Cadence Reports First Quarter 2014 Financial Results

21 Apr, 2014, 16:10 ET from Cadence Design Systems, Inc.

SAN JOSE, Calif., April 21, 2014 /PRNewswire/ -- Cadence Design Systems, Inc. (NASDAQ: CDNS) today announced results for the first quarter of fiscal year 2014.

Cadence reported first quarter 2014 revenue of $379 million, compared to revenue of $354 million reported for the same period in 2013.  On a GAAP basis, Cadence recognized net income of $33 million, or $0.11 per share on a diluted basis, in the first quarter of 2014, compared to net income of $79 million, or $0.27 per share on a diluted basis, in the same period in 2013.  GAAP net income for the first quarter of 2013 included a $34 million income tax benefit due to a release of an uncertain tax position.

Using the non-GAAP measure defined below, net income in the first quarter of 2014 was $59 million, or $0.20 per share on a diluted basis, as compared to net income of $61 million, or $0.21 per share on a diluted basis, in the same period in 2013.

"In Q1, Cadence continued to strengthen its product portfolio through internally developed products and key acquisitions," said Lip-Bu Tan, president and chief executive officer.  "We advanced our functional verification platform by releasing our new Incisive® vManagerTM solution and acquiring Forte Design Systems.  And today, we announced that we entered into a definitive agreement to acquire Jasper Design Automation, Inc., which will meaningfully add to our verification capabilities.  We also continued to see strong customer interest and growing adoption of our digital and new sign-off products with multiple design wins."

"Cadence produced solid operating results in Q1 while continuing to invest strategically to further our growth objectives," added Geoff Ribar, senior vice president and chief financial officer.

Business Outlook

For the second quarter of 2014, the company expects total revenue in the range of $370 million to $380 million.  Second quarter GAAP net income per diluted share is expected to be in the range of $0.10 to $0.12.  Net income per diluted share using the non-GAAP measure defined below is expected to be in the range of $0.19 to $0.21.

For 2014, the company expects total revenue in the range of $1.550 billion to $1.590 billion.  On a GAAP basis, net income per diluted share for 2014 is expected to be in the range of $0.56 to $0.66.  Using the non-GAAP measure defined below, net income per diluted share for 2014 is expected to be in the range of $0.92 to $1.02.

The foregoing statements regarding the company's business outlook do not take into account the pending acquisition of Jasper Design Automation, Inc.

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 also included with 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 first quarter 2014 financial results audio webcast today, April 21, 2014, 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 21, 2014 at 5 p.m. (Pacific) and ending June 13, 2014 at 5 p.m. (Pacific).  Webcast access is available at www.cadence.com/company/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, Forte, Incisive and vManager 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 2014 financial results and Cadence's expected benefits of the pending acquisition of Jasper Design Automation, Inc., as well as the information in the Business Outlook section and the statements by Lip-Bu Tan and Geoff Ribar, 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) failure or inability to consummate the acquisition of Jasper, the effects of the acquisition of Jasper on Cadence's financial results, the effect of regulatory approval requirements, the potential inability to successfully operate or integrate Jasper's business, including the potential inability to retain customers, key employees or vendors; (ix) 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; (x) the effects of Cadence's efforts to improve operational efficiency on Cadence's business, including strategic, customer and supplier relationships, and its ability to retain key employees; (xi) 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 (xii) 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 Securities and Exchange Commission.  These include Cadence's most recent reports on Form 10-K and Form 10-Q, including Cadence's future filings.

GAAP to Non-GAAP Reconciliation

To supplement Cadence's financial results presented on a generally accepted accounting principles, or 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, and is calculated by taking GAAP net income and excluding, as applicable, amortization and sale of intangible assets and debt discount related to our convertible notes, stock-based compensation expense, acquisition and integration-related costs including changes in fair value of contingent consideration and retention expenses for employees added from our 2013 and 2014 acquisitions, executive severance costs, 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 useful supplemental information to Cadence's management and investors regarding the performance of the company's business operations, facilitates comparisons to the company's historical operating results and enhances investors' ability to review Cadence's business from the same perspective as Cadence's management.  Cadence's management also uses non-GAAP net income internally for forecasting and budgeting. Non-GAAP financial measures should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP.  Investors and potential 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 encouraged to look at the GAAP results as the best measure of financial performance.

