Cadence Reports Fourth Quarter and Fiscal Year 2023 Financial

Cadence Reports Fourth Quarter and Fiscal Year 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
	December 31, 2023		December 31, 2022
	(unaudited)
GAAP operating margin as a percent of total revenue	31	%	23	%
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	%	2	%
Restructuring	0	%	0	%
Non-qualified deferred compensation expenses	1	%	1	%
Non-GAAP operating margin as a percent of total revenue	43	%	36	%

Operating Margin Reconciliation	Years Ended
	December 31, 2023		December 31, 2022
	(unaudited)
GAAP operating margin as a percent of total revenue	31	%	30	%
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 (credits)	0	%	(1	)%
Non-GAAP operating margin as a percent of total revenue	42	%	40	%

Net Income Reconciliation	Three Months Ended
	December 31, 2023			December 31, 2022
(in thousands)	(unaudited)
Net income on a GAAP basis	$	323,899		$	240,392
Stock-based compensation expense		86,683			73,249
Amortization of acquired intangibles		16,920			15,369
Acquisition and integration-related costs		12,583			17,510
Restructuring		(569	)		13
Non-qualified deferred compensation expenses		6,295			3,233
Other income or expense related to investments and non-qualified deferred compensation plan assets*		(27,966	)		(2,584	)
Income tax effect of non-GAAP adjustments		(41,638	)		(85,397	)
Net income on a non-GAAP basis	$	376,207		$	261,785

*	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
	December 31, 2023			December 31, 2022
(in thousands)	(unaudited)
Net income on a GAAP basis	$	1,041,144		$	848,952
Stock-based compensation expense		325,611			270,439
Amortization of acquired intangibles		61,970			59,818
Acquisition and integration-related costs		56,542			41,103
Restructuring		11,013			55
Non-qualified deferred compensation expenses (credits)		10,851			(8,744	)
Other income or expense related to investments and non-qualified deferred compensation plan assets*		(45,502	)		14,171
Income tax effect of non-GAAP adjustments		(57,139	)		(52,475	)
Net income on a non-GAAP basis	$	1,404,490		$	1,173,319

*	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
	December 31, 2023			December 31, 2022
(in thousands, except per share data)	(unaudited)
Diluted net income per share on a GAAP basis	$	1.19		$	0.88
Stock-based compensation expense		0.32			0.27
Amortization of acquired intangibles		0.06			0.06
Acquisition and integration-related costs		0.04			0.06
Restructuring		—			—
Non-qualified deferred compensation expenses		0.02			0.01
Other income or expense related to investments and non-qualified deferred compensation plan assets*		(0.10	)		(0.01	)
Income tax effect of non-GAAP adjustments		(0.15	)		(0.31	)
Diluted net income per share on a non-GAAP basis	$	1.38		$	0.96
Shares used in calculation of diluted net income per share		272,419			272,997

*	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
	December 31, 2023			December 31, 2022
(in thousands, except per share data)	(unaudited)
Diluted net income per share on a GAAP basis	$	3.82		$	3.09
Stock-based compensation expense		1.19			0.98
Amortization of acquired intangibles		0.23			0.22
Acquisition and integration-related costs		0.21			0.15
Restructuring		0.04			—
Non-qualified deferred compensation expenses (credits)		0.04			(0.03	)
Other income or expense related to investments and non-qualified deferred compensation plan assets*		(0.17	)		0.05
Income tax effect of non-GAAP adjustments		(0.21	)		(0.19	)
Diluted net income per share on a non-GAAP basis	$	5.15		$	4.27
Shares used in calculation of diluted net income per share		272,748			275,011

*	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
December 31, 2023 and December 31, 2022
(In thousands)
(Unaudited)

	December 31, 2023		December 31, 2022

Current assets:
Cash and cash equivalents	$	1,008,152	$	882,325
Receivables, net		489,224		486,710
Inventories		181,661		128,005
Prepaid expenses and other		297,180		209,727
Total current assets		1,976,217		1,706,767

