8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): July 23, 2018

CADENCE DESIGN SYSTEMS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	000-15867	00-0000000
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)
2655 Seely Avenue, Building 5 San Jose, California		95134
(Address of Principal Executive Offices)		(Zip Code)

(408) 943-1234

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Item 2.02. Results of Operations and Financial Condition.

On July 23, 2018, Cadence Design Systems, Inc. ("Cadence") issued a press release announcing its financial results for the quarter ended June 30, 2018.

A copy of the press release is attached hereto as Exhibit 99.01 and a copy of the commentary by the Chief Financial Officer of Cadence regarding Cadence's financial results for the quarter ended June 30, 2018 is attached hereto as Exhibit 99.02, and the press release and the commentary are incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.01	Press Release issued by Cadence Design Systems, Inc. on July 23, 2018.
99.02	CFO Commentary on Results of Quarter Ended June 30, 2018.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: July 23, 2018

CADENCE DESIGN SYSTEMS, INC.
By:	/s/ John M. Wall
	John M. Wall
	Senior Vice President and Chief Financial Officer

EX-99.01

Exhibit 99.01

Cadence Reports Second Quarter 2018 Financial Results

SAN JOSE, Calif. — July 23, 2018 — Cadence Design Systems, Inc. (NASDAQ: CDNS) today reported its results under new revenue rules, ASC Topic 606. For the second quarter of 2018, Cadence reported revenue of $518 million, GAAP net income of $75 million, or $0.27 per share on a diluted basis, and non-GAAP net income (as defined below), of $126 million, or $0.45 per share on a diluted basis.

Cadence also reported its results under the old revenue rules, ASC Topic 605, for easier comparison with prior results, all of which were reported under ASC Topic 605.

Under ASC Topic 605, for the second quarter of 2018, Cadence reported revenue of $515 million, compared to revenue of $479 million reported for the same period in 2017. On a GAAP basis, Cadence recognized net income of $73 million, or $0.26 per share on a diluted basis, in the second quarter of 2018, compared to net income of $69 million, or $0.25 per share on a diluted basis for the same period in 2017. Using the non-GAAP measure defined below, net income for the second quarter of 2018 was $124 million, or $0.44 per share on a diluted basis, as compared to non-GAAP net income of $94 million, or $0.34 per share on a diluted basis, for the same period in 2017.

“Multiple technology waves, especially machine learning, are driving increased design activity and our System Design Enablement strategy is perfectly positioned to benefit from these across multiple verticals” said Lip-Bu Tan, chief executive officer. “We had notable wins in Aerospace & Defense and introduced Cadence Cloud, the industry’s first broad cloud portfolio for the development of electronic systems and semiconductors.”

“Consistent execution delivered good results for Cadence again this quarter. We continue to lead with innovation, making Cadence products increasingly mission critical to our customers, while our efforts to continually improve operational efficiency results in increased profitability flowing through to free cash flow,” said John Wall, senior vice president and chief financial officer.

CFO Commentary

Commentary on the second quarter 2018 financial results by John Wall, senior vice president and chief financial officer, is available at www.cadence.com/cadence/investor_relations.

Business Outlook

The outlook provided below is on an ASC Topic 606 basis, which Cadence has adopted for its fiscal year 2018 using the modified retrospective transition method. As required by the new standard, the company will report revenue under both methods for the 2018 transition year. 

For the third quarter of 2018, the company expects total revenue in the range of $510 million to $520 million. Third quarter GAAP net income per diluted share is expected to be in the range of $0.22 to $0.24. Net income per diluted share using the non-GAAP measure defined below is expected to be in the range of $0.40 to $0.42.

For 2018, the company expects total revenue in the range of $2.070 billion to $2.090 billion. On a GAAP basis, net income per diluted share for 2018 is expected to be in the range of $0.95 to $1.01. Using the non-GAAP measure defined below, net income per diluted share for 2018 is expected to be in the range of $1.64 to $1.70.

For 2018, the company is forecasting a non-GAAP income tax rate of 16 percent, down from 23 percent used in 2017, primarily resulting from the tax rate reduction.

For comparison purposes, the company expects the outlook at the midpoint for 2018 on the prior ASC Topic 605 basis to be as follows: revenue of $2.105 billion, GAAP net income per diluted share of $1.06 and non-GAAP net income per diluted share of $1.74. 

A schedule showing a reconciliation of the business outlook from GAAP net income and diluted net income per share to non-GAAP net income and diluted net income per share is included in this release.

Audio Webcast Scheduled

Lip-Bu Tan, chief executive officer, and John Wall, senior vice president and chief financial officer, will host the second quarter 2018 financial results audio webcast today, July 23, 2018, 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 23, 2018 at 5 p.m. (Pacific) and ending September 14, 2018 at 5 p.m. (Pacific). Webcast access is available at www.cadence.com/cadence/investor_relations.

About Cadence

Cadence enables electronic systems and semiconductor companies to create the innovative end products that are transforming the way people live, work and play. Cadence^® software, hardware and semiconductor IP are used by customers to deliver products to market faster. The company’s System Design Enablement strategy helps customers develop differentiated products—from chips to boards to systems—in mobile, consumer, cloud datacenter, automotive, aerospace, IoT, industrial and other market segments. Cadence is listed as one of Fortune Magazine's 100 Best Companies to Work For. Learn more at cadence.com.

