Company Quick10K Filing
Quick10K
Cadence Design Systems
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$68.70 281 $19,310
10-Q 2019-03-30 Quarter: 2019-03-30
10-K 2018-12-29 Annual: 2018-12-29
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-30 Annual: 2017-12-30
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2016-01-02 Annual: 2016-01-02
10-Q 2015-10-03 Quarter: 2015-10-03
10-Q 2015-07-04 Quarter: 2015-07-04
10-Q 2015-04-04 Quarter: 2015-04-04
10-K 2015-01-03 Annual: 2015-01-03
10-Q 2014-09-27 Quarter: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-K 2013-12-28 Annual: 2013-12-28
8-K 2019-05-02 Officers, Shareholder Vote
8-K 2019-04-22 Earnings, Exhibits
8-K 2019-02-19 Earnings, Exhibits
8-K 2019-02-05 Officers, Amend Bylaw, Exhibits
8-K 2018-10-22 Earnings, Exhibits
8-K 2018-07-23 Earnings, Exhibits
8-K 2018-05-03 Shareholder Vote
8-K 2018-04-23 Earnings, Exhibits
8-K 2018-03-15 Officers
8-K 2018-02-07 Shareholder Rights, Amend Bylaw, Exhibits
8-K 2018-01-31 Earnings, Exhibits
FELE Franklin Electric 2,190
GPI Group 1 Automotive 1,440
YIN Yintech Investment Holdings 377
BFRA Biofrontera 332
SOLO Electrameccanica Vehicles 109
SNSS Sunesis Pharmaceuticals 95
NMS Neiman Marcus 79
AMS American Shared Hospital Services 16
NAOV Nanovibronix 13
DAVEY Davey Tree Expert 0
CDNS 2019-03-30
Part I. Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
Note 2. Debt
Note 3. Receivables, Net
Note 4. Revenue
Note 5. Goodwill and Acquired Intangibles
Note 6. Leases
Note 7. Balance Sheet Components
Note 8. Stock-Based Compensation
Note 9. Stock Repurchase Program
Note 10. Restructuring and Other Charges
Note 11. Net Income per Share
Note 12. Fair Value
Note 13. Commitments and Contingencies
Note 14. Accumulated Other Comprehensive Loss
Note 15. Segment Reporting
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.01 ex3101cdns03302019.htm
EX-31.02 ex3102cdns03302019.htm
EX-32.01 ex3201cdns03302019.htm
EX-32.02 ex3202cdns03302019.htm

Cadence Design Systems Earnings 2019-03-30

CDNS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________ 
FORM 10-Q
_____________________________________  
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2019
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 000-15867
_____________________________________ 
cdnslogo.jpg
CADENCE DESIGN SYSTEMS INC
(Exact Name of Registrant as Specified in Its Charter)
_____________________________________ 
Delaware
 
00-0000000
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
2655 Seely Avenue, Building 5, San Jose, California
 
95134
(Address of Principal Executive Offices)
 
(Zip Code)
(408) 943-1234
Registrant’s Telephone Number, including Area Code
_____________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
 
Accelerated filer
o
 
Smaller reporting company
o
 
 
 
 
 
Non-accelerated filer
o
 
 
 
 
Emerging growth company
o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
On March 30, 2019, approximately 281,030,000 shares of the registrant’s common stock, $0.01 par value, were outstanding.



CADENCE DESIGN SYSTEMS, INC.
INDEX
 
 
 
Page
PART I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 











PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
As of
 
March 30,
2019
 
December 29,
2018
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
538,898

 
$
533,298

Receivables, net
264,767

 
297,082

Inventories
37,480

 
28,162

Prepaid expenses and other
76,802

 
92,550

Total current assets
917,947

 
951,092

Property, plant and equipment, net of accumulated depreciation of $712,996 and $698,493, respectively
253,392

 
252,630

Goodwill
662,871

 
662,272

Acquired intangibles, net
212,298

 
225,457

Long-term receivables
3,241

 
5,972

Other assets
496,562

 
371,231

Total assets
$
2,546,311

 
$
2,468,654

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Revolving credit facility
$
50,000

 
$
100,000

Accounts payable and accrued liabilities
235,688

 
256,526

Current portion of deferred revenue
345,751

 
352,456

Total current liabilities
631,439

 
708,982

Long-term liabilities:
 
 
 
Long-term portion of deferred revenue
51,312

 
48,718

Long-term debt
345,470

 
345,291

Other long-term liabilities
152,253

 
77,262

Total long-term liabilities
549,035

 
471,271

Commitments and contingencies (Note 13)


 


Stockholders’ equity:
 
 
 
Common stock and capital in excess of par value
1,944,895

 
1,936,124

Treasury stock, at cost
(1,446,247
)
 
(1,395,652
)
Retained earnings
893,264

 
772,709

Accumulated other comprehensive loss
(26,075
)
 
(24,780
)
Total stockholders’ equity
1,365,837

 
1,288,401

Total liabilities and stockholders’ equity
$
2,546,311

 
$
2,468,654




See notes to condensed consolidated financial statements.



CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Revenue:
 
 
 
Product and maintenance
$
543,518

 
$
480,609

Services
33,224

 
36,704

Total revenue
576,742

 
517,313

Costs and expenses:
 
 
 
Cost of product and maintenance
50,522

 
41,730

Cost of services
20,063

 
21,479

Marketing and sales
116,830

 
109,148

Research and development
228,210

 
224,185

General and administrative
30,102

 
33,299

Amortization of acquired intangibles
3,308

 
3,630

Restructuring and other credits
(689
)
 
(1,991
)
Total costs and expenses
448,346

 
431,480

Income from operations
128,396

 
85,833

Interest expense
(5,391
)
 
(6,975
)
Other income (expense), net
5,241

 
(689
)
Income before provision for income taxes
128,246

 
78,169

Provision for income taxes
7,691

 
5,284

Net income
$
120,555

 
$
72,885

Net income per share – basic
0.44

 
0.27

Net income per share – diluted
0.43

 
0.26

Weighted average common shares outstanding – basic
273,066

 
273,773

Weighted average common shares outstanding – diluted
280,615

 
281,651











See notes to condensed consolidated financial statements.



CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Net income
$
120,555

 
$
72,885

Other comprehensive income (loss), net of tax effects:
 
 
 
Foreign currency translation adjustments
1,223

 
12,058

Changes in defined benefit plan liabilities
(2,518
)
 
150

Total other comprehensive income (loss), net of tax effects
(1,295
)
 
12,208

Comprehensive income
$
119,260

 
$
85,093



































See notes to condensed consolidated financial statements.



CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Par Value
 
 
 
 
 
Accumulated
 
 
 
 
 
and Capital
 
 
 
 
 
Other
 
 
 
 
 
in Excess
 
Treasury
 
Retained
 
Comprehensive
 
 
 
Shares
 
of Par
 
Stock
 
Earnings
 
Loss
 
Total
Balance, December 29, 2018
280,015

 
$
1,936,124

 
$
(1,395,652
)
 
$
772,709

 
$
(24,780
)
 
$
1,288,401

Net income

 

 

 
120,555

 

 
$
120,555

Other comprehensive loss, net of taxes

 

 

 

 
(1,295
)
 
$
(1,295
)
Purchase of treasury stock
(1,529
)
 

 
(81,114
)
 

 

 
$
(81,114
)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures
3,075

 
(29,746
)
 
59,605

 

 

 
$
29,859

Stock received for payment of employee taxes on vesting of restricted stock
(531
)
 
(3,736
)
 
(29,086
)
 

 

 
$
(32,822
)
Stock-based compensation expense

 
42,253

 

 

 

 
$
42,253

Balance, March 30, 2019
281,030

 
$
1,944,895

 
$
(1,446,247
)
 
$
893,264

 
$
(26,075
)
 
$
1,365,837

 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
Par Value
 
 
 
 
 
Accumulated
 
 
 
 
 
and Capital
 
 
 
 
 
Other
 
 
 
 
 
in Excess
 
Treasury
 
Retained
 
Comprehensive
 
 
 
Shares
 
of Par
 
Stock
 
Earnings
 
Income (Loss)
 
Total
Balance, December 30, 2017
282,067

 
$
1,829,950

 
$
(1,178,121
)
 
$
341,003

 
$
(3,630
)
 
$
989,202

Cumulative effect adjustment

 

 

 
85,929

 
(2,638
)
 
$
83,291

Net income

 

 

 
72,885

 

 
$
72,885

Other comprehensive loss, net of taxes

 

 

 

 
12,208

 
$
12,208

Purchase of treasury stock
(1,289
)
 

 
(50,013
)
 

 

 
$
(50,013
)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures
1,698

 
(5,087
)
 
28,426

 

 

 
$
23,339

Stock received for payment of employee taxes on vesting of restricted stock
(570
)
 
(4,072
)
 
(22,443
)
 

 

 
$
(26,515
)
Stock-based compensation expense

 
37,901

 

 

 

 
$
37,901

Balance, March 31, 2018
281,906

 
$
1,858,692

 
$
(1,222,151
)
 
$
499,817

 
$
5,940

 
$
1,142,298


















See notes to condensed consolidated financial statements.




CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Cash and cash equivalents at beginning of period
$
533,298

 
$
688,087

Cash flows from operating activities:
 
 
 
Net income
120,555

 
72,885

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
29,740

 
29,389

Amortization of debt discount and fees
247

 
292

Stock-based compensation
42,253

 
37,901

Gain on investments, net
(2,646
)
 
(996
)
Deferred income taxes
(4,966
)
 
1,363

Provisions for losses (recoveries) on receivables
(183
)
 
666

Other non-cash items
122

 
(170
)
Changes in operating assets and liabilities:
 
 
 
Receivables
35,681

 
(10,988
)
Inventories
(10,618
)
 
2,105

Prepaid expenses and other
15,618

 
8,392

Other assets
10,729

 
8,025

Accounts payable and accrued liabilities
(43,954
)
 
(46,956
)
Deferred revenue
(4,451
)
 
59,854

Other long-term liabilities
(2,713
)
 
(4,115
)
Net cash provided by operating activities
185,414

 
157,647

Cash flows from investing activities:
 
 
 
Purchases of non-marketable investments
(33,664
)
 

Proceeds from the sale of non-marketable investments
2,952

 

Purchases of property, plant and equipment
(15,275
)
 
(13,128
)
Net cash used for investing activities
(45,987
)
 
(13,128
)
Cash flows from financing activities:
 
 
 
Proceeds from revolving credit facility
50,000

 

Payment on revolving credit facility
(100,000
)
 
(40,000
)
Proceeds from issuance of common stock
29,858

 
23,339

Stock received for payment of employee taxes on vesting of restricted stock
(32,822
)
 
(26,515
)
Payments for repurchases of common stock
(81,114
)
 
(50,013
)
Change in book overdraft

 
(3,867
)
Net cash used for financing activities
(134,078
)
 
(97,056
)
Effect of exchange rate changes on cash and cash equivalents
251

 
11,418

Increase in cash and cash equivalents
5,600

 
58,881

Cash and cash equivalents at end of period
$
538,898

 
$
746,968

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for interest
$
1,324

 
$
2,716

Cash paid for taxes, net
6,892

 
6,025






See notes to condensed consolidated financial statements.



CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by Cadence Design Systems, Inc. (“Cadence”) without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, Cadence believes that the disclosures contained in this Quarterly Report on Form 10-Q comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) for a Quarterly Report on Form 10-Q and are adequate to make the information presented not misleading. These condensed consolidated financial statements are meant to be, and should be, read in conjunction with the consolidated financial statements and the Notes thereto included in Cadence’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q reflect all adjustments (which include only normal, recurring adjustments and those items discussed in these Notes) that are, in the opinion of management, necessary to state fairly the results of operations, cash flows and financial position for the periods and dates presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year. Certain prior period balances have been reclassified to conform to the current year presentation. Management has evaluated subsequent events through the issuance date of the unaudited condensed consolidated financial statements.
Use of Estimates
Preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Comparability
Effective the first day of fiscal 2019, Cadence adopted multiple new accounting standards. Prior periods were not retrospectively restated, so the condensed consolidated balance sheet as of March 30, 2019 was prepared using accounting standards that were different than those in effect as of December 29, 2018. Therefore, the condensed consolidated balance sheets as of March 30, 2019 and December 29, 2018 are not directly comparable.
Recently Adopted Accounting Standards
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2016-02, “Leases (Topic 842)” (“Topic 842”), which requires the recognition of right-of-use assets and lease liabilities on the balance sheet. The most prominent of the changes in the standard is the recognition of right-of-use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases.
Cadence adopted the new standard on December 30, 2018, the first day of fiscal 2019, and used the modified retrospective approach with the effective date as the date of initial application. Consequently, prior period balances and disclosures have not been restated. Cadence elected certain practical expedients, which among other things, allowed us to carry forward prior conclusions about lease identification and classification.
Adoption of the standard resulted in the balance sheet recognition of additional lease assets and lease liabilities of approximately $80 million; however, the adoption of the standard did not have an impact on Cadence’s beginning retained earnings, results from operations or cash flows. Additionally, the new standard did not have a material impact on the condensed consolidated financial statements for arrangements in which Cadence is the lessor. For additional information regarding Cadence’s leases, see Note 6 in the notes to condensed consolidated financial statements.

6


Income Tax Effects within Accumulated Other Comprehensive income
In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows a reclassification of the income tax effects of the U.S. Tax Cuts and Jobs Act (the “Tax Act”) on items within accumulated other comprehensive income to retained earnings. This standard became effective for Cadence on December 30, 2018, the first day of fiscal 2019. The adoption of this standard did not have a material impact on Cadence’s condensed consolidated financial statements.
NOTE 2. DEBT
Cadence’s outstanding debt as of March 30, 2019 and December 29, 2018 was as follows:
 
March 30, 2019
 
December 29, 2018
 
(In thousands)
 
Principal
 
Unamortized Discount
 
Carrying Value
 
Principal
 
Unamortized Discount
 
Carrying Value
Revolving Credit Facility
$
50,000

 
$

 
$
50,000

 
$
100,000

 
$

 
$
100,000

2024 Notes
350,000

 
(4,530
)
 
345,470

 
350,000

 
(4,709
)
 
345,291

Total outstanding debt
$
400,000

 
$
(4,530
)
 
$
395,470

 
$
450,000

 
$
(4,709
)
 
$
445,291


Revolving Credit Facility
In January 2017, Cadence entered into a five-year senior unsecured revolving credit facility with a group of lenders led by JPMorgan Chase Bank, N.A., as administrative agent. The credit facility provides for borrowings up to $350.0 million, with the right to request increased capacity up to an additional $250.0 million upon the receipt of lender commitments, for total maximum borrowings of $600.0 million. The credit facility expires on January 28, 2022 and has no subsidiary guarantors. Any outstanding loans drawn under the credit facility are due at maturity on January 28, 2022. Outstanding borrowings may be paid at any time prior to maturity.
Interest accrues on borrowings under the credit facility at either LIBOR plus a margin between 1.25% and 1.875% per annum or at the base rate plus a margin between 0.25% and 0.875% per annum. As of March 30, 2019, the interest rate on Cadence’s credit facility was 3.83%. Interest is payable quarterly. A commitment fee ranging from 0.15% to 0.30% is assessed on the daily average undrawn portion of revolving commitments.
The credit facility contains customary negative covenants that, among other things, restrict Cadence’s ability to incur additional indebtedness, grant liens, make certain investments (including acquisitions), dispose of certain assets and make certain payments, including share repurchases and dividends. In addition, the credit facility contains financial covenants that require Cadence to maintain a funded debt to EBITDA ratio not greater than 3.00 to 1, with a step up to 3.50 to 1 for one year following an acquisition by Cadence of at least $250.0 million that results in a pro forma leverage ratio between 2.75 to 1 and 3.25 to 1. As of March 30, 2019, Cadence was in compliance with all financial covenants associated with the revolving credit facility.
2024 Notes
In October 2014, Cadence issued $350.0 million aggregate principal amount of 4.375% Senior Notes due October 15, 2024 (the “2024 Notes”). Cadence received net proceeds of $342.4 million from the issuance of the 2024 Notes, net of a discount of $1.4 million and issuance costs of $6.2 million. Both the discount and issuance costs are being amortized to interest expense over the term of the 2024 Notes using the effective interest method. Interest is payable in cash semi-annually in April and October. The 2024 Notes are unsecured and rank equal in right of payment to all of Cadence’s existing and future senior indebtedness. The carrying value of the 2024 Notes approximates the estimated fair value as of March 30, 2019.
Cadence may redeem the 2024 Notes, in whole or in part, at a redemption price equal to the greater of (a) 100% of the principal amount of the notes to be redeemed and (b) the sum of the present values of the remaining scheduled payments of principal and interest, plus any accrued and unpaid interest, as more particularly described in the indenture governing the 2024 Notes.
The indenture governing the 2024 Notes includes customary representations, warranties and restrictive covenants, including, but not limited to, restrictions on Cadence’s ability to grant liens on assets, enter into sale and lease-back transactions, or merge, consolidate or sell assets, and also includes customary events of default.

