Cadence Reports Second Quarter 2018 Financial Results

Cadence expects that its corporate representatives will meet privately during the quarter with investors, the media, investment analysts and others. At these meetings, Cadence may reiterate the business outlook published in this press release. At the same time, Cadence will keep this press release, including the business outlook, publicly available on its website.

Prior to the start of the Quiet Period (described below), the public may continue to rely on the business outlook contained herein as still being Cadence’s current expectations on matters covered unless Cadence publishes a notice stating otherwise.

Beginning September 14, 2018, Cadence will observe a Quiet Period during which the business outlook as provided in this press release and the most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q no longer constitute Cadence’s current expectations. During the Quiet Period, the business outlook in these documents should be considered historical, speaking as of prior to the Quiet Period only and not subject to any update by Cadence. During the Quiet Period, Cadence’s representatives will not comment on Cadence’s business outlook, financial results or expectations. The Quiet Period will extend until Cadence’s third quarter 2018 earnings release is published, which is currently scheduled for October 22, 2018.


Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
June 30, 2018 and December 30, 2017
(In thousands)
(Unaudited)

	June 30, 2018		December 30, 2017

Current assets:
Cash and cash equivalents	$	819,540	$	688,087
Short-term investments		5,842		4,455
Receivables, net of allowances of $1,015 and $0, respectively		219,072		190,426
Inventories		28,558		33,209
Prepaid expenses and other		56,042		63,811
Total current assets		1,129,054		979,988

Property, plant and equipment, net of accumulated depreciation of $677,737 and $658,377, respectively		252,193		251,342
Goodwill		663,320		666,009
Acquired intangibles, net of accumulated amortization of $308,055 and $297,456, respectively		251,385		278,835
Long-term receivables		4,740		12,239
Other assets		227,173		230,301
Total assets	$	2,527,865	$	2,418,714

Current liabilities:
Revolving credit facility	$	-	$	85,000
Current portion of long-term debt		299,879		-
Accounts payable and accrued liabilities		243,158		221,101
Current portion of deferred revenue		327,078		336,297
Total current liabilities		870,115		642,398

Long-term liabilities:
Long-term portion of deferred revenue		46,912		61,513
Long-term debt		344,939		644,369
Other long-term liabilities		77,911		81,232
Total long-term liabilities		469,762		787,114

Stockholders' equity		1,187,988		989,202
Total liabilities and stockholders' equity	$	2,527,865	$	2,418,714


Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Six Months Ended June 30, 2018 and July 1, 2017
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017

Revenue:
Product and maintenance	$	487,870		$	443,847		$	968,479		$	895,254
Services		30,521			35,154			67,225			60,658

Total revenue		518,391			479,001			1,035,704			955,912

Costs and expenses:
Cost of product and maintenance		40,127			38,829			81,857			82,546
Cost of services		18,833			22,003			40,312			40,078
Marketing and sales		109,300			103,897			218,448			207,244
Research and development		219,129			195,901			443,314			394,187
General and administrative		34,875			32,774			68,174			64,590
Amortization of acquired intangibles		3,518			3,836			7,148			7,692
Restructuring and other credits		(447	)		(929	)		(2,438	)		(2,717	)

Total costs and expenses		425,335			396,311			856,815			793,620

Income from operations		93,056			82,690			178,889			162,292

Interest expense		(6,669	)		(6,248	)		(13,644	)		(12,727	)
Other income, net		3,638			924			2,949			1,983

Income before provision for income taxes		90,025			77,366			168,194			151,548

Provision for income taxes		14,876			8,239			20,160			14,162

Net income	$	75,149		$	69,127		$	148,034		$	137,386


Net income per share - basic	$	0.27		$	0.25		$	0.54		$	0.51

Net income per share - diluted	$	0.27		$	0.25		$	0.53		$	0.49

Weighted average common shares outstanding - basic		273,564			271,887			273,703			271,030

Weighted average common shares outstanding - diluted		280,774			279,526			281,247			278,631


Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2018 and July 1, 2017
(In thousands)
(Unaudited)

	Six Months Ended
	June 30,			July 1,
	2018			2017

Cash and cash equivalents at beginning of period	$	688,087		$	465,232
Cash flows from operating activities:
Net income		148,034			137,386
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		59,282			58,304
Amortization of debt discount and fees		586			633
Stock-based compensation		78,857			57,918
Gain on investments, net		(2,136	)		(2,083	)
Deferred income taxes		1,664			4,813
Provisions for losses on receivables		1,015			-
Other non-cash items		462			2,157
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables		(2,606	)		6,342
Inventories		1,932			2,535
Prepaid expenses and other		13,294			(1,557	)
Other assets		5,622			(8,790	)
Accounts payable and accrued liabilities		(11,832	)		(21,995	)
Deferred revenue		71,667			18,733
Other long-term liabilities		(2,928	)		174
Net cash provided by operating activities		362,913			254,570

