Mentor Graphics Corporation (NASDAQ: MENT) today announced
financial results for the company’s fiscal fourth quarter ended
January 31, 2017. The company reported record revenues of $478.0
million, GAAP earnings per share of $1.05 and non-GAAP earnings per
share of $1.21. For the full fiscal year, revenues were up nine
percent to $1.282 billion, GAAP earnings per share were $1.37 and
non-GAAP earnings per share were $1.92.
Record Fiscal Fourth Quarter and 2017 Performance
Highlights
- Fiscal year 2017 bookings were a record
and up 15 percent from fiscal 2016.
- Eight of the top ten transactions in
the fourth quarter were with systems customers and growth in
annualized fees in the top ten renewals was 15 percent.
- Average term length for renewals in the
top ten transactions was 3.2 years in the quarter.
- Fourth quarter emulation product
bookings and revenue were up 60 and 70 percent year over year and
New and Emerging bookings for the quarter were up 50 percent year
over year.
- Fourth quarter GAAP gross margin was
89.4 percent. Non-GAAP gross margin of 90.0 percent is an all-time
record.
- Fiscal 2017 GAAP operating margin was
15.8 percent and included special charges of approximately $16
million. Non-GAAP operating margin was a record at 21.8
percent.
- Fourth quarter and fiscal 2017 cash
flow from operations were all-time records at $178 million and $322
million, respectively.
“Mentor achieved all-time record fourth quarter and full year
revenues, non-GAAP operating margins and non-GAAP earnings per
share,” said Walden C. Rhines, chairman and CEO of Mentor Graphics.
“Customer and shareholder reaction to the agreement of Siemens to
acquire Mentor Graphics, announced in the fourth quarter, has been
favorable. On February 2, at a special meeting of shareholders,
99.8 percent of the votes cast approved the transaction.”
In the fourth quarter Mentor introduced its new Tessent®
DefectSim™ product that automates the defect coverage of any test
applied to an analog or mixed-signal circuit. The winner of a
Product of the Year award from Electronics Products magazine,
Tessent DefectSim satisfies the growing defect-coverage measurement
requirement for integrated circuits set by Tier One automotive
suppliers. During the quarter the company announced that Toyota
Motor Corporation has approved Mentor’s Volcano® VSTAR AUTOSAR
basic software stack for use in all Toyota vehicles. The company
also introduced Mentor Safe - one of the industry’s broadest and
most comprehensive ISO 26262 qualification programs, which enables
customers to integrate Mentor tools and software into their
safety-critical designs and verification flows at all criticality
levels.
“Fourth quarter bookings were up 20 percent over the same
quarter a year ago,” said Gregory K. Hinckley, president of Mentor
Graphics. “Scalable Verification, Integrated System Design and New
and Emerging product categories drove fourth quarter bookings
strength. Revenue of $478 million is a record for a fourth quarter
and up over 42 percent from the same period a year ago. Non-GAAP
earnings per share of $1.21 were up 92 percent year over year.”
Outlook and Acquisition Update
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.
The company has received several regulatory approvals of the
transaction and several approvals remain outstanding. As previously
announced, the transaction is expected to be completed by June 30,
2017.
Dividend
The company announced a quarterly dividend of $0.055 per share.
The dividend is payable on March 30, 2017 to shareholders of record
at the close of business on March 14, 2017.
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, 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.
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:
- Identified intangible assets consist
primarily of purchased technology, backlog, trade names, and
customer relationships. Amortization charges for our intangible
assets can vary in frequency and amount due to the timing and
magnitude of acquisition transactions. We consider our operating
results without these charges when evaluating our core performance
due to the variability. Generally, the most significant impact to
inter-period comparability of our net income is in the first twelve
months following an acquisition.
- Special charges may include expenses
related to employee severance, certain litigation costs,
acquisitions, excess facility costs, and other asset related
charges. Special charges are incurred based on particular facts and
circumstances and can vary in size and frequency. Restructuring
costs included in special charges include costs incurred for
employee terminations, including severance and benefits, driven by
modification of business strategy or business emphasis. Litigation
costs classified as special charges consist of professional service
fees related to patent litigation involving us, EVE S.A., and
Synopsys, Inc. These costs are included in special charges because
of their unusual nature due to the significance in variability of
timing and amount. Special charges are not ordinarily included in
our annual operating plan and related budget due to
unpredictability, driven in part by rapidly changing technology and
the competitive environment in our industry. We therefore exclude
them when evaluating our managers’ performance internally.
