Mentor Graphics Corporation (NASDAQ: MENT) today announced
financial results for the company’s fiscal fourth quarter ended
January 31, 2016. The company reported revenues of $337.3 million,
non-GAAP earnings per share of $0.63, and GAAP earnings per share
of $0.51. For the full fiscal year, revenues were $1.181 billion,
non-GAAP earnings per share were $1.55 and GAAP earnings per share
were $0.81.
“Mentor achieved revised fourth quarter and full year revenue
guidance and exceeded earnings per share guidance,” said Walden C.
Rhines, chairman and CEO of Mentor Graphics. “Fiscal 2016 was our
most challenging year since the financial crisis of 2009. Although
the semiconductor industry is going through a period of weakness
that impacts the EDA industry, Mentor is benefiting from its
leading position in design of electronics for the automotive and
aerospace industries. Bookings in the automotive part of Mentor’s
business grew 20% in the fourth quarter, continuing the 20%
compound growth rate of the past five years.”
During the quarter the company announced the embedded industry’s
first end-to-end internet of things (IoT) solution that includes
customizable gateway hardware and software, cloud services, and
edge devices. Mentor’s Veloce® Power application, introduced
earlier in the year, was named by EDN Magazine one of the year’s
“100 Hot Products”. The company also introduced new versions of
three products: the market-leading FloTHERM® and general-purpose
FloEFD™ software for computational fluid dynamics, and the Valor®
Process Preparation software for electronics manufacturing.
The company made several announcements in the transportation
space. A trio of new Capital Systems™ tools enable cost and weight
optimization in the automotive and aerospace markets. The Mentor
Automotive A2B Analyzer™ is the industry’s first third-party
development platform supporting the Analog Devices, Inc. Automotive
Audio Bus A2B technology. The combination reduces development time,
cost and complexity of in-vehicle audio networks. In other
automotive news, electrical systems for all new General Motors
vehicle platforms are now being designed using Capital® tools, with
design data for existing vehicle platforms also being converted to
Capital software.
“Through rigorous attention to expenses we reduced fourth
quarter operating costs by $20 million and exceeded non-GAAP
earnings per share by $0.16 compared to guidance,” said Gregory K.
Hinckley, president of Mentor Graphics. “Full-year non-GAAP
operating margins exceeded 20% and cash flow from operations
increased 65% to a record of nearly $230 million. Since reporting
third quarter results Mentor has repurchased over 12 million shares
and reduced our shares outstanding by approximately 10%.”
Outlook
For the first quarter of fiscal 2017, the company expects
revenues of about $220 million, a non-GAAP earnings per share of
break-even and a GAAP loss per share of approximately $0.12. For
the full year fiscal 2017, the company expects revenues of about
$1.215 billion, non-GAAP earnings per share of about $1.68, and
GAAP earnings per share of approximately $1.22. Cash flow from
operations in fiscal 2017 is expected to be approximately $200
million.
Dividend
The company announced a quarterly dividend of $0.055 per share.
The dividend is payable on March 31, 2016 to shareholders of record
at the close of business on March 10, 2016.
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, marketing and sales, 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 employee severance, certain litigation costs,
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. 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. 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. 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 our
employee stock purchase plans. 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, utilizing a normalized effective tax rate.
Our GAAP tax rate for the year ended January 31, 2016 is 20.8%. Our
normalized non-GAAP effective tax rate for the year ended January
31, 2016 is 19%. The normalized non-GAAP effective tax rate
considers our global tax posture, including the weighted average
tax rates applicable in the various jurisdictions in which we
operate; 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. tax loss carryforwards and tax credits that were not
previously recorded as a benefit in our financial statements. Our
non-GAAP effective tax rate is subject to change over time for
various reasons, including changes in geographic business mix,
statutory tax rates, foreign re-investment expectations, and
availability of U.S. tax loss carryforwards and tax credits that
were not previously recorded as a benefit. Our normalized effective
non-GAAP tax rate for the year ended January 31, 2017 is expected
to be 19% which is consistent with the year ended January 31,
2016.
- Our agreement with the former owners of
noncontrolling interests in one of our subsidiaries gave 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. In September 2015 we acquired the
remaining noncontrolling interest in the subsidiary. The amount for
the twelve months ended January 31, 2016 reflects the final
adjustment of redemption value to the actual price we paid.
