GAAP Results
In accordance with generally accepted accounting principles (GAAP), Magma reported a net loss of $(6.2) million, or $(0.18) per share (basic and diluted), for the fourth quarter, compared to a net loss of $(5.6) million, or $(0.16) per share (basic and diluted), for the year-ago fourth quarter. For fiscal 2006 Magma reported a GAAP net loss of $(20.9) million, or $(0.61) per share (basic and diluted), compared to a net loss of $(8.6) million, or $(0.25) per share (basic and diluted), for fiscal 2005.
Non-GAAP Results
Magma's non-GAAP net income was $4.1 million for the quarter, or $0.10 per share (diluted), which compares to non-GAAP net income of $3.2 million, or $0.08 per share (diluted), for the year-ago fourth quarter. For fiscal 2006 Magma's non-GAAP net income was $14.9 million, or $0.37 per share (diluted), compared to the company's non-GAAP net income of $26.9 million, or $0.64 per share (diluted), for the year-ago fiscal year.
Non-GAAP net income for the fourth quarter of fiscal 2006 excludes the effects of amortization of developed technology, amortization of intangible assets, amortization of deferred stock-based compensation, charges associated with losses in equity investments, acquisition-related expenses and the tax effects of these adjustments. Non-GAAP net income for the fourth quarter of fiscal 2005 excludes the effects of amortization of developed technology, amortization of intangible assets, amortization of deferred stock-based compensation, acquisition-related expenses, miscellaneous marketing expenses, legal settlement expenses, charges associated with losses in equity investments and the tax effects of these adjustments. A reconciliation of our non-GAAP results to GAAP results is included in this press release.
The costs of Magma's patent litigation with Synopsys continued to have an impact on profitability in the fourth quarter. Litigation expenses in the fourth quarter were $2.8 million, or $0.07 per share (diluted). In the fourth-quarter Magma generated cash flow from operations of approximately $9.8 million. The company generated $7.1 million free cash flow (defined as cash flow from operations less capital expenditures).
"We made significant accomplishments in the fourth quarter and fiscal 2006 as a whole," said Rajeev Madhavan, chairman and CEO of Magma. "We achieved record revenue in each of the last four quarters and all key financial metrics finished within or above our target ranges. More and more customers are finding Magma to be the best software for designing large, complex and high-performance designs, and many have expressed a great deal of early interest in our recently announced Talus product line. We enter fiscal 2007 with a great deal of momentum."
GAAP Reconciliation
Magma provides non-GAAP financial information to assist investors in assessing its current and future operations in the way that Magma's management evaluates those operations. Magma believes that this non-GAAP information provides useful information to investors by excluding the effect of some expenses that are required to be recorded under GAAP but that Magma believes are not indicative of Magma's core operating results, or that are expected to be incurred over a limited period of time.
Magma's management evaluates and makes operating decisions about its business operations primarily based on bookings, revenue and the core costs of those business operations. Management believes that the amortization of developed technology and intangible assets, amortization of deferred stock-based compensation, in-process research and development charges, integration and other acquisition-related expenses, workforce realignment restructuring charges, and the tax effects of its non-GAAP adjustments (yielding a non-GAAP effective tax rate of 16.6 percent for fiscal 2006) and other significant unusual items are not operating costs of its core software and service business operations. Therefore, management presents non-GAAP financial measures, along with GAAP measures, in this earnings release by excluding these items from the period expenses. The income statement line items affected are as follows: (1) cost of revenue, licenses; (2) cost of revenue, services; (3) total cost of revenue; (4) gross profit; (5) operating expenses, research and development; (6) operating expenses, general and administrative; (7) total operating expenses; (8) operating income (loss); (9) other income (expense), net; (10) total interest and other income (expense), net; (11) net income (loss) before income taxes; (12) benefit from (provision for) income taxes; (13) net income (loss); and (14) net income (loss) per share. To determine its non-GAAP provision for income taxes, Magma recalculates tax based on non-GAAP income before income taxes and adjusts accordingly.
For each such non-GAAP financial measure, the adjustment provides management with information about Magma's underlying operating performance that enables a more meaningful comparison of its financial results in different reporting periods. For example, since Magma does not undertake significant restructuring or realignments on a predictable cycle, management would have difficulty evaluating Magma's profitability as measured by gross profit, operating profit, income before taxes and net income on a period-to-period basis unless it excluded these charges. Similarly, since Magma does not acquire businesses on a predictable cycle, management excludes acquisition-related charges, such as in-process research and development charges, in order to make more consistent and meaningful evaluations of Magma's operating expenses. Management also uses these measures to help it make budgeting decisions between those expenses that affect operating expenses and operating margin (such as research and development, sales and marketing, and general and administrative expenses), and those expenses that affect cost of revenue and gross margin (such as product development expenses).
