Mentor Graphics Reports Fiscal Third Quarter Results

WILSONVILLE, Ore. — (BUSINESS WIRE) — November 17, 2011 — Mentor Graphics Corporation (NASDAQ: MENT) today announced financial results for the company’s fiscal third quarter ended October 31, 2011. The company reported revenues of $250.5 million, non-GAAP earnings per share of $.25, and GAAP earnings per share of $.22.

“Bookings were again a record, up over 20% from the previous third quarter record, and for the second consecutive year our book-to-bill through the third quarter is positive,” said Walden C. Rhines, chairman and CEO of Mentor Graphics. “This quarter saw the beginning of the strength we predicted in our Design to Silicon category for the second half, with bookings in the third quarter up year-on-year by over 55%, and by about 15% year to date. Looking forward, we expect the technical challenges of advanced nodes to drive significant opportunity for us.”

During the quarter, the company expanded the Valor® product line with a new business intelligence product. The Mentor® Nucleus® real-time operating system was upgraded to include new power management technology, making it an even more compelling solution for mobile computing and telecommunication. The company also advanced its embedded systems software suite for automobile infotainment with a GENIVI compliant product and a partnership with Freescale Semiconductor. ARM and Mentor announced a joint manufacturing test solution for ARM processor-based designs. NuFlare Technology and Mentor announced a partnership on advanced IC mask generation. The company announced improvements to its design-for-test products that will allow it to find new classes of chip defects. GlobalFoundries and Mentor announced new support for GlobalFoundries’ third generation design sign-off for leading-edge IC manufacturing. The Mentor transportation Capital® product suite won an EDN Hot 100 products of 2011 award.

“Leading indicators for the business continued to be strong, with third quarter support declines down and consulting and training bookings doubling. Annual fees for renewing contracts in the top ten transactions were up 40% over their prior annual fees. Base business, contracts below $1 million in value that booked and billed in the quarter, grew 15% over last year,” said Gregory K. Hinckley, president of Mentor Graphics. “The company’s earnings have historically been very back-end loaded with much of our business closing in the fourth quarter. For the last several years, we have been working with our customers to create more linearity in our financial results, and are pleased with the progress we have been showing. With our newly raised guidance, we now expect 48% of annual non-GAAP earnings to occur in the fourth quarter this fiscal year, compared to 69% in Fiscal 2011.”


For the fourth quarter, the company expects revenues of about $316 million, non-GAAP earnings per share of approximately $.50, and GAAP earnings per share of $.46. For the full fiscal year, ending January 31, 2012, the company expects revenues of $1.01 billion, non-GAAP earnings per share of $1.05, and GAAP earnings per share of $.69.

Fiscal Year Definition

The Mentor Graphics 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

The Mentor Graphics management evaluates and makes operating decisions using various performance measures. In addition to our GAAP results, we also consider adjusted gross margin, operating margin, net income (loss), and earnings (loss) per share which we refer to as non-GAAP gross margin, operating margin, net income (loss), and earnings (loss) per share, respectively. These non-GAAP measures are derived from the revenues of our product, maintenance, and services business operations and the costs directly related to the generation of those revenues, such as cost of revenue, research and development, sales and marketing, and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. These non-GAAP measures exclude amortization of intangible assets, special charges, equity plan-related compensation expenses, interest expense attributable to net retirement premiums or discounts on the early retirement of debt and associated debt issuance costs, interest expense associated with the amortization of debt discount and premium on convertible debt, and the equity in income (loss) of unconsolidated entities (except Frontline PCB Solutions Limited Partnership (Frontline)), 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:

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