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Cadence Reports Second Quarter 2021 Financial Results

Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the second quarter of 2021.

Cadence reported second quarter 2021 revenue of $728 million, compared to revenue of $638 million for the same period in 2020. On a GAAP basis, Cadence achieved operating margin of 25 percent and recognized net income of $156 million, or $0.56 per share on a diluted basis, in the second quarter of 2021, compared to operating margin of 24 percent and net income of $131 million, or $0.47 per share on a diluted basis for the same period in 2020.

Using the non-GAAP measure defined below, operating margin for the second quarter of 2021 was 39 percent and net income was $238 million, or $0.86 per share on a diluted basis, compared to operating margin of 35 percent and net income of $185 million, or $0.66 per share on a diluted basis, for the same period in 2020.

“Cadence delivered outstanding financial results for the second quarter on broad based customer demand as the Cadence team continues to execute exceedingly well,” said Lip-Bu Tan, chief executive officer. “Generational drivers are fueling strong design activity and our ISD strategy coupled with a strong innovation engine that has led to introducing eight significant new products so far this year, positions us extremely well to delight our customers and accelerate growth.”

“Cadence exceeded all of its key financial metrics for the second quarter and as a result we are raising our outlook for the year,” said John Wall, senior vice president and chief financial officer.

CFO Commentary

Commentary on the second quarter 2021 financial results by John Wall, senior vice president and chief financial officer, is available at www.cadence.com/cadence/investor_relations.

Business Outlook

For the third quarter of 2021, the company expects total revenue in the range of $730 million to $750 million. Third quarter GAAP operating margin is expected to be approximately 23 percent and GAAP net income per diluted share is expected to be in the range of $0.48 to $0.50. Using the non-GAAP measure defined below, operating margin is expected to be approximately 34 percent and net income per diluted share is expected to be in the range of $0.74 to $0.76.

For 2021, the company expects total revenue in the range of $2.925 billion to $2.965 billion. On a GAAP basis, operating margin is expected to be in the range of 24.5 percent to 25.25 percent and GAAP net income per diluted share for 2021 is expected to be in the range of $2.15 to $2.21. Using the non-GAAP measure defined below, operating margin for 2021 is expected to be in the range of 36 percent to 36.75 percent and net income per diluted share for 2021 is expected to be in the range of $3.14 to $3.20.

Our fiscal years are 52- or 53-week periods ending on the Saturday closest to December 31. Fiscal 2021 will be a 52-week fiscal year. Fiscal 2020 was a 53-week fiscal year, with an additional week in our fourth quarter of 2020.

A schedule showing a reconciliation of the business outlook from GAAP operating margin, GAAP net income and diluted net income per share to non-GAAP operating margin and non-GAAP net income and diluted net income per share is included in this release.

Audio Webcast Scheduled

Lip-Bu Tan, chief executive officer, Anirudh Devgan, president and John Wall, senior vice president and chief financial officer, will host the second quarter 2021 financial results audio webcast today, July 26, 2021, 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 26, 2021 at 5 p.m. (Pacific) and ending September 17, 2021 at 5 p.m. (Pacific). Webcast access is available at www.cadence.com/cadence/investor_relations.

About Cadence

Cadence is a pivotal leader in electronic design, building upon more than 30 years of computational software expertise. The company applies its underlying Intelligent System Design strategy to deliver software, hardware and IP that turn design concepts into reality. Cadence customers are the world’s most innovative companies, delivering extraordinary electronic products from chips to boards to systems for the most dynamic market applications, including consumer, hyperscale computing, 5G communications, automotive, mobile, aerospace, industrial and healthcare. For seven years in a row, Fortune magazine has named Cadence one of the 100 Best Companies to Work For. Learn more at cadence.com.

© 2021 Cadence Design Systems, Inc. All rights reserved worldwide. Cadence, the Cadence logo and the other Cadence marks found at www.cadence.com/go/trademarks are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

This document includes forward-looking statements which are based on current expectations and preliminary assumptions 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 highly competitive industries in which it operates; (ii) the success of Cadence’s efforts to maintain and improve operational efficiency and growth; (iii) the mix of products and services sold, the timing of orders and the ability to develop, install or deliver Cadence’s products or services; (iv) change in customer demands that could result in delays in purchases, development, installations or deliveries of Cadence's products or services, including those resulting from consolidation, restructurings and other operational efficiency improvements of Cadence’s customers; (v) economic and industry conditions, including that of the semiconductor and electronics industries, government regulations and trade restrictions; (vi) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rates, currency exchange rate fluctuations and Cadence’s ability to access capital and debt markets; (vii) the acquisition of other companies or technologies or the failure to successfully integrate and operate them; (viii) events that affect cash flow, liquidity, or reserves, or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation or other matters; (ix) the effects of any litigation or other proceedings to which Cadence is or may become a party; and (x) the duration, severity and effects of the COVID-19 pandemic and containment measures on Cadence, its employees, and its suppliers and customers, which may also have the effect of heightening the other risks described in this paragraph. In addition, the timing and amount of Cadence's repurchase of its common stock under the authorizations will be subject to business and market conditions, corporate and regulatory requirements, stock price, 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, executive severance 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 management uses non-GAAP net income because it excludes items that are generally not directly related to the performance of Cadence’s core business operations and therefore provides supplemental information to Cadence 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 management, including forecasting and budgeting.