7


NOTE 3. RECEIVABLES, NET
Cadence’s current and long-term receivables balances as of March 30, 2019 and December 29, 2018 were as follows:
 
As of
 
March 30,
2019
 
December 29,
2018
 
(In thousands)
Accounts receivable
$
161,922

 
$
164,223

Unbilled accounts receivable
106,411

 
136,795

Long-term receivables
3,241

 
5,972

Total receivables
271,574

 
306,990

Less allowance for doubtful accounts
(3,566
)
 
(3,936
)
Total receivables, net
$
268,008

 
$
303,054


Cadence’s customers are primarily concentrated within the semiconductor and electronics systems industries. As of March 30, 2019, no customer accounted for 10% or more of Cadence’s total receivables. As of December 29, 2018, one customer accounted for 11% of Cadence’s total receivables.
NOTE 4. REVENUE
Cadence combines its products and technologies into five product groups related to major design activities. The following table shows the percentage of product and related maintenance revenue contributed by each of Cadence’s five product groups and services for the three months ended March 30, 2019 and March 31, 2018:
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Functional Verification, including Emulation and Prototyping Hardware1
24
%
 
26
%
Digital IC Design and Signoff
30
%
 
30
%
Custom IC Design and Simulation
25
%
 
26
%
System Interconnect and Analysis
9
%
 
9
%
IP
12
%
 
9
%
Total
100
%
 
100
%

_____________
1 Includes immaterial amount of revenue accounted for under Topic 842.
Revenue by product group fluctuates from period to period based on demand for products and services, and Cadence’s available resources to deliver them. Certain of Cadence’s licensing arrangements allow customers the ability to remix among software products. Cadence also has arrangements with customers that include a combination of products, with the actual product selection and number of licensed users to be determined at a later date. For these arrangements, Cadence estimates the allocation of the revenue to product groups based upon the expected usage of products.
Significant Judgments
Cadence’s contracts with customers often include promises to transfer to a customer multiple software and/or IP licenses and services, including professional services, technical support services, and rights to unspecified updates. Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. In some arrangements, such as most of Cadence’s IP license arrangements, Cadence has concluded that the licenses and associated services are distinct from each other. In others, like Cadence’s time-based software arrangements, the licenses and certain services are not distinct from each other. Cadence’s time-based software arrangements include multiple software licenses and updates to the licensed software products, as well as technical support, and Cadence has concluded that these promised goods and services are a single, combined performance obligation.

8


Judgment is required to determine the standalone selling price (“SSP”) for each distinct performance obligation. Cadence rarely licenses or sells products on a standalone basis, so Cadence is required to estimate the SSP for each performance obligation. In instances where the SSP is not directly observable because Cadence does not sell the license, product or service separately, Cadence determines the SSP using information that maximizes the use of observable inputs and may include market conditions. Cadence typically has more than one SSP for individual performance obligations due to the stratification of those items by classes of customers and circumstances. In these instances, Cadence may use information such as the size of the customer and geographic region of the customer in determining the SSP.
Revenue is recognized over time for Cadence’s combined performance obligations that include software licenses, updates, technical support and maintenance that are separate performance obligations. For Cadence’s professional services, revenue is recognized over time, generally using costs incurred or hours expended to measure progress. Judgment is required in estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes. For Cadence’s other performance obligations recognized over time, revenue is generally recognized using a time-based measure of progress reflecting generally consistent efforts to satisfy those performance obligations throughout the arrangement term.
If a group of agreements are so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. Cadence exercises significant judgment to evaluate the relevant facts and circumstances in determining whether the separate agreements should be accounted for separately or as, in substance, a single arrangement. Cadence’s judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved.
Cadence is required to estimate the total consideration expected to be received from contracts with customers. In limited circumstances, the consideration expected to be received is variable based on the specific terms of the contract or based on Cadence’s expectations of the term of the contract. Generally, Cadence has not experienced significant returns or refunds to customers. These estimates require significant judgment and the change in these estimates could have an effect on its results of operations during the periods involved.
Contract Balances  
The timing of revenue recognition may differ from the timing of invoicing to customers, and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on Cadence’s condensed consolidated balance sheets. For certain software, hardware and IP agreements with payment plans, Cadence records an unbilled receivable related to revenue recognized upon transfer of control because it has an unconditional right to invoice and receive payment in the future related to those transferred products or services. Cadence records a contract asset when revenue is recognized prior to invoicing and Cadence does not have the unconditional right to invoice or retains performance risk with respect to that performance obligation. Cadence records deferred revenue when revenue is recognized subsequent to invoicing. For Cadence’s time-based software agreements, customers are generally invoiced in equal, quarterly amounts, although some customers prefer to be invoiced in single or annual amounts.
The contract assets indicated below are presented as prepaid expenses and other in the condensed consolidated balance sheet and primarily relate to Cadence’s rights to consideration for work completed but not billed as of March 30, 2019 on services and customized IP contracts. The contract assets are transferred to receivables when the rights become unconditional, usually upon completion of a milestone.
Cadence’s contract balances as of March 30, 2019 and December 29, 2018 were as follows:
 
As of
 
March 30,
2019
 
December 29,
2018
 
(In thousands)
Contract assets
$
12,211

 
$
10,055

Deferred revenue
397,063

 
401,174


During the three months ended March 30, 2019 and March 31, 2018, Cadence recognized revenue of $157.9 million and $142.6 million, respectively, that was included in the deferred revenue balance at the beginning of the period. All other activity in deferred revenue is due to the timing of invoices in relation to the timing of revenue as described above.

