10-QPeriod: Q1 FY2014

CADENCE DESIGN SYSTEMS INC Quarterly Report for Q1 Ended Mar 29, 2014

Filed April 21, 2014For Securities:CDNS

Summary

Cadence Design Systems, Inc. (CDNS) reported financial results for the first quarter of fiscal year 2014, ending March 29, 2014. The company demonstrated revenue growth, driven primarily by its product and maintenance segments, which saw an increase of 9% year-over-year. This growth was supported by improved business levels and incremental revenue from acquisitions made in fiscal year 2013. Despite top-line growth, operating income decreased due to increased investments in research and development and higher employee-related costs, partly attributable to recent acquisitions. The company also noted a shift in its tax provision, moving from a benefit in the prior year to a provision in the current quarter, partly due to the expiration of the US federal research tax credit. From a balance sheet perspective, total assets increased, with notable growth in goodwill and acquired intangibles, reflecting recent acquisitions. The company managed its liquidity effectively, maintaining a healthy level of cash, cash equivalents, and short-term investments, despite a slight decrease from the previous quarter. Management expressed confidence in the company's ability to meet its obligations, including the upcoming maturity of its 2015 convertible notes, through operational cash flow and its revolving credit facility. However, the convertible notes and associated hedging instruments introduce complexity and potential equity dilution risks.

Financial Highlights

48 data points
Beta

Revenue

$378.55M

Net Income

$33.07M

8.7% Net Margin

EPS (Diluted)

$0.11

Total Assets

$2.52B

Cash & Equivalents

$532.76M

Free Cash Flow

$21.85M

Financial Statements
Beta
Revenue$378.55M
Operating Expenses$336.24M
Operating Income$42.31M
Interest Expense$7.27M
Net Income$33.07M
EPS (Basic)$0.12
EPS (Diluted)$0.11
Shares Outstanding (Basic)281.62M
Shares Outstanding (Diluted)301.03M

Key Highlights

  • 1Total revenue increased by 7% to $378.6 million, driven by a 9% rise in product and maintenance revenue, offsetting a decline in services revenue.
  • 2Product and maintenance revenue grew to $357.4 million, benefiting from increased business levels and incremental revenue from fiscal 2013 acquisitions.
  • 3Operating income decreased from $58.1 million to $42.3 million, primarily due to a significant increase in Research and Development expenses (up 18%) and Marketing and Sales expenses (up 9%).
  • 4Net income for the quarter was $33.1 million, a substantial decrease from $78.6 million in the prior year's quarter, resulting in diluted EPS of $0.11 compared to $0.27.
  • 5Goodwill increased by approximately $22 million to $479 million, and acquired intangibles net increased to $316.5 million, reflecting the impact of acquisitions completed during the quarter and prior periods.
  • 6The company had $629.8 million in cash, cash equivalents, and short-term investments, with a net working capital of $105.0 million.
  • 7Cadence completed two business combinations for $27.5 million during the quarter, adding goodwill and intangible assets.
  • 8A significant event announced post-quarter was the agreement to acquire Jasper Design Automation for approximately $170 million in cash.

Frequently Asked Questions

Revenue growth was primarily driven by an increase in product and maintenance revenue, which rose by 9% year-over-year. This was attributed to higher business levels, revenue recognized from prior period bookings, and incremental revenue from acquisitions made in fiscal year 2013.

Operating income and net income decreased primarily due to increased investments in research and development (up 18%) and marketing and sales (up 9%). These higher operating expenses, coupled with a shift from a tax benefit to a tax provision, led to a lower net income.

As of March 29, 2014, Cadence had $329.1 million in 2015 Convertible Notes outstanding. The notes are convertible into cash under certain conditions, with early conversion possible due to stock price performance. The company has entered into hedging transactions to limit its exposure to additional cash payments above the principal, but there remains a risk of dilution to earnings per share from associated warrants. The company believes it has sufficient liquidity to meet its obligations related to these notes, but conversion or maturity could impact liquidity.

Acquisitions made in fiscal year 2013 and two smaller ones in the current quarter contributed to increased goodwill and acquired intangibles on the balance sheet. These acquisitions also led to higher operating expenses, particularly in R&D and amortization of intangibles, and provided incremental revenue in the product and maintenance segment.