SAN JOSE, Calif. — (BUSINESS WIRE) — April 23, 2018 — Cadence Design Systems, Inc. (NASDAQ: CDNS) today reported its results under new revenue rules, ASC Topic 606, for the first time. For the first quarter of 2018, Cadence reported revenue of $517 million, GAAP net income of $73 million, or $0.26 per share on a diluted basis, and non-GAAP net income (as defined below), of $113 million, or $0.40 per share on a diluted basis.
Cadence also reported its results under the old revenue rules, ASC Topic 605, as required under the modified retrospective transition method, to allow easier comparison with prior results, all of which were reported under ASC Topic 605.
Under ASC Topic 605, for the first quarter of 2018, Cadence reported revenue of $525 million, compared to revenue of $477 million reported for the same period in 2017. On a GAAP basis, Cadence recognized net income of $84 million, or $0.30 per share on a diluted basis, in the first quarter of 2018, compared to net income of $68 million, or $0.25 per share on a diluted basis for the same period in 2017. Using the non-GAAP measure defined below, net income for the first quarter of 2018 was $123 million, or $0.44 per share on a diluted basis, as compared to non-GAAP net income of $89 million, or $0.32 per share on a diluted basis, for the same period in 2017.
“The Data-Driven Economy is being propelled by key technology waves of mobile, cloud/datacenter, edge computing, automotive, and most significantly machine learning, all driving increasing design activity,” said Lip-Bu Tan, chief executive officer. “This is driving broad-based customer demand for our innovative System Design Enablement solutions that, along with strong execution, contributed to our excellent financial performance in the first quarter.”
“We are pleased with results for all of our key operating metrics including revenue, operating margin, EPS and operating cash flow,” said John Wall, senior vice president and chief financial officer. “On the strength of first quarter business and continuing momentum, we are raising our outlook for the year.”
CFO Commentary
Commentary on the first quarter 2018 financial results by John Wall, senior vice president and chief financial officer, is available at www.cadence.com/cadence/investor_relations.
Business Outlook
The outlook provided below is on an ASC Topic 606 basis, which Cadence has adopted for its fiscal year 2018 using the modified retrospective transition method. As required by the new standard, the company will report revenue under both methods for the 2018 transition year.
For the second quarter of 2018, the company expects total revenue in the range of $510 million to $520 million. Second quarter GAAP net income per diluted share is expected to be in the range of $0.20 to $0.22. Net income per diluted share using the non-GAAP measure defined below is expected to be in the range of $0.39 to $0.41.
For 2018, the company expects total revenue in the range of $2.055 billion to $2.085 billion. On a GAAP basis, net income per diluted share for 2018 is expected to be in the range of $0.86 to $0.94. Using the non-GAAP measure defined below, net income per diluted share for 2018 is expected to be in the range of $1.57 to $1.65.
For 2018, the company is forecasting a non-GAAP income tax rate of 16 percent, down from 23 percent used in 2017, primarily resulting from the tax rate reduction.
For comparison purposes, the company expects the outlook for 2018 on the prior ASC Topic 605 basis to be as follows: revenue in the range of $2.085 billion to $2.115 billion, GAAP net income per diluted share in the range of $0.97 to $1.05 and non-GAAP net income per diluted share in the range of $1.66 to $1.74.
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, chief executive officer, and John Wall, senior vice president and chief financial officer, will host the first quarter 2018 financial results audio webcast today, April 23, 2018, at 2 p.m. (Pacific) / 5 p.m. (Eastern). Attendees are asked to register at the website at least 10 minutes prior to the scheduled webcast. An archive of the webcast will be available starting April 23, 2018 at 5 p.m. (Pacific) and ending June 15, 2018 at 5 p.m. (Pacific). Webcast access is available at www.cadence.com/cadence/investor_relations.
