Cadence Reports Second Quarter 2023 Financial Results

For a detailed discussion of these and other cautionary statements related to Cadence’s business, please refer to Cadence’s filings with the U.S. Securities and Exchange Commission, including its most recent report on Form 10-K, subsequent reports on Form 10-Q and future filings.

All forward-looking statements in this press release are based on management's expectations as of the date of this press release and, except as required by law, Cadence disclaims any obligation to update these forward-looking statements to reflect future events or circumstances.

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 measures contained within this press release with their most directly comparable GAAP 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 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

 

 

June 30, 2023

 

July 2, 2022

 

 

(unaudited)

GAAP operating margin as a percent of total revenue

 

31%

 

33%

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

 

 

 

 

Stock-based compensation expense

 

8%

 

7%

Amortization of acquired intangibles

 

2%

 

2%

Acquisition and integration-related costs

 

1%

 

1%

Restructuring

 

0%

 

0%

Non-qualified deferred compensation expenses (credits)

 

0%

 

(1)%

Non-GAAP operating margin as a percent of total revenue

 

42%

 

42%

Net Income Reconciliation

 

Three Months Ended

 

 

June 30, 2023

 

July 2, 2022

(in thousands)

 

(unaudited)

Net income on a GAAP basis

 

$

221,120

 

 

$

186,920

 

Stock-based compensation expense

 

 

76,608

 

 

 

64,270

 

Amortization of acquired intangibles

 

 

14,920

 

 

 

14,701

 

Acquisition and integration-related costs

 

 

13,946

 

 

 

8,278

 

Restructuring

 

 

 

 

 

16

 

Non-qualified deferred compensation expenses (credits)

 

 

3,155

 

 

 

(6,524

)

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

 

 

(2,508

)

 

 

7,610

 

Income tax effect of non-GAAP adjustments

 

 

6,509

 

 

 

22,551

 

Net income on a non-GAAP basis

 

$

333,750

 

 

$

297,822

 

*

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

 

 

June 30, 2023

 

July 2, 2022

(in thousands, except per share data)

 

(unaudited)

Diluted net income per share on a GAAP basis

 

$

0.81

 

 

$

0.68

 

Stock-based compensation expense

 

 

0.28

 

 

 

0.23

 

Amortization of acquired intangibles

 

 

0.06

 

 

 

0.05

 

Acquisition and integration-related costs

 

 

0.05

 

 

 

0.03

 

Restructuring

 

 

 

 

 

 

Non-qualified deferred compensation expenses (credits)

 

 

0.01

 

 

 

(0.02

)

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

 

 

(0.01

)

 

 

0.03

 

Income tax effect of non-GAAP adjustments

 

 

0.02

 

 

 

0.08

 

Diluted net income per share on a non-GAAP basis

 

$

1.22

 

 

$

1.08

 

Shares used in calculation of diluted net income per share

 

 

272,996

 

 

 

275,172

 

*

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.

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
June 30, 2023 and December 31, 2022
(In thousands)
(Unaudited)
 
June 30, 2023 December 31, 2022
 
Current assets:
Cash and cash equivalents

$

873,925

$

882,325

Receivables, net

 

440,915

 

486,710

Inventories

 

139,576

 

128,005

Prepaid expenses and other

 

188,634

 

209,727

Total current assets

 

1,643,050

 

1,706,767

 
Property, plant and equipment, net

 

370,193

 

371,451

Goodwill

 

1,428,772

 

1,374,268

Acquired intangibles, net

 

340,742

 

354,617

Deferred taxes

 

872,151

 

853,691

Other assets

 

500,216

 

476,277

Total assets

$

5,155,124

$

5,137,071

 
Current liabilities:
Revolving credit facility

$

-

$

100,000

Accounts payable and accrued liabilities

 

510,007

 

557,158

Current portion of deferred revenue

 

686,293

 

690,538

Total current liabilities

 

1,196,300

 

1,347,696

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

 

96,653

 

91,524

Long-term debt

 

648,551

 

648,078

Other long-term liabilities

 

305,165

 

304,660

Total long-term liabilities

 

1,050,369

 

