Cadence Reports Second Quarter 2017 Financial Results

SAN JOSE, Calif., July 24, 2017 /PRNewswire/ -- Cadence Design Systems, Inc. (NASDAQ: CDNS) today announced results for the second quarter 2017.

Cadence reported second quarter 2017 revenue of $479 million, compared to revenue of $453 million reported for the same period in 2016. On a GAAP basis, Cadence recognized net income of $69 million, or $0.25 per share on a diluted basis, in the second quarter of 2017, compared to net income of $49 million, or $0.17 per share on a diluted basis, for the same period in 2016.

Using the non-GAAP measure defined below, net income in the second quarter of 2017 was $94 million, or $0.34 per share on a diluted basis, as compared to net income of $86 million, or $0.29 per share on a diluted basis, for the same period in 2016.

"Customer adoption of our innovative product portfolio enabled Cadence's strong second quarter results, driven by robust software and IP growth," said Lip-Bu Tan, president and chief executive officer.

"Our excellent financial results for the second quarter were highlighted with revenue near the high end of our guidance range and operating margin, EPS and operating cash flow all exceeding expectations," said Geoff Ribar, senior vice president and chief financial officer, and added, "We are increasing our outlook for the fiscal year and expect to repurchase shares in the third quarter under our existing authorization."

CFO Commentary

Commentary on the second quarter 2017 financial results by Geoff Ribar, senior vice president and chief financial officer, is available at www.cadence.com/cadence/investor_relations.

Business Outlook

For the third quarter of 2017, the company expects total revenue in the range of $475 million to $485 million. Third quarter GAAP net income per diluted share is expected to be in the range of $0.24 to $0.26. Net income per diluted share using the non-GAAP measure defined below is expected to be in the range of $0.33 to $0.35.

For 2017, the company expects total revenue in the range of $1.910 billion to $1.950 billion. On a GAAP basis, net income per diluted share for 2017 is expected to be in the range of $0.98 to $1.04. Using the non-GAAP measure defined below, net income per diluted share for 2017 is expected to be in the range of $1.36 to $1.42.

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 in this release.

Audio Webcast Scheduled

Lip-Bu Tan, president and chief executive officer, Geoff Ribar, senior vice president and chief financial officer, and John Wall, corporate vice president, finance and corporate controller, will host a second quarter 2017 financial results audio webcast today, July 24, 2017, 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 24, 2017 at 5 p.m. (Pacific) and ending September 15, 2017 at 5 p.m. (Pacific). Webcast access is available at www.cadence.com/cadence/investor_relations.

About Cadence

Cadence enables electronic systems and semiconductor companies to create the innovative end products that are transforming the way people live, work and play. Cadence(®) software, hardware and semiconductor IP are used by customers to deliver products to market faster. The company's System Design Enablement strategy helps customers develop differentiated products-from chips to boards to systems-in mobile, consumer, cloud datacenter, automotive, aerospace, IoT, industrial and other market segments. Cadence is listed as one of Fortune Magazine's 100 Best Companies to Work For. Learn more at cadence.com.

Cadence and the Cadence logo 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 second quarter 2017 financial results and expectation to repurchase shares of its common stock, as well as the information in the Business Outlook section, 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) 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; (ix) the effects of Cadence's efforts to improve operational efficiency in its business, including strategic, customer and supplier relationships, and its ability to retain key employees; (x) events that affect cash flow, liquidity, reserves or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation or other matters; and (xi) the effects of any litigation or other proceedings to which Cadence is or may become a party. In addition, the actual timing and amount of Cadence's repurchase of its common stock under the existing authorization will be subject to business and market conditions, corporate and regulatory requirements, acquisition opportunities and other factors.

For a detailed discussion of these and other cautionary statements related to Cadence's business, please refer to Cadence's filings with the U.S. Securities and Exchange Commission, which include Cadence's most recent reports on Form 10-K and Form 10-Q, including Cadence's future filings.

