Cadence Reports Third Quarter 2018 Financial Results

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 14, 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 fourth quarter 2018 earnings release is published, which is currently scheduled for February 19, 2019.


Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
September 29, 2018 and December 30, 2017
(In thousands)
(Unaudited)

	September 29, 2018		December 30, 2017

Current assets:
Cash and cash equivalents	$	544,585	$	688,087
Short-term investments		5,446		4,455
Receivables, net of allowances of $4,250 and $0, respectively		240,836		190,426
Inventories		30,535		33,209
Prepaid expenses and other		66,979		63,811
Total current assets		888,381		979,988

Property, plant and equipment, net of accumulated depreciation of $685,212 and $658,377, respectively		248,165		251,342
Goodwill		661,341		666,009
Acquired intangibles, net of accumulated amortization of $320,859 and $297,456, respectively		238,385		278,835
Long-term receivables		4,395		12,239
Other assets		232,540		230,301
Total assets	$	2,273,207	$	2,418,714

Current liabilities:
Revolving credit facility	$	-	$	85,000
Accounts payable and accrued liabilities		212,153		221,101
Current portion of deferred revenue		329,168		336,297
Total current liabilities		541,321		642,398

Long-term liabilities:
Long-term portion of deferred revenue		49,343		61,513
Long-term debt		345,113		644,369
Other long-term liabilities		80,013		81,232
Total long-term liabilities		474,469		787,114

Stockholders' equity		1,257,417		989,202
Total liabilities and stockholders' equity	$	2,273,207	$	2,418,714


Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Nine Months Ended September 29, 2018 and September 30, 2017
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 29,			September 30,			September 29,			September 30,
	2018			2017			2018			2017

Revenue:
Product and maintenance	$	494,990		$	451,229		$	1,463,469		$	1,346,483
Services		37,478			34,169			104,703			94,827

Total revenue		532,468			485,398			1,568,172			1,441,310

Costs and expenses:
Cost of product and maintenance		36,406			34,825			118,263			117,371
Cost of services		24,048			19,657			64,360			59,735
Marketing and sales		108,608			104,263			327,056			311,507
Research and development		223,231			206,568			666,545			600,755
General and administrative		33,247			36,302			101,421			100,892
Amortization of acquired intangibles		3,470			3,453			10,618			11,145
Restructuring and other credits		(172	)		(55	)		(2,610	)		(2,772	)

Total costs and expenses		428,838			405,013			1,285,653			1,198,633

Income from operations		103,630			80,385			282,519			242,677

Interest expense		(5,177	)		(6,225	)		(18,821	)		(18,952	)
Other income, net		1,106			12,387			4,055			14,370

Income before provision for income taxes		99,559			86,547			267,753			238,095

Provision for income taxes		241			5,390			20,401			19,552

Net income	$	99,318		$	81,157		$	247,352		$	218,543


Net income per share - basic	$	0.36		$	0.30		$	0.90		$	0.80

Net income per share - diluted	$	0.35		$	0.29		$	0.88		$	0.78

Weighted average common shares outstanding - basic		273,716			273,156			273,718			271,739

Weighted average common shares outstanding - diluted		281,646			281,400			281,391			279,554


Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 29, 2018 and September 30, 2017
(In thousands)
(Unaudited)

	Nine Months Ended
	September 29,			September 30,
	2018			2017

Cash and cash equivalents at beginning of period	$	688,087		$	465,232
Cash flows from operating activities:
Net income		247,352			218,543
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		89,003			86,605
Amortization of debt discount and fees		950			920
Stock-based compensation		125,121			94,008
Gain on investments, net		(2,617	)		(12,502	)
Deferred income taxes		(3,221	)		212
Provisions for losses on receivables		4,790			1,499
Other non-cash items		1,589			3,763
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables		(28,471	)		(9,539	)
Inventories		(1,455	)		2,282
Prepaid expenses and other		2,018			(4,627	)
Other assets		3,571			(14,469	)
Accounts payable and accrued liabilities		(41,718	)		(41,127	)
Deferred revenue		77,370			14,245
Other long-term liabilities		(1,415	)		4,071
Net cash provided by operating activities		472,867			343,884

