updated 12/2/2010 9:15:28 PM ET 2010-12-03T02:15:28

SAN JOSE, Calif., Dec. 2, 2010 (GLOBE NEWSWIRE) -- Magma® Design Automation Inc. (Nasdaq:LAVA), a provider of chip design software, today reported revenue of $33.9 million for its fiscal 2011 second quarter ended Oct. 31, 2010, up 14 percent from the $29.7 million reported in the year-ago second quarter.

"We had another strong performance in the second quarter as, for the seventh consecutive quarter, we exceeded all guidance targets and generated cash," said Rajeev Madhavan, Magma chairman and chief executive officer. "Not only did our analog products continue to take market share, but we added five new customer logos in our core digital implementation segment – momentum that I expect will continue as we deploy Talus 1.2 and Talus Vortex FX, new products we announced today."

Other highlights of Magma's second quarter included an increased presence in the place and route segment to 18 of the world's Top 20 semiconductor companies; the addition of 5 new customers of the FineSim circuit simulation products; and adding three new customers each for the SiliconSmart library characterization product and the Quartz physical verification products.

GAAP Results

In accordance with generally accepted accounting principles (GAAP), Magma reported a net loss of $(2.7) million, or $(0.04) per share (basic and diluted), for the second quarter, compared to net income of $4.3 million, or $0.09 per share (basic) and $0.08 per share (diluted), for the year-ago second quarter.

Non-GAAP Results

Magma's non-GAAP net income was $4.3 million for the quarter, or $0.07 per share (basic and diluted), which compares to non-GAAP net income of $1.7 million, or $0.03 per share (basic and diluted), for the year-ago second quarter.

Non-GAAP net income for the second quarter of fiscal 2011 excludes the effects of amortization of developed technology, amortization of intangible assets, stock-based compensation, amortization of debt issuance costs and debt premium accretion, inducement fees on conversion of debt, charges associated with equity and other investments, restructuring charges and the related provision for income taxes. 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 and debt discount/premium accretion, acquisition-related expenses, charges associated with equity and other investments, restructuring charges and the related provision for income taxes. A reconciliation of our GAAP results to non-GAAP results is included in this press release.

In the second quarter, Magma generated cash flow from operations of approximately $2.7 million.

Business Outlook

For Magma's fiscal 2011 third quarter ending Jan. 30, 2011, the company expects total revenue in the range of $34.0 million to $34.5 million. GAAP net loss per share is expected to be in the range of $(0.04) to $(0.03) and non-GAAP earnings per share (EPS) are expected to be in the range of $0.06 to $0.07.

A schedule showing a reconciliation of the projected GAAP net loss per share to non-GAAP EPS results is included in this release. A Financial Data Supplement containing additional third quarter and full fiscal year 2011 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 is useful 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 and debt discount/premium accretion, inducement fees on conversion of debt, charges associated with equity and other investments, acquisition-related expenses, restructuring charges 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, sales and marketing; (6) operating expenses, general and administrative; (7) operating expenses, amortization of intangible assets; (8) operating expenses, restructuring charges; (9) other income (expense), net; (10) provision for income taxes; and (11) 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 amortization of intangible assets, 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 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 2 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 http://investor.magma-da.com/medialist.cfm. To listen live via telephone, call either of the numbers below:

U.S. & Canada: (877) 303-3205
Elsewhere: (678) 894-3026

Following completion of the call, a webcast replay of the call will be available at http://investor.magma-da.com/medialist.cfm through Dec. 9, 2010. Those without Internet access may listen to a replay of the call by telephone until 11:59 p.m. PST on Dec. 9 by calling:

U.S. & Canada: (800) 642-1687, code #22756969
Elsewhere: (706) 645-9291, code #22756969

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; our ability to generate sufficient operating cash flow or alternatively obtain external financing; customer payment defaults that may cause us to be unable to recognize revenue from backlog, and changes in the type of orders comprising backlog that could affect the proportion of revenue recognized from backlog each quarter, which could have a material adverse effect on our financial condition and results of operations; our reliance on a small number of customers for a significant portion of our revenue, which could cause our revenue to decline if these customers delay orders or fail to renew licenses or if we are unable to maintain or develop relationships with current or potential customers; actions by our competitors that hold a large share of the electronic design automation (EDA) market and increasing competition among EDA vendors as customers tightly control their EDA spending and use fewer vendors to meet their needs; 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 and keep pace with evolving technology standards; potentially higher-than-anticipated costs of litigation related to patent infringement and other intellectual property claims; 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 1, 2010.  Magma undertakes no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

