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Cadence Reports Q3 Revenue Up 9% Over Q3 2006 SAN JOSE, CA--(MARKET WIRE)--Oct 24, 2007 -- Cadence Design Systems, Inc. (NasdaqGS:CDNS - News)
today reported third quarter 2007 revenue of $401 million,
an increase of 9
percent over the $366 million reported for the same period
in 2006. On a
GAAP basis, Cadence recognized net income of $73 million,
or $0.24 per
share on a diluted basis, in the third quarter of 2007,
compared to $42
million, or $0.14 per share on a diluted basis, in the same
period in 2006.
In addition to using GAAP results in evaluating Cadence's business, management believes it is useful to measure results using a non-GAAP measure of net income, which excludes, as applicable, amortization of intangible assets, stock-based compensation expense, in-process research and development charges, integration and acquisition-related costs, gains and expenses related to non-qualified deferred compensation plan assets, executive severance payments, restructuring charges and credits, losses on extinguishment of debt and equity in losses (income) from investments. Non-GAAP net income is adjusted by the amount of additional taxes or tax benefit that the company would accrue if it used non-GAAP results instead of GAAP results to calculate the company's tax liability. See "GAAP to non-GAAP Reconciliation" below for further information on the non-GAAP measure. Using this non-GAAP measure, net income in the third quarter of 2007 was $97 million, or $0.33 per share on a diluted basis, as compared to $81 million, or $0.26 per share on a diluted basis, in the same period in 2006. "Our cross platform solutions, such as low power and logic design team, are gaining traction. At the same time, we're seeing momentum in the uptake of our Virtuoso platform upgrade," said Mike Fister, president and CEO of Cadence. "It was another good quarter for achieving our primary operating metrics -- revenue, operating profitability and cash flow," added Bill Porter, executive 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. These statements do not include the impact of any mergers, acquisitions or other business combinations completed after Sept. 29, 2007. Business Outlook For the fourth quarter of 2007, the company expects total revenue in the range of $465 million to $475 million. Fourth quarter GAAP earnings per diluted share are expected to be in the range of $0.34 to $0.36. Diluted earnings per share using the non-GAAP measure defined below are expected to be in the range of $0.45 to $0.47. For the full year 2007, the company expects total revenue in the range of $1.622 billion to $1.632 billion. On a GAAP basis, net income per diluted share for fiscal 2007 is expected to be in the range of $0.94 to $0.96. Using the non-GAAP measure defined below, diluted earnings per share for fiscal 2007 are expected to be in the range of $1.34 to $1.36. A schedule showing a reconciliation of the business outlook from GAAP net income and diluted net income per share to the non-GAAP net income and diluted net income per share is included with this release. Audio Webcast Scheduled Fister and Porter will host a third quarter 2007 financial results audio webcast today, Oct. 24, 2007, at 2 p.m. (Pacific) / 5 p.m. (Eastern). Attendees are asked to register at the Web site at least 10 minutes prior to the scheduled webcast. An archive of the webcast will be available starting Oct. 24, 2007, at 5 p.m. Pacific time and ending at 5 p.m. Pacific time on Oct. 31, 2007. 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 and hardware, methodologies, and services to design and verify advanced semiconductors, consumer electronics, networking and telecommunications equipment, and computer systems. Cadence reported 2006 revenues of approximately $1.5 billion, and has approximately 5,300 employees. The company is headquartered in San Jose, Calif., with sales offices, design centers, and research facilities around the world to serve the global electronics industry. More information about the company, its products, and services is available at www.cadence.com. Cadence is a registered trademark and the Cadence logo is a trademark of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners. The statements contained above regarding the company's third quarter 2007 results, those contained in the Business Outlook section above and the statements by Mike Fister and Bill Porter 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 uncertainties and other factors, many of which are outside Cadence's control, including, among others: Cadence's ability to compete successfully in the design automation product and the commercial electronic design and methodology services industries; the mix of products and services sold and the timing of significant orders for its products; economic uncertainty; fluctuations in rates of exchange between the U.S. dollar and the currencies of other countries in which Cadence does business; and the acquisition of other companies or technologies or the failure to successfully integrate those it acquires. For a detailed discussion of these and other cautionary statements, please refer