GAAP to Non-GAAP Reconciliation

Non-GAAP financial measures should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with generally accepted accounting principles, or GAAP. 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 also encouraged to look at the GAAP results as the best measure of financial performance.

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. Non-GAAP net income is calculated by Cadence management by taking GAAP net income and excluding, as applicable, amortization of intangible assets, stock-based compensation expense, acquisition and integration-related costs including retention expenses, 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 supplemental information to Cadence's management and investors regarding the performance of the business operations, facilitates comparisons to the historical operating results and allows the review of Cadence's business from the same perspective as Cadence's management, including forecasting and budgeting.

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

                           July 1, 2017              July 2, 2016
                           ------------              ------------

                                       (unaudited)

    (in thousands)

    Net income on a GAAP
     basis                                 $69,127                 $49,335

    Amortization of
     acquired intangibles        14,704                     15,083

    Stock-based
     compensation expense        30,482                     25,356

    Non-qualified
     deferred compensation
     expenses                       756                        359

    Restructuring and
     other charges
     (credits)                    (929)                      (74)

    Acquisition and
     integration-related
     costs                          651                      7,190

    Other income or
     expense related to
     investments and non-
     qualified deferred
     compensation plan
     assets*                      (855)                     (594)

    Income tax effect of
     non-GAAP adjustments      (19,861)                  (11,053)
                                -------                    -------

    Net income on a non-
     GAAP basis                            $94,075                 $85,602
                                           =======                 =======

    *            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

                              July 1, 2017             July 2, 2016
                              ------------             ------------

                                         (unaudited)

    (in thousands, except per
     share data)

    Diluted net income per
     share on a GAAP basis                     $0.25                 $0.17

    Amortization of acquired
     intangibles                      0.05                      0.05

    Stock-based compensation
     expense                          0.11                      0.09

    Non-qualified deferred
     compensation expenses               -                        -

    Restructuring and other
     charges (credits)                   -                        -

    Acquisition and
     integration-related
     costs                               -                     0.02

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

    Income tax effect of non-
     GAAP adjustments               (0.07)                   (0.04)
                                     -----                     -----

    Diluted net income per
     share on a non-GAAP
     basis                                     $0.34                 $0.29
                                               =====                 =====

    Shares used in
     calculation of diluted
     net income per share -
     GAAP**                        279,526                   295,201

    Shares used in
     calculation of diluted
     net income per share -
     non-GAAP**                    279,526                   295,201

    *              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 September 15, 2017, Cadence will observe a Quiet Period during which the business outlook as provided in this press release and the most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q no longer constitute the company's current expectations. During the Quiet Period, the business outlook in these documents should be considered historical, speaking as of prior to the Quiet Period only and not subject to any update by 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 2017 earnings release is published, which is currently scheduled for Thursday, October 26, 2017.

For more information, please contact:

Cadence Investor Relations
408-944-7100
investor_relations@cadence.com

Cadence Newsroom
408-944-7039
newsroom@cadence.com

                                                            Cadence Design Systems, Inc.

                                                        Condensed Consolidated Balance Sheets

                                                         July 1, 2017 and December 31, 2016

                                                                   (In thousands)

                                                                     (Unaudited)


                                                                      July 1, 2017            December 31, 2016
                                                                      ------------            -----------------


    Current assets:

                       Cash and cash
                       equivalents                                                  $655,998                        $465,232

                       Short-term
                       investments                                                     3,229                           3,057

                       Receivables,
                       net                                                           153,154                         157,171

                      Inventories                                                     31,894                          39,475

                       Prepaid
                       expenses and
                       other                                                          39,175                          37,099
                      -------------

                      Total current assets                                           883,450                         702,034


    Property, plant and equipment, net of accumulated

                      depreciation
                       of $634,418
                       and
                       $612,961,
                       respectively                                                  249,140                         238,607

    Goodwill                                                                       575,025                         572,764

    Acquired intangibles, net of accumulated amortization of

                      $269,859 and $267,723, respectively                            229,783                         258,814

