Mentor Graphics Q3 Results Top View, But Provides Weak Outlook

(RTTNews) - PCB design software provider Mentor Graphics Corp. (MENT) reported Friday a profit for the third quarter that declined last year, despite revenue growth, reflecting lower operating margins amid higher expenses.

Both adjusted earnings per share and quarterly revenues topped analysts' expectations. The company also provided earnings and revenue guidance for the fourth quarter, below Street view, but maintained its outlook for the full-year 2014.

"Third-quarter results substantially exceeded our guidance and reflect the continuing strength in our business. Core EDA business such as design to silicon and scalable verification, along with strength in transportation, drove third quarter business. Design-to-silicon growth was powered by the Calibre family of physical verification and analysis tools and the Tessent design-for-test products," Chairman and CEO Walden Rhines said in a statement.

The Wilsonville, Oregon-based electronic design automation systems supplier reported net income of $25.54 million or $0.20 per share for the third quarter, lower than $30.64 million or $0.27 per share in the prior-year quarter.

Excluding items, adjusted net income for the quarter was $37.29 million or $0.32 per share, compared to $37.22 million or $0.32 per share in the year-ago quarter.

On average, seven analysts polled by Thomson Reuters expected the company to report earnings of $0.19 per share for the quarter. Analysts' estimate typically excludes one-time items.

Total revenues for the quarter grew to $275.64 million from $268.76 million in the same quarter last year, and topped seven Wall Street analysts' consensus estimate of $260.27 million.

System and software revenue totaled $170.84 million, higher than last year's $166.30 million, and service and support revenues also rose to $104.81 million from $102.46 million in the year-ago quarter.

Operating margins for the quarter contracted 200 basis points to 12.1 percent from last year on higher operating expenses as a percentage of total revenues, despite gross margin improving 200 basis points.

The company also announced a quarterly dividend of $0.045 per share on outstanding common stock, payable on January 2, 2014 to shareholders of record as of the close of business on December 10, 2013.

Looking ahead to the fourth quarter, the company expects adjusted earnings of about $0.90 per share on projected quarterly revenues of about $400 million. Analysts project earnings of $1.04 per share for the quarter, on revenues of $417.71 million.

For fiscal 2014, Mentor Graphics continues to project adjusted earnings of about $1.59 per share on annual revenues of about $1.155 billion. Street is currently looking for full-year 2014 earnings of $1.59 per share on revenues of $1.16 billion.

"As a result of rigorous expense control, the fiscal year 2014 non-GAAP earnings growth rate is expected to be double the revenue growth rate and we are on track to achieve our 20% non-GAAP operating margin target. We see our technology, products and market positions stronger now than at the beginning of the year. We look to next year with optimism," President Gregory Hinckley stated.

MENT closed Thursday's regular trading session at $21.70, up $0.22 or 1.02% on a volume of 1.02 million shares. However, the stock lost $0.50 or 2.30% in after-hours trading.