to the company's filings with the Securities and Exchange Commission. These include the company's Annual Report on Form 10-K for the year ended Dec. 30, 2006 and the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. GAAP to non-GAAP Reconciliation Cadence management evaluates and makes operating decisions using various operating measures. These measures are generally based on the revenues of its product, maintenance and services business operations and certain costs of those operations, such as cost of revenues, research and development, sales and marketing and general and administrative expenses. One such measure is non-GAAP net income, which is a non-GAAP financial measure under Section 101 of Regulation G under the Securities Exchange Act of 1934, as amended. This measure consists of GAAP net income excluding, as applicable, amortization of intangible assets, stock-based compensation expense, in-process research and development charges, integration and acquisition-related costs, gains and expenses related to non-qualified deferred compensation plan assets, executive severance payments, restructuring charges and credits (primarily related to excess facilities), losses on extinguishment of debt and equity in losses (income) from 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 the company would accrue if it used non-GAAP results instead of GAAP results to calculate the company's tax liability. Management believes it is useful in measuring Cadence's operations to exclude amortization of intangibles, in-process research and development and integration and acquisition-related costs because these costs are primarily fixed at the time of an acquisition and generally cannot be changed by management in the short term. In addition, management believes it is useful to exclude stock-based compensation expense because it enhances investors' ability to review Cadence's business from the same perspective as Cadence's management, which believes that stock-based compensation expense is not directly attributable to the underlying performance of the company's business operations. Management also believes that it is useful to exclude restructuring charges and credits. Cadence has dramatically reduced the size of its design services business and portions of its product and maintenance businesses over the past several years. As a result, in 2001, 2002 and 2003, Cadence's GAAP statements of operations included significant charges relating to such restructurings. Management believes that in measuring the company's operations it is useful to exclude any such restructuring charges and credits because its level of restructuring activities has significantly decreased. Management also believes it is useful to exclude executive severance costs as these costs do not occur frequently. Management also believes it is useful to exclude gains and expenses related to its non-qualified deferred compensation plan assets as these gains and expenses are not part of Cadence's direct costs of operations, but reflect changes in the value of assets held in the plan. Finally, management also believes it is useful to exclude the equity in losses (income) from investments, as these items are not part of Cadence's direct cost of operations. Rather, these are non-operating items that are included in other income (expense) and are part of the company's investment activities. Management believes that non-GAAP net income provides useful supplemental information to management and investors regarding the performance of the company's business operations and facilitates comparisons to our historical operating results. Management also uses this information internally for forecasting and budgeting. Non-GAAP financial measures should not be considered as a substitute for 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 in the calculation of non-GAAP net income for the periods shown below:
Net Income Reconciliation Quarters Ended
----------------------------
September 29, September 30,
2007 2006
------------- -------------
(unaudited)
(in thousands)
Net income on a GAAP basis $ 72,732 $ 42,060
Amortization of acquired intangibles 12,003 12,248
Stock-based compensation expense 24,119 24,273
Non-qualified deferred compensation expense 2,876 (864)
Restructuring and other charges (credits) (7,066) (15)
Write-off of acquired in-process technology 2,678 -
Integration and acquisition-related costs 301 376
Equity in losses from investments, gain on
non-qualified deferred compensation plan
assets - recorded in Other income, net 444 1,187
Income tax effect of non-GAAP adjustments (10,722) 2,125
------------- -------------
Net income on a non-GAAP basis $ 97,365 $ 81,390
============= =============
Diluted Net Income per Share Reconciliation Quarters Ended
----------------------------
September 29, September 30,
2007 2006
------------- -------------
(unaudited)
(in thousands, except per share data)
Diluted net income per share on a GAAP basis $ 0.24 $ 0.14
Amortization of acquired intangibles 0.04 0.04
Stock-based compensation expense 0.08 0.08
Non-qualified deferred compensation expense 0.01 -
Restructuring and other charges (credits) (0.02) -
