10-QPeriod: Q2 FY2010

CADENCE DESIGN SYSTEMS INC Quarterly Report for Q2 Ended Apr 3, 2010

Filed April 30, 2010For Securities:CDNS

Summary

Cadence Design Systems, Inc. (CDNS) reported its financial results for the quarter ended April 3, 2010. The company transitioned to a ratable license mix, which is contributing to increased recurring revenue. Despite a net loss for the quarter, the company saw a significant improvement in operating cash flow and a reduction in operating expenses, largely due to cost-saving initiatives and lower bad debt expense. Total revenue increased by 7.6% year-over-year to $221.9 million, driven by a 17.4% increase in product revenue. However, service revenue saw a decline. The company's cash position strengthened, with cash and cash equivalents increasing to $619.3 million. Management expects current liquidity to be sufficient for at least the next 12 months. The company is actively managing its debt obligations and is subject to ongoing tax examinations by the IRS.

Financial Highlights

27 data points
Beta

Revenue

$221.94M

97.6% Gross Margin

Net Income

-$11.79M

-5.3% Net Margin

EPS (Diluted)

$-0.04

Cash & Equivalents

$619.30M

Free Cash Flow

$36.80M

Financial Statements
Beta
Revenue$221.94M
Cost of Revenue$5.29M
Gross Profit$216.65M
Operating Expenses$227.26M
Operating Income-$5.32M
Interest Expense$7.43M
Net Income-$11.79M
EPS (Basic)$-0.04
EPS (Diluted)$-0.04
Shares Outstanding (Basic)262.60M
Shares Outstanding (Diluted)262.60M

Key Highlights

  • 1Total revenue increased 7.6% to $221.9 million, driven by a 17.4% rise in product revenue.
  • 2Net loss narrowed significantly to $11.8 million ($0.04 per share) from $63.3 million ($0.25 per share) in the prior year period.
  • 3Operating cash flow turned positive, generating $46.7 million compared to a use of $7.3 million in the prior year.
  • 4Operating expenses decreased by $20.9 million, primarily due to lower general and administrative expenses driven by a significant reduction in bad debt expense.
  • 5Cash and cash equivalents increased by $50.2 million during the quarter, reaching $619.3 million.
  • 6The company continues its transition to a ratable license mix, with approximately 90% of executed orders in the period being ratable.
  • 7Significant litigation and IRS examinations related to tax matters remain ongoing, with potential material impacts not currently assessed.

Frequently Asked Questions

Cadence Design Systems reported a net loss of $11.8 million, or $0.04 per diluted share, for the quarter ended April 3, 2010. This represents a significant improvement from a net loss of $63.3 million, or $0.25 per diluted share, in the same period of 2009. Total revenue increased by 7.6% to $221.9 million, primarily driven by a strong performance in product revenue.

Cadence is undergoing a transition towards a "ratable license mix," where a larger portion of revenue is recognized over time rather than upfront. In the first quarter of fiscal 2010, approximately 90% of the total value of executed orders consisted of ratable revenue orders. This strategy aims to provide customers with greater flexibility and is contributing to higher product revenue and a more predictable revenue stream, though it can impact the timing of revenue recognition.

The company's financial health appears to be improving. Cash and cash equivalents increased by $50.2 million during the quarter, ending at $619.3 million. Net working capital also saw an increase. Management believes that current cash and short-term investment balances, along with projected operating cash flows, will be sufficient to meet liquidity requirements for at least the next 12 months.

Yes, Cadence Design Systems is involved in ongoing litigation, including securities class action and derivative lawsuits. Additionally, the company is subject to examinations by the IRS related to its tax returns, with proposed deficiencies for several years. While management does not believe the outcome of current litigation will materially adversely affect the company's financial position, liquidity, or results of operations, the tax examinations involve significant amounts and could potentially have a material impact if not resolved favorably.