Cadence Reports Second 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 September 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 third quarter 2022 earnings release is published, which is currently scheduled for October 24, 2022.

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
July 2, 2022 and January 1, 2022
(In thousands)
(Unaudited)

	July 2, 2022		January 1, 2022

Current assets:
Cash and cash equivalents	$	1,029,544	$	1,088,940
Receivables, net		391,738		337,596
Inventories		106,372		115,721
Prepaid expenses and other		129,966		173,512
Total current assets		1,657,620		1,715,769

Property, plant and equipment, net		316,741		305,911
Goodwill		924,460		928,358
Acquired intangibles, net		215,781		233,265
Deferred taxes		802,886		763,770
Other assets		443,786		439,226
Total assets	$	4,361,274	$	4,386,299

Current liabilities:
Accounts payable and accrued liabilities	$	437,195	$	417,283
Current portion of deferred revenue		605,296		553,942
Total current liabilities		1,042,491		971,225

Long-term liabilities:
Long-term portion of deferred revenue		114,573		101,148
Long-term debt		347,999		347,588
Other long-term liabilities		230,982		225,663
Total long-term liabilities		693,554		674,399

Stockholders' equity		2,625,229		2,740,675
Total liabilities and stockholders' equity	$	4,361,274	$	4,386,299

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Six Months Ended July 2, 2022 and July 3, 2021
(In thousands, except per share amounts)
(Unaudited)


	Three Months Ended						Six Months Ended
	July 2, 2022			July 3, 2021			July 2, 2022			July 3, 2021

Revenue:
Product and maintenance	$	802,285		$	687,884		$	1,648,529		$	1,386,938
Services		55,236			40,401			110,758			77,375

Total revenue		857,521			728,285			1,759,287			1,464,313

Costs and expenses:
Cost of product and maintenance		68,717			55,842			141,512			120,748
Cost of services		23,948			20,917			48,996			39,978
Marketing and sales		139,296			135,967			279,482			268,793
Research and development		286,597			285,227			577,492			556,219
General and administrative		51,426			40,333			100,363			80,285
Amortization of acquired intangibles		4,633			5,030			9,597			9,661
Restructuring		16			(469	)		28			(746	)

Total costs and expenses		574,633			542,847			1,157,470			1,074,938

Income from operations		282,888			185,438			601,817			389,375

Interest expense		(4,281	)		(4,316	)		(8,389	)		(8,533	)
Other income (expense), net		(5,962	)		2,143			(10,862	)		4,844

Income before provision for income taxes		272,645			183,265			582,566			385,686

Provision for income taxes		85,725			27,365			160,311			42,617

Net income	$	186,920		$	155,900		$	422,255		$	343,069


Net income per share - basic	$	0.69		$	0.57		$	1.55		$	1.25

Net income per share - diluted	$	0.68		$	0.56		$	1.53		$	1.23

Weighted average common shares outstanding - basic		271,520			273,565			272,028			273,843

Weighted average common shares outstanding - diluted		275,172			278,558			276,097			279,399

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended July 2, 2022 and July 3, 2021
(In thousands)
(Unaudited)


	Six Months Ended
	July 2,			July 3,
	2022			2021

Cash and cash equivalents at beginning of period	$	1,088,940		$	928,432
Cash flows from operating activities:
Net income		422,255			343,069
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		67,690			71,799
Amortization of debt discount and fees		539			687
Stock-based compensation		123,739			103,114
(Gain) loss on investments, net		3,124			(795	)
Deferred income taxes		(41,597	)		1,710
Provisions for losses on receivables		133			242
ROU asset amortization and change in operating lease liabilities		1,742			(2,483	)
Other non-cash items		88			183
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables		(64,036	)		(48,016	)
Inventories		367			(14,527	)
Prepaid expenses and other		40,571			7,690
Other assets		14,476			6,991
Accounts payable and accrued liabilities		17,470			(14,771	)
Deferred revenue		80,460			127,286
Other long-term liabilities		(5,872	)		6,639
Net cash provided by operating activities		661,149			588,818

