Financial News

Cadence Reports Fourth Quarter and Fiscal Year 2020 Financial Results

Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the fourth quarter and fiscal year 2020.

Cadence reported 2020 revenue of $2.683 billion, compared to revenue of $2.336 billion for 2019. On a GAAP basis, Cadence achieved operating margin of 24 percent and recognized net income of $591 million, or $2.11 per share on a diluted basis, in 2020, compared to operating margin of 21 percent and net income of $989 million, or $3.53 per share on a diluted basis for 2019. Revenue for the fourth quarter of 2020 totaled $760 million, compared to revenue of $600 million for the same period in 2019. Cadence achieved operating margin of 24 percent and recognized net income of $174 million, or $0.62 per share on a diluted basis, in the fourth quarter of 2020, compared to operating margin of 18 percent and net income of $660 million, or $2.36 per share on a diluted basis, for the same period in 2019. GAAP net income for the fourth quarter of 2019 and fiscal 2019 included a one-time non-cash tax benefit of $576 million related to intercompany transfers of certain intellectual property rights to Cadence's Irish subsidiary.

Using the non-GAAP measure defined below, operating margin for 2020 was 35 percent and net income was $782 million, or $2.80 per share on a diluted basis, compared to operating margin of 32 percent and net income of $618 million, or $2.20 per share on a diluted basis, for 2019. For the fourth quarter of 2020, operating margin was 37 percent and net income was $234 million, or $0.83 per share on a diluted basis, compared to operating margin of 31 percent and net income of $152 million, or $0.54 per share on a diluted basis, for the same period in 2019.

“I am very pleased that against the backdrop of an unprecedented year, Cadence delivered outstanding results for 2020, driven by our highly innovative solutions and strong execution,” said Lip-Bu Tan, chief executive officer. “Generational industry drivers continue to fuel robust design activity and I am especially excited by the momentum in our system design and analysis segment as we further our Intelligent System Design strategy with the pending acquisition of NUMECA.”

“Many unique factors contributed to Cadence’s solid 2020 results of 15% revenue growth, 35% non-GAAP operating margin and over $900 million of operating cash flow. I am pleased that we can follow-up on 2020 with a strong outlook for 2021,” said John Wall, senior vice president and chief financial officer.

CFO Commentary

Commentary on the fourth quarter and fiscal year 2020 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 first quarter of 2021, the company expects total revenue in the range of $710 million to $730 million. First quarter GAAP operating margin is expected to be approximately 25 percent and GAAP net income per diluted share is expected to be in the range of $0.55 to $0.59. Using the non-GAAP measure defined below, operating margin is expected to be approximately 35 percent and net income per diluted share is expected to be in the range of $0.72 to $0.76.

For 2021, the company expects total revenue in the range of $2.86 billion to $2.92 billion. On a GAAP basis, operating margin is expected to be in the range of 24.5 percent to 26 percent and GAAP net income per diluted share for 2021 is expected to be in the range of $2.09 to $2.19. Using the non-GAAP measure defined below, operating margin for 2021 is expected to be in the range of 34.5 percent to 36 percent and net income per diluted share for 2021 is expected to be in the range of $2.95 to $3.05.

Our fiscal years are 52- or 53-week periods ending on the Saturday closest to December 31. Fiscal 2020 was a 53-week fiscal year, with an additional week in our fourth quarter of 2020. Fiscal 2019 was a 52-week fiscal year and fiscal 2021 will be a 52-week fiscal year.

