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): February 19, 2019

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 February 19, 2019, Cadence Design Systems, Inc. ("Cadence") issued a press release announcing its financial results for the quarter ended December 29, 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 December 29, 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 February 19, 2019.
99.02	CFO Commentary on Results of Quarter Ended December 29, 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: February 19, 2019

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 Fourth Quarter and Fiscal Year 2018 Financial Results

SAN JOSE, Calif. — February 19, 2019 — Cadence Design Systems, Inc. (NASDAQ: CDNS) today reported its results under new revenue rules, ASC Topic 606. For the fourth quarter of 2018, Cadence reported revenue of $570 million, GAAP net income of $98 million, or $0.35 per share on a diluted basis, and non-GAAP net income (as defined below) of $147 million, or $0.52 per share on a diluted basis. For 2018, Cadence reported revenue of $2.138 billion, GAAP net income of $346 million, or $1.23 per share on a diluted basis, and non-GAAP net income of $526 million, or $1.87 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 fourth quarter of 2018, Cadence reported revenue of $579 million, compared to revenue of $502 million reported for the same period in 2017. On a GAAP basis, Cadence recognized net income of $100 million, or $0.36 per share on a diluted basis, in the fourth quarter of 2018, compared to a net loss of $14 million, or $(0.05) per share on a diluted basis for the same period in 2017. Using the non-GAAP measure defined below, net income for the fourth quarter of 2018 was $144 million, or $0.51 per share on a diluted basis, compared to net income of $111 million, or $0.39 per share on a diluted basis, for the same period in 2017.

Due to the U.S. Tax Cuts and Jobs Act enacted in December 2017, GAAP net loss for the fourth quarter of 2017 included a $67 million income tax expense for a one time transition tax on previously untaxed foreign earnings and a $25 million income tax expense for the reduction in the value of Cadence’s U.S. deferred tax assets caused by the U.S. corporate tax rate reduction.

Under ASC Topic 605, Cadence reported 2018 revenue of $2.146 billion, compared to revenue of $1.943 billion for 2017. On a GAAP basis, Cadence recognized net income of $351 million, or $1.25 per share on a diluted basis, in 2018, compared to net income of $204 million, or $0.73 per share on a diluted basis, in 2017. Using the non-GAAP measure defined below, net income for 2018 was $528 million, or $1.88 per share on a diluted basis, as compared to net income of $393 million, or $1.40 per share on a diluted basis, in 2017.

“Cadence achieved excellent operating results for 2018 as technology trends like AI, cloud/datacenter and 5G drove strong design activity,” said Lip-Bu Tan, chief executive officer.  “We continued to execute our System Design Enablement strategy, leading to broad strength across our product lines, as well as in the aerospace/defense vertical, and we announced our partnership with Green Hills Software, the leader in embedded safety and security software.”

“I’d like to thank the entire Cadence team for their strong execution across all lines of business for 2018,” said John Wall, senior vice president and chief financial officer.  “I am pleased with our results and look forward to building on our success in 2019.”

As of the end of the fourth quarter of 2018, $175 million remained available under the previously announced authorization to repurchase Cadence common stock. In February 2019, the Board of Directors authorized the repurchase of an additional $500 million of Cadence common stock.  The timing and amount of repurchases will be subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors.

CFO Commentary

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

Business Outlook

For the first quarter of 2019, the company expects total revenue in the range of $565 million to $575 million. First quarter GAAP net income per diluted share is expected to be in the range of $0.36 to $0.38. Net income per diluted share using the non-GAAP measure defined below is expected to be in the range of $0.48 to $0.50.

For 2019, the company expects total revenue in the range of $2.270 billion to $2.310 billion. On a GAAP basis, net income per diluted share for 2019 is expected to be in the range of $1.33 to $1.43. Using the non-GAAP measure defined below, net income per diluted share for 2019 is expected to be in the range of $1.97 to $2.07.

