Mentor Graphics Corporation (NASDAQ:MENT) today announced
financial results for the company’s fiscal second quarter ended
July 31, 2015. The company reported revenues of $281.1 million,
non-GAAP earnings per share of $0.36, and GAAP earnings per share
of $0.26.
“Revenue was an all-time second quarter record and Mentor
exceeded non-GAAP earnings per share guidance for the 26th
consecutive quarter,” said Walden C. Rhines, chairman and CEO.
“Customer need for increased amounts of software drove early
renewal activity and the upside in the quarter. Demand was
strongest in both Design to Silicon and Scalable Verification.
During the quarter we added five new emulation customers, including
both a Top Ten chip company and a start-up.”
During the quarter, the company announced Veloce® Power
Application software, which captures real power consumption during
emulation and passes the information efficiently to power analysis
tools. Mentor also announced its next-generation MicReD® Industrial
Power Tester, which now provides 1500 amp electronic component
power cycling and thermal testing for up to 12 devices
simultaneously, to benefit automotive, railway, power generation
and renewable energy industries. The quarter also had a major new
release of the Mentor® Enterprise Verification Platform, with new
levels of Questa® performance and productivity in areas including
simulation, debug, and low-power verification.
In the second quarter the company also announced the newest
version of the FloTHERM® XT product, with EDA connectivity for
advanced thermal management of electronic systems, printed circuit
boards and packages of any geometric complexity. In addition Mentor
introduced the latest release of the Flowmaster® computational
fluid dynamics software targeting network systems in automotive,
aerospace and power generation. The company also announced a new
release of the Mentor® Embedded Nucleus® Real-Time Operating System
targeting connected embedded devices for high-performance Internet
of Things applications.
“Second quarter results highlight both our continued rigorous
attention to cost control and the operating leverage in our
business,” said Gregory K. Hinckley, president of Mentor Graphics.
“On an 8% increase in revenue, GAAP and non-GAAP operating expenses
grew less than 1.5% year on year. Second quarter revenue exceeded
guidance by 12% while non-GAAP EPS was up over 150% versus
guidance. Cash flow, another important metric, was strong with cash
flow from operations of $49 million in the second quarter and $95
million in the first half of fiscal 2016.”
Outlook
For the third quarter of fiscal 2016, the company expects
revenue of about $290 million, non-GAAP earnings per share of about
$0.27 and GAAP earnings per share of approximately $0.17. For the
full year fiscal 2016, the company is raising revenue guidance to
about $1.285 billion; is increasing non-GAAP earnings per share
guidance from $1.88 to about $1.90; and currently expects GAAP
earnings per share of approximately $1.25.
Dividend
The company announced a quarterly dividend of $0.055 per share
on outstanding common stock. The dividend is payable on September
30, 2015 to shareholders of record at the close of business on
September 10, 2015.
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.
The normalized non-GAAP effective tax rate of 19% 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 increased
from 17% for the year ended January 31, 2015 to 19% for the year
ended January 31, 2016. The increase in the normalized non-GAAP
effective tax rate reflects the reduced availability of U.S. tax
loss carryforwards that were not previously recorded as a benefit
in our financial statements. Our GAAP tax rate for the six months
ended July 31, 2015 is 11% after consideration of period specific
items. Without period specific items of $(1.6) million, our GAAP
tax rate is 18%. Our full fiscal year 2016 GAAP tax rate, inclusive
of period specific items recognized through July 31, 2015, is
projected to be 16%.