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, employee stock purchase plan shares, and
convertible debt 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 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.
- 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 of approximately $1.18 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, Veloce, FloTHERM, Valor and Capital
are registered trademarks and FloEFD, A2B Analyzer and Capital
Systems 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) continued economic weakness in the European Union,
China, Japan or other countries, and the potential adverse impact
of such weakness on the company’s customers in the semiconductor
and electronics industries; (ii) the company’s ability to
successfully update existing hardware and software products and
offer new products and services that compete in the highly
competitive EDA industry, including the risk of obsolescence for
our hardware products; (iii) 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; (iv) effects of the
volatility of foreign currency fluctuations on the company’s
business and operating results; (v) 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; (vi) changes in accounting or reporting rules or
interpretations, including new rules affecting revenue recognition;
(vii) the impact of audits by taxing authorities, or changes in
applicable tax laws, regulations or enforcement practices; (viii)
effects of unanticipated shifts in product mix on gross margin; and
(ix) litigation; 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 INCOME
(In thousands, except earnings per share data)
Three Months Ended January 31, Twelve Months Ended
January 31, 2016 2015 2016 2015
Revenues: System and software $ 213,790 $ 323,327 $ 700,621
$ 799,151 Service and support 123,477 115,739
480,367 444,982 Total revenues
337,267 439,066 1,180,988
1,244,133
Cost of revenues: (1) System and
software 11,898 14,834 48,330 69,811 Service and support 33,750
33,719 134,025 127,403 Amortization of purchased technology
1,807 1,847 7,303 7,099
Total cost of revenues 47,455 50,400
189,658 204,313 Gross profit
289,812 388,666 991,330
1,039,820
Operating expenses: Research and
development (2) 103,203 112,863 381,440 381,125 Marketing and
selling (3) 88,487 108,874 351,344 365,688 General and
administration (4) 17,555 22,187 73,853 79,193 Equity in earnings
of Frontline (5) (1,873 ) (1,028 ) (5,849 ) (5,653 ) Amortization
of intangible assets (6) 1,899 2,157 8,716 8,166 Special charges
(7) 1,087 4,081 45,081
23,490 Total operating expenses 210,358
249,134 854,585 852,009
Operating income: 79,454 139,532 136,745 187,811 Other
income (expense), net (8) 763 (34 ) 1,612 (777 ) Interest expense
(9) (5,047 ) (4,950 ) (19,428 ) (19,276
) Income before income tax 75,170 134,548 118,929 167,758 Income
tax expense (10) 14,990 20,674
24,753 22,581 Net income 60,180 113,874 94,176
145,177 Less: Loss attributable to noncontrolling interest (11)
(91 ) (614 ) (2,101 ) (1,962 )
Net income attributable to Mentor Graphics
shareholders
$ 60,271 $ 114,488 $ 96,277 $ 147,139
Net income per share attributable to Mentor Graphics shareholders:
Basica $ 0.52 $ 0.98 $ 0.83 $ 1.28
Diluteda $ 0.51 $ 0.96 $ 0.81 $ 1.26
Weighted average number of shares outstanding: Basic 116,442
115,338 116,701 114,635
Diluted 118,066 117,466
119,263 117,078 aWe have increased
(decreased) the numerator of our basic and diluted earnings per
share calculation for the adjustment of the noncontrolling interest
with redemption feature to its calculated redemption value,
recorded directly to retained earnings, as follows: $ -
$ (1,174 ) $ 258 $ 121 Refer to
following page for a description of footnotes.
