Cadence Reports Second Quarter 2012 Financial Results

Marketwired

SAN JOSE, CA--(Marketwire -07/25/12)- Cadence Design Systems, Inc. (CDNS) today announced results for the second quarter of fiscal year 2012.

Cadence reported second quarter 2012 revenue of $326 million, compared to revenue of $283 million reported for the same period in 2011. On a GAAP basis, Cadence recognized net income of $36 million, or $0.13 per share on a diluted basis in the second quarter of 2012, compared to net income of $27 million, or $0.10 per share on a diluted basis in the same period in 2011.

Using Cadence's non-GAAP measure, net income in the second quarter of 2012 was $53 million, or $0.19 per share on a diluted basis, as compared to net income of $32 million, or $0.12 per share on a diluted basis in the same period in 2011.

"The Cadence team executed well again in Q2," said Lip-Bu Tan, president and chief executive officer. "Our 20-nanometer engagements have expanded, use of our Azuro technology acquired in 2011 increased, our emulation business significantly exceeded expectations, we had a strong quarter for both design and verification IP, and the acquisition of Sigrity has significantly enhanced our printed circuit board product line."

"Cadence continues to deliver strong operating performance as measured by our key metrics of revenue growth, operating margin and cash flow," added Geoff Ribar, senior vice president and chief financial officer.

The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially.

Business Outlook

For the third quarter of 2012, the company expects total revenue in the range of $325 million to $335 million. Third quarter GAAP net income per diluted share is expected to be in the range of $0.17 to $0.18. Net income per diluted share using the non-GAAP measure defined below is expected to be in the range of $0.18 to $0.19.

For 2012, the company expects total revenue in the range of $1,295 million to $1,315 million. On a GAAP basis, net income per diluted share for 2012 is expected to be in the range of $0.51 to $0.55. Using the non-GAAP measure defined below, net income per diluted share for 2012 is expected to be in the range of $0.70 to $0.74.

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 with this release.

Audio Webcast Scheduled

Lip-Bu Tan, Cadence's president and chief executive officer, and Geoff Ribar, Cadence's senior vice president and chief financial officer, will host a second quarter 2012 financial results audio webcast today, July 25, 2012, 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, 2012 at 5 p.m. (Pacific) and ending August 8, 2012 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 and Azuro are registered trademarks, and Sigrity is a trademark of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

The statements contained above regarding Cadence's second quarter 2012 results, as well as the information in the Business Outlook section and the statements by Lip-Bu Tan and Geoff Ribar include forward-looking statements based on current expectations or beliefs, as well as a number of 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. Readers are cautioned not to put undue reliance on these forward-looking statements, which are not a guarantee of future performance and 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, and its shift to a ratable license structure, which may result in changes in the mix of license types; (iv) change in customer demands, including those resulting from consolidation among Cadence's customers and the possibility that Cadence's customers' restructurings and other efforts to improve operational efficiency could result in delays in their purchases of 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; (ix) the effects of Cadence's efforts to improve operational efficiency on its business, including its strategic and customer 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 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 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 generally accepted accounting principles (GAAP), and is calculated by taking GAAP net income and excluding, as applicable, amortization of intangible assets, stock-based compensation expense, integration and acquisition-related costs, including changes in contingent consideration related to prior acquisitions and asset purchases, shareholder litigation costs, gains or losses and expenses or credits related to non-qualified deferred compensation plan assets, executive and other employee severance costs, restructuring charges and credits, amortization of discount on convertible notes, equity in losses or income from investments, write-down of investments and gains or losses on the sale of investments. Intangible assets consist primarily of purchased or licensed technology, backlog, patents, trademarks, distribution rights, customer contracts and related relationships and non-compete agreements. Non-GAAP net income is adjusted by the amount of additional taxes or tax benefit that Cadence would accrue if it used non-GAAP results instead of GAAP results to calculate the company's tax liability.