- Equity plan-related compensation
expenses represent the fair value of all share-based payments to
employees, including grants of employee stock options and
restricted stock units, and purchases made as a result of our
employee stock purchase plans. We do not consider equity
plan-related compensation expense in evaluating our managers’
performance internally or our core operations in any given
period.
- Interest expense attributable to
amortization of the original issuance debt discount on convertible
debt is excluded. Management does not consider this charge as a
part of our core operating performance. We do not consider the
amortization of the original issuance debt discount on convertible
debt to be a direct cost of operations.
- Equity in earnings or losses of
unconsolidated entities represents our equity in the net income
(loss) of common stock investments accounted for under the equity
method. The carrying amounts of our investments are adjusted for
our share of earnings or losses of the investee. We report our
equity in the earnings or losses of investments in other income,
net (with the exception of our investment in Frontline as discussed
below). The amounts are excluded from our non-GAAP results as we do
not control the results of operations for the investments and we do
not participate in regular and periodic operating activities;
therefore, management does not consider these investments as a part
of our core operating performance.
- The Company maintains a 50% interest in
Frontline, a joint venture. We report our equity in the earnings or
losses of Frontline within operating income. Although we do not
exert control, we actively participate in regular and periodic
activities such as budgeting, business planning, marketing and
direction of research and development projects. Accordingly, we do
not exclude our share of Frontline’s earnings or losses from our
non-GAAP results as management considers the joint venture to be
core to our operating performance.
- Income tax expense is adjusted by the
amount of additional tax expense or benefit that we would accrue if
we used non-GAAP results instead of GAAP results in the calculation
of our tax liability, utilizing a normalized effective tax rate.
Our GAAP tax rate for the year ended January 31, 2017 is 16.2%. Our
normalized non-GAAP effective tax rate for the year ended January
31, 2017 is 19%. The normalized non-GAAP effective tax rate
considers our global tax posture, including the weighted average
tax rates applicable in the various jurisdictions in which we
operate; approximates the elimination of the effects of
non-recurring and period specific items which are often
attributable to acquisition decisions and can vary in size and
frequency; and considered our U.S. tax loss carryforwards and tax
credits that were not previously recorded as a benefit in our
financial statements. Our non-GAAP effective tax rate is subject to
change over time for various reasons, including changes in
geographic business mix, statutory tax rates, foreign re-investment
expectations, and availability of U.S. tax loss carryforwards and
tax credits that were not previously recorded as a benefit.
- Our agreement with the former owners of
noncontrolling interests in one of our subsidiaries gave them a
right to require us to purchase their interests for a price based
on a formula defined in the agreement. Under GAAP, increases (or
decreases to the extent they offset previous increases) in the
calculated redemption value of the noncontrolling interests are
recorded directly to retained earnings and therefore do not affect
net income. However, as required by GAAP, these amounts are applied
to increase or decrease the numerator in the calculation of basic
and diluted earnings per share. In September 2015 we acquired the
remaining noncontrolling interest in the subsidiary. The amount for
the twelve months ended January 31, 2016 reflects the final
adjustment of redemption value to the actual price we paid.
Management does not consider fluctuations in the calculated
redemption value of noncontrolling interests to be relevant to our
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 earnings
per share is calculated may therefore differ from the GAAP
presentation due to the anti-dilutive effect of stock options,
restricted stock units, employee stock purchase plan shares, and
convertible debt in a loss situation.
Non-GAAP gross profit, operating income, operating margin, net
income, and earnings per share are supplemental measures of our
performance that are not 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 profit, operating income,
operating margin, net income, and earnings per share 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. Non-GAAP net income also
facilitates comparison with other companies in our industry, which
use similar financial measures to supplement their GAAP results.