Write-off of acquired in-process technology 0.01 -
Integration and acquisition-related costs - -
Equity in losses from investments, gain on
non-qualified deferred compensation plan
assets - recorded in Other income, net - -
Income tax effect of non-GAAP adjustments (0.03) -
------------- -------------
Diluted net income per share on a non-GAAP
basis $ 0.33 $ 0.26
============= =============
Shares used in calculation of diluted net
income per share --GAAP 299,506 312,266
Shares used in calculation of diluted net
income per share --non-GAAP (A) 299,506 312,266
(A)Shares used in the calculation of GAAP earnings per share are expected
to be the same as shares used in the calculation of non-GAAP earnings per
share, except when the company reports a GAAP loss and non-GAAP income, or
GAAP income and a non-GAAP loss.Investors are encouraged to look at GAAP results as the best measure of financial performance. For example, amortization of intangibles or in-process technology are important to consider because they may represent initial expenditures that under GAAP are reported across future fiscal periods. Likewise, stock-based compensation expense is an obligation of the company that should be considered. Restructuring charges can be triggered by acquisitions or product adjustments as well as overall company performance within a given business environment. Losses on extinguishment of debt can be incurred on remaining convertible notes. All of these metrics are important to financial performance generally. Though Cadence management finds its non-GAAP measure is useful in evaluating the performance of Cadence's business, its reliance on this measure is limited because items excluded from such measures often have a material effect on Cadence's earnings and earnings per share calculated in accordance with GAAP. Therefore, Cadence management typically uses its non-GAAP earnings and earnings per share measures, in conjunction with GAAP earnings and earnings per share measures, to address these limitations. Cadence believes that presenting its non-GAAP measure of earnings and earnings per share provides investors with an additional tool for evaluating the performance of the company's business, which management uses in its own evaluation of performance, and an additional baseline for assessing the future earnings potential of the company. While the GAAP results are more complete, the company prefers to allow investors to have this supplemental measure since, with reconciliation to GAAP, it may provide additional insight into its financial results. 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 outlook, publicly available on its Web site. 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 Dec. 14, 2007, 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 update by the company. During the Quiet Period, Cadence representatives will not comment on Cadence's business outlook or its financial results or expectations. The Quiet Period will extend until the day when Cadence's Fourth Quarter 2007 Earnings Release is published, which is currently scheduled for Jan. 30, 2008.
Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
September 29, 2007 and December 30, 2006
(In thousands)
(Unaudited)
September 29, December 30,
2007 2006
------------- -------------
Current Assets:
Cash and cash equivalents $ 935,587 $ 934,342
Short-term investments 15,654 24,089
Receivables, net of allowances of $2,499
and $3,804, respectively 278,200 238,438
Inventories 37,867 37,179
Prepaid expenses and other 111,554 77,957
------------- -------------
Total current assets 1,378,862 1,312,005
Property, plant and equipment, net of
accumulated depreciation of $612,206
and $615,768, respectively 332,519 354,575
Goodwill 1,311,087 1,267,579
Acquired intangibles, net 139,457 112,738
Installment contract receivables 221,520 149,584
Other assets 355,830 246,341
------------- -------------
Total Assets $ 3,739,275 $ 3,442,822
============= =============
Current Liabilities:
Convertible notes $ 230,385 $ -
Current portion of long-term debt - 28,000
Accounts payable and accrued liabilities 241,737 259,790
Current portion of deferred revenue 241,318 260,275
------------- -------------
Total current liabilities 713,440 548,065
------------- -------------
Long-term Liabilities:
Long-term portion of deferred revenue 124,548 95,018
Convertible notes 500,000 730,385
Other long-term liabilities 448,439 370,063
------------- -------------
Total long-term liabilities 1,072,987 1,195,466
------------- -------------
Stockholders' Equity 1,952,848 1,699,291
------------- -------------
Total Liabilities and Stockholders' Equity $ 3,739,275 $ 3,442,822
============= =============
Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Quarters and Nine Months Ended September 29, 2007 and
September 30, 2006
(In thousands, except per share amounts)
(Unaudited)
Quarters Ended Nine Months Ended
------------------- -------------------
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
2007 2006 2007 2006
--------- --------- --------- ---------
Revenue:
Product $ 273,799 $ 244,561 $ 775,496 $ 684,826
Services 31,225 34,262 95,963 99,798
Maintenance 95,900 87,325 285,611 268,251
