taking into consideration our long-term tax
structure. We use a normalized effective tax rate of 17%, which
reflects the weighted average tax rate applicable under the various
jurisdictions in which we operate. This non-GAAP tax rate
eliminates the effects of non-recurring and period specific items
which are often attributable to acquisition decisions and can vary
in size and frequency and considers our U.S. loss carryforwards
that have not been previously benefited. This rate is subject to
change over time for various reasons, including changes in the
geographic business mix and changes in statutory tax rates. Our
GAAP tax rate for the three months ended April 30, 2014 is 5.4%
after consideration of period specific items. Without period
specific items of $10 thousand, our GAAP tax rate is 5.7%. Our full
fiscal year 2015 GAAP tax rate, inclusive of period specific items,
is projected to be 11%. The GAAP tax rate considers certain
mandatory and other non-scalable tax costs which may adversely or
beneficially affect our tax rate depending upon our level of
profitability in various jurisdictions.
- Our agreement with the owners of
noncontrolling interests in one of our subsidiaries gives them a
right to require us to purchase their interests for a price based
on a formula defined in the agreement. Under GAAP, increases (or
decreases to the extent they offset previous increases) in the
calculated redemption value of the noncontrolling interests are
recorded directly to retained earnings and therefore do not affect
net income. However, as required by GAAP, these amounts are applied
to increase or decrease the numerator in the calculation of basic
and diluted earnings per share. Management does not consider
fluctuations in the calculated redemption value of noncontrolling
interests to be relevant to our core operating performance.
In certain instances our GAAP results of operations may not be
profitable when our corresponding non-GAAP results are profitable
or vice versa. The number of shares on which our non-GAAP earnings
per share is calculated may therefore differ from the GAAP
presentation due to the anti-dilutive effect of stock options,
restricted stock units, and employee stock purchase plan shares in
a loss situation.
Non-GAAP gross profit, operating income, operating margin, net
income, and earnings per share are supplemental measures of our
performance that are not presented in accordance with GAAP.
Moreover, they should not be considered as an alternative to any
performance measure derived in accordance with GAAP, or as an
alternative to cash flow from operating activities as a measure of
our liquidity. We present non-GAAP gross profit, operating income,
operating margin, net income, and earnings per share because we
consider them to be important supplemental measures of our
operating performance and profitability trends, and because we
believe they give investors useful information on period-to-period
performance as evaluated by management. Non-GAAP net income also
facilitates comparison with other companies in our industry, which
use similar financial measures to supplement their GAAP results.
Non-GAAP net income has limitations as an analytical tool, and
therefore should not be considered in isolation or as a substitute
for analysis of our results as reported under GAAP. In the future,
we expect to continue to incur expenses similar to the non-GAAP
adjustments described above and exclusion of these items in our
non-GAAP presentation should not be construed as an inference that
these costs are unusual, infrequent or non-recurring. Some of the
limitations in relying on non-GAAP net income are:
- Amortization of intangible assets
represents the loss in value as the technology in our industry
evolves, is advanced, or is replaced over time. The expense
associated with this loss in value is not included in the non-GAAP
net income presentation and therefore does not reflect the full
economic effect of the ongoing cost of maintaining our current
technological position in our competitive industry, which is
addressed through our research and development program.
- We regularly evaluate our business to
determine whether any operations should be eliminated or curtailed.
Additionally, as part of our ongoing business, we engage in
acquisition and assimilation activities and patent litigation. We
therefore will continue to experience special charges on a regular
basis. These costs also directly impact our available funds.
- Our stock incentive and stock purchase
plans are important components of our incentive compensation
arrangements and will be reflected as expenses in our GAAP
results.
- Our income tax expense will be
ultimately based on our GAAP taxable income and actual tax rates in
effect, which often differ significantly from the 17% rate assumed
in our non-GAAP presentation. In addition, if we have a GAAP loss
and non-GAAP net income, our non-GAAP results will not reflect any
projected GAAP tax benefits. Similarly, in the event we were to
have GAAP net income and a non-GAAP loss, our GAAP tax expense
would be replaced by a credit in our non-GAAP presentation.
- Other companies, including other
companies in our industry, calculate non-GAAP net income
differently than we do, limiting its usefulness as a comparative
measure.
About Mentor Graphics
Mentor Graphics Corporation is a world leader in electronic
hardware and software design solutions, providing products,
consulting services and award-winning support for the world’s most
successful electronic, semiconductor and systems companies.
