CDNS Cadence Design Systems Inc

Second Quarter Backlog of $6.0 Billion

Updating 2024 Revenue Outlook to 13% YoY Growth

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

Second Quarter 2024 Financial Results

• Revenue of $1.061 billion, compared to revenue of $977 million in Q2 2023
• GAAP operating margin of 28%, compared to 31% in Q2 2023
• Non-GAAP operating margin of 40%, compared to 42% in Q2 2023
• GAAP diluted net income per share of $0.84, compared to $0.81 in Q2 2023
• Non-GAAP diluted net income per share of $1.28, compared to $1.22 in Q2 2023
• Quarter-end backlog was $6.0 billion and current remaining performance obligations ("cRPO"), contract revenue expected to be recognized as revenue in the next 12 months, was $3.1 billion.

“Cadence delivered strong results for the second quarter of 2024, with robust demand for our cutting-edge technologies from AI, hyperscale, and automotive customers,” said Anirudh Devgan, president and chief executive officer. “I'm pleased with the strong momentum of our Cadence.AI portfolio and our next generation Z3 / X3 hardware systems, and am excited about the growing demand for our industry leading products from an expanding foundry ecosystem.”

“I am pleased with our strong Q2 results. We exceeded our outlook on all key financial metrics, closing Q2 with backlog of approximately $6 billion,” said John Wall, senior vice president and chief financial officer. “A good finish to the first half of the year, combined with ongoing demand for our solutions, sets us up for strong growth in the second half of 2024.”

CFO Commentary

Commentary on the second 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 $4.60 billion to $4.66 billion
• GAAP operating margin in the range of 29.7% to 31.3%
• Non-GAAP operating margin in the range of 41.7% to 43.3%
• GAAP diluted net income per share in the range of $3.82 to $4.02
• Non-GAAP diluted net income per share in the range of $5.77 to $5.97

For the third quarter of 2024, the company expects:

• Revenue in the range of $1.165 billion to $1.195 billion
• GAAP operating margin in the range of 27.7% to 29.3%
• Non-GAAP operating margin in the range of 40.7% to 42.3%
• GAAP diluted net income per share in the range of $0.83 to $0.93
• Non-GAAP diluted net income per share in the range of $1.39 to $1.49

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 continues to gain momentum, offering unparalleled chip-to-systems design capabilities that empower our customers to achieve exceptional quality of results and productivity benefits
• IP business continued its strong momentum with AI, 3D-IC and HPC applications fueling demand for our IP titles at the most advanced nodes
• Major long-term development partner broadly deployed Palladium Z3 to deliver to its next generation AI product roadmap, further solidifying Cadence’s leadership in verification
• Closed BETA CAE acquisition and we now offer a comprehensive multiphysics platform covering electromagnetics, electrothermal, CFD and structural analysis solutions

Audio Webcast Scheduled

Anirudh Devgan, president and chief executive officer, and John Wall, senior vice president and chief financial officer, will host the second quarter 2024 financial results audio webcast today, July 22, 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 July 22, 2024 at 5 p.m. (Pacific) and ending September 16, 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 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 rates, currency exchange rate fluctuations, inflation rates, Cadence’s upcoming debt maturities and Cadence’s ability to access capital and debt markets; (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

 

June 30, 2024

June 30, 2023

 

(unaudited)

GAAP operating margin as a percent of total revenue

28%

31%

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%

1%

Restructuring

0%

0%

Non-qualified deferred compensation expenses

0%

0%

Special charges

0%

0%

Non-GAAP operating margin as a percent of total revenue

40%

42%

Net Income Reconciliation

Three Months Ended

 

June 30, 2024

June 30, 2023

(in thousands)

(unaudited)

Net income on a GAAP basis

$

229,520

 

$

221,120

 

Stock-based compensation expense

 

87,569

 

 

76,608

 

Amortization of acquired intangibles

 

20,155

 

 

14,920

 

Acquisition and integration-related costs

 

20,715

 

 

13,946

 

Restructuring

 

(33

)

 

—

 

Non-qualified deferred compensation expenses

 

1,697

 

 

3,155

 

Special charges

 

1,233

 

 

—

 

Other income or expense related to investments and non-qualified deferred compensation plan assets*

 

(27,048

)

 

(2,508

)

Income tax effect of non-GAAP adjustments

 

16,890

 

 

6,509

 

Net income on a non-GAAP basis

$

350,698

 

$

333,750

 

* 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

 

June 30, 2024

 

June 30, 2023

(in thousands, except per share data)

(unaudited)

Diluted net income per share on a GAAP basis

$

0.84

 

 

$

0.81

 

Stock-based compensation expense

 

0.32

 

 

 

0.28

 

Amortization of acquired intangibles

 

0.07

 

 

 

0.06

 

Acquisition and integration-related costs

 

0.08

 

 

 

0.05

 

Restructuring

 

—

 

 

 

—

 

Non-qualified deferred compensation expenses

 

0.01

 

 

 

0.01

 