The following tables reconcile the specific items excluded from GAAP operating margin, GAAP net income and GAAP net income per diluted share in the calculation of non-GAAP operating margin, non-GAAP net income and non-GAAP net income per diluted share for the periods shown below:

Operating Margin Reconciliation

 

Three Months Ended

 

 

July 3, 2021

 

June 27, 2020

 

 

(unaudited)

GAAP operating margin as a percent of total revenue

 

25%

 

24%

Reconciling items to non-GAAP operating margin as a percent of total revenue:

 

 

 

 

Stock-based compensation expense

 

7%

 

7%

Amortization of acquired intangibles

 

2%

 

2%

Acquisition and integration-related costs

 

1%

 

1%

Restructuring and other credits

 

0%

 

0%

Non-qualified deferred compensation expenses

 

0%

 

1%

Special charges*

 

4%

 

0%

Non-GAAP operating margin as a percent of total revenue

 

39%

 

35%

*

Q2 2021 includes costs related to a voluntary retirement program.

Net Income Reconciliation

 

Three Months Ended

 

 

July 3, 2021

 

June 27, 2020

(in thousands)

 

(unaudited)

Net income on a GAAP basis

 

$

155,900

 

 

$

131,288

 

Stock-based compensation expense

 

50,518

 

 

46,907

 

Amortization of acquired intangibles

 

17,262

 

 

16,074

 

Acquisition and integration-related costs

 

5,631

 

 

5,315

 

Restructuring and other credits

 

(469

)

 

(275

)

Non-qualified deferred compensation expenses

 

2,411

 

 

3,618

 

Special charges*

 

26,832

 

 

270

 

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

 

(1,774

)

 

(2,797

)

Income tax effect of non-GAAP adjustments

 

(18,023

)

 

(15,786

)

Net income on a non-GAAP basis

 

$

238,288

 

 

$

184,614

 

*

Q2 2021 includes costs related to a voluntary retirement program.

**

Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on 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 3, 2021

 

June 27, 2020

(in thousands, except per share data)

 

(unaudited)

Diluted net income per share on a GAAP basis

 

$

0.56

 

 

$

0.47

 

Stock-based compensation expense

 

0.18

 

 

0.17

 

Amortization of acquired intangibles

 

0.06

 

 

0.06

 

Acquisition and integration-related costs

 

0.02

 

 

0.02

 

Restructuring and other credits

 

 

 

 

Non-qualified deferred compensation expenses

 

0.01

 

 

0.01

 

Special charges*

 

0.10

 

 

 

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

 

(0.01

)

 

(0.01

)

Income tax effect of non-GAAP adjustments

 

(0.06

)

 

(0.06

)

Diluted net income per share on a non-GAAP basis

 

$

0.86

 

 

$

0.66

 

Shares used in calculation of diluted net income per share

 

278,558

 

 

279,080

 

*

Q2 2021 includes costs related to a voluntary retirement program.

**

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

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 17, 2021, 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 Cadence’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 Cadence. 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 Cadence’s third quarter 2021 earnings release is published, which is currently scheduled for October 25, 2021.

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
July 3, 2021 and January 2, 2021
(In thousands)
(Unaudited)
 
July 3, 2021 January 2, 2021
 
Current assets:
Cash and cash equivalents

$

847,160

$

928,432

Receivables, net

 

389,986

 

338,487

Inventories

 

90,479

 

75,956

Prepaid expenses and other

 

129,442

 

135,712

Total current assets

 

1,457,067

 

1,478,587

 
Property, plant and equipment, net

 

301,979

 

311,125

Goodwill

 

929,525

 

782,087

Acquired intangibles, net

 

264,789

 

210,590

Deferred taxes

 

729,790

 

732,290

Other assets

 

439,398

 

436,106

Total assets

$

4,122,548

$

3,950,785

 
Current liabilities:
Accounts payable and accrued liabilities

$

340,607

$

349,951

Current portion of deferred revenue

 