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 fourth quarter and fiscal year 2018 financial results audio webcast today, February 19, 2019, 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 February 19, 2019 at 5 p.m. (Pacific) and ending March 15, 2019 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 www.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, 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 timing and amount of Cadence's repurchase of its common stock under the authorizations will be 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, 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 (Loss) Reconciliation	Three Months Ended
(unaudited)	ASC 606			ASC 605			ASC 605
	December 29, 2018			December 29, 2018			December 30, 2017
(in thousands)
Net income (loss) on a GAAP basis	$	98,425		$	100,032		$	(14,442	)
Amortization of acquired intangibles	12,942			12,942			13,741
Stock-based compensation expense	42,594			42,594			36,015
Non-qualified deferred compensation expenses (credits)	(3,186		)	(3,186		)	1,295
Restructuring and other charges	13,699			13,699			12,178
Acquisition and integration-related costs (credits)	(1,360		)	(1,360		)	5,712
Other income or expense related to investments and non-qualified deferred compensation plan assets*	1,356			1,356			(1,368		)
Income tax related to transition tax	—			—			67,188
Income tax related to tax rate change	—			—			25,292
Income tax effect of non-GAAP adjustments	(17,737		)	(21,962		)	(34,328		)
Net income on a non-GAAP basis	$	146,733		$	144,115		$	111,283

* 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.

Net Income Reconciliation	Years Ended
(unaudited)	ASC 606			ASC 605			ASC 605
	December 29, 2018			December 29, 2018			December 30, 2017
(in thousands)
Net income on a GAAP basis	$	345,777		$	351,297		$	204,101
Amortization of acquired intangibles	53,333			53,333			56,497
Stock-based compensation expense	167,715			167,715			130,023
Non-qualified deferred compensation expenses (credits)	(1,471		)	(1,471		)	6,145
Restructuring and other charges	11,089			11,089			9,406
Acquisition and integration-related costs	19,858			19,858			8,468
Other income or expense related to investments and non-qualified deferred compensation plan assets*	(1,278		)	(1,278		)	(15,693		)
Income tax related to transition tax	—			—			67,188
Income tax related to tax rate change	—			—			25,292
Income tax effect of non-GAAP adjustments	(69,489		)	(72,358		)	(98,810		)
Net income on a non-GAAP basis	$	525,534		$	528,185		$	392,617

* 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 (Loss) Per Share Reconciliation	Three Months Ended
(unaudited)	ASC 606			ASC 605			ASC 605
	December 29, 2018			December 29, 2018			December 30, 2017
(in thousands, except per share data)
Diluted net income (loss) per share on a GAAP basis	$	0.35		$	0.36		$	(0.05	)
Amortization of acquired intangibles	0.05			0.05			0.05
Stock-based compensation expense	0.15			0.15			0.13
Non-qualified deferred compensation expenses (credits)	(0.01		)	(0.01		)	—
Restructuring and other charges	0.05			0.05			0.04
Acquisition and integration-related costs (credits)	(0.01		)	(0.01		)	0.02
Other income or expense related to investments and non-qualified deferred compensation plan assets*	—			—			(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	(0.06		)	(0.08		)	(0.12		)
Diluted net income per share on a non-GAAP basis	$	0.52		$	0.51		$	0.39
Shares used in calculation of diluted net income (loss) per share — GAAP**	280,321			280,321			273,157
Shares used in calculation of diluted net income per share — non-GAAP**	280,321			280,321			282,206

* 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.

Diluted Net Income Per Share Reconciliation	Years Ended
(unaudited)	ASC 606			ASC 605			ASC 605
	December 29, 2018			December 29, 2018			December 30, 2017
(in thousands, except per share data)
Diluted net income per share on a GAAP basis	$	1.23		$	1.25		$	0.73
Amortization of acquired intangibles	0.19			0.19			0.20
Stock-based compensation expense	0.60			0.60			0.46
Non-qualified deferred compensation expenses (credits)	(0.01		)	(0.01		)	0.02
Restructuring and other charges	0.04			0.04			0.03
Acquisition and integration-related costs	0.07			0.07			0.03
Other income or expense related to investments and non-qualified deferred compensation plan assets*	—			—			(0.05		)
Income tax related to transition tax	—			—			0.24
Income tax related to tax rate change	—			—			0.09
Income tax effect of non-GAAP adjustments	(0.25		)	(0.26		)	(0.35		)
Diluted net income per share on a non-GAAP basis	$	1.87		$	1.88		$	1.40
Shares used in calculation of diluted net income per share — GAAP**	281,144			281,144			280,221
Shares used in calculation of diluted net income per share — non-GAAP**	281,144			281,144			280,221

* 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 March 15, 2019, 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 first quarter 2019 earnings release is published, which is currently scheduled for April 22, 2019.