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

March 29, 2014

March 30, 2013

(unaudited)

(in thousands)

Net income on a GAAP basis

$

33,070

$

78,609

Amortization of acquired intangibles

12,786

7,598

Stock-based compensation expense

18,864

13,810

Non-qualified deferred compensation expenses

2,063

152

Restructuring and other charges (credits)

396

(148)

Integration and acquisition-related costs

7,118

4,935

Amortization of debt discount

4,209

5,536

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

(3,609)

(990)

Income tax benefit due to a release of an uncertain tax position

(33,719)

Income tax effect of non-GAAP adjustments

(15,510)

(15,146)

Net income on a non-GAAP basis

$

59,387

$

60,637

*

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

March 29, 2014

March 30, 2013

(unaudited)

(in thousands, except per share data)

Diluted net income per share on a GAAP basis

$

0.11

$

0.27

Amortization of acquired intangibles

0.04

0.03

Stock-based compensation expense

0.06

0.05

Non-qualified deferred compensation expenses

0.01

Restructuring and other charges (credits)

Integration and acquisition-related costs

0.02

0.02

Amortization of debt discount

0.02

0.02

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

(0.01)

(0.01)

Income tax benefit due to a release of an uncertain tax position

(0.12)

Income tax effect of non-GAAP adjustments

(0.05)

(0.05)

Diluted net income per share on a non-GAAP basis

$

0.20

$

0.21

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

301,034

292,151

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

301,034

292,151

*

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 June 13, 2014, Cadence will observe a Quiet Period during which the business outlook as provided in this press release and the company's 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 to be 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 second quarter 2014 earnings release is published, which is currently scheduled for July 21, 2014.

For more information, please contact:

Investors and Shareholders Alan Lindstrom Cadence Design Systems, Inc. 408-944-7100 investor_relations@cadence.com

Media and Industry Analysts Anna del Rosario Cadence Design Systems, Inc. 408-914-6884 newsroom@cadence.com

 

 

Cadence Design Systems, Inc.

Condensed Consolidated Balance Sheets

March 29, 2014 and December 28, 2013

(In thousands)

(Unaudited)

March 29, 2014

December 28, 2013

Current assets:

Cash and cash equivalents

$             532,761

$                   536,260

Short-term investments

97,006

96,788

Receivables, net

106,322

107,624

Inventories

55,605

50,220

2015 notes hedges

369,731

306,817

Prepaid expenses and other

136,300

123,382

Total current assets

1,297,725

1,221,091

Property, plant and equipment, net of accumulated

depreciation of $576,562 and $568,494, respectively

239,425

238,715

Goodwill

478,990

456,905

Acquired intangibles, net of accumulated amortization of 

$107,521 and $139,820, respectively

316,498

311,693

Long-term receivables

6,193

3,672

Other assets

185,389

196,525

Total assets

$          2,524,220

$                2,428,601

Current liabilities:

Convertible notes

$             329,058

$                   324,826

2015 notes embedded conversion derivative

369,731

306,817

Accounts payable and accrued liabilities

189,200

216,594

Current portion of deferred revenue

304,705

299,973

Total current liabilities

1,192,694

1,148,210

Long-term liabilities:

Long-term portion of deferred revenue

48,299

52,850

Other long-term liabilities

69,025

71,436

Total long-term liabilities

117,324

124,286

Stockholders' equity

1,214,202

1,156,105

Total liabilities and stockholders' equity

$          2,524,220

$                2,428,601

 

 

Cadence Design Systems, Inc.

Condensed Consolidated Income Statements

For the Three Months Ended March 29, 2014 and March 30, 2013

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

March 29, 2014

March 30, 2013

Revenue:

Product and maintenance

$         357,350

$         328,271

Services

21,200

25,995

Total revenue

378,550

354,266

Costs and expenses:

Cost of product and maintenance

42,197

29,847

Cost of services

14,902

18,344

Marketing and sales

98,323

90,402

Research and development

146,466

124,084

General and administrative

28,744

29,810

Amortization of acquired intangibles

5,210

3,791

Restructuring and other charges (credits)

396

(148)

Total costs and expenses

336,238

296,130

Income from operations

42,312

58,136

Interest expense

(7,268)

(9,262)

Other income, net

3,382

2,175

Income before provision (benefit) for income taxes

38,426

51,049

Provision (benefit) for income taxes

5,356

(27,560)

Net income 

$           33,070

$           78,609

Net income per share - basic

$               0.12

$               0.29

Net income per share - diluted

$               0.11

$               0.27

Weighted average common shares outstanding - basic

281,615

274,936

Weighted average common shares outstanding - diluted

301,034

292,151

 

Cadence Design Systems, Inc. 