About Cadence
Cadence enables electronic systems and semiconductor companies to create the innovative end products that are transforming the way people live, work and play. Cadence® software, hardware and semiconductor IP are used by customers to deliver products to market faster. The company’s System Design Enablement strategy helps customers develop differentiated products—from chips to boards to systems—in mobile, consumer, cloud datacenter, automotive, aerospace, IoT, industrial and other market segments. Cadence is listed as one of Fortune Magazine's 100 Best Companies to Work For. Learn more at cadence.com.
Cadence and the Cadence logo 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 first quarter 2018 financial results and outlook for 2018, 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, changes in tax laws, interest rates and Cadence’s ability to access capital and debt markets; (viii) the acquisition of other companies or technologies or the failure to successfully integrate and operate these companies or technologies Cadence acquires, including the potential inability to retain customers, key employees or vendors; (ix) the effects of Cadence’s efforts to improve operational efficiency in its business, including strategic, customer and supplier relationships, and its ability to retain key employees; (x) events that affect cash flow, liquidity, reserves or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, 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, 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 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 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 | |||||||||||
| ASC 606 | ASC 605 | ASC 605 | ||||||||||
| March 31, 2018 | March 31, 2018 | April 1, 2017 | ||||||||||
| (in thousands) | ||||||||||||
| Net income on a GAAP basis | $ | 72,885 | $ | 83,533 | $ | 68,259 | ||||||
| Amortization of acquired intangibles | 13,907 | 13,907 | 14,434 | |||||||||
| Stock-based compensation expense | 37,901 | 37,901 | 27,436 | |||||||||
| Non-qualified deferred compensation expenses | 127 | 127 | 1,269 | |||||||||
| Restructuring and other credits | (1,991 | ) | (1,991 | ) | (1,788 | ) | ||||||
| Acquisition and integration-related costs | 7,783 | 7,783 | 1,357 | |||||||||
| Other income or expense related to investments and non-qualified deferred compensation plan assets* | (1,123 | ) | (1,123 | ) | (1,228 | ) | ||||||
| Income tax effect of non-GAAP adjustments | (16,280 | ) | (17,515 | ) | (20,679 | ) | ||||||
| Net income on a non-GAAP basis | $ | 113,209 | $ | 122,622 | $ | 89,060 | ||||||
|
* 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 | |||||||||||
| ASC 606 | ASC 605 | ASC 605 | ||||||||||
| March 31, 2018 | March 31, 2018 | April 1, 2017 | ||||||||||
| (in thousands, except per share data) | ||||||||||||
| Diluted net income per share on a GAAP basis | $ | 0.26 | $ | 0.30 | $ | 0.25 | ||||||
| Amortization of acquired intangibles | 0.05 | 0.05 | 0.05 | |||||||||
| Stock-based compensation expense | 0.13 | 0.13 | 0.10 | |||||||||
| Non-qualified deferred compensation expenses | — | — | — | |||||||||
| Restructuring and other credits | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||
| Acquisition and integration-related costs | 0.03 | 0.03 | — | |||||||||
| Other income or expense related to investments and non-qualified deferred compensation plan assets* | — | — | — | |||||||||
| Income tax effect of non-GAAP adjustments | (0.06 | ) | (0.06 | ) | (0.07 | ) | ||||||
| Diluted net income per share on a non-GAAP basis | $ | 0.40 | $ | 0.44 | $ | 0.32 | ||||||
| Shares used in calculation of diluted net income per share — GAAP** | 281,651 | 281,651 | 277,736 | |||||||||
| Shares used in calculation of diluted net income per share — non-GAAP** | 281,651 | 281,651 | 277,736 | |||||||||
|
* Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense. |
| ** Shares used in the calculation of GAAP net income per share are expected to be the same as shares used in the calculation of non-GAAP net income per share, except when the company reports a GAAP net loss and non-GAAP net income, or GAAP net income and a non-GAAP net loss. |
Cadence expects that its corporate representatives will meet privately during the quarter with investors, the media, investment analysts and others. At these meetings, Cadence may reiterate the business outlook published in this press release. At the same time, Cadence will keep this press release, including the business outlook, publicly available on its website.
