Cadence Reports Fourth Quarter and Fiscal Year 2020 Financial Results

GAAP to Non-GAAP Reconciliation

Non-GAAP financial measures should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with generally accepted accounting principles, or GAAP. Investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with their most directly comparable GAAP financial results. Investors are also encouraged to look at the GAAP results as the best measure of financial performance.

To supplement Cadence’s financial results presented on a GAAP basis, Cadence management uses non-GAAP measures that it believes are helpful in understanding Cadence’s performance. One such measure is non-GAAP net income, which is a financial measure not calculated under GAAP. Non-GAAP net income is calculated by Cadence management by taking GAAP net income and excluding, as applicable, amortization of intangible assets, stock-based compensation expense, acquisition and integration-related costs including retention expenses, investment gains or losses, income or expenses related to Cadence’s non-qualified deferred compensation plan, restructuring, executive severance and other significant items not directly related to Cadence’s core business operations, and the income tax effect of non-GAAP pre-tax adjustments.

Cadence management uses non-GAAP net income because it excludes items that are generally not directly related to the performance of Cadence’s core business operations and therefore provides supplemental information to Cadence management and investors regarding the performance of the business operations, facilitates comparisons to the historical operating results and allows the review of Cadence's business from the same perspective as Cadence management, including forecasting and budgeting.

The following tables reconcile the specific items excluded from GAAP operating margin, GAAP net income and GAAP net income per diluted share in the calculation of non-GAAP operating margin, non-GAAP net income and non-GAAP net income per diluted share for the periods shown below:

Operating Margin Reconciliation

 

Three Months Ended

 

 

January 2, 2021

 

December 28, 2019

 

 

(unaudited)

GAAP operating margin as a percent of total revenue

 

24%

 

18%

Reconciling items to non-GAAP operating margin as a percent of total revenue:

 

 

 

 

Stock-based compensation expense

 

8%

 

8%

Amortization of acquired intangibles

 

2%

 

2%

Acquisition and integration-related costs

 

1%

 

1%

Restructuring and other charges

 

1%

 

2%

Non-qualified deferred compensation expenses

 

1%

 

0%

Special charges

 

0%

 

0%

Non-GAAP operating margin as a percent of total revenue

 

37%

 

31%

Operating Margin Reconciliation

 

Years Ended

 

 

January 2, 2021

 

December 28, 2019

 

 

(unaudited)

GAAP operating margin as a percent of total revenue

 

24%

 

21%

Reconciling items to non-GAAP operating margin as a percent of total revenue:

 

 

 

 

Stock-based compensation expense

 

7%

 

8%

Amortization of acquired intangibles

 

3%

 

2%

Acquisition and integration-related costs

 

1%

 

0%

Restructuring and other charges

 

0%

 

1%

Non-qualified deferred compensation expenses

 

0%

 

0%

Special charges

 

0%

 

0%

Non-GAAP operating margin as a percent of total revenue

 

35%

 

32%

Net Income Reconciliation

 

Three Months Ended

 

 

January 2, 2021

 

December 28, 2019

(in thousands)

 

(unaudited)

Net income on a GAAP basis

 

$

173,738

 

 

$

659,675

 

Stock-based compensation expense

 

58,545

 

 

46,758

 

Amortization of acquired intangibles

 

17,168

 

 

12,660

 

Acquisition and integration-related costs

 

6,556

 

 

3,466

 

Restructuring and other charges

 

10,544

 

 

9,809

 

Non-qualified deferred compensation expenses

 

4,280

 

 

1,948

 

Special charges

 

 

 

875

 

Other income or expense related to investments and non-qualified deferred compensation plan assets*

 

(4,860

)

 

(513

)

Income tax benefit related to intercompany transfers of certain intellectual property rights

 

 

 

(575,618

)

Income tax effect of non-GAAP adjustments

 

(32,097

)

 

(7,500

)

Net income on a non-GAAP basis

 

$

233,874

 

 

$

151,560

 

*

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.

Net Income Reconciliation

 

Years Ended

 

 

January 2, 2021

 

December 28, 2019

(in thousands)

 

(unaudited)

Net income on a GAAP basis

 

$

590,644

 

 

$

988,979

 

Stock-based compensation expense

 

197,268

 

 

181,547

 

Amortization of acquired intangibles

 

64,193

 

 

53,079

 

Acquisition and integration-related costs

 

22,580

 

 

8,107

 

Restructuring and other charges

 

9,215

 

 

8,621

 

Non-qualified deferred compensation expenses

 

4,881

 

 

5,402

 

Special charges

 

394

 

 

875

 

Other income or expense related to investments and non-qualified deferred compensation plan assets*

 

(522

)

 

(1,314

)

Income tax benefit related to intercompany transfers of certain intellectual property rights

 

 

 

(575,618

)

Income tax effect of non-GAAP adjustments

 

(106,817

)

 

(52,037

)

Net income on a non-GAAP basis

 

$

781,836

 

 

$

617,641

 

*

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.

Diluted Net Income Per Share Reconciliation

 

Three Months Ended

 

 

January 2, 2021

 

December 28, 2019

(in thousands, except per share data)

 

(unaudited)

Diluted net income per share on a GAAP basis

 

$

0.62

 

 

$

2.36

 

Stock-based compensation expense

 

0.21

 

 

0.17

 

Amortization of acquired intangibles

 

0.06

 

 

0.05

 

Acquisition and integration-related costs

 

0.02

 

 

0.01

 

Restructuring and other charges

 

0.04

 

 

0.03

 

Non-qualified deferred compensation expenses

 

0.01

 

 

0.01

 

Special charges

 

 

 

 

Other income or expense related to investments and non-qualified deferred compensation plan assets*

 

(0.02

)

 

 

Income tax benefit related to intercompany transfers of certain intellectual property rights

 

 

 

(2.06

)

Income tax effect of non-GAAP adjustments

 

(0.11

)

 

(0.03

)

Diluted net income per share on a non-GAAP basis

 

$

0.83

 

 

$

0.54

 

Shares used in calculation of diluted net income per share

 

280,173

 

 

279,557

 

*

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.

Diluted Net Income Per Share Reconciliation

 

Years Ended

 

 

January 2, 2021

 

December 28, 2019

(in thousands, except per share data)

 

(unaudited)

Diluted net income per share on a GAAP basis

 

$

2.11

 

 

$

3.53

 

Stock-based compensation expense

 

0.71

 

 

0.65

 

Amortization of acquired intangibles

 

0.23

 

 

0.19

 

Acquisition and integration-related costs

 

0.08

 

 

0.03

 

Restructuring and other charges

 

0.03

 

 

0.03

 

Non-qualified deferred compensation expenses

 

0.02

 

 

0.02

 

Special charges

 

 

 

 

Other income or expense related to investments and non-qualified deferred compensation plan assets*

 

 

 

(0.01

)

Income tax benefit related to intercompany transfers of certain intellectual property rights

 

 

 

(2.05

)

Income tax effect of non-GAAP adjustments

 

(0.38

)

 

(0.19

)

Diluted net income per share on a non-GAAP basis

 

$

2.80

 

 

$

2.20

 

Shares used in calculation of diluted net income per share

 

279,641

 

 

280,515

 

*

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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