WILSONVILLE, Ore., December 3, 2002 - Mentor Graphics Corporation (Nasdaq: MENT) today provided guidance for 2003. The following guidance reflects the addition of all acquisitions done in 2002. Guidance gross margin and expense numbers exclude amortization of intangibles and special charges.
Outlook for 2003
Mentor bookings are expected to grow almost 20 percent in 2003. Half of that growth is expected to be a result of acquisitions made in 2002, IKOS® emulation in particular, and the other half organic growth, led by the Calibre® product family. We expect to build significant backlog in 2003 and anticipate closing the year with a very healthy book-to-bill. As a result, revenue growth should once again be less than bookings growth as we seek to improve business predictability.
Revenues are anticipated to reach approximately $660 million, split 23-24 percent in Q1, 24-25 percent in Q2, approximately 24 percent in Q3, and the balance in Q4. Revenue strength is expected to be greatest in emulation and customer support as the strength in software is taken to backlog.
Gross margin before amortization of intangibles is expected to average 83.5 percent, across the entire year, benefiting from reduced emulation inventory reserves and a substantial improvement in Mentor Consulting. Consulting is targeted to breakeven, up from a large loss in 2002. We expect gross margin to be in the range of 82 percent in Q1, 83-84 percent in Q2 and 83 percent in Q3.
Operating expense before amortization of intangibles is expected to increase proportionately to revenues, up 10 percent, of which about half should relate to 2002 acquisitions and half relate to variable employee compensation. Headcount at the end of 2003 should be modestly less than 3,500 compared to a peak at Q2'02 of 3,730. We enter the year with first quarter operating expense of $120 million which is expected to increase sequentially at between 2 to 3 percent a quarter.
Other income and expense (OI&E) is expected to be an expense of about $10 million due primarily to interest paid on outstanding convertible debt. The projected tax rate remains at 20 percent and diluted shares should increase slightly to 69 million.
Outlook for the fourth quarter of 2002 revenues and operating expense remains unchanged. We would like to supplement our previous statement regarding the fourth quarter tax provision. Our expected tax provision for Q4 on a GAAP basis remains $2.4 million, but on an earnings before goodwill (EBG) basis we believe a 20% tax rate, consistent with our GAAP tax rate in 2001 and anticipated for 2003, is appropriate.
Mentor Graphics Corporation (Nasdaq: MENT) is a world leader in electronic hardware and software design solutions, providing products, consulting services and award-winning support for the world's most successful electronics and semiconductor companies. Established in 1981, the company reported revenues over the last 12 months of about $600 million and employs approximately 3,700 people worldwide. Corporate headquarters are located at 8005 S.W. Boeckman Road, Wilsonville, Oregon 97070-7777; Silicon Valley headquarters are located at 1001 Ridder Park Drive, San Jose, California 95131-2314. World Wide Web site: www.mentor.com.