Cadence and the Cadence logo are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

The statements contained above regarding Cadence’s second quarter 2018 financial results and outlook for 2018, as well as the information in the Business Outlook section, are or include forward-looking statements based on current expectations or beliefs and preliminary assumptions about future events that are subject to factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside Cadence’s control, including, among others: (i) Cadence’s ability to compete successfully in the electronic design automation product and the commercial electronic design and methodology services industries; (ii) the success of Cadence’s efforts to improve operational efficiency and growth; (iii) the mix of products and services sold and the timing of significant orders for Cadence’s products; (iv) change in customer demands, including those resulting from consolidation among Cadence’s customers and the possibility that the restructurings and other efforts to improve operational efficiency of Cadence’s customers could result in delays in purchases of Cadence’s products and services; (v) economic and industry conditions in regions in which Cadence does business; (vi) fluctuations in rates of exchange between the U.S. dollar and the currencies of other countries in which Cadence does business; (vii) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rates and Cadence’s ability to access capital and debt markets; (viii) the acquisition of other companies or technologies or the failure to successfully integrate and operate these companies or technologies Cadence acquires, including the potential inability to retain customers, key employees or vendors; (ix) the effects of Cadence’s efforts to improve operational efficiency in its business, including strategic, customer and supplier relationships, and its ability to retain key employees; (x) events that affect cash flow, liquidity, reserves or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation or other matters; and (xi) the effects of any litigation or other proceedings to which Cadence is or may become a party. In addition, the actual timing and amount of Cadence's repurchase of its common stock under the existing authorization will be subject to business and market conditions, corporate and regulatory requirements, 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, which include Cadence’s most recent reports on Form 10-K and Form 10-Q, including Cadence’s future filings.

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 financial measures contained within this press release with their most directly comparable GAAP financial 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 net income and GAAP net income per diluted share in the calculation of non-GAAP net income and non-GAAP net income per diluted share for the periods shown below:

Net Income Reconciliation	Three Months Ended
(unaudited)	ASC 606			ASC 605			ASC 605
	June 30, 2018			June 30, 2018			July 1, 2017
(in thousands)
Net income on a GAAP basis	$	75,149		$	73,072		$	69,127
Amortization of acquired intangibles	13,509			13,509			14,704
Stock-based compensation expense	40,956			40,956			30,482
Non-qualified deferred compensation expenses	468			468			756
Restructuring and other credits	(447		)	(447		)	(929		)
Acquisition and integration-related costs	6,765			6,765			651
Other income or expense related to investments and non-qualified deferred compensation plan assets*	(1,013		)	(1,013		)	(855		)
Income tax effect of non-GAAP adjustments	(9,166		)	(8,961		)	(19,861		)
Net income on a non-GAAP basis	$	126,221		$	124,349		$	94,075

* 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
(unaudited)	ASC 606			ASC 605			ASC 605
	June 30, 2018			June 30, 2018			July 1, 2017
(in thousands, except per share data)
Diluted net income per share on a GAAP basis	$	0.27		$	0.26		$	0.25
Amortization of acquired intangibles	0.05			0.05			0.05
Stock-based compensation expense	0.14			0.14			0.11
Non-qualified deferred compensation expenses	—			—			—
Restructuring and other credits	—			—			—
Acquisition and integration-related costs	0.02			0.02			—
Other income or expense related to investments and non-qualified deferred compensation plan assets*	—			—			—
Income tax effect of non-GAAP adjustments	(0.03		)	(0.03		)	(0.07		)
Diluted net income per share on a non-GAAP basis	$	0.45		$	0.44		$	0.34
Shares used in calculation of diluted net income per share — GAAP**	280,774			280,774			279,526
Shares used in calculation of diluted net income per share — non-GAAP**	280,774			280,774			279,526

* 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.

** Shares used in the calculation of GAAP net income per share are expected to be the same as shares used in the calculation of non-GAAP net income per share, except when the company reports a GAAP net loss and non-GAAP net income, or GAAP net income and a non-GAAP net loss.

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 14, 2018, 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 2018 earnings release is published, which is currently scheduled for October 22, 2018.

For more information, please contact:

Cadence Investor Relations

408-944-7100

investor_relations@cadence.com

Cadence Newsroom

408-944-7039

newsroom@cadence.com

Cadence Design Systems, Inc.

Condensed Consolidated Balance Sheets

June 30, 2018 and December 30, 2017

(In thousands)

(Unaudited)

	June 30, 2018		December 30, 2017
Current assets:
Cash and cash equivalents	$	819,540	$	688,087
Short-term investments	5,842		4,455
Receivables, net of allowances of $1,015 and $0, respectively	219,072		190,426
Inventories	28,558		33,209
Prepaid expenses and other	56,042		63,811
Total current assets	1,129,054		979,988
Property, plant and equipment, net of accumulated depreciation of $677,737 and $658,377, respectively	252,193		251,342
Goodwill	663,320		666,009
Acquired intangibles, net of accumulated amortization of $308,055 and $297,456, respectively	251,385		278,835
Long-term receivables	4,740		12,239
Other assets	227,173		230,301
Total assets	$	2,527,865	$	2,418,714
Current liabilities:
Revolving credit facility	$	—	$	85,000
Current portion of long-term debt	299,879		—
Accounts payable and accrued liabilities	243,158		221,101
Current portion of deferred revenue	327,078		336,297
Total current liabilities	870,115		642,398
Long-term liabilities:
Long-term portion of deferred revenue	46,912		61,513
Long-term debt	344,939		644,369
Other long-term liabilities	77,911		81,232
Total long-term liabilities	469,762		787,114
Stockholders’ equity	1,187,988		989,202
Total liabilities and stockholders’ equity	$	2,527,865	$	2,418,714

Cadence Design Systems, Inc.