Further, the availability of non-GAAP financial information helps management track actual performance relative to financial targets, including both internal targets and publicly announced targets. Making this non-GAAP financial information available also helps investors compare Magma's performance with the announced operating results of its principal competitors, which regularly provide similar non-GAAP financial information.
Management recognizes that the use of these non-GAAP measures has limitations, including the fact that management must exercise judgment in determining whether some types of charges, such as those relating to workforce reductions executed in the ordinary course of business, should be excluded from non-GAAP financial measures. Management believes, however, that providing this non-GAAP financial information facilitates consistent comparison of Magma's financial performance over time. Magma has historically provided non-GAAP results to the investment community, not as an alternative but as a supplement to GAAP information, to enable investors to evaluate Magma's core operating performance in the way that management does.
Reconciliation of Fourth Quarter GAAP and Non-GAAP Financial
Results
Statement of Operations Three Months Twelve Months
Reconciliation (in thousands) Ended Ended
April March April March
2, 31, 2, 31,
2006 2005 2006 2005
GAAP net loss $(6,226) $(5,614) $(20,937) $(8,581)
Amortization of developed
technology 6,724 2,007 23,676 6,374
Amortization of intangible assets 2,697 4,763 11,849 18,011
Amortization of stock-based
compensation 666 943 4,576 1,880
Acquisition related expenses 882 739 2,134 3,583
Legal settlement expense -- 125 750 125
Special assets write-off -- 293 -- 293
Miscellaneous marketing expenses -- (155) -- (47)
In-process research and
development -- -- 450 4,364
Restructuring charge -- -- -- 698
Net gain on repurchase of
convertible notes and loss on
sale of marketable securities in
conjunction with the repurchase -- -- (8,120) --
Loss (Gain) on equity investments 149 (191) 1,003 824
Tax effect (835) 246 (430) (622)
----------------- ------------------
Non-GAAP net income $4,057 $3,156 $14,951 $26,902
================= ==================
Earnings/(Loss) Per Share Three Months Twelve Months
Reconciliation Ended Ended
April March April March
2, 31, 2, 31,
2006 2005 2006 2005
GAAP net loss per share $(0.18) $(0.16) $(0.61) $(0.25)
Amortization of developed
technology 0.19 0.06 0.69 0.19
Amortization of intangible assets 0.08 0.14 0.35 0.53
Amortization of stock-based
compensation 0.02 0.03 0.13 0.05
Acquisition related expenses 0.03 0.02 0.06 0.11
Legal settlement expense -- -- 0.02 --
Special assets write-off -- 0.01 -- 0.01
Miscellaneous marketing expenses -- (0.01) -- --
In-process research and
development -- -- 0.01 0.13
Restructuring charge -- -- -- 0.02
Net gain on repurchase of
convertible notes and loss on
sale of marketable securities in
conjunction with the repurchase -- -- (0.23) --
Loss (Gain) on equity investments -- (0.01) 0.03 0.02
Tax effect (0.02) 0.01 (0.01) (0.02)
----------------- ------------------
Non-GAAP net income per share $0.12 $0.09 $0.44 $0.79
(basic) ================= ==================
Non-GAAP net income per share $0.10 $0.08 $0.37 $0.64
(diluted) ================= ==================
Basic shares used in calculation 34,677 34,329 34,348 33,861
Diluted shares used in
calculation 40,887 41,767 40,158 42,156
Business Outlook
For Magma's fiscal 2007 first quarter, ending July 2, 2006, the company expects total revenue in the range of $38 million to $42 million. GAAP net loss per share is expected to be in the range of $(0.38) to $(0.34) and non-GAAP earnings per share (EPS) is expected to be in the range of $0.00 to $0.04. A schedule showing a reconciliation of the projected non-GAAP EPS to GAAP projections is included in this release. A Financial Data Supplement containing detailed financial information intended to provide guidance and further insight into our business is available online at http://investor.magma-da.com/supplement.cfm in the Investor Relations section of the Magma website.