Prior to the start of the Quiet Period (described below), the public may continue to rely on the business outlook contained herein as still being Cadence’s current expectations on matters covered unless Cadence publishes a notice stating otherwise.
Beginning June 15, 2018, Cadence will observe a Quiet Period during which the business outlook as provided in this press release and the most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q no longer constitute Cadence’s current expectations. During the Quiet Period, the business outlook in these documents should be considered historical, speaking as of prior to the Quiet Period only and not subject to any update by Cadence. During the Quiet Period, Cadence’s representatives will not comment on Cadence’s business outlook, financial results or expectations. The Quiet Period will extend until Cadence’s second quarter 2018 earnings release is published, which is currently scheduled for July 23, 2018.
| Cadence Design Systems, Inc. | ||||||
| Condensed Consolidated Balance Sheets | ||||||
| March 31, 2018 and December 30, 2017 | ||||||
| (In thousands) | ||||||
| (Unaudited) | ||||||
| March 31, 2018 | December 30, 2017 | |||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 746,968 | $ | 688,087 | ||
| Short-term investments | 5,466 | 4,455 | ||||
|
Receivables, net of allowances of $666 and $0, respectively |
225,822 | 190,426 | ||||
| Inventories | 30,090 | 33,209 | ||||
| Prepaid expenses and other | 61,597 | 63,811 | ||||
| Total current assets | 1,069,943 | 979,988 | ||||
|
Property, plant and equipment, net of accumulated depreciation of $673,265 and $658,377, respectively |
249,810 | 251,342 | ||||
| Goodwill | 665,615 | 666,009 | ||||
|
Acquired intangibles, net of accumulated amortization of $295,018 and $297,456, respectively |
264,927 | 278,835 | ||||
| Long-term receivables | 9,380 | 12,239 | ||||
| Other assets | 226,998 | 230,301 | ||||
| Total assets | $ | 2,486,673 | $ | 2,418,714 | ||
| Current liabilities: | ||||||
| Revolving credit facility | $ | 45,000 | $ | 85,000 | ||
| Current portion of long-term debt | 299,826 | - | ||||
| Accounts payable and accrued liabilities | 210,784 | 221,101 | ||||
| Current portion of deferred revenue | 310,639 | 336,297 | ||||
| Total current liabilities | 866,249 | 642,398 | ||||
| Long-term liabilities: | ||||||
| Long-term portion of deferred revenue | 56,276 | 61,513 | ||||
| Long-term debt | 344,766 | 644,369 | ||||
| Other long-term liabilities | 77,084 | 81,232 | ||||
| Total long-term liabilities | 478,126 | 787,114 | ||||
| Stockholders' equity | 1,142,298 | 989,202 | ||||
| Total liabilities and stockholders' equity | $ | 2,486,673 | $ | 2,418,714 | ||
| Cadence Design Systems, Inc. | ||||||||
| Condensed Consolidated Income Statements | ||||||||
| For the Three Months Ended March 31, 2018 and April 1, 2017 | ||||||||
| (In thousands, except per share amounts) | ||||||||
| (Unaudited) | ||||||||
| Three Months Ended | ||||||||
| March 31, 2018 | April 1, 2017 | |||||||
| Revenue: | ||||||||
| Product and maintenance | $ | 480,609 | $ | 451,407 | ||||
| Services | 36,704 | 25,504 | ||||||
| Total revenue | 517,313 | 476,911 | ||||||
| Costs and expenses: | ||||||||
| Cost of product and maintenance | 41,730 | 43,717 | ||||||
| Cost of services | 21,479 | 18,075 | ||||||
| Marketing and sales | 109,148 | 103,347 | ||||||
| Research and development | 224,185 | 198,286 | ||||||
| General and administrative | 33,299 | 31,816 | ||||||