Cash flows from investing activities:
Purchases of non-marketable investments		(1,000	)		-
Purchases of property, plant and equipment		(42,202	)		(31,139	)
Purchases of intangible assets		(750	)		-
Cash paid in business combinations, net of cash acquired		(25,000	)		(220,660	)
Net cash used for investing activities		(68,952	)		(251,799	)

Cash flows from financing activities:
Payment of debt issuance costs		-			(1,285	)
Proceeds from issuance of common stock		50,224			52,252
Stock received for payment of employee taxes on vesting of restricted stock		(63,544	)		(78,053	)
Payments for repurchases of common stock		(600,049	)		(392,290	)
Net cash used for financing activities		(613,369	)		(419,376	)

Effect of exchange rate changes on cash and cash equivalents		(38,224	)		1,085

Decrease in cash and cash equivalents		(59,396	)		(81,272	)

Cash and cash equivalents at end of period	$	1,029,544		$	847,160

Cadence Design Systems, Inc.
(Unaudited)



Revenue Mix by Geography (% of Total Revenue)
	2021					2022
GEOGRAPHY	Q1	Q2	Q3	Q4	Year	Q1	Q2

Americas	46%	44%	46%	43%	45%	47%	45%
China	12%	14%	13%	12%	13%	16%	13%
Other Asia	18%	19%	18%	21%	19%	18%	18%
Europe, Middle East and Africa	18%	17%	17%	18%	17%	14%	18%
Japan	6%	6%	6%	6%	6%	5%	6%
Total	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

Custom IC Design and Simulation	23%	23%	23%	24%	23%	22%	23%
Digital IC Design and Signoff	27%	28%	29%	29%	29%	27%	27%
Functional Verification, including Emulation and Prototyping Hardware	26%	25%	23%	21%	24%	28%	24%
IP	14%	13%	14%	14%	13%	13%	14%
System Design and Analysis	10%	11%	11%	12%	11%	10%	12%
Total	100%	100%	100%	100%	100%	100%	100%

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of July 25, 2022
(Unaudited)

	Three Months Ending	Year Ending
	October 1, 2022	December 31, 2022
	Forecast	Forecast

GAAP operating margin as a percent of total revenue	26% - 27%	29.25% - 30.25%

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%	1.8%
Acquisition and integration-related costs	1%	0.8%
Non-qualified deferred compensation credits	0%	(0.3)%

Non-GAAP operating margin as a percent of total revenue�nbsp;	37% - 38%	39.25% - 40.25%

�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 July 25, 2022
(Unaudited)

	Three Months Ending	Year Ending
	October 1, 2022	December 31, 2022
	Forecast	Forecast

Diluted net income per share on a GAAP basis	$0.58 to $0.62	$2.59 to $2.65

Stock-based compensation expense	0.26	0.98
Amortization of acquired intangibles	0.06	0.24
Acquisition and integration-related costs	0.02	0.10
Non-qualified deferred compensation credits	-	(0.03)
Other income or expense related to investments and non-qualified deferred compensation plan assets*	-	0.04
Income tax effect of non-GAAP adjustments	0.02	0.14

Diluted net income per share on a non-GAAP basis�nbsp;	$0.94 to $0.98	$4.06 to $4.12




Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of July 25, 2022
(Unaudited)


	Three Months Ending	Year Ending
	October 1, 2022	December 31, 2022
($ in millions)	Forecast	Forecast

Net income on a GAAP basis	$160 to $170	$716 to $732

Stock-based compensation expense	73	270
Amortization of acquired intangibles	16	65
Acquisition and integration-related costs	6	28
Non-qualified deferred compensation credits	-	(9)
Other income or expense related to investments and non-qualified deferred compensation plan assets*	-	12
Income tax effect of non-GAAP adjustments	5	39

Net income on a non-GAAP basis�nbsp;	$260 to $270	$1,121 to $1,137

�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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