Cadence Reports Third Quarter 2022 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 16, 2022, 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 2022 earnings release is published, which is currently scheduled for February 13, 2023.

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
October 1, 2022 and January 1, 2022
(In thousands)
(Unaudited)
   
October 1, 2022   January 1, 2022
   
Current assets:  
Cash and cash equivalents

$

1,026,051

 

$

1,088,940

Receivables, net

 

391,181

 

 

337,596

Inventories

 

114,283

 

 

115,721

Prepaid expenses and other

 

138,968

 

 

173,512

Total current assets

 

1,670,483

 

 

1,715,769

   
Property, plant and equipment, net

 

348,238

 

 

305,911

Goodwill

 

1,348,494

 

 

928,358

Acquired intangibles, net

 

353,912

 

 

233,265

Deferred taxes

 

783,315

 

 

763,770

Other assets

 

463,645

 

 

439,226

Total assets

$

4,968,087

 

$

4,386,299

   
Current liabilities:  
Revolving credit facility

$

150,000

 

$

-

Accounts payable and accrued liabilities

 

454,688

 

 

417,283

Current portion of deferred revenue

 

652,306

 

 

553,942

Total current liabilities

 

1,256,994

 

 

971,225

   
Long-term liabilities:  
Long-term portion of deferred revenue

 

102,167

 

 

101,148

Long-term debt

 

647,799

 

 

347,588

Other long-term liabilities

 

252,999

 

 

225,663

Total long-term liabilities

 

1,002,965

 

 

674,399

   
Stockholders' equity

 

2,708,128

 

 

2,740,675

Total liabilities and stockholders' equity

$

4,968,087

 

$

4,386,299

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Nine Months Ended October 1, 2022 and October 2, 2021
(In thousands, except per share amounts)
(Unaudited)
         
         
 

Three Months Ended

 

 

Nine Months Ended

 

October 1,
2022

 

 

October 2,
2021

 

 

October 1,
2022

 

 

October 2,
2021

         
Revenue:        
Product and maintenance  

$

845,788

 

 

$

706,160

 

 

$

2,494,317

 

 

$

2,093,098

 

Services  

 

56,766

 

 

 

44,735

 

 

 

167,524

 

 

 

122,110

 

         
Total revenue  

 

902,554

 

 

 

750,895

 

 

 

2,661,841

 

 

 

2,215,208

 

         
Costs and expenses:        
Cost of product and maintenance  

 

62,351

 

 

 

54,185

 

 

 

203,863

 

 

 

174,933

 

Cost of services  

 

25,249

 

 

 

22,402

 

 

 

74,245

 

 

 

62,380

 

Marketing and sales  

 

152,925

 

 

 

143,401

 

 

 

432,407

 

 

 

412,194

 

Research and development  

 

323,629

 

 

 

289,105

 

 

 

901,121

 

 

 

845,324

 

General and administrative  

 

73,688

 

 

 

42,990

 

 

 

174,051

 

 

 

123,275

 

Amortization of acquired intangibles  

 

3,946

 

 

 

5,000

 

 

 

13,543

 

 

 

14,661

 

Restructuring  

 

14

 

 

 

(222

)

 

 

42

 

 

 

(968

)

         
Total costs and expenses  

 

641,802

 

 

 

556,861

 

 

 

1,799,272

 

 

 

1,631,799

 

         
Income from operations  

 

260,752

 

 

 

194,034

 

 

 

862,569

 

 

 

583,409

 

         
Interest expense  

 

(5,463

)

 

 

(4,196

)

 

 

(13,852

)

 

 

(12,729

)

Other income (expense), net  

 

(3,017

)

 

 

(1,143

)

 

 

(13,879

)

 

 

3,701

 

         
Income before provision for income taxes  

 

252,272

 

 

 

188,695

 

 

 

834,838

 

 

 

574,381

 

         
Provision for income taxes  

 

65,967

 

 

 

12,388

 

 

 

226,278

 

 

 

