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

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.

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.

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