Magma Reports Record Revenue and EPS for Third Quarter; Revenue of $37

    Business Editors/High-Tech Writers

    SANTA CLARA, Calif.--(BUSINESS WIRE)--Jan. 27, 2005--Magma Design Automation Inc. (Nasdaq:LAVA), a provider of chip design solutions, today announced financial results for its fiscal 2005 third quarter, ended Dec. 31, 2004.
    Magma reported record revenue of $37.3 million for the quarter, compared to $31.1 million for the quarter ended Dec. 31, 2003, an increase of 20 percent.
    In accordance with generally accepted accounting principles (GAAP), Magma reported a net loss for the quarter of $(0.7) million, or $(0.02) per share (basic and diluted), compared to net income of $3.8 million, or $0.09 per share (diluted), for the quarter ended Dec. 31, 2003. Magma also reported record pro forma net income of $8.4 million and record pro forma earnings per share (EPS) of $0.20 (diluted) for the third quarter of fiscal 2005, compared to pro forma net income of $6.9 million and pro forma EPS of $0.16 (diluted) for the third quarter of fiscal 2004, an increase of 22 percent. Pro forma net income excludes amortization of developed technology, miscellaneous restructuring and marketing expenses, amortization of intangibles, amortization of deferred stock compensation, impairment of investment, in-process research and development charges and tax effects of pro forma adjustments.
    For the nine-month period ended Dec. 31, 2004, Magma reported revenue of $110.3 million, compared to $79.7 million for the nine-month period ended Dec. 31, 2003, an increase of 38 percent. In accordance with GAAP, Magma reported net loss for the recently completed nine-month period of $(3.0) million, or $(0.09) per share (basic and diluted), compared to net income of $7.2 million, or $0.18 per share (diluted), for the nine-month period ended Dec. 31, 2003. Magma reported pro forma net income of $23.7 million, or $0.56 per share (diluted), for the nine-month period ended Dec. 31, 2004. This compares to pro forma net income of $18.1 million, or $0.44 per share (diluted), for the nine-month period ended Dec. 31, 2003, an increase of 31 percent.
    Magma provides pro forma financial information to assist investors in understanding the company's operating results and business trends. Pro forma financial data is not prepared in accordance with GAAP, and should not be viewed as an alternative to GAAP financial information. Our pro forma financial data may be materially different from pro forma measures used by other companies.
    A reconciliation of our pro forma financial information to the most closely comparable GAAP financial measures is included in this press release.
    "Our third quarter continued Magma's growth in revenue for the ninth consecutive quarter," said Rajeev Madhavan, chairman and CEO of Magma. "During the next several quarters we expect to announce new products that will further enhance our leadership over our competitors and enable us to continue that growth."

    Business Outlook

    Magma's performance in terms of orders, revenue and EPS in its quarter ended Dec. 31, 2004 was within the target ranges established during Magma's Oct. 28, 2004 earnings call. For Magma's fiscal 2005 fourth quarter, ending March 31, 2005, the company expects total revenue in the range of $39 million to $42 million, pro forma EPS in the range of $0.18 to $0.22 and GAAP EPS in the range of $0.00 to $0.04. A schedule showing a reconciliation of the pro forma business outlook to GAAP outlook is included in this release.
    Consistent with company practice of providing financial guidance at the time of each quarterly earnings announcement, Chief Financial Officer Greg Walker will discuss Magma's business outlook during the company's live earnings call at 1:30 p.m. PST today. More detailed information on the company's business outlook is available in the "Financial Disclosure Supplement" document available in the Investor Relations section of the Magma website at http://investor.magma-da.com/home.cfm.
    The business outlook targets set forth in this press release and on Magma's website represent the company's expectations only as of the date of publication and should not be viewed as a statement about Magma's expectations after this date. Although this information will remain available on Magma's website for reference purposes, its continued availability does not indicate that the company is reaffirming or confirming its continued validity. By publishing this guidance, Magma has not assumed any additional obligation to update this information on any date after its publication today.

    Conference Call

    Magma will discuss the financial results for the recently completed quarter, including guidance going forward, during a live earnings call today at 1:30 p.m. PST (4:30 p.m. EST). 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 #3274289
    Elsewhere: (706) 634-2358, conference ID #3274289

    Following completion of the call, a webcast replay of the call will be available at http://investor.magma-da.com/home.cfm through Feb. 3, 2005. Those without Internet access may listen to a replay of the call by telephone through Feb. 3 by calling:

    U.S. & Canada: (800) 642-1687, conference ID #3274289
    Elsewhere: (706) 645-9291, conference ID #3274289