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 29, 2014 and March 30, 2013

(In thousands)

(Unaudited)

Three Months Ended

March 29,

March 30,

2014

2013

Cash and cash equivalents at beginning of period

$  536,260

$  726,357

Cash flows from operating activities:

   Net income

33,070

78,609

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

      Depreciation and amortization

26,017

21,682

      Amortization of debt discount and fees

4,882

6,281

      Stock-based compensation

18,864

13,810

      Gain on investments, net

(3,651)

(1,006)

      Deferred income taxes

2,245

8,695

      Other non-cash items

2,344

(1,007)

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

         Receivables

(108)

23,652

         Inventories

(9,373)

(979)

         Prepaid expenses and other

(9,753)

(1,099)

         Other assets

3,157

4,148

         Accounts payable and accrued liabilities

(29,680)

(11,003)

         Deferred revenue

(5,508)

(16,648)

         Other long-term liabilities

(4,408)

(49,799)

            Net cash provided by operating activities

28,098

75,336

Cash flows from investing activities:

  Purchases of available-for-sale securities

(47,005)

(24,282)

  Proceeds from the sale of available-for-sale securities

32,586

14,985

  Proceeds from the maturity of available-for-sale securities

13,905

8,700

  Proceeds from the sale of long-term investments

-

6,102

  Purchases of property, plant and equipment

(6,252)

(6,569)

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

(27,422)

(757)

           Net cash used for investing activities

(34,188)

(1,821)

Cash flows from financing activities:

  Principal payments on receivable financing

-

(2,526)

  Payment of acquisition-related contingent consideration

(1,835)

(582)

  Tax effect related to employee stock transactions allocated to equity

1,827

5,276

  Proceeds from issuance of common stock 

23,377

21,801

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

(10,981)

(8,775)

  Payments for repurchases of common stock

(12,517)

-

           Net cash provided by (used for) financing activities

(129)

15,194

Effect of exchange rate changes on cash and cash equivalents

2,720

(4,914)

Increase (decrease) in cash and cash equivalents 

(3,499)

83,795

Cash and cash equivalents at end of period

$  532,761

$  810,152

 

Cadence Design Systems, Inc.

As of April 21, 2014

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

(Unaudited)

Three Months Ending

Year Ending

June 28, 2014

January 3, 2015

Forecast

Forecast

Diluted net income per share on a GAAP basis

 $0.10 to $0.12 

 $0.56 to $0.66 

Amortization of acquired intangibles

0.04

0.17

Stock-based compensation expense

0.06

0.27

Non-qualified deferred compensation expenses

-

0.01

Integration and acquisition-related costs

0.02

0.06

Amortization of debt discount

0.01

0.06

Other income or expense related to investments and non-qualified 

    deferred compensation plan assets*

-

(0.01)

Income tax effect of non-GAAP adjustments

(0.04)

(0.20)

Diluted net income per share on a non-GAAP basis

 $0.19 to $0.21 

 $0.92 to $1.02 

 * 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. 

 

 

Cadence Design Systems, Inc.

As of April 21, 2014

Impact of Non-GAAP Adjustments on Forward Looking Net Income 

(Unaudited)

Three Months Ending

Year Ending

June 28, 2014

January 3, 2015

($ in millions)

Forecast

Forecast

Net income on a GAAP basis

 $30 to $36 

 $172 to $202 

Amortization of acquired intangibles

13

52

Stock-based compensation expense

19

83

Non-qualified deferred compensation expenses

-

2

Integration and acquisition-related costs

5

18

Amortization of debt discount

4

18

Other income or expense related to investments and non-qualified 

    deferred compensation plan assets*

-

(4)

Income tax effect of non-GAAP adjustments

(14)

(62)

Net income on a non-GAAP basis

 $57 to $63 

 $279 to $309 

 * 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. 

 

Cadence Design Systems, Inc.

(Unaudited)

Revenue Mix by Geography (% of Total Revenue)

2013

2014

GEOGRAPHY

 Q1 

 Q2 

 Q3 

 Q4 

 Year 

 Q1 

 Americas 

44%

45%

48%

47%

46%

45%

 Europe, Middle East and Africa 

22%

21%

20%

20%

21%

20%

 Japan 

15%

13%

12%

14%

13%

12%

 Asia 

19%

21%

20%

19%

20%

23%

Total

100%

100%

100%

100%

100%

100%

Revenue Mix by Product Group (% of Total Revenue)

2013

2014

PRODUCT GROUP

 Q1 

 Q2 

 Q3 

 Q4 

 Year 

 Q1 

 Functional Verification, including Emulation Hardware 

22%

22%

24%

25%

23%

23%

 Digital IC Design and Signoff 

33%

31%

29%

29%

30%

30%

 Custom IC Design 

28%

28%

28%

26%

27%

27%

 System Interconnect and Analysis 

10%

11%

10%

10%

11%

10%

 IP 

7%

8%

9%

10%

9%

10%

Total

100%

100%

100%

100%

100%

100%

 

 

Cadence Design Systems, Inc.

