Mentor Graphics Corporation (NASDAQ: MENT) today announced
financial results for the company’s fiscal third quarter ended
October 31, 2015. The company reported revenues of $291 million,
non-GAAP earnings per share of $0.28, and GAAP earnings per share
of $0.12.
“Mentor achieved third-quarter guided results,” said Walden C.
Rhines, chairman and CEO of Mentor Graphics. “Active evaluations of
Mentor’s Veloce emulator increased in the third quarter, but the
time required for completion of evaluations also increased. This,
along with semiconductor industry consolidations, is having a
negative impact on our business. However, demand for EDA software
for system design, particularly in the transportation industry,
remains robust. Embedded electronics in automotive and aerospace
applications continues to show rapid growth.”
During the quarter Mentor Graphics acquired all remaining
outstanding shares of its majority-owned subsidiary, Calypto Design
Systems, Inc. Mentor also announced its new Tessent® ScanPro
product, which achieves significant compression of test data volume
and thereby reduces the cost and time required to test an
integrated circuit. The company also introduced support for 25G,
50G and 100G Ethernet in the Veloce® VirtuaLAB environment, for
emulation of leading-edge networking and other massive
Ethernet-based designs.
Mentor announced two automotive offerings during the quarter.
The Mentor Automotive Safety-Certifiable Digital Instrument Cluster
solution displays safety-critical driver information simultaneously
with rich 3D graphics on a single instrument cluster display. This
enables compliance with safety standards without pushing up
hardware or safety certification costs. The Mentor Automotive
Connected OS™ software platform provides faster integration and
connectivity with car network communication frameworks and consumer
electronic devices.
“Semiconductor consolidation and delays in emulator decisions
are now having an adverse impact on our ability to close business,”
said Gregory K. Hinckley, president of Mentor Graphics. “Because we
recognize revenue upfront on product sales, changes in market
outlook and demand are reflected in real time in Mentor’s results.
Nevertheless, with appropriate scaling of the business and
continued attention to expenses, we expect to deliver FY16 non-GAAP
operating margins consistent with our strategic objective.”
Outlook
For the fourth quarter of fiscal 2016, the company expects
revenues of about $336 million, non-GAAP earnings per share of
about $0.47 and GAAP earnings per share of approximately $0.32. For
the full year fiscal 2016, the company expects revenues of about
$1.18 billion, non-GAAP earnings per share of about $1.40, and GAAP
earnings per share of approximately $0.63.
Dividend
The company announced a quarterly dividend of $0.055 per share.
The dividend is payable on January 4, 2016 to shareholders of
record at the close of business on December 15, 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 nine months
ended October 31, 2015 is 22% after consideration of period
specific items. Without period specific items of $(0.3) million,
our GAAP tax rate is 23%. Our full fiscal year 2016 GAAP tax rate,
inclusive of period specific items recognized through October 31,
2015, is projected to be 23%.
- 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 three and nine months ended October 31, 2015 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 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 and Tessent are registered
trademarks and Connected OS is a trademark 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 semiconductor and electronics industries;
(ii) the company’s ability to successfully update existing 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) 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 October 31,
Nine Months Ended October 31, 2015
2014 2015 2014
Revenues: System and software $ 168,699 $ 178,115 $
486,831 $ 475,824 Service and support 121,817
114,568 356,890 329,243 Total
revenues 290,516 292,683 843,721
805,067
Cost of revenues: (1) System
and software 9,759 11,821 36,432 54,977 Service and support 35,286
33,670 100,275 93,684 Amortization of purchased technology
1,844 2,050 5,496 5,252
Total cost of revenues 46,889 47,541
142,203 153,913 Gross profit
243,627 245,142 701,518
651,154
Operating expenses: Research and
development (2) 99,669 96,269 278,237 268,262 Marketing and selling
(3) 93,165 89,875 262,857 256,814 General and administration (4)
19,665 19,851 56,298 57,006 Equity in earnings of Frontline (5)
(1,755 ) (1,184 ) (3,976 ) (4,625 ) Amortization of intangible
assets (6) 2,364 2,233 6,817 6,009 Special charges (7) 4,831
8,375 43,994 19,409
Total operating expenses 217,939
215,419 644,227 602,875
Operating income: 25,688 29,723 57,291 48,279 Other income
(expense), net (8) 320 (381 ) 849 (743 ) Interest expense (9)
(4,915 ) (4,934 ) (14,381 ) (14,326 )
Income before income tax 21,093 24,408 43,759 33,210 Income tax
expense (10) 7,204 3,849 9,763
1,907 Net income 13,889 20,559 33,996 31,303
Less: Loss attributable to noncontrolling interest (11) (790
) (471 ) (2,010 ) (1,348 ) Net income
attributable to Mentor Graphics shareholders $ 14,679 $
21,030 $ 36,006 $ 32,651 Net income per share
attributable to Mentor Graphics shareholders: Basica $ 0.13
$ 0.18 $ 0.31 $ 0.30 Diluteda, b $ 0.12
$ 0.18 $ 0.30 $ 0.29 Weighted average number
of shares outstanding: Basic 117,759 114,405
116,787 114,399 Diluted
120,141 116,715 121,963
116,928 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: $ 133 $ (267 ) $ 258 $
1,295 bWe have increased the numerator of our diluted
earnings per share calculation by $519 for the nine months ended
October 31, 2015 for the dilutive effect of our convertible debt.