Condensed Consolidated Income Statements

For the Three and Six Months Ended June 30, 2018 and July 1, 2017

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017
Revenue:
Product and maintenance	$	487,870		$	443,847		$	968,479		$	895,254
Services	30,521			35,154			67,225			60,658
Total revenue	518,391			479,001			1,035,704			955,912
Costs and expenses:
Cost of product and maintenance	40,127			38,829			81,857			82,546
Cost of services	18,833			22,003			40,312			40,078
Marketing and sales	109,300			103,897			218,448			207,244
Research and development	219,129			195,901			443,314			394,187
General and administrative	34,875			32,774			68,174			64,590
Amortization of acquired intangibles	3,518			3,836			7,148			7,692
Restructuring and other credits	(447		)	(929		)	(2,438		)	(2,717		)
Total costs and expenses	425,335			396,311			856,815			793,620
Income from operations	93,056			82,690			178,889			162,292
Interest expense	(6,669		)	(6,248		)	(13,644		)	(12,727		)
Other income, net	3,638			924			2,949			1,983
Income before provision for income taxes	90,025			77,366			168,194			151,548
Provision for income taxes	14,876			8,239			20,160			14,162
Net income	$	75,149		$	69,127		$	148,034		$	137,386
Net income per share - basic	$	0.27		$	0.25		$	0.54		$	0.51
Net income per share - diluted	$	0.27		$	0.25		$	0.53		$	0.49
Weighted average common shares outstanding - basic	273,564			271,887			273,703			271,030
Weighted average common shares outstanding - diluted	280,774			279,526			281,247			278,631

Cadence Design Systems, Inc.

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2018 and July 1, 2017

(In thousands)

(Unaudited)

	Six Months Ended
	June 30, 2018			July 1, 2017
Cash and cash equivalents at beginning of period	$	688,087		$	465,232
Cash flows from operating activities:
Net income	148,034			137,386
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	59,282			58,304
Amortization of debt discount and fees	586			633
Stock-based compensation	78,857			57,918
Gain on investments, net	(2,136		)	(2,083		)
Deferred income taxes	1,664			4,813
Provisions for losses on receivables	1,015			—
Other non-cash items	462			2,157
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables	(2,606		)	6,342
Inventories	1,932			2,535
Prepaid expenses and other	13,294			(1,557		)
Other assets	5,622			(8,790		)
Accounts payable and accrued liabilities	(11,832		)	(21,995		)
Deferred revenue	71,667			18,733
Other long-term liabilities	(2,928		)	174
Net cash provided by operating activities	362,913			254,570
Cash flows from investing activities:
Proceeds from the sale of available-for-sale securities	—			189
Purchases of property, plant and equipment	(31,105		)	(27,488		)
Net cash used for investing activities	(31,105		)	(27,299		)
Cash flows from financing activities:
Proceeds from revolving credit facility	—			50,000
Payment on revolving credit facility	(85,000		)	(100,000		)
Payment of debt issuance costs	—			(793		)
Proceeds from issuance of common stock	25,656			29,967
Stock received for payment of employee taxes on vesting of restricted stock	(30,125		)	(25,819		)
Payments for repurchases of common stock	(100,025		)	—
Change in book overdraft	(3,867		)	—
Net cash used for financing activities	(193,361		)	(46,645		)
Effect of exchange rate changes on cash and cash equivalents	(6,994		)	10,140
Increase in cash and cash equivalents	131,453			190,766
Cash and cash equivalents at end of period	$	819,540		$	655,998

Cadence Design Systems, Inc.

(Unaudited)

Revenue Mix by Geography (% of Total Revenue)

	ASC 605										ASC 605				ASC 606
	2017										2018				2018
GEOGRAPHY	Q1		Q2		Q3		Q4		Year		Q1		Q2		Q1		Q2
Americas	45	%	45	%	45	%	44	%	44	%	45	%	45	%	45	%	46	%
Asia	26	%	28	%	27	%	28	%	27	%	26	%	26	%	27	%	26	%
Europe, Middle East and Africa	20	%	19	%	19	%	20	%	20	%	21	%	21	%	20	%	20	%
Japan	9	%	8	%	9	%	8	%	9	%	8	%	8	%	8	%	8	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%

Revenue Mix by Product Group (% of Total Revenue)

	ASC 605										ASC 605				ASC 606
	2017										2018				2018
PRODUCT GROUP	Q1		Q2		Q3		Q4		Year		Q1		Q2		Q1		Q2
Functional Verification, including Emulation and Prototyping Hardware	23	%	23	%	21	%	23	%	22	%	26	%	23	%	26	%	23	%
Digital IC Design and Signoff	29	%	30	%	30	%	29	%	29	%	29	%	29	%	30	%	30	%
Custom IC Design	26	%	26	%	28	%	26	%	27	%	26	%	26	%	26	%	26	%
System Interconnect and Analysis	10	%	10	%	10	%	10	%	10	%	9	%	10	%	9	%	9	%
IP	12	%	11	%	11	%	12	%	12	%	10	%	12	%	9	%	12	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%

Cadence Design Systems, Inc.

As of July 23, 2018

Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share

(Unaudited)

	Three Months Ending September 29, 2018	Year Ending December 29, 2018	Year Ending December 29, 2018
	ASC 606 Forecast	ASC 606 Forecast	ASC 605 Forecast **
Diluted net income per share on a GAAP basis	$0.22 to $0.24	$0.95 to $1.01	~$1.06
Amortization of acquired intangibles	0.05	0.19	0.19
Stock-based compensation expense	0.17	0.60	0.60
Restructuring and other charges (credits)	—	(0.01)	(0.01)
Acquisition and integration-related costs	0.02	0.09	0.09
Other income or expense related to investments and non-qualified deferred compensation plan assets*	—	(0.01)	(0.01)
Income tax effect of non-GAAP adjustments	(0.06)	(0.17)	(0.18)
Diluted net income per share on a non-GAAP basis†	$0.40 to $0.42	$1.64 to $1.70	~$1.74

Cadence Design Systems, Inc.

