Magma Reports Financial Results for Fourth Quarter and Fiscal Year 200

    Business Editors/High-Tech Writers

    SANTA CLARA, Calif.--(BUSINESS WIRE)--April 28, 2005--Magma Design Automation Inc. (Nasdaq:LAVA), a provider of semiconductor design software, today announced financial results for its fourth quarter and fiscal year ended March 31, 2005.

    Fourth Quarter Results

    For the fourth quarter, Magma reported revenue of $35.7 million, compared to $34.0 million for the year-ago fourth quarter ended March 31, 2004, an increase of 5 percent. In accordance with generally accepted accounting principles (GAAP), Magma reported a net loss of $(5.6 million), or $(0.16) per share (basic and diluted), for the quarter, compared to net income of $4.2 million, or $0.10 per share (diluted), for the fourth quarter ended March 31, 2004.
    Magma reported pro forma net income for the fourth quarter of fiscal 2005 of $3.2 million, or $0.08 per share (diluted). This compares to a pro forma net income of $7.2 million, or $0.17 per share (diluted), for the fourth quarter of fiscal 2004. Pro forma net income for the fourth quarter of fiscal 2005 reflects reported net income excluding the effects of amortization of developed technology, amortization of intangibles, amortization of deferred stock-based compensation, gain in equity investments and assets write off, miscellaneous marketing and other loss contingency and tax effect of non-GAAP adjustments. Pro forma net income for the fourth quarter of fiscal 2004 excludes the effects of amortization of developed technology, amortization of intangibles, amortization of deferred stock-based compensation, consolidation of an equity investment, and charges associated with losses in equity investments. A reconciliation of our pro forma results to GAAP results is included in this press release.

    Fiscal Year 2005 Results

    For the fiscal year ended March 31, 2005, Magma reported revenue of $145.9 million, compared to $113.7 million for the fiscal year ended March 31, 2004, an increase of 28 percent. In accordance with GAAP, Magma reported net loss of $(8.6) million, or $(0.25) per share (basic and diluted), for the recently completed fiscal year, compared to net income of $11.5 million, or $0.29 per share (diluted), for the fiscal year ended March 31, 2004.
    Magma reported pro forma net income of $26.9 million, or $0.64 per share (diluted), for the fiscal year ended March 31, 2005. This compares to pro forma net income of $25.0 million, or $0.62 per share (diluted), for the fiscal year ended March 31, 2004. Pro forma net income for the year ended March 31, 2005 excludes the effects of amortization of developed technology, amortization of intangibles, in-process research and development, amortization of deferred stock-based compensation, miscellaneous restructuring, marketing expenses and other loss contingency, charges associated with loss in equity investments and asset write off. Pro forma net income for the year ended March 31, 2004 excludes the effects of amortization of developed technology, amortization of intangibles, in-process research and development, consolidation of an equity investment, amortization of deferred stock-based compensation and charges associated with loss in equity investments. A reconciliation of the pro forma to GAAP results is included in this press release.
    "The year we just completed included many highlights for Magma," said Rajeev Madhavan, chairman and CEO of Magma. "Our fiscal 2005 revenue was another annual record and our bookings in the most recent quarter were also the best in Magma history. With the work our product teams have put into our Cobra development project, we're looking forward to even greater accomplishments in fiscal 2006."

    Business Outlook

    For Magma's fiscal 2006 first quarter, ending July 3, 2005, the company expects total revenue in the range of $35 million to $39 million. Pro forma EPS is expected to be in the range of $0.06 to $0.10, and GAAP net loss is expected to be in the range of $(0.13) to $(.09). A schedule showing a reconciliation of the projected pro forma EPS to GAAP projections is included in this release. A Financial Data Supplement containing detailed financial information intended to provide guidance and further insight into our business is available online at http://investor.magma-da.com/supplement.cfm in the Investor Relations section of the Magma website.

