Cadence Reports First Quarter 2019 Financial Results

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

Cadence reported first quarter 2019 revenue of $577 million, compared to
revenue of $517 million reported for the same period in 2018. On a GAAP
basis, Cadence achieved operating margin of 22 percent and recognized
net income of $121 million, or $0.43 per share on a diluted basis, in
the first quarter of 2019, compared to operating margin of 17 percent
and net income of $73 million, or $0.26 per share on a diluted basis,
for the same period in 2018.

Using the non-GAAP measure defined below, operating margin for the first
quarter of 2019 was 32 percent and net income was $152 million, or $0.54
per share on a diluted basis, compared to operating margin of 28 percent
and net income of $113 million, or $0.40 per share on a diluted basis,
for the same period in 2018.

Cadence achieved excellent operating results for the first quarter
delivering 11 percent revenue growth and 32 percent non-GAAP operating
margin. Our business is mission critical to silicon development, which
is the cornerstone of all design activity,” said Lip-Bu Tan, chief
executive officer. “We announced Clarity™ 3D Solver, our first product
in the System Analysis space, as we introduced the next phase of our
System Design Enablement strategy to provide more capabilities and value
to customers and expand our TAM.”

I’m pleased with our financial discipline and continued broad-based
growth,” said John Wall, senior vice president and chief financial
officer. “We are raising our outlook for the year as technology trends
like AI and 5G continue to drive strong design activity across all lines
of our business.”

CFO Commentary

Commentary on the first 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 second quarter of 2019, the company expects total revenue in the
range of $575 million to $585 million. Second quarter GAAP operating
margin is expected to be in the range of 21 percent to 22 percent and
GAAP net income per diluted share is expected to be in the range of
$0.34 to $0.36. Using the non-GAAP measure defined below, operating
margin is expected to be in the range of 31 percent to 32 percent and
net income per diluted share is expected to be in the range of $0.52 to
$0.54.

For 2019, the company expects total revenue in the range of $2.305
billion to $2.335 billion. On a GAAP basis, operating margin is expected
to be approximately 21 percent and net income per diluted share for 2019
is expected to be in the range of $1.39 to $1.47. Using the non-GAAP
measure defined below, operating margin for 2019 is expected to be
approximately 31 percent and net income per diluted share for 2019 is
expected to be in the range of $2.04 to $2.12.

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 first quarter 2019
financial results audio webcast today, April 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 April 22, 2019 at 5 p.m.
(Pacific) and ending June 14, 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 System Design Enablement 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 and Clarity 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 Cadence’s
products; (iv) change in customer demands, including those resulting
from consolidation among Cadence’s customers and the possibility that
the restructurings and other efforts to improve operational efficiency
of Cadence’s customers could result in delays in purchases of Cadence’s
products and services; (v) economic and industry conditions 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
March 30, 2019   March 31, 2018
(unaudited)
GAAP operating margin as a percent of total revenue 22% 17%
Reconciling items to non-GAAP operating margin as a percent of total
revenue:
Amortization of acquired intangibles 2% 3%
Stock-based compensation expense 7% 7%
Non-qualified deferred compensation expenses 1% 0%
Restructuring and other credits 0% 0%
Acquisition and integration-related costs 0% 1%
Non-GAAP operating margin as a percent of total revenue 32% 28%
 
 
Net Income Reconciliation   Three Months Ended
March 30, 2019   March 31, 2018
(unaudited)
(in thousands)
Net income on a GAAP basis $ 120,555 $ 72,885
Amortization of acquired intangibles 13,162 13,907
Stock-based compensation expense 42,253 37,901
Non-qualified deferred compensation expenses 2,540 127
Restructuring and other credits (689 ) (1,991 )
Acquisition and integration-related costs 914 7,783
Other income or expense related to investments and non-qualified
deferred compensation plan assets*
(5,187 ) (1,123 )
Income tax effect of non-GAAP adjustments (21,307 ) (16,280 )
Net income on a non-GAAP basis $ 152,241   $ 113,209  
 
