Cadence Reports Second Quarter 2020 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 11, 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 third quarter 2020 earnings release is published, which is currently scheduled for October 19, 2020.

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
June 27, 2020 and December 28, 2019
(In thousands)
(Unaudited)
 
June 27, 2020 December 28, 2019
 
Current assets:
Cash and cash equivalents

$

1,189,186

$

705,210

Receivables, net

 

312,758

 

304,546

Inventories

 

43,924

 

55,802

Prepaid expenses and other

 

93,915

 

103,785

Total current assets

 

1,639,783

 

1,169,343

 
Property, plant and equipment, net

 

282,738

 

275,855

Goodwill

 

778,857

 

661,856

Acquired intangibles, net

 

242,543

 

172,375

Deferred taxes

 

704,882

 

732,367

Other assets

 

350,694

 

345,429

Total assets

$

3,999,497

$

3,357,225

 
Current liabilities:
Revolving credit facility

$

350,000

$

-

Accounts payable and accrued liabilities

 

306,948

 

316,908

Current portion of deferred revenue

 

494,939

 

355,483

Total current liabilities

 

1,151,887

 

672,391

 
Long-term liabilities:
Long-term portion of deferred revenue

 

87,437

 

73,400

Long-term debt

 

346,394

 

346,019

Other long-term liabilities

 

157,148

 

162,521

Total long-term liabilities

 

590,979

 

581,940

 
Stockholders' equity

 

2,256,631

 

2,102,894

Total liabilities and stockholders' equity

$

3,999,497

$

3,357,225

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Six Months Ended June 27, 2020 and June 29, 2019
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended Six Months Ended
June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019
 
Revenue:
Product and maintenance

$

601,356

 

$

548,028

 

$

1,183,055

 

$

1,091,546

 

Services

 

37,062

 

 

32,391

 

 

73,320

 

 

65,615

 

 
Total revenue

 

638,418

 

 

580,419

 

 

1,256,375

 

 

1,157,161

 

 
Costs and expenses:
Cost of product and maintenance

 

55,669

 

 

43,388

 

 

111,115

 

 

93,910

 

Cost of services

 

19,546

 

 

18,081

 

 

38,563

 

 

38,144

 

Marketing and sales

 

120,476

 

 

116,208

 

 

246,220

 

 

233,038

 

Research and development

 

250,821

 

 

231,814

 

 

492,489

 

 

460,024

 

General and administrative

 

35,641

 

 

34,407

 

 

69,233

 

 

64,509

 

Amortization of acquired intangibles

 

4,590

 

 

3,159

 

 

8,796

 

 

6,467

 

Restructuring and other credits

 

(275

)

 

(313

)

 

(1,342

)

 

(1,002

)

 
Total costs and expenses

 

486,468

 

 

446,744

 

 

965,074

 

 

895,090

 

 
Income from operations

 

151,950

 

 

133,675

 

 

291,301

 

 

262,071

 

 
Interest expense

 

(5,914

)

 

(4,976

)

 

(10,551

)

 

(10,367

)

Other income (expense), net

 

4,630

 

 

(110

)

 

96

 

 

5,131

 

 
Income before provision for income taxes

 

150,666

 

 

128,589

 

 

280,846

 

 

256,835

 

 
Provision for income taxes

 

19,378

 

 

21,354

 

 

25,570

 

 

29,045

 

 
Net income

$

131,288

 

$

107,235

 

$

255,276

 

$

227,790

 

 
 
Net income per share - basic

$

0.48

 

$

0.39

 

$

0.93

 

$

0.83

 

 
Net income per share - diluted

$

0.47

 

$

0.38

 

$

0.91

 

$

0.81

 

 
Weighted average common shares outstanding - basic

 

273,432

 

 

273,159

 

 

273,488

 

 

273,155

 

 
Weighted average common shares outstanding - diluted

 

279,080

 

 

281,054

 

 

279,207

 

 

280,877

 

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 27, 2020 and June 29, 2019
(In thousands)
(Unaudited)
 

Six Months Ended

June 27,

June 29,

2020

2019

 
Cash and cash equivalents at beginning of period

$

705,210

 

$

533,298

 

Cash flows from operating activities:
Net income

 

255,276

 

 

227,790

 

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization

 

69,902

 

 

61,197

 

Amortization of debt discount and fees

 

512

 

 

497

 

Stock-based compensation

 

93,389

 

 

86,510

 

Loss on investments, net

 

4,036

 

 

259

 

Deferred income taxes

 

(1,609

)

 

(8,159

)

Provisions for losses (recoveries) on receivables

 

922

 

 

(386

)

ROU asset amortization and change in operating lease liabilities

 

1,502

 

 

2,504

 

Other non-cash items

 

296

 

 

160

 

Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables

 

(2,497

)

 

63,876

 

Inventories

 

11,020

 

 

(25,689

)

Prepaid expenses and other

 

9,910

 

 

33,055

 

Other assets

 

(17,687

)