Established in 1981, the company reported revenues in the last
fiscal year in excess of $1.15 billion. Corporate headquarters are
located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777.
World Wide Web site: http://www.mentor.com/.
(Mentor Graphics, Mentor, Questa, Veloce, Valor, Capital,
Calibre and ELDO are registered trademarks and Visualizer,
Xpedition, Olympus-SoC, and Pyxis are trademarks of Mentor Graphics
Corporation. All other company and/or product names are the
trademarks and/or registered trademarks of their respective
owners.)
Statements in this press release regarding the company’s
guidance for future periods constitute “forward-looking” statements
based on current expectations within the meaning of the Securities
Exchange Act of 1934. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the company or
industry results to be materially different from any results,
performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: (i) weakness in the United States, the European Union,
China or other international economies, and the potential adverse
impact on the semiconductor and electronics industries; (ii) the
company’s ability to successfully offer products and services that
compete in the highly competitive EDA industry, including the risk
of obsolescence for our hardware products; (iii) product
bundling or discounting of products and services by competitors,
which could force the company to lower its prices or offer other
more favorable terms to customers; (iv) effects of the volatility
of foreign currency fluctuations on the company’s business and
operating results; (v) litigation; (vi) changes in accounting or
reporting rules or interpretations; (vii) the impact of tax
audits by the IRS or other taxing authorities, or changes in the
tax laws, regulations or enforcement practices where the company
does business; (viii) effects of unanticipated shifts in
product mix on gross margin; and (ix) effects of customer
mergers or divestitures, customer seasonal purchasing patterns and
the timing of significant orders which may negatively or positively
impact the company’s quarterly results of operations; all as may be
discussed in more detail under the heading “Risk Factors” in the
company’s most recent Form 10-K or Form 10-Q. Given these
uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. In addition,
statements regarding guidance do not reflect potential impacts of
mergers or acquisitions that have not been announced or closed as
of the time the statements are made. Mentor Graphics disclaims any
obligation to update any such factors or to publicly announce the
results of any revisions to any of the forward-looking statements
to reflect future events or developments.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share data)
Three Months Ended April 30,
2014 2013 Revenues:
System and software $ 148,229 $ 123,284 Service and support
103,922 103,231 Total revenues 252,151
226,515
Cost of revenues: (1) System
and software 26,971 8,899 Service and support 29,111 30,075
Amortization of purchased technology 1,361
1,207 Total cost of revenues 57,443
40,181 Gross profit 194,708 186,334
Operating expenses: Research and development (2)
84,451 79,717 Marketing and selling (3) 84,634 79,107 General and
administrationa (4) 17,682 16,337 Equity in earnings of Frontline
(5) (1,379 ) (397 ) Amortization of intangible assets (6) 1,750
1,654
Special chargesa (7)
5,926 4,023 Total operating expenses
193,064 180,441
Operating income
1,644 5,893 Other income (expense), net (8) (258 ) (959 ) Interest
expense (9) (4,585 ) (4,785 ) Income (loss) before
income tax (3,199 ) 149 Income tax expense (benefit) (10)
(174 ) 568 Net loss (3,025 ) (419 ) Less: Loss
attributable to noncontrolling interest (11) (474 )
(624 ) Net income (loss) attributable to Mentor Graphics
shareholders $ (2,551 ) $ 205 Net income (loss) per share
attributable to Mentor Graphics shareholders:
Basicb
$ (0.02 ) $ 0.01
Dilutedb
$ (0.02 ) $ 0.01 Weighted average number of shares
outstanding: Basic 114,935 112,711
Diluted 114,935 115,751 aCertain
litigation costs have been reclassified from general and
administration to special charges within operating expenses for the
three months ended April 30, 2013. These reclassifications were
made to conform to the current period presentation. These
reclassifications had no impact on GAAP operating expense,
operating income or net income for the three months ended April 30,
2013. Additional discussion regarding the reclassification was
provided in our Annual Report on Form 10-K for the year ended
January 31, 2014. bWe have increased the numerator of our
basic and diluted earnings per share calculation for the adjustment
to decrease the noncontrolling interest to the calculated
redemption value, recorded directly to retained earnings, as
follows: $ 667 $ 468 Refer to
following page for a description of footnotes.
