CADENCE REPORTS THIRD QUARTER 2019 | ||||
CADENCE DESIGN SYSTEMS, INC. | ||||
CFO COMMENTARY | ||||
Q3 2019 Key Takeaways • Results met or exceeded our expectations for key financial metrics. • Raising outlook for revenue, operating margin, EPS and operating cash flow. • Repurchased $75 million of Cadence stock in Q3. | Q4 2019 Outlook * • Revenue : $590 - $600 million. • GAAP operating margin: ~20%. • Non-GAAP operating margin: ~30%. • GAAP EPS: $0.33 - $0.35 • Non-GAAP EPS: $0.52 - $0.54 | Q3 2019 KEY METRICS | ||
• Revenue $580 million • GAAP operating margin 20.8% • Non-GAAP operating margin 31.7% • GAAP EPS $0.36 • Non-GAAP EPS $0.54 • Operating cash flow $139 million | ||||
FY 2019 Outlook * • Revenue: $2.327 - $2.337 billion. • GAAP operating margin: 21.3% - 21.8%. • Non-GAAP operating margin: 31.5% - 32.0%. • GAAP EPS: $1.50 - $1.52 • Non-GAAP EPS $2.18 - $2.20 • Operating cash flow: $700 - $740 million. • Expect to repurchase approximately $75 million of Cadence stock in Q4. | Financial Results Webcast | |||
Our Q3 2019 financial results webcast will begin October 21, 2019 at 2:00 p.m. (Pacific). The webcast may be accessed at www.cadence.com/cadence/investor_relations. An archive of the webcast will be available on October 21, 2019 until 5:00 p.m. (Pacific) on December 13, 2019. | ||||
* In October 2019, Cadence initiated a series of transactions involving a realignment of its international operating structure. Cadence expects that this realignment may significantly increase its foreign deferred tax assets. This outlook does not include the income tax impact to GAAP net income related to these transactions. Cadence expects to complete its analysis and record the income tax impact in the fourth quarter of 2019. |
October 21, 2019 | Cadence Q3 2019 Financial Results | 1 |
Cadence Design Systems, Inc. | ||
Q4 2018A | Q3 2019A | Q4 2019E | |||||
Total Revenue ($ Million) | $569.9 | $579.6 | $590 - $600 | ||||
Q/Q Growth | (0)% | 2% - 4% | |||||
Y/Y Growth | 9% | 4% - 5% | |||||
GAAP Operating Margin | 20% | 21% | ~20% | ||||
Non-GAAP Operating Margin | 31% | 32% | ~30% | ||||
GAAP EPS | $0.35 | $0.36 | $0.33 - $0.35 | ||||
Non-GAAP EPS | $0.52 | $0.54 | $0.52 - $0.54 | ||||
Q/Q Growth | (5)% | (4)% - 0% | |||||
Y/Y Growth | 10% | 0% - 4% | |||||
Previous | Current | ||||||
FY 2018A | FY 2019E | FY 2019E | |||||
Recurring Revenue | ~90% | 85% - 90% | 85% - 90% | ||||
Total Revenue ($ Billion) | $2.138 | $2.315 - $2.335 | $2.327 - $2.337 | ||||
Y/Y Growth | 8% - 9% | 9% - 9% | |||||
Revenue from Beginning Remaining Performance Obligations | ~75% | ~75% | |||||
GAAP Operating Margin | 18.5% | 21% - 22% | 21.3% - 21.8% | ||||
Non-GAAP Operating Margin | 30.2% | 31% - 32% | 31.5% - 32.0% | ||||
GAAP Other Income & Expense ($ Million) | $(19.8) | $(13) - $(20) | $(12) - $(14) | ||||
Non-GAAP Other Income & Expense ($ Million) | $(21.1) | $(13) - $(20) | $(11) - $(13) | ||||
GAAP Tax Rate | 8% | ~12% | ~13% | ||||
Non-GAAP Tax Rate | 16% | 16% | 16% | ||||
Weighted Average Diluted Shares Outstanding (Million) | 281.1 | 280 - 282 | 280 - 282 | ||||
GAAP EPS | $1.23 | $1.44 - $1.50 | $1.50 - $1.52 | ||||
Y/Y Growth | 17% - 22% | 22% - 24% | |||||
Non-GAAP EPS | $1.87 | $2.11 - $2.17 | $2.18 - $2.20 | ||||
Y/Y Growth | 13% - 16% | 17% - 18% | |||||