 

2,547

 

Accounts payable and accrued liabilities

 

(11,141

)

 

(34,670

)

Deferred revenue

 

148,508

 

 

19,707

 

Other long-term liabilities

 

504

 

 

2,576

 

Net cash provided by operating activities

 

562,843

 

 

431,774

 

 
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

 

(43,535

)

 

(30,562

)

Cash paid in business combinations, net of cash acquired

 

(195,118

)

 

(338

)

Net cash used for investing activities

 

(238,653

)

 

(61,665

)

 
Cash flows from financing activities:
Proceeds from revolving credit facility

 

350,000

 

 

150,000

 

Payment on revolving credit facility

 

-

 

 

(250,000

)

Proceeds from issuance of common stock

 

43,667

 

 

32,855

 

Stock received for payment of employee taxes on vesting of restricted stock

 

(53,657

)

 

(45,698

)

Payments for repurchases of common stock

 

(175,036

)

 

(156,120

)

Net cash provided by (used for) financing activities

 

164,974

 

 

(268,963

)

 
Effect of exchange rate changes on cash and cash equivalents

 

(5,188

)

 

(1,029

)

 
Increase in cash and cash equivalents

 

483,976

 

 

100,117

 

 
Cash and cash equivalents at end of period

$

1,189,186

 

$

633,415

 

Cadence Design Systems, Inc.
(Unaudited)
 
Revenue Mix by Geography (% of Total Revenue)

2019

2020

GEOGRAPHY Q1 Q2 Q3 Q4 Year Q1 Q2
 
Americas

44

%

42

%

44

%

46

%

44

%

43

%

44

%

China

10

%

12

%

10

%

9

%

10

%

13

%

12

%

Other Asia

19

%

19

%

21

%

20

%

20

%

18

%

19

%

Europe, Middle East and Africa

18

%

20

%

18

%

18

%

18

%

19

%

18

%

Japan

9

%

7

%

7

%

7

%

8

%

7

%

7

%

Total

100

%

100

%

100

%

100

%

100

%

100

%

100

%

 
 
Revenue Mix by Product Category (% of Total Revenue)

2019

2020

PRODUCT CATEGORY Q1 Q2 Q3 Q4 Year Q1 Q2
 
Custom IC Design and Simulation

25

%

26

%

26

%

25

%

25

%

25

%

24

%

Digital IC Design and Signoff

30

%

31

%

30

%

29

%

30

%

29

%

28

%

Functional Verification, including Emulation and Prototyping Hardware

24

%

22

%

20

%

24

%

23

%

23

%

24

%

IP

12

%

11

%

15

%

13

%

13

%

14

%

14

%

System Interconnect and Analysis

9

%

10

%

9

%

9

%

9

%

9

%

10

%

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 20, 2020
(Unaudited)
 
Three Months Ending Year Ending
September 26, 2020 January 2, 2021
Forecast Forecast
 
GAAP operating margin as a percent of total revenue

~22%

 

~22%

 

 

 

Reconciling items to non-GAAP operating margin as a percent of total revenue:

 

 

 

Amortization of acquired intangibles

2%

 

2%

Stock-based compensation expense

7%

 

8%

Acquisition and integration-related costs

1%

 

1%

 

 

 

Non-GAAP operating margin as a percent of total revenue�nbsp;

~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 July 20, 2020
(Unaudited)
 
Three Months Ending Year Ending
September 26, 2020 January 2, 2021
Forecast Forecast
 
Diluted net income per share on a GAAP basis

$0.49 to $0.51

 

$1.84 to $1.90

 

 

 

Amortization of acquired intangibles

0.06

 

0.23

Stock-based compensation expense

0.16

 

0.70

Non-qualified deferred compensation expenses (credits)

-

 

-

Restructuring and other charges (credits)

-

 

-

Acquisition and integration-related costs

0.02

 

0.07

Other income or expense related to investments and non-qualified deferred compensation plan assets*

-

 

0.02

Income tax effect of non-GAAP adjustments

(0.14)

 

(0.36)

 

 

 

Diluted net income per share on a non-GAAP basis�nbsp;

$0.59 to $0.61

 

$2.50 to $2.56

 
 
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of July 20, 2020
(Unaudited)
 
Three Months Ending Year Ending
September 26, 2020 January 2, 2021
($ in millions) Forecast Forecast
 
Net income on a GAAP basis

$138 to $144

 

$516 to $533

 

 

 

Amortization of acquired intangibles

16

 

64

Stock-based compensation expense

45

 

197

Non-qualified deferred compensation expenses (credits)

-

 

(1)

Restructuring and other charges (credits)

-

 

(1)

Acquisition and integration-related costs

5

 

19

Other income or expense related to investments and non-qualified deferred compensation plan assets*

1

 

6

Income tax effect of non-GAAP adjustments

(40)

 

(100)

 

 

 

Net income on a non-GAAP basis�nbsp;

$165 to $171

 

$700 to $717

�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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