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Cadence Reports Second Quarter 2016 Financial Results

(PRNewswire) —  Cadence Design Systems, Inc. (NASDAQ: CDNS) today announced results for the second quarter 2016.

Cadence Logo.

Cadence reported second quarter 2016 revenue of $453 million, compared to revenue of $416 million reported for the same period in 2015.  On a GAAP basis, Cadence recognized net income of $49 million, or $0.17 per share on a diluted basis, in the second quarter of 2016, compared to net income of $58 million, or $0.19 per share on a diluted basis, for the same period in 2015.

Using the non-GAAP measure defined below, net income in the second quarter of 2016 was $86 million, or $0.29 per share on a diluted basis, as compared to net income of $85 million, or $0.27 per share on a diluted basis, for the same period in 2015.

"The second quarter was highlighted by strong business with systems companies across multiple vertical segments," said Lip-Bu Tan, president and chief executive officer.  "Demand for our new Palladium® Z1 emulation platform led to another record quarter for hardware revenue, and we introduced the next generation of our OrCAD® and Allegro® families of printed circuit board design products with support for flexible board technology."

"Through strong execution Cadence again produced good financial results in a challenging environment," said Geoff Ribar, senior vice president and chief financial officer.  "Since our current stock repurchase program began in Q3 of 2015, we have repurchased a total of 32.9 million shares for $720 million, representing approximately 11 percent of shares outstanding."

CFO Commentary

Commentary on the second quarter 2016 financial results by Geoff Ribar, senior vice president and chief financial officer, is available at www.cadence.com/cadence/investor_relations.

Business Outlook

For the third quarter of 2016, the company expects total revenue in the range of $440 million to $450 million.  Third quarter GAAP net income per diluted share is expected to be in the range of $0.17 to $0.19.  Net income per diluted share using the non-GAAP measure defined below is expected to be in the range of $0.27 to $0.29.

For 2016, the company expects total revenue in the range of $1.800 billion to $1.830 billion.  On a GAAP basis, net income per diluted share for 2016 is expected to be in the range of $0.70 to $0.76.  Using the non-GAAP measure defined below, net income per diluted share for 2016 is expected to be in the range of $1.17 to $1.23.

A schedule showing a reconciliation of the business outlook from GAAP net income and diluted net income per share to non-GAAP net income and diluted net income per share is included in this release.

Audio Webcast Scheduled

Lip-Bu Tan, president and chief executive officer, and Geoff Ribar, senior vice president and chief financial officer, will host a second quarter 2016 financial results audio webcast today, July 25, 2016, 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 25, 2016 at 5 p.m. (Pacific) and ending September 16, 2016 at 5 p.m. (Pacific).  Webcast access is available at www.cadence.com/cadence/investor_relations.

About Cadence

Cadence enables global electronic design innovation and plays an essential role in the creation of today's integrated circuits and electronics.  Customers use Cadence® software, hardware, IP, and services to design and verify advanced semiconductors, consumer electronics, networking and telecommunications equipment, and computer systems.  The company is headquartered in San Jose, California, with sales offices, design centers, and research facilities around the world to serve the global electronics industry.  More information about the company and its products and services is available at www.cadence.com.

Cadence, the Cadence logo, Allegro, OrCAD and Palladium are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

The statements contained above regarding Cadence's second quarter 2016 financial results, as well as the information in the Business Outlook section, are or include forward-looking statements based on current expectations or beliefs and preliminary assumptions about future events 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; (iii) the mix of products and services sold and the timing of significant orders for Cadence's products; (iv) change in customer demands, including those resulting from consolidation among Cadence's customers and the possibility that the restructurings and other efforts to improve operational efficiency of Cadence's customers could result in delays in purchases of Cadence's products and services; (v) economic and industry conditions 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, 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 improve operational efficiency in its business, including strategic, customer and supplier relationships, and its ability to retain key employees; (x) events that affect the reserves or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes, litigation or other matters; and (xi) the effects of any litigation or other proceedings to which Cadence is or may become a party.

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 and debt discount related to convertible notes, stock-based compensation expense, acquisition and integration-related costs including retention expenses, special charges, investment gains or losses, income or expenses related to Cadence's non-qualified deferred compensation plan, restructuring 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's management uses non-GAAP net income because it excludes items that are generally not directly related to the performance of the company's core business operations and therefore provides supplemental information to Cadence's 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's management, including forecasting and budgeting.