Non-GAAP net income has limitations as an analytical tool, and
therefore should not be considered in isolation or as a substitute
for analysis of our results as reported under GAAP. In the future,
we expect to continue to incur expenses similar to the non-GAAP
adjustments described above and exclusion of these items in our
non-GAAP presentation should not be construed as an inference that
these costs are unusual, infrequent or non-recurring. Some of the
limitations in relying on non-GAAP net income are:
- Amortization of intangible assets
represents the loss in value as the technology in our industry
evolves, is advanced, or is replaced over time. The expense
associated with this loss in value is not included in the non-GAAP
net income presentation and therefore does not reflect the full
economic effect of the ongoing cost of maintaining our current
technological position in our competitive industry, which is
addressed through our research and development program.
- We regularly evaluate our business to
determine whether any operations should be eliminated or curtailed.
Additionally, as part of our ongoing business, we engage in
acquisition and assimilation activities and patent litigation. We
therefore will continue to experience special charges on a regular
basis. These costs also directly impact our available funds.
- Our stock incentive and stock purchase
plans are important components of our incentive compensation
arrangements and will be reflected as expenses in our GAAP
results.
- Our income tax expense will be
ultimately based on our GAAP taxable income and actual tax rates in
effect, which often differ significantly from the rate assumed in
our non-GAAP presentation. In addition, if we have a GAAP loss and
non-GAAP net income, our non-GAAP results will not reflect any
projected GAAP tax benefits.
- Other companies, including other
companies in our industry, calculate non-GAAP net income
differently than we do, limiting its usefulness as a comparative
measure.
About Mentor Graphics
Mentor Graphics Corporation is a world leader in electronic
hardware and software design solutions, providing products,
consulting services and award-winning support for the world’s most
successful electronic, semiconductor and systems companies.
Established in 1981, the company reported revenues in the last
fiscal year of approximately $1.28 billion. Corporate headquarters
are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon
97070-7777. World Wide Web site: http://www.mentor.com/.
(Mentor Graphics, Mentor, Tessent and Volcano are registered
trademarks and DefectSim is a trademark of Mentor Graphics
Corporation. All other company and/or product names are the
trademarks and/or registered trademarks of their respective
owners.)
Forward-Looking Statements
Statements in this press release regarding the company’s
guidance for future periods constitute “forward-looking” statements
based on current expectations within the meaning of the Securities
Exchange Act of 1934. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the company or
industry results to be materially different from any results,
performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: (i) uncertainty associated with the announcement and
pendency of our agreement to be acquired by U.S.-based entities
affiliated with Siemens AG could adversely affect our business and
relationships with customers; (ii) continued economic weakness in
the European Union, China, Japan or other countries, and the
adverse impact of such weakness on the company’s customers in those
regions; (iii) the company’s ability to successfully update
existing hardware and software products and offer new products and
services that compete in the highly competitive EDA industry,
including the risk of obsolescence for our hardware products; (iv)
effects of customer mergers, divestitures or shutdowns of business
units or divisions, customer seasonal purchasing patterns and the
timing of significant orders which may negatively or positively
impact the company’s quarterly results of operations; (v) effects
of the volatility of foreign currency fluctuations on the company’s
business and operating results; (vi) product bundling or
discounting of products and services by competitors, which could
force the company to lower its prices or offer other more favorable