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 is a registered trademark and "Fastest Path 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)
 
  October 31, 2010 May 2, 2010
     
ASSETS    
Current assets:    
Cash and cash equivalents $ 42,648 $ 57,518
Restricted cash 250 250
Short-term investments -- 16,837
Accounts receivable, net 16,570 17,401
Prepaid expenses and other current assets 3,966 4,472
Total current assets 63,434 96,478
Property and equipment, net 5,510 5,979
Intangibles, net 5,593 7,487
Goodwill 7,100 7,093
Other assets 4,143 5,086
Total assets $  85,780 $  122,123
     
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)    
Current liabilities:    
Accounts payable $ 1,232 $ 2,220
Accrued expenses 10,999 16,347
Secured credit line -- 11,162
Current portion of term debt 3,375 1,688
Current portion of other long-term liabilities 1,702 1,901
Deferred revenue 24,100 25,528
Convertible notes, net of debt premium -- 23,206
Total current liabilities 41,408 82,052
Convertible notes, net of debt discount 3,419 28,263
Long-term portion of term debt 21,063 13,312
Long-term tax liabilities 1,873 1,856
Other long-term liabilities 1,250 922
Total liabilities 69,013 126,405
Stockholders' equity (deficit):    
Common stock 7 6
Additional paid-in capital 443,191 417,131
Accumulated deficit (389,796) (383,824)
Treasury stock at cost (32,615) (32,615)
Accumulated other comprehensive loss (4,020) (4,980)
Total stockholders' equity (deficit) 16,767 (4,282)
Total liabilities and stockholders' equity (deficit) $  85,780 $  122,123
     
 
 
MAGMA DESIGN AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
     
  For the Three Months Ended For the Six Months Ended
     
  October 31,

2010
November 1,

2009
October 31,

2010
November 1,

2009
Revenue:        
Licenses  $22,891  $13,237  $41,018  $27,016
Bundled licenses and services 5,026 8,192 12,804 15,769
Services 6,009 8,233 12,660 15,718
Total revenue 33,926 29,662 66,482 58,503
Cost of revenue:        
Licenses 850 782 1,549 1,483
Bundled licenses and services 755 1,077 1,742 2,053
Services 3,458 3,322 6,514 6,482
Total cost of revenue 5,063 5,181 9,805 10,018
Gross profit 28,863 24,481 56,677 48,485
         
Operating expenses:        
Research and development 11,747 11,728 24,006 22,925
Sales and marketing 11,319 9,933 21,886 19,703
General and administrative 4,625 4,530 9,315 8,913
Amortization of intangible assets 289 305 545 610
Restructuring charge 182 247 168 950
Total operating expenses 28,162 26,743 55,920 53,101
Operating income (loss) 701 (2,262) 757 (4,616)
         
Other income (expense):        
Interest income 20 60 49 105
Interest expense and amortization (537) (1,105) (1,343) (2,262)
Valuation gain, net -- 174 38 326
Loss on extinguishment of debt, notes due 2014 -- -- (2,093) --
Inducement fees on conversion of notes due 2014  (2,279)  --  (2,279)  --
Other (expense), net (712) (185) (863) (787)
Total other (expense), net (3,508) (1,056) (6,491) (2,618)
Net loss before income taxes (2,807) (3,318) (5,734) (7,234)
Benefit from (provision for) income taxes 93 7,662 (238) 7,266
Net income (loss)  

$ (2,714)
 

$ 4,344
 

$ (5,972)
 

$ 32
Net income (loss) per share – basic  

$ (0.04)
 

$ 0.09
 

$ (0.11)
$ 0.00
Net income (loss) per share – diluted  

$ (0.04)
 

$  0.08
 

$ (0.11)


$ 0.00
         
Shares used in calculation:        
Basic 60,542 48,995 56,553 48,427
Diluted 60,542 59,239 56,553 49,547
 
 
Reconciliation of Second Quarter GAAP to Non-GAAP Financial Results
     
Statement of Operations Reconciliation Three Months Ended Six Months Ended
(in thousands)

 October 31,

2010
 November 1,

2009
 October 31,

2010
 November 1,

2009
         
GAAP net income (loss) $(2,714) $4,344 $(5,972) $ 32
Cost of license revenue        
Amortization of developed technology 711 737 1,327 1,512
         
Cost of bundled license and services revenue        
Amortization of developed technology 123 361 332 697
Stock-based compensation 86 87 139 140
  209 448 471 837
Cost of service revenue        
Stock-based compensation 492 417 710 664
         