Cash Flow from Operations ($ Million) | $605 | $680 - $720 | $700 - $740 | ||||
DSO | 48 | ~45 | ~45 | ||||
Capital Expenditures ($ Million) | $62 | ~$90 | ~$80 | ||||
October 21, 2019 | Cadence Q3 2019 Financial Results | 2 |
Cadence Design Systems, Inc. | ||
(In Thousands) | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | ||||||
Product and Maintenance | $494,990 | $534,418 | $543,518 | $548,028 | $548,105 | ||||||
Services | 37,478 | 35,432 | 33,224 | 32,391 | 31,498 | ||||||
Total Revenue | $532,468 | $569,850 | $576,742 | $580,419 | $579,603 |
(% of Total Revenue) | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | |||||||||||
Americas | 44 | % | 44 | % | 44 | % | 42 | % | 44 | % | ||||||
China | 9 | % | 13 | % | 10 | % | 12 | % | 10 | % | ||||||
Other Asia | 20 | % | 18 | % | 19 | % | 19 | % | 21 | % | ||||||
Europe, Middle East and Africa | 19 | % | 17 | % | 18 | % | 20 | % | 18 | % | ||||||
Japan | 8 | % | 8 | % | 9 | % | 7 | % | 7 | % | ||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
(% of Total Revenue) | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | |||||||||||
Functional Verification | 22 | % | 25 | % | 24 | % | 22 | % | 20 | % | ||||||
Digital IC Design and Signoff | 30 | % | 28 | % | 30 | % | 31 | % | 30 | % | ||||||
Custom IC Design and Simulation | 26 | % | 25 | % | 25 | % | 26 | % | 26 | % | ||||||
System Interconnect and Analysis | 9 | % | 9 | % | 9 | % | 10 | % | 9 | % | ||||||
IP | 13 | % | 13 | % | 12 | % | 11 | % | 15 | % | ||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | ||||||||||||
GAAP Gross Margin | 88.6 | % | 86.6 | % | 87.8 | % | 89.4 | % | 89.5 | % | ||||||
Non-GAAP Gross Margin | 90.8 | % | 88.6 | % | 89.7 | % | 91.6 | % | 91.5 | % | ||||||
(In Thousands) | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | ||||||
Total GAAP Costs and Expenses | $428,838 | $456,160 | $448,346 | $446,744 | $458,777 | ||||||
Total Non-GAAP Costs and Expenses | $361,981 | $391,471 | $390,166 | $385,591 | $395,995 | ||||||
Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | ||||||||||||
GAAP Operating Margin | 19.5 | % | 20.0 | % | 22.3 | % | 23.0 | % | 20.8 | % | ||||||
Non-GAAP Operating Margin | 32.0 | % | 31.3 | % | 32.3 | % | 33.6 | % | 31.7 | % | ||||||
October 21, 2019 | Cadence Q3 2019 Financial Results | 3 |
Cadence Design Systems, Inc. | ||
Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | |||||||
GAAP Net Income Per Share | $0.35 | $0.35 | $0.43 | $0.38 | $0.36 | ||||||
Non-GAAP Net Income Per Share | $0.49 | $0.52 | $0.54 | $0.57 | $0.54 | ||||||
Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | |||||||
DSO | 42 | 48 | 42 | 38 | 43 | ||||||
(In Thousands) | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | ||||||
Net Cash from Operating Activities | $109,954 | $131,884 | $185,414 | $246,360 | $138,530 | ||||||
(In Thousands) | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | ||||||
Capital Expenditures | $10,656 | $19,742 | $15,275 | $15,287 | $16,965 | ||||||
(In Thousands) | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | ||||||
Cash and Cash Equivalents | $544,585 | $533,298 | $538,898 | $633,415 | $655,216 | ||||||
• | Approximately 42 percent of our cash and cash equivalents were in the U.S. at quarter-end. |
(In Thousands, Except Share Price) | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | |||||||||||