Special charges

 

—

 

 

 

—

 

Other income or expense related to investments and non-qualified deferred compensation plan assets*

 

(0.10

)

 

 

(0.01

)

Income tax effect of non-GAAP adjustments

 

0.06

 

 

 

0.02

 

Diluted net income per share on a non-GAAP basis

$

1.28

 

 

$

1.22

 

Shares used in calculation of diluted net income per share

 

273,520

 

 

 

272,996

 

* 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 June 30, 2024 and December 31, 2023 (In thousands) (Unaudited)

 

June 30, 2024 December 31, 2023   Current assets: Cash and cash equivalents

$

1,058,955

$

1,008,152

Receivables, net

 

564,851

 

489,224

Inventories

 

171,508

 

181,661

Prepaid expenses and other

 

401,074

 

297,180

Total current assets

 

2,196,388

 

1,976,217

  Property, plant and equipment, net

 

449,422

 

403,213

Goodwill

 

2,417,747

 

1,535,845

Acquired intangibles, net

 

664,038

 

336,843

Deferred taxes

 

892,963

 

880,001

Other assets

 

605,183

 

537,372

Total assets

$

7,225,741

$

5,669,491

  Current liabilities: Current portion of long-term debt

$

349,732

$

349,285

Accounts payable and accrued liabilities

 

505,392

 

576,558

Current portion of deferred revenue

 

678,598

 

665,024

Total current liabilities

 

1,533,722

 

1,590,867

  Long-term liabilities: Long-term portion of deferred revenue

 

88,823

 

98,931

Long-term debt

 

998,935

 

299,771

Other long-term liabilities

 

343,369

 

275,651

Total long-term liabilities

 

1,431,127

 

674,353

  Stockholders' equity

 

4,260,892

 

3,404,271

Total liabilities and stockholders' equity

$

7,225,741

$

5,669,491

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

 

Three Months Ended Six Months Ended June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023   Revenue: Product and maintenance

$

960,457

 

$

922,790

 

$

1,873,842

 

$

1,886,532

 

Services

 

100,224

 

 

53,789

 

 

195,942

 

 

111,737

 

  Total revenue

 

1,060,681

 

 

976,579

 

 

2,069,784

 

 

1,998,269

 

  Costs and expenses: Cost of product and maintenance

 

94,363

 

 

74,218

 

 

169,758

 

 

174,456

 

Cost of services

 

44,907

 

 

22,640

 

 

94,709

 

 

46,874

 

Marketing and sales

 

186,725

 

 

167,070

 

 

367,314

 

 

333,736

 

Research and development

 

370,740

 

 

354,416

 

 

749,698

 

 

704,711

 

General and administrative

 

63,436

 

 

54,605

 

 

132,152

 

 

108,132

 

Amortization of acquired intangibles

 

6,667

 

 

4,302

 

 

12,074

 

 

8,569

 

Restructuring

 

(33

)

 

-

 

 

247

 

 

-

 

  Total costs and expenses

 

766,805

 

 

677,251

 

 

1,525,952

 

 

1,376,478

 

  Income from operations

 

293,876

 

 

299,328

 

 

543,832

 

 

621,791

 

  Interest expense

 

(12,905

)

 

(8,877

)

 

(21,597

)

 

(18,137

)

Other income, net

 

34,739

 

 

7,973

 

 

103,518

 

 

16,257

 

  Income before provision for income taxes

 

315,710

 

 

298,424

 

 

625,753

 

 

619,911

 

  Provision for income taxes

 

86,190

 

 

77,304

 

 

148,590

 

 

156,987

 

  Net income

$

229,520

 

$

221,120

 

$

477,163

 

$

462,924

 

    Net income per share - basic

$

0.85

 

$

0.82

 

$

1.77

 

$

1.72

 

  Net income per share - diluted

$

0.84

 

$

0.81

 

$

1.74

 

$

1.70

 

  Weighted average common shares outstanding - basic

 

270,912

 

 

269,714

 

 

270,259

 

 

269,607

 

  Weighted average common shares outstanding - diluted

 

273,520

 

 

272,996

 

 

273,532

 

 

273,078

 

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

 

Six Months Ended

June 30,

June 30,

2024

2023

  Cash and cash equivalents at beginning of period

$

1,008,152

 

$

882,325

 

Cash flows from operating activities: Net income

 

477,163

 

 

462,924

 

Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization

 

87,202

 

 

70,432

 

Amortization of debt discount and fees

 

684

 

 

626

 

Stock-based compensation

 

175,698

 

 

150,896

 

(Gain) loss on investments, net

 

(80,599

)

 

554

 

Deferred income taxes

 

(9,506

)

 

(20,171

)

Provisions for losses on receivables

 

614

 

 

720

 

ROU asset amortization and change in operating lease liabilities

 

(1,410

)

 

(3,543

)

Other non-cash items

 

212

 

 

1,834

 

Changes in operating assets and liabilities, net of effect of acquired businesses: Receivables

 

