Cadence Reports Third Quarter 2020 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 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�nbsp;

34% - 35%

34% - 35%

�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.
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�nbsp; $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�nbsp; $201 to $213 $749 to $761

�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.

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