terms to customers, or result in loss of business; (vii) changes in
accounting or reporting rules or interpretations, including new
rules affecting revenue recognition; (viii) the impact of audits by
taxing authorities, or changes in applicable tax laws, regulations
or enforcement practices; (ix) political and economic uncertainty
regarding Britain’s exit from the EU; (x) effects of unanticipated
shifts in product mix on gross margin; and (xi) litigation; all as
may be discussed in more detail under the heading “Risk Factors” in
the company’s most recent Form 10-K or Form 10-Q. Given these
uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. In addition,
statements regarding guidance do not reflect potential impacts of
mergers or acquisitions that have not been announced or closed as
of the time the statements are made. Mentor Graphics disclaims any
obligation to update any such factors or to publicly announce the
results of any revisions to any of the forward-looking statements
to reflect future events or developments.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except earnings per share data)
Three Months Ended January 31, Twelve Months Ended
January 31, 2017 2016
2017 2016 Revenues: System and
software $ 355,386 $ 213,790 $ 794,450 $ 700,621 Service and
support 122,582 123,477 488,017
480,367 Total revenues 477,968 337,267
1,282,467 1,180,988
Cost of revenues: (1)
System and software 10,875 11,898 48,250
48,330
Service and support 37,740 33,750 138,650 134,025 Amortization of
purchased technology 1,928 1,807 7,328
7,303 Total cost of revenues 50,543
47,455 194,228 189,658 Gross
profit 427,425 289,812 1,088,239
991,330
Operating expenses: Research and development
(2) 126,748 103,203 412,309 381,440 Marketing and selling (3)
109,309 88,487 369,125 351,344 General and administration (4)
28,584 17,555 85,361 73,853 Equity in earnings of Frontline (1,123
) (1,873 ) (3,434 ) (5,849 ) Amortization of intangible assets (5)
1,492 1,899 6,028 8,716 Special charges (6) 9,833
1,087 15,769 45,081 Total operating
expenses 274,843 210,358 885,158
854,585
Operating income: 152,582 79,454 203,081
136,745 Other income, net (7) 454 763 2,249 1,612 Interest expense
(8) (5,503 ) (5,047 ) (20,474 ) (19,428
) Income before income tax 147,533 75,170 184,856 118,929 Income
tax expense (9) 24,430 14,990 29,990
24,753 Net income 123,103 60,180 154,866 94,176 Less:
Loss attributable to noncontrolling interest (10) -
(91 ) - (2,101 ) Net income attributable to Mentor
Graphics shareholders $ 123,103 $ 60,271 $ 154,866 $ 96,277
Net income per share attributable to Mentor Graphics
shareholders: Basica $ 1.12 $ 0.52 $ 1.42 $ 0.83
Diluteda,b $ 1.05 $ 0.51 $ 1.37 $ 0.81 Weighted
average number of shares outstanding: Basic 109,845
116,442 108,795 116,701 Diluted
119,171 118,066 114,322 119,263
aWe have increased the numerator of our basic and diluted
earnings per share calculation for the adjustment of the
noncontrolling interest with redemption feature to its calculated
redemption value, recorded directly to retained earnings, as
follows: $ 258 bWe have increased the
numerator of our diluted earnings per share calculation by $2,074
for the three months ended January 31, 2017 and the twelve months
ended January 31, 2017 for the dilutive effect of our convertible
debt. Corresponding dilutive shares of 5,671 for the three months
ended January 31, 2017 and 2,681 for the twelve months ended
January 31, 2017 are included in the diluted weighted average
number of shares outstanding. Refer to following page
for a description of footnotes.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands) Listed below are the items included in
net income that management excludes in computing the non-GAAP
financial measures referred to in the text of this press release.
Items are further described under "Discussion of Non-GAAP Financial
Measures."
Three Months Ended January
31,
Twelve Months Ended January 31,
2017 2016 2017
2016 (1) Cost of revenues: Equity
plan-related compensation $ 808 $ 626 $ 3,085 $ 2,607 Amortization
of purchased technology 1,928 1,807
7,328 7,303 $ 2,736 $ 2,433 $ 10,413 $ 9,910
(2) Research and development:
Equity plan-related compensation
$ 4,607 $ 3,994 $ 18,205 $ 16,207
(3)
Marketing and selling: Equity plan-related compensation $ 3,662
$ 2,309 $ 12,274 $ 9,623
(4) General and
administration:
Equity plan-related compensation