586,109

 

446,857

Total current liabilities

 

926,716

 

796,808

 
Long-term liabilities:
Long-term portion of deferred revenue

 

98,408

 

107,064

Long-term debt

 

347,186

 

346,793

Other long-term liabilities

 

233,495

 

207,102

Total long-term liabilities

 

679,089

 

660,959

 
Stockholders' equity

 

2,516,743

 

2,493,018

Total liabilities and stockholders' equity

$

4,122,548

$

3,950,785

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Six Months Ended July 3, 2021 and June 27, 2020
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended Six Months Ended
July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020
 
Revenue:
Product and maintenance

$

687,884

 

$

601,356

 

$

1,386,938

 

$

1,183,055

 

Services

 

40,401

 

 

37,062

 

 

77,375

 

 

73,320

 

 
Total revenue

 

728,285

 

 

638,418

 

 

1,464,313

 

 

1,256,375

 

 
Costs and expenses:
Cost of product and maintenance

 

55,842

 

 

55,669

 

 

120,748

 

 

111,115

 

Cost of services

 

20,917

 

 

19,546

 

 

39,978

 

 

38,563

 

Marketing and sales

 

135,967

 

 

120,476

 

 

268,793

 

 

246,220

 

Research and development

 

285,227

 

 

250,821

 

 

556,219

 

 

492,489

 

General and administrative

 

40,333

 

 

35,641

 

 

80,285

 

 

69,233

 

Amortization of acquired intangibles

 

5,030

 

 

4,590

 

 

9,661

 

 

8,796

 

Restructuring and other credits

 

(469

)

 

(275

)

 

(746

)

 

(1,342

)

 
Total costs and expenses

 

542,847

 

 

486,468

 

 

1,074,938

 

 

965,074

 

 
Income from operations

 

185,438

 

 

151,950

 

 

389,375

 

 

291,301

 

 
Interest expense

 

(4,316

)

 

(5,914

)

 

(8,533

)

 

(10,551

)

Other income, net

 

2,143

 

 

4,630

 

 

4,844

 

 

96

 

 
Income before provision for income taxes

 

183,265

 

 

150,666

 

 

385,686

 

 

280,846

 

 
Provision for income taxes

 

27,365

 

 

19,378

 

 

42,617

 

 

25,570

 

 
Net income

$

155,900

 

$

131,288

 

$

343,069

 

$

255,276

 

 
 
Net income per share - basic

$

0.57

 

$

0.48

 

$

1.25

 

$

0.93

 

 
Net income per share - diluted

$

0.56

 

$

0.47

 

$

1.23

 

$

0.91

 

 
Weighted average common shares outstanding - basic

 

273,565

 

 

273,432

 

 

273,843

 

 

273,488

 

 
Weighted average common shares outstanding - diluted

 

278,558

 

 

279,080

 

 

279,399

 

 

279,207

 

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended July 3, 2021 and June 27, 2020
(In thousands)
(Unaudited)
 
Six Months Ended
July 3, June 27,

2021

2020

 
Cash and cash equivalents at beginning of period

$

928,432

 

$

705,210

 

Cash flows from operating activities:
Net income

 

343,069

 

 

255,276

 

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization

 

71,799

 

 

69,902

 

Amortization of debt discount and fees

 

687

 

 

512

 

Stock-based compensation

 

103,114

 

 

93,389

 

(Gain) loss on investments, net

 

(795

)

 

4,036

 

Deferred income taxes

 

1,710

 

 

(1,609

)

Provisions for losses on receivables

 

242

 

 

922

 

ROU asset amortization and change in operating lease liabilities

 

(2,483

)

 

1,502

 

Other non-cash items

 

183

 

 

296

 

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

 

(48,016

)

 

(2,497

)

Inventories

 

(14,527

)

 

11,020

 

Prepaid expenses and other

 

7,690

 

 

9,910

 

Other assets

 

6,991

 

 

(17,687

)

Accounts payable and accrued liabilities

 

(14,771

)

 

(11,141

)

Deferred revenue

 

127,286

 

 

148,508

 

Other long-term liabilities

 

6,639

 

 

504

 

Net cash provided by operating activities

 

588,818

 

 

562,843

 

 
Cash flows from investing activities:
Purchases of property, plant and equipment

 

(31,139

)

 

(43,535

)

Cash paid in business combinations, net of cash acquired

 

(220,660

)

 

(195,118

)

Net cash used for investing activities

 

(251,799

)

 

(238,653

)

 
Cash flows from financing activities:
Proceeds from revolving credit facility

 

-

 

 

350,000

 

Payment of debt issuance costs

 

(1,285

)