    Long-term receivables                                                           13,340                          12,949

    Other assets                                                                   316,961                         311,740
                                                                                   -------

    Total assets                                                                $2,267,699                      $2,096,908
                                                                                ==========                      ==========


    Current liabilities:

                       Revolving
                       credit
                       facility                                           $                -                        $50,000

                       Accounts
                       payable and
                       accrued
                       liabilities                                                   222,216                         239,496

                       Current
                       portion of
                       deferred
                       revenue                                                       322,509                         296,066
                      -----------

                      Total current liabilities                                      544,725                         585,562
                                                                                     -------                         -------


    Long-term liabilities:

                       Long-term
                       portion of
                       deferred
                       revenue                                                        60,158                          66,769

                       Long-term
                       debt                                                          643,927                         643,493

                       Other long-
                       term
                       liabilities                                                    67,096                          59,314

                       Total long-term
                       liabilities                                                   771,181                         769,576
                                                                                     -------                         -------


    Stockholders' equity                                                           951,793                         741,770

    Total liabilities and
     stockholders' equity                                                       $2,267,699                      $2,096,908
                                                                                ==========                      ==========

                                                                                                     Cadence Design Systems, Inc.

                                                                                               Condensed Consolidated Income Statements

                                                                                   For the Three and Six Months Ended July 1, 2017 and July 2, 2016

                                                                                               (In thousands, except per share amounts)

                                                                                                              (Unaudited)



                                                                               Three Months Ended                               Six Months Ended
                                                                               ------------------                               ----------------

                                                                       July 1, 2017                                    July 2, 2016                                   July 1, 2017                      July 2, 2016
                                                                       ------------                                    ------------                                   ------------                      ------------


    Revenue:

                        Product and
                        maintenance                           $443,847                                       $419,963                                        $895,254                           $831,707

                       Services                                 35,154                                         33,058                                          60,658                             69,176
                                                              ------


                       Total revenue                           479,001                                        453,021                                         955,912                            900,883
                                                               -------                                        -------                                         -------                            -------


    Costs and expenses:

                        Cost of product
                        and maintenance                         38,829                                         42,960                                          82,546                             87,141

                       Cost of services                         22,003                                         18,823                                          40,078                             36,696

                        Marketing and
                        sales                                  103,897                                        101,110                                         207,244                            200,310

                        Research and
                        development                            195,901                                        182,371                                         394,187                            362,277

                        General and
                        administrative                          32,774                                         36,388                                          64,590                             64,688

                        Amortization of
                        acquired
                        intangibles                              3,836                                          4,537                                           7,692                             10,317

                        Restructuring and
                        other charges
                        (credits)                                (929)                                          (74)                                        (2,717)                            14,512
                                                               -----


                        Total costs
                        and expenses                           396,311                                        386,115                                         793,620                            775,941
                                                               -------                                        -------                                         -------                            -------


                                          Income from operations                                   82,690                                           66,906                            162,292                           124,942


                       Interest expense                        (6,248)                                       (5,896)                                       (12,727)                           (11,253)

                       Other income, net                           924                                          2,842                                           1,983                              7,605
                                                                 ---


                                           Income before provision for
                                           income taxes                                            77,366                                           63,852                            151,548                           121,294


                        Provision for
                        income taxes                             8,239                                         14,517                                          14,162                             21,397
                                                               -----


                                          Net income                                              $69,127                                          $49,335                           $137,386                           $99,897
                                                                                                  =======                                          =======                           ========                           =======



    Net income per share - basic                                                                 $0.25                                            $0.17                              $0.51                             $0.34
                                                                                                 =====                                            =====                              =====                             =====


    Net income per share - diluted                                                               $0.25                                            $0.17                              $0.49                             $0.33
                                                                                                 =====                                            =====                              =====                             =====


    Weighted average common shares
     outstanding -basic                                                                        271,887                                          288,191                            271,030                           292,403
                                                                                               =======                                          =======                            =======                           =======


    Weighted average common shares
     outstanding -diluted                                                                      279,526                                          295,201                            278,631                           299,318
                                                                                               =======                                          =======                            =======                           =======

                                          Cadence Design Systems, Inc.

