Cadence Design Systems, Inc. (NASDAQ: CDNS) today announced
results for the third quarter of 2019.
Cadence reported third quarter 2019 revenue of $580 million,
compared to revenue of $532 million reported for the same period in
2018. On a GAAP basis, Cadence achieved operating margin of 21
percent and recognized net income of $102 million, or $0.36 per
share on a diluted basis, in the third quarter of 2019, compared to
operating margin of 19 percent and net income of $99 million, or
$0.35 per share on a diluted basis, for the same period in
2018.
Using the non-GAAP measure defined below, operating margin for
the third quarter of 2019 was 32 percent and net income was $153
million, or $0.54 per share on a diluted basis, compared to
operating margin of 32 percent and net income of $139 million, or
$0.49 per share on a diluted basis, for the same period in
2018.
“Major industry trends led by AI and data analytics are driving
strong design activity, which coupled with innovation and
outstanding execution by Cadence, again led to strong operating
results, as Cadence delivered 9 percent year-over-year revenue
growth,” said Lip-Bu Tan, chief executive officer. “Our Intelligent
System Design strategy enables us to provide more capabilities and
value to our customers, while also expanding our total addressable
market.”
“I am pleased with our third quarter 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
proliferation opportunities with market-shaping customers.”
CFO Commentary
Commentary on the third 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 fourth quarter of 2019, the company expects total
revenue in the range of $590 million to $600 million. Fourth
quarter GAAP operating margin is expected to be approximately 20
percent and GAAP net income per diluted share is expected to be in
the range of $0.33 to $0.35. 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
$0.52 to $0.54.
For 2019, the company expects total revenue in the range of
$2.327 billion to $2.337 billion. On a GAAP basis, operating margin
is expected to be in the range of 21.3 percent to 21.8 percent and
net income per diluted share for 2019 is expected to be in the
range of $1.50 to $1.52. Using the non-GAAP measure defined below,
operating margin for 2019 is expected to be in the range of 31.5
percent to 32.0 percent and net income per diluted share for 2019
is expected to be in the range of $2.18 to $2.20.
In October 2019, Cadence initiated a series of transactions
involving a realignment of its international operating structure.
Cadence expects that this realignment may significantly increase
its foreign deferred tax assets. This outlook does not include the
income tax impact to GAAP net income related to these transactions.
Cadence expects to complete its analysis and record the income tax
impact in the fourth quarter of 2019.
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 third quarter
2019 financial results audio webcast today, October 21, 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 October 21,
2019 at 5 p.m. (Pacific) and ending December 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’s 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 intelligent systems—in mobile, consumer, cloud, data
center, 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 the other Cadence marks found
at www.cadence.com/go/trademarks 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 and preliminary
assumptions 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 that could
result in delays in purchases or deliveries of Cadence’s products
and services, 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; (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
September 28, 2019
September 29, 2018
(unaudited)
GAAP operating margin as a percent of
total revenue
21%
19%
Reconciling items to non-GAAP operating
margin as a percent of total revenue:
Amortization of acquired intangibles
2%
3%
Stock-based compensation expense
9%
9%
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
32%
32%
Net Income Reconciliation
Three Months Ended
September 28, 2019
September 29, 2018
(unaudited)
(in thousands)
Net income on a GAAP basis
$
101,514
$
99,318
Amortization of acquired intangibles
12,799
12,975
Stock-based compensation expense
48,279
46,264
Non-qualified deferred compensation
expenses
52
1,120
Restructuring and other credits
(186
)
(172
)
Acquisition and integration-related
costs
1,838
6,670
Other income or expense related to
investments and non-qualified deferred compensation plan
assets*
2,344
(498
)
Income tax effect of non-GAAP
adjustments
(13,899
)
(26,306
)
Net income on a non-GAAP basis
$
152,741
$
139,371
*
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
September 28, 2019
September 29, 2018
(unaudited)
(in thousands, except per share data)
Diluted net income per share on a GAAP
basis
$
0.36
$
0.35
Amortization of acquired intangibles
0.04
0.05
Stock-based compensation expense
0.17
0.16
Non-qualified deferred compensation
expenses
—
—
Restructuring and other credits
—
—
Acquisition and integration-related
costs
0.01
0.02
Other income or expense related to
investments and non-qualified deferred compensation plan
assets*
0.01
—
Income tax effect of non-GAAP
adjustments
(0.05
)
(0.09
)
Diluted net income per share on a non-GAAP
basis
$
0.54
$
0.49
Shares used in calculation of diluted net
income per share — GAAP**
280,666
281,646
Shares used in calculation of diluted net
income per share — non-GAAP**
280,666
281,646
*
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 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†
~30%
31.5% - 32.0%
†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†
$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†
$146 to $152
$612 to $618
†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
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Cadence Investor Relations 408-944-7100
investor_relations@cadence.com
Cadence Newsroom 408-944-7039 newsroom@cadence.com
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