Cadence's management believes it is useful in measuring Cadence's operations to exclude amortization of intangible assets and integration and acquisition-related costs, including changes in contingent consideration related to prior acquisitions and asset purchases, because these costs are inconsistent in size, are significantly impacted by the timing and valuation of those acquisitions and generally cannot be changed by Cadence's management in the short term. In addition, Cadence's management believes it is useful to exclude stock-based compensation expense, because it is based on many subjective inputs at a point in time and many of these inputs are not necessarily directly attributable to the underlying performance of Cadence's business operations, and such exclusion enhances investors' ability to review Cadence's business from the same perspective as Cadence's management. Cadence's management also believes it is useful to exclude costs related to shareholder litigation because these costs are not related to Cadence's core business operations. Cadence's management also believes that it is useful to exclude restructuring charges and credits. Cadence's management believes that in measuring the company's operations, it is useful to exclude any such restructuring charges and credits because exclusion of such charges and credits permits consistent evaluations of Cadence's performance before and after such actions are taken. Cadence's management also believes it is useful to exclude gains or losses and expenses or credits related to the non-qualified deferred compensation plan assets because these gains or losses and expenses or credits are not part of Cadence's direct costs of operations, but reflect changes in the value of assets held in the non-qualified deferred compensation plan. Cadence's management also believes it is useful to exclude executive and other employee severance costs because exclusion of such costs permits consistent evaluations of Cadence's performance. Cadence's management also believes it is useful to exclude the amortization of the discount on convertible notes because this incremental cost recorded as interest expense does not represent a cash obligation of the company and is not part of Cadence's direct cost of operations. Finally, Cadence's management believes it is useful to exclude the equity in losses or income from investments, write-down of investments and gains or losses on the sale of investments because these items are not part of Cadence's direct cost of operations. Rather, these are non-operating items that are included in other income or expense and are part of the company's investment activities.

Cadence's management believes that non-GAAP net income provides useful supplemental information to Cadence's management and investors regarding the performance of the company's business operations and facilitates comparisons to the company's historical operating results. Cadence's management also uses this information 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.

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
----------------------------
June 30, 2012 July 2, 2011
------------- -------------
(unaudited)
(in thousands)
Net income on a GAAP basis $ 36,386 $ 26,908
Amortization of acquired intangibles 6,534 6,988
Stock-based compensation expense 10,361 10,341
Non-qualified deferred compensation expenses 2,278 1,186
Restructuring and other charges 43 751
Shareholder litigation costs - 1,106
Executive and other employee severance costs - 1,916
Integration and acquisition-related costs 3,627 1,005
Amortization of debt discount 5,124 6,566
Other income or expense related to
investments and non-qualified deferred
compensation plan assets* (2,220) (9,229)
Income tax effect of non-GAAP adjustments (9,245) (15,560)
------------- -------------
Net income on a non-GAAP basis $ 52,888 $ 31,978
============= =============

* 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 (expense), net.



Diluted Net Income per Share Reconciliation Three Months Ended
----------------------------
June 30, 2012 July 2, 2011
------------- -------------
(unaudited)
(in thousands, except per share data)
Diluted net income per share on a GAAP basis $ 0.13 $ 0.10
Amortization of acquired intangibles 0.02 0.03
Stock-based compensation expense 0.04 0.04
Non-qualified deferred compensation expenses 0.01 0.01
Restructuring and other charges - -
Shareholder litigation costs - -
Executive and other employee severance costs - 0.01
Integration and acquisition-related costs 0.01 -
Amortization of debt discount 0.02 0.02
Other income or expense related to
investments and non-qualified deferred
compensation plan assets* (0.01) (0.03)
Income tax effect of non-GAAP adjustments (0.03) (0.06)
------------- -------------
Diluted net income per share on a non-GAAP
basis $ 0.19 $ 0.12
============= =============
Shares used in calculation of diluted net
income per share -- GAAP** 275,318 270,885
Shares used in calculation of diluted net
income per share -- non-GAAP** 275,318 270,885

* 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 (expense), net.

** 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.

Investors are encouraged to look at the GAAP results as the best measure of financial performance.

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 14, 2012, 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 Third Quarter 2012 Earnings Release is published, which is currently scheduled for October 24, 2012.

 

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
June 30, 2012 and December 31, 2011
(In thousands)
(Unaudited)

June 30, December 31,
2012 2011
------------ ------------

Current Assets:
Cash and cash equivalents $ 661,658 $ 601,602
Short-term investments 51,304 3,037
Receivables 123,243 136,772
Inventories 41,066 43,243
2015 notes hedges 219,199 215,113
Prepaid expenses and other 61,976 64,216
------------ ------------
Total current assets 1,158,446 1,063,983

Property, plant and equipment, net of accumulated
depreciation of $668,328 and $658,990,
respectively 251,920 262,517
Goodwill 192,238 192,125
Acquired intangibles, net of accumulated
amortization of $89,572 and $91,542, respectively 159,807 173,234
Long-term receivables 7,750 11,371
Other assets 59,096 58,039
------------ ------------
Total Assets $ 1,829,257 $ 1,761,269
============ ============