1,044,262

 
Stockholders' equity

 

2,908,455

 

2,745,113

Total liabilities and stockholders' equity

$

5,155,124

$

5,137,071

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Six Months Ended June 30, 2023 and July 2, 2022
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended Six Months Ended
June 30, 2023 July 2, 2022 June 30, 2023 July 2, 2022
 
Revenue:
Product and maintenance

$

922,790

 

$

802,285

 

$

1,886,532

 

$

1,648,529

 

Services

 

53,789

 

 

55,236

 

 

111,737

 

 

110,758

 

 
Total revenue

 

976,579

 

 

857,521

 

 

1,998,269

 

 

1,759,287

 

 
Costs and expenses:
Cost of product and maintenance

 

74,218

 

 

68,717

 

 

174,456

 

 

141,512

 

Cost of services

 

22,640

 

 

23,948

 

 

46,874

 

 

48,996

 

Marketing and sales

 

167,070

 

 

139,296

 

 

333,736

 

 

279,482

 

Research and development

 

354,416

 

 

286,597

 

 

704,711

 

 

577,492

 

General and administrative

 

54,605

 

 

51,426

 

 

108,132

 

 

100,363

 

Amortization of acquired intangibles

 

4,302

 

 

4,633

 

 

8,569

 

 

9,597

 

Restructuring

 

-

 

 

16

 

 

-

 

 

28

 

 
Total costs and expenses

 

677,251

 

 

574,633

 

 

1,376,478

 

 

1,157,470

 

 
Income from operations

 

299,328

 

 

282,888

 

 

621,791

 

 

601,817

 

 
Interest expense

 

(8,877

)

 

(4,281

)

 

(18,137

)

 

(8,389

)

Other income (expense), net

 

7,973

 

 

(5,962

)

 

16,257

 

 

(10,862

)

 
Income before provision for income taxes

 

298,424

 

 

272,645

 

 

619,911

 

 

582,566

 

 
Provision for income taxes

 

77,304

 

 

85,725

 

 

156,987

 

 

160,311

 

 
Net income

$

221,120

 

$

186,920

 

$

462,924

 

$

422,255

 

 
 
Net income per share - basic

$

0.82

 

$

0.69

 

$

1.72

 

$

1.55

 

 
Net income per share - diluted

$

0.81

 

$

0.68

 

$

1.70

 

$

1.53

 

 
Weighted average common shares outstanding - basic

 

269,714

 

 

271,520

 

 

269,607

 

 

272,028

 

 
Weighted average common shares outstanding - diluted

 

272,996

 

 

275,172

 

 

273,078

 

 

276,097

 

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2023 and July 2, 2022
(In thousands)
(Unaudited)
 
Six Months Ended
June 30, July 2,

2023

2022

 
Cash and cash equivalents at beginning of period

$

882,325

 

$

1,088,940

 

Cash flows from operating activities:
Net income

 

462,924

 

 

422,255

 

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

 

70,432

 

 

67,690

 

Amortization of debt discount and fees

 

626

 

 

539

 

Stock-based compensation

 

150,896

 

 

123,739

 

Loss on investments, net

 

554

 

 

3,124

 

Deferred income taxes

 

(20,171

)

 

(41,597

)

Provisions for losses on receivables

 

720

 

 

133

 

ROU asset amortization and change in operating lease liabilities

 

(3,543

)

 

1,742

 

Other non-cash items

 

1,834

 

 

88

 

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

 

41,208

 

 

(64,036

)

Inventories

 

(16,981

)

 

367

 

Prepaid expenses and other

 

50,793

 

 

40,571

 

Other assets

 

(31,838

)

 

14,476

 

Accounts payable and accrued liabilities

 

(37,049

)

 

17,470

 

Deferred revenue

 

1,269

 

 

80,460

 

Other long-term liabilities

 

9,497

 

 

(5,872

)

Net cash provided by operating activities

 

681,171

 

 

661,149

 

 
Cash flows from investing activities:
Purchases of investments

 

(29,212

)

 

(1,000

)

Proceeds from the sale and maturity of investments

 

1,505

 

 

-

 

Purchases of property, plant and equipment

 