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, and John Wall, senior vice president and chief financial officer, will host the fourth quarter and fiscal year 2020 financial results audio webcast today, February 22, 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 February 22, 2021 at 5 p.m. (Pacific) and ending March 19, 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, mobile, 5G communications, automotive, aerospace and defense, industrial and healthcare. For six 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

January 2, 2021

December 28, 2019

(unaudited)

GAAP operating margin as a percent of total revenue

24%

18%

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

Stock-based compensation expense

8%

8%

Amortization of acquired intangibles

2%

2%

Acquisition and integration-related costs

1%

1%

Restructuring and other charges

1%

2%

Non-qualified deferred compensation expenses

1%

0%

Special charges

0%

0%

Non-GAAP operating margin as a percent of total revenue

37%

31%

Operating Margin Reconciliation

Years Ended

January 2, 2021

December 28, 2019

(unaudited)

GAAP operating margin as a percent of total revenue

24%

21%

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

Stock-based compensation expense

7%

8%

Amortization of acquired intangibles

3%

2%

Acquisition and integration-related costs

1%

0%

Restructuring and other charges

0%

1%

Non-qualified deferred compensation expenses

0%

0%

Special charges

0%

0%

Non-GAAP operating margin as a percent of total revenue

35%

32%

Net Income Reconciliation

Three Months Ended

January 2, 2021

December 28, 2019

(in thousands)

(unaudited)

Net income on a GAAP basis

$

173,738

$

659,675

Stock-based compensation expense

58,545

46,758

Amortization of acquired intangibles

17,168

12,660

Acquisition and integration-related costs

6,556

3,466

Restructuring and other charges

10,544

9,809

Non-qualified deferred compensation expenses

4,280

1,948

Special charges

875

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

(4,860

)

(513

)

Income tax benefit related to intercompany transfers of certain intellectual property rights

(575,618

)

Income tax effect of non-GAAP adjustments

(32,097

)

(7,500

)

Net income on a non-GAAP basis

$

233,874

$

151,560

*

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.

Net Income Reconciliation

Years Ended

January 2, 2021

December 28, 2019

(in thousands)

(unaudited)

Net income on a GAAP basis

$

590,644

$

988,979

Stock-based compensation expense

197,268

181,547

Amortization of acquired intangibles

64,193

53,079

Acquisition and integration-related costs

22,580

8,107

Restructuring and other charges

9,215

8,621

Non-qualified deferred compensation expenses

4,881

5,402

Special charges

394

875

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

(522

)

(1,314

)

Income tax benefit related to intercompany transfers of certain intellectual property rights

(575,618

)

Income tax effect of non-GAAP adjustments

(106,817

)

(52,037

)

Net income on a non-GAAP basis

$

781,836

$

617,641

*

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

January 2, 2021

December 28, 2019

(in thousands, except per share data)

(unaudited)

Diluted net income per share on a GAAP basis

$

0.62

$

2.36

Stock-based compensation expense

0.21

0.17

Amortization of acquired intangibles

0.06

0.05

Acquisition and integration-related costs

0.02

0.01

Restructuring and other charges

0.04

0.03

Non-qualified deferred compensation expenses

0.01

0.01

Special charges

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

(0.02

)

Income tax benefit related to intercompany transfers of certain intellectual property rights

(2.06

)

Income tax effect of non-GAAP adjustments

(0.11

)

(0.03

)

Diluted net income per share on a non-GAAP basis

$

0.83

$

0.54

Shares used in calculation of diluted net income per share

280,173

279,557

*

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

Years Ended

January 2, 2021

December 28, 2019

(in thousands, except per share data)

(unaudited)

Diluted net income per share on a GAAP basis

$

2.11

$

3.53

Stock-based compensation expense

0.71

0.65

Amortization of acquired intangibles

0.23

0.19

Acquisition and integration-related costs

0.08

0.03

Restructuring and other charges

0.03

0.03

Non-qualified deferred compensation expenses

0.02

0.02

Special charges

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

(0.01

)

Income tax benefit related to intercompany transfers of certain intellectual property rights

(2.05

)

Income tax effect of non-GAAP adjustments

(0.38

)

(0.19

)

Diluted net income per share on a non-GAAP basis

$

2.80

$

2.20

Shares used in calculation of diluted net income per share

279,641

280,515

*

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 March 19, 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 first quarter 2021 earnings release is published, which is currently scheduled for April 26, 2021.

