Cadence Reports Third Quarter 2020 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 business outlook, publicly available on its website.

Prior to the start of the Quiet Period (described below), the public may continue to rely on the business outlook contained herein as still being Cadence’s current expectations on matters covered unless Cadence publishes a notice stating otherwise.

Beginning December 18, 2020, Cadence will observe a Quiet Period during which the business outlook as provided in this press release and the most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q no longer constitute Cadence’s current expectations. During the Quiet Period, the business outlook in these documents should be considered historical, speaking as of prior to the Quiet Period only and not subject to any update by Cadence. During the Quiet Period, Cadence’s representatives will not comment on Cadence’s business outlook, financial results or expectations. The Quiet Period will extend until Cadence’s fourth quarter 2020 earnings release is published, which is currently scheduled for February 22, 2021.

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
September 26, 2020 and December 28, 2019
(In thousands)
(Unaudited)

	September 26, 2020		December 28, 2019

Current assets:
Cash and cash equivalents	$	1,306,564	$	705,210
Receivables, net		300,413		304,546
Inventories		47,979		55,802
Prepaid expenses and other		81,526		103,785
Total current assets		1,736,482		1,169,343

Property, plant and equipment, net		288,163		275,855
Goodwill		780,842		661,856
Acquired intangibles, net		227,753		172,375
Deferred taxes		722,656		732,367
Other assets		384,256		345,429
Total assets	$	4,140,152	$	3,357,225

Current liabilities:
Revolving credit facility	$	350,000	$	-
Accounts payable and accrued liabilities		290,886		316,908
Current portion of deferred revenue		477,003		355,483
Total current liabilities		1,117,889		672,391

Long-term liabilities:
Long-term portion of deferred revenue		84,646		73,400
Long-term debt		346,584		346,019
Other long-term liabilities		195,315		162,521
Total long-term liabilities		626,545		581,940

Stockholders' equity		2,395,718		2,102,894
Total liabilities and stockholders' equity	$	4,140,152	$	3,357,225

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Nine Months Ended September 26, 2020 and September 28, 2019
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 26, 2020			September 28, 2019			September 26, 2020			September 28, 2019

Revenue:
Product and maintenance	$	630,329		$	548,105		$	1,813,384		$	1,639,651
Services		36,278			31,498			109,598			97,113

Total revenue		666,607			579,603			1,922,982			1,736,764

Costs and expenses:
Cost of product and maintenance		64,800			41,715			175,915			135,625
Cost of services		17,484			19,260			56,047			57,404
Marketing and sales		123,738			121,368			369,958			354,406
Research and development		250,934			240,542			743,423			700,566
General and administrative		35,928			33,204			105,161			97,713
Amortization of acquired intangibles		4,438			2,874			13,234			9,341
Restructuring and other charges (credits)		13			(186	)		(1,329	)		(1,188	)

Total costs and expenses		497,335			458,777			1,462,409			1,353,867

Income from operations		169,272			120,826			460,573			382,897

Interest expense		(5,325	)		(4,240	)		(15,876	)		(14,607	)
Other income, net		1,766			122			1,862			5,253

Income before provision for income taxes		165,713			116,708			446,559			373,543

Provision for income taxes		4,083			15,194			29,653			44,239

Net income	$	161,630		$	101,514		$	416,906		$	329,304


Net income per share - basic	$	0.59		$	0.37		$	1.52		$	1.21

Net income per share - diluted	$	0.58		$	0.36		$	1.49		$	1.17

Weighted average common shares outstanding - basic		273,996			273,329			273,633			273,224

Weighted average common shares outstanding - diluted		280,024			280,666			279,455			280,817

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 26, 2020 and September 28, 2019
(In thousands)
(Unaudited)

	Nine Months Ended
	September 26,			September 28,
	2020			2019

Cash and cash equivalents at beginning of period	$	705,210		$	533,298
Cash flows from operating activities:
Net income		416,906			329,304
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		107,019			91,400
Amortization of debt discount and fees		770			747
Stock-based compensation		138,723			134,789
Loss on investments, net		5,118			2,655
Deferred income taxes		(18,966	)		(10,938	)
Provisions for losses (recoveries) on receivables		1,087			(358	)
ROU asset amortization and change in operating lease liabilities		2,064			4,285
Other non-cash items		410			197
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables		9,945			26,553
Inventories		6,376			(43,781	)
Prepaid expenses and other		22,769			38,703
Other assets		(21,287	)		3,554
Accounts payable and accrued liabilities		(30,455	)		(4,001	)
Deferred revenue		124,491			(6,968	)
Other long-term liabilities		4,430			4,163
Net cash provided by operating activities		769,400			570,304