9


Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Cadence has elected to exclude the future royalty payments from the remaining performance obligations. Contracted but unsatisfied performance obligations were approximately $2.8 billion as of March 30, 2019, of which Cadence expects to recognize approximately 60% of the revenue over the next 12 months and the remainder thereafter.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, Cadence has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing Cadence’s products and services, and not to facilitate financing arrangements.
During the three months ended March 30, 2019 and March 31, 2018, Cadence recognized revenue of $8.5 million and $6.2 million, respectively, from performance obligations satisfied in previous periods. These amounts represent royalties earned during the period and exclude contracts with nonrefundable prepaid royalties. Nonrefundable prepaid royalties are recognized upon delivery of the IP because Cadence’s right to the consideration is not contingent upon customers’ future shipments.
NOTE 5. GOODWILL AND ACQUIRED INTANGIBLES
Goodwill
The changes in the carrying amount of goodwill during the three months ended March 30, 2019 were as follows:
 
Gross Carrying
Amount
 
(In thousands)
Balance as of December 29, 2018
$
662,272

Effect of foreign currency translation
599

Balance as of March 30, 2019
$
662,871

Acquired Intangibles, Net
Acquired intangibles as of March 30, 2019 were as follows, excluding intangibles that were fully amortized as of December 29, 2018:
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Acquired
Intangibles, Net
 
(In thousands)
Existing technology
$
363,143

 
$
(215,612
)
 
$
147,531

Agreements and relationships
146,448

 
(103,596
)
 
42,852

Tradenames, trademarks and patents
7,600

 
(5,185
)
 
2,415

Total acquired intangibles with definite lives
517,191

 
(324,393
)
 
192,798

In-process technology
19,500

 

 
19,500

Total acquired intangibles
$
536,691

 
$
(324,393
)
 
$
212,298



10


In-process technology as of March 30, 2019 consisted of acquired projects that, if completed, will contribute to Cadence’s design IP offerings. As of March 30, 2019, these projects were expected to be completed in approximately twelve months. During the three months ended March 30, 2019, Cadence completed certain projects previously included in in-process technology and transferred approximately $52.0 million to existing technology.
Acquired intangibles as of December 29, 2018 were as follows, excluding intangibles that were fully amortized as of December 30, 2017:
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Acquired
Intangibles, Net
 
(In thousands)
Existing technology
$
330,500

 
$
(225,383
)
 
$
105,117

Agreements and relationships
146,426

 
(100,211
)
 
46,215

Tradenames, trademarks and patents
10,718

 
(8,093
)
 
2,625

Total acquired intangibles with definite lives
487,644

 
(333,687
)
 
153,957

In-process technology
71,500

 

 
71,500

Total acquired intangibles
$
559,144

 
$
(333,687
)
 
$
225,457


Amortization expense from existing technology and maintenance agreements is included in cost of product and maintenance. Amortization of acquired intangibles for the three months ended March 30, 2019 and March 31, 2018 was as follows:
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
 
(In thousands)
Cost of product and maintenance
$
9,854

 
$
10,277

Amortization of acquired intangibles
3,308

 
3,630

Total amortization of acquired intangibles
$
13,162

 
$
13,907


Estimated amortization expense for acquired intangible assets with definite lives for the following five fiscal years and thereafter is as follows:
 
(In thousands)
2019 – remaining period
$
39,919

2020
49,422

2021
44,758

2022
26,453

2023
13,967

Thereafter
18,279

Total estimated amortization expense
$
192,798


NOTE 6. LEASES
Lessee Considerations
Under Topic 842, operating lease expense is generally recognized evenly over the term of the lease. Cadence has operating leases primarily consisting of facilities with remaining lease terms of one year to twelve years. Cadence has options to terminate many of its leases early. The lease term represents the period up to the early termination date unless it is reasonably certain that Cadence will not exercise the early termination option. For certain leases, Cadence has options to extend the lease term for additional periods ranging from one year to ten years. These renewal options are not considered in the remaining lease term unless it is reasonably certain that Cadence will exercise such options. Certain leases include rental payments that are adjusted periodically based on changes in consumer price and other indices.
Leases with an initial term of twelve months or less are not recorded on the balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842, Cadence combines the lease and non-lease components in determining the lease liabilities and ROU assets.

11


Activity related to Cadence’s leases was as follows:
 
Three Months Ended
 
March 30,
2019
 
(In thousands)
Operating lease expense
$
7,681

Cash paid for amounts included in the measurement of operating lease liabilities
6,296

ROU assets obtained in exchange for operating lease obligations
17,505


Cadence’s lease agreements generally do not provide an implicit borrowing rate, therefore an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. Cadence used the incremental borrowing rate on December 29, 2018 for all leases that commenced prior to that date.
ROU lease assets and lease liabilities for Cadence’s operating leases were recorded in the condensed consolidated balance sheet as follows:
 
As of
 
March 30, 2019
 
(In thousands)
Other assets
$
94,223

 
 
Accounts payable and accrued liabilities
$
23,783

Other long-term liabilities
81,337

Total lease liabilities
$
105,120

 
 
Weighted average remaining lease term (in years)
5.0

Weighted average discount rate
4.6
%

Future lease payments included in the measurement of lease liabilities on the condensed consolidated balance sheet as of March 30, 2019, for the following five fiscal years and thereafter were as follows:
 
Operating
 
 Leases
 
(In thousands)
2019 – remaining period
$
20,543

2020
26,618

2021
24,240

2022
17,627

2023
12,529

Thereafter
17,152

Total future minimum lease payments
118,709

Less imputed interest
(13,589
)
Total
$
105,120


As of March 30, 2019, Cadence had additional operating lease obligations for a lease with a future effective date of $1.0 million. This operating lease will commence during the third quarter of fiscal 2019 with a lease term of five years.
As of December 29, 2018, future minimum lease payments, as defined under the previous lease accounting guidance of ASC Topic 840, under non-cancelable operating leases for the following five fiscal years and thereafter were as follows:

