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 Cadence Reports First Quarter 2020 Financial Results
   Monday, April 20, 2020 4:05:00 PM ET

SAN JOSE, Calif.--(BUSINESS WIRE)--Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the first quarter of 2020.

Cadence reported first quarter 2020 revenue of $618 million, compared to revenue of $577 million reported for the same period in 2019. On a GAAP basis, Cadence achieved operating margin of 23 percent and recognized net income of $124 million, or $0.44 per share on a diluted basis, in the first quarter of 2020, compared to operating margin of 22 percent and net income of $121 million, or $0.43 per share on a diluted basis, for the same period in 2019.



Using the non-GAAP measure defined below, operating margin for the first quarter of 2020 was 32 percent and net income was $166 million, or $0.60 per share on a diluted basis, compared to operating margin of 32 percent and net income of $152 million, or $0.54 per share on a diluted basis, for the same period in 2019.

“I am pleased to report that in a difficult environment we have continued to deliver on our strategy and commitments, leading to excellent financial results for the first quarter of 2020, and we are reaffirming our 10 percent revenue growth guidance for the year,” said Lip-Bu Tan, chief executive officer. “We are going through truly unprecedented times and our first priority is ensuring the safety and well-being of our employees, customers and communities. From a business continuity perspective, our infrastructure, collaboration platforms and tight communication have enabled us to maintain a high level of productivity, and our R&D innovation projects and customer deliverables continue to track well.”

“Cadence met or exceeded its key financial metrics for the first quarter despite some disruption caused by the COVID-19 pandemic,” said John Wall, senior vice president and chief financial officer. “The vast majority of our team are effectively working from home, including our sales and application engineering teams that have adapted well to this new work model as they continue to engage productively with customers on the business, training and support fronts.”

CFO Commentary

Commentary on the first quarter 2020 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 second quarter of 2020, the company expects total revenue in the range of $580 million to $600 million. Second quarter GAAP operating margin is expected to be approximately 18 percent and GAAP net income per diluted share is expected to be in the range of $0.28 to $0.32. 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 $0.50 to $0.54.

For 2020, the company expects total revenue in the range of $2.545 billion to $2.585 billion. On a GAAP basis, operating margin is expected to be in the range of 21 percent to 22 percent and net income per diluted share for 2020 is expected to be in the range of $1.58 to $1.68. Using the non-GAAP measure defined below, operating margin for 2020 is expected to be in the range of 32 percent to 33 percent and net income per diluted share for 2020 is expected to be in the range of $2.40 to $2.50.

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 first quarter 2020 financial results audio webcast today, April 20, 2020, 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 April 20, 2020 at 5 p.m. (Pacific) and ending June 12, 2020 at 5 p.m. (Pacific). Webcast access is available at www.cadence.com/cadence/investor_relations .

About Cadence

Cadence is a pivotal leader in electronic design, building upon more than 30 years of computational software expertise. The company applies its underlying Intelligent System Design strategy to deliver software, hardware and IP that turn design concepts into reality. Cadence customers are the world’s most innovative companies, delivering extraordinary electronic products from chips to boards to systems for the most dynamic market applications including consumer, hyperscale computing, 5G communications, automotive, aerospace, industrial and health. For six years in a row, Fortune Magazine has named Cadence one of the 100 Best Companies to Work For. Learn more at cadence.com .

© 2020 Cadence Design Systems, Inc. All rights reserved worldwide. Cadence, the Cadence logo and the other Cadence marks found at 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, including strategic, customer and supplier relationships; (iii) the mix of products and services sold, the timing of orders and the ability to develop, install or deliver Cadence’s products or services; (iv) change in customer demands that could result in delays in purchases, development, installations or deliveries of Cadence's products or services, including those resulting from consolidation, restructurings and other operational efficiency improvements of Cadence’s customers, economic conditions, government regulations, trade restrictions or the COVID-19 pandemic; (v) economic and industry conditions, government regulations, trade restrictions and the duration and severity of the COVID-19 pandemic and containment measures 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 maintain and improve operational efficiency in its business, including its ability to retain key employees and to have the vast majority of its employees work remotely during the COVID-19 pandemic; (x) events that affect cash flow, liquidity, or reserves, or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation or other matters; (xi) the effects of any litigation or other proceedings to which Cadence is or may become a party; and (xii) the effects of the COVID-19 pandemic and containment measures. 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, executive severance 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

 

 

March 28, 2020

 

March 30, 2019

 

 

(unaudited)

GAAP operating margin as a percent of total revenue

 

23

%

 

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

%

 

7

%

Non-qualified deferred compensation expenses (credits)

 

(1

)%

 

1

%

Restructuring and other credits

 

0

%

 

0

%

Acquisition and integration-related costs

 

1

%

 

0

%

Special charges

 

0

%

 

0

%

Non-GAAP operating margin as a percent of total revenue

 

32

%

 

32

%

Net Income Reconciliation

 

Three Months Ended

 

 

March 28, 2020

 

March 30, 2019

 

 

(unaudited)

(in thousands)

 

 

 

 

Net income on a GAAP basis

 

$

123,988

 