Cash flows from investing activities:
Purchases of non-marketable investments		-			(33,717	)
Proceeds from the sale of non-marketable investments		-			2,952
Purchases of property, plant and equipment		(63,745	)		(47,527	)
Cash paid in business combinations, net of cash acquired		(197,562	)		(338	)
Net cash used for investing activities		(261,307	)		(78,630	)

Cash flows from financing activities:
Proceeds from revolving credit facility		350,000			150,000
Payment on revolving credit facility		-			(250,000	)
Proceeds from issuance of common stock		71,451			49,127
Stock received for payment of employee taxes on vesting of restricted stock		(85,515	)		(75,016	)
Payments for repurchases of common stock		(250,047	)		(231,131	)
Net cash provided by (used for) financing activities		85,889			(357,020	)

Effect of exchange rate changes on cash and cash equivalents		7,372			(12,736	)

Increase in cash and cash equivalents		601,354			121,918

Cash and cash equivalents at end of period	$	1,306,564		$	655,216

Cadence Design Systems, Inc.
(Unaudited)

Revenue Mix by Geography (% of Total Revenue)
	2019					2020
GEOGRAPHY	Q1	Q2	Q3	Q4	Year	Q1	Q2	Q3

Americas	44%	42%	44%	46%	44%	43%	44%	42%
China	10%	12%	10%	9%	10%	13%	12%	17%
Other Asia	19%	19%	21%	20%	20%	18%	19%	19%
Europe, Middle East and Africa	18%	20%	18%	18%	18%	19%	18%	16%
Japan	9%	7%	7%	7%	8%	7%	7%	6%
Total	100%	100%	100%	100%	100%	100%	100%	100%




Revenue Mix by Product Category (% of Total Revenue)
	2019					2020
PRODUCT CATEGORY	Q1	Q2	Q3	Q4	Year	Q1	Q2	Q3

Custom IC Design and Simulation	25%	26%	26%	25%	25%	25%	24%	24%
Digital IC Design and Signoff	30%	31%	30%	29%	30%	29%	28%	27%
Functional Verification, including Emulation and Prototyping Hardware	24%	22%	20%	24%	23%	23%	24%	23%
IP	12%	11%	15%	13%	13%	14%	14%	15%
System Design and Analysis	9%	10%	9%	9%	9%	9%	10%	11%
Total	100%	100%	100%	100%	100%	100%	100%	100%

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of October 19, 2020
(Unaudited)

	Three Months Ending	Year Ending
	January 2, 2021	January 2, 2021
	Forecast	Forecast

GAAP operating margin as a percent of total revenue	23% - 24%	23% - 24%

Reconciling items to non-GAAP operating margin as a percent of total revenue:
Amortization of acquired intangibles	2%	3%
Stock-based compensation expense	8%	7%
Acquisition and integration-related costs	1%	1%

Non-GAAP operating margin as a percent of total revenue�nbsp;	34% - 35%	34% - 35%

�nbsp;

The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share
As of October 19, 2020
(Unaudited)

	Three Months Ending	Year Ending
	January 2, 2021	January 2, 2021
	Forecast	Forecast

Diluted net income per share on a GAAP basis	$0.48 to $0.52	$1.97 to $2.01

Amortization of acquired intangibles	0.06	0.23
Stock-based compensation expense	0.21	0.70
Non-qualified deferred compensation expenses	-	-
Restructuring and other charges (credits)	-	-
Acquisition and integration-related costs	0.02	0.08
Other income or expense related to investments and non-qualified deferred compensation plan assets*	-	0.02
Income tax effect of non-GAAP adjustments	(0.05)	(0.32)

Diluted net income per share on a non-GAAP basis�nbsp;	$0.72 to $0.76	$2.68 to $2.72


Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of October 19, 2020
(Unaudited)

	Three Months Ending	Year Ending
	January 2, 2021	January 2, 2021
($ in millions)	Forecast	Forecast

Net income on a GAAP basis	$134 to $146	$551 to $563

Amortization of acquired intangibles	17	64
Stock-based compensation expense	58	196
Non-qualified deferred compensation expenses	-	1
Restructuring and other charges (credits)	-	(1)
Acquisition and integration-related costs	5	21
Other income or expense related to investments and non-qualified deferred compensation plan assets*	1	5
Income tax effect of non-GAAP adjustments	(14)	(88)

Net income on a non-GAAP basis�nbsp;	$201 to $213	$749 to $761

�nbsp;	The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.

*	Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense.

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