MENTOR GRAPHICS
CORPORATION
FOOTNOTES TO
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands) Listed below are the items included in
net income (loss) that management excludes in computing the
non-GAAP financial measures referred to in the text of this press
release. Items are further described under "Discussion of Non-GAAP
Financial Measures."
Three Months Ended
April 30, 2014 2013
(1) Cost of revenues: Equity plan-related compensation $ 535
$ 460 Amortization of purchased technology 1,361
1,207 $ 1,896 $ 1,667
(2)
Research and development: Equity plan-related compensation $
3,241 $ 2,610
(3) Marketing and
selling: Equity plan-related compensation $ 2,178 $
1,882
(4) General and administration: Equity
plan-related compensation $ 2,175 $ 1,614
(5) Equity in earnings of Frontline: Amortization of
purchased technology and other identified intangible assets $ 116
$ 737
(6) Amortization of intangible
assets: Amortization of other identified intangible assets $
1,750 $ 1,654
(7) Special charges:
Rebalance, restructuring, and other costs $ 5,926 $ 4,023
(8) Other income (expense), net: Net income
(loss) of unconsolidated entities $ 13 $ (51 )
(9)
Interest expense: Amortization of original issuance debt
discount $ 1,494 $ 1,391
(10) Income tax
expense (benefit): Non-GAAP income tax effects $ (2,825 ) $
(2,097 )
(11) Loss attributable to noncontrolling
interest: Amortization of intangible assets, equity-plan
related compensation, and income tax effects $ (200 ) $ (393 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF NON-GAAP ADJUSTMENTS
(In thousands, except earnings per share data)
Three Months Ended April 30,
2014 2013 GAAP net income (loss)
attributable to Mentor Graphics shareholders $ (2,551 ) $ 205
Non-GAAP adjustments: Equity plan-related compensation: (1) Cost of
revenues 535 460 Research and development 3,241 2,610 Marketing and
selling 2,178 1,882 General and administration 2,175 1,614
Acquisition - related items: Amortization of purchased assets Cost
of revenues (2) 1,361 1,207 Frontline purchased technology and
intangible assets (3) 116 737 Amortization of intangible assets (4)
1,750 1,654 Special chargesa (5) 5,926 4,023 Other income
(expense), net (6) 13 (51 ) Interest expense (7) 1,494 1,391
Non-GAAP income tax effects (8) (2,825 ) (2,097 ) Noncontrolling
interest (9) (200 ) (393 ) Total of non-GAAP
adjustments 15,764 13,037 Non-GAAP net
income attributable to Mentor Graphics shareholders $ 13,213
$ 13,242 GAAP weighted average shares (diluted)
114,935 115,751 Non-GAAP adjustment 2,479 -
GAAP and Non-GAAP weighted average shares (diluted)
117,414 115,751 Net income (loss) per
share attributable to Mentor Graphics shareholders: GAAP (diluted)
$ (0.02 ) $ 0.01 Noncontrolling interest adjustment (10) (0.01 )
(0.01 ) Non-GAAP adjustments detailed above 0.14
0.11 Non-GAAP (diluted) $ 0.11 $ 0.11
aSee footnote a for a discussion of the
reclassification of certain litigation costs to special
charges.
(1 )
Equity plan-related compensation expense is the fair value of all
share-based payments to employees for stock options and restricted
stock units, and purchases made as a result of the employee stock
purchase plans.
(2 ) Amount represents amortization
of purchased technology resulting from acquisitions. Purchased
technology is amortized over two to five years.
(3 )
Amount represents amortization of purchased technology and other
identified intangible assets identified as part of the fair value
of the Frontline P.C.B. Solutions Limited Partnership (Frontline)
joint venture investment. Mentor Graphics has a 50% interest in
Frontline. The purchased technology was amortized over three years
from the March 2010 acquisition date, other identified intangible
assets will be amortized over three to four years, and are
reflected in the income statement in the equity in earnings of
Frontline. This expense is the same type as being adjusted for in
note (2) above and (4) below.
(4 ) Other identified
intangible assets are amortized to operating expense over two to
five years. Other identified intangible assets include trade names,
customer relationships, and backlog which are the result of
acquisition transactions.
(5 ) Three months ended
April 30, 2014: Special charges consist of (i) $ 3,958 for EVE
litigation costs, (ii) $1,125 of costs incurred for employee
rebalances which includes severance benefits, notice pay, and
outplacement services, and (iii) $843 in other adjustments. Three
months ended April 30, 2013: Special charges consist of (i) $2,079
of costs incurred for employee rebalances which includes severance
benefits, notice pay, and outplacement services, (ii) $1,940 for
EVE litigation costs, and (ii) $4 in other adjustments.