The following tables reconcile the specific items excluded from GAAP net income and GAAP net income per diluted share in the calculation of non-GAAP net income and non-GAAP net income per diluted share for the periods shown below:

Net Income Reconciliation


Three Months Ended



July 2, 2016


July 4, 2015



(unaudited)

(in thousands)





Net income on a GAAP basis


$

49,335


$

58,160

Amortization of acquired intangibles


15,083


16,224

Stock-based compensation expense


25,356


21,703

Non-qualified deferred compensation expenses


359


37

Restructuring and other charges (credits)


(74)


(498)

Acquisition and integration-related costs


7,190


1,681

Amortization of debt discount on convertible notes



2,470

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


(594)


(311)

Income tax effect of non-GAAP adjustments


(11,053)


(14,091)

Net income on a non-GAAP basis


$

85,602


$

85,375



*

Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on sale of 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



July 2, 2016


July 4, 2015



(unaudited)

(in thousands, except per share data)





Diluted net income per share on a GAAP basis


$

0.17


$

0.19

Amortization of acquired intangibles


0.05


0.05

Stock-based compensation expense


0.09


0.07

Non-qualified deferred compensation expenses



Restructuring and other charges (credits)



Acquisition and integration-related costs


0.02


Amortization of debt discount on convertible notes



0.01

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



Income tax effect of non-GAAP adjustments


(0.04)


(0.05)

Diluted net income per share on a non-GAAP basis


$

0.29


$

0.27

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


295,201


313,665

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


295,201


313,665



*

Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on sale of 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 16, 2016, 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 the company'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 the company.  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 the day when Cadence's third quarter 2016 earnings release is published, which is currently scheduled for October 24, 2016.

For more information, please contact:

Investors and Shareholders
Alan Lindstrom
Cadence Design Systems, Inc.
408-944-7100
Email Contact

Media and Industry Analysts
Craig Cochran
Cadence Design Systems, Inc.
408-944-7039
Email Contact

 

Cadence Design Systems, Inc.

Condensed Consolidated Balance Sheets

July 2, 2016 and January 2, 2016

(In thousands)

(Unaudited)










July 2, 2016


January 2, 2016







Current assets:





Cash and cash equivalents

$      669,573


$             616,686


Short-term investments

34,745


94,498


Receivables, net

156,444


164,848


Inventories

61,932


56,762


Prepaid expenses and other

39,485


31,441



Total current assets

962,179


964,235







Property, plant and equipment, net of accumulated depreciation of $604,532 and $581,345, respectively

235,911


228,599

Goodwill

573,714


551,772

Acquired intangibles, net of accumulated amortization of $239,170 and $216,589, respectively

287,888


296,482

Long-term receivables

17,368


4,498

Other assets

300,813


299,929

Total assets

$   2,377,873


$          2,345,515







Current liabilities:





Revolving credit facility

$        50,000


$                       -


Accounts payable and accrued liabilities

224,685


238,022


Current portion of deferred revenue

289,786


298,285



Total current liabilities

564,471


536,307







Long-term liabilities:





Long-term portion of deferred revenue

38,094


30,209


Long-term debt

643,073


343,288


Other long-term liabilities

56,842


59,596



Total long-term liabilities

738,009


433,093







Stockholders' equity

1,075,393


1,376,115

Total liabilities and stockholders' equity

$   2,377,873


$          2,345,515

 

Cadence Design Systems, Inc.

Condensed Consolidated Income Statements

For the Three and Six Months Ended July 2, 2016 and July 4, 2015

(In thousands, except per share amounts)

(Unaudited)



























Three Months Ended


Six Months Ended





July 2, 2016


July 4, 2015


July 2, 2016


July 4, 2015












Revenue:









Product and maintenance

$           419,963


$           384,951


$           831,707


$           768,588


Services

33,058


30,932


69,176


58,661














Total revenue

453,021


415,883


900,883


827,249












Costs and expenses:









Cost of product and maintenance

42,960


31,715


87,141


73,774


Cost of services

18,823


20,040


36,696


38,566


Marketing and sales

101,110


96,662


200,310


196,930


Research and development

182,371


157,974


362,277


320,970


General and administrative

36,388


27,467


64,688


55,109


Amortization of acquired intangibles

4,537


6,119


10,317


12,350


Restructuring and other charges (credits)

(74)


(498)


14,512


3,861














Total costs and expenses

386,115


339,479


775,941


701,560















Income from operations

66,906


76,404


124,942


125,689













Interest expense

(5,896)


(8,180)


(11,253)


(19,934)


Other income, net

2,842


1,347


7,605


6,128















Income before provision for income taxes

63,852


69,571


121,294


111,883













Provision for income taxes

14,517


11,411


21,397


17,464















Net income 

$             49,335


$             58,160


$             99,897


$             94,419























Net income per share - basic

$                 0.17


$                 0.20


$                 0.34


$                 0.33












Net income per share - diluted

$                 0.17


$                 0.19


$                 0.33


$                 0.30












Weighted average common shares outstanding - basic

288,191


285,297


292,403


284,910












Weighted average common shares outstanding - diluted

295,201


313,665


299,318


312,756

 

Cadence Design Systems, Inc. 