$ 4,198 $ 2,679 $ 13,229 $ 12,060
(5)
Amortization of intangible assets: Amortization of other
identified intangible assets $ 1,492 $ 1,899 $ 6,028 $ 8,716
(6) Special charges: Rebalance, restructuring,
certain litigation, and other costs $ 9,833 $ 1,087 $ 15,769
$ 45,081
(7) Other income, net:
Net income (loss) of unconsolidated
entities
$ (81 ) $ (39 ) $ - $ (6 )
(8) Interest expense:
Amortization of original issuance debt
discount
$ 1,818 $ 1,693 $ 7,081 $ 6,593
(9) Income
tax expense:
Non-GAAP income tax effects
$ (8,971 ) $ (2,343 ) $ (20,902 ) $ (18,399 )
(10) Loss
attributable to noncontrolling interest: Amortization of
intangible assets, equity-plan related compensation, and income tax
effects $ - $ - $ - $ (638 )
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF NON-GAAP ADJUSTMENTS
(In thousands, except earnings per share data)
Three Months Ended January 31, Twelve Months Ended
January 31, 2017 2016
2017 2016 GAAP net income
attributable to Mentor Graphics shareholders $ 123,103 $ 60,271 $
154,866 $ 96,277 Non-GAAP adjustments: Equity plan-related
compensation: (1) Cost of revenues 808 626 3,085 2,607 Research and
development 4,607 3,994 18,205 16,207 Marketing and selling 3,662
2,309 12,274 9,623 General and administration 4,198 2,679 13,229
12,060
Acquisition - related items:
Amortization of purchased assets Cost of revenues (2) 1,928 1,807
7,328 7,303 Amortization of intangible assets (3) 1,492 1,899 6,028
8,716 Special charges (4) 9,833 1,087 15,769 45,081 Other income,
net (5) (81 ) (39 ) - (6 ) Interest expense (6) 1,818 1,693 7,081
6,593 Non-GAAP income tax effects (7) (8,971 ) (2,343 ) (20,902 )
(18,399 ) Noncontrolling interest (8) - -
- (638 ) Total of non-GAAP adjustments
19,294 13,712 62,097
89,147 Non-GAAP net income attributable to Mentor
Graphics shareholders $ 142,397 $ 73,983 $ 216,963
$ 185,424 GAAP weighted average shares
(diluted) 119,171 118,066 114,322 119,263 Non-GAAP adjustment
- - - 2,046
Non-GAAP weighted average shares (diluted) 119,171
118,066 114,322 121,309
Net income per share attributable to Mentor Graphics
shareholders: GAAP (diluted) $ 1.05 $ 0.51 $ 1.37 $ 0.81
Convertible debt adjustment (9) - - - 0.01 Non-GAAP adjustments
detailed above 0.16 0.12 0.55
0.73 Non-GAAP (diluted) (9) $ 1.21 $
0.63 $ 1.92 $ 1.55
(1 ) Equity plan-related compensation expense
is the fair value of all share-based payments to employees for
stock options and restricted stock units, and purchases made as a
result of the employee stock purchase plans.
(2 )
Amount represents amortization of purchased technology resulting
from acquisitions. Purchased technology is generally amortized over
two to five years.
(3 ) Other identified intangible
assets are generally amortized to operating expense over two to six
years. Other identified intangible assets include trade names,
customer relationships, and backlog resulting from acquisition
transactions.
(4 )
Three months ended January 31, 2017:
Special charges consist of (i) $5,553 of costs incurred related to
advisory fees and legal costs associated with the potential merger
with Siemens Industry, Inc., (ii) $3,907 of costs incurred for
employee rebalances which include severance benefits and notice
pay, (iii) $121 for EVE litigation costs, and (iv) $252 in other
adjustments.
Three months ended January 31, 2016: Special charges consist of (i)
$(692) of costs incurred for employee rebalances which include
severance benefits and notice pay, (ii) $477 for EVE litigation
costs, and (iii) $1,302 in other adjustments. Twelve months ended
January 31, 2017: Special charges consist of (i) $6,791 of costs
incurred for employee rebalances which include severance benefits
and notice pay, (ii) $5,553 of costs incurred related to advisory
fees and legal costs associated with the potential merger with
Siemens Industry, Inc., (iii) $1,465 for EVE litigation costs, and
(iv) $1,960 in other adjustments. Twelve months ended January 31,
2016: Special charges consist of (i) $25,232 for severance costs
incurred for the voluntary early retirement program, (ii) $13,496
of costs incurred for employee rebalances which include severance
benefits and notice pay, (iii) $4,118 for EVE litigation costs, and
(iv) $2,235 in other adjustments.
(5 ) Amount
represents (earnings) losses for an investment accounted for under
the equity method of accounting.