MENTOR GRAPHICS
CORPORATION
FOOTNOTES TO
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
(In thousands) Listed below are the
items included in net income 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 January
31, Twelve Months Ended January 31, 2016
2015 2016 2015 (1) Cost of revenues:
Equity plan-related compensation $ 626 $ 617 $ 2,607 $ 2,304
Amortization of purchased technology 1,807
1,847 7,303 7,099 $ 2,433
$ 2,464 $ 9,910 $ 9,403
(2) Research
and development: Equity plan-related compensation $ 3,994
$ 3,824 $ 16,207 $ 14,027
(3)
Marketing and selling: Equity plan-related compensation $ 2,309
$ 2,411 $ 9,623 $ 9,103
(4)
General and administration: Equity plan-related compensation $
2,679 $ 2,564 $ 12,060 $ 10,373
(5) Equity in earnings of Frontline: Amortization of other
identified intangible assets $ - $ - $ - $ 116
(6) Amortization of intangible assets:
Amortization of other identified intangible assets $ 1,899 $
2,157 $ 8,716 $ 8,166
(7) Special
charges: Rebalance, restructuring, certain litigation, and
other costs $ 1,087 $ 4,081 $ 45,081 $ 23,490
(8) Other income (expense), net: Net income
(loss) of unconsolidated entities $ (39 ) $ 38 $ (6 ) $ 184
(9) Interest expense: Amortization of original
issuance debt discount $ 1,693 $ 1,576 $ 6,593
$ 6,139
(10) Income tax expense: Non-GAAP
income tax effects $ (2,343 ) $ (5,449 ) $ (18,399 ) $ (19,708 )
(11) Loss attributable to noncontrolling interest:
Amortization of intangible assets,
equity-plan related compensation, and income tax effects
$ - $ (198 ) $ (638 ) $ (820 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF NON-GAAP ADJUSTMENTS
(In thousands, except earnings per share data)
Three Months Ended January 31, Twelve
Months Ended January 31, 2016 2015 2016
2015 GAAP net income attributable to Mentor Graphics
shareholders $ 60,271 $ 114,488 $ 96,277 $ 147,139 Non-GAAP
adjustments: Equity plan-related compensation: (1) Cost of revenues
626 617 2,607 2,304 Research and development 3,994 3,824 16,207
14,027 Marketing and selling 2,309 2,411 9,623 9,103 General and
administration 2,679 2,564 12,060 10,373 Acquisition - related
items: Amortization of purchased assets Cost of revenues (2) 1,807
1,847 7,303 7,099 Amortization of intangible assets (3) 1,899 2,157
8,716 8,282 Special charges (4) 1,087 4,081 45,081 23,490 Other
income (expense), net (5) (39 ) 38 (6 ) 184 Interest expense (6)
1,693 1,576 6,593 6,139 Non-GAAP income tax effects (7) (2,343 )
(5,449 ) (18,399 ) (19,708 ) Noncontrolling interest (8) -
(198 ) (638 ) (820 ) Total of non-GAAP
adjustments 13,712 13,468 89,147
60,473 Non-GAAP net income attributable to
Mentor Graphics shareholders $ 73,983 $ 127,956 $
185,424 $ 207,612 GAAP weighted average shares
(diluted) 118,066 117,466 119,263 117,078 Non-GAAP adjustment
- - 2,046 -
Non-GAAP weighted average shares (diluted) 118,066
117,466 121,309 117,078
Net income per share attributable to
Mentor Graphics shareholders:
GAAP (diluted) $ 0.51 $ 0.96 $ 0.81 $ 1.26 Noncontrolling interest
adjustment (9) - 0.01 - - Convertible debt adjustment (10) - - 0.01
- Non-GAAP adjustments detailed above 0.12
0.12 0.73 0.51 Non-GAAP
(diluted) $ 0.63 $ 1.09 $ 1.55 $ 1.77
(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 generally amortized over two
to five years.
(3) Other identified intangible assets are
generally amortized to operating expense over two to five years.
Other identified intangible assets include trade names, customer
relationships, and backlog resulting from acquisition transactions.
The amount presented for the twelve months ended January 31, 2015
also includes $116 of amortization of other identified intangible
assets for Frontline, which were fully amortized in the first
quarter of fiscal 2015.
(4) Three months ended January 31,
2016: Special charges consist of (i) $(692) of costs incurred for
employee rebalances which include severance benefits and notice
pay, (ii) $477 for EVE litigation costs, and (iii) $1,302 in other
adjustments. Three months ended January 31, 2015: Special charges
consist of (i) $3,215 for EVE litigation costs, (ii) $458 of costs
incurred for employee rebalances which include severance benefits
and notice pay, and (iii) $408 in other adjustments. Twelve months
ended January 31, 2016: Special charges consist of (i) $25,232 for
severance costs incurred for the voluntary early retirement
program, (ii) $13,496 of costs incurred for employee rebalances
which include severance benefits and notice pay, (iii) $4,118 for
EVE litigation costs, and (iv) $2,235 in other adjustments. Twelve
months ended January 31, 2015: Special charges consist of (i)
$18,408 for EVE litigation costs, (ii) $3,535 of costs incurred for
employee rebalances which include severance benefits and notice
pay, and (iii) $1,547 in other adjustments.
