Cadence reported third quarter 2012 revenue of $339 million, compared to revenue of $292 million reported for the same period in 2011. On a GAAP basis, Cadence recognized net income of $59 million, or $0.21 per share on a diluted basis, including $15 million in acquisition-related income tax benefit, in the third quarter of 2012, compared to net income of $28 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 third quarter of 2012 was $59 million, or $0.21 per share on a diluted basis, as compared to net income of $37 million, or $0.14 per share on a diluted basis, in the same period in 2011.
"Demand for our technology was strong across the board in Q3, with ongoing strength in emulation and increasing demand for verification solutions," said Lip-Bu Tan, president and chief executive officer. "We continue to extend our technology leadership at advanced nodes and expand our design and verification IP business."
"Results for all key operating metrics exceeded expectations for Q3 as the entire Cadence team continues to execute," 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 fourth quarter of 2012, the company expects total revenue in the range of $335 million to $345 million. Fourth quarter GAAP net income per diluted share is expected to be in the range of $0.13 to $0.15. Net income per diluted share using the non-GAAP measure defined below is expected to be in the range of $0.18 to $0.20.
For 2012, the company expects total revenue in the range of $1,315 million to $1,325 million. On a GAAP basis, net income per diluted share for 2012 is expected to be in the range of $0.58 to $0.60. Using the non-GAAP measure defined below, net income per diluted share for 2012 is expected to be in the range of $0.75 to $0.77.
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 third quarter 2012 financial results audio webcast today, October 24, 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 October 24, 2012 at 5 p.m. (Pacific) and ending November 7, 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 and the Cadence logo are registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.
The statements contained above regarding Cadence's third 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 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) 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 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, acquisition-related income tax benefits, 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.
During the third quarter of 2012, Cadence's non-GAAP net income also excluded the effect of an income tax benefit associated with Cadence's acquisition of Sigrity, Inc. Cadence's management believes it is useful to exclude the tax benefit associated with this acquisition because Cadence does not expect an acquisition-related income tax benefit of the magnitude recorded in the third quarter of 2012 to be recorded frequently.
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
------------------------------
September 29, October 1,
2012 2011
-------------- --------------
(unaudited)
(in thousands)
Net income on a GAAP basis $ 58,584 $ 28,106
Amortization of acquired intangibles 7,750 6,692
Stock-based compensation expense 12,399 11,891
Non-qualified deferred compensation
expenses (credits) (839) 229
Restructuring and other charges (credits) 57 (433)
Shareholder litigation costs - - - - 179
Executive and other employee severance
costs - - - - 1,331
Integration and acquisition-related costs 3,016 766
Amortization of debt discount 5,279 6,697
Other income or expense related to
investments and non-qualified deferred
compensation plan assets* 1,954 (5,544)
Acquisition-related income tax benefit (14,806) - - - -
Income tax effect of non-GAAP adjustments (14,054) (12,619)
-------------- --------------
Net income on a non-GAAP basis $ 59,340 $ 37,295
============== ==============
* 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
------------------------------
September 29, October 1,
2012 2011
-------------- --------------
(unaudited)
(in thousands, except per share data)
Diluted net income per share on a GAAP basis $ 0.21 $ 0.10
Amortization of acquired intangibles 0.03 0.03
Stock-based compensation expense 0.04 0.04
Non-qualified deferred compensation
expenses (credits) - - - - - - - -
Restructuring and other charges (credits) - - - - - - - -
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* - - - - (0.02)
Acquisition-related income tax benefit (0.05) - - - -
Income tax effect of non-GAAP adjustments (0.05) (0.04)
-------------- --------------
Diluted net income per share on a non-GAAP
basis $ 0.21 $ 0.14
============== ==============
Shares used in calculation of diluted net
income per share --GAAP** 283,328 270,741
Shares used in calculation of diluted net
income per share --non-GAAP** 283,328 270,741
* 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 December 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 Fourth Quarter 2012 Earnings Release is published, which is currently scheduled for January 30, 2013.
Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
September 29, 2012 and December 31, 2011
(In thousands)
(Unaudited)
September 29, December 31,
2012 2011
------------------ -----------------
Current Assets:
Cash and cash equivalents $ 649,099 $ 601,602
Short-term investments 95,819 3,037
Receivables, net of allowances of
$110 and $0, respectively 123,206 136,772
Inventories 34,629 43,243
2015 notes hedges 287,079 215,113
Prepaid expenses and other 60,780 64,216
------------------ -----------------
Total current assets 1,250,612 1,063,983
Property, plant and equipment, net of
accumulated depreciation of $638,552
and $658,990, respectively 246,856 262,517
Goodwill 233,275 192,125
Acquired intangibles, net of
accumulated amortization of $97,746
and $91,542, respectively 192,768 173,234
Long-term receivables 5,668 11,371
Other assets 59,335 58,039
------------------ -----------------
Total Assets $ 1,988,514 $ 1,761,269
================== =================
Current Liabilities:
Convertible notes $ 305,029 $ 294,061
2015 notes embedded conversion
derivative 287,079 215,113
Accounts payable and accrued
liabilities 160,250 165,791
Current portion of deferred revenue 322,260 340,401
------------------ -----------------
Total current liabilities 1,074,618 1,015,366
------------------ -----------------
Long-Term Liabilities:
Long-term portion of deferred revenue 58,436 73,959
Convertible notes 136,594 131,920
Other long-term liabilities 130,478 128,894
------------------ -----------------
Total long-term liabilities 325,508 334,773
------------------ -----------------
Stockholders' Equity 588,388 411,130
------------------ -----------------
Total Liabilities and Stockholders'
Equity $ 1,988,514 $ 1,761,269
================== =================
Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Nine Months Ended September 29, 2012 and October 1, 2011
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
-------------------------- --------------------------
September 29, October 1, September 29, October 1,
2012 2011 2012 2011
------------- ----------- ------------- -----------
Revenue:
Product $ 216,561 $ 163,966 $ 614,886 $ 463,723
Services 28,415 29,102 86,923 86,384
Maintenance 93,557 99,389 279,030 291,722
------------- ----------- ------------- -----------
Total revenue 338,533 292,457 980,839 841,829
------------- ----------- ------------- -----------
Costs and Expenses:
Cost of product 23,337 18,185 60,323 52,453
Cost of services 16,809 20,410 53,254 61,101
Cost of
maintenance 11,124 11,223 33,756 32,837
Marketing and
sales 82,461 79,914 246,674 235,292
Research and
development 115,078 103,154 335,703 303,721
General and
administrative 26,350 24,041 84,364 68,720
Amortization of
acquired
intangibles 3,876 3,786 11,305 12,750
Restructuring and
other charges
(credits) 57 (433) 49 277
------------- ----------- ------------- -----------
Total costs and
expenses 279,092 260,280 825,428 767,151
------------- ----------- ------------- -----------
Income from
operations 59,441 32,177 155,411 74,678
Interest expense (8,737) (10,830) (25,840) (32,584)
Other income
(expense), net (131) 7,244 5,972 20,107
------------- ----------- ------------- -----------
Income before
provision
(benefit) for
income taxes 50,573 28,591 135,543 62,201
Provision
(benefit) for
income taxes (8,011) 485 9,469 864
------------- ----------- ------------- -----------
Net income $ 58,584 $ 28,106 $ 126,074 $ 61,337
============= =========== ============= ===========
Net income per share
- basic $ 0.22 $ 0.11 $ 0.47 $ 0.23
============= =========== ============= ===========
Net income per share
- diluted $ 0.21 $ 0.10 $ 0.45 $ 0.23
============= =========== ============= ===========
Weighted average
common shares
outstanding - basic 271,350 264,723 269,643 263,149
============= =========== ============= ===========
Weighted average
common shares
outstanding -
diluted 283,328 270,741 278,760 270,068
============= =========== ============= ===========
Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 29, 2012 and October 1, 2011
(In thousands)
(Unaudited)
Nine Months Ended
--------------------------------
September 29, October 1,
2012 2011
--------------- ---------------
Cash and Cash Equivalents at Beginning of
Period $ 601,602 $ 557,409
--------------- ---------------
Cash Flows from Operating Activities:
Net income 126,074 61,337
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 67,171 68,934
Amortization of debt discount and fees 17,480 22,068
Stock-based compensation 34,285 31,589
Gain on investments, net (2,222) (19,220)
Non-cash restructuring and other charges 188 202
Deferred income taxes (14,107) (4,741)
Provisions (recoveries) for losses
(gains) on receivables, net 120 (6,596)
Other non-cash items 3,270 3,689
Changes in operating assets and
liabilities, net of effect of acquired
businesses:
Receivables 24,276 63,729
Inventories 6,936 (9,767)
Prepaid expenses and other 1,547 19,718
Other assets (3,101) 3,718
Accounts payable and accrued
liabilities (1,714) (71,832)
Deferred revenue (38,230) 20,245
Other long-term liabilities (1,855) (4,868)
--------------- ---------------
Net cash provided by operating
activities 220,118 178,205
--------------- ---------------
Cash Flows from Investing Activities:
Proceeds from the sale and maturity of
available-for-sale securities 7,436 9,588
Purchases of available-for-sale
securities (101,248) -
Proceeds from the sale of long-term
investments 44 4,824
Purchases of property, plant and
equipment (25,932) (17,703)
Investment in venture capital
partnerships and equity investments (250) (608)
Cash paid in business combinations and
asset acquisitions, net of cash
acquired (66,432) (44,052)
--------------- ---------------
Net cash used for investing
activities (186,382) (47,951)
--------------- ---------------
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 5,790 2,897
Payment of acquisition-related
contingent consideration (39) -
Proceeds from issuance of common stock 28,755 16,994
Stock received for payment of employee
taxes on vesting of restricted stock (13,457) (9,926)
--------------- ---------------
Net cash provided by financing
activities 18,142 7,136
--------------- ---------------
Effect of exchange rate changes on cash
and cash equivalents (4,381) 1,302
--------------- ---------------
Increase in cash and cash equivalents 47,497 138,692
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 649,099 $ 696,101
=============== ===============
Cadence Design Systems, Inc.
