10-QPeriod: Q2 FY2014

CADENCE DESIGN SYSTEMS INC Quarterly Report for Q2 Ended Jun 28, 2014

Filed July 21, 2014For Securities:CDNS

Summary

Cadence Design Systems Inc. (CDNS) reported solid performance for the quarter ending June 28, 2014, with total revenue increasing by 4% to $378.8 million compared to the prior year's quarter. This growth was primarily driven by a 5% increase in product and maintenance revenue, reaching $354.5 million, which was attributed to higher business levels, recognized revenue from prior bookings, and contributions from recent acquisitions. Net income for the quarter was $23.3 million, an increase from $9.4 million in the same period last year, though earnings per share remained modest at $0.08 for both basic and diluted measures. The company continued its strategic acquisition strategy, notably acquiring Jasper Design Automation, Inc. for $139.5 million to enhance its system design and verification platforms. This acquisition, along with other smaller ones, contributed to a significant increase in goodwill on the balance sheet. While the company showed increased revenue and net income, operating expenses also rose, particularly in research and development, reflecting ongoing investment in product development and expansion. The company also initiated a voluntary early retirement program, incurring associated costs. Financially, Cadence maintained a strong liquidity position with $655.3 million in cash, cash equivalents, and short-term investments. The company also drew down $100 million on its revolving credit facility, increasing its current liabilities but providing additional financial flexibility. Management expressed confidence in its ability to meet its financial obligations, including the upcoming maturity of its 2015 convertible notes, through operating cash flow and available credit.

Financial Highlights

48 data points
Beta

Revenue

$378.79M

Net Income

$23.26M

6.1% Net Margin

EPS (Diluted)

$0.08

Total Assets

$2.79B

Cash & Equivalents

$557.42M

Free Cash Flow

$57.40M

Financial Statements
Beta
Revenue$378.79M
Operating Expenses$343.29M
Operating Income$35.50M
Interest Expense$7.37M
Net Income$23.26M
EPS (Basic)$0.08
EPS (Diluted)$0.08
Shares Outstanding (Basic)283.34M
Shares Outstanding (Diluted)305.75M

Key Highlights

  • 1Total revenue for the quarter increased by 4% year-over-year to $378.8 million, driven by product and maintenance revenue growth.
  • 2Net income saw a significant increase to $23.3 million from $9.4 million in the prior year's quarter, although EPS remained at $0.08.
  • 3The company made a strategic acquisition of Jasper Design Automation, Inc. for $139.5 million to bolster its system design and verification offerings.
  • 4Goodwill on the balance sheet increased substantially due to acquisitions, indicating a continued M&A strategy.
  • 5Operating expenses rose, with a notable increase in Research & Development, reflecting ongoing investment in innovation and product development.
  • 6The company maintained a strong liquidity position with $655.3 million in cash, cash equivalents, and short-term investments.
  • 7Cadence has a significant convertible debt maturity in June 2015, which is noted as a key financial consideration, with the company having initiated hedging strategies to mitigate associated risks.

Frequently Asked Questions

The primary driver of Cadence's revenue growth was the increase in product and maintenance revenue, which rose by 5% year-over-year to $354.5 million. This growth was attributed to increased business levels, recognized revenue from prior bookings, and contributions from recent acquisitions, particularly in the intellectual property (IP) licensing area.

Cadence continued its acquisition strategy, most notably acquiring Jasper Design Automation, Inc. for $139.5 million. This, along with other smaller acquisitions, led to a significant increase in goodwill on the balance sheet, from $456.9 million to $559.9 million. These acquisitions also contributed to revenue growth and increased amortization of acquired intangibles, impacting operating expenses.

The 2015 Convertible Notes, with a principal amount of $350 million, are due in June 2015 and are classified as a current liability as of June 28, 2014, as they met early conversion conditions. The company has entered into hedging transactions to limit its exposure to additional cash payments above the principal amount upon conversion and has also sold warrants. While Cadence expects to meet its obligations through operating cash flow and its revolving credit facility, the significant upcoming maturity is a key financial consideration.

The increase in Research and Development (R&D) expenses, up 12% year-over-year for the quarter, reflects Cadence's continued investment in innovation and product development. This is crucial for the company's strategy to offer comprehensive EDA solutions and IP, and to maintain its competitive edge in the rapidly evolving semiconductor and electronics design industries.