Mentor Graphics Corporation (NASDAQ: MENT) today announced
financial results for the company’s fiscal third quarter ended
October 31, 2016. The company reported revenues of $322.5 million,
GAAP earnings per share of $0.37 and non-GAAP earnings per share of
$0.50.
Fiscal Third Quarter Performance
- Book to bill was a record for a third
quarter and solidly above 1.0 for the second consecutive
quarter.
- Annualized fee growth for top 10
renewals was 60 percent overall with fees from systems customers
growing over 160 percent and those from integrated circuit (IC)
customers growing 35 percent.
- Average term length for renewals in the
top 10 deals was 3.1 years.
- Emulation product revenue, up 100
percent year over year, included 4 new customers for the second
consecutive quarter.
- GAAP gross margin was 84.1 percent.
Non-GAAP gross margin of 84.9 percent is the highest for a Q3 in
the last five years and 340 basis points higher than last
quarter.
- GAAP operating expenses were $215
million. Non-GAAP operating expenses of $202 million were on
guidance and flat year over year.
“Mentor’s third quarter results solidly exceeded revenue and
earnings-per-share guidance,” said Walden C. Rhines, chairman and
CEO of Mentor Graphics. “Book to bill was significantly above one
with strength in both semiconductor and system accounts. Growth of
the annual run-rate in our top 10 customers was a strong 60 percent
in the third fiscal quarter. After quarter end, on November 14, we
announced an agreement whereby Siemens will acquire Mentor
Graphics. Joining forces with Siemens will enable Mentor to achieve
the next level of success for our customers and employees.”
During the quarter Mentor Graphics acquired Galaxy
Semiconductor, a leading provider of test data analysis and defect
reduction software for the semiconductor industry. The company
further extended its offerings within the Calibre® and Analog
FastSPICE (AFS™) platforms to support TSMC 7 nm and 16 FFC FinFET
process technologies. Mentor received two Partner of the Year
Awards from TSMC for joint delivery of the 7 nm mobile design
platform and the Integrated Fan-Out (INFO) design solution.
Mentor announced a partnership with embedded middleware vendor
Real-Time Innovations (RTI) for secure embedded systems
communications in industrial, medical and mil-aero applications.
The company also released the new Xpedition® multi-board system
design solution enabling multi-discipline team collaboration, as
well as advanced technologies in the Xpedition flow to enable
design and verification of 3D rigid-flex structures. In automotive
news, the company announced a joint agreement with Telemotive AG to
provide smart charging technology for plug-in vehicles.
“Bookings were up 50 percent over the same quarter a year ago,”
said Gregory K. Hinckley, president of Mentor Graphics. “Revenue of
$323 million is a record for a third quarter and up 11 percent from
the same period a year ago while non-GAAP earnings per share of
$0.50 were up 78 percent year over year. Robust revenue combined
with our continued attention to expense control resulted in a GAAP
operating margin of 18 percent. In addition non-GAAP operating
margin of 22 percent drove non-GAAP operating profits up over 60
percent year over year.”
Outlook
On November 14, 2016, the company announced that it had entered
into a merger agreement under which Siemens will acquire Mentor
Graphics. As a result of the acquisition announcement, the company
will not provide an outlook for future financial results and is
withdrawing all previously issued financial guidance.
Dividend
The company announced a quarterly dividend of $0.055 per share.
The dividend is payable on January 3, 2017 to shareholders of
record at the close of business on December 8, 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 revenues, 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 their 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 amount 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 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,
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 GAAP tax rate for the nine months ended October 31,
2016 is 15% after consideration of period specific items. Without
period specific items of ($1.5) million, our GAAP tax rate is 19%.
Our full fiscal year 2017 GAAP tax rate, inclusive of period
specific items recognized through October 31, 2016, is projected to
be 18%.
- 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. The amount for the three and nine
months ended October 31, 2015 reflects our adjustment to redemption
value for this time period. In September 2015 we acquired the
remaining noncontrolling interest in the subsidiary. 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, advances, 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, Calibre and Xpedition are registered
trademarks and AFS 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.)
