Cadence Reports Second Quarter 2019 Financial Results

Cadence expects that its corporate representatives will meet privately during the quarter with investors, the media, investment analysts and others. At these meetings, Cadence may reiterate the business outlook published in this press release. At the same time, Cadence will keep this press release, including the business outlook, publicly available on its website.

Prior to the start of the Quiet Period (described below), the public may continue to rely on the business outlook contained herein as still being Cadence’s current expectations on matters covered unless Cadence publishes a notice stating otherwise.

Beginning September 13, 2019, Cadence will observe a Quiet Period during which the business outlook as provided in this press release and the most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q no longer constitute Cadence’s current expectations. During the Quiet Period, the business outlook in these documents should be considered historical, speaking as of prior to the Quiet Period only and not subject to any update by Cadence. During the Quiet Period, Cadence’s representatives will not comment on Cadence’s business outlook, financial results or expectations. The Quiet Period will extend until Cadence’s third quarter 2019 earnings release is published, which is currently scheduled for October 21, 2019.

 
Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
June 29, 2019 and December 29, 2018
(In thousands)
(Unaudited)
 
June 29, 2019 December 29, 2018
 
Current assets:
Cash and cash equivalents

$

633,415

$

533,298

Receivables, net of allowances of $1,149 and $3,936, respectively

 

237,609

 

297,082

Inventories

 

49,299

 

28,162

Prepaid expenses and other

 

58,918

 

92,550

Total current assets

 

979,241

 

951,092

 
Property, plant and equipment, net of accumulated depreciation of $719,785 and $698,493, respectively

 

257,882

 

252,630

Goodwill

 

662,713

 

662,272

Acquired intangibles, net of accumulated amortization of $338,855 and $333,687, respectively

 

197,840

 

225,457

Long-term receivables

 

2,140

 

5,972

Other assets

 

512,509

 

371,231

Total assets

$

2,612,325

$

2,468,654

 
Current liabilities:
Revolving credit facility

$

-

$

100,000

Accounts payable and accrued liabilities

 

246,591

 

256,526

Current portion of deferred revenue

 

363,592

 

352,456

Total current liabilities

 

610,183

 

708,982

 
Long-term liabilities:
Long-term portion of deferred revenue

 

57,280

 

48,718

Long-term debt

 

345,652

 

345,291

Other long-term liabilities

 

168,665

 

77,262

Total long-term liabilities

 

571,597

 

471,271

 
Stockholders' equity

 

1,430,545

 

1,288,401

Total liabilities and stockholders' equity

$

2,612,325

$

2,468,654

 
Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Six Months Ended June 29, 2019 and June 30, 2018
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended Six Months Ended
June 29, 2019 June 30, 2018 June 29, 2019 June 30, 2018
 
Revenue:
Product and maintenance

$

548,028

$

487,870

$

1,091,546

$

968,479

Services

 

32,391

 

30,521

 

65,615

 

67,225

 
Total revenue

 

580,419

 

518,391

 

1,157,161

 

1,035,704

 
Costs and expenses:
Cost of product and maintenance

 

43,388

 

40,127

 

93,910

 

81,857

Cost of services

 

18,081

 

18,833

 

38,144

 

40,312

Marketing and sales

 

116,208

 

109,300

 

233,038

 

218,448

Research and development

 

231,814

 

219,129

 

460,024

 

443,314

General and administrative

 

34,407

 

34,875

 

64,509

 

68,174

Amortization of acquired intangibles

 

3,159

 

3,518

 

6,467

 

7,148

Restructuring and other credits

 

(313)

 

(447)

 

(1,002)

 

(2,438)

 
Total costs and expenses

 

446,744

 

425,335

 

895,090

 

856,815

 
Income from operations

 

133,675

 

93,056

 

262,071

 

178,889

 
Interest expense

 

(4,976)

 

(6,669)

 

(10,367)

 

(13,644)

Other income (expense), net

 

(110)

 

3,638

 

5,131

 

2,949

 
Income before provision for income taxes

 

128,589

 

90,025

 

256,835

 

168,194

 
Provision for income taxes

 

21,354

 

14,876

 

29,045

 

20,160

 
Net income

$

107,235

$

75,149

$

227,790

$

148,034

 
 
Net income per share - basic

$

0.39

$

0.27

$

0.83

$

0.54

 
Net income per share - diluted

$

0.38

$

0.27

$

0.81

$

0.53

 
Weighted average common shares outstanding - basic

 

273,159

 

273,564

 

273,155

 

273,703

 
Weighted average common shares outstanding - diluted

 

281,054

 

280,774

 

280,877

 

281,247

 
Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 29, 2019 and June 30, 2018
(In thousands)
(Unaudited)

Six Months Ended

June 29,

 

June 30,

2019

 

2018

 
Cash and cash equivalents at beginning of period

$

533,298

 

$

688,087

 

Cash flows from operating activities:
Net income

 

227,790

 

 

148,034

 

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization

 

61,197

 

 

59,282

 

Amortization of debt discount and fees

 

497

 

 

586

 

Stock-based compensation

 

86,510

 

 

78,857

 

(Gain) loss on investments, net

 

259

 

 

(1,541

)

Deferred income taxes

 

(8,159

)

 

1,664

 

Provisions for losses (recoveries) on receivables

 

(386

)

 

1,015

 

ROU asset amortization and change in operating lease liabilities

 

2,504

 

 

-

 

Other non-cash items

 

160

 

 