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended July 2, 2016 and July 4, 2015

(In thousands)

(Unaudited)







Six Months Ended


July 2, 


July 4,


2016


2015





Cash and cash equivalents at beginning of period

$                616,686


$                932,161

Cash flows from operating activities:




   Net income

99,897


94,419

   Adjustments to reconcile net income to net cash provided by operating activities:




      Depreciation and amortization

62,759


58,963

      Amortization of debt discount and fees

527


8,971

      Stock-based compensation

49,988


43,564

      Gain on investments, net

(3,265)


(1,590)

      Deferred income taxes

10,252


7,097

      Other non-cash items

750


1,142

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




         Receivables

(3,532)


(8,078)

         Inventories

(10,296)


(6,243)

         Prepaid expenses and other

(8,690)


(8,036)

         Other assets

(8,709)


1,117

         Accounts payable and accrued liabilities

(14,012)


(20,653)

         Deferred revenue

(7,412)


5,827

         Other long-term liabilities

(4,700)


(8,058)

            Net cash provided by operating activities

163,557


168,442





Cash flows from investing activities:




  Purchases of available-for-sale securities

(20,525)


(59,516)

  Proceeds from the sale of available-for-sale securities

55,168


37,586

  Proceeds from the maturity of available-for-sale securities

26,115


15,600

  Proceeds from the sale of long-term investments

2,583


2,293

  Purchases of property, plant and equipment

(28,287)


(24,067)

  Cash paid in business combinations and asset acquisitions, net of cash acquired

(41,627)


-

           Net cash used for investing activities

(6,573)


(28,104)





Cash flows from financing activities:




  Proceeds from term loan

300,000


-

  Proceeds from revolving credit facility

50,000


-

  Payment of convertible notes

-


(349,999)

  Payment of convertible notes embedded conversion derivative liability

-


(530,643)

  Proceeds from convertible notes hedges

-


530,643

  Payment of debt issuance costs

(622)


-

  Excess tax benefits from stock-based compensation

-


10,097

  Proceeds from issuance of common stock 

36,296


38,167

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

(17,490)


(15,814)

  Payments for repurchases of common stock

(480,100)


(93,076)

           Net cash used for financing activities

(111,916)


(410,625)





Effect of exchange rate changes on cash and cash equivalents

7,819


(14,023)





Increase (decrease) in cash and cash equivalents 

52,887


(284,310)





Cash and cash equivalents at end of period

$                669,573


$                647,851

 

Cadence Design Systems, Inc.

(Unaudited)




























Revenue Mix by Geography (% of Total Revenue)


2015


2016

GEOGRAPHY

 Q1 

 Q2 

 Q3 

 Q4 

 Year 


 Q1 

 Q2 










 Americas 

47%

48%

48%

48%

47%


49%

47%

 Asia 

24%

23%

25%

25%

24%


22%

24%

 Europe, Middle East and Africa 

19%

20%

18%

17%

19%


19%

20%

 Japan 

10%

9%

9%

10%

10%


10%

9%

Total

100%

100%

100%

100%

100%


100%

100%





































Revenue Mix by Product Group (% of Total Revenue)


2015


2016

PRODUCT GROUP

 Q1 

 Q2 

 Q3 

 Q4 

 Year 


 Q1 

 Q2 










 Functional Verification, including Emulation Hardware 

23%

21%

23%

25%

23%


26%

27%

 Digital IC Design and Signoff 

28%

29%

28%

28%

28%


30%

27%

 Custom IC Design 

27%

27%

26%

25%

26%


25%

26%

 System Interconnect and Analysis 

11%

11%

10%

10%

11%


9%

10%

 IP 

11%

12%

13%

12%

12%


10%

10%

Total

100%

100%

100%

100%

100%


100%

100%

 

Cadence Design Systems, Inc.

As of July 25, 2016

Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share 

(Unaudited)













Three Months Ending


Year Ending



October 1, 2016


December 31, 2016



Forecast


Forecast






Diluted net income per share on a GAAP basis

 $0.17 to $0.19 


 $0.70 to $0.76 







Amortization of acquired intangibles

0.05


0.21


Stock-based compensation expense

0.10


0.38


Restructuring and other charges

-


0.05


Acquisition and integration-related costs

-


0.04


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

-


(0.01)


Income tax effect of non-GAAP adjustments

(0.05)


(0.20)






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

 $0.27 to $0.29 


 $1.17 to $1.23 





















Cadence Design Systems, Inc.

As of July 25, 2016

Impact of Non-GAAP Adjustments on Forward Looking Net Income

(Unaudited)













Three Months Ending


Year Ending



October 1, 2016


December 31, 2016

($ in millions)

Forecast


Forecast






Net income on a GAAP basis

 $48 to $54 


 $203 to $221 







Amortization of acquired intangibles

14


61


Stock-based compensation expense

28


109


Restructuring and other charges 

-


15


Acquisition and integration-related costs

1


11


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

-


(3)


Income tax effect of non-GAAP adjustments

(14)


(57)






Net income on a non-GAAP basis�nbsp;

 $77 to $83 


 $339 to $357 












�nbsp;The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP. 







 * Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on sale of investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense. 

 

SOURCE CDNS-IR

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SOURCE Cadence Design Systems, Inc.

Contact:
Cadence Design Systems, Inc.
Web: http://www.cadence.com