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

December 29, 2018 and December 30, 2017

(In thousands)

(Unaudited)

	December 29, 2018		December 30, 2017
Current assets:
Cash and cash equivalents	$	533,298	$	688,087
Receivables, net of allowances of $3,936 and $0, respectively	297,082		190,426
Inventories	28,162		33,209
Prepaid expenses and other	92,550		68,266
Total current assets	951,092		979,988
Property, plant and equipment, net of accumulated depreciation of $698,493 and $658,377, respectively	252,630		251,342
Goodwill	662,272		666,009
Acquired intangibles, net of accumulated amortization of $333,687 and $297,456, respectively	225,457		278,835
Long-term receivables	5,972		12,239
Other assets	371,231		230,301
Total assets	$	2,468,654	$	2,418,714
Current liabilities:
Revolving credit facility	$	100,000	$	85,000
Accounts payable and accrued liabilities	256,526		221,101
Current portion of deferred revenue	352,456		336,297
Total current liabilities	708,982		642,398
Long-term liabilities:
Long-term portion of deferred revenue	48,718		61,513
Long-term debt	345,291		644,369
Other long-term liabilities	77,262		81,232
Total long-term liabilities	471,271		787,114
Stockholders’ equity	1,288,401		989,202
Total liabilities and stockholders’ equity	$	2,468,654	$	2,418,714

Cadence Design Systems, Inc.

Condensed Consolidated Statements of Operations

For the Three Months and Years Ended December 29, 2018 and December 30, 2017

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Years Ended
	December 29, 2018			December 30, 2017			December 29, 2018			December 30, 2017
Revenue:
Product and maintenance	$	534,418		$	467,504		$	1,997,887		$	1,813,987
Services	35,432			34,218			140,135			129,045
Total revenue	569,850			501,722			2,138,022			1,943,032
Costs and expenses:
Cost of product and maintenance	54,748			39,305			173,011			156,676
Cost of services	21,376			20,979			85,736			80,714
Marketing and sales	112,613			107,654			439,669			419,161
Research and development	218,271			203,468			884,816			804,223
General and administrative	31,985			33,289			133,406			134,181
Amortization of acquired intangibles	3,468			3,571			14,086			14,716
Restructuring and other charges	13,699			12,178			11,089			9,406
Total costs and expenses	456,160			420,444			1,741,813			1,619,077
Income from operations	113,690			81,278			396,209			323,955
Interest expense	(4,318		)	(6,712		)	(23,139		)	(25,664		)
Other income (expense), net	(735		)	2,385			3,320			16,755
Income before provision for income taxes	108,637			76,951			376,390			315,046
Provision for income taxes	10,212			91,393			30,613			110,945
Net income (loss)	$	98,425		$	(14,442	)	$	345,777		$	204,101
Net income (loss) per share - basic	$	0.36		$	(0.05	)	$	1.26		$	0.75
Net income (loss) per share - diluted	$	0.35		$	(0.05	)	$	1.23		$	0.73
Weighted average common shares outstanding - basic	273,680			273,157			273,729			272,097
Weighted average common shares outstanding - diluted	280,321			273,157			281,144			280,221

Cadence Design Systems, Inc.

Condensed Consolidated Statements of Cash Flows

For the Years Ended December 29, 2018 and December 30, 2017

(In thousands)

(Unaudited)