 

$

120,555

 

Amortization of acquired intangibles

 

15,066

 

 

13,162

 

Stock-based compensation expense

 

46,482

 

 

42,253

 

Non-qualified deferred compensation expenses (credits)

 

(4,796

)

 

2,540

 

Restructuring and other credits

 

(1,067

)

 

(689

)

Acquisition and integration-related costs

 

3,970

 

 

914

 

Special charges

 

124

 

 

 

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

 

8,011

 

 

(5,187

)

Income tax effect of non-GAAP adjustments

 

(25,483

)

 

(21,307

)

Net income on a non-GAAP basis

 

$

166,295

 

 

$

152,241

 

*

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

 

 

March 28, 2020

 

March 30, 2019

 

 

(unaudited)

(in thousands, except per share data)

 

 

 

 

Diluted net income per share on a GAAP basis

 

$

0.44

 

 

$

0.43

 

Amortization of acquired intangibles

 

0.05

 

 

0.05

 

Stock-based compensation expense

 

0.17

 

 

0.15

 

Non-qualified deferred compensation expenses (credits)

 

(0.02

)

 

0.01

 

Restructuring and other credits

 

 

 

 

Acquisition and integration-related costs

 

0.02

 

 

 

Special charges

 

 

 

 

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

 

0.03

 

 

(0.02

)

Income tax effect of non-GAAP adjustments

 

(0.09

)

 

(0.08

)

Diluted net income per share on a non-GAAP basis

 

$

0.60

 

 

$

0.54

 

Shares used in calculation of diluted net income per share — GAAP**

 

279,265

 

 

280,615

 

Shares used in calculation of diluted net income per share — non-GAAP**

 

279,265

 

 

280,615

 

*

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 June 12, 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 second quarter 2020 earnings release is published, which is currently scheduled for the week of July 20, 2020.

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

$

946,285

$

705,210

Receivables, net

 

284,093

 

304,546

Inventories

 

60,575

 

55,802

Prepaid expenses and other

 

108,554

 

103,785

Total current assets

 

1,399,507

 

1,169,343

 
Property, plant and equipment, net

 

281,207

 

275,855

Goodwill

 

778,992

 

661,856

Acquired intangibles, net

 

258,617

 

172,375

Deferred taxes

 

699,194

 

732,367

Other assets

 

350,456

 

345,429

Total assets

$

3,767,973

$

3,357,225

 
Current liabilities:
Revolving credit facility

$

350,000

$

-

Accounts payable and accrued liabilities

 

236,813

 

316,908

Current portion of deferred revenue

 

425,616

 

355,483

Total current liabilities

 

1,012,429

 

672,391

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

 

95,503

 

73,400

Long-term debt

 

346,205

 

346,019

Other long-term liabilities

 

155,842

 

162,521

Total long-term liabilities

 

597,550

 

581,940

 
Stockholders' equity

 

2,157,994

 

2,102,894

Total liabilities and stockholders' equity

$

3,767,973

$

3,357,225

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three Months Ended March 28, 2020 and March 30, 2019
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 28, 2020March 30, 2019
 
Revenue:
Product and maintenance

$

581,699

 

$

543,518

 

Services

 

36,258

 

 

33,224

 

 
Total revenue

 

617,957

 

 

576,742

 

 
Costs and expenses:
Cost of product and maintenance

 

55,446

 

 

50,522

 

Cost of services

 

19,017

 

 

20,063

 

Marketing and sales

 

125,744

 

 

116,830

 

Research and development

 

241,668

 

 

228,210

 

General and administrative

 

33,592

 

 

30,102

 

Amortization of acquired intangibles

 

4,206

 

 

3,308

 

Restructuring and other credits

 

(1,067

)

 

(689

)

 
Total costs and expenses

 

478,606

 

 

448,346

 

 
Income from operations

 

139,351

 

 

128,396

 

 
Interest expense

 

(4,637

)

 

(5,391

)

Other income (expense), net

 

(4,534

)

 

5,241

 

 
Income before provision for income taxes

 

130,180

 

 

128,246

 

 
Provision for income taxes

 

6,192

 

 

7,691

 

 
Net income

$

123,988

 

$

120,555

 

 
 
Net income per share - basic

$

0.45

 

$

0.44

 

 
Net income per share - diluted

$

0.44

 

$

0.43

 

 
Weighted average common shares outstanding - basic

 

273,476

 

 

273,066

 

 
Weighted average common shares outstanding - diluted

 

279,265

 

 

280,615

 

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 28, 2020 and March 30, 2019
(In thousands)
(Unaudited)

Three Months Ended

March 28,

 

March 30,

2020

 

2019

 
Cash and cash equivalents at beginning of period

$

705,210

 

$

533,298

 

Cash flows from operating activities:
Net income

 

123,988

 

 

120,555

 

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

 

33,321

 

 

29,740

 

Amortization of debt discount and fees

 

254

 

 

247

 

Stock-based compensation

 

46,482

 

 

42,253

 

(Gain) loss on investments, net

 

3,215

 

 

(2,646

)

Deferred income taxes

 

3,904

 

 

