Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced
results for the third quarter of 2020.
Cadence reported third quarter 2020 revenue of $667 million,
compared to revenue of $580 million reported for the same period in
2019. On a GAAP basis, Cadence achieved operating margin of 25
percent and recognized net income of $162 million, or $0.58 per
share on a diluted basis, in the third quarter of 2020, compared to
operating margin of 21 percent and net income of $102 million, or
$0.36 per share on a diluted basis, for the same period in
2019.
Using the non-GAAP measure defined below, operating margin for
the third quarter of 2020 was 36 percent and net income was $197
million, or $0.70 per share on a diluted basis, compared to
operating margin of 32 percent and net income of $153 million, or
$0.54 per share on a diluted basis, for the same period in
2019.
“Cadence delivered outstanding results in the third quarter by
continuing to innovate and delight customers,” said Lip-Bu Tan,
chief executive officer. “System and semiconductor design activity
remains strong and our Intelligent System Design strategy uniquely
positions us to enable our customers to realize their cutting-edge
designs. In the third quarter we expanded the scale and scope of
our relationship with a global marquee company, and I am especially
pleased with the momentum of our new systems products.”
“We are raising our 2020 revenue and earnings guidance primarily
due to higher second half hardware and IP sales activity in China
and continuing progress in our System Design and Analysis
business,” said John Wall, senior vice president and chief
financial officer.
During the third quarter of 2020, Cadence repurchased $75
million of its common stock and the Board of Directors has
increased the previously announced authorization by an additional
$750 million. As of the end of the third quarter of 2020,
approximately $869 million remained available under the
authorization to repurchase Cadence common stock. The actual timing
and amount of repurchases will be subject to business and market
conditions, corporate and regulatory requirements, stock price,
acquisition opportunities and other factors.
CFO Commentary
Commentary on the third 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 fourth quarter of 2020, the company expects total
revenue in the range of $720 million to $740 million. Fourth
quarter GAAP operating margin is expected to be in the range of 23
percent to 24 percent and GAAP net income per diluted share is
expected to be in the range of $0.48 to $0.52. Using the non-GAAP
measure defined below, operating margin is expected to be in the
range of 34 percent to 35 percent and net income per diluted share
is expected to be in the range of $0.72 to $0.76.
For 2020, the company expects total revenue in the range of
$2.643 billion to $2.663 billion. On a GAAP basis, operating margin
is expected to be in the range of 23 percent to 24 percent and GAAP
net income per diluted share for 2020 is expected to be in the
range of $1.97 to $2.01. Using the non-GAAP measure defined below,
operating margin for 2020 is expected to be in the range of 34
percent to 35 percent and net income per diluted share for 2020 is
expected to be in the range of $2.68 to $2.72.
Our fiscal years are 52- or 53-week periods ending on the
Saturday closest to December 31. Fiscal 2020 will be a 53-week
fiscal year, with an additional week in our fourth quarter of 2020.
Fiscal 2019 was a 52-week fiscal year.
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 third quarter
2020 financial results audio webcast today, October 19, 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 October 19,
2020 at 5 p.m. (Pacific) and ending December 18, 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 healthcare. 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
September 26, 2020
September 28, 2019
(unaudited)
GAAP operating margin as a percent of
total revenue
25%
21%
Reconciling items to non-GAAP operating
margin as a percent of total revenue:
Amortization of acquired intangibles
3%
2%
Stock-based compensation expense
7%
9%
Non-qualified deferred compensation
expenses
0%
0%
Restructuring and other charges
(credits)
0%
0%
Acquisition and integration-related
costs
1%
0%
Non-GAAP operating margin as a percent of
total revenue
36%
32%
Net Income Reconciliation
Three Months Ended
September 26, 2020
September 28, 2019
(unaudited)
(in thousands)
Net income on a GAAP basis
$
161,630
$
101,514
Amortization of acquired intangibles
15,885
12,799
Stock-based compensation expense
45,334
48,279
Non-qualified deferred compensation
expenses
1,779
52
Restructuring and other charges
(credits)
13
(186
)
Acquisition and integration-related
costs
6,739
1,838
Other income or expense related to
investments and non-qualified deferred compensation plan
assets*
(876
)
2,344
Income tax effect of non-GAAP
adjustments
(33,451
)
(13,899
)
Net income on a non-GAAP basis
$
197,053
$
152,741
*
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
September 26, 2020
September 28, 2019
(unaudited)
(in thousands, except per share data)
Diluted net income per share on a GAAP
basis
$
0.58
$
0.36
Amortization of acquired intangibles
0.06
0.04
Stock-based compensation expense
0.16
0.17
Non-qualified deferred compensation
expenses
—
—
Restructuring and other charges
(credits)
—
—
Acquisition and integration-related
costs
0.02
0.01
Other income or expense related to
investments and non-qualified deferred compensation plan
assets*
—
0.01
Income tax effect of non-GAAP
adjustments
(0.12
)
(0.05
)
Diluted net income per share on a non-GAAP
basis
$
0.70
$
0.54
Shares used in calculation of diluted net
income per share — GAAP**
280,024
280,666
Shares used in calculation of diluted net
income per share — non-GAAP**
280,024
280,666
*
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 December 18, 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 fourth quarter 2020
earnings release is published, which is currently scheduled for
February 22, 2021.
