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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