                                Condensed Consolidated Statements of Cash Flows

                             For the Six Months Ended July 1, 2017 and July 2, 2016

                                                 (In thousands)

                                                  (Unaudited)



                                                Six Months Ended
                                                ----------------

                                                    July 1,                         July, 2

                                                                 2017                             2016
                                                                 ----                             ----


     Cash
     and
     cash
     equivalents
     at
     beginning
     of
     period                                                  $465,232                         $616,686

    Cash flows from operating
     activities:

       Net
        income                                                137,386                           99,897

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

           Depreciation
           and
           amortization                                        58,304                           62,759

           Amortization
           of
           debt
           discount
           and
           fees                                                   633                              527

           Stock-
           based
           compensation                                        57,918                           49,988

           Gain
           on
           investments,
           net                                                (2,083)                         (3,265)

           Deferred
           income
           taxes                                                4,813                           10,252

           Other
           non-
           cash
           items                                                2,157                              750

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

             Receivables                                        6,342                          (3,532)

             Inventories                                        2,535                         (10,296)

              Prepaid
              expenses
              and
              other                                           (1,557)                         (8,690)

              Other
              assets                                          (8,790)                         (8,709)

              Accounts
              payable
              and
              accrued
              liabilities                                    (21,995)                        (14,012)

              Deferred
              revenue                                          18,733                          (7,412)

              Other
              long-
              term
              liabilities                                         174                          (4,700)

                Net
                 cash
                 provided
                 by
                 operating
                 activities                                   254,570                          163,557
                                                              -------                          -------


    Cash flows from investing
     activities:

       Purchases
       of
       available-
       for-
       sale
       securities                                                   -                        (20,525)

       Proceeds
       from
       the
       sale
       of
       available-
       for-
       sale
       securities                                                 189                           55,168

       Proceeds
       from
       the
       maturity
       of
       available-
       for-
       sale
       securities                                                   -                          26,115

       Proceeds
       from
       the
       sale
       of
       long-
       term
       investments                                                  -                           2,583

       Purchases
       of
       property,
       plant
       and
       equipment                                             (27,488)                        (28,287)

       Cash
       paid                                  acquired
       in
       business
       combinations
       and
       asset
       acquisitions,
       net
       of
       cash                                                         -                        (41,627)

               Net
                cash
                used
                for
                investing
                activities                                   (27,299)                         (6,573)
                                                              -------                           ------


    Cash flows from financing
     activities:

       Proceeds
       from
       term
       loan                                                         -                         300,000

       Proceeds
       from
       revolving
       credit
       facility                                                50,000                           50,000

       Payment
       on
       revolving
       credit
       facility                                             (100,000)                               -

       Payment
       of
       debt
       issuance
       costs                                                    (793)                           (622)

       Proceeds
       from
       issuance
       of
       common
       stock                                                   29,967                           36,296

       Stock
       received                              stock
       for
       payment
       of
       employee
       taxes
       on
       vesting
       of
       restricted                                            (25,819)                        (17,490)

       Payments
       for
       repurchases
       of
       common
       stock                                                        -                       (480,100)

               Net
                cash
                used
                for
                financing
                activities                                   (46,645)                       (111,916)
                                                              -------                         --------


     Effect
     of
     exchange
     rate
     changes
     on
     cash
     and
     cash
     equivalents                                               10,140                            7,819
                                                               ------                            -----


     Increase
     in
     cash
     and
     cash
     equivalents                                              190,766                           52,887
                                                              -------                           ------


     Cash
     and
     cash
     equivalents
     at
     end
     of
     period                                                  $655,998                         $669,573
                                                             ========                         ========

                                             Cadence Design Systems, Inc.

