10-QPeriod: Q2 FY2009

CADENCE DESIGN SYSTEMS INC Quarterly Report for Q2 Ended Apr 4, 2009

Filed May 1, 2009For Securities:CDNS

Summary

Cadence Design Systems, Inc. (CDNS) reported a net loss of $63.3 million for the first quarter of 2009, a significant increase from the $33.1 million net loss in the prior year period. This widened loss was primarily driven by a substantial decrease in revenue, which fell by 24.2% to $206.3 million, down from $270.8 million in Q1 2008. The company experienced declines across product, services, and maintenance revenue, reflecting the challenging macroeconomic environment impacting the semiconductor and electronics industries. While operating expenses were reduced through cost-saving initiatives and restructuring, the revenue decline outpaced these efforts. The company's balance sheet showed total assets of $1.52 billion, down from $1.68 billion at the end of the previous fiscal year. Current assets also decreased, largely due to a reduction in receivables and cash. Liabilities saw a decrease in total current liabilities, primarily driven by lower accounts payable and deferred revenue, though long-term liabilities remained significant, including substantial convertible notes. The company ended the quarter with $554.4 million in cash and cash equivalents, providing a liquidity buffer, though cash used in operating activities was notable.

Key Highlights

  • 1Net loss widened to $63.3 million in Q1 2009 from $33.1 million in Q1 2008.
  • 2Total revenue declined significantly by 24.2% to $206.3 million in Q1 2009 compared to $270.8 million in Q1 2008.
  • 3Product revenue saw a substantial decrease of $52.3 million year-over-year, impacted by the macroeconomic environment and a shift to ratable license revenue recognition.
  • 4Operating expenses were reduced by $48.2 million year-over-year, primarily in marketing/sales and R&D, reflecting cost-saving initiatives.
  • 5The company adopted FASB Staff Position APB 14-1, impacting accounting for convertible debt and increasing interest expense.
  • 6Cash and cash equivalents stood at $554.4 million as of April 4, 2009, providing liquidity, although net cash used in operating activities was $(7.3) million for the quarter.
  • 7The company faces ongoing litigation, including a consolidated securities class action lawsuit and derivative suits.

Frequently Asked Questions

The primary reason for the increased net loss is a significant decline in total revenue, which fell by 24.2% year-over-year. This revenue decrease, driven by the challenging macroeconomic environment impacting the semiconductor and electronics industries, outpaced the company's cost-saving measures.

The macroeconomic environment has led to increased pressures on customer R&D budgets, causing customers to seek more flexibility in purchasing terms. This has resulted in lower business levels, longer sales cycles, and a shift towards license types that recognize revenue ratably over time, all contributing to the substantial reduction in revenue.

The adoption of FSP APB 14-1, effective for certain convertible debt instruments, requires separate accounting for the liability and equity components. This change impacted Cadence's financial statements by requiring retrospective adjustments and resulted in increased interest expense due to the amortization of a debt discount based on the company's estimated nonconvertible debt borrowing rate.

As of April 4, 2009, Cadence had $554.4 million in cash and cash equivalents. The company expects that its current cash and short-term investment balances, along with cash flows generated from operations, will be sufficient to meet its working capital and other capital requirements for at least the next 12 months, despite experiencing net cash used in operating activities for the quarter.