Cadence Design Systems, Inc. Condensed Consolidated
Balance Sheets September 26, 2020 and December 28, 2019
(In thousands) (Unaudited) September 26,
2020 December 28, 2019 Current assets: Cash and
cash equivalents
$
1,306,564
$
705,210
Receivables, net
300,413
304,546
Inventories
47,979
55,802
Prepaid expenses and other
81,526
103,785
Total current assets
1,736,482
1,169,343
Property, plant and equipment, net
288,163
275,855
Goodwill
780,842
661,856
Acquired intangibles, net
227,753
172,375
Deferred taxes
722,656
732,367
Other assets
384,256
345,429
Total assets
$
4,140,152
$
3,357,225
Current liabilities: Revolving credit facility
$
350,000
$
-
Accounts payable and accrued liabilities
290,886
316,908
Current portion of deferred revenue
477,003
355,483
Total current liabilities
1,117,889
672,391
Long-term liabilities: Long-term portion of deferred revenue
84,646
73,400
Long-term debt
346,584
346,019
Other long-term liabilities
195,315
162,521
Total long-term liabilities
626,545
581,940
Stockholders' equity
2,395,718
2,102,894
Total liabilities and stockholders' equity
$
4,140,152
$
3,357,225
Cadence Design Systems, Inc. Condensed Consolidated
Income Statements For the Three and Nine Months Ended
September 26, 2020 and September 28, 2019 (In thousands,
except per share amounts) (Unaudited) Three
Months Ended Nine Months Ended September 26,2020
September 28,2019 September 26,2020 September
28,2019 Revenue: Product and maintenance
$
630,329
$
548,105
$
1,813,384
$
1,639,651
Services
36,278
31,498
109,598
97,113
Total revenue
666,607
579,603
1,922,982
1,736,764
Costs and expenses: Cost of product and maintenance
64,800
41,715
175,915
135,625
Cost of services
17,484
19,260
56,047
57,404
Marketing and sales
123,738
121,368
369,958
354,406
Research and development
250,934
240,542
743,423
700,566
General and administrative
35,928
33,204
105,161
97,713
Amortization of acquired intangibles
4,438
2,874
13,234
9,341
Restructuring and other charges (credits)
13
(186
)
(1,329
)
(1,188
)
Total costs and expenses
497,335
458,777
1,462,409
1,353,867
Income from operations
169,272
120,826
460,573
382,897
Interest expense
(5,325
)
(4,240
)
(15,876
)
(14,607
)
Other income, net
1,766
122
1,862
5,253
Income before provision for income taxes
165,713
116,708
446,559
373,543
Provision for income taxes
4,083
15,194
29,653
44,239
Net income
$
161,630
$
101,514
$
416,906
$
329,304
Net income per share - basic
$
0.59
$
0.37
$
1.52
$
1.21
Net income per share - diluted
$
0.58
$
0.36
$
1.49
$
1.17
Weighted average common shares outstanding - basic
273,996
273,329
273,633
273,224
Weighted average common shares outstanding - diluted
280,024
280,666
279,455
280,817
Cadence Design Systems, Inc. Condensed Consolidated
Statements of Cash Flows For the Nine Months Ended September
26, 2020 and September 28, 2019 (In thousands)
(Unaudited)
Nine Months Ended
September 26,
September 28,
2020
2019
Cash and cash equivalents at beginning of period
$
705,210
$
533,298
Cash flows from operating activities: Net income
416,906
329,304
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
107,019
91,400
Amortization of debt discount and fees
770
747
Stock-based compensation
138,723
134,789
Loss on investments, net
5,118
2,655
Deferred income taxes
(18,966
)
(10,938
)
Provisions for losses (recoveries) on receivables
1,087
(358
)
ROU asset amortization and change in operating lease liabilities
2,064
4,285
Other non-cash items
410
197
Changes in operating assets and liabilities, net of effect of
acquired businesses: Receivables
9,945
26,553
Inventories
6,376
(43,781
)
Prepaid expenses and other
22,769
38,703
Other assets
(21,287
)
3,554
Accounts payable and accrued liabilities
(30,455
)
(4,001
)
Deferred revenue
124,491
(6,968
)
Other long-term liabilities
4,430
4,163
Net cash provided by operating activities