Additional Information and Where to Find It
In connection with the proposed transaction, the Company will
file with the U.S. Securities and Exchange Commission (the “SEC”)
and mail or otherwise provide to its stockholders a proxy statement
regarding the proposed transaction. BEFORE MAKING ANY VOTING
DECISION, THE COMPANY’S STOCKHOLDERS ARE URGED TO READ THE PROXY
STATEMENT IN ITS ENTIRETY WHEN IT BECOMES AVAILABLE AND ANY OTHER
DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER
OR INCORPORATED BY REFERENCE THEREIN BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND THE
PARTIES TO THE PROPOSED TRANSACTION. Investors and security holders
may obtain a free copy of the proxy statement and other documents
that the Company files with the SEC (when available) from the SEC’s
website at www.sec.gov and the Company’s website at www.mentor.com.
In addition, the proxy statement and other documents filed by the
Company with the SEC (when available) may be obtained from the
Company free of charge by directing a request to Mentor Graphics
Corporation, Investor Relations, 8005 SW Boeckman Rd., Wilsonville,
OR 97070, 1-503-685-1462.
Participants in Solicitation
The Company and its directors, executive officers and certain
employees may be deemed, and Siemens Industry, Inc. and its
managing board, officers and employees may be deemed, under SEC
rules, to be participants in the solicitation of proxies from the
Company’s shareholders with respect to the proposed acquisition of
the Company by Siemens Industry, Inc. With respect to Siemens
Industry, Inc. and its managing board, officers and employees,
certain additional information is available and has been prepared
in accordance with the German Commercial Code. Information
concerning the ownership of the Company’s securities by the
Company’s directors and executive officers is included in their SEC
filings on Forms 3, 4 and 5, and additional information regarding
the names, affiliations and interests of such individuals is
available in the Company’s Annual Report on Form 10-K for the
fiscal year ended January 31, 2016 and its definitive proxy
statement for the 2016 annual meeting of shareholders filed with
the SEC on May 18, 2016. Information regarding the Company’s
directors, executive officers and certain other employees who may
be deemed, under SEC rules, to be participants in the solicitation
of proxies from the Company’s shareholders with respect to the
proposed acquisition of the Company by Siemens Industry, Inc.,
including their respective interests by security holdings or
otherwise, also will be included in the proxy statement relating to
such acquisition when it is filed with the SEC. These documents
will be available free of charge from the SEC’s website at
www.sec.gov and the Company’s website at www.mentor.com.
Forward-Looking Statements
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) uncertainty associated with the announcement and
pendency of our agreement to be acquired by U.S.-based entities
affiliated with Siemens AG could adversely affect our business and
relationships with customers; (ii) continued economic weakness in
the European Union, China, Japan or other countries, and the
adverse impact of such weakness on the company’s customers in those
regions; (iii) 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; (iv)
effects of customer mergers, divestitures or shutdowns of business
units or divisions, customer seasonal purchasing patterns and the
timing of significant orders which may negatively or positively
impact the company’s quarterly results of operations; (v) effects
of the volatility of foreign currency fluctuations on the company’s
business and operating results; (vi) 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, or result in loss of business; (vii) changes in
accounting or reporting rules or interpretations, including new
rules affecting revenue recognition; (viii) the impact of audits by
taxing authorities, or changes in applicable tax laws, regulations
or enforcement practices; (ix) political and economic uncertainty
regarding Britain’s exit from the EU; (x) effects of unanticipated
shifts in product mix on gross margin; and (x) 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, 2016
2015 2016 2015 Revenues: System and
software $ 198,605 $ 168,699 $ 439,064 $ 486,831 Service and
support 123,911 121,817 365,435
356,890 Total revenues 322,516
290,516 804,499 843,721
Cost of revenues: (1) System and software 13,713 9,759
37,375 36,432 Service and support 35,649 35,286 100,910 100,275
