Mentor Graphics Reports Fiscal Third Quarter Results

WILSONVILLE, Ore. — (BUSINESS WIRE) — November 22, 2016 — 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.

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