As of July 23, 2018

Impact of Non-GAAP Adjustments on Forward Looking Net Income

(Unaudited)

	Three Months Ending September 29, 2018	Year Ending December 29, 2018	Year Ending December 29, 2018
($ in millions)	ASC 606 Forecast	ASC 606 Forecast	ASC 605 Forecast **
Net income on a GAAP basis	$61 to $67	$267 to $283	~$298
Amortization of acquired intangibles	13	54	54
Stock-based compensation expense	47	169	169
Restructuring and other charges (credits)	—	(2)	(2)
Acquisition and integration-related costs	6	26	26
Other income or expense related to investments and non-qualified deferred compensation plan assets*	—	(2)	(2)
Income tax effect of non-GAAP adjustments	(16)	(49)	(51)
Net income on a non-GAAP basis†	$111 to $117	$463 to $479	~$492

† 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.

** As required by the new standard, Cadence will report revenue under both methods for the 2018 transition year. ASC Topic 605 forecast at midpoint.

EX-99.02

Exhibit 99.02

CADENCE REPORTS SECOND QUARTER 2018
CADENCE DESIGN SYSTEMS, INC.
CFO COMMENTARY
July 23, 2018 Q2 2018 Key Takeaways • Q2 results met or exceeded our expectations for revenue, operating margin, EPS and operating cash flow; raising outlook. • Cash flow especially strong - raising outlook to midpoint of $550 million for 2018, which would be growth of 17% over 2017. • Repurchased $50 million of Cadence shares in Q2.	Q3 2018 Outlook * (ASC Topic 606 Basis) • Revenue : $510 - $520 million. • GAAP operating margin: 14% to 15%. • Non-GAAP operating margin: 27% to 28%. • GAAP EPS: $0.22 - $0.24 • Non-GAAP EPS: $0.40 - $0.42	Q2 2018 KEY METRICS
		• Revenue $518 million • GAAP operating margin 18% • Non-GAAP operating margin 30% • GAAP EPS $0.27 • Non-GAAP EPS $0.45 • Operating cash flow $205 million
FY 2018 Outlook * (ASC Topic 606 Basis) • Revenue: $2.070 - $2.090 billion. • GAAP operating margin: ~16%. • Non-GAAP operating margin: ~28%. • GAAP EPS: $0.95 - $1.01 • Non-GAAP EPS $1.64 - $1.70 • Operating cash flow: $535 - $565 million. • Expect to repurchase $50 million of Cadence shares per quarter in 2018.	FY 2018 Implied Outlook * (ASC Topic 605 Basis at midpoint)• Revenue: ~$2.105 billion. • GAAP operating margin: ~17%. • Non-GAAP operating margin: ~29%. • GAAP EPS: ~$1.06 • Non-GAAP EPS: ~$1.74 • Operating cash flow: $535 - $565 million.	Financial Results Webcast
		Our Q2 2018 financial results webcast will begin July 23, 2018 at 2:00 p.m. (Pacific). The webcast may be accessed at cadence.com/cadence/investor_relations. An archive of the webcast will be available on July 23, 2018 until 5:00 p.m. (Pacific) on September 14, 2018.
* As required by the new standard, Cadence will report revenue under both methods for the 2018 transition year.

July 23, 2018 Cadence Q2 2018 Financial Results 1

Cadence Design Systems, Inc.

Third Quarter 2018 Financial Outlook (ASC 606 Basis)

	ASC 606	ASC 606
	Q2 2018A	Q3 2018E
Total Revenue ($ Million)	$518.4	$510 - $520
Q/Q Growth	0%	(2)% - 0%
GAAP Operating Margin	18%	14% to 15%
Non-GAAP Operating Margin	30%	27% to 28%
GAAP EPS	$0.27	$0.22 - $0.24
Q/Q Growth	4%	(19)% - (11)%
Non-GAAP EPS	$0.45	$0.40 - $0.42
Q/Q Growth	13%	(11)% - (7)%

Fiscal Year 2018 Financial Outlook (ASC 606 Basis)

	Previous	Current
	ASC 606	ASC 606
	FY 2018E	FY 2018E
Revenue Recognized Over Time	~90%	~90%
Total Revenue ($ Billion)	$2.055 - $2.085	$2.070 - $2.090
Revenue from Beginning Backlog	70% - 75%	70% - 75%
GAAP Operating Margin	15% - 16%	~16%
Non-GAAP Operating Margin	27% - 28%	~28%
GAAP Other Income & Expense ($ Million)	$(31) - $(23)	$(26) - $(19)
Non-GAAP Other Income & Expense ($ Million)	$(32) - $(24)	$(28) - $(21)
GAAP Tax Rate	14% - 15%	~13%
Non-GAAP Tax Rate	16%	16%
Weighted Average Diluted Shares Outstanding (Million)	280 - 284	280 - 284
GAAP EPS	$0.86 - $0.94	$0.95 - $1.01
Non-GAAP EPS	$1.57 - $1.65	$1.64 - $1.70
Cash Flow from Operations ($ Million)	$510 - $550	$535 - $565
DSO	~40	~40
Capital Expenditures ($ Million)	~$60	~$65

July 23, 2018 Cadence Q2 2018 Financial Results 2

Cadence Design Systems, Inc.

