Cadence Reports Third Quarter 2024 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
	September 30, 2024		September 30, 2023
	(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	%	9	%
Amortization of acquired intangibles	2	%	1	%
Acquisition and integration-related costs	3	%	1	%
Restructuring	2	%	1	%
Non-qualified deferred compensation expenses (credits)	0	%	0	%
Non-GAAP operating margin as a percent of total revenue	45	%	41	%

Net Income Reconciliation	Three Months Ended
	September 30, 2024		September 30, 2023
(in thousands)	(unaudited)
Net income on a GAAP basis	$	238,111	$	254,321
Stock-based compensation expense		109,013		88,032
Amortization of acquired intangibles		26,763		15,603
Acquisition and integration-related costs		29,284		14,213
Restructuring		24,538		11,582
Non-qualified deferred compensation expenses (credits)		4,567		(1,749	)
Other income or expense related to investments and non-qualified deferred compensation plan assets*		11,582		(11,755	)
Income tax effect of non-GAAP adjustments		6,341		(27,147	)
Net income on a non-GAAP basis	$	450,199	$	343,100

*	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, 2024		September 30, 2023
(in thousands, except per share data)	(unaudited)
Diluted net income per share on a GAAP basis	$	0.87	$	0.93
Stock-based compensation expense		0.40		0.32
Amortization of acquired intangibles		0.10		0.06
Acquisition and integration-related costs		0.11		0.05
Restructuring		0.09		0.04
Non-qualified deferred compensation expenses (credits)		0.01		—
Other income or expense related to investments and non-qualified deferred compensation plan assets*		0.04		(0.04	)
Income tax effect of non-GAAP adjustments		0.02		(0.10	)
Diluted net income per share on a non-GAAP basis	$	1.64	$	1.26
Shares used in calculation of diluted net income per share		273,958		272,427

*	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, 2024 and December 31, 2023
(In thousands)
(Unaudited)

	September 30, 2024		December 31, 2023

Current assets:
Cash and cash equivalents	$	2,786,040	$	1,008,152
Receivables, net		560,973		489,224
Inventories		293,350		181,661
Prepaid expenses and other		459,560		297,180
Total current assets		4,099,923		1,976,217

Property, plant and equipment, net		448,652		403,213
Goodwill		2,493,467		1,535,845
Acquired intangibles, net		662,343		336,843
Deferred taxes		889,939		880,001
Other assets		572,707		537,372
Total assets	$	9,167,031	$	5,669,491

Current liabilities:
Current portion of long-term debt	$	349,958	$	349,285
Accounts payable and accrued liabilities		627,200		576,558
Current portion of deferred revenue		697,836		665,024
Total current liabilities		1,674,994		1,590,867

Long-term liabilities:
Long-term portion of deferred revenue		102,439		98,931
Long-term debt		2,475,232		299,771
Other long-term liabilities		351,028		275,651
Total long-term liabilities		2,928,699		674,353

Stockholders' equity		4,563,338		3,404,271
Total liabilities and stockholders' equity	$	9,167,031	$	5,669,491

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Nine Months Ended September 30, 2024 and September 30, 2023
(In thousands, except per share amounts)
(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023

Revenue:
Product and maintenance	$	1,100,380		$	965,840		$	2,974,222		$	2,852,372
Services		115,119			57,254			311,061			168,991

Total revenue		1,215,499			1,023,094			3,285,283			3,021,363

Costs and expenses:
Cost of product and maintenance		109,593			85,813			279,351			260,269
Cost of services		53,451			23,768			148,160			70,642
Marketing and sales		189,763			176,215			557,077			509,951
Research and development		407,369			369,642			1,157,067			1,074,353
General and administrative		71,581			58,556			203,733			166,688
Amortization of acquired intangibles		9,148			4,612			21,222			13,181
Restructuring		24,538			11,582			24,785			11,582

Total costs and expenses		865,443			730,188			2,391,395			2,106,666

Income from operations		350,056			292,906			893,888			914,697

Interest expense		(24,495	)		(9,059	)		(46,092	)		(27,196	)
Other income, net		7,853			16,106			111,371			32,363

Income before provision for income taxes		333,414			299,953			959,167			919,864

Provision for income taxes		95,303			45,632			243,893			202,619

Net income	$	238,111		$	254,321		$	715,274		$	717,245


Net income per share - basic	$	0.87		$	0.94		$	2.64		$	2.66

Net income per share - diluted	$	0.87		$	0.93		$	2.61		$	2.63

Weighted average common shares outstanding - basic		272,244			269,229			270,925			269,480

Weighted average common shares outstanding - diluted		273,958			272,427			273,679			272,859

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2024 and September 30, 2023
(In thousands)
(Unaudited)