769,400
570,304
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
(63,745
)
(47,527
)
Cash paid in business combinations, net of cash acquired
(197,562
)
(338
)
Net cash used for investing activities
(261,307
)
(78,630
)
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
71,451
49,127
Stock received for payment of employee taxes on vesting of
restricted stock
(85,515
)
(75,016
)
Payments for repurchases of common stock
(250,047
)
(231,131
)
Net cash provided by (used for) financing activities
85,889
(357,020
)
Effect of exchange rate changes on cash and cash equivalents
7,372
(12,736
)
Increase in cash and cash equivalents
601,354
121,918
Cash and cash equivalents at end of period
$
1,306,564
$
655,216
Cadence Design Systems, Inc. (Unaudited)
Revenue Mix by Geography (% of Total Revenue)
2019
2020
GEOGRAPHY Q1 Q2
Q3 Q4 Year Q1 Q2 Q3
Americas
44%
42%
44%
46%
44%
43%
44%
42%
China
10%
12%
10%
9%
10%
13%
12%
17%
Other Asia
19%
19%
21%
20%
20%
18%
19%
19%
Europe, Middle East and Africa
18%
20%
18%
18%
18%
19%
18%
16%
Japan
9%
7%
7%
7%
8%
7%
7%
6%
Total
100%
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
Q3 Custom IC Design and Simulation
25%
26%
26%
25%
25%
25%
24%
24%
Digital IC Design and Signoff
30%
31%
30%
29%
30%
29%
28%
27%
Functional Verification, including Emulation and Prototyping
Hardware
24%
22%
20%
24%
23%
23%
24%
23%
IP
12%
11%
15%
13%
13%
14%
14%
15%
System Design and Analysis
9%
10%
9%
9%
9%
9%
10%
11%
Total
100%
100%
100%
100%
100%
100%
100%
100%
Cadence Design Systems, Inc. Impact of Non-GAAP
Adjustments on Forward Looking Operating Margin As of
October 19, 2020 (Unaudited) Three Months
Ending Year Ending January 2, 2021 January 2,
2021 Forecast Forecast GAAP operating
margin as a percent of total revenue
23% - 24%
23% - 24%
Reconciling items to non-GAAP operating margin as a percent of
total revenue:
Amortization of acquired intangibles
2%
3%
Stock-based compensation expense
8%
7%
Acquisition and integration-related costs
1%
1%
Non-GAAP operating margin as a percent of total revenue†
34% - 35%
34% - 35%
†
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 October
19, 2020 (Unaudited) Three Months Ending
Year Ending January 2, 2021 January 2, 2021
Forecast Forecast Diluted net income per share
on a GAAP basis
$0.48 to $0.52
$1.97 to $2.01
Amortization of acquired intangibles
0.06
0.23
Stock-based compensation expense
0.21
0.70
Non-qualified deferred compensation expenses
-
-
Restructuring and other charges (credits)
-
-
Acquisition and integration-related costs
0.02
0.08
Other income or expense related to investments and non-qualified
deferred compensation plan assets*
-
0.02
Income tax effect of non-GAAP adjustments
(0.05)
(0.32)
Diluted net income per share on a non-GAAP basis† $0.72 to
$0.76 $2.68 to $2.72
Cadence Design Systems,
Inc. Impact of Non-GAAP Adjustments on Forward Looking Net
Income As of October 19, 2020 (Unaudited)
Three Months Ending Year Ending January 2,
2021 January 2, 2021 ($ in millions)
Forecast Forecast Net income on a GAAP basis
$134 to $146 $551 to $563 Amortization of
acquired intangibles
17
64
Stock-based compensation expense
58
196
Non-qualified deferred compensation expenses
-
1
Restructuring and other charges (credits)
-
(1)
Acquisition and integration-related costs
5
21
Other income or expense related to investments and non-qualified
deferred compensation plan assets*
1
5
Income tax effect of non-GAAP adjustments
(14)
(88)
Net income on a non-GAAP basis† $201 to $213 $749 to $761
†
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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For more information, please contact:
Cadence Investor Relations 408-944-7100 investor_relations@cadence.com
Cadence Newsroom 408-944-7039 newsroom@cadence.com
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