Cadence Design Systems Inc 10-Q for FY2020 Q1

Cadence Design Systems Inc (CDNS)

10-Q 2020-04-20 For: 2020-03-28

Added on April 11, 2026

About this 10-Q

Cadence Design Systems Inc filed this 10-Q on April 20, 2020, covering the quarter ended March 28, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 28, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $617.96M; up 7.1% from $576.74M a year earlier
Net income: $123.99M; up 2.8% from net income of $120.56M a year earlier
Diluted EPS: $0.44; up 2.3% from $0.43 a year earlier

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Delaware			00-0000000
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)

2655 Seely Avenue, Building 5,	San Jose,	California	95134
(Address of Principal Executive Offices)			(Zip Code)



Large Accelerated Filer	☒	Accelerated Filer	☐	Smaller Reporting Company	☐

Non-accelerated Filer	☐			Emerging Growth company	☐



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CDNS	Nasdaq Global Select Market



		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets: March 28, 2020 and December 28, 2019	1

	Condensed Consolidated Income Statements: Three Months Ended March 28, 2020 and March 30, 2019	2

	Condensed Consolidated Statements of Comprehensive Income: Three Months Ended March 28, 2020 and March 30, 2019	3

	Condensed Consolidated Statements of Stockholders’ Equity: Three Months Ended March 28, 2020 and March 30, 2019	4

	Condensed Consolidated Statements of Cash Flows: Three Months Ended March 28, 2020 and March 30, 2019	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	31

Item 1A.	Risk Factors	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	48

Item 4.	Mine Safety Disclosures	48

Item 5.	Other Information	48

Item 6.	Exhibits	49

	Signatures	50



	As of
	March 28, 2020			December 28, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	946,285		$	705,210
Receivables, net	284,093			304,546
Inventories	60,575			55,802
Prepaid expenses and other	108,554			103,785
Total current assets	1,399,507			1,169,343
Property, plant and equipment, net	281,207			275,855
Goodwill	778,992			661,856
Acquired intangibles, net	258,617			172,375
Deferred taxes	699,194			732,367
Other assets	350,456			345,429
Total assets	$	3,767,973		$	3,357,225
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Revolving credit facility	$	350,000		$	—
Accounts payable and accrued liabilities	236,813			316,908
Current portion of deferred revenue	425,616			355,483
Total current liabilities	1,012,429			672,391
Long-term liabilities:
Long-term portion of deferred revenue	95,503			73,400
Long-term debt	346,205			346,019
Other long-term liabilities	155,842			162,521
Total long-term liabilities	597,550			581,940
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock and capital in excess of par value	2,099,425			2,046,237
Treasury stock, at cost	(1,778,533		)	(1,668,105		)
Retained earnings	1,883,677			1,761,688
Accumulated other comprehensive loss	(46,575		)	(36,926		)
Total stockholders’ equity	2,157,994			2,102,894
Total liabilities and stockholders’ equity	$	3,767,973		$	3,357,225



	☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three Months Ended
	March 28, 2020			March 30, 2019
Revenue:
Product and maintenance	$	581,699		$	543,518
Services	36,258			33,224
Total revenue	617,957			576,742
Costs and expenses:
Cost of product and maintenance	55,446			50,522
Cost of services	19,017			20,063
Marketing and sales	125,744			116,830
Research and development	241,668			228,210
General and administrative	33,592			30,102
Amortization of acquired intangibles	4,206			3,308
Restructuring and other credits	(1,067		)	(689		)
Total costs and expenses	478,606			448,346
Income from operations	139,351			128,396
Interest expense	(4,637		)	(5,391		)
Other income (expense), net	(4,534		)	5,241
Income before provision for income taxes	130,180			128,246
Provision for income taxes	6,192			7,691
Net income	$	123,988		$	120,555
Net income per share – basic	$	0.45		$	0.44
Net income per share – diluted	$	0.44		$	0.43
Weighted average common shares outstanding – basic	273,476			273,066
Weighted average common shares outstanding – diluted	279,265			280,615