Property, plant and equipment, net		403,213		371,451
Goodwill		1,535,845		1,374,268
Acquired intangibles, net		336,843		354,617
Deferred taxes		880,001		853,691
Other assets		537,372		476,277
Total assets	$	5,669,491	$	5,137,071

Current liabilities:
Revolving credit facility	$	-	$	100,000
Current portion of long-term debt		349,285		-
Accounts payable and accrued liabilities		576,558		557,158
Current portion of deferred revenue		665,024		690,538
Total current liabilities		1,590,867		1,347,696

Long-term liabilities:
Long-term portion of deferred revenue		98,931		91,524
Long-term debt		299,771		648,078
Other long-term liabilities		275,651		304,660
Total long-term liabilities		674,353		1,044,262

Stockholders' equity		3,404,271		2,745,113
Total liabilities and stockholders' equity	$	5,669,491	$	5,137,071


Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three Months and Years Ended December 31, 2023 and December 31, 2022
(In thousands, except per share amounts)
(Unaudited)


	Three Months Ended						Years Ended
	December 31, 2023			December 31, 2022			December 31, 2023			December 31, 2022

Revenue:
Product and maintenance	$	981,987		$	845,880		$	3,834,359		$	3,340,197
Services		86,636			53,997			255,627			221,521

Total revenue		1,068,623			899,877			4,089,986			3,561,718

Costs and expenses:
Cost of product and maintenance		71,491			69,702			331,760			273,565
Cost of services		32,639			23,813			103,281			98,058
Marketing and sales		180,368			171,817			690,319			604,224
Research and development		367,443			350,423			1,441,796			1,251,544
General and administrative		75,742			68,065			242,430			242,116
Amortization of acquired intangibles		4,981			4,927			18,162			18,470
Restructuring		(569	)		13			11,013			55

Total costs and expenses		732,095			688,760			2,838,761			2,488,032

Income from operations		336,528			211,117			1,251,225			1,073,686

Interest expense		(8,989	)		(9,082	)		(36,185	)		(22,934	)
Other income (expense), net		34,523			8,490			66,886			(5,389	)

Income before provision (benefit) for income taxes		362,062			210,525			1,281,926			1,045,363

Provision (benefit) for income taxes		38,163			(29,867	)		240,782			196,411

Net income	$	323,899		$	240,392		$	1,041,144		$	848,952


Net income per share - basic	$	1.20		$	0.89		$	3.86		$	3.13

Net income per share - diluted	$	1.19		$	0.88		$	3.82		$	3.09

Weighted average common shares outstanding - basic		269,088			269,709			269,381			271,198

Weighted average common shares outstanding - diluted		272,419			272,997			272,748			275,011

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Years Ended December 31, 2023 and December 31, 2022
(In thousands)
(Unaudited)


	Years Ended
	December 31,			December 31,
		2023			2022

Cash and cash equivalents at beginning of year	$	882,325		$	1,088,940
Cash flows from operating activities:
Net income		1,041,144			848,952
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		145,292			132,088
Amortization of debt discount and fees		1,262			1,134
Stock-based compensation		325,611			270,439
(Gain) loss on investments, net		(34,602	)		5,425
Deferred income taxes		(36,512	)		(107,606	)
Provisions for losses on receivables		3,325			204
ROU asset amortization and change in operating lease liabilities		451			3,342
Other non-cash items		1,983			371
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables		(11,748	)		(138,471	)
Inventories		(65,895	)		(23,073	)
Prepaid expenses and other		39,015			(38,927	)
Other assets		(45,784	)		(933	)
Accounts payable and accrued liabilities		5,415			113,945
Deferred revenue		(21,583	)		131,462
Other long-term liabilities		1,802			43,542
Net cash provided by operating activities		1,349,176			1,241,894

Cash flows from investing activities:
Purchases of investments		(176,170	)		(1,000	)
Proceeds from the sale and maturity of investments		64,775			366
Purchases of property, plant and equipment		(102,337	)		(123,215	)
Purchases of intangible assets		(166	)		(1,000	)
Cash paid in business combinations, net of cash acquired		(198,351	)		(613,785	)
Net cash used for investing activities		(412,249	)		(738,634	)

