Mentor Graphics Reports Fiscal First Quarter Results

WILSONVILLE, Ore. — (BUSINESS WIRE) — May 22, 2014 — Mentor Graphics Corporation (NASDAQ: MENT) today announced financial results for the company’s fiscal first quarter ended April 30, 2014. The company reported revenues of $252.2 million, non-GAAP earnings per share of $0.11, and a GAAP loss per share of $0.02.

“First quarter results were better than our guidance, driven largely by strong revenue growth in scalable verification, particularly emulation,” said Walden C. Rhines, chairman and CEO of Mentor Graphics. “During the quarter Mentor introduced a revolutionary new Enterprise Verification Platform - one of the most significant verification product announcements in Mentor’s history. We also acquired Berkeley Design Automation, a recognized leader in analog, mixed-signal and RF circuit verification. This high-impact acquisition, along with the increase in our quarterly dividend and continued share repurchases, demonstrates Mentor’s balanced approach to capital deployment.”

The Mentor® Enterprise Verification Platform combines Questa® advanced verification solutions, Veloce® OS3 global emulation resourcing technology, and the Visualizer™ debug environment into a globally accessible high-performance data center resource. The new platform eliminates barriers to hardware acceleration and combines the functionality and observability of simulation-based verification with the speed of emulation.

During the quarter the company also launched the first phase of a new systems design enterprise platform, starting with innovative Xpedition™ printed circuit board (PCB) layout technology. Mentor also released Valor® “new product introduction” software which seamlessly links PCB design and manufacturing operations to deliver the industry’s first integrated, automated flow for the design, fabrication and assembly of PCBs. The company also announced that LEONI, a leading supplier of cables and cable systems to the automotive sector and other industries, has expanded its use of Mentor’s Capital® software throughout its worldwide facilities. In other news, Mentor’s IC solutions, including Calibre® and Olympus-SoC™ software as well as the Pyxis™ custom IC design platform and the ELDO® spice simulator, have achieved certification for TSMC 16 nm FinFET family production.

“Mentor’s business performed well in the first quarter,” said Gregory K. Hinckley, president of Mentor Graphics. “Strict attention to cost control enabled the company to exceed our non-GAAP operating income target by over $7 million and beat non-GAAP EPS guidance by $0.05 on a $7 million hardware-driven revenue upside. The company is executing well and we expect strength in transportation applications and core EDA demand as the year progresses.”

Outlook

For the second quarter of fiscal 2015, the company expects revenues of about $250 million, non-GAAP earnings per share of about $0.15 and GAAP earnings per share of approximately $0.07. For the full year fiscal 2015, the company expects revenues of about $1.237 billion, non-GAAP earnings per share of about $1.75, and GAAP earnings per share of approximately $1.46.

Dividend and Share Repurchase

The company announced a quarterly dividend of $0.05 per share. The dividend is payable on June 30, 2014 to shareholders of record as of the close of business on June 10, 2014.

During the quarter the company repurchased approximately 2 million shares for $45 million.

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, 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 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:

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