Corresponding dilutive shares of 2,565 are included in the diluted
weighted average number of shares outstanding for the same period.
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 October 31,
Nine Months Ended October 31, 2015
2014 2015
2014 (1) Cost of revenues: Equity plan-related
compensation $ 665 $ 608 $ 1,981 $ 1,687 Amortization of purchased
technology 1,844 2,050 5,496
5,252 $ 2,509 $ 2,658 $ 7,477
$ 6,939
(2) Research and development:
Equity plan-related compensation $ 4,095 $ 3,651 $
12,213 $ 10,203
(3) Marketing and
selling: Equity plan-related compensation $ 2,468 $
2,371 $ 7,314 $ 6,692
(4) General
and administration: Equity plan-related compensation $ 2,797
$ 2,472 $ 9,381 $ 7,809
(5)
Equity in earnings of Frontline: Amortization of other
identified intangible assets $ - $ - $ - $ 116
(6) Amortization of intangible assets:
Amortization of other identified intangible assets $ 2,364 $
2,233 $ 6,817 $ 6,009
(7) Special
charges: Rebalance, restructuring, certain litigation, and
other costs $ 4,831 $ 8,375 $ 43,994 $ 19,409
(8) Other income (expense), net: Net loss of
unconsolidated entities $ 72 $ 78 $ 33 $ 146
(9) Interest expense: Amortization of original
issuance debt discount $ 1,663 $ 1,548 $ 4,900
$ 4,563
(10) Income tax expense: Non-GAAP
income tax effects $ (756 ) $ (4,276 ) $ (16,056 ) $ (14,259 )
(11) Loss attributable to noncontrolling interest:
Amortization of intangible assets,
equity-plan related compensation, and income tax effects
$ (238 ) $ (218 ) $ (638 ) $ (622 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF NON-GAAP ADJUSTMENTS
(In thousands, except earnings per share data)
Three Months Ended October
31, Nine Months Ended October 31, 2015
2014 2015
2014 GAAP net income attributable to Mentor Graphics
shareholders $ 14,679 $ 21,030 $ 36,006 $ 32,651 Non-GAAP
adjustments: Equity plan-related compensation: (1) Cost of revenues
665 608 1,981 1,687 Research and development 4,095 3,651 12,213
10,203 Marketing and selling 2,468 2,371 7,314 6,692 General and
administration 2,797 2,472 9,381 7,809 Acquisition - related items:
Amortization of purchased assets Cost of revenues (2) 1,844 2,050
5,496 5,252 Amortization of intangible assets (3) 2,364 2,233 6,817
6,125 Special charges (4) 4,831 8,375 43,994 19,409 Other income
(expense), net (5) 72 78 33 146 Interest expense (6) 1,663 1,548
4,900 4,563 Non-GAAP income tax effects (7) (756 ) (4,276 ) (16,056
) (14,259 ) Noncontrolling interest (8) (238 ) (218 )
(638 ) (622 ) Total of non-GAAP adjustments
19,805 18,892 75,435
47,005 Non-GAAP net income attributable to Mentor Graphics
shareholders $ 34,484 $ 39,922 $ 111,441 $
79,656 GAAP weighted average shares (diluted) 120,141
116,715 121,963 116,928 Non-GAAP adjustment 2,695
- - - Non-GAAP weighted
average shares (diluted) 122,836 116,715
121,963 116,928 Net
income per share attributable to Mentor Graphics shareholders: GAAP
(diluted) $ 0.12 $ 0.18 $ 0.30 $ 0.29 Noncontrolling interest
adjustment (9) - - - (0.01 ) Non-GAAP adjustments detailed above
0.16 0.16 0.62
0.40 Non-GAAP (diluted) (10) $ 0.28 $ 0.34 $
0.92 $ 0.68
(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 nine months ended
October 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 October 31, 2015: Special charges consist of (i)
$3,485 of costs incurred for employee rebalances which include
severance benefits and notice pay, (ii) $1,122 for EVE litigation