(5) Amount
represents (income) loss on an investment accounted for under the
equity method of accounting.
(6) Amount represents the
amortization of original issuance debt discount.
(7)
Non-GAAP income tax expense adjustment reflects the application of
our assumed normalized effective 19% tax rate, instead of our GAAP
tax rate, to our non-GAAP pre-tax income for the three and twelve
months ended January 31, 2016 and a 17% tax rate for the three and
twelve months ended January 31, 2015.
(8) Adjustment for the
impact of amortization of intangible assets, equity plan-related
compensation, and income tax expense on noncontrolling interest.
(9) 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.
(10) We have increased the numerator of our
diluted earnings per share calculation by $2,074 for the twelve
months ended January 31, 2016 for the dilutive effect of our
convertible debt. Corresponding dilutive shares of 2,046 for the
twelve months ended January 31, 2016 are presented in the
reconciliation above.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
MEASURES
(In thousands, except percentages)
Three Months Ended January 31, Twelve Months Ended
January 31, 2016 2015
2016 2015 GAAP gross
profit $ 289,812 $ 388,666 $ 991,330 $ 1,039,820 Reconciling items
to non-GAAP gross profit: Equity plan-related compensation 626 617
2,607 2,304 Amortization of purchased technology 1,807
1,847 7,303 7,099
Non-GAAP gross profit $ 292,245 $ 391,130 $ 1,001,240
$ 1,049,223
Three Months Ended
January 31, Twelve Months Ended January 31,
2016 2015 2016
2015 GAAP gross profit as a percent of
total revenues 85.9 % 88.5 % 83.9 % 83.6 % Non-GAAP adjustments
detailed above 0.8 % 0.6 % 0.9 % 0.7 %
Non-GAAP gross profit as a percent of total revenues 86.7 %
89.1 % 84.8 % 84.3 %
Three
Months Ended January 31, Twelve Months Ended January 31,
2016 2015
2016 2015 GAAP operating
expenses $ 210,358 $ 249,134 $ 854,585 $ 852,009 Reconciling items
to non-GAAP operating expenses: Equity plan-related compensation
(8,982 ) (8,799 ) (37,890 ) (33,503 ) Amortization of other
identified intangible assets (1,899 ) (2,157 ) (8,716 ) (8,282 )
Special charges (1,087 ) (4,081 ) (45,081 )
(23,490 ) Non-GAAP operating expenses $ 198,390 $
234,097 $ 762,898 $ 786,734
Three Months Ended January 31, Twelve Months Ended
January 31, 2016 2015
2016 2015 GAAP operating
income $ 79,454 $ 139,532 $ 136,745 $ 187,811 Reconciling items to
non-GAAP operating income: Equity plan-related compensation 9,608
9,416 40,497 35,807 Amortization of purchased technology 1,807
1,847 7,303 7,099 Amortization of other identified intangible
assets 1,899 2,157 8,716 8,282 Special charges 1,087
4,081 45,081 23,490
Non-GAAP operating income $ 93,855 $ 157,033 $
238,342 $ 262,489
Three Months Ended
January 31, Twelve Months Ended January 31,
2016 2015 2016
2015 GAAP operating income as a percent
of total revenues 23.6 % 31.8 % 11.6 % 15.1 % Non-GAAP adjustments
detailed above 4.2 % 4.0 % 8.6 % 6.0 %
Non-GAAP operating income as a percent of total revenues
27.8 % 35.8 % 20.2 % 21.1 %
Three Months Ended January 31, Twelve Months Ended
January 31, 2016 2015
2016 2015 GAAP other
income (expense), net and interest expense $ (4,284 ) $ (4,984 ) $
(17,816 ) $ (20,053 )
Reconciling items to non-GAAP other income
(expense), net and interest expense:
Equity in earnings of unconsolidated entities (39 ) 38 (6 ) 184
Amortization of original issuance debt discount 1,693
1,576 6,593 6,139
Non-GAAP other income (expense), net and interest expense $ (2,630
