CDNS Cadence Design Systems Inc

Exceeded Q3 guidance for revenue and operating margin

On track to deliver strong second half

Raising midpoint of 2024 non-GAAP EPS outlook to $5.90

Cadence Design Systems, Inc. (NASDAQ: CDNS) today announced results for the third quarter of 2024.

Third Quarter 2024 Financial Results

• Revenue of $1.215 billion, compared to revenue of $1.023 billion in Q3 2023
• GAAP operating margin of 29%, compared to 29% in Q3 2023
• Non-GAAP operating margin of 45%, compared to 41% in Q3 2023
• GAAP diluted net income per share of $0.87, compared to $0.93 in Q3 2023
• Non-GAAP diluted net income per share of $1.64, compared to $1.26 in Q3 2023
• Quarter-end backlog was $5.6 billion and current remaining performance obligations (“cRPO”), contract revenue expected to be recognized as revenue in the next 12 months, was $2.9 billion

“Cadence delivered exceptional results for the third quarter of 2024, driven by broad-based strength across our portfolio, especially in IP, SD&A, and hardware systems,” said Anirudh Devgan, president and chief executive officer. “Customers are achieving outstanding results with Cadence.AI, and I’m excited by its accelerating proliferation as AI rapidly becomes an integral part of the design workflow.”

“I am pleased to report that Cadence delivered strong Q3 results, with total revenue growing 19% year-over-year. Our Q3 recurring revenue growth returned to low teens on a year-over-year basis, and China revenue continues to improve, representing 13% of our total revenue for Q3,” said John Wall, senior vice president and chief financial officer. “Our Q4 bookings pipeline looks exceptionally strong, and we are well positioned to deliver a strong 2024.”

CFO Commentary

Commentary on the third quarter of 2024 financial results by John Wall, senior vice president and chief financial officer, is available at www.cadence.com/cadence/investor_relations.

Business Outlook

For fiscal year 2024, the company expects:

• Revenue in the range of $4.61 billion to $4.65 billion
• GAAP operating margin in the range of 29% to 30%
• Non-GAAP operating margin in the range of 42% to 43%
• GAAP diluted net income per share in the range of $3.70 to $3.76
• Non-GAAP diluted net income per share in the range of $5.87 to $5.93

The company utilizes a long-term projected non-GAAP tax rate, which reflects currently available information, as well as other factors and assumptions. The non-GAAP tax rate is subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in the company’s geographic earnings mix, or other changes to the company’s strategy or business operations. The company expects to use the current normalized non-GAAP tax rate through fiscal 2025 but will re-evaluate this rate periodically for significant items that may materially affect its projections.

Reconciliations of the financial results and business outlook from GAAP operating margin, GAAP net income and GAAP diluted net income per share to non-GAAP operating margin, non-GAAP net income and non-GAAP diluted net income per share, respectively, are included in this press release.

Business Highlights

• Cadence.AI portfolio powered by GenAI agents, AI-driven optimization and the big data analytics JedAI platform, offers unparalleled quality of results and productivity benefits, further proliferated with revenue nearly tripling over the last year

• System Design & Analysis business achieved 47 percent year-over-year revenue growth in Q3 with strong growth of Cadence's comprehensive multi-physics portfolio that couples the company's expertise in physics-based modeling with AI driven optimization

• Strong IP business momentum, with 59 percent year-over-year growth as Cadence executed to its profitable and scalable growth strategy. A long-term IP partner signed a major deal for Cadence's hardware, IP and services offering to help deliver its AI product roadmap and next generation subsystems

• Functional Verification delivered 22 percent year-over-year revenue growth, fueled by strong demand for Cadence's new ground-breaking hardware systems, especially at AI, hyperscale and automotive companies

Audio Webcast Scheduled

Anirudh Devgan, president and chief executive officer, and John Wall, senior vice president and chief financial officer, will host the third quarter 2024 financial results audio webcast today, October 28, 2024, at 2 p.m. (Pacific) / 5 p.m. (Eastern). Attendees are asked to register at the website at least 10 minutes prior to the scheduled webcast. An archive of the webcast will be available starting October 28, 2024 at 5 p.m. (Pacific) and ending December 17, 2024 at 5 p.m. (Pacific). Webcast access is available at www.cadence.com/cadence/investor_relations.

About Cadence

Cadence is a pivotal leader in electronic systems design, building upon more than 30 years of computational software expertise. The company applies its underlying Intelligent System Design strategy to deliver software, hardware and IP that turn design concepts into reality. Cadence customers are the world’s most innovative companies, delivering extraordinary electronic products from chips to boards to complete systems for the most dynamic market applications, including hyperscale computing, 5G communications, automotive, mobile, aerospace, consumer, industrial and healthcare. For 10 years in a row, Fortune magazine has named Cadence one of the 100 Best Companies to Work For. Learn more at www.cadence.com.

© 2024 Cadence Design Systems, Inc. All rights reserved worldwide. Cadence, the Cadence logo and the other Cadence marks found at www.cadence.com/go/trademarks are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

This press release contains forward-looking statements, including Cadence's outlook on future operating results, financial condition, strategic objectives, business prospects, technology and product developments, industry trends, market growth and other statements using words such as “anticipates,” “believes,” “expects,” “intends,” “plans,” “will,” and words of similar import and the negatives thereof. Forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside Cadence’s control, and which may cause actual results to differ materially from expectations expressed or implied in the forward-looking statements, including, among others: (i) Cadence’s ability to compete successfully in the highly competitive industries in which it operates and realize the benefits of its investments in research and development, including opportunities presented by AI; (ii) the success of Cadence’s efforts to maintain and improve operational efficiency and growth; (iii) the mix of products and services sold, the timing of orders and deliveries and the ability to develop, install or deliver Cadence’s products or services; (iv) change in customer demands or supply constraints that could result in delays in purchases, development, installations or deliveries of Cadence’s products or services, including those resulting from consolidation, restructurings and other operational efficiency improvements of Cadence’s customers; (v) economic, geopolitical and industry conditions, including that of the semiconductor and electronics industries, government regulations and trade restrictions, and rising tensions and conflicts around the world such as in the Middle East and with respect to Taiwan; (vi) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rate and currency exchange rate fluctuations, inflation rates, Cadence’s increased debt levels and obligations and Cadence’s ability to access capital and debt markets in the future; (vii) Cadence’s acquisition of other companies, businesses or technologies or the failure to successfully integrate and operate them; (viii) potential harm caused by compromises in cybersecurity and cybersecurity attacks; (ix) events that affect cash flow, liquidity, or reserves, or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation, regulatory or other matters; (x) the effects of any litigation, regulatory, tax or other proceedings to which Cadence is or may become a party or to which Cadence or its products, services, technologies or properties are subject; and (xi) Cadence’s ability to successfully meet corporate governance, environmental and social targets and strategies. In addition, the timing and amount of Cadence’s repurchases of its common stock are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors.

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†

45.2% - 46.2%

 42% - 43%

  †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† $1.78 to $1.84 $5.87 to $5.93   †The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.   * Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense.   Cadence Design Systems, Inc. Impact of Non-GAAP Adjustments on Forward Looking Net Income As of October 28, 2024 (Unaudited)   Three Months Ending Year Ending December 31, 2024 December 31, 2024 ($ 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† $489 to $505 $1,609 to $1,625   †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.

CDNS–IR Category: Financial, Featured

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