Amortization of purchased technology 1,828
1,844 5,400 5,496 Total cost of
revenues 51,190 46,889 143,685
142,203 Gross profit 271,326
243,627 660,814 701,518
Operating expenses: Research and development (2) 101,023
99,669 285,561 278,237 Marketing and selling (3) 91,646 93,165
259,816 262,857 General and administration (4) 20,015 19,665 56,777
56,298 Equity in earnings of Frontline (634 ) (1,755 ) (2,311 )
(3,976 ) Amortization of intangible assets (5) 1,462 2,364 4,536
6,817 Special charges (6) 1,500 4,831
5,936 43,994
Total operating expenses
215,012 217,939 610,315
644,227
Operating income: 56,314 25,688 50,499
57,291 Other income, net (7) 268 320 1,795 849 Interest expense (8)
(5,143 ) (4,915 ) (14,971 ) (14,381 )
Income before income tax 51,439 21,093 37,323 43,759 Income tax
expense (9) 9,677 7,204 5,560
9,763 Net income 41,762 13,889 31,763 33,996
Less: Loss attributable to noncontrolling interest (10) -
(790 ) - (2,010 )
Net income attributable to Mentor Graphics
shareholders
$ 41,762 $ 14,679 $ 31,763 $ 36,006
Net income per share attributable to
Mentor Graphics shareholders:
Basica $ 0.38 $ 0.13 $ 0.29 $ 0.31
Diluteda,b $ 0.37 $ 0.12 $ 0.29 $ 0.30
Weighted average number of shares outstanding: Basic 108,887
117,759 108,442 116,787
Diluted 114,112 120,141
110,931 121,963
aWe have 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:
$ 133 $ 258 bWe have increased the
numerator of our diluted earnings per share calculation by $519 for
the three months ended October 31, 2016 and the nine months ended
October 31, 2015 for the dilutive effect of our convertible debt.
Corresponding dilutive shares of 2,496 for the three months ended
October 31, 2016 and 2,565 for the nine months ended October 31,
2015 are included in the diluted weighted average number of shares
outstanding. Refer to following page for a description of
footnotes.
MENTOR GRAPHICS
CORPORATION
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, 2016 2015
2016 2015 (1) Cost of revenues: Equity
plan-related compensation $ 785 $ 665 $ 2,277 $ 1,981 Amortization
of purchased technology 1,828 1,844
5,400 5,496 $ 2,613 $ 2,509
$ 7,677 $ 7,477
(2) Research and
development: Equity plan-related compensation $ 4,708 $
4,095 $ 13,598 $ 12,213
(3)
Marketing and selling: Equity plan-related compensation $ 2,911
$ 2,468 $ 8,612 $ 7,314
(4)
General and administration: Equity plan-related compensation $
2,687 $ 2,797 $ 9,031 $ 9,381
(5) Amortization of intangible assets: Amortization of other
identified intangible assets $ 1,462 $ 2,364 $ 4,536
$ 6,817
(6) Special charges: Rebalance,
restructuring, certain litigation, and other costs $ 1,500 $
4,831 $ 5,936 $ 43,994
(7) Other
income, net: Net loss of unconsolidated entities $ 36 $
72 $ 81 $ 33
(8) Interest
expense: Amortization of original issuance debt discount $
1,786 $ 1,663 $ 5,263 $ 4,900
(9) Income tax expense: Non-GAAP income tax effects $ (3,460
) $ (756 ) $ (11,931 ) $ (16,056 )
(10) Loss attributable
to noncontrolling interest:
Amortization of intangible assets,
equity-plan related compensation, and income tax effects
$ - $ (238 ) $ - $ (638 )
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, 2016
2015 2016 2015 GAAP net income attributable to
Mentor Graphics shareholders $ 41,762 $ 14,679 $ 31,763 $ 36,006
Non-GAAP adjustments: Equity plan-related compensation: (1) Cost of
revenues 785 665 2,277 1,981 Research and development 4,708 4,095
13,598 12,213 Marketing and selling 2,911 2,468 8,612 7,314 General
and administration 2,687 2,797 9,031 9,381 Acquisition - related
items: Amortization of purchased assets Cost of revenues (2) 1,828
1,844 5,400 5,496 Amortization of intangible assets (3) 1,462 2,364
4,536 6,817 Special charges (4) 1,500 4,831 5,936 43,994 Other
income, net (5) 36 72 81 33 Interest expense (6) 1,786 1,663 5,263
4,900 Non-GAAP income tax effects (7) (3,460 ) (756 ) (11,931 )
(16,056 ) Noncontrolling interest (8) - (238 )
- (638 ) Total of non-GAAP adjustments
14,243 19,805 42,803
75,435 Non-GAAP net income attributable to Mentor Graphics
shareholders $ 56,005 $ 34,484 $ 74,566 $
111,441 GAAP weighted average shares (diluted)
114,112 120,141 110,931 121,963 Non-GAAP adjustment -
2,695 1,071 - Non-GAAP
weighted average shares (diluted) 114,112
122,836 112,002 121,963
Net income per share attributable to Mentor Graphics shareholders:
GAAP (diluted) $ 0.37 $ 0.12 $ 0.29 $ 0.30 Non-GAAP adjustments
detailed above 0.13 0.16 0.38
0.62 Non-GAAP (diluted) (9) $ 0.50 $
0.28 $ 0.67 $ 0.92
(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.