) $ (3,370 ) $ (11,229 ) $ (13,730 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 31, January
31, 2016 2015 Assets Current
assets: Cash and cash equivalents $ 334,826 $ 230,281 Trade
accounts receivable, net 176,021 208,996 Term receivables,
short-term 317,188 337,626 Prepaid expenses and other 70,432 64,901
Deferred income taxes - 23,490
Total current assets 898,467 865,294
Property, plant, and
equipment, net 182,092 170,737
Term receivables,
long-term 268,657 301,862
Goodwill and intangible assets,
net 644,288 645,506
Other assets 70,860
62,609 Total assets $ 2,064,364 $
2,046,008
Liabilities and Stockholders' Equity
Current liabilities: Short-term borrowings $ 33,449 $ 7,228
Accounts payable 16,740 12,687 Income taxes payable 3,966 5,994
Accrued payroll and related liabilities 73,371 108,553 Accrued and
other liabilities 37,059 47,728 Deferred revenue 258,725
259,340 Total current liabilities
423,310 441,530
Long-term notes payable 240,076 227,386
Deferred revenue, long-term 18,303 21,251
Other long-term
liabilities 62,246 69,615 Total
liabilities 743,935 759,782
Noncontrolling interest with redemption feature - 13,372
Stockholders' equity: Common stock 818,683 832,612
Retained earnings 522,846 451,901 Accumulated other comprehensive
loss (21,100 ) (11,887 ) Noncontrolling interest -
228 Total stockholders' equity 1,320,429
1,272,854 Total liabilities and
stockholders' equity $ 2,064,364 $ 2,046,008
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL
INFORMATION
(In thousands, except days sales outstanding)
Three Months Ended January 31, Twelve
Months Ended January 31, 2016 2015 2016
2015 Operating activities Net income $ 60,180 $
113,874 $ 94,176 $ 145,177 Depreciation and amortization 15,497
14,782 61,422 58,046 Other adjustments to reconcile: Operating cash
15,621 17,991 43,597 46,540 Changes in working capital
17,452 (65,517 ) 29,401 (111,555
) Net cash provided by operating activities 108,750 81,130
228,596 138,208
Investing activities Net cash used in
investing activities (14,999 ) (32,490 ) (52,968 ) (128,838 )
Financing activities Net cash (used in) provided by
financing activities (37,757 ) 11,133 (69,907 ) (69,054 )
Effect of exchange rate changes on cash and cash equivalents
(169 ) (2,100 ) (1,176 ) (3,357 ) Net
change in cash and cash equivalents 55,825 57,673 104,545 (63,041 )
Cash and cash equivalents at beginning of period 279,001
172,608 230,281 293,322
Cash and cash equivalents at end of period $ 334,826
$ 230,281 $ 334,826 $ 230,281
Other data: Capital expenditures, net $ 14,999
$ 26,494 $ 41,268 $ 48,366 Days sales
outstanding 132 112
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 Q1'17 and fiscal year
2017.
Estimated Estimated
Q1'17 FY'17 Diluted GAAP net income (loss) per share
$ (0.12 ) $ 1.22 Non-GAAP adjustments: Amortization of purchased
technology (1) 0.02 0.06 Amortization of other identified
intangible assets (2) 0.01 0.05 Equity plan-related compensation
(3) 0.09 0.38 Other income (expense), net and interest expense (4)
0.02 0.06 Non-GAAP income tax effects (5) (0.02 ) (0.09 )
Diluted non-GAAP net income per share $ - $ 1.68
(1) Excludes amortization of purchased
technology resulting from acquisitions. Purchased technology is
generally 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
generally 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 amortization of original
issuance debt discount, and income (loss) from an investment
accounted for under the equity method of accounting.
