Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced
results for the second quarter of 2020.
Cadence reported second quarter 2020 revenue of $638 million,
compared to revenue of $580 million reported for the same period in
2019. On a GAAP basis, Cadence achieved operating margin of 24
percent and recognized net income of $131 million, or $0.47 per
share on a diluted basis, in the second quarter of 2020, compared
to operating margin of 23 percent and net income of $107 million,
or $0.38 per share on a diluted basis, for the same period in
2019.
Using the non-GAAP measure defined below, operating margin for
the second quarter of 2020 was 35 percent and net income was $185
million, or $0.66 per share on a diluted basis, compared to
operating margin of 34 percent and net income of $161 million, or
$0.57 per share on a diluted basis, for the same period in
2019.
“Cadence has adapted well to the difficult environment,
continuing to innovate and delight customers, while delivering
outstanding results for shareholders,” said Lip-Bu Tan, chief
executive officer. “While these are uncertain times, design
activity remains strong and our Intelligent System Design strategy
has us well positioned to take advantage of these opportunities. To
ensure business continuity, we are further investing in
infrastructure and collaboration platforms to maintain high levels
of productivity and innovation.”
“Cadence exceeded all of its key financial metrics for the
second quarter and we are raising our outlook for the year to 11%
revenue growth and 33% non-GAAP operating margin,” said John Wall,
senior vice president and chief financial officer. “Cadence
operated from approximately 50 sites across the globe before the
pandemic, and we are now operating from a distributed network of
more than 8,000 homes. We are blessed to have such a strong and
versatile global leadership group. I am very impressed and thankful
for how our team is not only rising to the challenge but thriving
in this environment.”
CFO Commentary
Commentary on the second 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 third quarter of 2020, the company expects total revenue
in the range of $630 million to $650 million. Third quarter GAAP
operating margin is expected to be approximately 22 percent and
GAAP net income per diluted share is expected to be in the range of
$0.49 to $0.51. Using the non-GAAP measure defined below, operating
margin is expected to be approximately 32 percent and net income
per diluted share is expected to be in the range of $0.59 to
$0.61.
For 2020, the company expects total revenue in the range of
$2.585 billion to $2.615 billion. On a GAAP basis, operating margin
is expected to be approximately 22 percent and GAAP net income per
diluted share for 2020 is expected to be in the range of $1.84 to
$1.90. Using the non-GAAP measure defined below, operating margin
for 2020 is expected to be approximately 33 percent and net income
per diluted share for 2020 is expected to be in the range of $2.50
to $2.56.
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 second quarter
2020 financial results audio webcast today, July 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 July 20, 2020
at 5 p.m. (Pacific) and ending September 11, 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 www.cadence.com/go/trademarks
are trademarks or registered trademarks of Cadence Design Systems,
Inc. All other trademarks are the property of their respective
owners.
This document includes forward-looking statements which are
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 highly
competitive industries in which it operates; (ii) the success of
Cadence’s efforts to maintain and improve operational efficiency
and growth; (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; (v) economic and
industry conditions, including that of the semiconductor and
electronics industries, government regulations and trade
restrictions; (vi) capital expenditure requirements, legislative or
regulatory requirements, changes in tax laws, interest rates,
currency exchange rate fluctuations and Cadence’s ability to access
capital and debt markets; (vii) the acquisition of other companies
or technologies or the failure to successfully integrate and
operate them; (viii) 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; (ix) the effects of any
litigation or other proceedings to which Cadence is or may become a
party; and (x) the duration, severity and effects of the COVID-19
pandemic and containment measures on Cadence, its employees, and
its suppliers and customers, which may also have the effect of
heightening the other risks described in this paragraph. 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
June 27, 2020
June 29, 2019
(unaudited)
GAAP operating margin as a percent of
total revenue
24
%
23
%
Reconciling items to non-GAAP operating
margin as a percent of total revenue:
Amortization of acquired intangibles
2
%
3
%
Stock-based compensation expense
7
%
8
%
Non-qualified deferred compensation
expenses
1
%
0
%
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
35
%
34
%
Net Income Reconciliation
Three Months Ended
June 27, 2020
June 29, 2019
(unaudited)
(in thousands)
Net income on a GAAP basis
$
131,288
$
107,235
Amortization of acquired intangibles
16,074
14,458
Stock-based compensation expense
46,907
44,257
Non-qualified deferred compensation
expenses
3,618
862
Restructuring and other credits
(275
)
(313
)
Acquisition and integration-related
costs
5,315
1,889
Special charges
270
—
Other income or expense related to
investments and non-qualified deferred compensation plan
assets*
(2,797
)
2,042
Income tax effect of non-GAAP
adjustments
(15,786
)
(9,331
)
Net income on a non-GAAP basis
$
184,614
$
161,099
*
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
June 27, 2020
June 29, 2019
(unaudited)
(in thousands, except per share data)
Diluted net income per share on a GAAP
basis
$
0.47
$
0.38
Amortization of acquired intangibles
0.06
0.05
Stock-based compensation expense
0.17
0.16
Non-qualified deferred compensation
expenses
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*
(0.01
)
0.01
Income tax effect of non-GAAP
adjustments
(0.06
)
(0.03
)
Diluted net income per share on a non-GAAP
basis
$
0.66
$
0.57
Shares used in calculation of diluted net
income per share — GAAP**
279,080
281,054
Shares used in calculation of diluted net
income per share — non-GAAP**
279,080
281,054
*
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 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†
~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 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†
$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†
$165 to $171
$700 to $717
†
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
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Cadence Investor Relations 408-944-7100
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