Cadence Reports Third Quarter 2023 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 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

 

September 30, 2023

 

October 1, 2022

 

(unaudited)

GAAP operating margin as a percent of total revenue

29

%

29

%

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

 

 

Stock-based compensation expense

9

%

8

%

Amortization of acquired intangibles

1

%

1

%

Acquisition and integration-related costs

1

%

1

%

Restructuring

1

%

0

%

Non-qualified deferred compensation credits

0

%

0

%

Non-GAAP operating margin as a percent of total revenue

41

%

39

%

Net Income Reconciliation

Three Months Ended

 

September 30, 2023

 

October 1, 2022

(in thousands)

(unaudited)

Net income on a GAAP basis

$

254,321

 

$

186,305

 

Stock-based compensation expense

 

88,032

 

 

73,451

 

Amortization of acquired intangibles

 

15,603

 

 

12,813

 

Acquisition and integration-related costs

 

14,213

 

 

11,418

 

Restructuring

 

11,582

 

 

14

 

Non-qualified deferred compensation credits

 

(1,749

)

 

(2,885

)

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

 

(11,755

)

 

4,539

 

Income tax effect of non-GAAP adjustments

 

(27,147

)

 

4,433

 

Net income on a non-GAAP basis

$

343,100

 

$

290,088

 

*

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

 

September 30, 2023

 

October 1, 2022

(in thousands, except per share data)

(unaudited)

Diluted net income per share on a GAAP basis

$

0.93

 

$

0.68

 

Stock-based compensation expense

 

0.32

 

 

0.27

 

Amortization of acquired intangibles

 

0.06

 

 

0.05

 

Acquisition and integration-related costs

 

0.05

 

 

0.04

 

Restructuring

 

0.04

 

 

 

Non-qualified deferred compensation credits

 

 

 

(0.01

)

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

 

(0.04

)

 

0.02

 

Income tax effect of non-GAAP adjustments

 

(0.10

)

 

0.01

 

Diluted net income per share on a non-GAAP basis

$

1.26

 

$

1.06

 

Shares used in calculation of diluted net income per share

 

272,427

 

 

274,957

 

*

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

September 30, 2023 and December 31, 2022

(In thousands)

(Unaudited)

 

 

 

 

 

September 30, 2023

 

December 31, 2022

 
Current assets:
Cash and cash equivalents

$

961,982

$

882,325

Receivables, net

 

426,505

 

486,710

Inventories

 

163,693

 

128,005

Prepaid expenses and other

 

272,283

 

209,727

Total current assets

 

1,824,463

 

1,706,767

 
Property, plant and equipment, net

 

379,776

 

371,451

Goodwill

 

1,500,442

 

1,374,268

Acquired intangibles, net

 

347,617

 

354,617

Deferred taxes

 

874,805

 

853,691

Other assets

 

504,272

 

476,277

Total assets

$

5,431,375

$

5,137,071

 
Current liabilities:
Revolving credit facility

$

-

$

100,000

Accounts payable and accrued liabilities

 

598,261

 

557,158

Current portion of deferred revenue

 

665,906

 

690,538

Total current liabilities

 

1,264,167

 

1,347,696

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

 

100,609

 

91,524

Long-term debt

 

648,801

 

648,078

Other long-term liabilities

 

303,904

 

304,660

Total long-term liabilities

 

1,053,314

 

1,044,262

 
Stockholders' equity

 

3,113,894

 

2,745,113

Total liabilities and stockholders' equity

$

5,431,375

$

5,137,071

 

Cadence Design Systems, Inc.

