CIMdata PLM Industry Summary Online Archive
28 August 2008
Financial News
Magma Reports Revenue of $45.7 Million for First Quarter
Magma Design Automation Inc. reported revenue of $45.7 million for its first quarter of fiscal 2009, compared to revenue of $50.2 million reported for the first quarter of fiscal 2008.
"The first quarter proved to be a more difficult business environment than we anticipated, a situation that we believe may continue throughout at least a portion of the remainder of our fiscal year. Our key products and technology continue to deliver compelling solutions, but customers are experiencing softening demand in some of their end markets and we believe the first quarter results reflected delays in their purchases of design software as well as changes in our sales channel," said Rajeev Madhavan, chief executive officer. "Given this assessment of market conditions and recent changes in our sales channel, we lowered our full-year guidance. The new target is consistent with our intent to increase the portion of our revenue based on backlog to 90 percent or more of revenue in future periods."
GAAP Results
In accordance with generally accepted accounting principles (GAAP), Magma reported a net loss of $(14.9) million, or $(0.34) per share (basic and diluted), for the first quarter ended Aug. 3, 2008, compared to a net loss of $(11.3) million, or $(0.29) per share (basic and diluted), for the first quarter of fiscal 2008.
Non-GAAP Results
Magma's non-GAAP net income was $.7 million for the first quarter, or $0.02 per share (diluted), which compares to non-GAAP net income of $4.6 million, or $0.10 per share (diluted), for the first quarter of fiscal 2008.
Non-GAAP net income for the first quarter of fiscal 2009 excludes the effects of amortization of developed technology, amortization of intangible assets, amortization of deferred stock-based compensation, amortization of debt issuance costs and debt discount accretion, charges associated with losses in equity investments, restructuring charges, acquisition-related expenses and the tax effects of these adjustments. A reconciliation of our non-GAAP results to GAAP results is included in this press release. Non-GAAP net income for the first quarter of fiscal 2008 excluded the above items and litigation settlement costs and related legal expenses.
In the first quarter Magma used approximately $6.4 million of cash in operations.
Business Outlook
Magma is changing its business model in that from now on, it intends to achieve a revenue mix whereby 90 percent or more of revenue in a period comes from Magma's backlog and the remainder comes from transactions completed in the period. Consistent with this new model, for Magma's fiscal 2009 second quarter, ending Nov. 2, 2008, the company expects total revenue in the range of $34.0 million to $35.0 million. GAAP net loss per share is expected to be in the range of $(0.70) to $(0.68) and non-GAAP loss per share (EPS) is expected to be in the range of $(0.20) to $(0.18). For fiscal 2009, ending May 3, 2009, the company expects total revenue in the range of $158.0 million to $160.0 million. GAAP net loss per share is expected to be in the range of $(1.93) to $(1.89) and non-GAAP loss per share (EPS) is expected to be in the range of $(0.19) to $(0.15). A schedule showing a reconciliation of the projected non-GAAP EPS to GAAP EPS results 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 in the Investor Relations section of the Magma website.
Transition Period
On Jan. 31, 2008, Magma announced a shift in its fiscal year, creating a transition period between the end of fiscal 2008 and the beginning of fiscal 2009. Results for this transition period, which began April 7, 2008 and concluded May 4, 2008, will be reported in the 10-Q for Magma's fiscal 2009 first quarter and in Magma's fiscal 2009 10-K. Neither the results reported for the first quarter of fiscal 2009 nor Magma's Business Outlook reflect results of the transition period.
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, stock-based compensation, in-process research and development expenses, debt issuance costs and debt discount accretion, charges associated with losses in equity investments, restructuring charges, acquisition-related expenses, litigation settlement and related legal expenses, and the tax effects of its non-GAAP adjustments 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, bundled licenses and services; (3) cost of revenue, services; (4) operating expenses, research and development; (5) operating expenses, in-process research and development; (6) operating expenses, sales and marketing; (7) operating expenses, general and administrative; (8) operating expenses, amortization of intangible assets; (9) operating expenses, restructuring charge; (10) other income (expense), net; (11) tax effect; and (12) 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 management believes enables a more meaningful comparison of its financial results in different reporting periods. For example, since Magma does not acquire businesses on a predictable cycle, management excludes acquisition-related charges, such as in-process research and development charges, to make more consistent and meaningful evaluations of Magma's operating expenses. Similarly, 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. 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 stock-based compensation relating to stock grants and acquisition related charges, 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.
Conference Call
Magma will discuss the financial results for the recently completed quarter, along with forward-looking guidance, during a live conference call today at 2 p.m. PDT, available by both webcast and telephone.
Following completion of the call, a webcast replay of the call will be available at http://investor.magma-da.com/events.cfm through Sept. 4, 2008. Those without Internet access may listen to a replay of the call by telephone until 11:59 p.m. PDT on Sept. 4 by calling:
U.S. & Canada: (888) 203-1112 , code #9688422
Elsewhere: (719) 457-0820 , code #9688422
Visit Magma Design Automation on the Web at http://www.magma-da.com.
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