Current Liabilities:
Convertible notes $ 301,292 $ 294,061
2015 notes embedded conversion derivative 219,199 215,113
Accounts payable and accrued liabilities 153,957 165,791
Current portion of deferred revenue 328,405 340,401
------------ ------------
Total current liabilities 1,002,853 1,015,366
------------ ------------

Long-Term Liabilities:
Long-term portion of deferred revenue 58,213 73,959
Convertible notes 135,006 131,920
Other long-term liabilities 131,172 128,894
------------ ------------
Total long-term liabilities 324,391 334,773
------------ ------------

Stockholders' Equity 502,013 411,130
------------ ------------
Total Liabilities and Stockholders' Equity $ 1,829,257 $ 1,761,269
============ ============

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Six Months Ended June 30, 2012 and July 2, 2011
(In thousands, except per share amounts)
(Unaudited)

Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, July 2, June 30, July 2,
2012 2011 2012 2011
----------- ----------- ----------- -----------

Revenue:
Product $ 208,301 $ 157,938 $ 398,325 $ 299,757
Services 28,966 29,477 58,508 57,282
Maintenance 89,209 95,855 185,473 192,333
----------- ----------- ----------- -----------

Total revenue 326,476 283,270 642,306 549,372
----------- ----------- ----------- -----------

Costs and Expenses:
Cost of product 21,585 20,074 36,986 34,268
Cost of services 17,071 20,616 36,445 40,691
Cost of maintenance 10,821 10,716 22,632 21,614
Marketing and sales 80,418 77,006 164,213 155,378
Research and
development 112,031 99,268 220,625 200,567
General and
administrative 30,244 25,377 58,014 44,679
Amortization of
acquired intangibles 3,643 4,505 7,429 8,964
Restructuring and other
charges (credits) 43 751 (8) 710
----------- ----------- ----------- -----------

Total costs and
expenses 275,856 258,313 546,336 506,871
----------- ----------- ----------- -----------

Income from
operations 50,620 24,957 95,970 42,501

Interest expense (8,566) (10,768) (17,103) (21,754)
Other income, net 3,669 8,394 6,103 12,863
----------- ----------- ----------- -----------

Income before
provision (benefit)
for income taxes 45,723 22,583 84,970 33,610

Provision (benefit) for
income taxes 9,337 (4,325) 17,480 379
----------- ----------- ----------- -----------

Net income $ 36,386 $ 26,908 $ 67,490 $ 33,231
=========== =========== =========== ===========


Basic net income per
share $ 0.13 $ 0.10 $ 0.25 $ 0.13
=========== =========== =========== ===========

Diluted net income per
share $ 0.13 $ 0.10 $ 0.24 $ 0.12
=========== =========== =========== ===========

Weighted average common
shares outstanding -
basic 269,739 263,191 268,840 262,362
=========== =========== =========== ===========

Weighted average common
shares outstanding -
diluted 275,318 270,885 276,526 269,732
=========== =========== =========== ===========

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2012 and July 2, 2011
(In thousands)
(Unaudited)

Six Months Ended
------------------------
June 30, July 2,
2012 2011
----------- -----------

Cash and Cash Equivalents at Beginning of Period $ 601,602 $ 557,409
----------- -----------
Cash Flows from Operating Activities:
Net income 67,490 33,231
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 43,736 46,283
Amortization of debt discount and fees 11,529 14,587
Stock-based compensation 21,886 19,698
Gain on investments, net (4,169) (13,676)
Non-cash restructuring and other charges 125 136
Deferred income taxes 459 (4,811)
Provisions (recoveries) for losses (gains) on
trade and installment contract receivables,
net - (5,885)
Other non-cash items 3,439 2,518
Changes in operating assets and liabilities,
net of effect of acquired businesses:
Current and long-term receivables 16,513 64,535
Inventories 499 (6,987)
Prepaid expenses and other 414 1,969
Other assets (169) 1,479
Accounts payable and accrued liabilities (4,694) (48,650)
Deferred revenue (27,446) 25,979
Other long-term liabilities (1,424) (4,628)
----------- -----------
Net cash provided by operating activities 128,188 125,778
----------- -----------