(6
) Amount represents income (loss) on investment accounted
for under the equity method of accounting.
(7 )
Amount represents the amortization of original issuance debt
discount.
(8 ) Non-GAAP income tax expense adjustment
reflects the application of our assumed normalized effective 17%
tax rate, instead of our GAAP tax rate, to our non-GAAP pre-tax
income.
(9 ) Adjustment for the impact of
amortization of intangible assets, equity plan-related
compensation, and income tax expense on noncontrolling interest.
(10 ) Non-GAAP EPS excludes from the numerator of our
earnings per share calculation the adjustment of the noncontrolling
interest to the calculated redemption value, recorded directly to
retained earnings.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
MEASURES
(In thousands, except percentages)
Three Months Ended April 30,
2014 2013 GAAP gross
profit $ 194,708 $ 186,334 Reconciling items to non-GAAP gross
profit: Equity plan-related compensation 535 460 Amortization of
purchased technology 1,361 1,207
Non-GAAP gross profit $ 196,604 $ 188,001
Three Months Ended April 30, 2014
2013 GAAP gross profit as a percent of
total revenues 77.2 % 82.3 % Non-GAAP adjustments detailed above
0.8 % 0.7 % Non-GAAP gross profit as a percent of
total revenues 78.0 % 83.0 %
Three
Months Ended April 30, 2014
2013 GAAP operating expenses $ 193,064 $ 180,441
Reconciling items to non-GAAP operating expenses: Equity
plan-related compensation (7,594 ) (6,106 ) Amortization of
Frontline purchased technology and other identified intangible
assets (116 ) (737 ) Amortization of other identified intangible
assets (1,750 ) (1,654 ) Special chargesa (5,926 )
(4,023 ) Non-GAAP operating expenses $ 177,678 $ 167,921
Three Months Ended April 30,
2014 2013 GAAP operating income
$ 1,644 $ 5,893 Reconciling items to non-GAAP operating income:
Equity plan-related compensation 8,129 6,566 Amortization of
purchased technology 1,361 1,207 Amortization of Frontline
purchased technology and other identified intangible assets 116 737
Amortization of other identified intangible assets 1,750 1,654
Special chargesa 5,926 4,023 Non-GAAP
operating income $ 18,926 $ 20,080
Three Months Ended April 30, 2014
2013 GAAP operating income as a percent of
total revenues 0.7 % 2.6 % Non-GAAP adjustments detailed above
6.8 % 6.3 % Non-GAAP operating income as a percent of
total revenues 7.5 % 8.9 %
Three
Months Ended April 30, 2014
2013 GAAP other income (expense), net and interest
expense $ (4,843 ) $ (5,744 ) Reconciling items to non-GAAP other
income (expense), net and interest expense: Equity in earnings of
unconsolidated entities 13 (51 ) Amortization of original issuance
debt discount 1,494 1,391 Non-GAAP
other income (expense), net and interest expense $ (3,336 ) $
(4,404 )
aSee footnote a for a discussion of the
reclassification of certain litigation costs to special
charges.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
April 30,
January 31, 2014 2014
Assets Current assets: Cash, cash equivalents and
short-term investments $ 175,825 $ 297,312 Trade accounts
receivable, net 146,920 179,830 Term receivables, short-term
273,675 274,653 Prepaid expenses and other 68,916 64,658 Deferred
income taxes 9,576 13,656 Total current assets
674,912 830,109
Property, plant, and equipment, net 157,843
160,165
Term receivables, long-term 264,843 270,365
Goodwill and intangible assets, net 618,160 571,843
Other
assets 75,304 71,627 Total assets $
1,791,062 $ 1,904,109
Liabilities and Stockholders'
Equity Current liabilities: Short-term borrowings $
1,352 $ 9,590 Accounts payable 15,947 21,548 Income taxes payable -
3,365 Accrued payroll and related liabilities 57,911 102,848
Accrued and other liabilities 41,353 42,457 Deferred revenue
221,916 231,179 Total current liabilities 338,479
410,987
Long-term notes payable 225,755 224,261
Deferred
revenue, long-term 20,953 17,398
Other long-term
liabilities 46,474 50,690 Total liabilities
631,661 703,336
Noncontrolling interest
with redemption feature 14,568 15,479
Stockholders'
equity: Common stock 803,242 838,939 Retained earnings 319,890
327,552 Accumulated other comprehensive income 21,701
18,803 Total stockholders' equity 1,144,833 1,185,294