55,005

 

         
Net income  

$

186,305

 

 

$

176,307

 

 

$

608,560

 

 

$

519,376

 

         
         
Net income per share - basic  

$

0.69

 

 

$

0.65

 

 

$

2.24

 

 

$

1.90

 

         
Net income per share - diluted  

$

0.68

 

 

$

0.63

 

 

$

2.21

 

 

$

1.86

 

         
Weighted average common shares outstanding - basic  

 

271,131

 

 

 

273,194

 

 

 

271,694

 

 

 

273,636

 

         
Weighted average common shares outstanding - diluted  

 

274,957

 

 

 

278,311

 

 

 

275,683

 

 

 

279,046

 

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended October 1, 2022 and October 2, 2021
(In thousands)
(Unaudited)
     
 

Nine Months Ended

 

October 1,

 

 

October 2,

 

 

2022

 

 

 

 

2021

 

     
Cash and cash equivalents at beginning of period  

$

1,088,940

 

 

$

928,432

 

Cash flows from operating activities:    
Net income  

 

608,560

 

 

 

519,376

 

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

 

98,178

 

 

 

106,962

 

Amortization of debt discount and fees  

 

810

 

 

 

952

 

Stock-based compensation  

 

197,190

 

 

 

155,860

 

(Gain) loss on investments, net  

 

4,777

 

 

 

(330

)

Deferred income taxes  

 

(49,834

)

 

 

(34,566

)

Provisions for losses on receivables  

 

471

 

 

 

234

 

ROU asset amortization and change in operating lease liabilities  

 

(883

)

 

 

(2,917

)

Other non-cash items  

 

158

 

 

 

146

 

Changes in operating assets and liabilities, net of effect of acquired businesses:    
Receivables  

 

(57,309

)

 

 

15,132

 

Inventories  

 

(8,020

)

 

 

(25,608

)

Prepaid expenses and other  

 

30,596

 

 

 

36,632

 

Other assets  

 

17,644

 

 

 

8,127

 

Accounts payable and accrued liabilities  

 

24,514

 

 

 

10,501

 

Deferred revenue  

 

113,712

 

 

 

84,183

 

Other long-term liabilities  

 

(2,305

)

 

 

10,417

 

Net cash provided by operating activities  

 

978,259

 

 

 

885,101

 

     
Cash flows from investing activities:    
Purchases of non-marketable investments  

 

(1,000

)

 

 

-

 

Proceeds from the sale of non-marketable investments  

 

-

 

 

 

128

 

Purchases of property, plant and equipment  

 

(86,295

)

 

 

(49,977

)

Purchases of intangible assets  

 

(1,000

)

 

 

-

 

Cash paid in business combinations, net of cash acquired  

 

(586,163

)

 

 

(220,026

)

Net cash used for investing activities  

 

(674,458

)

 

 

(269,875

)

     
Cash flows from financing activities:    
Proceeds from term loan  

 

300,000

 

 

 

-

 

Proceeds from revolving credit facility  

 

450,000

 

 

 

-

 

Payment on revolving credit facility  

 

(300,000

)

 

 

-

 

Payment of debt issuance costs  

 

(425

)

 

 

(1,285

)

Proceeds from issuance of common stock  

 

103,682

 

 

 

83,632

 

Stock received for payment of employee taxes on vesting of restricted stock  

 

(103,093

)

 

 

(108,185

)

Payments for repurchases of common stock  

 

(750,062

)

 

 

(502,301

)

Net cash used for financing activities  

 

(299,898

)

 

 

(528,139

)

     
Effect of exchange rate changes on cash and cash equivalents  

 

(66,792

)

 

 

(1,700

)

     
Increase (decrease) in cash and cash equivalents  

 

(62,889

)

 

 

85,387

 

     
Cash and cash equivalents at end of period  

$

1,026,051

 

 

$

1,013,819

 

Cadence Design Systems, Inc.
(Unaudited)
               
Revenue Mix by Geography (% of Total Revenue)              