Fiscal Year 2018 Financial Outlook (ASC 605 Basis)

			Previous		Current
	ASC 605		ASC 605		ASC 605
	FY 2017A		FY 2018E		FY 2018E
Revenue Recognized Over Time	~90%		~90%		~90%
Total Revenue ($ Billion)	$1.943		~$2.100		~$2.105
Y/Y Growth	7	%	8%		8%
Revenue from Beginning Backlog	~70%		70% - 75%		70% - 75%
GAAP Operating Margin	16.7%		~17.0%		~17.0%
Non-GAAP Operating Margin	27.5%		~28.6%		~29.0%
GAAP Other Income & Expense ($ Million)	$(8.9)		$(31) - $(23)		$(26) - $(19)
Non-GAAP Other Income & Expense ($ Million)	$(24.6)		$(32) - $(24)		$(28) - $(21)
GAAP Tax Rate	35%		13% - 14%		12% - 13%
Non-GAAP Tax Rate	23%		16%		16%
Weighted Average Diluted Shares Outstanding (Million)	280.2		280 - 284		280 - 284
GAAP EPS	$0.73		~$1.01		~$1.06
Y/Y Growth	4%		38	%	45	%
Non-GAAP EPS	$1.40		~$1.70		~$1.74
Y/Y Growth	16%		21%		24%
Cash Flow from Operations ($ Million)	$470.7		$510 - $550		$535 - $565
DSO	36		~35		~35
Capital Expenditures ($ Million)	$57.9		~$60		~$65

Fiscal Year 2018 Financial Outlook (ASC 606 compared to ASC 605)

	ASC 606		ASC 605
	FY 2018E	Adjustments	FY 2018E
Revenue @ Midpoint	$2.080 billion	$25.0 million	$2.105 billion
Non-GAAP Operating Margin @ Midpoint	28%	1%	29%
Non-GAAP EPS @ Mid-point	$1.67	$0.07	$1.74

July 23, 2018 Cadence Q2 2018 Financial Results 3

Cadence Design Systems, Inc.

Second Quarter Financial Results

Revenue

	ASC 606	ASC 606
(In Thousands)	Q1 2018	Q2 2018
Product and Maintenance	$480,609	$487,870
Services	36,704	30,521
Total Revenue	$517,313	$518,391

	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
(In Thousands)	Q2 2017	Q3 2017	Q4 2017	Q1 2018	Q2 2018
Product and Maintenance	$443,847	$451,229	$467,504	$486,789	$483,254
Services	35,154	34,169	34,218	38,668	31,857
Total Revenue	$479,001	$485,398	$501,722	$525,457	$515,111
Y/Y Growth	6%	9%	7%	10%	8%

Revenue Mix by Geography

	ASC 606		ASC 606
(% of Total Revenue)	Q1 2018		Q2 2018
Americas	45	%	46	%
Asia	27	%	26	%
Europe, Middle East and Africa	20	%	20	%
Japan	8	%	8	%
Total	100	%	100	%

	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
(% of Total Revenue)	Q2 2017		Q3 2017		Q4 2017		Q1 2018		Q2 2018
Americas	45	%	45	%	44	%	45	%	45	%
Asia	28	%	27	%	28	%	26	%	26	%
Europe, Middle East and Africa	19	%	19	%	20	%	21	%	21	%
Japan	8	%	9	%	8	%	8	%	8	%
Total	100	%	100	%	100	%	100	%	100	%

July 23, 2018 Cadence Q2 2018 Financial Results 4

Cadence Design Systems, Inc.

Revenue Mix by Product Group

	ASC 606		ASC 606
(% of Total Revenue)	Q1 2018		Q2 2018
Functional Verification	26	%	23	%
Digital IC Design and Signoff	30	%	30	%
Custom IC Design	26	%	26	%
System Interconnect and Analysis	9	%	9	%
IP	9	%	12	%
Total	100	%	100	%

	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
(% of Total Revenue)	Q2 2017		Q3 2017		Q4 2017		Q1 2018		Q2 2018
Functional Verification	23	%	21	%	23	%	26	%	23	%
Digital IC Design and Signoff	30	%	30	%	29	%	29	%	29	%
Custom IC Design	26	%	28	%	26	%	26	%	26	%
System Interconnect and Analysis	10	%	10	%	10	%	9	%	10	%
IP	11	%	11	%	12	%	10	%	12	%
Total	100	%	100	%	100	%	100	%	100	%

Total Costs and Expenses

	ASC 606	ASC 606
(In Thousands)	Q1 2018	Q2 2018
Total GAAP Costs and Expenses	$431,480	$425,335
Total Non-GAAP Costs and Expenses	$373,753	$364,084

	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
(In Thousands)	Q2 2017	Q3 2017	Q4 2017	Q1 2018	Q2 2018
Total GAAP Costs and Expenses	$396,311	$405,013	$420,444	$428,419	$424,283
Y/Y Growth	3%	7%	1%	8%	7%
Total Non-GAAP Costs and Expenses	$350,647	$351,787	$351,503	$370,692	$363,032
Y/Y Growth	4%	6%	2%	5%	4%

July 23, 2018 Cadence Q2 2018 Financial Results 5

Cadence Design Systems, Inc.