    Conference Call

    Magma will discuss the financial results for the recently completed quarter and fiscal year, including guidance going forward, during a live webcast and earnings call today at 2 p.m. PDT (5 p.m. EDT). The call will be 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/home.cfm. To listen live via telephone call either of the numbers below:

    U.S. & Canada: (800) 661-8947, conference ID #5386655

    Elsewhere: (706) 634-2358, conference ID #5386655

    Following completion of the call, a webcast replay of the call will be available at http://investor.magma-da.com/home.cfm through May 5, 2005. Those without Internet access may listen to a replay of the call by telephone through May 5 by calling:

    U.S. & Canada: (800) 642-1687, conference ID #5386655

    Elsewhere: (706) 645-9291, conference ID #5386655

    Pro Forma Information

    Magma provides pro forma data to assist investors seeking to understand the Magma's financial performance and prospects. Magma believes that this pro forma information provides useful information to investors by excluding the effect of expenses that are required to be recorded under GAAP that Magma does not believe are indicative of Magma's core operating results. In addition, because Magma has historically provided pro forma results to the investment community, Magma believes that including this information provides consistency in its financial reporting. Magma's pro forma data is not prepared in accordance with, or as an alternative to, GAAP information, and it may be materially different from pro forma measures that are used by other companies. These pro forma results should be considered supplemental to, and not a substitute for or superior to, Magma's results prepared in accordance with GAAP, which are included in its press release.

    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 statements regarding our Cobra development project and expectations for 2005. 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: competition in the EDA market; 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; any delay of customer orders or failure of customers to renew licenses; weaker-than-anticipated sales of Magma's products and services; weakness in the semiconductor or electronic systems industries; 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). Magma undertakes no additional obligation to update these forward-looking statements.

    About Magma

    Magma provides leading software for designing highly complex integrated circuits while maximizing Quality of Results with respect to area, timing and power, and at the same time reducing overall design cycles and costs. Magma provides a complete RTL-to-GDSII design flow that includes prototyping, synthesis, place & route, and signal and power integrity chip design capabilities, capacitance extraction, design For test (DFT), physical verification (DRC/LVS), static and statistical timing analysis and characterization and modeling in a single executable, offering "The Fastest Path from RTL to Silicon"(TM). Magma's software also includes products for advanced logical, physical synthesis and architecture development tools for programmable logic devices (PLDs), FPGAs and Structured ASICs; capacitance extraction; and characterization and modeling. The company's stock trades on Nasdaq under the ticker symbol LAVA. Visit Magma Design Automation on the Web at www.magma-da.com.

    Magma is a registered trademark and "The Fastest Path from RTL 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)

March 31, March 31, 2005 2004 ------------ -----------

ASSETS Current assets: Cash and cash equivalents $20,622 $72,684 Restricted cash 2,950 2,662 Short-term investments 114,896 -- Accounts receivable, net 33,851 34,237 Prepaid expenses and other current assets 7,087 9,588 ------------ ----------- Total current assets 179,406 119,171 Property and equipment, net 21,310 15,196 Long term marketable investments -- 78,158 Intangibles, net 69,573 62,793 Goodwill 43,194 33,529 Other assets 5,741 5,628 ------------ ----------- Total assets $319,224 $314,475 ============ ===========

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $3,010 $1,658 Accrued expenses 22,321 19,132 Deferred revenue, current 20,745 19,947 ------------ ----------- Total current liabilities 46,076 40,737

Convertible subordinated notes 150,000 150,000 Deferred tax -- 5,102 Other long-term liabilities 1,749 897 ------------ ----------- Total non-current liabilities 151,749 155,999 ------------ ----------- Total liabilities 197,825 196,736 ------------ -----------

Stockholders' equity: Common stock 4 3 Additional paid-in capital 261,627 226,586 Deferred stock-based compensation (5,749) (718) Accumulated deficit (115,643) (107,063) Treasury stock at cost (16,606) -- Accumulated other comprehensive loss (2,234) (1,069) ------------ ----------- Total stockholders' equity 121,399 117,739 ------------ ----------- Total liabilities and stockholders' equity $319,224 $314,475 ============ ===========

MAGMA DESIGN AUTOMATION, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS IMPACT OF PRO FORMA ADJUSTMENTS ON REPORTED NET INCOME (in thousands, except per share data) (Unaudited)

For the Three Months Ended March 31, 2005 ------------------------------------- As Reported Adjust- As ments Adjusted ------------- ---------- --------- Revenue: Licenses $30,165 $-- $30,165 Services 5,512 5,512 ------------- ---------- --------- Total revenue 35,677 35,677