- 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 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 in excess of $1.24 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, MicReD,Questa, FloTHERM,
Flowmaster and Nucleus are registered 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) economic weakness in the European Union, China,
Japan or other countries, and the potential adverse impact of such
weakness 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) 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; (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 July
31, Six Months Ended July 31, 2015 2014
2015 2014 Revenues: System and software $
162,201 $ 149,480 $ 318,132 $ 297,709 Service and support
118,861 110,753 235,073
214,675 Total revenues 281,062 260,233
553,205 512,384
Cost of
revenues: (1) System and software 13,049 16,185 26,673 43,156
Service and support 31,420 30,903 64,989 60,014 Amortization of
purchased technology 1,794 1,841
3,652 3,202 Total cost of revenues
46,263 48,929 95,314
106,372 Gross profit 234,799 211,304
457,891 406,012
Operating
expenses: Research and development (2) 89,053 87,542 178,568
171,993 Marketing and selling (3) 84,741 82,305 169,692 166,939
General and administration (4) 18,670 19,473 36,633 37,155 Equity
in earnings of Frontline (5) (1,351 ) (2,062 ) (2,221 ) (3,441 )
Amortization of intangible assets (6) 2,234 2,026 4,453 3,776
Special charges (7) 2,186 5,108
39,163 11,034 Total operating expenses
195,533 194,392 426,288
387,456
Operating income: 39,266 16,912 31,603 18,556
Other income (expense), net (8) 187 (104 ) 529 (362 ) Interest
expense (9) (4,772 ) (4,807 ) (9,466 )
(9,392 ) Income before income tax 34,681 12,001 22,666 8,802 Income
tax expense (benefit) (10) 4,071 (1,768 )
2,559 (1,942 ) Net income 30,610 13,769 20,107
10,744 Less: Loss attributable to noncontrolling interest (11)
(602 ) (403 ) (1,220 ) (877 )
Net income attributable to Mentor Graphics
shareholders
$ 31,212 $ 14,172 $ 21,327 $ 11,621
Net income per share attributable to
Mentor Graphics shareholders:
Basica $ 0.27 $ 0.13 $ 0.18 $ 0.12
Diluteda $ 0.26 $ 0.13 $ 0.18 $ 0.11
Weighted average number of shares outstanding: Basic 116,584
113,868 116,296 114,396
Diluted 119,368 116,551
118,986 116,960 aWe have (decreased)
increased 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: $ (144 ) $ 895
$ 125 $ 1,562
Refer to description of footnotes
below.
MENTOR GRAPHICS
CORPORATION
FOOTNOTES TO
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
(In thousands)
Listed below are the items included in net 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 July 31, Six Months Ended July 31,
2015 2014 2015 2014 (1) Cost of
revenues: Equity plan-related compensation $ 608 $ 544 $ 1,316
$ 1,079 Amortization of purchased technology 1,794
1,841 3,652 3,202 $ 2,402
$ 2,385 $ 4,968 $ 4,281
(2)
Research and development: Equity plan-related compensation $
3,800 $ 3,311 $ 8,118 $ 6,552
(3) Marketing and selling: Equity plan-related compensation
$ 2,366 $ 2,143 $ 4,846 $ 4,321
(4) General and administration: Equity plan-related
compensation $ 3,812 $ 3,162 $ 6,584 $ 5,337
(5) Equity in earnings of Frontline:
Amortization of other identified intangible assets $ - $ -
$ - $ 116
(6) Amortization of
intangible assets: Amortization of other identified intangible
assets $ 2,234 $ 2,026 $ 4,453 $ 3,776
(7) Special charges: Rebalance, restructuring,
certain litigation, and other costs $ 2,186 $ 5,108 $
39,163 $ 11,034
(8) Other income (expense),
net: Net (income) loss of unconsolidated entities $ (14 ) $ 55
$ (39 ) $ 68
(9) Interest expense:
Amortization of original issuance debt discount $ 1,633 $
1,521 $ 3,237 $ 3,015
(10) Income
tax expense (benefit): Non-GAAP income tax effects $ (6,018 ) $
(7,158 ) $ (15,300 ) $ (9,983 )
(11) Loss attributable to
noncontrolling interest:
Amortization of intangible assets,
equity-plan related compensation, and income tax effects
$ (200 ) $ (204 ) $ (400 ) $ (404 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF NON-GAAP ADJUSTMENTS
(In thousands, except earnings per share data)
Three Months Ended July
31, Six Months Ended July 31, 2015 2014
2015 2014 GAAP net income attributable to Mentor
Graphics shareholders $ 31,212 $ 14,172 $ 21,327 $ 11,621 Non-GAAP
adjustments: Equity plan-related compensation: (1) Cost of revenues
