Cadence Reports Third 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 December 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 fourth quarter 2019 earnings release is published, which is currently scheduled for February 12, 2020.

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
September 28, 2019 and December 29, 2018
(In thousands)
(Unaudited)
 
September 28, 2019 December 29, 2018
 
Current assets:
Cash and cash equivalents

$

655,216

$

533,298

Receivables, net of allowances of $310 and $3,936, respectively

 

274,914

297,082

Inventories

 

66,745

28,162

Prepaid expenses and other

 

53,074

 

92,550

Total current assets

 

1,049,949

 

951,092

 
Property, plant and equipment, net of accumulated depreciation of $730,067 and $698,493, respectively

 

259,453

 

252,630

Goodwill

 

661,678

 

662,272

Acquired intangibles, net of accumulated amortization of $351,619 and $333,687, respectively

 

185,037

 

225,457

Long-term receivables

 

1,204

 

5,972

Other assets

 

504,877

 

371,231

Total assets

$

2,662,198

$

2,468,654

 
Current liabilities:
Revolving credit facility

$

-

$

100,000

Accounts payable and accrued liabilities

 

274,882

 

256,526

Current portion of deferred revenue

 

344,100

 

352,456

Total current liabilities

 

618,982

 

708,982

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

 

48,036

 

48,718

Long-term debt

 

345,833

 

345,291

Other long-term liabilities

 

169,085

 

77,262

Total long-term liabilities

 

562,954

 

471,271

 
Stockholders' equity

1,480,262

 

1,288,401

Total liabilities and stockholders' equity

$

2,662,198

$

2,468,654

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Nine Months Ended September 28, 2019 and September 29, 2018
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended Nine Months Ended
September 28,
2019
September 29,
2018
September 28,
2019
September 29,
2018
 
Revenue:
Product and maintenance

$

548,105

 

$

494,990

 

$

1,639,651

 

$

1,463,469

 

Services

 

31,498

 

37,478

 

 

97,113

 

104,703

 

 
Total revenue

 

579,603

 

 

532,468

 

 

1,736,764

 

1,568,172

 

 
Costs and expenses:
Cost of product and maintenance

 

41,715

 

 

36,406

 

 

135,625

 

118,263

 

Cost of services

19,260

 

 

24,048

 

 

57,404

 

 

64,360

 

Marketing and sales

 

121,368

 

108,608

 

 

354,406

 

327,056

 

Research and development

240,542

 

 

223,231

 

700,566

 

 

666,545

 

General and administrative

33,204

 

33,247

 

97,713

 

 

101,421

 

Amortization of acquired intangibles

2,874

 

3,470

 

 

9,341

 

 

10,618

 

Restructuring and other credits

(186

)

(172

)

 

(1,188

)

 

(2,610

)

 
Total costs and expenses

458,777

 

 

428,838

 

1,353,867

 

1,285,653

 

 
Income from operations

120,826

 

 

103,630

 

 

382,897

 

282,519

 

 
Interest expense

(4,240

)

(5,177

)

 

(14,607

)

(18,821

)

Other income, net

122

 

1,106

 

 

5,253

 

4,055

 

 
Income before provision for income taxes

 

116,708

 

99,559

 

 

373,543

 

267,753

 

 
Provision for income taxes

 

15,194

 

241

 

44,239

 

20,401

 

 
Net income

$

101,514

 

$

99,318

 

$

329,304

 

$

247,352

 

 
 
Net income per share - basic

$

0.37

 

$

0.36

 

$

1.21

 

$

0.90

 

 
Net income per share - diluted

$

0.36

 

$

0.35

 

$

1.17

 

$

0.88

 

 
Weighted average common shares outstanding - basic

273,329

 

 

273,716

 

 

273,224

 

273,718

 

 
Weighted average common shares outstanding - diluted

280,666

 

281,646

 

280,817

 

 

281,391

 

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 28, 2019 and September 29, 2018
(In thousands)
(Unaudited)
 

Nine Months Ended

September 28,

 

September 29,

2019

 

2018

 
Cash and cash equivalents at beginning of period

$

533,298

 

$

688,087

 

Cash flows from operating activities:
Net income

 

329,304

 

 

247,352

 

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

 

91,400

 

 

89,003

 

Amortization of debt discount and fees

 

747

 

 

950

 

Stock-based compensation

 

134,789

 

 

125,121

 

(Gain) loss on investments, net

 

2,655

 

 

(902

)

Deferred income taxes

 

(10,938

)

 

(3,221

)

Provisions for losses (recoveries) on receivables

 

(358

)

 

4,790

 