*   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
March 30, 2019   March 31, 2018
(unaudited)
(in thousands, except per share data)
Diluted net income per share on a GAAP basis $ 0.43 $ 0.26
Amortization of acquired intangibles 0.05 0.05
Stock-based compensation expense 0.15 0.13

Non-qualified deferred compensation expenses

0.01

Restructuring and other credits

(0.01 )

Acquisition and integration-related costs

0.03
Other income or expense related to investments and non-qualified
deferred compensation plan assets*
(0.02 )
Income tax effect of non-GAAP adjustments (0.08 ) (0.06 )
Diluted net income per share on a non-GAAP basis $ 0.54   $ 0.40  
Shares used in calculation of diluted net income per share — GAAP** 280,615 281,651
Shares used in calculation of diluted net income per share —
non-GAAP**
280,615 281,651

 

*   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 June 14, 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 second quarter 2019 earnings release is published, which is
currently scheduled for July 22, 2019.

 
Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
March 30, 2019 and December 29, 2018
(In thousands)
(Unaudited)
 
March 30, 2019   December 29, 2018
 
Current assets:
Cash and cash equivalents $ 538,898 $ 533,298

Receivables, net of allowances of $3,566 and $3,936, respectively

264,767 297,082
Inventories 37,480 28,162
Prepaid expenses and other   76,802   92,550
Total current assets 917,947 951,092
 

Property, plant and equipment, net of accumulated depreciation of
$712,996 and $698,493, respectively

253,392 252,630
Goodwill 662,871 662,272

Acquired intangibles, net of accumulated amortization of $324,393
and $333,687, respectively

212,298 225,457
Long-term receivables 3,241 5,972
Other assets   496,562   371,231
Total assets $ 2,546,311 $ 2,468,654
 
Current liabilities:
Revolving credit facility $ 50,000 $ 100,000
Accounts payable and accrued liabilities 235,688 256,526
Current portion of deferred revenue   345,751   352,456
Total current liabilities   631,439   708,982
 
Long-term liabilities:
Long-term portion of deferred revenue 51,312 48,718
Long-term debt 345,470 345,291
Other long-term liabilities   152,253   77,262
Total long-term liabilities   549,035   471,271
 
Stockholders’ equity   1,365,837   1,288,401
Total liabilities and stockholders’ equity $ 2,546,311 $ 2,468,654
 
 
Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three Months Ended March 30, 2019 and March 31, 2018
(In thousands, except per share amounts)
(Unaudited)
   
 
Three Months Ended
March 30, 2019 March 31, 2018
 
Revenue:
Product and maintenance $ 543,518 $ 480,609
Services 33,224   36,704  
 
Total revenue 576,742   517,313  
 
Costs and expenses:
Cost of product and maintenance 50,522 41,730
Cost of services 20,063 21,479
Marketing and sales 116,830 109,148
Research and development 228,210 224,185
General and administrative 30,102 33,299
Amortization of acquired intangibles 3,308 3,630
Restructuring and other credits (689 ) (1,991 )
 
Total costs and expenses 448,346   431,480  
 
Income from operations 128,396 85,833
 
Interest expense (5,391 ) (6,975 )
Other income (expense), net 5,241   (689 )
 
Income before provision for income taxes 128,246 78,169
 
Provision for income taxes 7,691   5,284  
 
Net income $ 120,555   $ 72,885  
 
 
Net income per share – basic $ 0.44   $ 0.27  
 
Net income per share – diluted $ 0.43   $ 0.26  
 
Weighted average common shares outstanding – basic 273,066   273,773  
 
Weighted average common shares outstanding – diluted 280,615   281,651  
 
 
Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 30, 2019 and March 31, 2018
(In thousands)
(Unaudited)
 