Research and development        
Stock-based compensation 1,103 1,016 2,338 2,149
Acquisition related expenses  -- 1 -- 20
  1,103 1,017 2,338 2,169
Sales and marketing        
Stock-based compensation 1,140 1,142 1,865 2,077
         
General and administrative        
Stock-based compensation 764 1,097 1,517 1,910
         
Amortization of intangible assets 289 305 545 610
Restructuring charges 183 247 169 950
         
Other income (expense)        
Interest expense, amortization of debt issuance cost, and debt discount/premium accretion  44 500 153 1,147
(Gain) loss on extinguishment of debt, notes due 2014  --  (278)  2,093  (278)
Inducement fees on conversion of notes due 2014  2,279  --  2,279  --
Loss (gain) on equity and other investments  31  (109)  (64)   (114)
  2,354  113 4,461   755
         
Provision for income taxes (199)  (8,157) (188) (8,137)
Non-GAAP net income  $4,332  $1,710  $7,243 $3,379
 
 
Reconciliation of Second Quarter GAAP to Non-GAAP Financial Results
         
Earnings/(Loss) Per Share Reconciliation Three Months Ended Six Months Ended
  October 31,

2010
November 1,

2009
October 31,

2010
November 1,

2009
         
GAAP net income (loss) $(0.04) $0.09 $(0.11) $0.00
Cost of license revenue        
Amortization of developed technology 0.01 0.01 0.02 0.03
         
Cost of bundled license and services revenue        
Amortization of developed technology 0.00  0.01  0.01 0.02
Stock-based compensation 0.00 0.00  0.00 0.00
  0.00  0.01 0.01 0.02
Cost of service revenue        
Stock-based compensation 0.01 0.01 0.02 0.01
         
Research and development        
Stock-based compensation 0.02 0.02 0.04 0.05
Acquisition related expenses -- 0.00 -- 0.00
  0.02 0.02 0.04 0.05
Sales and marketing        
Stock-based compensation 0.02 0.02 0.03 0.04
         
General and administrative        
Stock-based compensation 0.01 0.02 0.03 0.04
         
Amortization of intangible assets 0.00 0.01 0.01 0.01
Restructuring charges 0.00 0.01 0.00 0.02
         
Other income (expense)        
Interest expense, amortization of debt issuance cost,

and debt discount/premium accretion
 

0.00
 

0.01
 

0.00
 

0.03
(Gain) loss on extinguishment of debt, notes due 2014 -- (0.01) 0.04 (0.01)
Inducement fees on conversion of notes due 2014 0.04 -- 0.04 --
Loss (gain) on equity and other investments 0.00 0.00 0.00 0.00
  0.04 0.00 0.08 0.02
         
Provision for income taxes 0.00 (0.17) 0.00 (0.17)
Non-GAAP net income  

$0.07
 

$0.03
 

$0.13
 

$0.07
Non-GAAP net income (diluted)* $0.07  $0.03 $0.11 $0.07
         
Basic shares used in calculation 60,542 48,995 56,553 48,247
Diluted shares used in calculation* 69,646 59,239 69,687 49,547
 
*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 2, 2010
IMPACT OF KNOWN NON-GAAP ADJUSTMENTS ON FORWARD-LOOKING DILUTED NET
INCOME PER SHARE AND NET INCOME
(Unaudited)
     
  Quarter Ending

January 30, 2011
Year Ending

May 1, 2011
     
GAAP diluted net loss per share $ (0.04) to $ (0.03) $ (0.18) to $ (0.17)
GAAP to non-GAAP diluted share count $0.01 $0.08
Amortization of developed technology and intangibles $0.02 $0.06
Amortization of deferred stock-based compensation $0.05 $0.19
Equity and other investment related charges $0.01 $0.08
Other $0.01 $0.02
     
Non-GAAP diluted net income per share $0.06 to $0.07 $0.25 to $0.26
     
     
(in millions) Quarter Ending

January 30, 2011
Year Ending

May 1, 2011
     
GAAP net loss $ (1.7) to $ (1.0) $ (8.0) to $ (7.4)
Amortization of developed technology and intangibles $1.1 $4.5
Amortization of deferred stock-based compensation $3.5 $13.5
Equity and other investment related charges $0.5 $5.8
Other $0.5 $1.5
     
Non-GAAP net income $3.9 to $4.6 $17.3 to $17.9
CONTACT:  Magma Design Automation Inc.
          Media:
          Monica Marmie, Director, Corporate Marketing
            (408) 565-7689
            mmarmie@magma-da.com
          Investors:
          Milan G. Lazich, Vice President, Corporate Marketing
            (408) 565-7706
            milan.lazich@magma-da.com

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