Cadence Reports Second Quarter 2019 Financial Results

SAN JOSE, Calif.–(BUSINESS WIRE)–Cadence Design Systems, Inc. (NASDAQ: CDNS) today announced results for the second quarter of 2019.

Cadence reported second quarter 2019 revenue of $580 million, compared to revenue of $518 million reported for the same period in 2018. On a GAAP basis, Cadence achieved operating margin of 23 percent and recognized net income of $107 million, or $0.38 per share on a diluted basis, in the second quarter of 2019, compared to operating margin of 18 percent and net income of $75 million, or $0.27 per share on a diluted basis, for the same period in 2018.

Using the non-GAAP measure defined below, operating margin for the second quarter of 2019 was 34 percent and net income was $161 million, or $0.57 per share on a diluted basis, compared to operating margin of 30 percent and net income of $126 million, or $0.45 per share on a diluted basis, for the same period in 2018.

Cadence achieved strong operating results for the second quarter of 2019, delivering 12 percent year-over-year revenue growth on broad-based strength across our product lines,” said Lip-Bu Tan, chief executive officer. “We continue to lead with innovation, introducing important new products, including the Protium™ X1 Enterprise Prototyping Platform for early software development and Spectre® X, a massively parallel circuit simulator with increased speed and capacity, for analog design.”

I am pleased with our Q2 results and outlook,” said John Wall, senior vice president and chief financial officer. “We are raising our outlook for revenue, operating margin, earnings and cash from operations for the year while we continue to invest in TAM expansion opportunities that result from our Intelligent System Design strategy.”

CFO Commentary

Commentary on the second quarter 2019 financial results by John Wall, senior vice president and chief financial officer, is available at www.cadence.com/cadence/investor_relations.

Business Outlook

For the third quarter of 2019, the company expects total revenue in the range of $570 million to $580 million. Third quarter GAAP operating margin is expected to be approximately 19 percent and GAAP net income per diluted share is expected to be in the range of $0.32 to $0.34. Using the non-GAAP measure defined below, operating margin is expected to be approximately 30 percent and net income per diluted share is expected to be in the range of $0.50 to $0.52.

For 2019, the company expects total revenue in the range of $2.315 billion to $2.335 billion. On a GAAP basis, operating margin is expected to be in the range of 21 percent to 22 percent and net income per diluted share for 2019 is expected to be in the range of $1.44 to $1.50. Using the non-GAAP measure defined below, operating margin for 2019 is expected to be in the range of 31 percent to 32 percent and net income per diluted share for 2019 is expected to be in the range of $2.11 to $2.17.

A schedule showing a reconciliation of the business outlook from GAAP operating margin, GAAP net income and diluted net income per share to non-GAAP operating margin and non-GAAP net income and diluted net income per share is included in this release.

Audio Webcast Scheduled

Lip-Bu Tan, chief executive officer, and John Wall, senior vice president and chief financial officer, will host the second quarter 2019 financial results audio webcast today, July 22, 2019, at 2 p.m. (Pacific) / 5 p.m. (Eastern). Attendees are asked to register at the website at least 10 minutes prior to the scheduled webcast. An archive of the webcast will be available starting July 22, 2019 at 5 p.m. (Pacific) and ending September 13, 2019 at 5 p.m. (Pacific). Webcast access is available at www.cadence.com/cadence/investor_relations.

About Cadence

Cadence enables electronic systems and semiconductor companies to create the innovative end products that are transforming the way people live, work and play. Cadence® software, hardware and semiconductor IP are used by customers to deliver products to market faster. The company’s Intelligent System Design strategy helps customers develop differentiated products—from chips to boards to systems—in mobile, consumer, cloud datacenter, automotive, aerospace, IoT, industrial and other market segments. Cadence is listed as one of Fortune Magazine’s 100 Best Companies to Work For. Learn more at www.cadence.com.

Cadence, the Cadence logo, Protium and Spectre are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

The statements contained above, as well as the information in the Business Outlook section, are or include forward-looking statements based on current expectations or beliefs and preliminary assumptions about future events that are subject to factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside Cadence’s control, including, among others: (i) Cadence’s ability to compete successfully in the electronic design automation product and the commercial electronic design and methodology services industries; (ii) the success of Cadence’s efforts to improve operational efficiency and growth; (iii) the mix of products and services sold and the timing of significant orders for and delivery of Cadence’s products and services; (iv) change in customer demands, including those resulting from consolidation among Cadence’s customers, restructurings and other efforts to improve operational efficiency of Cadence’s customers, economic conditions, government regulations or trade restrictions could result in delays in purchases or deliveries of Cadence’s products and services; (v) economic and industry conditions and trade restrictions in regions in which Cadence does business; (vi) fluctuations in rates of exchange between the U.S. dollar and the currencies of other countries in which Cadence does business; (vii) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rates and Cadence’s ability to access capital and debt markets; (viii) the acquisition of other companies or technologies or the failure to successfully integrate and operate these companies or technologies Cadence acquires, including the potential inability to retain customers, key employees or vendors; (ix) the effects of Cadence’s efforts to improve operational efficiency in its business, including strategic, customer and supplier relationships, and its ability to retain key employees; (x) events that affect cash flow, liquidity, reserves or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation or other matters; and (xi) the effects of any litigation or other proceedings to which Cadence is or may become a party. In addition, the timing and amount of Cadence’s repurchase of its common stock under the authorizations will be subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors.