  Three Months Ended
March 30,   March 31,
2019 2018
 
Cash and cash equivalents at beginning of period $ 533,298   $ 688,087  
Cash flows from operating activities:
Net income 120,555 72,885
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 29,740 29,389
Amortization of debt discount and fees 247 292
Stock-based compensation 42,253 37,901
Gain on investments, net (2,646 ) (996 )
Deferred income taxes (4,966 ) 1,363
Provisions for losses (recoveries) on receivables (183 ) 666
Other non-cash items 122 (170 )
Changes in operating assets and liabilities:
Receivables 35,681 (10,988 )
Inventories (10,618 ) 2,105
Prepaid expenses and other 15,618 8,392
Other assets 10,729 8,025
Accounts payable and accrued liabilities (43,954 ) (46,956 )
Deferred revenue (4,451 ) 59,854
Other long-term liabilities   (2,713 )   (4,115 )
Net cash provided by operating activities   185,414     157,647  
 
Cash flows from investing activities:
Purchases of non-marketable investments (33,664 )
Proceeds from the sale of non-marketable investments 2,952
Purchases of property, plant and equipment   (15,275 )   (13,128 )
Net cash used for investing activities   (45,987 )   (13,128 )
 
Cash flows from financing activities:
Proceeds from revolving credit facility 50,000
Payment on revolving credit facility (100,000 ) (40,000 )
Proceeds from issuance of common stock 29,858 23,339
Stock received for payment of employee taxes on vesting of
restricted stock
(32,822 ) (26,515 )
Payments for repurchases of common stock (81,114 ) (50,013 )
Change in book overdraft       (3,867 )
Net cash used for financing activities   (134,078 )   (97,056 )
 
Effect of exchange rate changes on cash and cash equivalents   251     11,418  
 
Increase in cash and cash equivalents   5,600     58,881  
 
Cash and cash equivalents at end of period $ 538,898   $ 746,968  
 
 
Cadence Design Systems, Inc.
(Unaudited)
 
Revenue Mix by Geography (% of Total Revenue)
  2018   2019

GEOGRAPHY

Q1   Q2   Q3   Q4   Year Q1
       
Americas 45% 46% 44% 44% 45% 44%
China 9% 8% 9% 13% 10% 10%
Other Asia 18% 18% 20% 18% 18% 19%
Europe, Middle East and Africa 20% 20% 19% 17% 19% 18%
Japan 8% 8% 8% 8% 8% 9%
Total 100% 100% 100% 100% 100% 100%
 
Revenue Mix by Product Group (% of Total Revenue)
2018 2019

PRODUCT GROUP

Q1   Q2   Q3   Q4   Year Q1
 
Functional Verification, including Emulation and Prototyping Hardware 26% 23% 22% 25% 24% 24%
Digital IC Design and Signoff 30% 30% 30% 28% 29% 30%
Custom IC Design and Simulation 26% 26% 26% 25% 26% 25%
System Interconnect and Analysis 9% 9% 9% 9% 9% 9%
IP 9% 12% 13% 13% 12% 12%
Total 100% 100% 100% 100% 100% 100%
 
 
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of April 22, 2019
(Unaudited)
 
  Three Months Ending   Year Ending
June 29, 2019 December 28, 2019
Forecast Forecast
 
GAAP operating margin as a percent of total revenue 21% – 22% ~21%
 

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 0% 0%
   
Non-GAAP operating margin as a percent of total revenue† 31% – 32% ~31%

 

    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 April 22, 2019
(Unaudited)
 
  Three Months Ending   Year Ending
June 29, 2019 December 28, 2019
Forecast Forecast
 
Diluted net income per share on a GAAP basis $0.34 to $0.36 $1.39 to $1.47
 
Amortization of acquired intangibles 0.05 0.19
Stock-based compensation expense 0.16 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*

(0.02)
Income tax effect of non-GAAP adjustments (0.04) (0.20)
   
Diluted net income per share on a non-GAAP basis† $0.52 to $0.54 $2.04 to $2.12
 
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of April 22, 2019
(Unaudited)
 
Three Months Ending Year Ending
June 29, 2019 December 28, 2019
($ in millions) Forecast Forecast
 
Net income on a GAAP basis $96 to $102 $390 to $412
 
Amortization of acquired intangibles 14 53
Stock-based compensation expense 44 182
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*

(5)
Income tax effect of non-GAAP adjustments (11) (56)
   
Net income on a non-GAAP basis† $145 to $151 $572 to $594

 

    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
[email protected]

Cadence
Newsroom
408-944-7039
[email protected]

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