Cadence Reports Fourth Quarter and Fiscal Year 2021 Financial

Cadence Reports Fourth Quarter and Fiscal Year 2021 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, which include Cadence’s most recent reports on Form 10-K and Form 10-Q, including Cadence’s future filings.

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 1, 2022	January 2, 2021
	(unaudited)
GAAP operating margin as a percent of total revenue	25%	24%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense	7%	8%
Amortization of acquired intangibles	2%	2%
Acquisition and integration-related costs	1%	1%
Restructuring	0%	1%
Non-qualified deferred compensation expenses	1%	1%
Non-GAAP operating margin as a percent of total revenue	36%	37%

Operating Margin Reconciliation	Years Ended
	January 1, 2022	January 2, 2021
	(unaudited)
GAAP operating margin as a percent of total revenue	26%	24%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense	7%	7%
Amortization of acquired intangibles	2%	3%
Acquisition and integration-related costs	1%	1%
Restructuring	0%	0%
Non-qualified deferred compensation expenses	0%	0%
Special charges*	1%	0%
Non-GAAP operating margin as a percent of total revenue	37%	35%

*	Includes costs related to a voluntary retirement program in the second quarter of 2021.

Net Income Reconciliation	Three Months Ended
	January 1, 2022			January 2, 2021
(in thousands)	(unaudited)
Net income on a GAAP basis	$	176,579		$	173,738
Stock-based compensation expense		54,230			58,545
Amortization of acquired intangibles		16,781			17,168
Acquisition and integration-related costs		5,946			6,556
Restructuring		(80	)		10,544
Non-qualified deferred compensation expenses		2,205			4,280
Other income or expense related to investments and non-qualified deferred compensation plan assets*		(2,454	)		(4,860	)
Income tax effect of non-GAAP adjustments		(25,834	)		(32,097	)
Net income on a non-GAAP basis	$	227,373		$	233,874

*	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 1, 2022			January 2, 2021
(in thousands)	(unaudited)
Net income on a GAAP basis	$	695,955		$	590,644
Stock-based compensation expense		210,090			197,268
Amortization of acquired intangibles		67,216			64,193
Acquisition and integration-related costs		22,413			22,580
Restructuring		(1,048	)		9,215
Non-qualified deferred compensation expenses		6,163			4,881
Special charges*		26,832			394
Other income or expense related to investments and non-qualified deferred compensation plan assets**		(6,745	)		(522	)
Income tax effect of non-GAAP adjustments		(102,456	)		(106,817	)
Net income on a non-GAAP basis	$	918,420		$	781,836

*	Includes costs related to a voluntary retirement program in the second quarter of 2021.
**	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 1, 2022			January 2, 2021
(in thousands, except per share data)	(unaudited)
Diluted net income per share on a GAAP basis	$	0.63		$	0.62
Stock-based compensation expense		0.20			0.21
Amortization of acquired intangibles		0.06			0.06
Acquisition and integration-related costs		0.02			0.02
Restructuring		—			0.04
Non-qualified deferred compensation expenses		0.01			0.01
Other income or expense related to investments and non-qualified deferred compensation plan assets*		(0.01	)		(0.02	)
Income tax effect of non-GAAP adjustments		(0.09	)		(0.11	)
Diluted net income per share on a non-GAAP basis	$	0.82		$	0.83
Shares used in calculation of diluted net income per share		278,253			280,173

*	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 1, 2022			January 2, 2021
(in thousands, except per share data)	(unaudited)
Diluted net income per share on a GAAP basis	$	2.50		$	2.11
Stock-based compensation expense		0.75			0.71
Amortization of acquired intangibles		0.24			0.23
Acquisition and integration-related costs		0.08			0.08
Restructuring		—			0.03
Non-qualified deferred compensation expenses		0.02			0.02
Special charges*		0.10			—
Other income or expense related to investments and non-qualified deferred compensation plan assets**		(0.03	)		—
Income tax effect of non-GAAP adjustments		(0.37	)		(0.38	)
Diluted net income per share on a non-GAAP basis	$	3.29		$	2.80
Shares used in calculation of diluted net income per share		278,858			279,641

*	Includes costs related to a voluntary retirement program in the second quarter of 2021.
**	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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