Mentor Graphics Reports Fiscal First Quarter Results

WILSONVILLE, Ore.—(BUSINESS WIRE)—May 22, 2008— Mentor Graphics Corporation (NASDAQ:MENT) today announced first quarter fiscal 2009 revenue of $179.2 million. Non-GAAP earnings per share were a loss of $.10. On a GAAP basis, earnings per share were a loss of $.30, including significant special charges driven by cost control activities in the quarter.

In a difficult environment, the company performed as we forecast, said Walden C. Rhines, chairman and CEO of Mentor Graphics. Our investments in new technologies and markets continue to pay dividends, with growth in analog/mixed-signal design, electronic system level (ESL) design, automotive and design-for-test, among others.

During the quarter, the company launched the Questa® InFact intelligent testbench which offers customers improved design verification, as well as the Questa Multi-view product which allows designers to span different levels of abstraction in their verification flows. The company also simplified the complex task of debugging multicore designs with the Questa Codelink product. Agilent and Mentor Graphics launched a tight integration of their respective tools to simplify and accelerate RF board design.

During the quarter, we extended our cost management efforts, resulting in virtually flat headcount year over year, despite several acquisitions over the last year and our investment in field benchmarking staff for our Olympus place and route campaigns, said Gregory K. Hinckley, president of Mentor Graphics. Looking forward, we continue to see a strong second half driven by renewals.


For fiscal year 2009, the company expects revenue of approximately $915 million, with non-GAAP earnings per share in the range of $1.05 to $1.10 and GAAP earnings per share in the range of $.45 to $.50. For fiscal second quarter, consistent with the previously forecast weaker first half, the company expects revenue of about $173 million, non-GAAP loss per share of $.10 to $.15 and GAAP loss per share of $.18 to $.23.

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, and gains 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. 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.

For the three months ended April 30, 2008 and April 30, 2007, we excluded $0 and $164 thousand, respectively, 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.

For the three months ended April 30, 2008 and April 30, 2007, we excluded $168 and $0 thousand, respectively, of equity in losses of unconsolidated entities. The amounts represent our equity in the losses of a common stock investment accounted for under the equity method. The amounts were excluded as management does not consider these transactions a part of its 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 EPS is calculated may therefore differ from the GAAP presentation due to the anti-dilutive effect of stock options in a loss situation.

Non-GAAP gross margin, operating margin and net income (loss) are supplemental measures of our performance that are not required by, or 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 margin, operating margin and net income (loss) 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.

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