As of October 24, 2012
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per
Share
(Unaudited)
Three Months Ending Year Ending
December 29, 2012 December 29, 2012
-------------------- ------------------
Forecast Forecast
-------------------- ------------------
Diluted net income per share on a
GAAP basis $0.13 to $0.15 $0.58 to $0.60
Amortization of acquired
intangibles 0.03 0.10
Stock-based compensation expense 0.04 0.17
Non-qualified deferred
compensation expenses - 0.01
Integration and acquisition-
related costs 0.01 0.03
Amortization of debt discount 0.02 0.07
Other income or expense related to
investments and non-qualified
deferred compensation plan assets* - (0.01)
Acquisition-related income tax
benefit - (0.05)
Income tax effect of non-GAAP
adjustments (0.05) (0.15)
-------------------- ------------------
Diluted net income per share on a
non-GAAP basis $0.18 to $0.20 $0.75 to $0.77
==================== ==================
* Includes, as applicable, equity in losses or income from investments,
write-down of investments, gains or losses on sale of investments and
gains or losses on non-qualified deferred compensation plan assets
recorded in Other income (expense), net.
Cadence Design Systems, Inc.
As of October 24, 2012
Impact of Non-GAAP Adjustments on Forward Looking Net Income
(Unaudited)
Three Months Ending Year Ending
December 29, 2012 December 29, 2012
-------------------- ------------------
($ in Millions) Forecast Forecast
-------------------- ------------------
Net income on a GAAP basis $36 to $42 $162 to $168
Amortization of acquired
intangibles 8 29
Stock-based compensation expense 13 47
Non-qualified deferred
compensation expenses - 3
Integration and acquisition-
related costs 2 9
Amortization of debt discount 5 21
Other income or expense related to
investments and non-qualified
deferred compensation plan
assets* - (2)
Acquisition-related income tax
benefit - (15)
Income tax effect of non-GAAP
adjustments (13) (44)
-------------------- ------------------
Net income on a non-GAAP basis $51 to $57 $210 to $216
==================== ==================
* 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 Q3
---- ---- ---- ---- ---- ---- ---- ----
Americas 44% 47% 44% 44% 45% 44% 46% 43%
EMEA 21% 20% 21% 20% 20% 19% 20% 20%
Japan 19% 17% 18% 17% 18% 18% 16% 17%
Asia 16% 16% 17% 19% 17% 19% 18% 20%
Total 100% 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 Q3
---- ---- ---- ---- ---- ---- ---- ----
Functional Verification and
Design IP 28% 33% 30% 32% 30% 30% 33% 30%
Digital IC Design 24% 21% 22% 21% 22% 23% 22% 23%
Custom IC Design 20% 22% 23% 23% 22% 23% 22% 24%
Design for Manufacturing 8% 6% 6% 6% 7% 7% 6% 6%
System Interconnect 10% 8% 9% 8% 9% 8% 8% 9%
Services & Other 10% 10% 10% 10% 10% 9% 9% 8%
Total 100% 100% 100% 100% 100% 100% 100% 100%
Note: Product Group total revenue includes Product + Maintenance
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For more information, please contact: Investors and Shareholders Alan Lindstrom Cadence Design Systems, Inc. 408-944-7100 Email Contact Media and Industry Analysts Nancy Szymanski Cadence Design Systems, Inc. 408-473-8382 Email Contact