7/17/2003 - Cadence Design Systems, Inc. (NYSE: CDN) announced total revenue for the second quarter of 2003 of $276 million, with subscription licenses approximately 82 percent of software product bookings. Pro forma earnings were $25 million or $0.09 per share based on fully diluted shares outstanding. Click here for the Consolidated Statements of Operations and Consolidated Balance Sheet.
On a GAAP basis, including amortization of acquired intangibles, deferred stock compensation and other charges, the results were a net loss of $8 million or a net loss of $0.03 per share. A reconciliation of GAAP to pro forma earnings is included with this press release.
"I am pleased with these results, which reflect the good progress we've made in driving the new generation of EDA technologies into the market," said Ray Bingham, Cadence president and CEO. "We continue to develop and integrate advanced, market proven technologies that enable our customers to compete in an increasingly challenging technical and economic environment."
In the second quarter, the Cadence® Encounter® and IncisiveTM platforms continued to penetrate key accounts. Encounter has now been deployed in more than 200 production tapeouts. And, for the second quarter in a row since its introduction, the Incisive platform was ahead of plan, gaining momentum with customers around the globe.
This week, Cadence concluded an agreement to acquire Verplex Systems, Inc., another key milestone in the Cadence digital IC design platform strategy. "The pending acquisition of Verplex is part of our ongoing strategy to provide customers with a complete solution to the increasingly complex challenges of IC design verification," said Bingham. "We will incorporate Verplex's formal verification technology into the Cadence Encounter digital IC platform's nanometer implementation flow, the industry's route to big, fast chips, and into the market leading Cadence Incisive verification platform."
Cadence also strengthened relationships with its Japanese customers as a result of acquiring major parts of the Innotech EDA software distribution business. Cadence Japan will now sell directly to every major IC company in the Japanese semiconductor industry. Innotech will focus on systems, a growth segment, and on developing new business. This arrangement provides Cadence with a more efficient channel and a larger presence in Japan.
The following statements are based on current expectations. These statements are forward looking, and actual results may differ materially. These statements do not include the impact of any mergers, acquisitions or other business combinations, other than Verplex, that may be completed after June 28, 2003.
Subscriptions are expected to make up 80 percent to 90 percent of software product bookings for the year. For Q3, the company expects total revenue in the range of $265 million to $275 million and 65 percent to 70 percent of software product revenue from ratable backlog. Pro forma diluted earnings per share is expected to be in the range of $0.11 to $0.13, with a GAAP diluted loss per share in the range of $0.18 to $0.16. For the full year 2003, the company expects total revenues to be in the range of $1.09 billion to $1.13 billion. Pro forma diluted earnings per share for 2003 is expected to be in the range of $0.48 to $0.52, with a GAAP diluted loss per share expected to be in the range of $0.13 to $0.09.
Cadence continues to focus on cost reduction, and plans to eliminate approximately 500 jobs. This action, affecting about 10 percent of the workforce worldwide, will result in restructuring charges of $60 million in the third quarter.
Costs and expenses are expected to be down by about 20 percent for the second half of 2003 on a year-over-year basis.
A schedule showing a reconciliation of the business outlook from GAAP to pro forma diluted net income per share is included with this release.
Cadence expects to complete its acquisition of Verplex in the third quarter. However, the closing is subject to a number of conditions, the satisfaction of which may delay the closing or the failure of which to be satisfied could result in the termination of the definitive agreement.
Cadence is the largest supplier of electronic design technologies, methodology services, and design services. Cadence solutions are used to accelerate and manage the design of semiconductors, computer systems, networking and telecommunications equipment, consumer electronics, and a variety of other electronics based products. With approximately 5000 employees and 2002 revenues of approximately $1.3 billion, Cadence has sales offices, design centers, and research facilities around the world. The company is headquartered in San Jose, Calif., and traded on the New York Stock Exchange under the symbol CDN. More information about the company, its products and services is available at www.cadence.com.
Cadence and the Cadence logo are registered trademarks, and Incisive is a trademark of Cadence Design Systems, Inc.