	Years Ended
	December 29, 2018			December 30, 2017
Cash and cash equivalents at beginning of year	$	688,087		$	465,232
Cash flows from operating activities:
Net income	345,777			204,101
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	118,721			115,524
Amortization of debt discount and fees	1,196			1,211
Stock-based compensation	167,715			130,023
Gain on investments, net	(1,261		)	(13,869		)
Deferred income taxes	(11,676		)	79,934
Provisions for losses on receivables	5,102			2,623
Other non-cash items	1,136			5,068
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables	(87,083		)	(31,032		)
Inventories	752			5,034
Prepaid expenses and other	(19,622		)	(25,793		)
Other assets	(16,077		)	(22,336		)
Accounts payable and accrued liabilities	1,553			(25,987		)
Deferred revenue	100,696			33,614
Other long-term liabilities	(2,178		)	12,625
Net cash provided by operating activities	604,751			470,740
Cash flows from investing activities:
Proceeds from the sale of available-for-sale securities	—			833
Purchases of non-marketable investments	(115,839		)	—
Proceeds from the sale of long-term investments	3,497			9,108
Purchases of property, plant and equipment	(61,503		)	(57,901		)
Cash paid in business combinations and asset acquisitions, net of cash acquired	—			(143,249		)
Net cash used for investing activities	(173,845		)	(191,209		)
Cash flows from financing activities:
Proceeds from revolving credit facility	100,000			135,000
Payment on revolving credit facility	(85,000		)	(100,000		)
Principal payments on term loan	(300,000		)	—
Payment of debt issuance costs	—			(793		)
Proceeds from issuance of common stock	40,908			48,965
Stock received for payment of employee taxes on vesting of restricted stock	(69,921		)	(57,161		)
Payments for repurchases of common stock	(250,059		)	(100,025		)
Change in book overdraft	(3,867		)	3,867
Net cash used for financing activities	(567,939		)	(70,147		)
Effect of exchange rate changes on cash and cash equivalents	(17,756		)	13,471
Increase (decrease) in cash and cash equivalents	(154,789		)	222,855
Cash and cash equivalents at end of year	$	533,298		$	688,087

Cadence Design Systems, Inc.

(Unaudited)

Revenue Mix by Geography (% of Total Revenue)

	ASC 605										ASC 605
	2017										2018
GEOGRAPHY	Q1		Q2		Q3		Q4		Year		Q1		Q2		Q3		Q4		Year
Americas	45	%	45	%	45	%	44	%	44	%	45	%	45	%	43	%	46	%	44	%
Asia	26	%	28	%	27	%	28	%	27	%	26	%	26	%	30	%	29	%	28	%
Europe, Middle East and Africa	20	%	19	%	19	%	20	%	20	%	21	%	21	%	19	%	17	%	20	%
Japan	9	%	8	%	9	%	8	%	9	%	8	%	8	%	8	%	8	%	8	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%

	ASC 606
	2018
GEOGRAPHY	Q1		Q2		Q3		Q4		Year
Americas	45	%	46	%	44	%	44	%	45	%
Asia	27	%	26	%	29	%	31	%	28	%
Europe, Middle East and Africa	20	%	20	%	19	%	17	%	19	%
Japan	8	%	8	%	8	%	8	%	8	%
Total	100	%	100	%	100	%	100	%	100	%

Revenue Mix by Product Group (% of Total Revenue)

	ASC 605										ASC 605
	2017										2018
PRODUCT GROUP	Q1		Q2		Q3		Q4		Year		Q1		Q2		Q3		Q4		Year
Functional Verification, including Emulation and Prototyping Hardware	23	%	23	%	21	%	23	%	22	%	26	%	23	%	21	%	26	%	24	%
Digital IC Design and Signoff	29	%	30	%	30	%	29	%	29	%	29	%	29	%	30	%	27	%	29	%
Custom IC Design and Simulation	26	%	26	%	28	%	26	%	27	%	26	%	26	%	27	%	24	%	26	%
System Interconnect and Analysis	10	%	10	%	10	%	10	%	10	%	9	%	10	%	10	%	9	%	9	%
IP	12	%	11	%	11	%	12	%	12	%	10	%	12	%	12	%	14	%	12	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%

	ASC 606
	2018
PRODUCT GROUP	Q1		Q2		Q3		Q4		Year
Functional Verification, including Emulation and Prototyping Hardware	26	%	23	%	22	%	25	%	24	%
Digital IC Design and Signoff	30	%	30	%	30	%	28	%	29	%
Custom IC Design and Simulation	26	%	26	%	26	%	25	%	26	%
System Interconnect and Analysis	9	%	9	%	9	%	9	%	9	%
IP	9	%	12	%	13	%	13	%	12	%
Total	100	%	100	%	100	%	100	%	100	%

Cadence Design Systems, Inc.