costs, (iii) $(203) for severance costs incurred for the voluntary
early retirement program, and (iv) $427 in other adjustments. Three
months ended October 31, 2014: Special charges consist of (i)
$7,004 for EVE litigation costs, (ii) $1,377 of costs incurred for
employee rebalances which include severance benefits and notice
pay, and (iii) $(6) in other adjustments. Nine months ended October
31, 2015: Special charges consist of (i) $25,232 for severance
costs incurred for the voluntary early retirement program, (ii)
$14,188 of costs incurred for employee rebalances which include
severance benefits and notice pay, (iii) $3,641 for EVE litigation
costs, and (iv) $933 in other adjustments. Nine months ended
October 31, 2014: Special charges consist of (i) $15,193 for EVE
litigation costs, (ii) $3,077 of costs incurred for employee
rebalances which include severance benefits and notice pay, and
(iii) $1,139 in other adjustments.
(5 ) Amount
represents 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 nine
months ended October 31, 2015 and a 17% tax rate for the three and
nine months ended October 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.
(10 ) We have
increased the numerator of our diluted earnings per share
calculation by $519 for the three and nine months ended October 31,
2015 for the dilutive effect of our convertible debt. Corresponding
dilutive shares of 2,695 for the three months ended October 31,
2015 are presented in the reconciliation above. Corresponding
dilutive shares of 2,565 for the nine months ended October 31, 2015
are already included in the GAAP diluted weighted average number of
shares outstanding.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
MEASURES
(In thousands, except percentages)
Three Months Ended October 31, Nine Months
Ended October 31, 2015 2014
2015 2014 GAAP
gross profit $ 243,627 $ 245,142 $ 701,518 $ 651,154 Reconciling
items to non-GAAP gross profit: Equity plan-related compensation
665 608 1,981 1,687 Amortization of purchased technology
1,844 2,050 5,496 5,252
Non-GAAP gross profit $ 246,136 $ 247,800 $
708,995 $ 658,093
Three Months Ended
October 31, Nine Months Ended October 31,
2015 2014 2015
2014 GAAP gross profit as a percent of
total revenues 83.9 % 83.8 % 83.1 % 80.9 % Non-GAAP adjustments
detailed above 0.8 % 0.9 % 0.9 % 0.8 %
Non-GAAP gross profit as a percent of total revenues 84.7 %
84.7 % 84.0 % 81.7 %
Three
Months Ended October 31, Nine Months Ended October 31,
2015 2014
2015 2014 GAAP operating
expenses $ 217,939 $ 215,419 $ 644,227 $ 602,875 Reconciling items
to non-GAAP operating expenses: Equity plan-related compensation
(9,360 ) (8,494 ) (28,908 ) (24,704 ) Amortization of other
identified intangible assets (2,364 ) (2,233 ) (6,817 ) (6,125 )
Special charges (4,831 ) (8,375 ) (43,994 )
(19,409 ) Non-GAAP operating expenses $ 201,384 $
196,317 $ 564,508 $ 552,637
Three Months Ended October 31, Nine Months Ended October
31, 2015 2014
2015 2014 GAAP operating income
$ 25,688 $ 29,723 $ 57,291 $ 48,279 Reconciling items to non-GAAP
operating income: Equity plan-related compensation 10,025 9,102
30,889 26,391 Amortization of purchased technology 1,844 2,050
5,496 5,252 Amortization of other identified intangible assets
2,364 2,233 6,817 6,125 Special charges 4,831
8,375 43,994 19,409 Non-GAAP
operating income $ 44,752 $ 51,483 $ 144,487 $
105,456
Three Months Ended October 31,