--------- --------- --------- ---------
Total revenue 400,924 366,148 1,157,070 1,052,875
--------- --------- --------- ---------
Costs and Expenses:
Cost of product 13,823 14,097 42,302 54,669
Cost of services 23,364 23,034 70,421 70,995
Cost of maintenance 15,217 15,604 45,635 47,514
Marketing and sales 97,163 97,499 297,924 289,064
Research and development 125,391 110,335 365,418 342,133
General and administrative 40,747 35,240 123,166 109,267
Amortization of acquired
intangibles 4,739 4,606 13,661 17,982
Restructuring and other charges
(credits) (7,066) (15) (9,584) (726)
Write-off of acquired in-process
technology 2,678 - 2,678 900
--------- --------- --------- ---------
Total costs and expenses 316,056 300,400 951,621 931,798
--------- --------- --------- ---------
Income from operations 84,868 65,748 205,449 121,077
Interest expense (2,849) (2,959) (9,373) (9,880)
Other income, net 14,201 9,993 47,938 53,191
--------- --------- --------- ---------
Income before provision for
income taxes and cumulative
effect of change in
accounting principle 96,220 72,782 244,014 164,388
Provision for income taxes 23,488 30,722 67,265 70,579
--------- --------- --------- ---------
Net income before cumulative
effect of change in
accounting principle 72,732 42,060 176,749 93,809
Cumulative effect of change in
accounting principle, net of tax - - - 418
--------- --------- --------- ---------
Net income $ 72,732 $ 42,060 $ 176,749 $ 94,227
========= ========= ========= =========
Net income per share before
cumulative effect of change in
accounting principle:
Basic $ 0.27 $ 0.15 $ 0.65 $ 0.33
========= ========= ========= =========
Diluted $ 0.24 $ 0.14 $ 0.60 $ 0.30
========= ========= ========= =========
Net income per share after
cumulative effect of change in
accounting principle:
Basic $ 0.27 $ 0.15 $ 0.65 $ 0.34
========= ========= ========= =========
Diluted $ 0.24 $ 0.14 $ 0.60 $ 0.30
========= ========= ========= =========
Weighted average common shares
outstanding - basic 272,977 279,329 272,354 281,077
========= ========= ========= =========
Weighted average common shares
outstanding - diluted 299,506 312,266 297,783 314,190
========= ========= ========= =========
Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 29, 2007 and September 30, 2006
(In thousands)
(Unaudited)
Nine Months Ended
-----------------------------
September 29, September 30,
2007 2006
------------- -------------
Cash and Cash Equivalents at Beginning of
Period $ 934,342 $ 861,315
------------- -------------
Cash Flows from Operating Activities:
Net income 176,749 94,227
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in
accounting principle - (418)
Depreciation and amortization 96,798 113,862
Stock-based compensation 78,828 80,437
Equity in loss from investments, net 2,504 900
Gain on investments, net (16,608) (25,600)
Gain on sale and leaseback of land and
buildings (12,606) -
Write-down of investment securities 2,550 1,429
Write-off of acquired in-process
technology 2,678 900
Non-cash restructuring and other
charges (credits) (7,106) -
Tax benefit of call options 7,036 3,969
Deferred income taxes 4,848 13,697
Proceeds from the sale of receivables,
net 163,549 131,404
Recoveries for gains on trade accounts
receivable and sales returns (975) (3,727)
Other non-cash items 8,525 4,157
Changes in operating assets and
liabilities, net of effect of acquired
businesses:
Receivables 9,053 77,489
Installment contract receivables (273,301) (195,038)
Inventories (681) (2,777)
Prepaid expenses and other (23,229) (9,368)
Other assets (2,027) 5,108
Accounts payable and accrued
liabilities (35,516) (107,147)
Deferred revenue 9,411 13,275
Other long-term liabilities 18,448 19,714
------------- -------------
Net cash provided by operating
activities 208,928 216,493
------------- -------------
Cash Flows from Investing Activities:
Proceeds from sale of available-for-sale
securities 6,271 5,542
Proceeds from sale of short-term
investments 197 -
Proceeds from the sale of long-term
investments 6,323 21,599
Proceeds from sale of property, plant and
equipment 46,500 -
Purchases of property, plant and equipment (57,405) (48,270)
Purchases of software licenses - (6,409)
Investment in venture capital partnerships
and equity investments (3,214) (2,000)
Cash paid in business combinations and
asset acquisitions, net of cash acquired,
and acquisition of intangibles (74,117) (65,352)
------------- -------------
Net cash used for investing
activities (75,445) (94,890)
------------- -------------
Cash Flows from Financing Activities:
Principal payments on term loan (28,000) (99,000)
Tax benefit from employee stock
transactions 20,727 7,556
Proceeds from issuance of common stock 249,006 126,315
Purchases of treasury stock (384,151) (258,384)
Other 8,558 -
------------- -------------
Net cash used for financing
activities (133,860) (223,513)
------------- -------------
Effect of exchange rate changes on cash and
cash equivalents 1,622 (1,895)
------------- -------------
Increase (decrease) in cash and cash
equivalents 1,245 (103,805)
------------- -------------
Cash and Cash Equivalents at End of Period $ 935,587 $ 757,510
============= =============
Cadence Design Systems, Inc.