Operating Margin

	ASC 606		ASC 606
	Q1 2018		Q2 2018
GAAP Operating Margin	16.6	%	18.0	%
Non-GAAP Operating Margin	27.8	%	29.8	%

	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
	Q2 2017		Q3 2017		Q4 2017		Q1 2018		Q2 2018
GAAP Operating Margin	17.3	%	16.6	%	16.2	%	18.5	%	17.6	%
Non-GAAP Operating Margin	26.8	%	27.5	%	29.9	%	29.5	%	29.5	%

Earnings (Loss) Per Share

	ASC 606	ASC 606
	Q1 2018	Q2 2018
GAAP Net Income Per Share	$0.26	$0.27
Non-GAAP Net Income Per Share	$0.40	$0.45

	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
	Q2 2017	Q3 2017	Q4 2017	Q1 2018	Q2 2018
GAAP Net Income (Loss) Per Share	$0.25	$0.29	$(0.05)	$0.30	$0.26
Y/Y Growth	47%	26%	(136)%	20%	4%
Non-GAAP Net Income Per Share	$0.34	$0.35	$0.39	$0.44	$0.44
Y/Y Growth	17%	17%	15%	38%	29%

Total DSO

	ASC 606	ASC 606
	Q1 2018	Q2 2018
DSO	41	39

	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
	Q2 2017	Q3 2017	Q4 2017	Q1 2018	Q2 2018
DSO	31	34	36	38	36

July 23, 2018 Cadence Q2 2018 Financial Results 6

Cadence Design Systems, Inc.

Balance Sheet and Cash Review

Cash Flow from Operating Activities

(In Thousands)	Q2 2017	Q3 2017	Q4 2017	Q1 2018	Q2 2018
Net Cash from Operating Activities	$162,140	$89,314	$126,856	$157,647	$205,266

Capital Expenditures

(In Thousands)	Q2 2017	Q3 2017	Q4 2017	Q1 2018	Q2 2018
Capital Expenditures	$12,645	$12,188	$18,225	$13,128	$17,977

Cash and Short-Term Investments

(In Thousands)	Q2 2017	Q3 2017	Q4 2017	Q1 2018	Q2 2018
Cash and Short-Term Investments	$659,227	$682,419	$692,542	$752,434	$825,382

• Approximately 58 percent of our cash and short-term investments were in the U.S. at quarter-end.

Stock Repurchase

(In Thousands, Except Share Price)	Q2 2017	Q3 2017	Q4 2017	Q1 2018	Q2 2018
Share Repurchase	—	$50,013	$50,012	$50,013	$50,012
Number of Shares	—	1,331	1,164	1,289	1,224
Average Share Price	—	$37.58	$42.97	$38.80	$40.86

Employees

	Q2 2017	Q3 2017	Q4 2017	Q1 2018	Q2 2018
Headcount	7,190	7,233	7,214	7,229	7,288

July 23, 2018 Cadence Q2 2018 Financial Results 7

Cadence Design Systems, Inc.

Forward Looking Statements

The statements in this CFO Commentary contain forward-looking statements based on current expectations or beliefs and preliminary assumptions about future events that are subject to factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside Cadence’s control, including, among others: (i) Cadence’s ability to compete successfully in the electronic design automation product and the commercial electronic design and methodology services industries; (ii) the success of Cadence’s efforts to improve operational efficiency and growth; (iii) the mix of products and services sold and the timing of significant orders for Cadence’s products; (iv) change in customer demands, including those resulting from consolidation among Cadence’s customers and the possibility that the restructurings and other efforts to improve operational efficiency of Cadence’s customers could result in delays in purchases of Cadence’s products and services; (v) economic and industry conditions in regions in which Cadence does business; (vi) fluctuations in rates of exchange between the U.S. dollar and the currencies of other countries in which Cadence does business; (vii) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rates and Cadence’s ability to access capital and debt markets; (viii) the acquisition of other companies or technologies or the failure to successfully integrate and operate these companies or technologies Cadence acquires, including the potential inability to retain customers, key employees or vendors; (ix) the effects of Cadence’s efforts to improve operational efficiency in its business, including strategic, customer and supplier relationships, and its ability to retain key employees; (x) events that affect cash flow, liquidity, reserves or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation or other matters; and (xi) the effects of any litigation or other proceedings to which Cadence is or may become a party. In addition, the actual timing and amount of Cadence's repurchase of its common stock under the existing authorization will be subject to business and market conditions, corporate and regulatory requirements, 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, which include Cadence’s most recent reports on Form 10-K and Form 10-Q, including Cadence’s future filings.

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 GAAP. Investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this CFO Commentary with their most directly comparable GAAP financial results. Investors are also encouraged to look at the GAAP results as the best measure of financial performance. See our earnings press release issued today for further discussion of our non-GAAP financial measures, as well as the reconciliation provided in the Appendix to this CFO Commentary.

Cadence’s management uses non-GAAP net income because it excludes items that are generally not directly related to the performance of the company’s core business operations and therefore provides supplemental information to Cadence’s 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’s management, including forecasting and budgeting.

Cadence's non-GAAP net income for the fourth quarter of 2017 excludes the effect of the transition tax expense and income tax expense related to the reduction in value of the deferred tax assets caused by the U.S. corporate tax rate reduction. Cadence management believes it is useful to exclude these tax expenses since it does not expect these tax expenses to be recorded frequently.

Cadence and the Cadence logo are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

July 23, 2018 Cadence Q2 2018 Financial Results 8

Cadence Design Systems, Inc.

APPENDIX I

Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited)

Reconciliation of GAAP Total Expenses to Non-GAAP Total Expenses

	ASC 606		ASC 606
(In Thousands)	Q1 2018		Q2 2018
GAAP total costs and expenses	$431,480		$425,335
Reconciling items to non-GAAP total costs and expenses
Amortization of acquired intangibles	(13,907	)	(13,509	)
Stock-based compensation expense	(37,901	)	(40,956	)
Non-qualified deferred compensation expenses	(127	)	(468	)
Restructuring and other credits	1,991		447
Acquisition and integration-related costs	(7,783	)	(6,765	)
Non-GAAP total costs and expenses†	$373,753		$364,084

	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
(In Thousands)	Q2 2017		Q3 2017		Q4 2017		Q1 2018		Q2 2018
GAAP total costs and expenses	$396,311		$405,013		$420,444		$428,419		$424,283
Reconciling items to non-GAAP total costs and expenses
Amortization of acquired intangibles	(14,704	)	(13,618	)	(13,741	)	(13,907	)	(13,509	)
Stock-based compensation expense	(30,482	)	(36,090	)	(36,015	)	(37,901	)	(40,956	)
Non-qualified deferred compensation expenses	(756	)	(2,825	)	(1,295	)	(127	)	(468	)
Restructuring and other (charges) credits	929		55		(12,178	)	1,991		447
Acquisition and integration-related costs	(651	)	(748	)	(5,712	)	(7,783	)	(6,765	)
Non-GAAP total costs and expenses†	$350,647		$351,787		$351,503		$370,692		$363,032

† 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.