(4) Three months ended October 31, 2016: Special charges
consist of (i) $354 of costs incurred for employee rebalances which
include severance benefits and notice pay, (ii) $(19) for EVE
litigation costs, and (iii) $1,165 in other adjustments. 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. Nine
months ended October 31, 2016: Special charges consist of (i)
$2,884 of costs incurred for employee rebalances which include
severance benefits and notice pay, (ii) $1,344 for EVE litigation
costs, and (iii) $1,708 in other adjustments. Nine months ended
October 31, 2015: Special charges consist of (i) $25,232 of
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.
(5) Amount represents loss for 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.
(8) Adjustment for
the impact of amortization of intangible assets, equity
plan-related compensation, and income tax expense on noncontrolling
interest.
(9) We have increased the numerator of our diluted
earnings per share calculation by $519 for the three and nine
months ended October 31, 2016 and 2015 for the dilutive effect of
our convertible debt. Corresponding dilutive shares of 2,695 for
the three months ended October 31, 2015 and 1,071 for the nine
months ended October 31, 2016 are presented in the reconciliation
above. Corresponding dilutive shares of 2,496 for the three months
ended October 31, 2016 and 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, 2016
2015 2016 2015 GAAP gross profit $ 271,326 $
243,627 $ 660,814 $ 701,518 Reconciling items to non-GAAP gross
profit: Equity plan-related compensation 785 665 2,277 1,981
Amortization of purchased technology 1,828
1,844 5,400 5,496 Non-GAAP gross
profit $ 273,939 $ 246,136 $ 668,491 $ 708,995
Three Months Ended October 31, Nine
Months Ended October 31, 2016
2015 2016 2015
GAAP gross profit as a percent of total revenues 84.1 % 83.9
% 82.1 % 83.1 % Non-GAAP adjustments detailed above 0.8 %
0.8 % 1.0 % 0.9 % Non-GAAP gross profit as a
percent of total revenues 84.9 % 84.7 % 83.1 %
84.0 %
Three Months Ended October 31,
Nine Months Ended October 31, 2016
2015 2016
2015 GAAP operating expenses $ 215,012 $ 217,939 $
610,315 $ 644,227 Reconciling items to non-GAAP operating expenses:
Equity plan-related compensation (10,306 ) (9,360 ) (31,241 )
(28,908 ) Amortization of other identified intangible assets (1,462
) (2,364 ) (4,536 ) (6,817 ) Special charges (1,500 )
(4,831 ) (5,936 ) (43,994 ) Non-GAAP operating
expenses $ 201,744 $ 201,384 $ 568,602 $
564,508
Three Months Ended October 31,
Nine Months Ended October 31, 2016
2015 2016
2015 GAAP operating income $ 56,314 $ 25,688 $ 50,499
$ 57,291 Reconciling items to non-GAAP operating income: Equity
plan-related compensation 11,091 10,025 33,518 30,889 Amortization
of purchased technology 1,828 1,844 5,400 5,496 Amortization of
other identified intangible assets 1,462 2,364 4,536 6,817 Special
charges 1,500 4,831 5,936
43,994 Non-GAAP operating income $ 72,195 $
44,752 $ 99,889 $ 144,487
Three Months Ended October 31, Nine Months Ended October