Cash Flows from Investing Activities:
Proceeds from the sale and maturity of
available-for-sale securities 136 9,588
Purchases of available-for-sale securities (49,083) -
Proceeds from the sale of long-term investments 44 2,785
Purchases of property, plant and equipment (18,269) (11,312)
Investment in venture capital partnerships and
equity investments (250) (608)
Cash paid in business combinations and asset
acquisitions, net of cash acquired, and
acquisition of intangibles (1,041) (22,865)
----------- -----------
Net cash used for investing activities (68,463) (22,412)
----------- -----------

Cash Flows from Financing Activities:
Principal payments on receivable sale financing (2,907) (2,829)
Tax effect related to employee stock
transactions allocated to equity 4,075 967
Payment of acquisition-related contingent
consideration (39) -
Proceeds from issuance of common stock 13,063 10,302
Stock received for payment of employee taxes on
vesting of restricted stock (9,897) (7,389)
----------- -----------
Net cash provided by financing activities 4,295 1,051
----------- -----------

Effect of exchange rate changes on cash and cash
equivalents (3,964) 3,491
----------- -----------

Increase in cash and cash equivalents 60,056 107,908
----------- -----------

Cash and Cash Equivalents at End of Period $ 661,658 $ 665,317
=========== ===========

Cadence Design Systems, Inc.
As of July 25, 2012
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per
Share
(Unaudited)

Three Months
Ending Year Ending
September 29, 2012 December 29, 2012
------------------ ------------------
Forecast Forecast
------------------ ------------------

Diluted net income per share on a
GAAP basis $0.17 to $0.18 $0.51 to $0.55

Amortization of acquired
intangibles 0.03 0.10
Stock-based compensation expense 0.04 0.18
Non-qualified deferred
compensation expenses - 0.01
Integration and acquisition-
related costs 0.01 0.03
Amortization of debt discount 0.02 0.08
Other income or expense related
to investments and non-
qualified deferred compensation
plan assets* - (0.01)
Income tax effect of non-GAAP
adjustments (0.09) (0.20)

------------------ ------------------
Diluted net income per share on a
non-GAAP basis $0.18 to $0.19 $0.70 to $0.74
================== ==================

* 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 (expense), net.


Cadence Design Systems, Inc.
As of July 25, 2012
Impact of Non-GAAP Adjustments on Forward Looking Net Income
(Unaudited)

Three Months
Ending Year Ending
September 29, 2012 December 29, 2012
------------------ ------------------
($ in millions) Forecast Forecast
------------------ ------------------

Net income on a GAAP basis $46 to $51 $141 to $153

Amortization of acquired
intangibles 8 28
Stock-based compensation expense 13 50
Non-qualified deferred
compensation expenses - 4
Integration and acquisition-
related costs 2 8
Amortization of debt discount 5 21
Other income or expense related
to investments and non-
qualified deferred compensation
plan assets* - (4)
Income tax effect of non-GAAP
adjustments (25) (54)

------------------ ------------------
Net income on a non-GAAP basis $49 to $54 $194 to $206
================== ==================
 

* 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 (expense), net.


Cadence Design Systems, Inc.
(Unaudited)

Revenue Mix by Geography (% of Total Revenue)

2011 2012
--------------------------------- ------------
GEOGRAPHY Q1 Q2 Q3 Q4 Year Q1 Q2
----- ----- ----- ----- ----- ----- -----

Americas 44% 47% 44% 44% 45% 44% 46%
Europe, Middle East and
Africa 21% 20% 21% 20% 20% 19% 20%
Japan 19% 17% 18% 17% 18% 18% 16%
Asia 16% 16% 17% 19% 17% 19% 18%
Total 100% 100% 100% 100% 100% 100% 100%

Revenue Mix by Product Group (% of Total Revenue)

2011 2012
--------------------------------- ------------
PRODUCT GROUP Q1 Q2 Q3 Q4 Year Q1 Q2
----- ----- ----- ----- ----- ----- -----

Functional Verification
and Design IP 28% 33% 30% 32% 30% 30% 33%
Digital IC Design 24% 21% 22% 21% 22% 23% 22%
Custom IC Design 20% 22% 23% 23% 22% 23% 22%
Design for Manufacturing 8% 6% 6% 6% 7% 7% 6%
System Interconnect 10% 8% 9% 8% 9% 8% 8%
Services and other 10% 10% 10% 10% 10% 9% 9%
Total 100% 100% 100% 100% 100% 100% 100%

Note: Product Group total revenue includes Product + Maintenance

Contact:
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
Nancy Szymanski
Cadence Design Systems, Inc.
408-473-8382
publicrelations@cadence.com

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