12


 
Operating
 
 Leases
 
(In thousands)
2019
$
26,252

2020
23,130

2021
19,778

2022
14,243

2023
11,510

Thereafter
17,100

Total lease payments
$
112,013


Lessor Considerations
Although most of Cadence’s revenue from its hardware business comes from sales of hardware, Cadence also leases its hardware products to some customers. Cadence determines the existence of a lease when the customer controls the use of the identified hardware for a period of time defined in the lease agreement. 
Cadence’s leases range in duration up to four years with payments generally collected in equal quarterly installments. Cadence’s leases do not include termination rights or variable pricing and typically do not include purchase rights at the end of the lease. Short-term leases are usually less than two years and are classified as operating leases with revenue recognized and depreciation expensed on a straight-line basis over the term of the lease. Long-term leases are typically for three to four years and are classified as sales-type leases with revenue and cost of sales recognized upon delivery.   
Cadence’s operating leases and sales-type leases contain both lease and non-lease components. Because the pattern of revenue recognition is the same for both the lease and non-lease components in Cadence’s operating leases, Cadence has elected the practical expedient to not separate lease and related non-lease components and accounts for both components under Topic 842. Cadence allocates value to the lease and non-lease components in its sales-type leases using standalone selling prices similar to those used under Topic 606, the current accounting standard governing revenue recognition. When Cadence leases its hardware in the same arrangement as software or IP, Cadence allocates value to each performance obligation using standalone selling prices.
NOTE 7. BALANCE SHEET COMPONENTS
A summary of certain balance sheet components as of March 30, 2019 and December 29, 2018 is as follows:
 
As of
 
March 30,
2019
 
December 29,
2018
 
(In thousands)
Other assets:
 
 
 
Deferred income taxes
$
159,735

 
$
154,894

Non-marketable investments1
150,369

 
118,734

ROU lease assets2
94,223

 

Other long-term assets
92,235

 
97,603

Other assets
$
496,562

 
$
371,231

 
 
 
 
Other long-term liabilities:
 
 
 
Operating lease liabilities2
$
81,337

 
$

Other long-term accrued liabilities
70,916

 
77,262

Other long-term liabilities
$
152,253

 
$
77,262

_____________
1 In January 2019, Cadence made an additional minority equity investment in a privately held company and existing equity method investee, for approximately $33.6 million, bringing Cadence’s total ownership to approximately 16%.
2 Cadence adopted Topic 842, the new accounting standard for leasing arrangements on December 30, 2018, the first day of fiscal 2019. For additional information regarding Cadence’s leases, see Note 6 in the notes to condensed consolidated financial statements.

13


NOTE 8. STOCK-BASED COMPENSATION
Stock-based compensation expense is reflected in Cadence’s condensed consolidated income statements for the three months ended March 30, 2019 and March 31, 2018 as follows:
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
 
(In thousands)
Cost of product and maintenance
$
681

 
$
590

Cost of services
866

 
863

Marketing and sales
9,106

 
7,614

Research and development
26,898

 
23,235

General and administrative
4,702

 
5,599

Total stock-based compensation expense
$
42,253

 
$
37,901


Cadence had total unrecognized compensation expense related to stock option and restricted stock grants of $289.9 million as of March 30, 2019, which will be recognized over the remaining vesting period. The remaining weighted-average vesting period of unvested awards is 2.3 years.
NOTE 9. STOCK REPURCHASE PROGRAM
As of the end of the fourth quarter of fiscal 2018, approximately $175 million remained available under Cadence’s previously announced authorization to repurchase shares of its common stock. In February 2019, Cadence’s Board of Directors authorized the repurchase of an additional $500 million. The actual timing and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors. As of March 30, 2019, approximately $594 million remained available to repurchase shares of Cadence common stock under current authorizations.
The shares repurchased under Cadence’s repurchase authorizations and the total cost of repurchased shares, including commissions, during the three months ended March 30, 2019 and March 31, 2018 were as follows:
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
 
(In thousands)
Shares repurchased
1,529

 
1,289

Total cost of repurchased shares
$
81,114

 
$
50,013


NOTE 10. RESTRUCTURING AND OTHER CHARGES
Cadence has initiated restructuring plans in an effort to better align its resources with its business strategy. These restructuring plans have primarily been comprised of severance payments and termination benefits related to headcount reductions, estimated lease losses related to facilities vacated under the restructuring plans and charges related to assets abandoned as part of the restructuring plans. During the three months ended March 30, 2019, Cadence revised certain estimates made in connection with its prior restructuring plans and recorded credits of approximately $0.7 million.

14


The following table presents activity relating to Cadence’s restructuring plans during the three months ended March 30, 2019:
 
Severance
and
Benefits
 
Excess
Facilities
 
Total
 
(In thousands)
Balance, December 29, 2018
$
11,176

 
$
848

 
$
12,024

Restructuring and other charges (credits)
(687
)
 
(2
)
 
(689
)
Cash payments
(7,986
)
 
(262
)
 
(8,248
)
Effect of foreign currency translation
34

 
7

 
41

Balance, March 30, 2019
$
2,537

 
$
591

 
$
3,128


The remaining liability for Cadence’s restructuring plans is recorded in the condensed consolidated balance sheet as follows:
 
As of
 
March 30, 2019
 
(In thousands)
Accounts payable and accrued liabilities
$
2,888

Other long-term liabilities
240

Total restructuring liabilities
$
3,128


All liabilities for severance and related benefits under Cadence’s restructuring plans are included in accounts payable and accrued liabilities on Cadence’s condensed consolidated balance sheet as of March 30, 2019. Restructuring liabilities included in other long-term liabilities represent liabilities from vacated facilities, and Cadence expects to make cash payments to settle these liabilities through fiscal 2022.
NOTE 11. NET INCOME PER SHARE
Basic net income per share is computed by dividing net income during the period by the weighted-average number of shares of common stock outstanding during that period, less unvested restricted stock awards. Diluted net income per share is impacted by equity instruments considered to be potential common shares, if dilutive, computed using the treasury stock method of accounting.
The calculations for basic and diluted net income per share for the three months ended March 30, 2019 and March 31, 2018 are as follows:
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
 