	Three Months Ended March 28, 2020
	Common Stock
			Par Value									Accumulated
			and Capital									Other
			in Excess			Treasury			Retained			Comprehensive
	Shares		of Par			Stock			Earnings			Loss			Total
Balance, December 28, 2019	279,855		$	2,046,237		$	(1,668,105	)	$	1,761,688		$	(36,926	)	$	2,102,894
Cumulative effect adjustment (Note 1)	—		—			—			(1,999		)	—			$	(1,999	)
Net income	—		—			—			123,988			—			$	123,988
Other comprehensive loss, net of taxes	—		—			—			—			(9,649		)	$	(9,649	)
Purchase of treasury stock	(1,488	)	—			(100,022		)	—			—			$	(100,022	)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	1,284		10,877			22,951			—			—			$	33,828
Stock received for payment of employee taxes on vesting of restricted stock	(464	)	(4,171		)	(33,357		)	—			—			$	(37,528	)
Stock-based compensation expense	—		46,482			—			—			—			$	46,482
Balance, March 28, 2020	279,187		$	2,099,425		$	(1,778,533	)	$	1,883,677		$	(46,575	)	$	2,157,994

	Three Months Ended March 30, 2019
	Common Stock
			Par Value									Accumulated
			and Capital									Other
			in Excess			Treasury			Retained			Comprehensive
	Shares		of Par			Stock			Earnings			Loss			Total
Balance, December 29, 2018	280,015		$	1,936,124		$	(1,395,652	)	$	772,709		$	(24,780	)	$	1,288,401
Net income	—		—			—			120,555			—			$	120,555
Other comprehensive loss, net of taxes	—		—			—			—			(1,295		)	$	(1,295	)
Purchase of treasury stock	(1,529	)	—			(81,114		)	—			—			$	(81,114	)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	3,075		(29,746		)	59,605			—			—			$	29,859
Stock received for payment of employee taxes on vesting of restricted stock	(531	)	(3,736		)	(29,086		)	—			—			$	(32,822	)
Stock-based compensation expense	—		42,253			—			—			—			$	42,253
Balance, March 30, 2019	281,030		$	1,944,895		$	(1,446,247	)	$	893,264		$	(26,075	)	$	1,365,837



	March 28, 2020							December 28, 2019
	(In thousands)
	Principal		Unamortized Discount			Carrying Value		Principal		Unamortized Discount			Carrying Value
Revolving Credit Facility	$	350,000	$	—		$	350,000	$	—	$	—		$	—
2024 Notes	350,000		(3,795		)	346,205		350,000		(3,981		)	346,019
Total outstanding debt	$	700,000	$	(3,795	)	$	696,205	$	350,000	$	(3,981	)	$	346,019



	Gross Carrying Amount
	(In thousands)
Balance as of December 28, 2019	$	661,856
Goodwill resulting from acquisitions	119,085
Effect of foreign currency translation	(1,949		)
Balance as of March 28, 2020	$	778,992



	Gross Carrying Amount		Accumulated Amortization			Acquired Intangibles, Net
	(In thousands)
Existing technology	$	350,238	$	(196,159	)	$	154,079
Agreements and relationships	179,985		(99,581		)	80,404
Tradenames, trademarks and patents	10,590		(5,956		)	4,634
Total acquired intangibles with definite lives	540,813		(301,696		)	239,117
In-process technology	19,500		—			19,500
Total acquired intangibles	$	560,313	$	(301,696	)	$	258,617



	(In thousands)
2020 - remaining period	$	46,690
2021	57,598
2022	39,292
2023	23,762
2024	22,299
Thereafter	49,476
Total estimated amortization expense	$	239,117



	Severance and Benefits			Excess Facilities			Total
	(In thousands)
Balance, December 28, 2019	$	9,229		$	409		$	9,638
Restructuring and other credits	(1,032		)	(35		)	(1,067		)
Cash payments	(4,872		)	(56		)	(4,928		)
Effect of foreign currency translation	(83		)	(3		)	(86		)
Balance, March 28, 2020	$	3,242		$	315		$	3,557


•	Level 1 – Quoted prices for identical instruments in active markets;



	As of
	March 28, 2020			December 28, 2019
	(In thousands)
Accounts receivable	$	193,606		$	179,250
Unbilled accounts receivable	93,502			126,165
Long-term receivables	2,380			3,082
Total receivables	289,488			308,497
Less allowance for doubtful accounts	(3,015		)	(869		)
Total receivables, net	$	286,473		$	307,628


•	Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.