As of October 24, 2007
Impact of Non-GAAP Adjustments on Forward Looking
Diluted Net Income Per Share
(Unaudited)
Quarter ended Year ended
December 29, 2007 December 29, 2007
----------------- -----------------
Forecast Forecast
----------------- -----------------
Diluted net income per share on a
GAAP basis $ 0.34 to $ 0.36 $ 0.94 to $ 0.96
Amortization of acquired
intangibles 0.04 0.16
Stock-based compensation expense 0.09 0.35
Non-qualified deferred compensation
expense - 0.02
Restructuring and other charges
(credits) - (0.03)
Write-off of acquired in-process
technology - 0.01
Integration and acquisition-related
costs - -
Equity in losses from investments,
gain on non-qualified deferred
compensation plan assets - (0.01)
Income tax effect of non-GAAP
adjustments (0.02) (0.10)
----------------- -----------------
Diluted net income per share on a
non-GAAP basis $ 0.45 to $ 0.47 $ 1.34 to $ 1.36
================= =================
Cadence Design Systems, Inc.
As of October 24, 2007
Impact of Non-GAAP Adjustments on Forward Looking Net Income
(Unaudited)
Quarter ended Year ended
December 29, 2007 December 29, 2007
----------------- -----------------
($ in Millions) Forecast Forecast
----------------- -----------------
Net income on a GAAP basis $ 102 to $ 108 $ 279 to $ 285
Amortization of acquired
intangibles 13 47
Stock-based compensation expense 25 104
Non-qualified deferred compensation
expense - 7
Restructuring and other charges
(credits) - (10)
Write-off of acquired in-process
technology - 3
Integration and acquisition-related
costs - 1
Equity in losses from investments,
gain on non-qualified deferred
compensation plan assets 1 (1)
Income tax effect of non-GAAP
adjustments (6) (31)
----------------- -----------------
Net income on a non-GAAP basis $ 135 to $ 141 $ 399 to $ 405
================= =================
Cadence Design Systems, Inc.
(Unaudited)
Revenue Mix by Geography (% of Total Revenue)
2005 2006
============================= =============================
GEOGRAPHY Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
North
America 46% 49% 53% 42% 48% 51% 48% 54% 60% 54%
Europe 16% 17% 21% 20% 18% 19% 18% 22% 19% 19%
Japan 30% 25% 20% 26% 25% 21% 24% 13% 10% 17%
Asia 8% 9% 6% 12% 9% 9% 10% 11% 11% 10%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
2007
================
GEOGRAPHY Q1 Q2 Q3
==== ==== ====
North
America 48% 52% 41%
Europe 15% 17% 25%
Japan 27% 14% 22%
Asia 10% 17% 12%
Total 100% 100% 100%
Revenue Mix by Product Group (% of Total Revenue)
2005 2006
========================= =========================
PRODUCT GROUP Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
Functional
Verification 20% 19% 21% 25% 21% 26% 22% 24% 23% 24%
Digital IC Design 27% 23% 26% 29% 28% 20% 26% 19% 26% 24%
Custom IC Design 23% 31% 27% 22% 25% 27% 27% 30% 26% 27%
Design for
Manufacturing 9% 9% 9% 8% 9% 8% 8% 8% 6% 7%
System Interconnect 10% 9% 8% 7% 8% 9% 8% 10% 11% 9%
Services & Other 11% 9% 9% 9% 9% 10% 9% 9% 8% 9%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
2007
==============
PRODUCT GROUP Q1 Q2 Q3
==== ==== ====
Functional
Verification 24% 24% 20%
Digital IC Design 26% 29% 27%
Custom IC Design 24% 24% 32%
Design for
Manufacturing 7% 7% 6%
System Interconnect 10% 8% 7%
Services & Other 9% 8% 8%
Total 100% 100% 100%
Note: Product Group total revenue includes Product + MaintenanceContact: For more information, please contact:
Investors and Shareholders
Jennifer Jordan
Cadence Design Systems, Inc.
408-944-7100
investor_relations@cadence.com
Media and Industry Analysts
Adolph Hunter
Cadence Design Systems, Inc.
408-914-6016
publicrelations@cadence.com
Source: Cadence Design Systems, Inc.
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