As of February 19, 2019

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

(Unaudited)

	Three Months Ending March 30, 2019	Year Ending December 28, 2019
	Forecast	Forecast
Diluted net income per share on a GAAP basis	$0.36 to $0.38	$1.33 to $1.43
Amortization of acquired intangibles	0.05	0.19
Stock-based compensation expense	0.15	0.65
Acquisition and integration-related costs	0.01	0.03
Income tax effect of non-GAAP adjustments	(0.09)	(0.23)
Diluted net income per share on a non-GAAP basis†	$0.48 to $0.50	$1.97 to $2.07

Cadence Design Systems, Inc.

As of February 19, 2019

Impact of Non-GAAP Adjustments on Forward Looking Net Income

(Unaudited)

	Three Months Ending March 30, 2019	Year Ending December 28, 2019
($ in millions)	Forecast	Forecast
Net income on a GAAP basis	$101 to $107	$371 to $399
Amortization of acquired intangibles	13	53
Stock-based compensation expense	42	182
Acquisition and integration-related costs	3	8
Income tax effect of non-GAAP adjustments	(24)	(63)
Net income on a non-GAAP basis†	$135 to $141	$551 to $579

† 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.

EX-99.02

Exhibit 99.02

CADENCE REPORTS FOURTH QUARTER AND FISCAL YEAR 2018
CADENCE DESIGN SYSTEMS, INC.
CFO COMMENTARY
February 19, 2019 Q4 2018 Key Takeaways • Q4 results exceeded our expectations for revenue, operating margin, EPS and operating cash flow. • Operating cash flow for the year was $605 million, up 28% over 2017. • Repurchased $100 million of Cadence shares in Q4 and $250 million for the year.	Q1 2019 Outlook • Revenue : $565 - $575 million. • GAAP operating margin: ~20%. • Non-GAAP operating margin: ~30%. • GAAP EPS: $0.36 - $0.38 • Non-GAAP EPS: $0.48 - $0.50	Q4 2018 KEY METRICS
		• Revenue $570 million • GAAP operating margin 20% • Non-GAAP operating margin 31% • GAAP EPS $0.35 • Non-GAAP EPS $0.52 • Operating cash flow $132 million
FY 2019 Outlook • Revenue: $2.270 - $2.310 billion. • GAAP operating margin: 20% - 21%. • Non-GAAP operating margin: 30% - 31%. • GAAP EPS: $1.33 - $1.43 • Non-GAAP EPS $1.97 - $2.07 • Operating cash flow: $640 - $690 million. • Expect to repurchase approximately $75 million of Cadence shares per quarter in 2019.	Financial Results Webcast	FY 2018 KEY METRICS
	Our Q4 2018 financial results webcast will begin February 19, 2019 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 February 19, 2019 until 5:00 p.m. (Pacific) on March 15, 2019.	• Revenue $2.138 billion • GAAP operating margin 18.5% • Non-GAAP operating margin 30.2% • GAAP EPS $1.23 • Non-GAAP EPS $1.87 • Operating cash flow $605 million

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 1

Cadence Design Systems, Inc.

First Quarter 2019 Financial Outlook

	Q1 2018A	Q4 2018A	Q1 2019E
Total Revenue ($ Million)	$517.3	$569.9	$565 - $575
Q/Q Growth		7%	(1)% - 1%
Y/Y Growth			9% - 11%
GAAP Operating Margin	17%	20%	~20%
Non-GAAP Operating Margin	28%	31%	~30%
GAAP EPS	$0.26	$0.35	$0.36 - $0.38
Q/Q Growth		0%	3% - 9%
Non-GAAP EPS	$0.40	$0.52	$0.48 - $0.50
Q/Q Growth		6%	(8)% - (4)%
Y/Y Growth			20% - 25%

