CIMdata PLM Industry Summary Online Archive

26 February 2009

Financial News

Magma Beats Guidance for Third Quarter With Revenue of $30.7 Million

Magma Design Automation Inc. reported revenue of $30.7 million for its fiscal 2009 third quarter, ended Feb. 1, 2009. This exceeded the revenue guidance range of $28 million to $29 million the company issued on Dec. 4, 2008. Third-quarter revenue decreased 45 percent from the $55.7 million reported for the year-ago third quarter, ended Jan. 6, 2008.

"Magma beat revenue targets in the third quarter, an accomplishment we're quite pleased with given the difficult macroeconomic environment," said Rajeev Madhavan, Magma's chairman and chief executive officer. "Customers face difficulty in this economy but continue to recognize the technology advantage Magma products offer for their business-critical designs."

GAAP Results

In accordance with generally accepted accounting principles (GAAP), Magma reported an estimated net loss of $(78.1) million, or $(1.73) per share (basic and diluted), for the third quarter. This result was below the guidance range issued by the company on Dec. 4, 2008 of a loss between $(0.67) and $(0.65) a share and compares to a net loss of $(5.9) million, or $(0.14) per share (basic and diluted), for the year-ago third quarter. Third quarter losses exceeded guidance because of an estimated $60.8 million goodwill impairment charge. As a result of the decline in stock price in light of the current adverse macroeconomic business environment on Magma's long-term financial outlook, Magma's market capitalization fell significantly below the recorded value of its consolidated net assets, resulting in the impairment charge. Magma is in the process of finalizing its asset impairment analysis and expects to report the final amount of the goodwill impairment charge and other impacted financial statement line items in its Form 10-Q for the third quarter to be filed with the Securities and Exchange Commission. Magma will not be required to make any current or future cash expenditures as a result of this impairment.

Non-GAAP Results

Magma's non-GAAP net income was a net loss of $(4.3) million for the quarter, or $(0.09) per share (diluted). This result was better than the guidance range issued by the company on Dec. 4, 2008 of a loss between $(0.17) and $(0.15) a share and compares to non-GAAP net income of $7.5 million, or $0.16 per share (diluted), for the year-ago third quarter.

Non-GAAP net loss for the third 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 on equity and other investments, restructuring charges, asset impairment charges, and acquisition-related expenses and the related provision for income taxes. A reconciliation of non-GAAP results to GAAP results is included in this press release. Non-GAAP net income for the third quarter of fiscal 2008 excluded the above items, except charges for restructuring and asset impairment, and also excluded in-process research and development, litigation settlement and related legal expenses and interest expense.

Business Outlook

For Magma's fiscal 2009 fourth quarter, ending May 3, 2009, the company expects total revenue in the range of $33.0 million to $34.0 million. GAAP net loss per share is expected to be in the range of $(0.39) to $(0.37) and non-GAAP net income per share is expected to be in the range of $0.01 to $0.03.

For Magma's fiscal year 2009, ending May 3, 2009, the company expects total revenue in the range of $146.0 million to $147.0 million, an increase from the previous guidance range of $144.0 million to $146.0 million. The company expects GAAP net loss per share for fiscal 2009 to be in the range of $(2.99) to $(2.95), compared to the previous expectation of a loss in the range of $(2.03) to $(1.99). The company expects non-GAAP net loss per share for fiscal 2009 to be in the range of $(0.21) to $(0.19), compared to the previous expectation of a loss in the range of $(0.29) to $(0.25). All guidance issued by the company before Feb. 26, 2009 is no longer in effect.

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.

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, amortization of debt issuance costs, debt discount accretion, charges associated with losses on equity and other investments, restructuring charges, asset impairment charges, acquisition-related expenses, litigation settlement and related legal expenses, and the tax effects of its non-GAAP 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. 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 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. 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 third 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 March 5, 2009.

Those without Internet access may listen to a replay of the call by telephone until 11:59 p.m. PST on March 5 by calling:

U.S. & Canada:                 (888) 203-1112       , code #4739185

Elsewhere:                     (719) 457-0820       , code #4739185

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