Cadence Reports Fourth Quarter and Fiscal Year 2019 Financial

Cadence Reports Fourth Quarter and Fiscal Year 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 March 13, 2020, 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 first quarter 2020 earnings release is published, which is currently scheduled for April 20, 2020.

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
December 28, 2019 and December 29, 2018
(In thousands)
(Unaudited)

	December 28, 2019		December 29, 2018

Current assets:
Cash and cash equivalents	$	705,210	$	533,298
Receivables, net		304,546		297,082
Inventories		55,802		28,162
Prepaid expenses and other		103,785		92,550
Total current assets		1,169,343		951,092

Property, plant and equipment, net		275,855		252,630
Goodwill		661,856		662,272
Acquired intangibles, net		172,375		225,457
Deferred taxes		732,367		154,894
Other assets		345,429		222,309
Total assets	$	3,357,225	$	2,468,654

Current liabilities:
Revolving credit facility	$	-	$	100,000
Accounts payable and accrued liabilities		316,908		256,526
Current portion of deferred revenue		355,483		352,456
Total current liabilities		672,391		708,982

Long-term liabilities:
Long-term portion of deferred revenue		73,400		48,718
Long-term debt		346,019		345,291
Other long-term liabilities		162,521		77,262
Total long-term liabilities		581,940		471,271

Stockholders' equity		2,102,894		1,288,401
Total liabilities and stockholders' equity	$	3,357,225	$	2,468,654

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three Months and Years Ended December 28, 2019 and December 29, 2018
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended				Years Ended
	December 28, 2019		December 29, 2018		December 28, 2019		December 29, 2018

Revenue:
Product and maintenance	$	564,964	$	534,418	$	2,204,615	$	1,997,887
Services		34,591		35,432		131,704		140,135

Total revenue		599,555		569,850		2,336,319		2,138,022

Costs and expenses:
Cost of product and maintenance		53,521		54,748		189,146		173,011
Cost of services		19,807		21,376		77,211		85,736
Marketing and sales		127,267		112,613		481,673		439,669
Research and development		235,372		218,271		935,938		884,816
General and administrative		42,093		31,985		139,806		133,406
Amortization of acquired intangibles		2,787		3,468		12,128		14,086
Restructuring and other charges		9,809		13,699		8,621		11,089

Total costs and expenses		490,656		456,160		1,844,523		1,741,813

Income from operations		108,899		113,690		491,796		396,209

Interest expense		(4,222)		(4,318)		(18,829)		(23,139)
Other income (expense), net		748		(735)		6,001		3,320

Income before provision (benefit) for income taxes		105,425		108,637		478,968		376,390

Provision (benefit) for income taxes		(554,250)		10,212		(510,011)		30,613

Net income	$	659,675	$	98,425	$	988,979	$	345,777


Net income per share - basic	$	2.41	$	0.36	$	3.62	$	1.26

Net income per share - diluted	$	2.36	$	0.35	$	3.53	$	1.23

Weighted average common shares outstanding - basic		273,234		273,680		273,239		273,729

Weighted average common shares outstanding - diluted		279,557		280,321		280,515		281,144

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Years Ended December 28, 2019 and December 29, 2018
(In thousands)
(Unaudited)

	Years Ended
	December 28,	December 29,
	2019	2018

Cash and cash equivalents at beginning of year	$ 533,298	$ 688,087
Cash flows from operating activities:
Net income	988,979	345,777
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	122,789	118,721
Amortization of debt discount and fees	1,001	1,196
Stock-based compensation	181,547	167,715
(Gain) loss on investments, net	4,090	(2,732)
Deferred income taxes	(576,738)	(11,676)
Provisions for losses on receivables	632	5,102
ROU asset amortization and change in operating lease liabilities	562	-
Other non-cash items	428	2,607
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables	(4,718)	(87,083)
Inventories	(33,024)	752
Prepaid expenses and other	(11,031)	(19,622)
Other assets	(8,011)	(14,606)
Accounts payable and accrued liabilities	33,915	1,553
Deferred revenue	27,498	100,696
Other long-term liabilities	1,681	(3,649)
Net cash provided by operating activities	729,600	604,751