(46,655

)

 

(42,202

)

Purchases of intangible assets

 

-

 

 

(750

)

Cash paid in business combinations, net of cash acquired

 

(55,379

)

 

(25,000

)

Net cash used for investing activities

 

(129,741

)

 

(68,952

)

 
Cash flows from financing activities:
Proceeds from revolving credit facility

 

50,000

 

 

-

 

Payments on revolving credit facility

 

(150,000

)

 

-

 

Proceeds from issuance of common stock

 

77,502

 

 

50,224

 

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

 

(78,988

)

 

(63,544

)

Payments for repurchases of common stock

 

(450,119

)

 

(600,049

)

Net cash used for financing activities

 

(551,605

)

 

(613,369

)

 
Effect of exchange rate changes on cash and cash equivalents

 

(8,225

)

 

(38,224

)

 
Decrease in cash and cash equivalents

 

(8,400

)

 

(59,396

)

 
Cash and cash equivalents at end of period

$

873,925

 

$

1,029,544

 

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

2022

2023

GEOGRAPHY Q1 Q2 Q3 Q4 Year Q1 Q2
 
Americas

47%

45%

45%

46%

46%

44%

41%

China

16%

13%

17%

13%

15%

17%

18%

Other Asia

18%

18%

17%

18%

18%

18%

18%

Europe, Middle East and Africa

14%

18%

16%

17%

16%

15%

17%

Japan

5%

6%

5%

6%

5%

6%

6%

Total

100%

100%

100%

100%

100%

100%

100%

 
 
Revenue Mix by Product Category (% of Total Revenue)

2022

2023

PRODUCT CATEGORY Q1 Q2 Q3 Q4 Year Q1 Q2
 
Custom IC Design and Simulation

22%

23%

22%

22%

22%

20%

22%

Digital IC Design and Signoff

27%

27%

29%

28%

28%

25%

27%

Functional Verification, including Emulation and Prototyping Hardware

28%

24%

25%

25%

26%

32%

27%

IP

13%

14%

12%

12%

12%

11%

11%

System Design and Analysis

10%

12%

12%

13%

12%

12%

13%

Total

100%

100%

100%

100%

100%

100%

100%

 
 
 

Cadence Design Systems, Inc.

Impact of Non-GAAP Adjustments on Forward Looking Operating Margin

As of July 24, 2023

(Unaudited)

 

Six Months Ending

Year Ending

December 31, 2023

December 31, 2023

Forecast

Forecast

 

GAAP operating margin as a percent of total revenue

30% - 31%

30.2% - 31.2%

 

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%

Non-qualified deferred compensation expenses

0%

0%

 

 

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

41% - 42%

41.2% - 42.2%

 
�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 July 24, 2023

(Unaudited)

 

Six Months Ending

Year Ending

December 31, 2023

December 31, 2023

Forecast

Forecast

 

Diluted net income per share on a GAAP basis

$1.65 to $1.71

$3.35 to $3.41

 
Stock-based compensation expense

0.65

1.20

Amortization of acquired intangibles

0.12

0.23

Acquisition and integration-related costs

0.06

0.17

Non-qualified deferred compensation expenses

-

0.02

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

-

(0.02)

Income tax effect of non-GAAP adjustments

0.06

0.10

 

 

Diluted net income per share on a non-GAAP basis�nbsp;

$2.54 to $2.60

$5.05 to $5.11

Cadence Design Systems, Inc.

Impact of Non-GAAP Adjustments on Forward Looking Net Income

As of July 24, 2023

(Unaudited)

 

Six Months Ending

Year Ending

December 31, 2023

December 31, 2023

($ in millions)

Forecast

Forecast

 

Net income on a GAAP basis

$452 to $468

$915 to $931

 
Stock-based compensation expense

178

329

Amortization of acquired intangibles

33

63

Acquisition and integration-related costs

17

47

Non-qualified deferred compensation expenses

-

6

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

-

(6)

Income tax effect of non-GAAP adjustments

15

26

 

Net income on a non-GAAP basis�nbsp;

$695 to $711

$1,380 to $1,396

 
 
�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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