Nine Months Ended October 31, 2015
2014 2015
2014 GAAP operating income as a percent of total
revenues 8.8 % 10.2 % 6.8 % 6.0 % Non-GAAP adjustments detailed
above 6.6 % 7.4 % 10.3 % 7.1 % Non-GAAP
operating income as a percent of total revenues 15.4 %
17.6 % 17.1 % 13.1 %
Three
Months Ended October 31, Nine Months Ended October 31,
2015 2014
2015 2014 GAAP other income
(expense), net and interest expense $ (4,595 ) $ (5,315 ) $ (13,532
) $ (15,069 ) Reconciling items to non-GAAP other income (expense),
net and interest expense: Equity in losses of unconsolidated
entities 72 78 33 146 Amortization of original issuance debt
discount 1,663 1,548 4,900
4,563 Non-GAAP other income (expense), net and
interest expense $ (2,860 ) $ (3,689 ) $ (8,599 ) $ (10,360 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
October 31, January
31, 2015 2015
Assets Current assets: Cash and cash equivalents $
279,001 $ 230,281 Trade accounts receivable, net 113,243 208,996
Term receivables, short-term 334,517 337,626 Prepaid expenses and
other 66,761 65,853 Deferred income taxes 24,345
23,490 Total current assets 817,867 866,246
Property, plant, and equipment, net 172,724 170,737
Term
receivables, long-term 283,756 301,862
Goodwill and
intangible assets, net 648,568 645,506
Other assets
68,221 64,671 Total assets $
1,991,136 $ 2,049,022
Liabilities and
Stockholders' Equity Current liabilities: Short-term
borrowings $ 1,386 $ 7,228 Notes payable, current portion 235,300 -
Accounts payable 9,744 12,687 Income taxes payable 6,041 5,994
Accrued payroll and related liabilities 69,615 108,553 Accrued and
other liabilities 40,455 47,728 Deferred revenue 212,021
259,340 Total current liabilities
574,562 441,530
Long-term notes payable 5,188 230,400
Deferred revenue, long-term 18,149 21,251
Other long-term
liabilities 69,518 69,615 Total
liabilities 667,417 762,796
Convertible notes 17,700 -
Noncontrolling interest with
redemption feature - 13,372
Stockholders' equity:
Common stock 854,665 832,612 Retained earnings 468,902 451,901
Accumulated other comprehensive loss (17,825 ) (11,887 )
Noncontrolling interest 277 228 Total
stockholders' equity 1,306,019 1,272,854
Total liabilities and stockholders' equity $
1,991,136 $ 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 October 31,
Nine Months Ended October 31, 2015
2014 2015
2014 Operating activities Net income $ 13,889
$ 20,559 $ 33,996 $ 31,303 Depreciation and amortization 15,765
15,015 45,925 43,264 Other adjustments to reconcile: Operating cash
6,609 10,729 27,976 28,549 Changes in working capital
(11,224 ) (27,787 ) 11,949 (46,038 )
Net cash provided by operating activities 25,039 18,516
119,846 57,078
Investing activities Net cash used in
investing activities (15,801 ) (11,257 ) (37,969 ) (96,348 )
Financing activities Net cash used in financing activities
(25,568 ) (7,451 ) (32,150 ) (80,187 ) Effect of exchange
rate changes on cash and cash equivalents (116 )
(1,561 ) (1,007 ) (1,257 ) Net change in cash
and cash equivalents (16,446 ) (1,753 ) 48,720 (120,714 ) Cash and
cash equivalents at beginning of period 295,447
174,361 230,281 293,322
Cash and cash equivalents at end of period $ 279,001
$ 172,608 $ 279,001 $ 172,608
Other data: Capital expenditures, net $ 11,301
$ 8,557 $ 26,269 $ 21,872 Days sales
outstanding 139 129
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
Q4'16 and fiscal year 2016.