608 544 1,316 1,079 Research and development 3,800 3,311 8,118
6,552 Marketing and selling 2,366 2,143 4,846 4,321 General and
administration 3,812 3,162 6,584 5,337 Acquisition - related items:
Amortization of purchased assets Cost of revenues (2) 1,794 1,841
3,652 3,202 Amortization of intangible assets (3) 2,234 2,026 4,453
3,892 Special charges (4) 2,186 5,108 39,163 11,034 Other income
(expense), net (5) (14 ) 55 (39 ) 68 Interest expense (6) 1,633
1,521 3,237 3,015 Non-GAAP income tax effects (7) (6,018 ) (7,158 )
(15,300 ) (9,983 ) Noncontrolling interest (8) (200 )
(204 ) (400 ) (404 ) Total of non-GAAP adjustments
12,201 12,349 55,630
28,113 Non-GAAP net income attributable to Mentor
Graphics shareholders $ 43,413 $ 26,521 $ 76,957
$ 39,734 GAAP and Non-GAAP weighted average
shares (diluted) 119,368 116,551
118,986 116,960 Net income per share
attributable to Mentor Graphics shareholders: GAAP (diluted) $ 0.26
$ 0.13 $ 0.18 $ 0.11 Noncontrolling interest adjustment (9) - (0.01
) - (0.01 ) Non-GAAP adjustments detailed above 0.10
0.11 0.47 0.24 Non-GAAP
(diluted) $ 0.36 $ 0.23 $ 0.65 $ 0.34
(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 six months ended July 31, 2014 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 July 31, 2015: Special
charges consist of (i) $944 for EVE litigation costs, (ii) $840 of
costs incurred for employee rebalances which include severance
benefits, notice pay, and outplacement services, and (iii) $402 in
other adjustments. Three months ended July 31, 2014: Special
charges consist of (i) $4,231 for EVE litigation costs, (ii) $575
of costs incurred for employee rebalances which include severance
benefits, notice pay, and outplacement services, and (iii) $302 in
other adjustments. Six months ended July 31, 2015: Special charges
consist of (i) $25,435 for severance costs incurred for the
voluntary early retirement program, (ii) $10,703 of costs incurred
for employee rebalances which include severance benefits, notice
pay, and outplacement services, (iii) $2,519 for EVE litigation
costs, and (iv) $506 in other adjustments. Six months ended July
31, 2014: Special charges consist of (i) $8,189 for EVE litigation
costs, (ii) $1,700 of costs incurred for employee rebalances which
include severance benefits, notice pay, and outplacement services,
and (iii) $1,145 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 six months ended July
31, 2015 and a 17% tax rate for the three and six months ended July
31, 2014.
(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.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
MEASURES
(In thousands, except percentages)
Three Months Ended July
31, Six Months Ended July 31, 2015 2014
2015 2014 GAAP gross profit $ 234,799 $ 211,304 $
457,891 $ 406,012 Reconciling items to non-GAAP gross profit:
Equity plan-related compensation 608 544 1,316 1,079 Amortization
of purchased technology 1,794 1,841
3,652 3,202 Non-GAAP gross profit $
237,201 $ 213,689 $ 462,859 $ 410,293
Three Months Ended July 31, Six Months
Ended July 31, 2015 2014 2015 2014
GAAP gross profit as a percent of total revenues 83.5 % 81.2 % 82.8
% 79.2 % Non-GAAP adjustments detailed above 0.9 %
0.9 % 0.9 % 0.9 % Non-GAAP gross profit as a percent
of total revenues 84.4 % 82.1 % 83.7 %
80.1 %
Three Months Ended July 31, Six
Months Ended July 31, 2015 2014 2015
2014 GAAP operating expenses $ 195,533 $ 194,392 $ 426,288 $
387,456 Reconciling items to non-GAAP operating expenses: Equity
plan-related compensation (9,978 ) (8,616 ) (19,548 ) (16,210 )
Amortization of other identified intangible assets (2,234 ) (2,026
) (4,453 ) (3,892 ) Special charges (2,186 ) (5,108 )
(39,163 ) (11,034 ) Non-GAAP operating expenses $
181,135 $ 178,642 $ 363,124 $ 356,320
Three Months Ended July 31, Six Months
Ended July 31, 2015 2014 2015 2014
GAAP operating income $ 39,266 $ 16,912 $ 31,603 $ 18,556
Reconciling items to non-GAAP operating income: Equity plan-related
compensation 10,586 9,160 20,864 17,289 Amortization of purchased
technology 1,794 1,841 3,652 3,202 Amortization of other identified
intangible assets 2,234 2,026 4,453 3,892 Special charges
2,186 5,108 39,163 11,034
Non-GAAP operating income $ 56,066 $ 35,047 $
99,735 $ 53,973
Three Months Ended
July 31, Six Months Ended July 31, 2015
2014 2015 2014 GAAP operating income as a