Condensed Consolidated Income Statements

For the Three and Nine Months Ended September 30, 2023 and October 1, 2022

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,
2023

 

October 1,
2022

 

September 30,
2023

 

October 1,
2022

 
Revenue:
Product and maintenance

$

965,840

 

$

845,788

 

$

2,852,372

 

$

2,494,317

 

Services

 

57,254

 

 

56,766

 

 

168,991

 

 

167,524

 

 
Total revenue

 

1,023,094

 

 

902,554

 

 

3,021,363

 

 

2,661,841

 

 
Costs and expenses:
Cost of product and maintenance

 

85,813

 

 

62,351

 

 

260,269

 

 

203,863

 

Cost of services

 

23,768

 

 

25,249

 

 

70,642

 

 

74,245

 

Marketing and sales

 

176,215

 

 

152,925

 

 

509,951

 

 

432,407

 

Research and development

 

369,642

 

 

323,629

 

 

1,074,353

 

 

901,121

 

General and administrative

 

58,556

 

 

73,688

 

 

166,688

 

 

174,051

 

Amortization of acquired intangibles

 

4,612

 

 

3,946

 

 

13,181

 

 

13,543

 

Restructuring

 

11,582

 

 

14

 

 

11,582

 

 

42

 

 
Total costs and expenses

 

730,188

 

 

641,802

 

 

2,106,666

 

 

1,799,272

 

 
Income from operations

 

292,906

 

 

260,752

 

 

914,697

 

 

862,569

 

 
Interest expense

 

(9,059

)

 

(5,463

)

 

(27,196

)

 

(13,852

)

Other income (expense), net

 

16,106

 

 

(3,017

)

 

32,363

 

 

(13,879

)

 
Income before provision for income taxes

 

299,953

 

 

252,272

 

 

919,864

 

 

834,838

 

 
Provision for income taxes

 

45,632

 

 

65,967

 

 

202,619

 

 

226,278

 

 
Net income

$

254,321

 

$

186,305

 

$

717,245

 

$

608,560

 

 
 
Net income per share - basic

$

0.94

 

$

0.69

 

$

2.66

 

$

2.24

 

 
Net income per share - diluted

$

0.93

 

$

0.68

 

$

2.63

 

$

2.21

 

 
Weighted average common shares outstanding - basic

 

269,229

 

 

271,131

 

 

269,480

 

 

271,694

 

 
Weighted average common shares outstanding - diluted

 

272,427

 

 

274,957

 

 

272,859

 

 

275,683

 

Cadence Design Systems, Inc.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2023 and October 1, 2022

(In thousands)

(Unaudited)

 

 

 

 

 

 

Nine Months Ended

 

September 30,

 

October 1,

 

 

2023

 

 

 

2022

 

 
Cash and cash equivalents at beginning of period

$

882,325

 

$

1,088,940

 

Cash flows from operating activities:
Net income

 

717,245

 

 

608,560

 

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

 

106,783

 

 

98,178

 

Amortization of debt discount and fees

 

942

 

 

810

 

Stock-based compensation

 

238,928

 

 

197,190

 

(Gain) loss on investments, net

 

(12,732

)

 

4,777

 

Deferred income taxes

 

(23,506

)

 

(49,834

)

Provisions for losses on receivables

 

1,692

 

 

471

 

ROU asset amortization and change in operating lease liabilities

 

(2,684

)

 

(883

)

Other non-cash items

 

1,962

 

 

158

 

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

 

50,024

 

 

(57,309

)

Inventories

 

(47,293

)

 

(8,020

)

Prepaid expenses and other

 

33,307

 

 

30,596

 

Other assets

 

(26,580

)

 

17,644

 

Accounts payable and accrued liabilities

 

43,111

 

 

24,514

 

Deferred revenue

 

(14,628

)

 

113,712

 

Other long-term liabilities

 

10,514

 

 

(2,305

)

Net cash provided by operating activities

 

1,077,085

 

 

978,259

 

 
Cash flows from investing activities:
Purchases of investments

 

(145,150

)

 

(1,000

)

Proceeds from the sale and maturity of investments

 

64,174

 

 

-

 

Purchases of property, plant and equipment

 

(68,634

)

 

(86,295

)

Purchases of intangible assets

 

-

 

 

(1,000

)

Cash paid in business combinations, net of cash acquired

 

(163,963

)

 

(586,163

)

Net cash used for investing activities

 

(313,573

)

 

(674,458

)