For a detailed discussion of these and other cautionary statements related to Cadence’s business, please refer to Cadence’s filings with the U.S. Securities and Exchange Commission, which include Cadence’s most recent reports on Form 10-K and Form 10-Q, including Cadence’s future filings.

GAAP to Non-GAAP Reconciliation

Non-GAAP financial measures should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with generally accepted accounting principles, or GAAP. Investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with their most directly comparable GAAP financial results. Investors are also encouraged to look at the GAAP results as the best measure of financial performance.

To supplement Cadence’s financial results presented on a GAAP basis, Cadence management uses non-GAAP measures that it believes are helpful in understanding Cadence’s performance. One such measure is non-GAAP net income, which is a financial measure not calculated under GAAP. Non-GAAP net income is calculated by Cadence management by taking GAAP net income and excluding, as applicable, amortization of intangible assets, stock-based compensation expense, acquisition and integration-related costs including retention expenses, investment gains or losses, income or expenses related to Cadence’s non-qualified deferred compensation plan, restructuring and other significant items not directly related to Cadence’s core business operations, and the income tax effect of non-GAAP pre-tax adjustments.

Cadence management uses non-GAAP net income because it excludes items that are generally not directly related to the performance of Cadence’s core business operations and therefore provides supplemental information to Cadence management and investors regarding the performance of the business operations, facilitates comparisons to the historical operating results and allows the review of Cadence’s business from the same perspective as Cadence management, including forecasting and budgeting.

The following tables reconcile the specific items excluded from GAAP operating margin, GAAP net income and GAAP net income per diluted share in the calculation of non-GAAP operating margin, non-GAAP net income and non-GAAP net income per diluted share for the periods shown below:

 

Operating Margin Reconciliation

 

Three Months Ended

 

 

June 29, 2019

 

June 30, 2018

 

 

(unaudited)

GAAP operating margin as a percent of total revenue

 

23%

 

18%

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

 

 

 

 

Amortization of acquired intangibles

 

3%

 

3%

Stock-based compensation expense

 

8%

 

8%

Non-qualified deferred compensation expenses

 

0%

 

0%

Restructuring and other credits

 

0%

 

0%

Acquisition and integration-related costs

 

0%

 

1%

Non-GAAP operating margin as a percent of total revenue

 

34%

 

30%

 

Net Income Reconciliation

 

Three Months Ended

 

 

June 29, 2019

 

June 30, 2018

 

 

(unaudited)

(in thousands)

 

 

 

 

Net income on a GAAP basis

 

$

107,235

 

 

$

75,149

 

Amortization of acquired intangibles

 

14,458

 

 

13,509

 

Stock-based compensation expense

 

44,257

 

 

40,956

 

Non-qualified deferred compensation expenses

 

862

 

 

468

 

Restructuring and other credits

 

(313

)

 

(447

)

Acquisition and integration-related costs

 

1,889

 

 

6,765

 

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

 

2,042

 

 

(1,013

)

Income tax effect of non-GAAP adjustments

 

(9,331

)

 

(9,166

)

Net income on a non-GAAP basis

 

$

161,099

 

 

$

126,221

 

*

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.

Diluted Net Income Per Share Reconciliation

 

Three Months Ended

 

 

June 29, 2019

 

June 30, 2018

 

 

(unaudited)

(in thousands, except per share data)

 

 

 

 

Diluted net income per share on a GAAP basis

 

$

0.38

 

 

$

0.27

 

Amortization of acquired intangibles

 

0.05

 

 

0.05

 

Stock-based compensation expense

 

0.16

 

 

0.14

 

Non-qualified deferred compensation expenses

 

 

 

 

Restructuring and other 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

)

 

(0.03

)

Diluted net income per share on a non-GAAP basis

 

$

0.57

 

 

$

0.45

 

Shares used in calculation of diluted net income per share — GAAP**

 

281,054

 

 

280,774

 

Shares used in calculation of diluted net income per share — non-GAAP**

 

281,054

 

 

280,774

 

*

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.

**

Shares used in the calculation of GAAP net income per share are expected to be the same as shares used in the calculation of non-GAAP net income per share, except when the company reports a GAAP net loss and non-GAAP net income, or GAAP net income and a non-GAAP net loss.

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†

~30%

 

31% – 32%

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† $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† $140 to $146 $593 to $610
 
 
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.
 

CDNS-IR

Contacts

Cadence Investor Relations

408-944-7100

investor_relations@cadence.com


Cadence Newsroom

408-944-7039

newsroom@cadence.com

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