(In thousands, except per share amounts)
Net income
$
120,555

 
$
72,885

Weighted average common shares used to calculate basic net income per share
273,066

 
273,773

Stock-based awards
7,549

 
7,878

Weighted average common shares used to calculate diluted net income per share
280,615

 
281,651

Net income per share - basic
$
0.44

 
$
0.27

Net income per share - diluted
$
0.43

 
$
0.26



15


The following table presents shares of Cadence’s common stock outstanding for the three months ended March 30, 2019 and March 31, 2018 that were excluded from the computation of diluted net income per share because the effect of including these shares in the computation of diluted net income per share would have been anti-dilutive:
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
 
(In thousands)
Long-term performance-based stock awards
228

 
150

Options to purchase shares of common stock
242

 
416

Non-vested shares of restricted stock
122

 
279

Total potential common shares excluded
592

 
845


NOTE 12. FAIR VALUE
Inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Cadence’s market assumptions. These two types of inputs have created the following fair value hierarchy:
Level 1 – Quoted prices for identical instruments in active markets;
Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The valuation techniques used to determine the fair value of Cadence’s 2024 Notes are classified within Level 2 of the fair value hierarchy. For additional information relating to Cadence’s debt arrangements, see Note 2 in the notes to condensed consolidated financial statements.
This hierarchy requires Cadence to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. Cadence recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the three months ended March 30, 2019.

16


On a quarterly basis, Cadence measures at fair value certain financial assets and liabilities. The fair value of financial assets and liabilities was determined using the following levels of inputs as of March 30, 2019 and December 29, 2018:
 
Fair Value Measurements as of March 30, 2019
  
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
331,994

 
$
331,994

 
$

 
$

Marketable equity securities
3,969

 
3,969

 

 

Securities held in Non-Qualified Deferred Compensation (“NQDC”) trust
28,402

 
28,402

 

 

Total Assets
$
364,365

 
$
364,365

 
$

 
$

 
 
 
 
 
 
 
 
  
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Liabilities
 
Foreign currency exchange contracts
$
458

 
$

 
$
458

 
$

Total Liabilities
$
458

 
$

 
$
458

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 29, 2018
  
Total
 
Level 1
 
Level 2
 
Level 3
 
(In thousands)
Assets
 
Cash equivalents:


 
 
 
 
 
 
Money market funds
$
327,841

 
$
327,841

 
$

 
$

Marketable equity securities
3,887

 
3,887

 

 

Securities held in NQDC trust
27,767

 
27,767

 

 

Foreign currency exchange contracts
101

 

 
101

 

Total Assets
$
359,596

 
$
359,495

 
$
101

 
$

 
 
 
 
 
 
 
 
As of December 29, 2018, Cadence did not have any financial liabilities requiring a recurring fair value measurement.

NOTE 13. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, Cadence is involved in various disputes and litigation that arise in the ordinary course of business. These include disputes and lawsuits related to intellectual property, indemnification obligations, mergers and acquisitions, licensing, contracts, distribution arrangements and employee relations matters. At least quarterly, Cadence reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount or the range of loss can be estimated, Cadence accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on Cadence’s judgments using the best information available at the time. As additional information becomes available, Cadence reassesses the potential liability related to pending claims and litigation matters and may revise estimates.
Other Contingencies
Cadence provides its customers with a warranty on sales of its hardware products, generally for a 90-day period. Cadence did not incur any significant costs related to warranty obligations during the three months ended March 30, 2019 and March 31, 2018.

17


Cadence’s product license and services agreements typically include a limited indemnification provision for claims from third parties relating to Cadence’s intellectual property. If the potential loss from any indemnification claim is considered probable and the amount or the range of loss can be estimated, Cadence accrues a liability for the estimated loss. The indemnification is generally limited to the amount paid by the customer. Cadence did not incur any significant losses from indemnification claims during the three months ended March 30, 2019 and March 31, 2018.
NOTE 14. ACCUMULATED OTHER COMPREHENSIVE LOSS
Cadence’s accumulated other comprehensive loss is comprised of the aggregate impact of foreign currency translation gains and losses and changes in defined benefit plan liabilities and is presented in Cadence’s condensed consolidated statements of comprehensive income.
Accumulated other comprehensive loss was comprised of the following as of March 30, 2019 and December 29, 2018:
 
As of
 
March 30,
2019
 
December 29,
2018
 
(In thousands)
Foreign currency translation loss
$
(19,638
)
 
$
(20,861
)
Changes in defined benefit plan liabilities
(6,437
)
 
(3,919
)
Total accumulated other comprehensive loss
$
(26,075
)
 
$
(24,780
)

For the three months ended March 30, 2019 and March 31, 2018 there were no significant amounts reclassified from accumulated other comprehensive loss to net income.
NOTE 15. SEGMENT REPORTING
Segment reporting is based on the “management approach,” following the method that management organizes the company’s reportable segments for which separate financial information is made available to, and evaluated regularly by, the chief operating decision maker in allocating resources and in assessing performance. Cadence’s chief operating decision maker is its CEO, who reviews Cadence’s consolidated results as one operating segment. In making operating decisions, the CEO primarily considers consolidated financial information, accompanied by disaggregated information about revenues by geographic region.
Outside the United States, Cadence markets and supports its products and services primarily through its subsidiaries. Revenue is attributed to geography based upon the country in which the product is used or services are delivered. Long-lived assets are attributed to geography based on the country where the assets are located.
The following table presents a summary of revenue by geography for the three months ended March 30, 2019 and March 31, 2018:
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
 
(In thousands)
Americas:
 
 
 
United States
$
243,248

 
$
224,803

Other Americas
8,406

 
7,666

Total Americas
251,654

 
232,469

Asia:
 
 
 
China
58,976

 
45,294

Other Asia
111,348

 
94,653

Total Asia
170,324

 
139,947

Europe, Middle East and Africa
103,462

 
104,708

Japan
51,302

 
40,189

Total
$
576,742

 
$
517,313



18


The following table presents a summary of long-lived assets by geography as of March 30, 2019 and December 29, 2018: 
 
