Cadence Reports Second Quarter 2019 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 13, 2019, Cadence will observe a Quiet Period during which the business outlook as provided in this press release and the most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q no longer constitute Cadence’s current expectations. During the Quiet Period, the business outlook in these documents should be considered historical, speaking as of prior to the Quiet Period only and not subject to any update by Cadence. During the Quiet Period, Cadence’s representatives will not comment on Cadence’s business outlook, financial results or expectations. The Quiet Period will extend until Cadence’s third quarter 2019 earnings release is published, which is currently scheduled for October 21, 2019.


Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
June 29, 2019 and December 29, 2018
(In thousands)
(Unaudited)

	June 29, 2019		December 29, 2018

Current assets:
Cash and cash equivalents	$	633,415	$	533,298
Receivables, net of allowances of $1,149 and $3,936, respectively		237,609		297,082
Inventories		49,299		28,162
Prepaid expenses and other		58,918		92,550
Total current assets		979,241		951,092

Property, plant and equipment, net of accumulated depreciation of $719,785 and $698,493, respectively		257,882		252,630
Goodwill		662,713		662,272
Acquired intangibles, net of accumulated amortization of $338,855 and $333,687, respectively		197,840		225,457
Long-term receivables		2,140		5,972
Other assets		512,509		371,231
Total assets	$	2,612,325	$	2,468,654

Current liabilities:
Revolving credit facility	$	-	$	100,000
Accounts payable and accrued liabilities		246,591		256,526
Current portion of deferred revenue		363,592		352,456
Total current liabilities		610,183		708,982

Long-term liabilities:
Long-term portion of deferred revenue		57,280		48,718
Long-term debt		345,652		345,291
Other long-term liabilities		168,665		77,262
Total long-term liabilities		571,597		471,271

Stockholders' equity		1,430,545		1,288,401
Total liabilities and stockholders' equity	$	2,612,325	$	2,468,654


Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Six Months Ended June 29, 2019 and June 30, 2018
(In thousands, except per share amounts)
(Unaudited)


	Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018

Revenue:
Product and maintenance	$	548,028	$	487,870	$	1,091,546	$	968,479
Services		32,391		30,521		65,615		67,225

Total revenue		580,419		518,391		1,157,161		1,035,704

Costs and expenses:
Cost of product and maintenance		43,388		40,127		93,910		81,857
Cost of services		18,081		18,833		38,144		40,312
Marketing and sales		116,208		109,300		233,038		218,448
Research and development		231,814		219,129		460,024		443,314
General and administrative		34,407		34,875		64,509		68,174
Amortization of acquired intangibles		3,159		3,518		6,467		7,148
Restructuring and other credits		(313)		(447)		(1,002)		(2,438)

Total costs and expenses		446,744		425,335		895,090		856,815

Income from operations		133,675		93,056		262,071		178,889

Interest expense		(4,976)		(6,669)		(10,367)		(13,644)
Other income (expense), net		(110)		3,638		5,131		2,949

Income before provision for income taxes		128,589		90,025		256,835		168,194

Provision for income taxes		21,354		14,876		29,045		20,160

Net income	$	107,235	$	75,149	$	227,790	$	148,034


Net income per share - basic	$	0.39	$	0.27	$	0.83	$	0.54

Net income per share - diluted	$	0.38	$	0.27	$	0.81	$	0.53

Weighted average common shares outstanding - basic		273,159		273,564		273,155		273,703

Weighted average common shares outstanding - diluted		281,054		280,774		280,877		281,247


Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 29, 2019 and June 30, 2018
(In thousands)
(Unaudited)

	Six Months Ended
	June 29,			June 30,
	2019			2018

Cash and cash equivalents at beginning of period	$	533,298		$	688,087
Cash flows from operating activities:
Net income		227,790			148,034
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		61,197			59,282
Amortization of debt discount and fees		497			586
Stock-based compensation		86,510			78,857
(Gain) loss on investments, net		259			(1,541	)
Deferred income taxes		(8,159	)		1,664
Provisions for losses (recoveries) on receivables		(386	)		1,015
ROU asset amortization and change in operating lease liabilities		2,504			-
Other non-cash items		160			(133	)
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables		63,876			(2,606	)
Inventories		(25,689	)		1,932
Prepaid expenses and other		33,055			13,294
Other assets		2,547			5,027
Accounts payable and accrued liabilities		(34,670	)		(11,832	)
Deferred revenue		19,707			71,667
Other long-term liabilities		2,576			(2,333	)
Net cash provided by operating activities		431,774			362,913