(133

)

Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables

 

63,876

 

 

(2,606

)

Inventories

 

(25,689

)

 

1,932

 

Prepaid expenses and other

 

33,055

 

 

13,294

 

Other assets

 

2,547

 

 

5,027

 

Accounts payable and accrued liabilities

 

(34,670

)

 

(11,832

)

Deferred revenue

 

19,707

 

 

71,667

 

Other long-term liabilities

 

2,576

 

 

(2,333

)

Net cash provided by operating activities

 

431,774

 

 

362,913

 

 
Cash flows from investing activities:
Purchases of non-marketable investments

 

(33,717

)

 

-

 

Proceeds from the sale of non-marketable investments

 

2,952

 

 

-

 

Purchases of property, plant and equipment

 

(30,562

)

 

(31,105

)

Cash paid in business combinations

 

(338

)

 

-

 

Net cash used for investing activities

 

(61,665

)

 

(31,105

)

 
Cash flows from financing activities:
Proceeds from revolving credit facility

 

150,000

 

 

-

 

Payment on revolving credit facility

 

(250,000

)

 

(85,000

)

Proceeds from issuance of common stock

 

32,855

 

 

25,656

 

Stock received for payment of employee taxes on vesting of restricted stock

 

(45,698

)

 

(30,125

)

Payments for repurchases of common stock

 

(156,120

)

 

(100,025

)

Change in book overdraft

 

-

 

 

(3,867

)

Net cash used for financing activities

 

(268,963

)

 

(193,361

)

 
Effect of exchange rate changes on cash and cash equivalents

 

(1,029

)

 

(6,994

)

 
Increase in cash and cash equivalents

 

100,117

 

 

131,453

 

 
Cash and cash equivalents at end of period

$

633,415

 

$

819,540

 

 
Cadence Design Systems, Inc.
(Unaudited)
Revenue Mix by Geography (% of Total Revenue)

2018

 

2019

GEOGRAPHY Q1 Q2 Q3 Q4 Year Q1 Q2
 
Americas

45%

46%

44%

44%

45%

44%

42%

China

9%

8%

9%

13%

10%

10%

12%

Other Asia

18%

18%

20%

18%

18%

19%

19%

Europe, Middle East and Africa

20%

20%

19%

17%

19%

18%

20%

Japan

8%

8%

8%

8%

8%

9%

7%

Total

100%

100%

100%

100%

100%

100%

100%

 
Revenue Mix by Product Group (% of Total Revenue)

2018

 

2019

PRODUCT GROUP Q1 Q2 Q3 Q4 Year Q1 Q2
 
Functional Verification, including Emulation and Prototyping Hardware

26%

23%

22%

25%

24%

24%

22%

Digital IC Design and Signoff

30%

30%

30%

28%

29%

30%

31%

Custom IC Design and Simulation

26%

26%

26%

25%

26%

25%

26%

System Interconnect and Analysis

9%

9%

9%

9%

9%

9%

10%

IP

9%

12%

13%

13%

12%

12%

11%

Total

100%

100%

100%

100%

100%

100%

100%

 
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of July 22, 2019
(Unaudited)
 
Three Months Ending Year Ending
September 28, 2019 December 28, 2019
Forecast Forecast
 
GAAP operating margin as a percent of total revenue

~19%

 

21% - 22%

 

 

 

Reconciling items to non-GAAP operating margin as a percent of total revenue:

 

 

 

Amortization of acquired intangibles

2%

 

2%

Stock-based compensation expense

8%

 

8%

Non-qualified deferred compensation expenses

0%

 

0%

Restructuring and other charges (credits)

0%

 

0%

Acquisition and integration-related costs

1%

 

0%

 

 

 

Non-GAAP operating margin as a percent of total revenue�nbsp;

~30%

 

31% - 32%

�nbsp; The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.
 
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share
As of July 22, 2019
(Unaudited)
 
Three Months Ending Year Ending
September 28, 2019 December 28, 2019
Forecast Forecast
 
Diluted net income per share on a GAAP basis

$0.32 to $0.34

 

$1.44 to $1.50

 

 

 

Amortization of acquired intangibles

0.05

 

0.19

Stock-based compensation expense

0.17

 

0.65

Non-qualified deferred compensation expenses

-

 

0.01

Restructuring and other charges (credits)

-

 

-

Acquisition and integration-related costs

0.01

 

0.02

Other income or expense related to investments and non-qualified deferred compensation plan assets*

-

 

-

Income tax effect of non-GAAP adjustments

(0.05)

 

(0.20)

 
Diluted net income per share on a non-GAAP basis�nbsp; $0.50 to $0.52 $2.11 to $2.17
 
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of July 22, 2019
(Unaudited)
 
Three Months Ending Year Ending
September 28, 2019 December 28, 2019
($ in millions) Forecast Forecast
 
Net income on a GAAP basis

$90 to $96

 

$406 to $423

 

 

 

Amortization of acquired intangibles

13

 

53

Stock-based compensation expense

47

 

182

Non-qualified deferred compensation expenses

-

 

3

Restructuring and other charges (credits)

-

 

(1)

Acquisition and integration-related costs

2

 

6

Other income or expense related to investments and non-qualified deferred compensation plan assets*

1

 

-

Income tax effect of non-GAAP adjustments

(13)

 

(56)

 
Net income on a non-GAAP basis�nbsp; $140 to $146 $593 to $610
 
 
�nbsp; The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.
 
* Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense.
 

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