	Three Months Ended
	March 28, 2020		March 30, 2019
	(In thousands)
Americas:
United States	$	258,488	$	243,248
Other Americas	8,837		8,406
Total Americas	267,325		251,654
Asia:
China	83,799		58,976
Other Asia	109,599		111,348
Total Asia	193,398		170,324
Europe, Middle East and Africa	115,720		103,462
Japan	41,514		51,302
Total	$	617,957	$	576,742



	As of
	March 28, 2020		December 28, 2019
	(In thousands)
Americas:
United States	$	227,969	$	220,023
Other Americas	596		728
Total Americas	228,565		220,751
Asia:
China	14,778		15,729
Other Asia	27,155		27,890
Total Asia	41,933		43,619
Europe, Middle East and Africa	9,719		10,474
Japan	990		1,011
Total	$	281,207	$	275,855


•	Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and



	Fair Value Measurements as of March 28, 2020
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	515,681	$	515,681	$	—	$	—
Marketable equity securities	3,870		3,870		—		—
Securities held in Non-Qualified Deferred Compensation (“NQDC”) trust	29,059		29,059		—		—
Total Assets	$	548,610	$	548,610	$	—	$	—

	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Foreign currency exchange contracts	$	2,286	$	—	$	2,286	$	—
Total Liabilities	$	2,286	$	—	$	2,286	$	—


	Fair Value Measurements as of December 28, 2019
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	445,942	$	445,942	$	—	$	—
Marketable equity securities	4,600		4,600		—		—
Securities held in NQDC trust	34,096		34,096		—		—
Foreign currency exchange contracts	3,557		—		3,557		—
Total Assets	$	488,195	$	484,638	$	3,557	$	—

As of December 28, 2019, Cadence did not have any financial liabilities requiring a recurring fair value measurement.


•	increased product and maintenance revenue resulting from growth in software and IP, particularly in China and the United States;


•	increased selling costs, including additional investment in technical sales support in response to our customers’ increasing technological requirements; and


•	continued investment in research and development activities focused on creating and enhancing our products.



	Three Months Ended				Change
	March 28, 2020		March 30, 2019		Amount		Percentage
	(In millions, except percentages)
Product and maintenance	$	581.7	$	543.5	$	38.2	7	%
Services	36.3		33.2		3.1		9	%
Total revenue	$	618.0	$	576.7	$	41.3	7	%



	Change
	Three Months Ended
	(In millions)
Emulation and prototyping hardware costs	$	3.5
Other items	0.4
Total change in product and maintenance-related costs	$	3.9



	Notional Principal			Weighted Average Contract Rate
	(In millions)
Forward Contracts:
European Union euro	$	140.1		0.91
British pound	87.0			0.78
Israeli shekel	61.5			3.45
Japanese yen	56.9			108.39
Swedish krona	35.6			9.66
Indian rupee	23.7			73.38
Chinese renminbi	14.5			7.03
Other	22.0			N/A
Total	$	441.3
Estimated fair value	$	(2.3	)


•	the ability to design SoCs increases the complexity of managing a design that, at the lowest level, is represented by billions of shapes on fabrication masks. In addition, SoCs typically incorporate microprocessors and digital signal processors (“DSPs”) that are programmed with software, requiring simultaneous design of the IC and the related software embedded on the IC;


•	increased technological capability of the FPGA, which is a programmable logic chip, creates an alternative to IC implementation for some electronics companies. This could reduce demand for our IC implementation products and services;


•	a growing number of low-cost engineering services businesses could reduce the need for some IC companies to invest in EDA products;


•	adoption of cloud computing technologies with accompanying new business models for an increasing number of software categories; and


•	integration and optimization of solutions for system design with core EDA technologies.


•	the development by others of competitive products or platforms and engineering services, possibly resulting in a shift of customer preferences away from our products and services and significantly decreased revenue;


•	aggressive pricing competition by some of our competitors may cause us to lose our competitive position, which could result in lower revenues or profitability and could adversely impact our ability to realize the revenue and profitability forecasts for our software or emulation and prototyping hardware systems products;


•	the challenges of advanced-node design may lead some customers to work with more mature, less risky manufacturing processes that may reduce their need to upgrade or enhance their EDA products and design flows;


•	the challenges of developing (or acquiring externally developed) technology solutions that are adequate and competitive in meeting the rapidly evolving requirements of next-generation design challenges;


•	intense competition to attract acquisition targets, possibly making it more difficult for us to acquire companies or technologies at an acceptable price, or at all;


•	new entrants, including larger electronic systems companies, in our business;


•	the combination of our competitors or collaboration among many companies to deliver more comprehensive offerings than they could individually;