ROU asset amortization and change in operating lease liabilities

 

4,285

 

 

-

 

Other non-cash items

 

197

 

 

(126

)

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

 

26,553

 

 

(28,471

)

Inventories

 

(43,781

)

 

(1,455

)

Prepaid expenses and other

 

38,703

 

 

2,018

 

Other assets

 

3,554

 

 

1,856

 

Accounts payable and accrued liabilities

 

(4,001

)

 

(41,718

)

Deferred revenue

 

(6,968

)

 

77,370

 

Other long-term liabilities

 

4,163

 

 

300

 

Net cash provided by operating activities

 

570,304

 

 

472,867

 

 
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

 

(47,527

)

 

(41,761

)

Cash paid in business combinations

 

(338

)

 

-

 

Net cash used for investing activities

 

(78,630

)

 

(41,761

)

 
Cash flows from financing activities:
Proceeds from revolving credit facility

 

150,000

 

 

-

 

Payment on revolving credit facility

 

(250,000

)

 

(85,000

)

Principal payments on term loan

 

-

 

 

(300,000

)

Proceeds from issuance of common stock

 

49,127

 

 

38,190

 

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

 

(75,016

)

 

(59,619

)

Payments for repurchases of common stock

 

(231,131

)

 

(150,036

)

Change in book overdraft

 

-

 

 

(3,867

)

Net cash used for financing activities

 

(357,020

)

 

(560,332

)

 
Effect of exchange rate changes on cash and cash equivalents

 

(12,736

)

 

(14,276

)

 
Increase (decrease) in cash and cash equivalents

 

121,918

 

 

(143,502

)

 
Cash and cash equivalents at end of period

$

655,216

 

$

544,585

 

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

2018

 

 

2019

GEOGRAPHY Q1 Q2 Q3 Q4 Year Q1 Q2 Q3
 
Americas

45%

46%

44%

44%

45%

44%

42%

44%

China

9%

8%

9%

13%

10%

10%

12%

10%

Other Asia

18%

18%

20%

18%

18%

19%

19%

21%

Europe, Middle East and Africa

20%

20%

19%

17%

19%

18%

20%

18%

Japan

8%

8%

8%

8%

8%

9%

7%

7%

Total

100%

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 Q3
 
Functional Verification, including Emulation and Prototyping Hardware

26%

23%

22%

25%

24%

24%

22%

20%

Digital IC Design and Signoff

30%

30%

30%

28%

29%

30%

31%

30%

Custom IC Design and Simulation

26%

26%

26%

25%

26%

25%

26%

26%

System Interconnect and Analysis

9%

9%

9%

9%

9%

9%

10%

9%

IP

9%

12%

13%

13%

12%

12%

11%

15%

Total

100%

100%

100%

100%

100%

100%

100%

100%

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of October 21, 2019
(Unaudited)
 

Three Months Ending

 

Year Ending

December 28, 2019

 

December 28, 2019

Forecast

 

Forecast

 

 

 

GAAP operating margin as a percent of total revenue

~20%

 

21.3% - 21.8%

 

 

 

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

 

 

 

Amortization of acquired intangibles

2%

 

2.2%

Stock-based compensation expense

8%

 

7.8%

Non-qualified deferred compensation expenses

0%

 

0.1%

Restructuring and other charges (credits)

0%

 

-0.1%

Acquisition and integration-related costs

0%

 

0.2%

 

 

 

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

~30%

 

31.5% - 32.0%

�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 October 21, 2019
(Unaudited)
 

Three Months Ending

 

Year Ending

December 28, 2019

 

December 28, 2019

Forecast

 

Forecast

 

 

 

Diluted net income per share on a GAAP basis

$0.33 to $0.35

 

$1.50 to $1.52

 

 

 

Amortization of acquired intangibles

0.04

 

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

-

 

0.02

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

0.01

 

-

Income tax effect of non-GAAP adjustments

(0.03)

 

(0.19)

 

 

 

Diluted net income per share on a non-GAAP basis�nbsp;

$0.52 to $0.54

 

$2.18 to $2.20

 
 
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of October 21, 2019
(Unaudited)
 

Three Months Ending

 

Year Ending

December 28, 2019

 

December 28, 2019

($ in millions)

Forecast

 

Forecast

 

 

 

Net income on a GAAP basis

$92 to $98

 

$421 to $427

 

 

 

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

1

 

6

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

2

 

1

Income tax effect of non-GAAP adjustments

(9)

 

(53)

 

 

 

Net income on a non-GAAP basis�nbsp;

$146 to $152

 

$612 to $618

 
�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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