(4,966

)

Recoveries on receivables

 

(77

)

 

(183

)

ROU asset amortization and change in operating lease liabilities

 

706

 

 

1,341

 

Other non-cash items

 

183

 

 

122

 

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

 

26,475

 

 

35,681

 

Inventories

 

(5,260

)

 

(10,618

)

Prepaid expenses and other

 

(4,964

)

 

15,618

 

Other assets

 

(8,344

)

 

4,559

 

Accounts payable and accrued liabilities

 

(84,839

)

 

(41,261

)

Deferred revenue

 

86,914

 

 

(4,451

)

Other long-term liabilities

 

(4,239

)

 

(577

)

Net cash provided by operating activities

 

217,719

 

 

185,414

 

 
Cash flows from investing activities:
Purchases of non-marketable investments

 

-

 

 

(33,664

)

Proceeds from the sale of non-marketable investments

 

-

 

 

2,952

 

Purchases of property, plant and equipment

 

(22,179

)

 

(15,275

)

Cash paid in business combinations, net of cash acquired

 

(193,820

)

 

-

 

Net cash used for investing activities

 

(215,999

)

 

(45,987

)

 
Cash flows from financing activities:
Proceeds from revolving credit facility

 

350,000

 

 

50,000

 

Payment on revolving credit facility

 

-

 

 

(100,000

)

Proceeds from issuance of common stock

 

33,312

 

 

29,858

 

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

 

(37,528

)

 

(32,822

)

Payments for repurchases of common stock

 

(100,022

)

 

(81,114

)

Net cash provided by (used for) financing activities

 

245,762

 

 

(134,078

)

 
Effect of exchange rate changes on cash and cash equivalents

 

(6,407

)

 

251

 

 
Increase in cash and cash equivalents

 

241,075

 

 

5,600

 

 
Cash and cash equivalents at end of period

$

946,285

 

$

538,898

 

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

 

 

 

 

 

 

 

 

 

 

 

2019

 

2020

Q1

 

Q2

 

Q3

 

Q4

 

Year

 

Q1

 
Americas

44%

42%

44%

46%

44%

43%

China

10%

12%

10%

9%

10%

13%

Other Asia

19%

19%

21%

20%

20%

18%

Europe, Middle East and Africa

18%

20%

18%

18%

18%

19%

Japan

9%

7%

7%

7%

8%

7%

Total

100%

100%

100%

100%

100%

100%

Revenue Mix by Product Group (% of Total Revenue)

2019

 

2020

Q1

 

Q2

 

Q3

 

Q4

 

Year

 

Q1

 
Functional Verification

24%

22%

20%

24%

23%

23%

Digital IC Design and Signoff

30%

31%

30%

29%

30%

29%

Custom IC Design and Simulation

25%

26%

26%

25%

25%

25%

System Interconnect and Analysis

9%

10%

9%

9%

9%

9%

IP

12%

11%

15%

13%

13%

14%

Total

100%

100%

100%

100%

100%

100%

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of April 20, 2020
(Unaudited)
 
Three Months EndingYear Ending
June 27, 2020January 2, 2021
ForecastForecast
 
GAAP operating margin as a percent of total revenue

~18%

 

21% - 22%

 

 

 

Reconciling items to non-GAAP operating margin as a

 

 

 

percent of total revenue:

 

 

 

Amortization of acquired intangibles

3%

 

2%

Stock-based compensation expense

8%

 

8%

Acquisition and integration-related costs

1%

 

1%

 

 

 

Non-GAAP operating margin as a percent of total revenue†

~30%

 

32% - 33%

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 April 20, 2020
(Unaudited)
 
Three Months EndingYear Ending
June 27, 2020January 2, 2021
ForecastForecast
 
Diluted net income per share on a GAAP basis

$0.28 to $0.32

 

$1.58 to $1.68

 

 

 

Amortization of acquired intangibles

0.06

 

0.23

Stock-based compensation expense

0.17

 

0.71

Non-qualified deferred compensation expenses (credits)

-

 

(0.02)

Restructuring and other charges (credits)

-

 

-

Acquisition and integration-related costs

0.02

 

0.06

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

-

 

0.03

Income tax effect of non-GAAP adjustments

(0.03)

 

(0.19)

 

 

 

Diluted net income per share on a non-GAAP basis†

$0.50 to $0.54

 

$2.40 to $2.50

 
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of April 20, 2020
(Unaudited)
 
Three Months EndingYear Ending
June 27, 2020January 2, 2021
($ in millions)ForecastForecast
 
Net income on a GAAP basis

$79 to $89

 

$441 to $469

 

 

 

Amortization of acquired intangibles

16

 

64

Stock-based compensation expense

48

 

200

Non-qualified deferred compensation expenses (credits)

-

 

(5)

Restructuring and other charges (credits)

-

 

(1)

Acquisition and integration-related costs

4

 

16

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

1

 

10

Income tax effect of non-GAAP adjustments

(9)

 

(53)

 

 

 

Net income on a non-GAAP basis†

$139 to $149

 

$672 to $700

 

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

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

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

Source: Cadence Design Systems, Inc.



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