Cash flows from investing activities:
Proceeds from the sale of available-for-sale securities		-			421
Proceeds from the sale of long-term investments		-			9,108
Purchases of property, plant and equipment		(41,761	)		(39,676	)
Cash paid in business combinations and asset acquisitions, net of cash acquired		-			(550	)
Net cash used for investing activities		(41,761	)		(30,697	)

Cash flows from financing activities:
Proceeds from revolving credit facility		-			50,000
Payment on revolving credit facility		(85,000	)		(100,000	)
Principal payments on term loan		(300,000	)		-
Payment of debt issuance costs		-			(793	)
Proceeds from issuance of common stock		38,190			45,419
Stock received for payment of employee taxes on vesting of restricted stock		(59,619	)		(54,130	)
Payments for repurchases of common stock		(150,036	)		(50,013	)
Change in book overdraft		(3,867	)		-
Net cash used for financing activities		(560,332	)		(109,517	)

Effect of exchange rate changes on cash and cash equivalents		(14,276	)		9,382

Increase (decrease) in cash and cash equivalents		(143,502	)		213,052

Cash and cash equivalents at end of period	$	544,585		$	678,284


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		Q2		Q3		Q1		Q2		Q3

Americas	45	%	45	%	45	%	44	%	44	%	45	%	45	%	43	%	45	%	46	%	44	%
Asia	26	%	28	%	27	%	28	%	27	%	26	%	26	%	30	%	27	%	26	%	29	%
Europe, Middle East and Africa	20	%	19	%	19	%	20	%	20	%	21	%	21	%	19	%	20	%	20	%	19	%
Japan	9	%	8	%	9	%	8	%	9	%	8	%	8	%	8	%	8	%	8	%	8	%
Total	100	%	100	%	100	%	100	%	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		Q2		Q3		Q1		Q2		Q3

Functional Verification, including Emulation and Prototyping Hardware	23	%	23	%	21	%	23	%	22	%	26	%	23	%	21	%	26	%	23	%	22	%
Digital IC Design and Signoff	29	%	30	%	30	%	29	%	29	%	29	%	29	%	30	%	30	%	30	%	30	%
Custom IC Design	26	%	26	%	28	%	26	%	27	%	26	%	26	%	27	%	26	%	26	%	26	%
System Interconnect and Analysis	10	%	10	%	10	%	10	%	10	%	9	%	10	%	10	%	9	%	9	%	9	%
IP	12	%	11	%	11	%	12	%	12	%	10	%	12	%	12	%	9	%	12	%	13	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%


Cadence Design Systems, Inc.
As of October 22, 2018
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share
(Unaudited)

	Three Months Ending	Year Ending	Year Ending
	December 29, 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	$0.27 to $0.29	$1.15 to $1.17	~ $1.18

Amortization of acquired intangibles	0.05	0.19	0.19
Stock-based compensation expense	0.15	0.60	0.60
Non-qualified deferred compensation expenses	-	0.01	0.01
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*	-	(0.01)	(0.01)
Income tax effect of non-GAAP adjustments	(0.03)	(0.22)	(0.20)

Diluted net income per share on a non-GAAP basisï¿½nbsp;	$0.46 to $0.48	$1.80 to $1.82	~ $1.85


Cadence Design Systems, Inc.
As of October 22, 2018
Impact of Non-GAAP Adjustments on Forward Looking Net Income
(Unaudited)

	Three Months Ending	Year Ending	Year Ending
	December 29, 2018	December 29, 2018	December 29, 2018
($ in millions)	ASC 606 Forecast	ASC 606 Forecast	ASC 605 Forecast **

Net income on a GAAP basis	$76 to $82	$324 to $330	~ $333

Amortization of acquired intangibles	13	54	54
Stock-based compensation expense	44	169	169
Non-qualified deferred compensation expenses	-	2	2
Restructuring and other charges (credits)	-	(3)	(3)
Acquisition and integration-related costs	5	26	26
Other income or expense related to investments and non-qualified deferred compensation plan assets*	-	(3)	(3)
Income tax effect of non-GAAP adjustments	(9)	(61)	(58)

Net income on a non-GAAP basisï¿½nbsp;	$129 to $135	$508 to $514	~$520

ï¿½nbsp;		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.
		ASC Topic 605 forecast at midpoint.

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