Fiscal Year 2019 Financial Outlook

		Current
	FY 2018A	FY 2019E
Revenue Recognized Over Time	~90%	~90%
Total Revenue ($ Billion)	$2.138	$2.270 - $2.310
Y/Y Growth		6% - 8%
Revenue from Beginning Remaining Performance Obligations		~75%
GAAP Operating Margin	18.5%	20% - 21%
Non-GAAP Operating Margin	30.2%	30% - 31%
GAAP Other Income & Expense ($ Million)	$(19.8)	$(23) - $(33)
Non-GAAP Other Income & Expense ($ Million)	$(21.1)	$(23) - $(33)
GAAP Tax Rate	8%	~10%
Non-GAAP Tax Rate	16%	16%
Weighted Average Diluted Shares Outstanding (Million)	281.1	278 - 281
GAAP EPS	$1.23	$1.33 - $1.43
Y/Y Growth		8% - 16%
Non-GAAP EPS	$1.87	$1.97 - $2.07
Y/Y Growth		5% - 11%
Cash Flow from Operations ($ Million)	$605	$640 - $690
DSO	48	~45
Capital Expenditures ($ Million)	$62	~$90

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 2

Cadence Design Systems, Inc.

Fourth Quarter and Fiscal Year Financial Results

Remaining Performance Obligations and Backlog

(In Billions)
Backlog, December 30, 2017	$	2.7
Revenue contracts executed prior to December 29, 2018	$	2.3
Revenue for the year ended December 29, 2018	$	(2.1	)
Remaining Performance Obligations, December 29, 2018	$	2.9

Revenue

	ASC 606	ASC 606	ASC 606	ASC 606
(In Thousands)	Q1 2018	Q2 2018	Q3 2018	Q4 2018
Product and Maintenance	$480,609	$487,870	$494,990	$534,418
Services	36,704	30,521	37,478	35,432
Total Revenue	$517,313	$518,391	$532,468	$569,850

	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
(In Thousands)	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018
Product and Maintenance	$467,504	$486,789	$483,254	$489,485	$539,390
Services	34,218	38,668	31,857	36,474	39,779
Total Revenue	$501,722	$525,457	$515,111	$525,959	$579,169
Y/Y Growth	7%	10%	8%	8%	15%

	ASC 606
(In Thousands)	2018
Product and Maintenance	$1,997,887
Services	140,135
Total Revenue	$2,138,022

	ASC 605	ASC 605	ASC 605	ASC 605
(In Thousands)	2015	2016	2017	2018
Product and Maintenance	$1,578,944	$1,683,771	$1,813,987	$1,998,918
Services	123,147	132,312	129,045	146,778
Total Revenue	$1,702,091	$1,816,083	$1,943,032	$2,145,696
Y/Y Growth	8%	7%	7%	10%

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 3

Cadence Design Systems, Inc.

Revenue Mix by Geography

	ASC 606		ASC 606		ASC 606		ASC 606
(% of Total Revenue)	Q1 2018		Q2 2018		Q3 2018		Q4 2018
Americas	45	%	46	%	44	%	44	%
Asia	27	%	26	%	29	%	31	%
Europe, Middle East and Africa	20	%	20	%	19	%	17	%
Japan	8	%	8	%	8	%	8	%
Total	100	%	100	%	100	%	100	%

	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
(% of Total Revenue)	Q4 2017		Q1 2018		Q2 2018		Q3 2018		Q4 2018
Americas	44	%	45	%	45	%	43	%	46	%
Asia	28	%	26	%	26	%	30	%	29	%
Europe, Middle East and Africa	20	%	21	%	21	%	19	%	17	%
Japan	8	%	8	%	8	%	8	%	8	%
Total	100	%	100	%	100	%	100	%	100	%

	ASC 606
(% of Total Revenue)	2018
Americas	45	%
Asia	28	%
Europe, Middle East and Africa	19	%
Japan	8	%
Total	100	%

	ASC 605		ASC 605		ASC 605		ASC 605
(% of Total Revenue)	2015		2016		2017		2018
Americas	47	%	48	%	44	%	44	%
Asia	24	%	24	%	27	%	28	%
Europe, Middle East and Africa	19	%	19	%	20	%	20	%
Japan	10	%	9	%	9	%	8	%
Total	100	%	100	%	100	%	100	%

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 4

Cadence Design Systems, Inc.