Share Repurchase | $50,011 | $100,023 | $81,114 | $75,006 | $75,011 | |||||||||||
Number of Shares | 1,098 | 2,323 | 1,529 | 1,125 | 1,065 | |||||||||||
Average Share Price | $45.55 | $43.06 | $53.05 | $66.67 | $70.43 | |||||||||||
Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | ||||||||||||
Headcount | 7,417 | 7,499 | 7,570 | 7,743 | 8,016 | |||||||||||
October 21, 2019 | Cadence Q3 2019 Financial Results | 4 |
Cadence Design Systems, Inc. | ||
October 21, 2019 | Cadence Q3 2019 Financial Results | 5 |
Cadence Design Systems, Inc. | ||
(In Thousands) | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | |||||||||||
GAAP total costs and expenses | $428,838 | $456,160 | $448,346 | $446,744 | $458,777 | |||||||||||
Reconciling items to non-GAAP total costs and expenses | ||||||||||||||||
Amortization of acquired intangibles | (12,975 | ) | (12,942 | ) | (13,162 | ) | (14,458 | ) | (12,799 | ) | ||||||
Stock-based compensation expense | (46,264 | ) | (42,594 | ) | (42,253 | ) | (44,257 | ) | (48,279 | ) | ||||||
Non-qualified deferred compensation (expenses) credits | (1,120 | ) | 3,186 | (2,540 | ) | (862 | ) | (52 | ) | |||||||
Restructuring and other (charges) credits | 172 | (13,699 | ) | 689 | 313 | 186 | ||||||||||
Acquisition and integration-related (costs) credits | (6,670 | ) | 1,360 | (914 | ) | (1,889 | ) | (1,838 | ) | |||||||
Non-GAAP total costs and expenses† | $361,981 | $391,471 | $390,166 | $385,591 | $395,995 | |||||||||||
Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | |||||||
GAAP gross margin as percent of total revenue | 88.6% | 86.6% | 87.8% | 89.4% | 89.5% | ||||||
Reconciling items to non-GAAP gross margin as a percent of total revenue | |||||||||||
Amortization of acquired intangibles | 1.8% | 1.7% | 1.7% | 1.9% | 1.7% | ||||||
Stock-based compensation expense | 0.4% | 0.3% | 0.2% | 0.3% | 0.3% | ||||||
Non-qualified deferred compensation expenses (credits) | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | ||||||
Non-GAAP gross margin as percent of total revenue† | 90.8% | 88.6% | 89.7% | 91.6% | 91.5% | ||||||
October 21, 2019 | Cadence Q3 2019 Financial Results | 6 |
Cadence Design Systems, Inc. | ||
Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019E | |||||||||
GAAP operating margin as percent of total revenue | 19% | 20% | 22% | 23% | 21% | ~20% | ||||||||
Reconciling items to non-GAAP operating margin as a percent of total revenue | ||||||||||||||
Amortization of acquired intangibles | 3% | 2% | 2% | 3% | 2% | 2% | ||||||||
Stock-based compensation expense | 9% | 7% | 7% | 8% | 9% | 8% | ||||||||
Non-qualified deferred compensation expenses (credits) | 0% | 0% | 1% | 0% | 0% | 0% | ||||||||
Restructuring and other charges (credits) | 0% | 2% | 0% | 0% | 0% | 0% | ||||||||
Acquisition and integration-related costs (credits) | 1% | 0% | 0% | 0% | 0% | 0% | ||||||||
Non-GAAP operating margin as percent of total revenue† | 32% | 31% | 32% | 34% | 32% | ~30% | ||||||||
2018 | 2019E | |||||
GAAP operating margin as percent of total revenue | 19% | 21.3% - 21.8% | ||||
Reconciling items to non-GAAP operating margin as a percent of total revenue | ||||||
Amortization of acquired intangibles | 2% | 2.2% | ||||
Stock-based compensation expense | 8% | 7.8% | ||||
Non-qualified deferred compensation expenses (credits) | 0% | 0.1% | ||||