31, 2016 2015
2016 2015 GAAP operating income
as a percent of total revenues 17.5 % 8.8 % 6.3 % 6.8 % Non-GAAP
adjustments detailed above 4.9 % 6.6 % 6.1 %
10.3 % Non-GAAP operating income as a percent of total
revenues 22.4 % 15.4 % 12.4 % 17.1 %
Three Months Ended October 31, Nine Months
Ended October 31, 2016 2015
2016 2015 GAAP
other income, net and interest expense $ (4,875 ) $ (4,595 ) $
(13,176 ) $ (13,532 )
Reconciling items to non-GAAP other
income, net and interest expense:
Equity in losses of unconsolidated entities 36 72 81 33
Amortization of original issuance debt discount 1,786
1,663 5,263 4,900
Non-GAAP other income, net and interest expense $ (3,053 ) $ (2,860
) $ (7,832 ) $ (8,599 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
October
31, January 31, 2016 2016
Assets Current assets: Cash and cash equivalents $
262,762 $ 334,826 Trade accounts receivable, net 125,453 176,021
Term receivables, short-term 304,081 317,188 Prepaid expenses and
other 64,616 70,432 Total
current assets 756,912 898,467
Property, plant, and equipment,
net 200,781 182,092
Term receivables, long-term 251,416
268,657
Goodwill and intangible assets, net 645,461 644,288
Other assets 79,005 70,860
Total assets $ 1,933,575 $ 2,064,364
Liabilities and Stockholders' Equity Current
liabilities: Short-term borrowings $ 21,475 $ 33,449 Notes
Payable, current portion 240,865 - Accounts payable 13,431 16,740
Income taxes payable 5,339 3,966 Accrued payroll and related
liabilities 68,189 73,371 Accrued and other liabilities 32,114
37,059 Deferred revenue 213,630 258,725
Total current liabilities 595,043 423,310
Long-term notes
payable 5,188 240,076
Deferred revenue, long-term 34,242
18,303
Other long-term liabilities 51,934
62,246 Total liabilities 686,407
743,935
Convertible notes 12,092 -
Stockholders' equity: Common stock 708,128 818,683 Retained
earnings 547,007 522,846 Accumulated other comprehensive loss
(20,059 ) (21,100 ) Total stockholders' equity
1,235,076 1,320,429 Total liabilities
and stockholders' equity $ 1,933,575 $ 2,064,364
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, 2016
2015 2016 2015 Operating activities Net
income $ 41,762 $ 13,889 $ 31,763 $ 33,996 Depreciation and
amortization 15,635 15,765 45,469 45,925 Other adjustments to
reconcile: Operating cash 15,336 6,609 39,527 27,976 Changes in
working capital (58,533 ) (8,799 ) 26,947
14,379 Net cash provided by operating
activities 14,200 27,464 143,706 122,276
Investing
activities Net cash used in investing activities (24,768 )
(15,801 ) (55,344 ) (37,969 )
Financing activities
Net cash provided by (used in) financing activities 7,491 (27,993 )
(163,317 ) (34,580 ) Effect of exchange rate changes on cash
and cash equivalents 43 (116 ) 2,891
(1,007 ) Net change in cash and cash
equivalents (3,034 ) (16,446 ) (72,064 ) 48,720 Cash and cash
equivalents at beginning of period 265,796
295,447 334,826 230,281
Cash and cash equivalents at end of period $ 262,762 $
279,001 $ 262,762 $ 279,001
Other data: Capital expenditures, net $ 17,968 $