    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, which include statements in the "Business Outlook" section and quotations from Magma's executives, 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: increasing competition in the EDA market; higher-than-anticipated costs in connection with recent patent litigation with Synopsys; Magma's ability to successfully integrate recently acquired businesses and technologies; the impact of economic slowdown in our customers' markets; any delay of customer orders or failure of customers to renew licenses; weaker-than-anticipated sales of the company's products and services; difficulties managing the company's expanding operations; the ability to continue to deliver competitive products to customers to help them get their products to market; 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 in a single executable, offering "The Fastest Path from RTL to Silicon"(TM). Magma's software also includes products for advanced physical synthesis and architecture development tools for programmable logic devices (PLDs); 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)

December 31, March 31, 2004 2004 ------------ ------------

ASSETS Current assets: Cash and cash equivalents $28,201 $72,684 Restricted cash 4,044 2,662 Short-term investments 8,994 - Accounts receivable, net 31,761 34,237 Prepaid expenses and other current assets 7,457 9,588 ------------ ------------ Total current assets 80,457 119,171 Property and equipment, net 22,169 15,196 Intangibles, net 75,132 62,793 Goodwill 41,500 33,529 Long-term investments 88,793 78,158 Other assets 6,941 5,628 ------------ ------------ Total assets $314,992 $314,475 ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $1,979 $1,658 Accrued expenses 19,941 19,132 Deferred revenue, current 18,982 19,947 ------------ ------------ Total current liabilities 40,902 40,737

Convertible subordinated notes 150,000 150,000 Deferred tax liabilities - 5,102 Other long-term liabilities 2,047 897 ------------ ------------ Total non-current liabilities 152,047 155,999 ------------ ------------ Total liabilities 192,949 196,736 ------------ ------------

Stockholders' equity: Common stock 3 3 Additional paid-in capital 235,122 226,586 Deferred stock-based compensation (692) (718) Accumulated deficit (110,030) (107,063) Accumulated other comprehensive loss (2,360) (1,069) ------------ ------------ Total stockholders' equity 122,043 117,739 ------------ ------------ Total liabilities and stockholders' equity $314,992 $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 December 31, 2004 -------------------------------------- As Reported Adjustments As Adjusted ------------ ------------ ------------ Revenue: Licenses $31,663 $- $31,663 Services 5,643 - 5,643 ------------ ------------ ------------ Total revenue 37,306 - 37,306 Cost of revenue 5,579 (1,623)A,D 3,956 ------------ ------------ ------------ Gross profit 31,727 1,623 33,350 ------------ ------------ ------------ Operating expenses: Research and development 10,223 (1,161)C,D 9,062 In-process research and development 355 (355)F - Sales and marketing 11,043 236 B 11,279 General and administrative 4,576 4,576 Amortization of intangible assets 4,680 (4,680)C - Amortization of stock-based compensation 362 (362)D - Restructuring charge 259 (259)B - ------------ ------------ ------------ Total operating expenses 31,498 (6,581) 24,917 ------------ ------------ ------------ Operating income 229 8,204 8,433 ------------ ------------ ------------ Interest and other income, net: Interest income 551 551 Interest expense (249) (249) Other income, net 473 352 E 825 ------------ ------------ ------------ Interest and other income, net 775 352 1,127 ------------ ------------ ------------ Income before income taxes 1,004 8,556 9,560 Income tax provision (1,723) 566 G (1,157) ------------ ------------ ------------ Net income (loss) $(719) $9,122 $8,403 ============ ============ ============ Earnings (net loss) per share -- basic $(0.02) $0.25 ============ ============ Earnings (net loss) per share -- diluted $(0.02) $0.20 ============ ============ Shares used in calculation: Basic 33,829 33,829 ============ ============ Diluted 33,829 41,749 ============ ============

For the Three Months Ended December 31, 2003 -------------------------------------- As Reported Adjustments As Adjusted ------------ ------------ ------------ Revenue: Licenses $27,472 $- $27,472 Services 3,580 - 3,580 ------------ ------------ ------------ Total revenue 31,052 31,052 Cost of revenue 4,741 (1,029)A,D 3,712 ------------ ------------ ------------ Gross profit 26,311 1,029 27,340 ------------ ------------ ------------ Operating expenses: Research and development 7,510 (157)C,D 7,353 In-process research and development 200 (200)F - Sales and marketing 10,038 10,038 General and administrative 2,961 2,961 Amortization of intangible assets 584 (584)C - Amortization of stock-based compensation 923 (923)D - Restructuring charge - - ------------ ------------ ------------ Total operating expenses 22,216 (1,864) 20,352 ------------ ------------ ------------ Operating income 4,095 2,893 6,988 ------------ ------------ ------------ Interest and other income, net: Interest income 691 691 Interest expense (404) (404) Other income, net 379 278 E 657 ------------ ------------ ------------ Interest and other income, net 666 278 944 ------------ ------------ ------------ Income before income taxes 4,761 3,171 7,932 Income tax provision (1,000) (1,000) ------------ ------------ ------------ Net income $3,761 $3,171 $6,932 ============ ============ ============ Earnings per share -- basic $0.12 $0.22 ============ ============ Earnings per share -- diluted $0.09 $0.16 ============ ============ Shares used in calculation: Basic 32,184 32,184 ============ ============ Diluted 42,035 42,035 ============ ============

