SOURCE: CADENCE DESIGN SYSTEMS, INC.

Cadence Design Systems, Inc.

July 25, 2012 16:05 ET

Cadence Reports Second Quarter 2012 Financial Results

SAN JOSE, CA--(Marketwire - Jul 25, 2012) -  Cadence Design Systems, Inc. (NASDAQ: 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,
2012
  December 31,
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,
2012
    July 2,
2011
    June 30,
2012
    July 2,
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  
   

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