SAN FRANCISOEDA vendor Cadence Design Systems Inc. said Wednesday (Oct. 22) it would postpone the release of its eagerly anticipated third quarter financial results, pending review of the recognition of revenue related to customer contracts signed during the first quarter.
The postponement was announced after U.S. stock markets closed, just as investors and observers awaited the release of the beleaguered company's third quarter financials.
Cadence (San Jose, Calif.) said it initiated the review after it appeared that about $24 million of revenue that the company recognized in the first quarter of this year should have been recognized over the duration of the contracts, which commenced during the second quarter.
The company said it expects to restate its financial statements for the first quarter of 2008 and the first half of 2008 to correct the revenue recognition with respect to these contracts.
Rich Valera, an analyst with Needham & Co., said the postponement was disappointing, but he quickly added that he believes the long-term impact of any accounting irregularities would likely be minor. "It's obviously disappointing because it's another misstep in what has been a long line of missteps," he said.
Cadence offered no new date for the release of the third quarter 2008 financial results and corresponding Webcast, saying it would happen "as soon as practicable."
Cadence's third quarter financial results were eagerly anticipated following the resignation last week of CEO Michael Fister and four other top executives.
Analysts expected Cadence to provide details of the company's restructuring. Rumors have been circulating that Cadence might cut as much as 25 percent of its workforce.
Cadence has in recent times employed very aggressive business and accounting strategies, pulling forward a lot of revenue and bookings, recognizing them earlier than other companies would have, Valera said. However, he added that software accounting rules do not preclude a company from doing this and that he believed the vast majority of Cadence had done was perfectly legal and legitimate, though ill-advised because "it leaves them with a huge hole in revenue and bookings."
The accounting methods were "just aggressive business tactics that were unsustainable," Valera said.
The timing of the postponement, about 45 minutes after the financial release was to be issued, was "amateurish," Valera said. He noted that delaying the report denies Cadence the opportunity to address the worst case scenarios percolating in people's minds.
"They would have been well served to have this call no matter what, just to have it all out in the open," Valera said.
Valera said he was also disappointed that Cadence's statement did not address the possibility that such accounting regularities may impact the company's 2007 numbers, which may create suspicion that the numbers for that entire year were improperly inflated.
Cadence reaffirmed guidance for the third quarter, saying it continues to expect revenue of $235 million to $245 million and a GAAP net loss per share of 25 to 27 cents.
Shares of Cadence closed at $4.32 following Nasdaq trading Wednesday, down about 4.9 percent from Tuesday. The stock traded lower in after-market trading Wednesday, at one point dropping as low as $4.10 following the postponement.