Cash flows from investing activities:
Proceeds from the sale of available-for-sale securities		-			189
Purchases of property, plant and equipment		(31,105	)		(27,488	)
Net cash used for investing activities		(31,105	)		(27,299	)

Cash flows from financing activities:
Proceeds from revolving credit facility		-			50,000
Payment on revolving credit facility		(85,000	)		(100,000	)
Payment of debt issuance costs		-			(793	)
Proceeds from issuance of common stock		25,656			29,967
Stock received for payment of employee taxes on vesting of restricted stock		(30,125	)		(25,819	)
Payments for repurchases of common stock		(100,025	)		-
Change in book overdraft		(3,867	)		-
Net cash used for financing activities		(193,361	)		(46,645	)

Effect of exchange rate changes on cash and cash equivalents		(6,994	)		10,140

Increase in cash and cash equivalents		131,453			190,766

Cash and cash equivalents at end of period	$	819,540		$	655,998


Cadence Design Systems, Inc.
(Unaudited)

Revenue Mix by Geography (% of Total Revenue)	ASC 605					ASC 605		ASC 606
	2017					2018		2018
GEOGRAPHY	Q1	Q2	Q3	Q4	Year	Q1	Q2	Q1	Q2

Americas	45%	45%	45%	44%	44%	45%	45%	45%	46%
Asia	26%	28%	27%	28%	27%	26%	26%	27%	26%
Europe, Middle East and Africa	20%	19%	19%	20%	20%	21%	21%	20%	20%
Japan	9%	8%	9%	8%	9%	8%	8%	8%	8%
Total	100%	100%	100%	100%	100%	100%	100%	100%	100%




Revenue Mix by Product Group (% of Total Revenue)	ASC 605					ASC 605		ASC 606
	2017					2018		2018
PRODUCT GROUP	Q1	Q2	Q3	Q4	Year	Q1	Q2	Q1	Q2

Functional Verification, including Emulation and Prototyping Hardware	23%	23%	21%	23%	22%	26%	23%	26%	23%
Digital IC Design and Signoff	29%	30%	30%	29%	29%	29%	29%	30%	30%
Custom IC Design	26%	26%	28%	26%	27%	26%	26%	26%	26%
System Interconnect and Analysis	10%	10%	10%	10%	10%	9%	10%	9%	9%
IP	12%	11%	11%	12%	12%	10%	12%	9%	12%
Total	100%	100%	100%	100%	100%	100%	100%	100%	100%


Cadence Design Systems, Inc.
As of July 23, 2018
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share
(Unaudited)

	Three Months Ending	Year Ending	Year Ending
	September 29, 2018	December 29, 2018	December 29, 2018
	ASC 606 Forecast	ASC 606 Forecast	ASC 605 Forecast **

Diluted net income per share on a GAAP basis	$0.22 to $0.24	$0.95 to $1.01	~ $1.06

Amortization of acquired intangibles	0.05	0.19	0.19
Stock-based compensation expense	0.17	0.60	0.60
Restructuring and other charges (credits)	-	(0.01)	(0.01)
Acquisition and integration-related costs	0.02	0.09	0.09
Other income or expense related to investments and non-qualified deferred compensation plan assets*	-	(0.01)	(0.01)
Income tax effect of non-GAAP adjustments	(0.06)	(0.17)	(0.18)

Diluted net income per share on a non-GAAP basis�nbsp;	$0.40 to $0.42	$1.64 to $1.70	~ $1.74


Cadence Design Systems, Inc.
As of July 23, 2018
Impact of Non-GAAP Adjustments on Forward Looking Net Income
(Unaudited)

	Three Months Ending	Year Ending	Year Ending
	September 29, 2018	December 29, 2018	December 29, 2018
($ in millions)	ASC 606 Forecast	ASC 606 Forecast	ASC 605 Forecast **

Net income on a GAAP basis	$61 to $67	$267 to $283	~ $298

Amortization of acquired intangibles	13	54	54
Stock-based compensation expense	47	169	169
Restructuring and other charges (credits)	-	(2)	(2)
Acquisition and integration-related costs	6	26	26
Other income or expense related to investments and non-qualified deferred compensation plan assets*	-	(2)	(2)
Income tax effect of non-GAAP adjustments	(16)	(49)	(51)

Net income on a non-GAAP basis�nbsp;	$111 to $117	$463 to $479	~$492

�nbsp;	The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.

*	Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense.

**	As required by the new standard, Cadence will report revenue under both methods for the 2018 transition year. ASC Topic 605 forecast at midpoint.

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