Estimated
Estimated Q4'16 FY'16 Diluted GAAP net income
per share $ 0.32 $ 0.63 Non-GAAP adjustments: Amortization of
purchased technology (1) 0.01 0.06 Amortization of other identified
intangible assets (2) 0.01 0.07 Equity plan-related compensation
(3) 0.11 0.36 Special charges (4) - 0.37 Other income (expense),
net and interest expense (5) 0.01 0.06 Non-GAAP income tax effects
(6) 0.01 (0.14 ) Noncontrolling interest (7) - (0.01 )
Diluted non-GAAP net income per share $ 0.47 $ 1.40
(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 and notice pay, and
certain litigation costs. Full year adjustment represents the
impact of actual special charges for the nine months ended October
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 Q3 Year
Q1 Q2 Q3 Q4
Year Q1 Q2 Q3
Q4 Year IC DESIGN TO SILICON 30% 40% 40% 40%
20% 25% 45% 55% 45% 60% 35% 40% 30% 40% SCALABLE VERIFICATION 25%
30% 15% 25% 25% 25% 20% 20% 20% 15% 45% 25% 30% 30% INTEGRATED
SYSTEMS DESIGN 15% 15% 20% 15% 30% 25% 15% 10% 15% 10% 10% 20% 30%
20% NEW & EMERGING MARKETS 10% 5% 10% 5% 10% 15% 10% 5% 10% 5%
5% 5% 5% 5% SERVICES / OTHER 20% 10% 15% 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% 100%
2016 2015 2014 Product Category
Revenue (b) Q1 Q2 Q3
Year Q1 Q2 Q3
Q4 Year Q1 Q2
Q3 Q4 Year IC DESIGN TO SILICON
35% 40% 40% 40% 25% 30% 35% 55% 40% 35% 50% 35% 35% 40% SCALABLE
VERIFICATION 30% 25% 25% 25% 35% 25% 20% 20% 25% 20% 20% 25% 30%
25% INTEGRATED SYSTEMS DESIGN 20% 20% 20% 20% 25% 25% 25% 15% 20%
30% 20% 25% 25% 20% NEW & EMERGING MARKETS 5% 5% 5% 5% 5% 10%
10% 5% 5% 5% 5% 5% 5% 5% SERVICES / OTHER 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%
2016 2015 2014 Bookings
by Geography Q1 Q2 Q3
Year Q1 Q2 Q3
Q4 Year Q1 Q2
Q3 Q4 Year North America 35% 35%
45% 40% 50% 40% 50% 40% 45% 35% 55% 60% 40% 50% Europe 25% 30% 20%
25% 15% 25% 15% 15% 15% 10% 15% 15% 30% 20% Japan 15% 5% 10% 10%
15% 5% 10% 5% 5% 10% 5% 5% 10% 5% Pac Rim 25% 30% 25%
25% 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%
2016 2015 2014
Revenue by Geography Q1 Q2
Q3 Year Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4 Year
North America 50% 40% 40% 45% 50% 45% 50% 40% 45% 45% 40% 50% 45%
45% Europe 15% 25% 25% 20% 25% 20% 20% 15% 20% 20% 20% 20% 20% 20%
Japan 10% 5% 10% 10% 10% 10% 10% 5% 5% 10% 5% 10% 15% 10% Pac Rim
25% 30% 25% 25% 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%
2016
2015 2014 Bookings by Business Model (c)
Q1 Q2 Q3 Year
Q1 Q2 Q3 Q4
Year Q1 Q2 Q3
Q4 Year Perpetual 20% 15% 15% 15% 35% 20% 15%
10% 15% 15% 50% 20% 10% 25% Term Ratable 10% 10% 10% 10% 20% 10% 5%
5% 10% 10% 5% 5% 5% 5% Term Up Front 70% 75% 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%
100%
2016 2015 2014
Revenue by Business Model (c) Q1 Q2
Q3 Year Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4
Year Perpetual 15% 15% 10% 15% 35% 30% 15% 10% 20% 20% 25%
20% 20% 20% Term Ratable 10% 10% 10% 10% 10% 10% 10% 5% 5% 10% 10%
5% 5% 10% Term Up Front 75% 75% 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% (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/20151119006646/en/
Mentor Graphics CorporationJoe Reinhart,
503-685-1462joe_reinhart@mentor.com
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