Restructuring and other charges (credits) | 0% | -0.1% | ||||
Acquisition and integration-related costs | 1% | 0.2% | ||||
Non-GAAP operating margin as percent of total revenue† | 30% | 31.5% - 32.0% | ||||
October 21, 2019 | Cadence Q3 2019 Financial Results | 7 |
Cadence Design Systems, Inc. | ||
(In Thousands, Except Per Share Data) | Q3 2018 | Q4 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019E | ||||||||||||||
Diluted net income per share on a GAAP basis | $0.35 | $0.35 | $0.43 | $0.38 | $0.36 | $0.33 - $0.35 | ||||||||||||||
Amortization of acquired intangibles | 0.05 | 0.05 | 0.05 | 0.05 | 0.04 | 0.04 | ||||||||||||||
Stock-based compensation expense | 0.16 | 0.15 | 0.15 | 0.16 | 0.17 | 0.17 | ||||||||||||||
Non-qualified deferred compensation expenses (credits) | — | (0.01 | ) | 0.01 | — | — | — | |||||||||||||
Restructuring and other charges (credits) | — | 0.05 | — | — | — | — | ||||||||||||||
Acquisition and integration-related costs (credits) | 0.02 | (0.01 | ) | — | — | 0.01 | — | |||||||||||||
Other income or expense related to investments and non-qualified deferred compensation plan assets * | — | — | (0.02 | ) | 0.01 | 0.01 | 0.01 | |||||||||||||
Income tax effect of non-GAAP adjustments | (0.09 | ) | (0.06 | ) | (0.08 | ) | (0.03 | ) | (0.05 | ) | (0.03 | ) | ||||||||
Diluted net income per share on a non-GAAP basis † | $0.49 | $0.52 | $0.54 | $0.57 | $0.54 | $0.52 - $0.54 | ||||||||||||||
Shares used in calculation of diluted net income per share - GAAP ** | 281,646 | 280,321 | 280,615 | 281,054 | 280,666 | |||||||||||||||
Shares used in calculation of diluted net income per share - non-GAAP ** | 281,646 | 280,321 | 280,615 | 281,054 | 280,666 | |||||||||||||||
October 21, 2019 | Cadence Q3 2019 Financial Results | 8 |
Cadence Design Systems, Inc. | ||
(In Thousands, Except Per Share Data) | 2018 | 2019E | ||||||
Diluted net income per share on a GAAP basis | $1.23 | $1.50 - $1.52 | ||||||
Amortization of acquired intangibles | 0.19 | 0.19 | ||||||
Stock-based compensation expense | 0.60 | 0.65 | ||||||
Non-qualified deferred compensation expenses (credits) | (0.01 | ) | 0.01 | |||||
Restructuring and other charges (credits) | 0.04 | — | ||||||
Acquisition and integration-related costs | 0.07 | 0.02 | ||||||
Other income or expense related to investments and non-qualified deferred compensation plan assets * | — | — | ||||||
Income tax effect of non-GAAP adjustments | (0.25 | ) | (0.19 | ) | ||||
Diluted net income per share on a non-GAAP basis † | $1.87 | $2.18 - $2.20 | ||||||
Shares used in calculation of diluted net income per share - GAAP ** | 281,144 | 280 - 282M | ||||||
Shares used in calculation of diluted net income per share - non-GAAP ** | 281,144 | 280 - 282M | ||||||
October 21, 2019 | Cadence Q3 2019 Financial Results | 9 |
Cadence Design Systems, Inc. | ||
Previous | Current | |||||||||
(In Millions) | FY 2018A | FY 2019E | FY 2019E | |||||||
GAAP total other income and expense | $(19.8) | $(13) - $(20) | $(12) - $(14) | |||||||
Reconciling items to non-GAAP total income and expense | ||||||||||
Other income or expense related to investments and non-qualified deferred compensation plan assets* | (1.3) | — | 1 | |||||||
Non-GAAP total other income and expense† | $(21.1) | $(13) - $(20) | $(11) - $(13) | |||||||
October 21, 2019 | Cadence Q3 2019 Financial Results | 10 |