Magma(R) Design Automation Inc. (Nasdaq:LAVA), a provider of chip design software, today reported revenue of $29.7 million for its fiscal 2010 second quarter ended Nov. 1, 2009.
“Traction continues to grow for our core Talus(R) platform as well as for our newer products — just last week Hynix announced it is standardizing on FineSim(TM) for circuit simulation, Toshiba is adopting Quartz(TM) for physical verification of advanced flash memory designs, and today we announced Exar selected Titan(TM) 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. To listen live via webcast, visit the Investor Relations section of Magma’s website at investor.magma-da.com/medialist.cfm. To listen live via telephone, call either of the numbers below:
U.S. & Canada: (888) 510-1783
Elsewhere: (719) 325-2286
Following completion of the call, a webcast replay of the call will be available at 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
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: the substantial amount of Magma’s indebtedness, which could adversely affect our financial position; customer payment defaults, which may cause us to be unable to recognize revenue from backlog, and changes in the type of orders comprising backlog, which could affect the proportion of revenue recognized from backlog each quarter, both of which could have a material adverse effect on our financial condition and results of operations; and doubt over our ability to continue as a going concern. We rely on a small number of customers for a significant portion of our revenue, and our revenue could decline if customers delay orders or fail to renew licenses or if we are unable to maintain or develop relationships with current or potential customers; we compete against companies that hold a large share of the EDA market and competition is increasing among EDA vendors as customers tightly control their EDA spending and use fewer vendors to meet their needs. If we cannot compete successfully, we will not gain market share and our revenue could decline. Other factors may include weaker-than-anticipated sales of Magma’s products and services; weakness in the semiconductor or electronic systems industries; a potential failure of customers to adopt, or to adopt at a sufficiently fast rate, 65-nanometer and smaller design geometries on a large scale; 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; 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), including its Form 10-Q for the fiscal quarter ended August 2, 2009. Magma undertakes no additional obligation to update these forward-looking statements.
About Magma
Magma’s electronic design automation (EDA) software provides the “Fastest Path to Silicon”(TM) and enables the world’s top chip companies to create high-performance integrated circuits (ICs) for cellular telephones, electronic games, WiFi, MP3 players, digital Video, networking and other electronic applications. Magma products are used in IC implementation, analog/mixed-signal design, analysis, physical verification, circuit simulation and characterization. The company maintains headquarters in San Jose, Calif., and offices throughout North America, Europe, Japan, Asia and India. Magma’s stock trades on Nasdaq under the ticker symbol LAVA. Follow Magma on Twitter at www.Twitter.com/MagmaEDA and on Facebook at www.Facebook.com/Magma. Visit Magma Design Automation on the Web at www.magma-da.com.
Magma and Talus are registered trademarks and FineSim, “Fastest Path to Silicon,” Quartz and Titan are trademarks 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)
November 1, 2009 May 3, 2009
(as adjusted) (1)
Current assets:
Cash and cash equivalents $ 47,035 $ 32,888
Restricted cash 376 9,215
Short-term investments, pledged as collateral for secured credit line 16,909 –
Accounts receivable, net 13,394 26,635
Prepaid expenses and other current assets 5,591 5,443
Total current assets 83,305 74,181
Property and equipment, net 7,531 10,443
Intangibles, net 9,370 12,170
Goodwill 6,731 6,666
Long-term investments, pledged as collateral for secured credit line — 17,908
Other assets 6,086 5,665
Total assets $ 113,023 $ 127,033
Liabilities And Stockholders’ Equity
Current liabilities:
Accounts payable $ 2,384 $ 1,212
Accrued expenses 10,216 15,353
Secured credit line 11,373 12,451
Revolving note 12,200 12,181
Current portion of other long-term liabilities 2,206 2,679
Deferred revenue 28,201 35,779
Convertible notes, net of debt discount 22,677 —
Total current liabilities 89,257 79,655
Convertible notes, net of debt discount 28,453 47,600
Long-term tax liabilities 1,947 9,729
Other long-term liabilities 1,767 3,160
Total liabilities 121,424 140,144
Stockholders’ equity (deficit):
Common stock 5 5
Additional paid-in capital 409,697 405,342
Accumulated deficit (380,458) (380,490)
Treasury stock at cost (32,615) (32,615)
Accumulated other comprehensive loss (5,030) (5,353)
Total stockholders’ equity (deficit) (8,401) (13,111)
Total liabilities and stockholders’ equity $ 113,023 $ 127,033
(1) Prior periods adjusted for the adoption of ASC 470-20.
Magma Design Automation, Inc.