| Amortization of acquired intangibles | 3,630 | 3,856 | ||||||
| Restructuring and other credits | (1,991 | ) | (1,788 | ) | ||||
| Total costs and expenses | 431,480 | 397,309 | ||||||
| Income from operations | 85,833 | 79,602 | ||||||
| Interest expense | (6,975 | ) | (6,479 | ) | ||||
|
Other income (expense), net |
(689 | ) | 1,059 | |||||
| Income before provision for income taxes | 78,169 | 74,182 | ||||||
| Provision for income taxes | 5,284 | 5,923 | ||||||
| Net income | $ | 72,885 | $ | 68,259 | ||||
| Net income per share - basic | $ | 0.27 | $ | 0.25 | ||||
| Net income per share - diluted | $ | 0.26 | $ | 0.25 | ||||
| Weighted average common shares outstanding - basic | 273,773 | 270,173 | ||||||
| Weighted average common shares outstanding - diluted | 281,651 | 277,736 | ||||||
| Cadence Design Systems, Inc. | ||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||
| For the Three Months Ended March 31, 2018 and April 1, 2017 | ||||||||
| (In thousands) | ||||||||
| (Unaudited) | ||||||||
| Three Months Ended | ||||||||
| March 31, | April 1, | |||||||
| 2018 | 2017 | |||||||
| Cash and cash equivalents at beginning of period | $ | 688,087 | $ | 465,232 | ||||
| Cash flows from operating activities: | ||||||||
| Net income | 72,885 | 68,259 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 29,389 | 28,894 | ||||||
| Amortization of debt discount and fees | 292 | 350 | ||||||
| Stock-based compensation | 37,901 | 27,436 | ||||||
| Gain on investments, net | (1,123 | ) | (1,228 | ) | ||||
| Deferred income taxes | 1,363 | 1,990 | ||||||
| Provisions for losses on receivables | 666 | - | ||||||
| Other non-cash items | (43 | ) | 1,359 | |||||
| Changes in operating assets and liabilities, net of effect of acquired businesses: | ||||||||
| Receivables | (10,988 | ) | (22,475 | ) | ||||
| Inventories | 2,105 | 6,000 | ||||||
| Prepaid expenses and other | 8,392 | (3,777 | ) | |||||
| Other assets | 8,152 | (3,657 | ) | |||||
| Accounts payable and accrued liabilities | (46,956 | ) | (46,159 | ) | ||||
| Deferred revenue | 59,854 | 34,325 | ||||||
| Other long-term liabilities | (4,242 | ) | 1,113 | |||||
| Net cash provided by operating activities | 157,647 | 92,430 | ||||||
| Cash flows from investing activities: | ||||||||
| Proceeds from the sale of available-for-sale securities | - | 107 | ||||||
| Purchases of property, plant and equipment | (13,128 | ) | (14,843 | ) | ||||
| Net cash used for investing activities | (13,128 | ) | (14,736 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from revolving credit facility | - | 50,000 | ||||||
| Payment on revolving credit facility | (40,000 | ) | (50,000 | ) | ||||
| Payment of debt issuance costs | - | (793 | ) | |||||
| Proceeds from issuance of common stock | 23,339 | 22,715 | ||||||
| Stock received for payment of employee taxes on vesting of restricted stock | (26,515 | ) | (22,470 | ) | ||||
| Payments for repurchases of common stock | (50,013 | ) | - | |||||
| Change in book overdraft | (3,867 | ) | - | |||||
| Net cash used for financing activities | (97,056 | ) | (548 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | 11,418 | 1,750 | ||||||
| Increase in cash and cash equivalents | 58,881 | 78,896 | ||||||
| Cash and cash equivalents at end of period | $ | 746,968 | $ | 544,128 | ||||
| Cadence Design Systems, Inc. | ||||||||||||||
| (Unaudited) | ||||||||||||||