Cash flows from investing activities:
Purchases of non-marketable investments	(33,717)	(115,839)
Proceeds from the sale of non-marketable investments	2,952	3,497
Purchases of property, plant and equipment	(74,605)	(61,503)
Cash paid in business combinations	(338)	-
Net cash used for investing activities	(105,708)	(173,845)

Cash flows from financing activities:
Proceeds from revolving credit facility	150,000	100,000
Payment on revolving credit facility	(250,000)	(85,000)
Principal payments on term loan	-	(300,000)
Proceeds from issuance of common stock	52,842	40,908
Stock received for payment of employee taxes on vesting of restricted stock	(90,580)	(69,921)
Payments for repurchases of common stock	(306,148)	(250,059)
Change in book overdraft	-	(3,867)
Net cash used for financing activities	(443,886)	(567,939)

Effect of exchange rate changes on cash and cash equivalents	(8,094)	(17,756)

Increase (decrease) in cash and cash equivalents	171,912	(154,789)

Cash and cash equivalents at end of year	$ 705,210	$ 533,298

Cadence Design Systems, Inc.
(Unaudited)

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

Americas	45%	46%	44%	44%	45%	44%	42%	44%	46%	44%
China	9%	8%	9%	13%	10%	10%	12%	10%	9%	10%
Other Asia	18%	18%	20%	18%	18%	19%	19%	21%	20%	20%
Europe, Middle East and Africa	20%	20%	19%	17%	19%	18%	20%	18%	18%	18%
Japan	8%	8%	8%	8%	8%	9%	7%	7%	7%	8%
Total	100%	100%	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	Q4	Year

Functional Verification, including hardware for emulation and prototyping	26%	23%	22%	25%	24%	24%	22%	20%	24%	23%
Digital IC Design and Signoff	30%	30%	30%	28%	29%	30%	31%	30%	29%	30%
Custom IC Design and Simulation	26%	26%	26%	25%	26%	25%	26%	26%	25%	25%
System Interconnect and Analysis	9%	9%	9%	9%	9%	9%	10%	9%	9%	9%
IP	9%	12%	13%	13%	12%	12%	11%	15%	13%	13%
Total	100%	100%	100%	100%	100%	100%	100%	100%	100%	100%

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of February 12, 2020
(Unaudited)

	Three Months Ending	Year Ending
	March 28, 2020	January 2, 2021
	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%
Acquisition and integration-related costs	1%	1%

Non-GAAP operating margin as a percent of total revenue�nbsp;	~30%	32% - 33%

�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 February 12, 2020
(Unaudited)

	Three Months Ending	Year Ending
	March 28, 2020	January 2, 2021
	Forecast	Forecast

Diluted net income per share on a GAAP basis	$0.32 to $0.34	$1.46 to $1.56

Amortization of acquired intangibles	0.05	0.23
Stock-based compensation expense	0.17	0.71
Acquisition and integration-related costs	0.01	0.07
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	(0.03)	(0.08)

Diluted net income per share on a non-GAAP basis�nbsp;	$0.53 to $0.55	$2.40 to $2.50

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of February 12, 2020
(Unaudited)

	Three Months Ending	Year Ending
	March 28, 2020	January 2, 2021
($ in millions)	Forecast	Forecast

Net income on a GAAP basis	$91 to $97	$410 to $438

Amortization of acquired intangibles	15	65
Stock-based compensation expense	47	198
Acquisition and integration-related costs	4	18
Other income or expense related to investments and non-qualified deferred compensation plan assets*	2	4
Income tax effect of non-GAAP adjustments	(10)	(23)

Net income on a non-GAAP basis�nbsp;	$149 to $155	$672 to $700

�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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