2021

 

2022

GEOGRAPHY

Q1

 

Q2

 

Q3

 

Q4

 

Year

 

Q1

 

Q2

 

Q3

               
Americas

46%

 

44%

 

46%

 

43%

 

45%

 

47%

 

45%

 

45%

China

12%

 

14%

 

13%

 

12%

 

13%

 

16%

 

13%

 

17%

Other Asia

18%

 

19%

 

18%

 

21%

 

19%

 

18%

 

18%

 

17%

Europe, Middle East and Africa

18%

 

17%

 

17%

 

18%

 

17%

 

14%

 

18%

 

16%

Japan

6%

 

6%

 

6%

 

6%

 

6%

 

5%

 

6%

 

5%

Total

100%

 

100%

 

100%

 

100%

 

100%

 

100%

 

100%

 

100%

               
               
Revenue Mix by Product Category (% of Total Revenue)              

2021

 

2022

PRODUCT CATEGORY

Q1

 

Q2

 

Q3

 

Q4

 

Year

 

Q1

 

Q2

 

Q3

               
Custom IC Design and Simulation

23%

 

23%

 

23%

 

24%

 

23%

 

22%

 

23%

 

22%

Digital IC Design and Signoff

27%

 

28%

 

29%

 

29%

 

29%

 

27%

 

27%

 

29%

Functional Verification, including Emulation and Prototyping Hardware

26%

 

25%

 

23%

 

21%

 

24%

 

28%

 

24%

 

25%

IP

14%

 

13%

 

14%

 

14%

 

13%

 

13%

 

14%

 

12%

System Design and Analysis

10%

 

11%

 

11%

 

12%

 

11%

 

10%

 

12%

 

12%

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 24, 2022
(Unaudited)
   
 

Three Months Ending

 

Year Ending

 

December 31, 2022

 

December 31, 2022

 

Forecast

 

Forecast

   
GAAP operating margin as a percent of total revenue   ~24% 29.7% - 30.7%
   
Reconciling items to non-GAAP operating margin as a  
percent of total revenue:  
Stock-based compensation expense  

8%

 

7.7%

Amortization of acquired intangibles  

2%

 

1.7%

Acquisition and integration-related costs  

1%

 

0.9%

Non-qualified deferred compensation credits  

0%

 

(0.3)%

   
Non-GAAP operating margin as a percent of total revenue�nbsp;   ~35% 39.7% - 40.7%
�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 24, 2022
(Unaudited)
     
 

Three Months Ending

 

Year Ending

 

December 31, 2022

 

December 31, 2022

  Forecast   Forecast
     
Diluted net income per share on a GAAP basis   $0.50 to $0.54   $2.71 to $2.75
     
Stock-based compensation expense  

0.27

 

 

0.98

Amortization of acquired intangibles  

0.05

 

 

0.22

Acquisition and integration-related costs  

0.04

 

 

0.12

Non-qualified deferred compensation credits  

-

 

 

(0.04)

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

-

 

 

0.06

Income tax effect of non-GAAP adjustments  

0.03

 

 

0.15

     
Diluted net income per share on a non-GAAP basis�nbsp;   $0.89 to $0.93   $4.20 to $4.24
     
     
     
     
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of October 24, 2022
(Unaudited)
     
     
 

Three Months Ending

 

 

Year Ending

 

December 31, 2022

 

 

December 31, 2022

($ in millions)  

Forecast

 

 

Forecast

     
Net income on a GAAP basis   $137 to $147   $746 to $756
     
Stock-based compensation expense  

74

 

 

271

Amortization of acquired intangibles  

15

 

 

60

Acquisition and integration-related costs  

10

 

 

33

Non-qualified deferred compensation credits  

-

 

 

(12)

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

-

 

 

17

Income tax effect of non-GAAP adjustments  

9

 

 

42

     
Net income on a non-GAAP basis�nbsp;   $245 to $255   $1,157 to $1,167
�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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