Cash flows from investing activities:
Purchases of non-marketable investments		(33,717	)		-
Proceeds from the sale of non-marketable investments		2,952			-
Purchases of property, plant and equipment		(30,562	)		(31,105	)
Cash paid in business combinations		(338	)		-
Net cash used for investing activities		(61,665	)		(31,105	)

Cash flows from financing activities:
Proceeds from revolving credit facility		150,000			-
Payment on revolving credit facility		(250,000	)		(85,000	)
Proceeds from issuance of common stock		32,855			25,656
Stock received for payment of employee taxes on vesting of restricted stock		(45,698	)		(30,125	)
Payments for repurchases of common stock		(156,120	)		(100,025	)
Change in book overdraft		-			(3,867	)
Net cash used for financing activities		(268,963	)		(193,361	)

Effect of exchange rate changes on cash and cash equivalents		(1,029	)		(6,994	)

Increase in cash and cash equivalents		100,117			131,453

Cash and cash equivalents at end of period	$	633,415		$	819,540


Cadence Design Systems, Inc.
(Unaudited)

Revenue Mix by Geography (% of Total Revenue)
	2018					2019
GEOGRAPHY	Q1	Q2	Q3	Q4	Year	Q1	Q2

Americas	45%	46%	44%	44%	45%	44%	42%
China	9%	8%	9%	13%	10%	10%	12%
Other Asia	18%	18%	20%	18%	18%	19%	19%
Europe, Middle East and Africa	20%	20%	19%	17%	19%	18%	20%
Japan	8%	8%	8%	8%	8%	9%	7%
Total	100%	100%	100%	100%	100%	100%	100%


Revenue Mix by Product Group (% of Total Revenue)
	2018					2019
PRODUCT GROUP	Q1	Q2	Q3	Q4	Year	Q1	Q2

Functional Verification, including Emulation and Prototyping Hardware	26%	23%	22%	25%	24%	24%	22%
Digital IC Design and Signoff	30%	30%	30%	28%	29%	30%	31%
Custom IC Design and Simulation	26%	26%	26%	25%	26%	25%	26%
System Interconnect and Analysis	9%	9%	9%	9%	9%	9%	10%
IP	9%	12%	13%	13%	12%	12%	11%
Total	100%	100%	100%	100%	100%	100%	100%


Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of July 22, 2019
(Unaudited)

	Three Months Ending	Year Ending
	September 28, 2019	December 28, 2019
	Forecast	Forecast

GAAP operating margin as a percent of total revenue	~19%	21% - 22%

Reconciling items to non-GAAP operating margin as a percent of total revenue:
Amortization of acquired intangibles	2%	2%
Stock-based compensation expense	8%	8%
Non-qualified deferred compensation expenses	0%	0%
Restructuring and other charges (credits)	0%	0%
Acquisition and integration-related costs	1%	0%

Non-GAAP operating margin as a percent of total revenue�nbsp;	~30%	31% - 32%

	^�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.


Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share
As of July 22, 2019
(Unaudited)

		Three Months Ending	Year Ending
		September 28, 2019	December 28, 2019
		Forecast	Forecast

Diluted net income per share on a GAAP basis		$0.32 to $0.34	$1.44 to $1.50

	Amortization of acquired intangibles	0.05	0.19
	Stock-based compensation expense	0.17	0.65
	Non-qualified deferred compensation expenses	-	0.01
	Restructuring and other charges (credits)	-	-
	Acquisition and integration-related costs	0.01	0.02
	Other income or expense related to investments and non-qualified deferred compensation plan assets*	-	-
	Income tax effect of non-GAAP adjustments	(0.05)	(0.20)

Diluted net income per share on a non-GAAP basis�nbsp;		$0.50 to $0.52	$2.11 to $2.17

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of July 22, 2019
(Unaudited)

		Three Months Ending	Year Ending
		September 28, 2019	December 28, 2019
($ in millions)		Forecast	Forecast

Net income on a GAAP basis		$90 to $96	$406 to $423

	Amortization of acquired intangibles	13	53
	Stock-based compensation expense	47	182
	Non-qualified deferred compensation expenses	-	3
	Restructuring and other charges (credits)	-	(1)
	Acquisition and integration-related costs	2	6
	Other income or expense related to investments and non-qualified deferred compensation plan assets*	1	-
	Income tax effect of non-GAAP adjustments	(13)	(56)

Net income on a non-GAAP basis�nbsp;		$140 to $146	$593 to $610


	^�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.

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