(6 ) Amount
represents the amortization of original issuance debt discount.
(7 ) Non-GAAP income tax expense adjustment reflects
the application of our assumed normalized effective 19% tax rate,
instead of our GAAP tax rate, to our non-GAAP pre-tax income.
(8 ) Adjustment for the impact of amortization of
intangible assets, equity plan-related compensation, and income tax
expense on noncontrolling interest.
(9 ) We have
increased the numerator of our diluted earnings per share
calculation by $2,074 for the three and twelve months ended January
31, 2017 and the twelve months ended January 31, 2016 for the
dilutive effect of our convertible debt. Corresponding dilutive
shares of 5,671 for the three months ended January 31, 2017 and
2,681 for the twelve months ended January 31, 2017 are already
included in the GAAP diluted weighted average number of shares
outstanding. Corresponding dilutive shares of 2,046 for the twelve
months ended January 31, 2016 are presented in the reconciliation
above.
MENTOR GRAPHICS
CORPORATION
UNAUDITED
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL
MEASURES
(In thousands, except percentages)
Three
Months Ended January 31, Twelve Months Ended January 31,
2017 2016
2017 2016 GAAP gross profit $
427,425 $ 289,812 $ 1,088,239 $ 991,330 Reconciling items to
non-GAAP gross profit: Equity plan-related compensation 808 626
3,085 2,607 Amortization of purchased technology 1,928
1,807 7,328 7,303
Non-GAAP gross profit $ 430,161 $ 292,245 $ 1,098,652
$ 1,001,240
Three Months Ended
January 31, Twelve Months Ended January 31,
2017 2016 2017
2016 GAAP gross profit as a percent of
total revenues 89.4 % 85.9 % 84.9 % 83.9 % Non-GAAP adjustments
detailed above 0.6 % 0.8 % 0.8 % 0.9 %
Non-GAAP gross profit as a percent of total revenues 90.0 %
86.7 % 85.7 % 84.8 %
Three
Months Ended January 31, Twelve Months Ended January 31,
2017 2016
2017 2016 GAAP operating
expenses $ 274,843 $ 210,358 $ 885,158 $ 854,585 Reconciling items
to non-GAAP operating expenses: Equity plan-related compensation
(12,467 ) (8,982 ) (43,708 ) (37,890 ) Amortization of other
identified intangible assets (1,492 ) (1,899 ) (6,028 ) (8,716 )
Special charges (9,833 ) (1,087 ) (15,769 )
(45,081 ) Non-GAAP operating expenses $ 251,051 $
198,390 $ 819,653 $ 762,898
Three Months Ended January 31, Twelve Months Ended
January 31, 2017 2016
2017 2016 GAAP operating
income $ 152,582 $ 79,454 $ 203,081 $ 136,745 Reconciling items to
non-GAAP operating income: Equity plan-related compensation 13,275
9,608 46,793 40,497 Amortization of purchased technology 1,928
1,807 7,328 7,303 Amortization of other identified intangible
assets 1,492 1,899 6,028 8,716 Special charges 9,833
1,087 15,769 45,081
Non-GAAP operating income $ 179,110 $ 93,855 $
278,999 $ 238,342
Three Months Ended
January 31, Twelve Months Ended January 31,
2017 2016 2017
2016 GAAP operating income as a percent
of total revenues 31.9 % 23.6 % 15.8 % 11.6 % Non-GAAP adjustments
detailed above 5.6 % 4.2 % 6.0 % 8.6 %
Non-GAAP operating income as a percent of total revenues
37.5 % 27.8 % 21.8 % 20.2 %
Three Months Ended January 31, Twelve Months Ended
January 31, 2017 2016
2017 2016 GAAP other