July 23, 2018 Cadence Q2 2018 Financial Results 9

Cadence Design Systems, Inc.

Reconciliation of GAAP Operating Margin as Percent of Total Revenue to Non-GAAP Operating Margin as Percent of Total Revenue

	ASC 606	ASC 606	ASC 606
	Q1 2018	Q2 2018	Q3 2018E
GAAP operating margin as percent of total revenue	17%	18%	14% - 15%
Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	3%	3%	3%
Stock-based compensation expense	7%	8%	9%
Non-qualified deferred compensation expenses	0%	0%	0%
Restructuring and other charges (credits)	0%	0%	0%
Acquisition and integration-related costs	1%	1%	1%
Non-GAAP operating margin as percent of total revenue†	28%	30%	27% - 28%

† 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.

	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
	Q2 2017	Q3 2017	Q4 2017	Q1 2018	Q2 2018
GAAP operating margin as percent of total revenue	17%	17%	16%	18%	18%
Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	3%	3%	3%	3%	3%
Stock-based compensation expense	7%	7%	7%	7%	8%
Non-qualified deferred compensation expenses	0%	1%	0%	0%	0%
Restructuring and other charges (credits)	0%	0%	3%	0%	0%
Acquisition and integration-related costs	0%	0%	1%	1%	1%
Non-GAAP operating margin as percent of total revenue†	27%	28%	30%	29%	30%

† 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.

July 23, 2018 Cadence Q2 2018 Financial Results 10

Cadence Design Systems, Inc.

Reconciliation of GAAP Operating Margin as Percent of Total Revenue to Non-GAAP Operating Margin as Percent of Total Revenue

	ASC 605	ASC 605	ASC 605	ASC 606
	2016	2017	2018E	2018E
GAAP operating margin as percent of total revenue	13%	17%	~17%	~16%
Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	4%	3%	3%	3%
Stock-based compensation expense	6%	7%	8%	8%
Non-qualified deferred compensation expenses	0%	0%	0%	0%
Restructuring and other charges (credits)	2%	1%	0%	0%
Acquisition and integration-related costs	1%	0%	1%	1%
Non-GAAP operating margin as percent of total revenue†	26%	28%	~29%	~28%

† 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.

July 23, 2018 Cadence Q2 2018 Financial Results 11

Cadence Design Systems, Inc.

Reconciliation of GAAP Diluted Net Income Per Share to Non-GAAP Diluted Net Income Per Share

	ASC 606		ASC 606		ASC 606
(In Thousands, Except Per Share Data)	Q1 2018		Q2 2018		Q3 2018E
Diluted net income per share on a GAAP basis	$0.26		$0.27		$0.22 - $0.24
Amortization of acquired intangibles	0.05		0.05		0.05
Stock-based compensation expense	0.13		0.14		0.17
Non-qualified deferred compensation expenses	—		—		—
Restructuring and other charges (credits)	(0.01	)	—		—
Acquisition and integration-related costs	0.03		0.02		0.02
Other income or expense related to investments and non-qualified deferred compensation plan assets *	—		—		—
Income tax effect of non-GAAP adjustments	(0.06	)	(0.03	)	(0.06	)
Diluted net income per share on a non-GAAP basis †	$0.40		$0.45		$0.40 - $0.42
Shares used in calculation of diluted net income per share - GAAP **	281,651		280,774
Shares used in calculation of diluted net income per share - non-GAAP **	281,651		280,774

† 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.

** Shares used in the calculation of GAAP net income per share are expected to be the same as shares used in the calculation of non-GAAP net income per share, except when the company reports a GAAP net loss and non-GAAP net income, or GAAP net income and a non-GAAP net loss.

July 23, 2018 Cadence Q2 2018 Financial Results 12

Cadence Design Systems, Inc.

Reconciliation of GAAP Diluted Net Income (Loss) Per Share to Non-GAAP Diluted Net Income Per Share

	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
(In Thousands, Except Per Share Data)	Q2 2017		Q3 2017		Q4 2017		Q1 2018		Q2 2018
Diluted net income (loss) per share on a GAAP basis	$0.25		$0.29		$(0.05)		$0.30		$0.26
Amortization of acquired intangibles	0.05		0.05		0.05		0.05		0.05
Stock-based compensation expense	0.11		0.13		0.13		0.13		0.14
Non-qualified deferred compensation expenses	—		0.01		—		—		—
Restructuring and other charges (credits)	—		—		0.04		(0.01	)	—
Acquisition and integration-related costs	—		—		0.02		0.03		0.02
Other income or expense related to investments and non-qualified deferred compensation plan assets *	—		(0.04	)	(0.01	)	—		—
Income tax related to transition tax	—		—		0.24		—		—
Income tax related to tax rate change	—		—		0.09		—		—
Income tax effect of non-GAAP adjustments	(0.07	)	(0.09	)	(0.12	)	(0.06	)	(0.03	)
Diluted net income per share on a non-GAAP basis †	$0.34		$0.35		$0.39		$0.44		$0.44
Shares used in calculation of diluted net income (loss) per share - GAAP **	279,526		281,400		273,157		281,651		280,774
Shares used in calculation of diluted net income per share - non-GAAP **	279,526		281,400		282,206		281,651		280,774

† 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.

