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

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

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

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