11,301 $ 43,585 $ 26,269 Days sales
outstanding 120 139
MENTOR GRAPHICS
CORPORATION
UNAUDITED
SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION
(Rounded to
nearest 5%)
2017
2016 2015 Product Category Bookings (a)
Q1 Q2 Q3
Year Q1 Q2
Q3 Q4 Year
Q1 Q2 Q3
Q4 Year IC DESIGN TO SILICON 30%
50% 60% 50% 30% 40% 40% 50% 45% 20% 25% 45% 55% 45% SCALABLE
VERIFICATION 15% 20% 15% 20% 25% 30% 15% 15% 20% 25% 25% 20% 20%
20% INTEGRATED SYSTEMS DESIGN 25% 15% 10% 15% 15% 15% 20% 15% 15%
30% 25% 15% 10% 15% NEW & EMERGING MARKETS 5% 5% 5% 5% 10% 5%
10% 10% 10% 10% 15% 10% 5% 10% SERVICES / OTHER 25%
10% 10% 10% 20% 10%
15% 10% 10% 15%
10% 10% 10% 10%
Total 100% 100%
100% 100% 100%
100% 100% 100%
100% 100% 100%
100% 100%
100% 2017 2016 2015
Product Category Revenue (b) Q1
Q2 Q3 Year
Q1 Q2 Q3
Q4 Year Q1
Q2 Q3 Q4
Year IC DESIGN TO SILICON 30% 40% 45% 40% 35% 40% 40%
50% 40% 25% 30% 35% 55% 40% SCALABLE VERIFICATION 20% 25% 20% 25%
30% 25% 25% 15% 25% 35% 25% 20% 20% 25% INTEGRATED SYSTEMS DESIGN
25% 20% 20% 20% 20% 20% 20% 20% 20% 25% 25% 25% 15% 20% NEW &
EMERGING MARKETS 10% 5% 5% 5% 5% 5% 5% 5% 5% 5% 10% 10% 5% 5%
SERVICES / OTHER 15% 10% 10%
10% 10% 10% 10%
10% 10% 10% 10% 10%
5% 10%
Total 100%
100% 100%
100% 100% 100%
100% 100% 100%
100% 100% 100%
100% 100%
2017 2016 2015 Bookings by Geography
Q1 Q2 Q3
Year Q1 Q2
Q3 Q4 Year
Q1 Q2 Q3
Q4 Year North America 30% 40%
30% 35% 35% 35% 45% 40% 40% 50% 40% 50% 40% 45% Europe 25% 20% 10%
15% 25% 30% 20% 20% 25% 15% 25% 15% 15% 15% Japan 30% 5% 5% 10% 15%
5% 10% 5% 5% 15% 5% 10% 5% 5% Pac Rim 15% 35%
55% 40% 25% 30%
25% 35% 30% 20% 30%
25% 40% 35%
Total
100% 100% 100%
100% 100% 100%
100% 100%
100% 100% 100%
100% 100% 100%
2017 2016 2015 Revenue by
Geography Q1 Q2
Q3 Year Q1
Q2 Q3 Q4
Year Q1 Q2
Q3 Q4 Year North
America 40% 40% 45% 45% 50% 40% 40% 40% 45% 50% 45% 50% 40% 45%
Europe 25% 20% 20% 20% 15% 25% 25% 20% 20% 25% 20% 20% 15% 20%
Japan 15% 10% 5% 10% 10% 5% 10% 5% 5% 10% 10% 10% 5% 5% Pac Rim 20%
30% 30% 25% 25%
30% 25% 35% 30%
15% 25% 20% 40%
30%
Total 100% 100%
100% 100% 100%
100% 100%
100% 100% 100%
100% 100% 100%
100% 2017 2016
2015 Bookings by Business Model (c) Q1
Q2 Q3 Year
Q1 Q2 Q3
Q4 Year Q1
Q2 Q3 Q4
Year Perpetual 20% 10% 10% 10% 20% 15% 15% 10% 15%
35% 20% 15% 10% 15% Term Ratable 15% 10% 5% 10% 10% 10% 10% 10% 10%
20% 10% 5% 5% 10% Term Up Front 65% 80%
85% 80% 70% 75% 75%
80% 75% 45% 70%
80% 85% 75%
Total
100% 100% 100%
100% 100% 100%
100% 100%
100% 100% 100%
100% 100% 100%
2017 2016 2015 Revenue by
Business Model (c) Q1 Q2
Q3 Year Q1
Q2 Q3 Q4
Year Q1 Q2
Q3 Q4 Year
Perpetual 20% 20% 10% 15% 15% 15% 10% 15% 15% 35% 30% 15% 10% 20%
Term Ratable 15% 15% 10% 10% 10% 10% 10% 5% 10% 10% 10% 10% 5% 5%
Term Up Front 65% 65% 80%
75% 75% 75% 80% 80%
75% 55% 60% 75%
85% 75%
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/20161122006036/en/
Mentor Graphics CorporationJoe Reinhart, 503-685-1462Vice
President, Investor Relations and Corporate
Developmentjoe_reinhart@mentor.com
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