Cash flows from financing activities:
Proceeds from revolving credit facility		50,000			585,000
Payments on revolving credit facility		(150,000	)		(485,000	)
Proceeds from term loan		-			300,000
Payment of debt issuance costs		-			(425	)
Proceeds from issuance of common stock		132,957			105,331
Stock received for payment of employee taxes on vesting of restricted stock		(136,396	)		(111,864	)
Payments for repurchases of common stock		(700,134	)		(1,050,091	)
Net cash used for financing activities		(803,573	)		(657,049	)

Effect of exchange rate changes on cash and cash equivalents		(7,527	)		(52,826	)

Increase (decrease) in cash and cash equivalents		125,827			(206,615	)

Cash and cash equivalents at end of year	$	1,008,152		$	882,325

Cadence Design Systems, Inc.
(Unaudited)

Revenue Mix by Geography (% of Total Revenue)
	2022										2023
GEOGRAPHY	Q1		Q2		Q3		Q4		Year		Q1		Q2		Q3		Q4		Year

Americas	47	%	45	%	45	%	46	%	46	%	44	%	41	%	43	%	44	%	43	%
China	16	%	13	%	17	%	13	%	15	%	17	%	18	%	17	%	15	%	17	%
Other Asia	18	%	18	%	17	%	18	%	18	%	18	%	18	%	19	%	19	%	19	%
Europe, Middle East and Africa	14	%	18	%	16	%	17	%	16	%	15	%	17	%	15	%	16	%	16	%
Japan	5	%	6	%	5	%	6	%	5	%	6	%	6	%	6	%	6	%	5	%
Total	100	%	100	%	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		Q4		Year

Custom IC Design and Simulation	22	%	23	%	22	%	22	%	22	%	20	%	22	%	22	%	22	%	22	%
Digital IC Design and Signoff	27	%	27	%	29	%	28	%	28	%	25	%	27	%	28	%	29	%	27	%
Functional Verification, including Emulation and Prototyping Hardware	28	%	24	%	25	%	25	%	26	%	32	%	27	%	26	%	24	%	27	%
IP	13	%	14	%	12	%	12	%	12	%	11	%	11	%	11	%	13	%	12	%
System Design and Analysis	10	%	12	%	12	%	13	%	12	%	12	%	13	%	13	%	12	%	12	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of February 12, 2024
(Unaudited)

	Three Months Ending	Year Ending
	March 31, 2024	December 31, 2024
	Forecast	Forecast

GAAP operating margin as a percent of total revenue	24.5% - 25.5%	32% - 33%

Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense	9%	8%
Amortization of acquired intangibles	2%	1%
Acquisition and integration-related costs	1%	1%

Non-GAAP operating margin as a percent of total revenue�nbsp;	36.5% - 37.5%	42% - 43%

�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 February 12, 2024
(Unaudited)

	Three Months Ending	Year Ending
	March 31, 2024	December 31, 2024
	Forecast	Forecast

Diluted net income per share on a GAAP basis	$0.74 to $0.78	$4.08 to $4.18

Stock-based compensation expense	0.32	1.36
Amortization of acquired intangibles	0.06	0.24
Acquisition and integration-related costs	0.04	0.14
Income tax effect of non-GAAP adjustments	(0.06)	0.05

Diluted net income per share on a non-GAAP basis�nbsp;	$1.10 to $1.14	$5.87 to $5.97




Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of February 12, 2024
(Unaudited)


	Three Months Ending	Year Ending
	March 31, 2024	December 31, 2024
($ in millions)	Forecast	Forecast

Net income on a GAAP basis	$202 to $213	$1,111 to $1,138

Stock-based compensation expense	88	370
Amortization of acquired intangibles	16	66
Acquisition and integration-related costs	12	39
Income tax effect of non-GAAP adjustments	(16)	13

Net income on a non-GAAP basis�nbsp;	$302 to $313	$1,599 to $1,626

�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.

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