| Revenue Mix by Geography (% of Total Revenue) | ASC 605 | ASC 605 | ASC 606 | |||||||||||
| 2017 | 2018 | 2018 | ||||||||||||
|
GEOGRAPHY |
Q1 | Q2 | Q3 | Q4 | Year | Q1 | Q1 | |||||||
| Americas | 45% | 45% | 45% | 44% | 44% | 45% | 45% | |||||||
| Asia | 26% | 28% | 27% | 28% | 27% | 26% | 27% | |||||||
| Europe, Middle East and Africa | 20% | 19% | 19% | 20% | 20% | 21% | 20% | |||||||
| Japan | 9% | 8% | 9% | 8% | 9% | 8% | 8% | |||||||
| Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | |||||||
| Revenue Mix by Product Group (% of Total Revenue) | ASC 605 | ASC 605 | ASC 606 | |||||||||||
| 2017 | 2018 | 2018 | ||||||||||||
|
PRODUCT GROUP |
Q1 | Q2 | Q3 | Q4 | Year | Q1 | Q1 | |||||||
| Functional Verification, including Emulation and Prototyping Hardware | 23% | 23% | 21% | 23% | 22% | 26% | 26% | |||||||
| Digital IC Design and Signoff | 29% | 30% | 30% | 29% | 29% | 29% | 30% | |||||||
| Custom IC Design | 26% | 26% | 28% | 26% | 27% | 26% | 26% | |||||||
| System Interconnect and Analysis | 10% | 10% | 10% | 10% | 10% | 9% | 9% | |||||||
| IP | 12% | 11% | 11% | 12% | 12% | 10% | 9% | |||||||
| Total | 100% | 100% | 100% | 100% | 100% | 100% | 100% | |||||||
| Cadence Design Systems, Inc. | ||||||
| As of April 23, 2018 | ||||||
| Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share | ||||||
| (Unaudited) | ||||||
|
Three Months Ending |
Year Ending | Year Ending | ||||
| June 30, 2018 | December 29, 2018 | December 29, 2018 | ||||
| ASC 606 Forecast | ASC 606 Forecast | ASC 605 Forecast ** | ||||
| Diluted net income per share on a GAAP basis | $0.20 to $0.22 | $0.86 to $0.94 | $0.97 to $1.05 | |||
| Amortization of acquired intangibles | 0.05 | 0.19 | 0.19 | |||
| Stock-based compensation expense | 0.14 | 0.59 | 0.59 | |||
| Restructuring and other charges (credits) | - | (0.01) |
(0.01) |
|||
| Acquisition and integration-related costs | 0.02 | 0.09 | 0.09 | |||
|
Other income or expense related to investments and non-qualified deferred compensation plan assets* |
- | - | - | |||
| Income tax effect of non-GAAP adjustments | (0.02) | (0.15) |
(0.17) |
|||
| Diluted net income per share on a non-GAAP basis�nbsp; | $0.39 to $0.41 | $1.57 to $1.65 | $1.66 to $1.74 | |||
| Cadence Design Systems, Inc. | ||||||
| As of April 23, 2018 | ||||||
| Impact of Non-GAAP Adjustments on Forward Looking Net Income | ||||||
| (Unaudited) | ||||||
| Three Months Ending | Year Ending | Year Ending | ||||
| June 30, 2018 | December 29, 2018 | December 29, 2018 | ||||
| ($ in millions) | ASC 606 Forecast | ASC 606 Forecast | ASC 605 Forecast ** | |||
| Net income on a GAAP basis | $57 to $63 | $243 to $265 | $273 to $296 | |||
| Amortization of acquired intangibles | 14 | 54 | 54 | |||
| Stock-based compensation expense | 39 | 166 | 166 | |||
| Restructuring and other charges (credits) | - | (2) |
(2) |
|||
| Acquisition and integration-related costs | 7 | 26 | 26 | |||
|
Other income or expense related to investments and non-qualified deferred compensation plan assets* |
- | (1) |
(1) |
|||
| Income tax effect of non-GAAP adjustments | (7) | (43) |
(48) |
|||
| Net income on a non-GAAP basis�nbsp; | $110 to $116 | $443 to $465 | $468 to $491 | |||
|
|
||||||
|
�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 investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense. |
| ** As required by the new standard, Cadence will report revenue under both methods for the 2018 transition year. |
CDNS-IR
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