Supplemental Reconciliation of Certain GAAP to Non-GAAP Measures

For the Three Months Ended March 29, 2014

(In thousands)

(Unaudited)

Three Months Ended

March 29, 2014

GAAP

Adjustments

Non-GAAP

Revenue:

Product and maintenance

$            357,350

$                     -

$                357,350

Services

21,200

-

21,200

Total revenue

378,550

-

378,550

Costs and expenses:

Cost of product and maintenance

42,197

(8,082)

 (A) 

34,115

Cost of services

14,902

(739)

 (A) 

14,163

Marketing and sales

98,323

(5,695)

 (A) 

92,628

Research and development

146,466

(15,751)

 (A) 

130,715

General and administrative

28,744

(5,354)

 (A) 

23,390

Amortization of acquired intangibles

5,210

(5,210)

 (A) 

-

Restructuring and other charges 

396

(396)

-

Total costs and expenses

336,238

(41,227)

295,011

Income from operations

42,312

41,227

83,539

Interest expense

(7,268)

4,209

 (B) 

(3,059)

Other income (expense), net

3,382

(3,609)

(C)

(227)

Income before provision for income taxes

38,426

41,827

80,253

Provision for income taxes

5,356

15,510

(D)

20,866

Net income 

$              33,070

$             26,317

$                  59,387

Notes: 

(A) For the three months ended March 29, 2014 adjustments to GAAP are as follows for the line items specified:

Amortization of

 acquired

intangibles

Stock-based

compensation

expense

Non-qualified

deferred

compensation

expenses

Integration and

 acquisition-

related costs

Total

adjustments

Cost of product and maintenance

$                         7,576

$                   482

$                    24

$                          -

$                   8,082

Cost of services

-

703

36

-

739

Marketing and sales

-

4,596

111

988

5,695

Research and development

-

9,667

1,123

4,961

15,751

General and administrative

-

3,416

769

1,169

5,354

Amortization of acquired intangibles

5,210

-

-

-

5,210

Total

$                       12,786

$              18,864

$               2,063

$                    7,118

$                 40,831

(B) Amortization of debt discount related to convertible notes

(C) Other income or expense related to investments and non-qualified deferred compensation plan assets

(D) Income tax effect of non-GAAP adjustments 

 

 

Cadence Design Systems, Inc.

Supplemental Reconciliation of Certain GAAP to Non-GAAP Measures

For the Three Months Ended March 30, 2013

(In thousands)

(Unaudited)

Three Months Ended

March 30, 2013

GAAP

Adjustments

Non-GAAP

Revenue:

Product and maintenance

$            328,271

$                     -

$                328,271

Services

25,995

-

25,995

Total revenue

354,266

-

354,266

Costs and expenses:

Cost of product and maintenance

29,847

(4,175)

 (E) 

25,672

Cost of services

18,344

(530)

 (E) 

17,814

Marketing and sales

90,402

(3,104)

 (E) 

87,298

Research and development

124,084

(7,928)

 (E) 

116,156

General and administrative

29,810

(6,967)

 (E) 

22,843

Amortization of acquired intangibles

3,791

(3,791)

 (E) 

-

Restructuring and other charges (credits) 

(148)

148

-

Total costs and expenses

296,130

(26,347)

269,783

Income from operations

58,136

26,347

84,483

Interest expense

(9,262)

5,536

(F)

(3,726)

Other income, net

2,175

(990)

(G)

1,185

Income before provision (benefit) for income taxes

51,049

30,893

81,942

Provision (benefit) for income taxes

(27,560)

48,865

(H)

21,305

Net income 

$              78,609

$            (17,972)

$                  60,637

Notes: 

(E) For the three months ended March 30, 2013 adjustments to GAAP are as follows for the line items specified:

Amortization of

acquired

 intangibles

Stock-based

compensation

expense

Non-qualified

deferred

compensation

expenses

Integration and

acquisition-

related costs

Total

adjustments

Cost of product and maintenance

$                         3,807

$                   364

$                      4

$                          -

$                   4,175

Cost of services

-

525

5

-

530

Marketing and sales

-

3,018

22

64

3,104

Research and development

-

6,553

78

1,297

7,928

General and administrative

-

3,350

43

3,574

6,967

Amortization of acquired intangibles

3,791

-

-

-

3,791

Total

$                         7,598

$              13,810

$                  152

$                    4,935

$                 26,495

(F) Amortization of debt discount related to convertible notes

(G) Other income or expense related to investments and non-qualified deferred compensation plan assets

(H) Income tax benefit due to a release of an uncertain tax position $33,719 and income tax effect of non-GAAP adjustments $15,146

Logo - http://photos.prnewswire.com/prnh/20140102/SF39436LOGO

SOURCE Cadence Design Systems, Inc.



RELATED LINKS

http://www.cadence.com