“Large accounts fared well in the quarter, with modest growth in the company’s top ten renewal contracts. This strength was significantly offset, however, by weakness in smaller transactions,” said Walden C. Rhines, chairman and CEO of Mentor Graphics. “For the year, our diversity of product line and breadth of served markets, as well as growth in newer product segments, helped sustain the business. In particular, automotive and design for manufacturing both showed solid growth for the year. Looking forward, we see the opportunity to take advantage of this period of weakness to help customers consolidate on Mentor’s leading design platforms.”
During the quarter, the company launched an expansion of capacity to 512 million gates for its Veloce® emulation product line, now double the capacity of competitive offerings. The company qualified its Olympus-SoC™ place-and-route solution for Taiwan Semiconductor Manufacturing Company’s (TSMC) 40nm processes in record time, winning an award from TSMC for the speed of its qualification. Olympus-SoC place-and-route also won the 2009 DesignVision award in the IC design tools category at the DesignCon tradeshow. Olympus-SoC place-and-route and the company’s printed circuit board radio frequency (RF) design solution are both finalists in the EDN innovation awards.
The company extended its leadership in electronic system level (ESL) design by acquiring the high level synthesis assets of Agility Design Solutions as well as with its announcement of a scalable design methodology with its Vista™ design tools based on the new 2.0 transaction level modeling standard. In functional verification, the company announced the availability of an open source solution that allows users of the industry standard open verification methodology (OVM) to incorporate their legacy verification methodology manual (VMM) code. The company also launched Capital® Architect, an extension to its cabling product line, which helps automotive manufacturers and their suppliers develop lighter and more cost-effective electrical distribution systems in vehicles. In analog simulation, the company released a multiprocessor version of its ELDO® simulator that can increase the speed of circuit simulation by 3 to 10 times.
“Given the environment, the company has further strengthened its existing cost control efforts with new reductions in compensation and travel, targeted personnel reductions and strict hiring limits. We will continue to assess our cost envelope as the year unfolds,” said Gregory K. Hinckley, president of Mentor Graphics. “Our relatively strong balance sheet will also allow us to consider opportunities this market is presenting.”
For fiscal first quarter 2010 ending April 30, 2009, the company expects revenues of $200 to $210 million, non-GAAP earnings per share between $.05 and $.10, and a GAAP loss per share between $.08 and $.13.
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 margin, operating margin and net income (loss), which we refer to as non-GAAP gross margin, operating margin, and net income (loss), 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 purchased and other identified intangible assets, in-process research and development, special charges, equity plan-related compensation expenses and charges, debt issuance costs, equity in losses of unconsolidated entities, impairment of long-lived assets, and impairment of cost method investments which management does not consider reflective of our core operating business.
Purchased and other identified intangible assets consist primarily of purchased technology, backlog, trade names, customer relationships, and employment agreements. In-process research and development charges represent products in development that had not reached technological feasibility at the time of acquisition. Special charges consist of post-acquisition rebalance costs including severance and benefits, excess facilities, and asset-related charges, and also include strategic reallocations or reductions of personnel resources. Equity plan-related compensation expenses represent the fair value of all share-based payments to employees, including grants of employee stock options, as required under Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). For purposes of comparability across other periods and against other companies in our industry, non-GAAP net income (loss) is adjusted by the amount of additional taxes or tax benefit that we would accrue using a normalized effective tax rate applied to the non-GAAP results.
During the year ended January 31, 2008, we excluded $1.1 million of
interest expense attributable to net retirement premiums and write-offs
of debt issuance costs. The amounts were expensed in connection with the
refinancing or repurchase of certain convertible debt. The amounts were
excluded as management does not consider these transactions a part of
its core operating performance. There were no debt repurchases during
the year ended January 31, 2009.