percent of total revenues 14.0 % 6.5 % 5.7 % 3.6 % Non-GAAP
adjustments detailed above 5.9 % 7.0 % 12.3 %
6.9 % Non-GAAP operating income as a percent of total
revenues 19.9 % 13.5 % 18.0 % 10.5 %
Three Months Ended July 31, Six Months
Ended July 31, 2015 2014 2015 2014
GAAP other income (expense), net and interest expense $ (4,585 ) $
(4,911 ) $ (8,937 ) $ (9,754 )
Reconciling items to non-GAAP other income
(expense), net and interest expense:
Equity in (income) loss of unconsolidated entities (14 ) 55 (39 )
68 Amortization of original issuance debt discount 1,633
1,521 3,237 3,015
Non-GAAP other income (expense), net and interest expense $ (2,966
) $ (3,335 ) $ (5,739 ) $ (6,671 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
July 31,
January 31, 2015 2015 Assets
Current assets: Cash and cash equivalents $ 295,447 $
230,281 Trade accounts receivable, net 97,839 208,996 Term
receivables, short-term 345,958 337,626 Prepaid expenses and other
67,726 65,853 Deferred income taxes 24,390
23,490 Total current assets 831,360 866,246
Property, plant, and equipment, net 170,898 170,737
Term
receivables, long-term 266,092 301,862
Goodwill and
intangible assets, net 646,064 645,506
Other assets
64,516 64,671 Total assets $
1,978,930 $ 2,049,022
Liabilities and
Stockholders' Equity Current liabilities: Short-term
borrowings $ 1,844 $ 7,228 Notes payable, current portion 233,637 -
Accounts payable 10,682 12,687 Income taxes payable 223 5,994
Accrued payroll and related liabilities 48,738 108,553 Accrued and
other liabilities 35,678 47,728 Deferred revenue 226,098
259,340 Total current liabilities
556,900 441,530
Long-term notes payable 3,188 230,400
Deferred revenue, long-term 18,674 21,251
Other long-term
liabilities 70,206 69,615 Total
liabilities 648,968 762,796
Convertible notes 19,363 -
Noncontrolling interest with
redemption feature 12,020 13,372
Stockholders'
equity: Common stock 853,455 832,612 Retained earnings 460,581
451,901 Accumulated other comprehensive loss (15,734 ) (11,887 )
Noncontrolling interest 277 228 Total
stockholders' equity 1,298,579 1,272,854
Total liabilities and stockholders'
equity
$ 1,978,930 $ 2,049,022
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL
INFORMATION
(In thousands, except days sales outstanding)
Three Months Ended July
31, Six Months Ended July 31, 2015 2014
2015 2014 Operating activities Net income $
30,610 $ 13,769 $ 20,107 $ 10,744 Depreciation and amortization
15,119 14,512 30,160 28,249 Other adjustments to reconcile:
Operating cash 13,231 11,298 21,367 17,820 Changes in working
capital (10,104 ) 9,944 23,173
(18,251 ) Net cash provided by operating activities
48,856 49,523 94,807 38,562
Investing activities Net
cash used in investing activities (10,240 ) (37,511 ) (22,168 )
(85,091 )
Financing activities Net cash provided by
(used in) financing activities 8,196 (13,443 ) (6,582 ) (72,736 )
Effect of exchange rate changes on cash and cash equivalents
(1,138 ) (33 ) (891 ) 304
Net change in cash and cash equivalents 45,674 (1,464 ) 65,166
(118,961 ) Cash and cash equivalents at beginning of period
249,773 175,825 230,281
293,322 Cash and cash equivalents at end of period $
295,447 $ 174,361 $ 295,447 $ 174,361
Other data: Capital expenditures, net $
10,240 $ 7,145 $ 14,968 $ 13,315 Days
sales outstanding 142 147
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
Q3'16 and fiscal year 2016.
Estimated
Estimated Q3'16 FY'16 Diluted GAAP net income
per share $ 0.17 $ 1.25 Non-GAAP adjustments: Amortization of
purchased technology (1) 0.01 0.06 Amortization of other identified
intangible assets (2) 0.02 0.07 Equity plan-related compensation
(3) 0.08 0.34 Special charges (4) - 0.33 Other income (expense),
net and interest expense (5) 0.01 0.05 Non-GAAP income tax effects
(6) (0.02 ) (0.19 ) Noncontrolling interest (7) - (0.01 )
Diluted non-GAAP net income per share $ 0.27 $ 1.90
(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
special charges consisting primarily of costs incurred for the
voluntary early retirement program, employee rebalances, which
includes severance benefits, notice pay, and outplacement services,
and certain litigation costs. Full year adjustment represents the
impact of actual special charges for the six months ended July 31,
2015 as we do not provide guidance for special charges.