                                                     (Unaudited)




    Revenue Mix by
     Geography (% of
     Total Revenue)

                                      2016                                  2017
                                      ----                                  ----

    GEOGRAPHY             Q1       Q2                Q3                  Q4       Year       Q1       Q2
    ---------            ---      ---               ---                 ---       ----      ---      ---


     Americas                 49%        47%               46%                48%       48%      45%      45%

     Asia                     22%        24%               27%                25%       24%      26%      28%

     Europe, Middle East
      and Africa              19%        20%               19%                19%       19%      20%      19%

     Japan                    10%         9%                8%                 8%        9%       9%       8%

    Total                    100%       100%              100%               100%      100%     100%     100%





    Revenue Mix by
     Product Group (%
     of Total Revenue)

                                      2016                                  2017
                                      ----                                  ----

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


     Functional
      Verification,
      including
      Emulation and
      Prototyping
      Hardware                26%        27%               24%                25%       25%      23%      23%

     Digital IC Design
      and Signoff             30%        27%               28%                30%       29%      29%      30%

     Custom IC Design         25%        26%               27%                25%       25%      26%      26%

     System Interconnect
      and Analysis             9%        10%               10%                 9%       10%      10%      10%

     IP                       10%        10%               11%                11%       11%      12%      11%

    Total                    100%       100%              100%               100%      100%     100%     100%

                                           Cadence Design Systems, Inc.

                                                As of July 24, 2017

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

                                                    (Unaudited)



                                            Three Months Ending                                      Year Ending

                                            September 30, 2017                                    December 30, 2017

                                                 Forecast                                              Forecast
                                                 --------                                              --------


    Diluted net income per
     share on a GAAP basis                                $0.24 to $0.26                             $0.98 to $1.04


                                   Amortization of acquired
                                   intangibles                                               0.05                      0.20

                                  Stock-based compensation expense                           0.12                      0.46

                                   Non-qualified deferred
                                   compensation expenses                                        -                     0.01

                                   Restructuring and other charges
                                   (credits)                                                    -                   (0.01)

                                   Acquisition and integration-
                                   related costs                                                -                     0.01

                                   Other income or expense related to
                                   investments and non-qualified

                                      deferred compensation plan assets*                        -                   (0.01)

                                   Income tax effect of non-GAAP
                                   adjustments                                             (0.08)                   (0.28)


    Diluted net income per
     share on a non-GAAP
     basis**                                               $0.33 to $0.35                             $1.36 to $1.42
                                                          ==============                             ==============





                                           Cadence Design Systems, Inc.

                                                As of July 24, 2017

                           Impact of Non-GAAP Adjustments on Forward Looking Net Income

                                                    (Unaudited)



                                            Three Months Ending                                      Year Ending

                                            September 30, 2017                                    December 30, 2017

    ($ in millions)                              Forecast                                              Forecast
                                                 --------                                              --------


    Net income on a GAAP basis                                $66 to $72                               $274 to $291


                                   Amortization of acquired
                                   intangibles                                                 14                        56

                                  Stock-based compensation expense                             34                       129

                                   Non-qualified deferred
                                   compensation expenses                                        -                        2

                                   Restructuring and other charges
                                   (credits)                                                    -                      (3)

                                   Acquisition and integration-
                                   related costs                                                1                         3

                                   Other income or expense related to
                                   investments and non-qualified

                                      deferred compensation plan assets*                        -                      (2)

                                   Income tax effect of non-GAAP
                                   adjustments                                               (23)                     (79)


    Net income on a non-GAAP
     basis**                                                   $92 to $98                               $380 to $397
                                                              ==========                               ============

    **The non-GAAP measures presented
     in the table above should not be
     considered a substitute for
     financial results and measures
     determined or calculated in
     accordance with GAAP.


     * Includes, as applicable, equity
      in losses or income from
      investments, write-down of
      investments, gains or losses on
      sale of investments and gains or
      losses on non-qualified deferred
      compensation plan assets recorded
      in other income or expense.

SOURCE CDNS-IR

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SOURCE Cadence Design Systems, Inc.