Cadence Reports Third Quarter 2019 Financial Results

SAN JOSE, Calif.--(BUSINESS WIRE)--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


Contacts

Cadence Investor Relations
408-944-7100
investor_relations@cadence.com

Cadence Newsroom
408-944-7039
newsroom@cadence.com

Cadence Reports Third Quarter 2019 Financial Results

SAN JOSE, Calif.--(BUSINESS WIRE)--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


Contacts

Cadence Investor Relations
408-944-7100
investor_relations@cadence.com

Cadence Newsroom
408-944-7039
newsroom@cadence.com