The statements contained above regarding the company's second quarter 2003 results, those contained in the Business Outlook section above and the statements by Ray Bingham include forward looking statements based on current expectations or beliefs, as well as a number of preliminary assumptions about future events that are subject to factors and uncertainties that could cause actual results to differ materially from those described in the forward looking statements. Readers are cautioned not to put undue reliance on these forward looking statements, which are not a guarantee of future performance and are subject to a number of uncertainties and other factors, many of which are outside the control of Cadence, including, among others: Cadence's ability to compete successfully in the design automation product and the commercial electronic design and methodology services industries; the mix of products and services sold and the timing of significant orders for its products; economic uncertainty; fluctuations in rates of exchange between the U.S. dollar and the currencies of other countries in which Cadence does business; and the acquisition of other companies or the failure to successfully integrate them.
For a detailed discussion of these and other cautionary statements, please refer to the company's filings with the Securities and Exchange Commission. These include the company's Annual Report on Form 10-K for the year ended December 28, 2002 and Quarterly Report on Form 10-Q for the quarter ended March 29, 2003.
In the calculation of the company's pro forma earnings and pro forma diluted earnings per share for this and other periods, Cadence has excluded one or more of the following items: amortization of acquired intangibles, amortization of deferred stock compensation, restructuring and other charges and write off of in-process technology from acquisitions, tax provisions, inventory write-downs, equity investment write-downs and certain non-routine legal costs. Cadence management uses pro forma earnings and pro forma diluted earnings per share to evaluate the performance of its core business of developing and selling its products and services and to estimate its future core performance, before taking into account the effect of typically non-cash items that are variable and difficult to predict from period to period.
Cadence management believes that the items excluded from its pro forma calculations are generally infrequent and somewhat unpredictable events or events whose impact on earnings will be resolved over a reasonably short, finite period of time. By excluding these variable and unpredictable, generally non-cash items that do not arise from the company's core business operations, Cadence management believes it can better compare the revenues and costs of its operating business to the past and future operations of that operating business.
Though Cadence management finds these pro forma measures useful for evaluating aspects of Cadence's business, its reliance on these measures is limited because these excluded items often have a material effect on Cadence's earnings and earnings per share calculated in accordance with GAAP. Therefore, Cadence management always uses the pro forma earnings and earnings per share measures in conjunction with GAAP earnings and earnings per share measures. Just because an item may be non-cash does not mean it is not important to an understanding of a company's financial statements. In fact, investors are encouraged to look at GAAP results as the best measure of financial performance. For example, amortization of intangibles, write-downs of assets or in-process technology are important to consider because they represent initial cash expenditures that are merely reported under GAAP across future fiscal periods. Likewise, deferred stock compensation expense is an obligation of the company that should be considered. Restructuring charges require cash outlays and can be triggered by acquisitions or product adjustments, as well as overall company performance within a given business environment. All of these metrics are important to financial performance generally. Therefore, Cadence management typically uses the pro forma earnings and earnings per share measures in conjunction with GAAP earnings and earnings per share measures, to address these limitations.
Cadence believes that presenting pro forma earnings and earnings per share measures provides investors with an additional tool for evaluating the company's core performance that management uses in its own evaluation of performance, and a pro forma base line for assessing the future earnings potential of the company. While the GAAP results are more complete, the company prefers to allow investors to have this supplemental metric since, with a reconciliation to GAAP, it may provide greater insight into our financial results.
Cadence expects that its corporate representatives will meet privately during the quarter with investors, the media, investment analysts and others. At these meetings, Cadence may reiterate the Business Outlook published in this press release. At the same time, Cadence will keep this press release, including the outlook, publicly available on its Web site (www.cadence.com/company/investor_relations/index.html). Prior to the start of the Quiet Period (described below), the public may continue to rely on the Business Outlook herein as still being Cadence's current expectations on matters covered unless Cadence publishes a notice stating otherwise.
Beginning September 15, 2003, Cadence will observe a "Quiet Period" during which the Business Outlook as provided in this press release and the company's most recent quarterly report on Form 10-Q no longer constitute the company's current expectations. During the Quiet Period, the Business Outlook in these documents should be considered to be historical, speaking as of prior to the Quiet Period only and not subject to update by the company. During the Quiet Period, Cadence representatives will not comment concerning the outlook or Cadence's financial results or expectations. The Quiet Period will extend until the day when Cadence's next quarterly Earnings Release is published, currently scheduled for October 14, 2003.
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