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
January 2, 2021 and December 28, 2019
(In thousands)
(Unaudited)
 
January 2, 2021December 28, 2019
 
Current assets:
Cash and cash equivalents

$

928,432

$

705,210

Receivables, net

338,487

304,546

Inventories

75,956

55,802

Prepaid expenses and other

135,712

103,785

Total current assets

1,478,587

1,169,343

 
Property, plant and equipment, net

311,125

275,855

Goodwill

782,087

661,856

Acquired intangibles, net

210,590

172,375

Deferred taxes

732,290

732,367

Other assets

436,106

345,429

Total assets

$

3,950,785

$

3,357,225

 
Current liabilities:
Accounts payable and accrued liabilities

$

349,951

$

316,908

Current portion of deferred revenue

446,857

355,483

Total current liabilities

796,808

672,391

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

107,064

73,400

Long-term debt

346,793

346,019

Other long-term liabilities

207,102

162,521

Total long-term liabilities

660,959

581,940

 
Stockholders' equity

2,493,018

2,102,894

Total liabilities and stockholders' equity

$

3,950,785

$

3,357,225

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three Months and Years Ended January 2, 2021 and December 28, 2019
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months EndedYears Ended
January 2,
2021
December 28,
2019
January 2,
2021
December 28,
2019
 
Revenue:
Product and maintenance

$

723,233

$

564,964

$

2,536,617

$

2,204,615

Services

36,676

34,591

146,274

131,704

 
Total revenue

759,909

599,555

2,682,891

2,336,319

 
Costs and expenses:
Cost of product and maintenance

55,111

53,521

231,026

189,146

Cost of services

18,425

19,807

74,472

77,211

Marketing and sales

146,502

127,267

516,460

481,673

Research and development

290,309

235,372

1,033,732

935,938

General and administrative

49,264

42,093

154,425

139,806

Amortization of acquired intangibles

4,775

2,787

18,009

12,128

Restructuring and other charges

10,544

9,809

9,215

8,621

 
Total costs and expenses

574,930

490,656

2,037,339

1,844,523

 
Income from operations

184,979

108,899

645,552

491,796

 
Interest expense

(4,873

)

(4,222

)

(20,749

)

(18,829

)

Other income, net

6,083

748

7,945

6,001

 
Income before provision (benefit) for income taxes

186,189

105,425

632,748

478,968

 
Provision (benefit) for income taxes

12,451

(554,250

)

42,104

(510,011

)

 
Net income

$

173,738

$

659,675

$

590,644

$

988,979

 
 
Net income per share - basic

$

0.63

$

2.41

$

2.16

$

3.62

 
Net income per share - diluted

$

0.62

$

2.36

$

2.11

$

3.53

 
Weighted average common shares outstanding - basic

273,985

273,234

273,728

273,239

 
Weighted average common shares outstanding - diluted

280,173

279,557

279,641

280,515

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Years Ended January 2, 2021 and December 28, 2019
(In thousands)
(Unaudited)
 
Years Ended
January 2,December, 28

2021

2019

 
Cash and cash equivalents at beginning of year

$

705,210

$

533,298

Cash flows from operating activities:
Net income

590,644

988,979

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

145,653

122,789

Amortization of debt discount and fees

1,053

1,001

Stock-based compensation

197,268

181,547

Loss on investments, net

4,954

4,090

Deferred income taxes

(26,117

)

(576,738

)

Provisions for losses on receivables

1,628

632

ROU asset amortization and change in operating lease liabilities

4,483

562

Other non-cash items

773

428

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

(25,934

)

(4,718

)

Inventories

(25,685

)

(33,024

)

Prepaid expenses and other

(31,167

)

(11,031

)

Other assets

(71,606

)

(8,011

)