Cost of revenue 6,084 (2,007)A,D 4,077 ------------- ---------- --------- Gross profit 29,593 2,007 31,600 ------------- ---------- --------- Operating expenses: Research and development 11,399 (739)C,D 10,660 Sales and marketing 10,665 155 B 10,820 General and administrative 6,127 (125)B 6,002 Amortization of intangible assets 4,763 (4,763)C -- Amortization of stock-based compensation 944 (944)D -- ------------- ---------- --------- Total operating expenses 33,898 (6,416) 27,482 ------------- ---------- --------- Operating income (loss) (4,305) 8,423 4,118 ------------- ---------- ---------

Interest and other income (expense): Interest income 627 -- 627 Interest expense (250) -- (250) Other income (expense), net (624) 102 E (522) ------------- ---------- --------- Total interest and other income (expense), net (247) 102 (145) ------------- ---------- --------- Net income (loss) before income taxes (4,552) 8,525 3,973 Provision for income taxes (1,061) 246 G (815) ------------- ---------- --------- Net income (loss) $(5,613) $8,771 $3,158 ============= ========== ========= Net income (loss) per share - basic $ (0.16) $ 0.09 ============= ========= Net income (loss) per share - diluted(1) $ (0.16) $ 0.08 ============= ========= Shares used in calculation: Basic 34,329 34,329 ============= ========= Diluted(1) 34,329 41,767 ============= =========

For the Three Months Ended March 31, 2004 ------------------------------------- As Reported Adjust- As ments Adjusted ------------- ---------- --------- Revenue: Licenses $29,560 $-- $29,560 Services 4,487 -- 4,487 ------------- ---------- --------- Total revenue 34,047 -- 34,047

Cost of revenue 4,768 (1,124)A,D 3,644 ------------- ---------- --------- Gross profit 29,279 1,124 30,403 ------------- ---------- --------- Operating expenses: Research and development 7,560 (85)H 7,475 Sales and marketing 11,532 -- 11,532 General and administrative 3,551 -- 3,551 Amortization of intangible assets 1,161 (1,161)C -- Amortization of stock-based compensation 429 (429)D -- ------------- ---------- --------- Total operating expenses 24,233 (1,675) 22,558 ------------- ---------- --------- Operating income (loss) 5,046 2,799 7,845 ------------- ---------- ---------

Interest and other income (expense): Interest income 650 -- 650 Interest expense (339) -- (339) Other income (expense), net (145) 127 E (18) ------------- ---------- --------- Total interest and other income (expense), net 166 127 293 ------------- ---------- --------- Net income (loss) before income taxes 5,212 2,926 8,138 Provision for income taxes (986) -- (986) ------------- ---------- --------- Net income (loss) $4,226 $2,926 $7,152 ============= ========== ========= Net income (loss) per share - basic $ 0.13 $ 0.22 ============= ========= Net income (loss) per share - diluted(1) $ 0.10 $ 0.17 ============= ========= Shares used in calculation: Basic 32,910 32,910 ============= ========= Diluted(1) 42,664 42,664 ============= =========

A Amortization of developed technology B Miscellaneous marketing and other loss contingency C Amortization of intangibles D Amortization of deferred stock-based compensation E Gain/Loss on equity investments and assets write off G Tax effect of non-GAAP adjustments H Consolidation of equity investments

(1) Gives effect to the potential issuance of common stock upon conversion of convertible subordinated notes 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. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS IMPACT OF PRO FORMA ADJUSTMENTS ON REPORTED NET INCOME (in thousands, except per share data) (Unaudited)

For the Year Ended March 31, 2005 ------------------------------------- As Reported Adjust- As ments Adjusted ------------- ---------- --------- Revenue: Licenses $123,995 $-- $123,995 Services 21,945 -- 21,945 ------------- ---------- --------- Total revenue 145,940 145,940

Cost of revenue 22,215 (6,374)A,D 15,841 ------------- ---------- --------- Gross profit 123,725 6,374 130,099 ------------- ---------- --------- Operating expenses: Research and development 41,715 (3,582)C,D 38,133 Sales and marketing 44,654 47 B 44,701 General and administrative 17,783 (125)B 17,658 Restructuring costs 698 (698)B -- In-process research and development 4,364 (4,364)F -- Amortization of intangible assets 18,011 (18,011)C -- Amortization of stock-based compensation 1,880 (1,880)D -- ------------- ---------- --------- Total operating expenses 129,105 (28,613) 100,492 ------------- ---------- --------- Operating income (loss) (5,380) 34,987 29,607 ------------- ---------- ---------