income, net and interest expense $ (5,049 ) $ (4,284 ) $ (18,225 )
$ (17,816 ) Reconciling items to non-GAAP other income, net and
interest expense: Equity in (earnings) losses of unconsolidated
entities (81 ) (39 ) - (6 ) Amortization of original issuance debt
discount 1,818 1,693 7,081
6,593 Non-GAAP other income, net and interest
expense $ (3,312 ) $ (2,630 ) $ (11,144 ) $
(11,229
)
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
January 31,
January 31, 2017 2016
Assets Current assets: Cash and cash
equivalents $ 441,087 $ 334,826 Trade accounts receivable, net
214,651 176,021 Term receivables, short-term 297,993 317,188
Prepaid expenses and other 70,120 70,432
Total current assets 1,023,851 898,467
Property,
plant, and equipment, net 210,680 182,092
Term receivables,
long-term 303,686 268,657
Goodwill and intangible assets,
net 643,349 644,288
Other assets 79,619
70,860
Total assets
$ 2,261,185 $ 2,064,364
Liabilities and
Stockholders' Equity Current liabilities: Short-term
borrowings $ 31,717 $ 33,449 Notes Payable, current portion 242,921
- Accounts payable 16,454 16,740 Income taxes payable 10,150 3,966
Accrued payroll and related liabilities 116,521 73,371 Accrued and
other liabilities 50,695 37,059 Deferred revenue 294,297
258,725
Total current liabilities
762,755 423,310
Long-term notes payable 5,188 240,076
Deferred revenue, long-term 40,196 18,303
Other long-term
liabilities 67,327 62,246 Total
liabilities 875,466 743,935
Convertible notes 10,036 -
Stockholders'
equity: Common stock 737,164 818,683 Retained earnings 664,084
522,846 Accumulated other comprehensive loss (25,565 )
(21,100 ) Total stockholders' equity 1,375,683
1,320,429 Total liabilities and stockholders'
equity $ 2,261,185 $ 2,064,364
MENTOR GRAPHICS
CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL
INFORMATION
(In thousands, except days sales outstanding)
Three Months Ended January 31,
Twelve Months Ended January 31, 2017
2016 2017
2016 Operating activities Net income $ 123,103
$ 60,180 $ 154,866 $ 94,176 Depreciation and amortization 16,378
15,497 61,847 61,422
Other adjustments to reconcile:
Operating cash 23,583 15,621 63,110 43,597 Changes in working
capital 15,041 17,676 41,988
32,055 Net cash provided by operating
activities 178,105 108,974 321,811 231,250
Investing
activities Net cash used in investing activities (16,703 )
(14,999 ) (72,047 ) (52,968 )
Financing activities
Net cash provided by (used in) financing activities 17,994 (37,981
) (145,323 ) (72,561 ) Effect of exchange rate changes on
cash and cash equivalents (1,071 ) (169 )
1,820 (1,176 ) Net change in cash and cash
equivalents 178,325 55,825 106,261 104,545 Cash and cash
equivalents at beginning of period 262,762
279,001 334,826 230,281
Cash and cash equivalents at end of period $ 441,087 $
334,826 $ 441,087 $ 334,826
Other data: Capital expenditures, net $ 16,703
$ 14,999 $ 60,288 $ 41,268
Days sales outstanding
97 132
MENTOR GRAPHICS
CORPORATION
UNAUDITED
SUPPLEMENTAL BOOKINGS AND REVENUE INFORMATION
(Rounded to
nearest 5%)
2017 2016 2015 Product Category
Bookings (a) Q1 Q2 Q3
Q4 Year Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4 Year IC
DESIGN TO SILICON 30% 50% 60% 25% 40% 30% 40% 40% 50% 45% 20% 25%