(5)
Non-GAAP income tax expense adjustment reflects the application of
our assumed normalized effective 19% tax rate, instead of our GAAP
tax rate, to our non-GAAP pre-tax income.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION
(Rounded to
nearest 5%)
2016 2015
2014 Product Category Bookings (a) Q1
Q2 Q3 Q4 Year
Q1 Q2 Q3 Q4
Year Q1 Q2 Q3
Q4 Year IC DESIGN TO SILICON 30% 40% 40% 50%
45% 20% 25% 45% 55% 45% 60% 35% 40% 30% 40% SCALABLE VERIFICATION
25% 30% 15% 15% 20% 25% 25% 20% 20% 20% 15% 45% 25% 30% 30%
INTEGRATED SYSTEMS DESIGN 15% 15% 20% 15% 15% 30% 25% 15% 10% 15%
10% 10% 20% 30% 20% NEW & EMERGING MARKETS 10% 5% 10% 10% 10%
10% 15% 10% 5% 10% 5% 5% 5% 5% 5% SERVICES / OTHER 20% 10%
15% 10% 10% 15% 10% 10%
10% 10% 10% 5% 10% 5% 5%
Total 100% 100% 100% 100% 100%
100% 100% 100% 100% 100% 100%
100% 100% 100% 100%
2016
2015 2014 Product Category Revenue (b)
Q1 Q2 Q3 Q4
Year Q1 Q2 Q3
Q4 Year Q1 Q2
Q3 Q4 Year IC DESIGN TO SILICON
35% 40% 40% 50% 40% 25% 30% 35% 55% 40% 35% 50% 35% 35% 40%
SCALABLE VERIFICATION 30% 25% 25% 15% 25% 35% 25% 20% 20% 25% 20%
20% 25% 30% 25% INTEGRATED SYSTEMS DESIGN 20% 20% 20% 20% 20% 25%
25% 25% 15% 20% 30% 20% 25% 25% 20% NEW & EMERGING MARKETS 5%
5% 5% 5% 5% 5% 10% 10% 5% 5% 5% 5% 5% 5% 5% SERVICES / OTHER 10%
10% 10% 10% 10% 10% 10%
10% 5% 10% 10% 5% 10% 5%
10%
Total 100% 100% 100% 100%
100% 100% 100% 100% 100% 100% 100%
100% 100% 100% 100%
2016 2015 2014 Bookings by Geography
Q1 Q2 Q3 Q4
Year Q1 Q2 Q3
Q4 Year Q1 Q2
Q3 Q4 Year North America 35% 35%
45% 40% 40% 50% 40% 50% 40% 45% 35% 55% 60% 40% 50% Europe 25% 30%
20% 20% 25% 15% 25% 15% 15% 15% 10% 15% 15% 30% 20% Japan 15% 5%
10% 5% 5% 15% 5% 10% 5% 5% 10% 5% 5% 10% 5% Pac Rim 25% 30%
25% 35% 30% 20% 30% 25%
40% 35% 45% 25% 20% 20% 25%
Total 100% 100% 100% 100% 100%
100% 100% 100% 100% 100% 100%
100% 100% 100% 100%
2016
2015 2014 Revenue by Geography Q1
Q2 Q3 Q4
Year Q1 Q2 Q3
Q4 Year Q1 Q2
Q3 Q4 Year North America 50% 40%
40% 40% 45% 50% 45% 50% 40% 45% 45% 40% 50% 45% 45% Europe 15% 25%
25% 20% 20% 25% 20% 20% 15% 20% 20% 20% 20% 20% 20% Japan 10% 5%
10% 5% 5% 10% 10% 10% 5% 5% 10% 5% 10% 15% 10% Pac Rim 25%
30% 25% 35% 30% 15% 25% 20%
40% 30% 25% 35% 20% 20%
25%
Total 100% 100% 100% 100%
100% 100% 100% 100% 100% 100% 100%
100% 100% 100% 100%
2016 2015 2014 Bookings by Business Model
(c) Q1 Q2 Q3
Q4 Year Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4 Year
Perpetual 20% 15% 15% 10% 15% 35% 20% 15% 10% 15% 15% 50% 20% 10%
25% Term Ratable 10% 10% 10% 10% 10% 20% 10% 5% 5% 10% 10% 5% 5% 5%
5% Term Up Front 70% 75% 75% 80% 75%
45% 70% 80% 85% 75% 75% 45%
75% 85% 70%
Total 100% 100%
100% 100% 100% 100% 100% 100%
100% 100% 100% 100% 100% 100%
100%
2016 2015 2014
Revenue by Business Model (c) Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4
Year Q1 Q2 Q3
Q4 Year Perpetual 15% 15% 10% 15% 15% 35% 30%
15% 10% 20% 20% 25% 20% 20% 20% Term Ratable 10% 10% 10% 5% 10% 10%
10% 10% 5% 5% 10% 10% 5% 5% 10% Term Up Front 75% 75%
80% 80% 75% 55% 60% 75% 85%
75% 70% 65% 75% 75% 70%
Total 100% 100% 100% 100% 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).
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160303006620/en/
Mentor Graphics CorporationVice President, Investor Relations
and Corporate DevelopmentJoe Reinhart,
503-685-1462joe_reinhart@mentor.com
Mentor Graphics Corp. (NASDAQ:MENT)
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