 

-

 

Proceeds from issuance of common stock

 

52,252

 

 

43,667

 

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

 

(78,053

)

 

(53,657

)

Payments for repurchases of common stock

 

(392,290

)

 

(175,036

)

Net cash provided by (used for) financing activities

 

(419,376

)

 

164,974

 

 
Effect of exchange rate changes on cash and cash equivalents

 

1,085

 

 

(5,188

)

 
Increase (decrease) in cash and cash equivalents

 

(81,272

)

 

483,976

 

 
Cash and cash equivalents at end of period

$

847,160

 

$

1,189,186

 

 
Cadence Design Systems, Inc.
(Unaudited)
             
             
             
Revenue Mix by Geography (% of Total Revenue)            

2020

 

2021

GEOGRAPHY

Q1

 

Q2

 

Q3

 

Q4

 

Year

 

Q1

 

Q2

             
Americas

43%

 

44%

 

42%

 

41%

 

42%

 

46%

 

44%

China

13%

 

12%

 

17%

 

17%

 

15%

 

12%

 

14%

Other Asia

18%

 

19%

 

19%

 

18%

 

18%

 

18%

 

19%

Europe, Middle East and Africa

19%

 

18%

 

16%

 

17%

 

18%

 

18%

 

17%

Japan

7%

 

7%

 

6%

 

7%

 

7%

 

6%

 

6%

Total

100%

 

100%

 

100%

 

100%

 

100%

 

100%

 

100%

             
             
             
             
Revenue Mix by Product Category (% of Total Revenue)            

2020

 

2021

PRODUCT CATEGORY

Q1

 

Q2

 

Q3

 

Q4

 

Year

 

Q1

 

Q2

             
Custom IC Design and Simulation

25%

 

24%

 

24%

 

26%

 

25%

 

23%

 

23%

Digital IC Design and Signoff

29%

 

28%

 

27%

 

31%

 

29%

 

27%

 

28%

Functional Verification, including Emulation and Prototyping Hardware

23%

 

24%

 

23%

 

19%

 

22%

 

26%

 

25%

IP

14%

 

14%

 

15%

 

13%

 

14%

 

14%

 

13%

System Design and Analysis

9%

 

10%

 

11%

 

11%

 

10%

 

10%

 

11%

Total

100%

 

100%

 

100%

 

100%

 

100%

 

100%

 

100%

             
             
             
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of July 26, 2021
(Unaudited)
 
Three Months Ending Year Ending
October 2, 2021 January 1, 2022
Forecast Forecast
 
GAAP operating margin as a percent of total revenue ~23%

24.5% - 25.25%

 
Reconciling items to non-GAAP operating margin as a
percent of total revenue:
Stock-based compensation expense

8%

7.5%

Amortization of acquired intangibles

2%

2.3%

Acquisition and integration-related costs

1%

0.7%

Restructuring and other credits

0%

0.0%

Non-qualified deferred compensation expenses

0%

0.1%

Special charges*

0%

0.9%

 
Non-GAAP operating margin as a percent of total revenue†

~34%

36% - 36.75%

  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. 
 
*   Comprised of costs related to a voluntary retirement program.
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share
As of July 26, 2021
(Unaudited)
 
Three Months Ending Year Ending
October 2, 2021 January 1, 2022
Forecast Forecast
 
Diluted net income per share on a GAAP basis $0.48 to $0.50 $2.15 to $2.21
 
Stock-based compensation expense

0.20

0.79

Amortization of acquired intangibles

0.06

0.24

Acquisition and integration-related costs

0.02

0.08

Restructuring and other credits

-

-

Non-qualified deferred compensation expenses

-

0.01

Special charges*

-

0.10

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

-

(0.02)

Income tax effect of non-GAAP adjustments

(0.02)

(0.21)

 
Diluted net income per share on a non-GAAP basis† $0.74 to $0.76 $3.14 to $3.20
 
 
 
 
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of July 26, 2021
(Unaudited)
 
 
Three Months Ending Year Ending
October 2, 2021 January 1, 2022
($ in millions) Forecast Forecast
 
Net income on a GAAP basis $133 to $139 $600 to $616
 
Stock-based compensation expense

57

220

Amortization of acquired intangibles

17

67

Acquisition and integration-related costs

5

22

Restructuring and other credits

-

(1)

Non-qualified deferred compensation expenses

-

4

Special charges*

-

27

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

-

(5)

Income tax effect of non-GAAP adjustments

(7)

(57)

 
Net income on a non-GAAP basis† $205 to $211 $877 to $893
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.
 
* Comprised of costs related to a voluntary retirement program.
 

**

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

CDNS-IR

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