45% 55% 45% SCALABLE VERIFICATION 15% 20% 15% 25% 20% 25% 30% 15%
15% 20% 25% 25% 20% 20% 20% INTEGRATED SYSTEMS DESIGN 25% 15% 10%
30% 20% 15% 15% 20% 15% 15% 30% 25% 15% 10% 15% NEW & EMERGING
MARKETS 5% 5% 5% 10% 10% 10% 5% 10% 10% 10% 10% 15% 10% 5% 10%
SERVICES / OTHER 25% 10% 10% 10% 10%
20% 10% 15% 10% 10% 15% 10%
10% 10% 10%
Total 100%
100% 100% 100%
100% 100% 100% 100%
100% 100% 100%
100% 100% 100%
100% 2017 2016 2015
Product Category Revenue (b) Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4
Year Q1 Q2 Q3
Q4
Year IC DESIGN TO SILICON 30% 40% 45% 40% 40% 35% 40%
40% 50% 40% 25% 30% 35% 55% 40% SCALABLE VERIFICATION 20% 25% 20%
20% 20% 30% 25% 25% 15% 25% 35% 25% 20% 20% 25% INTEGRATED SYSTEMS
DESIGN 25% 20% 20% 25% 20% 20% 20% 20% 20% 20% 25% 25% 25% 15% 20%
NEW & EMERGING MARKETS 10% 5% 5% 10% 10% 5% 5% 5% 5% 5% 5% 10%
10% 5% 5% SERVICES / OTHER 15% 10% 10% 5%
10% 10% 10% 10% 10% 10% 10%
10% 10% 5% 10%
Total 100%
100% 100% 100%
100% 100% 100% 100%
100% 100% 100%
100% 100% 100%
100% 2017 2016 2015
Bookings by Geography Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4 Year
Q1 Q2 Q3 Q4
Year North America 30% 40% 30% 40% 35% 35% 35% 45% 40% 40%
50% 40% 50% 40% 45% Europe 25% 20% 10% 30% 25% 25% 30% 20% 20% 25%
15% 25% 15% 15% 15% Japan 30% 5% 5% 10% 10% 15% 5% 10% 5% 5% 15% 5%
10% 5% 5% Pac Rim 15% 35% 55% 20% 30%
25% 30% 25% 35% 30% 20% 30%
25% 40% 35%
Total 100%
100% 100% 100%
100% 100% 100% 100%
100% 100% 100%
100% 100% 100%
100% 2017 2016 2015
Revenue by Geography Q1 Q2
Q3 Q4 Year Q1
Q2 Q3 Q4 Year
Q1 Q2 Q3 Q4
Year North America 40% 40% 45% 30% 40% 50% 40% 40% 40% 45%
50% 45% 50% 40% 45% Europe 25% 20% 20% 25% 20% 15% 25% 25% 20% 20%
25% 20% 20% 15% 20% Japan 15% 10% 5% 10% 10% 10% 5% 10% 5% 5% 10%
10% 10% 5% 5% Pac Rim 20% 30% 30% 35%
30% 25% 30% 25% 35% 30% 15% 25%
20% 40% 30%
Total 100%
100% 100% 100%
100% 100% 100% 100%
100% 100% 100%
100% 100% 100%
100% 2017 2016 2015
Bookings by Business Model (c) Q1 Q2
Q3 Q4 Year
Q1 Q2 Q3 Q4
Year Q1 Q2 Q3
Q4 Year Perpetual 20% 10% 10% 10% 10% 20% 15%
15% 10% 15% 35% 20% 15% 10% 15% Term Ratable 15% 10% 5% 5% 10% 10%
10% 10% 10% 10% 20% 10% 5% 5% 10% Term Up Front 65% 80%
85% 85% 80% 70% 75% 75%
80% 75% 45% 70% 80% 85% 75%
Total 100% 100% 100%
100% 100% 100%
100% 100% 100%
100% 100% 100% 100%
100% 100% 2017
2016 2015 Revenue by Business Model (c)
Q1 Q2 Q3 Q4
Year Q1 Q2 Q3
Q4 Year Q1 Q2
Q3 Q4 Year Perpetual 20% 20% 10%
10% 10% 15% 15% 10% 15% 15% 35% 30% 15% 10% 20% Term Ratable 15%
15% 10% 5% 10% 10% 10% 10% 5% 10% 10% 10% 10% 5% 5% Term Up Front
65% 65% 80% 85% 80% 75% 75%
80% 80% 75% 55% 60% 75%
85% 75%
Total 100% 100%
100% 100% 100% 100%
100% 100% 100%
100% 100% 100% 100%
100% 100% (a) Product
Category Bookings excludes support bookings for all sub-flow
categories. (b) Product Category Revenue includes support revenue
for each sub-flow category as appropriate. (c) Bookings and Revenue
by Business Model are System and Software only (excludes finance
fee).
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170302006231/en/
Mentor Graphics CorporationVice President, Investor Relations
and Corporate DevelopmentJoe Reinhart,
503-685-1250joe_reinhart@mentor.com
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