** Shares used in the calculation of GAAP net income (loss) per share are expected to be the same as shares used in the calculation of non-GAAP net income per share, except when the company reports a GAAP net loss and non-GAAP net income, or GAAP net income and a non-GAAP net loss.

July 23, 2018 Cadence Q2 2018 Financial Results 13

Cadence Design Systems, Inc.

Reconciliation of GAAP Diluted Net Income Per Share to Non-GAAP Diluted Net Income Per Share

	ASC 605		ASC 605		ASC 605		ASC 606
(In Thousands, Except Per Share Data)	2016		2017		2018E		2018E
Diluted net income per share on a GAAP basis	$0.70		$0.73		~$1.06		$0.95 - $1.01
Amortization of acquired intangibles	0.21		0.20		0.19		0.19
Stock-based compensation expense	0.37		0.46		0.60		0.60
Non-qualified deferred compensation expenses	0.01		0.02		—		—
Restructuring and other charges (credits)	0.14		0.03		(0.01	)	(0.01	)
Acquisition and integration-related costs	0.04		0.03		0.09		0.09
Other income or expense related to investments and non-qualified deferred compensation plan assets *	(0.02	)	(0.05	)	(0.01	)	(0.01	)
Income tax related to transition tax	—		0.24		—		—
Income tax related to tax rate change	—		0.09		—		—
Income tax effect of non-GAAP adjustments	(0.24	)	(0.35	)	(0.18	)	(0.17	)
Diluted net income per share on a non-GAAP basis †	$1.21		$1.40		~$1.74		$1.64 - $1.70
Shares used in calculation of diluted net income per share - GAAP **	291,256		280,221		280 - 284M		280 - 284M
Shares used in calculation of diluted net income per share - non-GAAP **	291,256		280,221		280 - 284M		280 - 284M

† 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.

** Shares used in the calculation of GAAP net income per share are expected to be the same as shares used in the calculation of non-GAAP net income per share, except when the company reports a GAAP net loss and non-GAAP net income, or GAAP net income and a non-GAAP net loss.

July 23, 2018 Cadence Q2 2018 Financial Results 14

Cadence Design Systems, Inc.

Reconciliation of GAAP Total Other Income and Expense to Non-GAAP Total Other Income and Expense

		Previous		Current
(In Millions)	FY 2017A	FY 2018E		FY 2018E
GAAP total other income and expense	$(8.9)	$(31) - $(23)		$(26) - $(19)
Reconciling items to non-GAAP total income and expense
Other income or expense related to investments and non-qualified deferred compensation plan assets*	(15.7)	(1	)	(2	)
Non-GAAP total other income and expense†	$(24.6)	$(32) - $(24)		$(28) - $(21)

† 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.

July 23, 2018 Cadence Q2 2018 Financial Results 15

Cadence Design Systems, Inc.

APPENDIX II

The following table summarizes the effects of adopting Topic 606 on Cadence’s condensed consolidated balance sheet as of June 30, 2018:

(In Millions)	As reported under Topic 606			Adjustments			Balances under Prior GAAP
Receivables	$	219,072		$	(19,328	)	$	199,744
Prepaid expenses and other	56,042			(7,597		)	48,445
Long-term receivables	4,740			1,073			5,813
Other assets	227,173			(11,766		)	215,407
Accounts payable and accrued liabilities*	243,158			(26,920		)	216,238
Current portion of deferred revenue	327,078			57,720			384,798
Long-term portion of deferred revenue	46,912			16,009			62,921
Retained earnings	574,966			(83,068		)	491,898
Accumulated other comprehensive income	(13,172		)	(1,359		)	(14,531		)

* Cadence has certain arrangements under which consideration is received from customers prior to identifying the specific goods or services to be delivered under the contract. Cadence records an accrued liability on a contract-by-contract basis at the end of each reporting period for cash consideration received.

The following table summarizes the effects of adopting Topic 606 on Cadence’s condensed consolidated income statement for the three months ended June 30, 2018:

(In Millions)	As reported under Topic 606		Adjustments			Balances under Prior GAAP
Product and maintenance revenue	$	487,870	$	(4,616	)	$	483,254
Services revenue	30,521		1,336			31,857
Cost of product and maintenance	40,127		114			40,241
Marketing and sales expense	109,300		(1,166		)	108,134
Provision for income taxes	14,876		(151		)	14,725
Net income	75,149		(2,077		)	73,072
Net income per share - basic	0.27		—			0.27
Net income per share - diluted	0.27		(0.01		)	0.26

July 23, 2018 Cadence Q2 2018 Financial Results 16

Cadence Design Systems, Inc.

The following table summarizes the effects of adopting Topic 606 on Cadence’s condensed consolidated income statement for the six months ended June 30, 2018:

(In Millions)	As reported under Topic 606		Adjustments			Balances under Prior GAAP
Product and maintenance revenue	$	968,479	$	1,564		$	970,043
Services revenue	67,225		3,300			70,525
Cost of product and maintenance	81,857		(137		)	81,720
Marketing and sales expense	218,448		(3,976		)	214,472
Provision for income taxes	20,160		406			20,566
Net income	148,034		8,571			156,605
Net income per share - basic	0.54		0.03			0.57
Net income per share - diluted	0.53		0.03			0.56

July 23, 2018 Cadence Q2 2018 Financial Results 17