(49,384

)

 

41,208

 

Inventories

 

(15,978

)

 

(16,981

)

Prepaid expenses and other

 

(39,868

)

 

50,793

 

Other assets

 

(38,967

)

 

(31,838

)

Accounts payable and accrued liabilities

 

(93,078

)

 

(37,049

)

Deferred revenue

 

(18,599

)

 

1,269

 

Other long-term liabilities

 

15,013

 

 

9,497

 

Net cash provided by operating activities

 

409,197

 

 

681,171

 

  Cash flows from investing activities: Purchases of investments

 

(2,095

)

 

(29,212

)

Proceeds from the sale and maturity of investments

 

43,864

 

 

1,505

 

Purchases of property, plant and equipment

 

(78,800

)

 

(46,655

)

Cash paid in business combinations, net of cash acquired

 

(720,821

)

 

(55,379

)

Net cash used for investing activities

 

(757,852

)

 

(129,741

)

  Cash flows from financing activities: Proceeds from revolving credit facility

 

-

 

 

50,000

 

Payments on revolving credit facility

 

-

 

 

(150,000

)

Proceeds from term loan

 

700,000

 

 

-

 

Payment of debt issuance costs

 

(944

)

 

-

 

Proceeds from issuance of common stock

 

133,272

 

 

77,502

 

Stock received for payment of employee taxes on vesting of restricted stock

 

(166,903

)

 

(78,988

)

Payments for repurchases of common stock

 

(250,010

)

 

(450,119

)

Net cash provided by (used for) financing activities

 

415,415

 

 

(551,605

)

  Effect of exchange rate changes on cash and cash equivalents

 

(15,957

)

 

(8,225

)

  Increase (decrease) in cash and cash equivalents

 

50,803

 

 

(8,400

)

  Cash and cash equivalents at end of period

$

1,058,955

 

$

873,925

 

Cadence Design Systems, Inc. (Unaudited)

 

Revenue Mix by Geography (% of Total Revenue)

2023

2024

GEOGRAPHY Q1 Q2 Q3 Q4 Year Q1 Q2   Americas

44%

41%

43%

44%

43%

46%

49%

China

17%

18%

17%

15%

17%

12%

12%

Other Asia

18%

18%

19%

19%

19%

20%

19%

Europe, Middle East and Africa

15%

17%

15%

16%

16%

17%

14%

Japan

6%

6%

6%

6%

5%

5%

6%

Total

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   Custom IC Design and Simulation

20%

22%

22%

22%

22%

22%

21%

Digital IC Design and Signoff

25%

27%

28%

29%

27%

29%

27%

Functional Verification, including Emulation and Prototyping Hardware

32%

27%

26%

24%

27%

25%

25%

IP

11%

11%

11%

13%

12%

12%

13%

System Design and Analysis

12%

13%

13%

12%

12%

12%

14%

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 22, 2024 (Unaudited)

 

Three Months Ending Year Ending September 30, 2024 December 31, 2024 Forecast Forecast   GAAP operating margin as a percent of total revenue

27.7% - 29.3%

29.7% - 31.3%

 

 

Reconciling items to non-GAAP operating margin as a

 

 

percent of total revenue:

 

 

Stock-based compensation expense

9%

8%

Amortization of acquired intangibles

2%

2%

Acquisition and integration-related costs

2%

2%

Non-qualified deferred compensation expenses

0%

0%

 

 

Non-GAAP operating margin as a percent of total revenue†

40.7% - 42.3%

41.7% - 43.3%

  †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 22, 2024 (Unaudited)   Three Months Ending Year Ending September 30, 2024 December 31, 2024 Forecast Forecast

 

 

Diluted net income per share on a GAAP basis

$0.83 to $0.93

$3.82 to $4.02

 

 

Stock-based compensation expense

0.38

1.43

Amortization of acquired intangibles

0.10

0.33

Acquisition and integration-related costs

0.10

0.34

Non-qualified deferred compensation expenses

-

0.02

Special charges

-

-

Other income or expense related to investments and

 

 

non-qualified deferred compensation plan assets*

-

(0.32)

Income tax effect of non-GAAP adjustments

(0.02)

0.15

 

 

Diluted net income per share on a non-GAAP basis†

$1.39 to $1.49

$5.77 to $5.97

  †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 July 22, 2024 (Unaudited)   Three Months Ending Year Ending September 30, 2024 December 31, 2024 ($ in millions) Forecast Forecast

 

Net income on a GAAP basis

$228 to $256

$1,049 to $1,103

 

 

Stock-based compensation expense

106

391

Amortization of acquired intangibles

26

90

Acquisition and integration-related costs

27

93

Non-qualified deferred compensation expenses

-

6

Special charges

-

1

Other income or expense related to investments and

 

 

non-qualified deferred compensation plan assets*

-

(87)

Income tax effect of non-GAAP adjustments

(5)

41

 

 

Net income on a non-GAAP basis†

$382 to $410

$1,584 to $1,638

  †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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