Accounts payable and accrued liabilities

18,394

33,915

Deferred revenue

110,173

27,498

Other long-term liabilities

10,408

1,681

Net cash provided by operating activities

904,922

729,600

 
Cash flows from investing activities:
Purchases of non-marketable investments

-

(33,717

)

Proceeds from the sale of non-marketable investments

217

2,952

Purchases of property, plant and equipment

(94,813

)

(74,605

)

Cash paid in business combinations, net of cash acquired

(197,562

)

(338

)

Net cash used for investing activities

(292,158

)

(105,708

)

 
Cash flows from financing activities:
Proceeds from revolving credit facility

350,000

150,000

Payment on revolving credit facility

(350,000

)

(250,000

)

Proceeds from issuance of common stock

74,803

52,842

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

(110,028

)

(90,580

)

Payments for repurchases of common stock

(380,064

)

(306,148

)

Net cash used for financing activities

(415,289

)

(443,886

)

 
Effect of exchange rate changes on cash and cash equivalents

25,747

(8,094

)

 
Increase in cash and cash equivalents

223,222

171,912

 
Cash and cash equivalents at end of year

$

928,432

$

705,210

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

2019

2020

GEOGRAPHYQ1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
 
Americas

44%

42%

44%

46%

44%

43%

44%

42%

41%

42%

China

10%

12%

10%

9%

10%

13%

12%

17%

17%

15%

Other Asia

19%

19%

21%

20%

20%

18%

19%

19%

18%

18%

Europe, Middle East and Africa

18%

20%

18%

18%

18%

19%

18%

16%

17%

18%

Japan

9%

7%

7%

7%

8%

7%

7%

6%

7%

7%

Total

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

 
 
 
 
Revenue Mix by Product Category (% of Total Revenue)

2019

2020

PRODUCT CATEGORYQ1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year
 
Custom IC Design and Simulation

25%

26%

26%

25%

25%

25%

24%

24%

26%

25%

Digital IC Design and Signoff

30%

31%

30%

29%

30%

29%

28%

27%

31%

29%

Functional Verification, including Emulation and Prototyping Hardware

24%

22%

20%

24%

23%

23%

24%

23%

19%

22%

IP

12%

11%

15%

13%

13%

14%

14%

15%

13%

14%

System Design and Analysis

9%

10%

9%

9%

9%

9%

10%

11%

11%

10%

Total

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of February 22, 2021
(Unaudited)
 
Three Months EndingYear Ending
April 3, 2021January 1, 2022
ForecastForecast
 
GAAP operating margin as a percent of total revenue~25% 24.5% - 26%
 
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense

8%

8%

Amortization of acquired intangibles

2%

2%

Acquisition and integration-related costs

0%

0%

 
Non-GAAP operating margin as a percent of total revenue†~35%34.5% - 36%

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.
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share
As of February 22, 2021
(Unaudited)
 
Three Months EndingYear Ending
April 3, 2021January 1, 2022
ForecastForecast
 
Diluted net income per share on a GAAP basis$0.55 to $0.59 $2.09 to $2.19
 
Stock-based compensation expense

0.20

0.80

Amortization of acquired intangibles

0.06

0.26

Acquisition and integration-related costs

0.01

0.03

Income tax effect of non-GAAP adjustments

(0.10)

(0.23)

 
Diluted net income per share on a non-GAAP basis†$0.72 to $0.76$2.95 to $3.05
 
 
 
 
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of February 22, 2021
(Unaudited)
 
 
Three Months EndingYear Ending
April 3, 2021January 1, 2022
($ in millions)ForecastForecast
 
Net income on a GAAP basis$154 to $166 $586 to $614
 
Stock-based compensation expense

55

225

Amortization of acquired intangibles

17

72

Acquisition and integration-related costs

3

8

Income tax effect of non-GAAP adjustments

(27)

(64)

 
Net income on a non-GAAP basis†$202 to $214$827 to $855

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.

CDNS-IR

Contacts:

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

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