(in thousands, except per share data)
(unaudited)
For the Three Months
Ended
Nov. 1,
2009 Nov. 2,
(as
adjusted)
(1) Nov. 1,
2009 Nov. 2,
2008
(as
adjusted)
(1)
Revenue:
Licenses $ 13,237 $ 19,742 $ 27,016 $ 45,838
Bundled licenses and services 8,192 7,486 15,769 17,416
Services 8,233 9,230 15,718 18,946
Total revenue 29,662 36,458 58,503 82,200
Cost of revenue:
Licenses 782 4,958 1,483 9,767
Bundled licenses and services 1,077 2,346 2,053 4,865
Services 3,322 5,048 6,482 10,050
Total cost of revenue 5,181 12,352 10,018 24,682
Gross profit 24,481 24,106 48,485 57,518
Operating expenses:
Research and development 11,728 19,047 22,925 39,180
Sales and marketing 9,933 15,474 19,703 32,277
General and administrative 4,530 6,743 8,913 13,695
Amortization of intangible assets 305 838 610 2,282
Restructuring charge 247 3,307 950 5,327
Total operating expenses 26,743 45,409 53,101 92,761
Operating loss (2,262) (21,303) (4,616) (35,243)
Other income (expense):
Interest income 60 193 105 379
Interest expense (1,105) (1,062) (2,262) (2,046)
Valuation gain (loss), net 174 (1,679) 326 (1,679)
Other income (expense), net (185) 705 (787) 609
Total other income, (expense) net (1,056) (1,843) (2,618) (2,737)
Net loss before income taxes (3,318) (23,146) (7,234) (37,980)
Benefit from (provision for) income taxes 7,662 (3,130) 7,266 (3,569)
Net income (loss) $ 4,344 $(26,276) $ 32 $(41,549)
Net income (loss) per share – basic $ 0.09 $ (0.60) $ 0.00 $ (0.95)
Net income (loss) per share – diluted $ 0.08 $ (0.60) $ 0.00 $ (0.95)
Shares used in calculation:
Basic 48,995 43,908 48,427 43,647
Diluted 59,239 43,908 49,547 43,647
(1) Prior periods adjusted for the adoption of ASC 470-20.
Reconciliation of Second Quarter GAAP and Non-GAAP Financial Results
Nov. 1,
2009 Nov. 2,
2008
(as
adjusted)
(1) Nov. 1,
2009 Nov. 2,
(as
adjusted)
(1)
(in thousands)
GAAP net income (loss) $ 4,344 $ (26,276) $ 32 $ (41,549)
Cost of license revenue
Amortization of developed technology 737 4,804 1,512 9,457
Amortization of developed technology 361 1,439 697 2,739
Stock-based compensation 87 53 140 148
448 1,492 837 2,887
Cost of service revenue
Stock-based compensation 417 311 664 628
Stock-based compensation 1,016 1,871 2,149 3,941
Acquisition related expenses 1 127 20 522
1,017 1,998 2,169 4,463
Sales and marketing
Stock-based compensation 1,142 1,247 2,077 2,886
Stock-based compensation 1,097 1,173 1,910 2,426
Amortization of intangible assets 305 837 610 2,281
Restructuring charges 247 3,307 950 5,327
Other income (expense)
Interest expense, amortization of debt issuance cost, and debt discount accretion 500 634 1,147 1,263
Gain on extinguishment of debt (278) — (278) –
Loss (gain) on equity and other investments (109) 1,773 (114) 1,760
113 2,407 755 3,023
Provision for income taxes (8,157) 2,409 (8,137) 2,605
Non-GAAP net income (loss) $ 1,710 $ (6,291) $ 3,379 $ (5,566)
(1) Prior periods adjusted for the adoption of ASC 470-20.
Reconciliation of Second Quarter GAAP and Non-GAAP Financial Results
Three Months Ended Six Months Ended
Nov. 1,
2009 Nov. 2,
(as
adjusted)
(1) Nov. 1,
2009 Nov. 2,
2008
(as
adjusted)
(1)
Earnings/(Loss) Per Share Reconciliation
GAAP net income (loss) $ 0.09 $ (0.60) $ 0.00 $ (0.95)
Amortization of developed technology 0.01 0.11 0.03 0.22
Cost of bundled license and services revenue
Amortization of developed technology 0.01 0.03 0.02 0.06
Stock-based compensation — – — 0.01
0.01 0.03 0.02 0.07
Stock-based compensation 0.01 0.01 0.01 0.01
Research and development
Stock-based compensation 0.02 0.05 0.05 0.09
Acquisition related expenses — – — 0.01
0.02 0.05 0.05 0.10
Stock-based compensation 0.02 0.03 0.04 0.07
General and administrative
Stock-based compensation 0.02 0.03 0.04 0.06
Amortization of intangible assets 0.01 0.02 0.01 0.05
Restructuring charges 0.01 0.08 0.02 0.12
Other income (expense)
Interest expense, amortization of debt issuance cost, and debt discount accretion 0.01 0.01 0.03 0.02
Gain on extinguishment of debt (0.01) (0.01)
Loss (gain) on equity and other investments — 0.04 — 0.04
0.00 0.05 0.02 0.06
Provision for income taxes (0.17) 0.05 (0.17) 0.06
Non-GAAP net income
$ 0.03 $ (0.14) $ 0.07 $ (0.13)
Non-GAAP net income (diluted)
$ 0.03 $ (0.14) $ 0.07 $ (0.13)
Basic shares used in calculation 48,995 43,908 48,427 43,647
Diluted shares used in calculation* 50,766 44,441 49,547 44,279
(1) Prior periods adjusted for the adoption of ASC 470-20.
* Gives effect to the potential issuance of common stock upon conversion of convertible subordinated notes, if dilutive, 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 DECEMBER 3, 2009
Impact Of Known Non-gaap Adjustments On Forward-looking
(unaudited)
January 31, 2010 Year Ending
May 2, 2010
GAAP diluted net loss per share $(0.14)-$(0.13) $(0.32)-$(0.30)
Amortization of developed technology and intangibles $0.04 $0.15
Amortization of deferred stock-based compensation $0.09 $0.37
Equity and other investment related charges $0.01 $0.02
Other $0.02 $(0.11)
Non-GAAP diluted net income per share $0.02-$0.03 $0.11-$0.13
Quarter Ending
January 31, 2010 Year Ending
May 2, 2010
(in millions)
GAAP net loss $(7.3)-$(6.8) $(16.7)-$(15.4)
Amortization of developed technology and intangibles $2.0 $7.9
Amortization of deferred stock-based compensation $5.0 $19.0
Equity and other investment related charges $0.3 $1.0
Other $1.0 $(5.7)