 
Cash flows from financing activities:
Proceeds from term loan

 

-

 

 

300,000

 

Proceeds from revolving credit facility

 

50,000

 

 

450,000

 

Payments on revolving credit facility

 

(150,000

)

 

(300,000

)

Payment of debt issuance costs

 

-

 

 

(425

)

Proceeds from issuance of common stock

 

131,341

 

 

103,682

 

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

 

(122,182

)

 

(103,093

)

Payments for repurchases of common stock

 

(575,127

)

 

(750,062

)

Net cash used for financing activities

 

(665,968

)

 

(299,898

)

 
Effect of exchange rate changes on cash and cash equivalents

 

(17,887

)

 

(66,792

)

 
Increase (decrease) in cash and cash equivalents

 

79,657

 

 

(62,889

)

 
Cash and cash equivalents at end of period

$

961,982

 

$

1,026,051

 

Cadence Design Systems, Inc.

(Unaudited)

 
Revenue Mix by Geography (% of Total Revenue)

2022

2023

GEOGRAPHY

Q1

Q2

Q3

Q4

Year

Q1

Q2

Q3

 
Americas

47%

45%

45%

46%

46%

44%

41%

43%

China

16%

13%

17%

13%

15%

17%

18%

17%

Other Asia

18%

18%

17%

18%

18%

18%

18%

19%

Europe, Middle East and Africa

14%

18%

16%

17%

16%

15%

17%

15%

Japan

5%

6%

5%

6%

5%

6%

6%

6%

Total

100%

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

Q3

 
Custom IC Design and Simulation

22%

23%

22%

22%

22%

20%

22%

22%

Digital IC Design and Signoff

27%

27%

29%

28%

28%

25%

27%

28%

Functional Verification, including Emulation and Prototyping Hardware

28%

24%

25%

25%

26%

32%

27%

26%

IP

13%

14%

12%

12%

12%

11%

11%

11%

System Design and Analysis

10%

12%

12%

13%

12%

12%

13%

13%

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 23, 2023

(Unaudited)

 

 

 

 

 

Three Months Ending

 

Year Ending

 

December 31, 2023

 

December 31, 2023

 

Forecast

 

Forecast

 

   
GAAP operating margin as a percent of total revenue

~31%

 

30.5% - 31.0%

 

   
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

0%

 

0%

Non-qualified deferred compensation expenses

0%

 

0%

 

 

 

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

~42%

 

41.5% - 42.0%

 

   

�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 23, 2023

(Unaudited)

 

 

 

Three Months Ending

 

Year Ending

December 31, 2023

 

December 31, 2023

Forecast

 

Forecast

 

 

 

Diluted net income per share on a GAAP basis

$0.85 to $0.91

 

$3.48 to $3.54

 

 

 

Stock-based compensation expense

0.32

 

1.20

Amortization of acquired intangibles

0.06

 

0.22

Acquisition and integration-related costs

0.04

 

0.20

Restructuring

-

 

0.04

Non-qualified deferred compensation expenses

-

 

0.02

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

 

(0.03)

 

 

 

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

$1.30 to $1.36

 

$5.07 to $5.13

 

 

 

 

 

 

Cadence Design Systems, Inc.

Impact of Non-GAAP Adjustments on Forward Looking Net Income

As of October 23, 2023

(Unaudited)

 

 

 

Three Months Ending

 

Year Ending

December 31, 2023

 

December 31, 2023

($ in millions)

Forecast

 

Forecast

 

 

 

Net income on a GAAP basis

$232 to $248

 

$949 to $965

 

 

 

Stock-based compensation expense

88

 

327

Amortization of acquired intangibles

16

 

61

Acquisition and integration-related costs

10

 

54

Restructuring

-

 

12

Non-qualified deferred compensation expenses

-

 

5

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

-

 

(18)

Income tax effect of non-GAAP adjustments

9

 

(7)

 

 

 

Net income on a non-GAAP basis�nbsp;

$355 to $371

 

$1,383 to $1,399

 

 

 

 

 

 

�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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