As of
 
March 30,
2019
 
December 29,
2018
 
(In thousands)
Americas:
 
 
 
United States
$
198,168

 
$
200,025

Other Americas
506

 
475

Total Americas
198,674

 
200,500

Asia:
 
 
 
China
15,064

 
9,608

Other Asia
28,180

 
30,021

Total Asia
43,244

 
39,629

Europe, Middle East and Africa
10,830

 
11,784

Japan
644

 
717

Total
$
253,392

 
$
252,630




19


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) and in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 29, 2018. This Quarterly Report contains statements that are not historical in nature, are predictive, or that depend upon or refer to future events or conditions or contain other forward-looking statements. Statements including, but not limited to, statements regarding the extent and timing of future revenues and expenses and customer demand, statements regarding the deployment of our products and services, statements regarding our reliance on third parties and other statements using words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and “would,” and words of similar import and the negatives thereof, constitute forward-looking statements. These statements are predictions based upon our current expectations about future events. Actual results could vary materially as a result of certain factors, including, but not limited to, those expressed in these statements. We refer you to the “Risk Factors,” “Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and “Liquidity and Capital Resources” sections contained in this Quarterly Report, and the risks discussed in our other Securities and Exchange Commission (“SEC”) filings, which identify important risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.
We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report. All subsequent written or oral forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. We do not intend, and undertake no obligation, to update these forward-looking statements.
Business Overview
We enable our customers to design electronic products. Our products and services are designed to give our customers a competitive edge in their development of electronic systems, integrated circuits (“ICs”), electronic devices and increasingly sophisticated manufactured products. Our products and services do this by optimizing performance, minimizing power consumption, shortening the time to bring our customers’ products to market and reducing their design, development and manufacturing costs. We offer software, hardware, services and reusable IC design blocks, which are commonly referred to as intellectual property (“IP”).
Our strategy, which we call System Design Enablement (“SDE”), is to provide the technologies necessary for our customers to develop a complete and functional electronic product. Our SDE strategy enables us to address the growing trends of electronic systems companies developing their own ICs as part of their end product systems, as well as semiconductor companies delivering greater portions of the systems into which their IC products are integrated. Our products and services enable our customers to design complex and innovative electronic products, so demand for our products is driven by our customers’ investment in new designs and products. Historically, the industry that provided the tools used by IC engineers was referred to as Electronic Design Automation (“EDA”). Today, our offerings include and extend beyond EDA tools to include SDE.
We combine our products and technologies into categories related to major design activities:
Functional Verification, including Emulation and Prototyping Hardware;
Digital IC Design and Signoff;
Custom IC Design and Simulation;
System Interconnect and Analysis; and
IP.
For additional information about our products, see the discussion in Item 1, “Business,” under the heading “Products and Product Strategy,” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
We have identified certain items that management uses as performance indicators to manage our business, including revenue, certain elements of operating expenses and cash flow from operations, and we describe these items further below under the headings “Results of Operations” and “Liquidity and Capital Resources.”

20


Critical Accounting Estimates
In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our condensed consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary. For further information about our critical accounting estimates, see the discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
New Accounting Standards Not Yet Adopted
Credit Losses
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Measurement of Credit Losses on Financial Instruments,” which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The new standard requires the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. The new standard will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. The new standard will be effective for us in the first quarter of fiscal 2020, and early adoption is permitted. We are currently reviewing this standard to assess the impact on our condensed consolidated financial statements and the related disclosures.
Goodwill Impairment
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” that eliminates “Step 2” from the goodwill impairment test. The new standard is effective for us in the first quarter of fiscal 2020, and early adoption is permitted. The new guidance must be applied on a prospective basis. We do not anticipate that the adoption of this standard will have a significant impact on our consolidated financial statements or the related disclosures.
Fair Value Measurements
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement,” which modifies the disclosure requirements on fair value measurements. The new standard is effective for us in the first quarter of fiscal 2020, and early adoption is permitted. We do not expect the adoption of this standard to have a material impact on our condensed consolidated financial statements.
Internal-use Software
In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which clarifies the accounting for implementation costs in cloud computing arrangements. The new standard is effective for us in the first quarter of fiscal 2020, and early adoption is permitted. We are currently reviewing this standard to assess the impact on our condensed consolidated financial statements.


21


Results of Operations
Financial results for the three months ended March 30, 2019, as compared to the three months ended March 31, 2018, reflect the following:
increased product and maintenance revenue resulting from overall growth in each of our five product categories, particularly in Asia and the United States;
increased emulation and prototyping hardware costs resulting from increased sales of these products;
increased selling costs, including additional investment in technical sales support in response to our customers’ increasing technological requirements; and
continued investment in research and development activities focused on creating and enhancing our products.
Revenue
We primarily generate revenue from licensing our software and IP, selling or leasing our emulation and prototyping hardware technology, providing maintenance for our software, hardware and IP, providing engineering services and earning royalties generated from the use of our IP. The timing of our revenue is significantly affected by the mix of software, hardware and IP products generating revenue in any given period and whether the revenue is recognized over time or at a point in time, upon completion of delivery.
We expect that between 85% and 90% of our revenue will be recognized over time during fiscal 2019, with the remainder of the resulting revenue recognized at the point in time that control is transferred to the customer. Revenue recognized over time includes revenue from our software arrangements, services, royalties from certain IP arrangements, maintenance on IP licenses and hardware, and operating leases of hardware. Revenue recognized at a point in time is primarily generated by our sales of emulation and prototyping hardware and IP licenses. Our ability to maintain this mix in any single fiscal period may be impacted primarily by delivery of hardware and IP products to our customers.
Revenue by Period
The following table shows our revenue for the three months ended March 30, 2019 and March 31, 2018