(5)
Excludes amortization of original issuance debt discount, and
income (loss) from an investment accounted for under the equity
method of accounting.
(6) 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.
(7) Adjustment for the impact of
amortization of intangible assets, equity plan-related
compensation, and income tax expense on noncontrolling interest.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION
(Rounded to
nearest 5%)
2016 2015
2014 Product Category Bookings (a) Q1
Q2 Year Q1
Q2 Q3 Q4
Year Q1 Q2
Q3 Q4 Year IC
DESIGN TO SILICON 30% 40% 35% 20% 25% 45% 55% 45% 60% 35% 40% 30%
40% SCALABLE VERIFICATION 25% 30% 30% 25% 25% 20% 20% 20% 15% 45%
25% 30% 30% INTEGRATED SYSTEMS DESIGN 15% 15% 15% 30% 25% 15% 10%
15% 10% 10% 20% 30% 20% NEW & EMERGING MARKETS 10% 5% 5% 10%
15% 10% 5% 10% 5% 5% 5% 5% 5% SERVICES / OTHER 20%
10% 15% 15% 10% 10%
10% 10% 10% 5%
10% 5% 5%
Total 100%
100% 100% 100% 100%
100% 100% 100% 100%
100% 100% 100%
100%
2016 2015 2014
Product Category Revenue (b) Q1
Q2 Year Q1
Q2 Q3 Q4
Year Q1 Q2
Q3 Q4 Year IC
DESIGN TO SILICON 35% 40% 40% 25% 30% 35% 55% 40% 35% 50% 35% 35%
40% SCALABLE VERIFICATION 30% 25% 25% 35% 25% 20% 20% 25% 20% 20%
25% 30% 25% INTEGRATED SYSTEMS DESIGN 20% 20% 20% 25% 25% 25% 15%
20% 30% 20% 25% 25% 20% NEW & EMERGING MARKETS 5% 5% 5% 5% 10%
10% 5% 5% 5% 5% 5% 5% 5% SERVICES / OTHER 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%
2016 2015 2014 Bookings by
Geography Q1 Q2
Year Q1 Q2
Q3 Q4 Year
Q1 Q2 Q3
Q4 Year North America 35% 35%
35% 50% 40% 50% 40% 45% 35% 55% 60% 40% 50% Europe 25% 30% 30% 15%
25% 15% 15% 15% 10% 15% 15% 30% 20% Japan 15% 5% 5% 15% 5% 10% 5%
5% 10% 5% 5% 10% 5% Pac Rim 25% 30% 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%
2016 2015 2014 Revenue by Geography
Q1 Q2 Year
Q1 Q2 Q3
Q4 Year Q1
Q2 Q3 Q4
Year North America 50% 40% 45% 50% 45% 50% 40% 45%
45% 40% 50% 45% 45% Europe 15% 25% 20% 25% 20% 20% 15% 20% 20% 20%
20% 20% 20% Japan 10% 5% 5% 10% 10% 10% 5% 5% 10% 5% 10% 15% 10%
Pac Rim 25% 30% 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%
2016
2015 2014 Bookings by Business Model (c)
Q1 Q2 Year
Q1 Q2 Q3
Q4 Year Q1
Q2 Q3 Q4
Year Perpetual 20% 15% 15% 35% 20% 15% 10% 15% 15%
50% 20% 10% 25% Term Ratable 10% 10% 10% 20% 10% 5% 5% 10% 10% 5%
5% 5% 5% Term Up Front 70% 75% 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%
2016 2015 2014 Revenue by Business Model
(c) Q1 Q2 Year
Q1 Q2 Q3
Q4 Year Q1
Q2 Q3 Q4
Year Perpetual 15% 15% 15% 35% 30% 15% 10% 20% 20%
25% 20% 20% 20% Term Ratable 10% 10% 10% 10% 10% 10% 5% 5% 10% 10%
5% 5% 10% Term Up Front 75% 75% 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%
(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/20150820006124/en/
Mentor Graphics CorporationJoe Reinhart,
503-685-1462joe_reinhart@mentor.com
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