A Amortization of developed technology B Miscellaneous restructuring and marketing expenses C Amortization of intangibles D Amortization of deferred stock-based compensation E Impairment of investments F In-process research and development charges G Tax effect of pro forma adjustments

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 Nine Months Ended December 31, 2004 -------------------------------------- As Reported Adjustments As Adjusted ------------ ------------ ------------ Revenue: Licenses $93,830 $- $93,830 Services 16,433 - 16,433 ------------ ------------ ------------ Total revenue 110,263 - 110,263 Cost of revenue 16,131 (4,367)A,D 11,764 ------------ ------------ ------------ Gross profit 94,132 4,367 98,499 ------------ ------------ ------------ Operating expenses: Research and development 30,316 (2,843)C,D 27,473 In-process research and development 4,364 (4,364)F - Sales and marketing 33,989 (108)B 33,881 General and administrative 11,656 11,656 Amortization of intangible assets 13,248 (13,248)C - Amortization of stock-based compensation 936 (936)D - Restructuring charge 698 (698)B - ------------ ------------ ------------ Total operating expenses 95,207 (22,197) 73,010 ------------ ------------ ------------ Operating income (1,075) 26,564 25,489 ------------ ------------ ------------ Interest and other income (expense): Interest income 1,660 1,660 Interest expense (746) (746) Other income (expense), net (731) 1,016 E 285 ------------ ------------ ------------ Interest and other income, net 183 1,016 1,199 ------------ ------------ ------------ Income before income taxes (892) 27,580 26,688 Income tax provision (2,075) (867)G (2,942) ------------ ------------ ------------ Net income (loss) $(2,967) $26,713 $23,746 ============ ============ ============ Earnings (net loss) per share -- basic $(0.09) $0.70 ============ ============ Earnings (net loss) per share -- diluted $(0.09) $0.56 ============ ============ Shares used in calculation: Basic 33,742 33,742 ============ ============ Diluted 33,742 42,317 ============ ============

For the Nine Months Ended December 31, 2003 ------------------------------------- As Reported Adjustments As Adjusted ------------ ------------ ----------- Revenue: Licenses $70,826 $- $70,826 Services 8,856 - 8,856 ------------ ------------ ----------- Total revenue 79,682 79,682 Cost of revenue 11,879 (1,917)A,D 9,962 ------------ ------------ ----------- Gross profit 67,803 1,917 69,720 ------------ ------------ ----------- Operating expenses: Research and development 18,537 (358)C,D 18,179 In-process research and development 200 (200)F - Sales and marketing 25,441 25,441 General and administrative 7,798 7,798 Amortization of intangible assets 584 (584)C - Amortization of stock-based compensation 6,656 (6,656)D - Restructuring charge - - ------------ ------------ ----------- Total operating expenses 59,216 (7,798) 51,418 ------------ ------------ ----------- Operating income 8,587 9,715 18,302 ------------ ------------ ----------- Interest and other income (expense): Interest income 1,934 1,934 Interest expense (727) (727) Other income (expense), net 45 1,100 E 1,145 ------------ ------------ ----------- Interest and other income, net 1,252 1,100 2,352 ------------ ------------ ----------- Income before income taxes 9,839 10,815 20,654 Income tax provision (2,590) (2,590) ------------ ------------ ----------- Net income $7,249 $10,815 $18,064 ============ ============ =========== Earnings per share -- basic $0.23 $0.57 ============ =========== Earnings per share -- diluted $0.18 $0.44 ============ =========== Shares used in calculation: Basic 31,438 31,438 ============ =========== Diluted 41,075 41,075 ============ ===========

A Amortization of developed technology B Miscellaneous restructuring and marketing expenses C Amortization of intangibles D Amortization of deferred stock-based compensation E Impairment of investments F In-process research and development charges G Tax effect of pro forma adjustments

MAGMA DESIGN AUTOMATION, INC. AS OF DECEMBER 31, 2004 IMPACT OF PRO FORMA ADJUSTMENTS ON FORWARD-LOOKING DILUTED NET INCOME (LOSS) PER SHARE (Unaudited)

Quarter Ending March 31, 2005

GAAP diluted net income per share $0.00 to $0.04 Amortization of intangibles $0.01 Amortization of acquired technology $0.16 Amortization of deferred stock compensation $0.01

Pro Forma diluted net income per share $0.18 to $0.22

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CONTACT: Magma Design Automation Inc. Milan G. Lazich, 408-565-7706 milan.lazich@magma-da.com

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

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