CIMdata PLM Industry Summary Online Archive

3 December 2009

Financial News

Magma Reports Revenue of $29.7 Million for Second Quarter -- Exceeds All Financial Guidance

Magma® Design Automation Inc. reported revenue of $29.7 million for its fiscal 2010 second quarter ended Nov. 1, 2009.

"Traction continues to grow for our core Talus® platform as well as for our newer products -- just last week Hynix announced it is standardizing on FineSim™ for circuit simulation, Toshiba is adopting Quartz™ for physical verification of advanced flash memory designs, and today we announced Exar selected Titan™ ADX to accelerate analog design," said Rajeev Madhavan, chairman and CEO of Magma. "Second-quarter results once again included strong positive cash flow as we exceeded our guidance ranges for revenue and all other financial metrics."

GAAP Results

In accordance with generally accepted accounting principles (GAAP), Magma reported net income of $4.3 million, or $0.09 per share (basic and diluted), for the second quarter, compared to a net loss of $(26.3) million, or $(0.60) per share (basic and diluted), for the year-ago second quarter. The second quarter of fiscal 2010 was favorably impacted by a non-recurring net tax benefit of $7.7 million, or $0.16 per share (basic), $0.13 per share (diluted), which was primarily due to a discrete adjustment reducing the reserves for foreign taxes.

Non-GAAP Results

Magma's non-GAAP net income was $1.7 million for the second quarter, or $0.03 per share (basic and diluted), which compares to a non-GAAP net loss of $(6.3) million, or $(0.14) per share (basic and diluted), for the year-ago second quarter.

Non-GAAP net income for the second quarter of fiscal 2010 excludes the effects of amortization of developed technology, amortization of intangible assets, stock-based compensation, amortization of debt issuance costs, debt discount and premium accretion, charges associated with losses on equity investments and other investments, restructuring charges, acquisition-related expenses and the related provision for income taxes. Non-GAAP net income for the second 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, debt discount accretion, charges associated with losses on equity investments, restructuring charges, acquisition-related expenses and the related provision for income taxes. A reconciliation of our non-GAAP results to GAAP results is included in this press release.

In the second quarter Magma generated cash flow from operations of approximately $3.9 million.

Business Outlook

For Magma's fiscal 2010 third quarter, ending Jan. 31, 2010, the company expects total revenue in the range of $29.5 million to $30.0 million. GAAP net loss per share is expected to be in the range of $(0.14) to $(0.13) and non-GAAP earnings per share (EPS) are expected to be in the range of $0.02 to $0.03. A Financial Data Supplement containing additional third quarter and full fiscal year 2010 guidance, as well as 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.

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, amortization of debt issuance costs, debt discount and premium accretion, charges associated with losses on equity and other investments, restructuring charges, acquisition-related expenses and the related provision for income taxes, 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; (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) interest expense; (11) valuation gain (loss), net; (12) other income (expense), net; (13) provision for income taxes and (14) net income (loss) per share.

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 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 earnings call today at 1:30 p.m. PST, available live 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/medialist.cfm through Dec. 10, 2009. Those without Internet access may listen to a replay of the call by telephone until 11:59 p.m. PST on Dec. 10, 2009 by calling:

   U.S. & Canada: (888) 203-1112, code #2460625

   Elsewhere:     (719) 457-0820, code #2460625

Click here for the unabridged press release with financial tables.

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