Interest and other income (expense): Interest income 2,287 -- 2,287 Interest expense (996) -- (996) Other income (expense), net (1,355) 1,118 E (237) ------------- ---------- --------- Total interest and other income (expense), net (64) 1,118 1,054 ------------- ---------- --------- Net income (loss) before income taxes (5,444) 36,105 30,661 Provision for income taxes (3,136) (622)G (3,758) ------------- ---------- --------- Net income (loss) $(8,580) $35,483 $26,903 ============= ========== ========= Net income (loss) per share - basic $ (0.25) $ 0.79 ============= ========= Net income (loss) per share - diluted(1) $ (0.25) $ 0.64 ============= ========= Shares used in calculation: Basic 33,861 33,861 ============= ========= Diluted(1) 33,861 42,156 ============= =========

For the Year Ended March 31, 2004 ------------------------------------- As Reported Adjust- As ments Adjusted ------------- ---------- --------- Revenue: Licenses $100,387 $-- $100,387 Services 13,342 -- 13,342 ------------- ---------- --------- Total revenue 113,729 -- 113,729

Cost of revenue 16,647 (2,824)A,D 13,823 ------------- ---------- --------- Gross profit 97,082 2,824 99,906 ------------- ---------- --------- Operating expenses: Research and development 26,097 (444)H 25,653 Sales and marketing 36,973 -- 36,973 General and administrative 11,348 -- 11,348 Restructuring costs -- -- -- In-process research and development 200 (200)F -- Amortization of intangible assets 1,745 (1,745)C -- Amortization of stock-based compensation 7,086 (7,086)D -- ------------- ---------- --------- Total operating expenses 83,449 (9,475) 73,974 ------------- ---------- --------- Operating income (loss) 13,633 12,299 25,932 ------------- ---------- ---------

Interest and other income (expense): Interest income 2,584 -- 2,584 Interest expense (1,066) -- (1,066) Other income (expense), net (100) 1,228 E 1,128 ------------- ---------- --------- Total interest and other income (expense), net 1,418 1,228 2,646 ------------- ---------- --------- Net income (loss) before income taxes 15,051 13,527 28,578 Provision for income taxes (3,576) -- (3,576) ------------- ---------- --------- Net income (loss) $11,475 $13,527 $25,002 ============= ========== ========= Net income (loss) per share - basic $ 0.36 $ 0.79 ============= ========= Net income (loss) per share - diluted(1) $ 0.29 $ 0.62 ============= ========= Shares used in calculation: Basic 31,648 31,648 ============= ========= Diluted(1) 40,245 40,245 ============= =========

A Amortization of developed technology B Miscellaneous restructuring, marketing and other loss contingency C Amortization of intangibles D Amortization of deferred stock-based compensation E Gain/Loss on equity investments and assets write off F In-process research and development G Tax effect of non-GAAP adjustments H Consolidation of equity investments

(1) Gives effect to the potential issuance of common stock upon conversion of convertible subordinated notes 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 MARCH 31, 2005 IMPACT OF KNOWN PRO FORMA ADJUSTMENTS ON FORWARD-LOOKING DILUTED NET INCOME PER SHARE (Unaudited)

Quarter Ending July 3, 2005

GAAP diluted net loss per share $ (0.13) to $ (0.09) Amortization of developed technology and intangibles $0.17 Amortization of deferred stock-based compensation $0.02

Pro forma diluted net income per share $0.06 to $0.10

--30--KC/sf*

CONTACT: Magma Design Automation Inc. Monica Marmie, 408-565-7689 (Marketing Communications Manager) monical@magma-da.com Milan G. Lazich, 408-565-7706 (Vice President, Corporate Marketing) milan.lazich@magma-da.com

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: HARDWARE COMPUTERS/ELECTRONICS TELECOMMUNICATIONS SOFTWARE NETWORKING EARNINGS CONFERENCE CALLS EDA SOURCE: Magma Design Automation Inc.

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