	Nine Months Ended
	September 30,			September 30,
		2024			2023

Cash and cash equivalents at beginning of period	$	1,008,152		$	882,325
Cash flows from operating activities:
Net income		715,274			717,245
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		142,252			106,783
Amortization of debt discount and fees		2,381			942
Stock-based compensation		284,711			238,928
Gain on investments, net		(64,458	)		(12,732	)
Deferred income taxes		(5,082	)		(23,506	)
Provisions for losses on receivables		1,124			1,692
ROU asset amortization and change in operating lease liabilities		(1,100	)		(2,684	)
Other non-cash items		309			1,962
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables		(44,766	)		50,024
Inventories		(139,179	)		(47,293	)
Prepaid expenses and other		(114,785	)		33,307
Other assets		(8,759	)		(26,580	)
Accounts payable and accrued liabilities		21,858			43,111
Deferred revenue		6,680			(14,628	)
Other long-term liabilities		22,732			10,514
Net cash provided by operating activities		819,192			1,077,085

Cash flows from investing activities:
Purchases of investments		(2,095	)		(145,150	)
Proceeds from the sale and maturity of investments		45,656			64,174
Purchases of property, plant and equipment		(105,340	)		(68,634	)
Cash paid in business combinations, net of cash acquired		(735,327	)		(163,963	)
Net cash used for investing activities		(797,106	)		(313,573	)

Cash flows from financing activities:
Proceeds from revolving credit facility		-			50,000
Payments on revolving credit facility		-			(150,000	)
Proceeds from issuance of debt		3,196,595			-
Payment of term loans		(1,000,000	)		-
Payment of debt issuance costs		(22,669	)		-
Proceeds from issuance of common stock		193,933			131,341
Stock received for payment of employee taxes on vesting of restricted stock		(217,462	)		(122,182	)
Payments for repurchases of common stock		(400,018	)		(575,127	)
Net cash provided by (used for) financing activities		1,750,379			(665,968	)

Effect of exchange rate changes on cash and cash equivalents		5,423			(17,887	)

Increase in cash and cash equivalents		1,777,888			79,657

Cash and cash equivalents at end of period	$	2,786,040		$	961,982

Cadence Design Systems, Inc.
(Unaudited)

Revenue Mix by Geography (% of Total Revenue)
	2023										2024
GEOGRAPHY	Q1		Q2		Q3		Q4		Year		Q1		Q2		Q3

Americas	44	%	41	%	43	%	44	%	43	%	46	%	49	%	50	%
China	17	%	18	%	17	%	15	%	17	%	12	%	12	%	13	%
Other Asia	18	%	18	%	19	%	19	%	19	%	20	%	19	%	17	%
Europe, Middle East and Africa	15	%	17	%	15	%	16	%	16	%	17	%	14	%	14	%
Japan	6	%	6	%	6	%	6	%	5	%	5	%	6	%	6	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%


Revenue Mix by Product Category (% of Total Revenue)
	2023										2024
PRODUCT CATEGORY	Q1		Q2		Q3		Q4		Year		Q1		Q2		Q3

Custom IC Design and Simulation	20	%	22	%	22	%	22	%	22	%	22	%	21	%	19	%
Digital IC Design and Signoff	25	%	27	%	28	%	29	%	27	%	29	%	27	%	24	%
Functional Verification, including Emulation and Prototyping Hardware	32	%	27	%	26	%	24	%	27	%	25	%	25	%	27	%
Core EDA Total	77	%	76	%	76	%	75	%	76	%	76	%	73	%	70	%

IP	11	%	11	%	11	%	13	%	12	%	12	%	13	%	14	%
System Design and Analysis	12	%	13	%	13	%	12	%	12	%	12	%	14	%	16	%
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 28, 2024
(Unaudited)

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

GAAP operating margin as a percent of total revenue		33.2% - 34.2%	29% - 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	2%	2%
	Restructuring	0%	1%
	Non-qualified deferred compensation expenses	0%	0%
	Special charges	0%	0%

Non-GAAP operating margin as a percent of total revenue�nbsp;		45.2% - 46.2%	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 October 28, 2024
(Unaudited)

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

Diluted net income per share on a GAAP basis		$1.09 to $1.15	$3.70 to $3.76

	Stock-based compensation expense	0.39	1.44
	Amortization of acquired intangibles	0.10	0.33
	Acquisition and integration-related costs	0.09	0.35
	Restructuring	-	0.09
	Non-qualified deferred compensation expenses	-	0.04
	Special charges	-	-
	Other income or expense related to investments and non-qualified deferred compensation plan assets*	-	(0.27)
	Income tax effect of non-GAAP adjustments	0.11	0.19

Diluted net income per share on a non-GAAP basis�nbsp;		$1.78 to $1.84	$5.87 to $5.93

	�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.


Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of October 28, 2024
(Unaudited)

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

Net income on a GAAP basis		$300 to $316	$1,015 to $1,031

	Stock-based compensation expense	108	393
	Amortization of acquired intangibles	27	91
	Acquisition and integration-related costs	24	96
	Restructuring	-	25
	Non-qualified deferred compensation expenses	-	11
	Special charges	-	1
	Other income or expense related to investments and non-qualified deferred compensation plan assets*	-	(75)
	Income tax effect of non-GAAP adjustments	30	52

Net income on a non-GAAP basis�nbsp;		$489 to $505	$1,609 to $1,625

	�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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