Conference Call
Magma will discuss the financial results for the recently completed quarter, including guidance going forward, during a live webcast and earnings call today at 1:30 p.m. PDT. The call will be available live by both webcast and telephone. To listen live via webcast, visit the Investor Relations section of Magma's website at http://investor.magma-da.com/medialist.cfm. To listen live via telephone call either of the numbers below:
U.S. & Canada: (800) 661-8947, conference ID #7460143
Elsewhere: (706) 634-2358, conference ID #7460143
Following completion of the call, a webcast replay of the call will be available at http://investor.magma-da.com/medialist.cfm through May 4, 2006. Those without Internet access may listen to a replay of the call by telephone through May 4 by calling:
U.S. & Canada: (800) 642-1687, conference ID #7460143
Elsewhere: (706) 645-9291, conference ID #7460143
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements in the "Business Outlook" section and in quotations from Magma's management. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from Magma's current expectations. Factors that could cause or contribute to such differences include, but are not limited to: competition in the EDA market; Magma's ability to integrate acquired businesses and technologies; potentially higher-than-anticipated costs of litigation; potentially higher-than-anticipated costs of compliance with regulatory requirements, including those relating to internal control over financial reporting; any delay of customer orders or failure of customers to renew licenses; weaker-than-anticipated sales of Magma's products and services; weakness in the semiconductor or electronic systems industries; the ability to manage expanding operations; the ability to attract and retain the key management and technical personnel needed to operate Magma successfully; the ability to continue to deliver competitive products to customers; and changes in accounting rules. Further discussion of these and other potential risk factors may be found in Magma's public filings with the Securities and Exchange Commission ( www.sec.gov). Magma undertakes no additional obligation to update these forward-looking statements.
About Magma
Magma's software for integrated circuit (IC) design is recognized as embodying the best in semiconductor technology. The world's top chip companies use Magma's EDA software to design and verify complex, high-performance ICs for communications, computing, consumer electronics and networking applications, while at the same time reducing design time and costs. Magma provides software for IC implementation, analysis, physical verification, characterization and programmable logic design, and the company's integrated RTL-to-GDSII design flow offers "The Fastest Path from RTL to Silicon"(TM). Magma is headquartered in Santa Clara, Calif. with offices around the world. Magma's stock trades on Nasdaq under the ticker symbol LAVA. Visit Magma Design Automation on the Web at www.magma-da.com.
Magma is a registered trademark and "The Fastest Path from RTL to Silicon" is a trademark of Magma Design Automation. All other product and company names are trademarks and registered trademarks of their respective companies.
MAGMA DESIGN AUTOMATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
April 2, March 31,
2006 2005
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 58,550 $ 20,622
Restricted cash 58 2,950
Short-term investments 38,608 114,896
Accounts receivable, net 33,848 33,851
Prepaid expenses and other current assets 4,097 7,088
--------- ---------
Total current assets 135,161 179,407
Property and equipment, net 20,062 21,309
Intangibles, net 75,735 69,573
Goodwill 43,985 43,194
Restricted cash 3,841 --
Other assets 5,280 5,741
--------- ---------
Total assets $284,064 $319,224
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,479 $ 3,010
Accrued expenses 31,833 22,321
Deferred revenue, current 24,622 20,745
--------- ---------
Total current liabilities 58,934 46,076
Convertible subordinated notes 105,500 150,000
Other long-term liabilities 5,728 1,749
--------- ---------
Total non-current liabilities 111,228 151,749
--------- ---------
Total liabilities 170,162 197,825
--------- ---------
Stockholders' equity:
Common stock 4 4
Additional paid-in capital 286,336 261,627
Deferred stock-based compensation (2,020) (5,749)
Accumulated deficit (136,581) (115,644)
Treasury stock at cost (32,651) (16,606)
Accumulated other comprehensive loss (1,186) (2,233)
--------- ---------
Total stockholders' equity 113,902 121,399
--------- ---------
Total liabilities and stockholders' equity $284,064 $319,224
========= =========
MAGMA DESIGN AUTOMATION, INC.
NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IMPACT OF NON-GAAP ADJUSTMENTS ON REPORTED NET LOSS
(in thousands, except per share data)
For the Quarter Ended
(Unaudited) April 2, 2006
--------------------------------------
GAAP Basis Adjust- Non-GAAP
ments Basis
------------- ----------- ------------
Revenue:
Licenses $37,747 $ -- $37,747
Services 6,258 -- 6,258
------------- ----------- ------------
Total revenue 44,005 -- 44,005
Cost of revenue:
Licenses 6,753 (6,724) 29
Services 4,797 (27) 4,770
------------- ----------- ------------
Total cost of revenue 11,550 (6,751) 4,799
Gross profit 32,455 6,751 39,206
------------- ----------- ------------
Operating expenses:
Research and development 12,749 (882) 11,867
In-process research and
development -- -- --
Sales and marketing 13,061 -- 13,061
General and administrative 10,084 -- 10,084
Amortization of intangible
assets 2,697 (2,697) --
Amortization of stock-based
compensation 639 (639) --
Restructuring charge -- -- --
------------- ----------- ------------
Total operating expenses 39,230 (4,218) 35,012
------------- ----------- ------------
Operating income (loss) (6,775) 10,969 4,194
------------- ----------- ------------
Interest and other income
(expense):
Interest income 833 -- 833
Interest expense (220) -- (220)
Other income (expense), net (207) 149 (58)
------------- ----------- ------------
Total interest and other
income (expense), net 406 149 555
------------- ----------- ------------
Net income (loss) before income
taxes (6,369) 11,118 4,749
Benefit from (provision for)
income taxes 143 (835) (692)
------------- ----------- ------------
Net income (loss) $(6,226) $10,283 $ 4,057
============= =========== ============
Net income (loss) per share --
basic $ (0.18) $ 0.12
============= ============
Net income (loss) per share --
diluted(1) $ (0.18) $ 0.10
============= ============
Shares used in calculation:
Basic 34,677 34,677
============= ============
Diluted(1) 34,677 40,887
============= ============
For the Quarter Ended
(Unaudited) March 31, 2005
--------------------------------------
GAAP Basis Adjust- Non-GAAP
ments Basis
------------- ----------- ------------
Revenue:
Licenses $30,165 $ -- $30,165
Services 5,513 -- 5,513
------------- ----------- ------------
Total revenue 35,678 -- 35,678
Cost of revenue:
Licenses 2,158 (2,007) 151
Services 3,927 -- 3,927
------------- ----------- ------------
Total cost of revenue 6,085 (2,007) 4,078
Gross profit 29,593 2,007 31,600
------------- ----------- ------------
Operating expenses:
Research and development 11,400 (739) 10,661
In-process research and
development -- -- --
Sales and marketing 10,665 155 10,820
General and administrative 6,401 (418) 5,983
Amortization of intangible
assets 4,763 (4,763) --
Amortization of stock-based
compensation 943 (943) --
Restructuring charge -- -- --
------------- ----------- ------------
Total operating expenses 34,172 (6,708) 27,464
------------- ----------- ------------
Operating income (loss) (4,579) 8,715 4,136
------------- ----------- ------------
Interest and other income
(expense):
Interest income 627 -- 627
Interest expense (250) -- (250)
Other income (expense), net (351) (191) (542)
------------- ----------- ------------
Total interest and other
income (expense), net 26 (191) (165)
------------- ----------- ------------
Net income (loss) before income
taxes (4,553) 8,524 3,971
Benefit from (provision for)
income taxes (1,061) 246 (815)
------------- ----------- ------------
Net income (loss) $(5,614) $ 8,770 $ 3,156
============= =========== ============
Net income (loss) per share --
basic $ (0.16) $ 0.09
============= ============
Net income (loss) per share --
diluted(1) $ (0.16) $ 0.08
============= ============
Shares used in calculation:
Basic 34,329 34,329
============= ============
Diluted(1) 34,329 41,767
============= ============
MAGMA DESIGN AUTOMATION, INC.
NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IMPACT OF NON-GAAP ADJUSTMENTS ON REPORTED NET LOSS
(in thousands, except per share data)
(Unaudited)
For the Twelve Months Ended
April 2, 2006
--------------------------------------
GAAP Basis Adjust- Non-GAAP
ments Basis
------------- ----------- ------------
Revenue:
Licenses $139,251 $-- $139,251
Services 24,793 -- 24,793
------------- ----------- ------------
Total revenue 164,044 -- 164,044
Cost of revenue:
Licenses 24,352 (23,676) 676
Services 17,363 (78) 17,285
------------- ----------- ------------
Total cost of revenue 41,715 (23,754) 17,961
Gross profit 122,329 23,754 146,083
------------- ----------- ------------
Operating expenses:
Research and development 45,935 (2,134) 43,801
In-process research and
development 450 (450) --
Sales and marketing 46,408 -- 46,408
General and administrative 39,718 (750) 38,968
Amortization of intangible
assets 11,849 (11,849) --
Amortization of stock-based
compensation 4,498 (4,498) --
Restructuring charge -- -- --
------------- ----------- ------------
Total operating expenses 148,858 (19,681) 129,177
------------- ----------- ------------
Operating income (loss) (26,529) 43,435 16,906
------------- ----------- ------------
Interest and other income
(expense):
Interest income 2,875 -- 2,875
Interest expense (849) -- (849)
Other income (expense), net 6,115 (7,117) (1,002)
------------- ----------- ------------
Total interest and other
income (expense), net 8,141 (7,117) 1,024
------------- ----------- ------------
Net income (loss) before income
taxes (18,388) 36,318 17,930
Provision for income taxes (2,549) (430) (2,979)
------------- ----------- ------------
Net income (loss) $(20,937) $35,888 $14,951
============= =========== ============
Net income (loss) per share --
basic $ (0.61) $ 0.44
============= ============
Net income (loss) per share --
diluted(1) $ (0.61) $ 0.37
============= ============
Shares used in calculation:
Basic 34,348 34,348
============= ============
Diluted(1) 34,348 40,158
============= ============
For the Twelve Months Ended
March 31, 2005
--------------------------------------
GAAP Basis Adjust- Non-GAAP
ments Basis
------------- ----------- ------------
Revenue:
Licenses $123,995 $ -- $123,995
Services 21,946 -- 21,946
------------- ----------- ------------
Total revenue 145,941 -- 145,941
Cost of revenue:
Licenses 6,902 (6,374) 528
Services 15,314 (1) 15,313
------------- ----------- ------------
Total cost of revenue 22,216 (6,375) 15,841
Gross profit 123,725 6,375 130,100
------------- ----------- ------------
Operating expenses:
Research and development 41,716 (3,583) 38,133
In-process research and
development 4,364 (4,364) --
Sales and marketing 44,654 47 44,701
General and administrative 18,057 (418) 17,639
Amortization of intangible
assets 18,011 (18,011) --
Amortization of stock-based
compensation 1,879 (1,879) --
Restructuring charge 698 (698) --
------------- ----------- ------------
Total operating expenses 129,379 (28,906) 100,473
------------- ----------- ------------
Operating income (loss) (5,654) 35,281 29,627
------------- ----------- ------------
Interest and other income
(expense):
Interest income 2,287 -- 2,287
Interest expense (996) -- (996)
Other income (expense), net (1,082) 824 (258)
------------- ----------- ------------
Total interest and other
income (expense), net 209 824 1,033
------------- ----------- ------------
Net income (loss) before income
taxes (5,445) 36,105 30,660
Provision for income taxes (3,136) (622) (3,758)
------------- ----------- ------------
Net income (loss) $ (8,581) $ 35,483 $ 26,902
============= =========== ============
Net income (loss) per share --
basic $ (0.25) $ 0.79
============= ============
Net income (loss) per share --
diluted(1) $ (0.25) $ 0.64
============= ============
Shares used in calculation:
Basic 33,861 33,861
============= ============
Diluted(1) 33,861 42,156
============= ============
(1) Gives effect to the potential issuance of common stock upon
conversion of convertible subordinated notes and to the effect
of all dilutive potential common shares outstanding during the
period, including stock options, using the treasury stock
method
MAGMA DESIGN AUTOMATION, INC.
AS OF APRIL 2, 2006
IMPACT OF KNOWN NON-GAAP ADJUSTMENTS ON FORWARD-LOOKING
DILUTED NET INCOME PER SHARE AND NET INCOME
(Unaudited)
Quarter Ending July 2, 2006
GAAP diluted net loss per share $ (0.38) to $ (0.34)
Amortization of developed technology
and intangibles $0.24
Amortization of deferred stock-based
compensation $0.12
Acquisition related expenses $0.02
Non-GAAP diluted net income per share $0.00 to $0.04
(in millions) Quarter Ending July 2, 2006
GAAP net loss $ (16) to $ (14)
Amortization of developed technology
and intangibles $10
Amortization of deferred stock-based
compensation $5
Acquisition related expenses $1
Non-GAAP net income $0 to $2
Contact:
Magma Design Automation Inc. Monica Marmie, 408-565-7689 Email Contact Milan G. Lazich, 408-565-7706 Email Contact