Total liabilities and stockholders' equity $ 1,791,062 $
1,904,109
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL
INFORMATION
(In thousands, except days sales outstanding)
Three Months Ended April 30,
2014 2013 Operating
activities Net loss $ (3,025 ) $ (419 ) Depreciation and
amortization 13,737 13,344 Other adjustments to reconcile:
Operating cash 6,522 10,810 Changes in working capital
(28,195 ) (11,608 ) Net cash provided by (used in)
operating activities (10,961 ) 12,127
Investing
activities Net cash used in investing activities (47,580 )
(15,158 )
Financing activities Net cash used in
financing activities (59,293 ) (21,408 ) Effect of exchange
rate changes on cash and cash equivalents 337
(964 ) Net change in cash and cash equivalents (117,497 )
(25,403 ) Cash and cash equivalents at beginning of perioda
293,322 223,783 Cash and cash
equivalents at end of periodb $ 175,825 $ 198,380
Other data: Capital expenditures $
6,170 $ 4,410 Days sales outstanding 150
146 aThe condensed consolidated
balance sheet at January 31, 2014 includes $3,990 of short-term
investments in the "Cash, cash equivalents, and short-term
investments" line item. $3,990 should be deducted from that line
item to reconcile to the amount of "Cash and cash equivalents at
beginning of period" presented in this statement for the three
months ended April 30, 2014. bThe condensed consolidated
balance sheet at April 30, 2013 includes $7,833 of short-term
investments in the "Cash, cash equivalents, and short-term
investments" line item. $7,833 should be deducted from that line
item to reconcile to the amount of "Cash and cash equivalents at
end of period" presented in this statement for the three months
ended April 30, 2013.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF GAAP TO NON-GAAP
EARNINGS PER
SHARE
The following table reconciles
management's estimates of the specific items excluded from GAAP in
the calculation of estimated non-GAAP net income per share for
Q2'15 and fiscal year 2015.
Estimated
Estimated Q2'15 FY'15 Diluted GAAP net income
per share $ 0.07 $ 1.46 Non-GAAP Adjustments: Amortization of
purchased technology (1) 0.02 0.04 Amortization of other identified
intangible assets (2) 0.01 0.04 Equity plan-related compensation
(3) 0.08 0.31 Special Charges (4) - 0.05 Other income (expense),
net and interest expense (5) 0.02 0.05 Non-GAAP income tax effects
(6) (0.05 ) (0.19 ) Noncontrolling interest (7) - - Other (8) -
(0.01 ) Diluted non-GAAP net income per share $ 0.15
$ 1.75
(1 ) Excludes
amortization of purchased technology resulting from acquisitions.
Purchased technology is amortized over two to five years.
(2
) Excludes amortization of other identified intangible
assets including trade names, customer relationships, and backlog
resulting from acquisition transactions. Other identified
intangible assets are amortized over two to five years.
(3
) Excludes equity plan-related compensation expense for the
fair value of all share-based payments to employees for stock
options and restricted stock units, and purchases made as a result
of the employee stock purchase plans.
(4 ) Excludes
special charges consisting primarily of costs incurred for certain
litigation costs, and employee rebalances, which includes severance
benefits, notice pay and outplacement services. Full year
adjustment represents the impact of actual special charges for the
three months ended April 30, 2014 as we do not provide guidance for
special charges.
(5 ) Excludes income (loss) from an
investment accounted for under the equity method of accounting, and
amortization of original issuance debt discount.
(6 )
Non-GAAP income tax expense adjustment reflects the application of
our assumed normalized effective 17% tax rate, instead of our GAAP
tax rate, to our non-GAAP pre-tax income.
(7 )
Adjustment for the impact of amortization of intangible assets,
equity plan-related compensation, and income tax expense on
noncontrolling interest. Full year adjustment represents the impact
of the adjustment for the three months ended April 30, 2014, as we
do not provide guidance for this adjustment.
(8 )
Excludes the adjustment to the calculated redemption value of the
noncontrolling interest, recorded directly to retained earnings.
Full year adjustment represents the impact of the adjustment to the
redemption value as of April 30, 2014, as we do not provide
guidance for this adjustment.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION
(Rounded to nearest 5%)
2015
2014 2013 Product Category Bookings (a)
Q1 Q1 Q2 Q3 Q4 Year
Q1 Q2 Q3 Q4 Year IC DESIGN TO
SILICON 20% 60% 35% 40% 30% 40% 35% 25% 30% 35% 30% SCALABLE
VERIFICATION 25% 15% 45% 25% 30% 30% 15% 30% 20% 25% 25% INTEGRATED
SYSTEMS DESIGN 30% 10% 10% 20% 30% 20% 25% 25% 25% 25% 25% NEW
& EMERGING MARKETS 10% 5% 5% 5% 5% 5% 5% 10% 15% 5% 10%
SERVICES / OTHER 15% 10% 5% 10% 5% 5% 20% 10% 10% 10% 10%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
2015 2014 2013 Product Category
Revenue (b) Q1 Q1 Q2 Q3 Q4
Year Q1 Q2 Q3 Q4 Year IC
DESIGN TO SILICON 25% 35% 50% 35% 35% 40% 40% 35% 25% 35% 35%
SCALABLE VERIFICATION 35% 20% 20% 25% 30% 25% 25% 25% 30% 30% 25%
INTEGRATED SYSTEMS DESIGN 25% 30% 20% 25% 25% 20% 20% 25% 25% 20%
25% NEW & EMERGING MARKETS 5% 5% 5% 5% 5% 5% 5% 5% 10% 5% 5%
SERVICES / OTHER 10% 10% 5% 10% 5% 10% 10% 10% 10% 10% 10%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
2015 2014 2013
Bookings by Geography Q1 Q1 Q2
Q3 Q4 Year Q1 Q2 Q3
Q4 Year North America 50% 35% 55% 60% 40% 50% 35% 40%
50% 35% 40% Europe 15% 10% 15% 15% 30% 20% 20% 35% 20% 30% 25%
Japan 15% 10% 5% 5% 10% 5% 10% 5% 5% 10% 10% Pac Rim 20% 45% 25%
20% 20% 25% 35% 20% 25% 25% 25%
Total 100% 100% 100% 100%
100% 100% 100% 100% 100% 100% 100%
2015 2014
2013 Revenue by Geography Q1 Q1
Q2 Q3 Q4 Year Q1 Q2
Q3 Q4 Year North America 50% 45% 40% 50% 45%
45% 50% 45% 50% 40% 45% Europe 25% 20% 20% 20% 20% 20% 20% 20% 20%
30% 25% Japan 10% 10% 5% 10% 15% 10% 10% 15% 10% 10% 10% Pac Rim
15% 25% 35% 20% 20% 25% 20% 20% 20% 20% 20%
Total 100% 100%
100% 100% 100% 100% 100% 100% 100% 100% 100%
2015 2014 2013 Bookings by Business Model
(c) Q1 Q1 Q2 Q3 Q4
Year Q1 Q2 Q3 Q4 Year
Perpetual 35% 15% 50% 20% 10% 25% 25% 20% 20% 15% 20% Term Ratable
20% 10% 5% 5% 5% 5% 25% 15% 10% 5% 10% Term Up Front 45% 75% 45%
75% 85% 70% 50% 65% 70% 80% 70%
Total 100% 100% 100% 100%
100% 100% 100% 100% 100% 100% 100%
2015
2014 2013 Revenue by Business Model (c)
Q1 Q1 Q2 Q3 Q4 Year
Q1 Q2 Q3 Q4 Year Perpetual 35%
20% 25% 20% 20% 20% 20% 25% 25% 15% 20% Term Ratable 10% 10% 10% 5%
5% 10% 10% 10% 10% 5% 10% Term Up Front 55% 70% 65% 75% 75% 70% 70%
65% 65% 80% 70%
Total 100% 100% 100% 100% 100% 100% 100%
100% 100% 100% 100% (a) Product Category Bookings
excludes support bookings for all sub-flow categories. (b) Product
Category Revenue includes support revenue for each sub-flow
category as appropriate. (c) Bookings and Revenue by Business Model
are System and Software only (excludes finance fee).
Mentor Graphics CorporationJoe Reinhart,
503-685-1462joe_reinhart@mentor.com
Mentor Graphics Corp. (NASDAQ:MENT)
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