Revenue Mix by Product Group

	ASC 606		ASC 606		ASC 606		ASC 606
(% of Total Revenue)	Q1 2018		Q2 2018		Q3 2018		Q4 2018
Functional Verification	26	%	23	%	22	%	25	%
Digital IC Design and Signoff	30	%	30	%	30	%	28	%
Custom IC Design and Simulation	26	%	26	%	26	%	25	%
System Interconnect and Analysis	9	%	9	%	9	%	9	%
IP	9	%	12	%	13	%	13	%
Total	100	%	100	%	100	%	100	%

	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
(% of Total Revenue)	Q4 2017		Q1 2018		Q2 2018		Q3 2018		Q4 2018
Functional Verification	23	%	26	%	23	%	21	%	26	%
Digital IC Design and Signoff	29	%	29	%	29	%	30	%	27	%
Custom IC Design and Simulation	26	%	26	%	26	%	27	%	24	%
System Interconnect and Analysis	10	%	9	%	10	%	10	%	9	%
IP	12	%	10	%	12	%	12	%	14	%
Total	100	%	100	%	100	%	100	%	100	%

	ASC 606
(% of Total Revenue)	2018
Functional Verification	24	%
Digital IC Design and Signoff	29	%
Custom IC Design and Simulation	26	%
System Interconnect and Analysis	9	%
IP	12	%
Total	100	%

	ASC 605		ASC 605		ASC 605		ASC 605
(% of Total Revenue)	2015		2016		2017		2018
Functional Verification	23	%	25	%	22	%	24	%
Digital IC Design and Signoff	28	%	29	%	29	%	29	%
Custom IC Design and Simulation	26	%	25	%	27	%	26	%
System Interconnect and Analysis	11	%	10	%	10	%	9	%
IP	12	%	11	%	12	%	12	%
Total	100	%	100	%	100	%	100	%

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 5

Cadence Design Systems, Inc.

Total Costs and Expenses

	ASC 606	ASC 606	ASC 606	ASC 606
(In Thousands)	Q1 2018	Q2 2018	Q3 2018	Q4 2018
Total GAAP Costs and Expenses	$431,480	$425,335	$428,838	$456,160
Total Non-GAAP Costs and Expenses	$373,753	$364,084	$361,981	$391,471

	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
(In Thousands)	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018
Total GAAP Costs and Expenses	$420,444	$428,419	$424,283	$425,034	$468,595
Y/Y Growth	1%	8%	7%	5%	11%
Total Non-GAAP Costs and Expenses	$351,503	$370,692	$363,032	$358,177	$403,906
Y/Y Growth	2%	5%	4%	2%	15%

	ASC 606
(In Thousands)	2018
Total GAAP Costs and Expenses	$1,741,813
Total Non-GAAP Costs and Expenses	$1,491,289

	ASC 605	ASC 605	ASC 605	ASC 605
(In Thousands)	2015	2016	2017	2018
Total GAAP Costs and Expenses	$1,416,661	$1,571,182	$1,619,077	$1,746,331
Y/Y Growth	3%	11%	3%	8%
Total Non-GAAP Costs and Expenses	$1,247,039	$1,347,519	$1,408,538	$1,495,807
Y/Y Growth	6%	8%	5%	6%

Operating Margin

	ASC 606		ASC 606		ASC 606		ASC 606
	Q1 2018		Q2 2018		Q3 2018		Q4 2018
GAAP Operating Margin	16.6	%	18.0	%	19.5	%	20.0	%
Non-GAAP Operating Margin	27.8	%	29.8	%	32.0	%	31.3	%

	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
	Q4 2017		Q1 2018		Q2 2018		Q3 2018		Q4 2018
GAAP Operating Margin	16.2	%	18.5	%	17.6	%	19.2	%	19.1	%
Non-GAAP Operating Margin	29.9	%	29.5	%	29.5	%	31.9	%	30.3	%

	ASC 606
	2018
GAAP Operating Margin	18.5	%
Non-GAAP Operating Margin	30.2	%

	ASC 605		ASC 605		ASC 605		ASC 605
	2015		2016		2017		2018
GAAP Operating Margin	16.8	%	13.5	%	16.7	%	18.6	%
Non-GAAP Operating Margin	26.7	%	25.8	%	27.5	%	30.3	%

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 6

Cadence Design Systems, Inc.

Earnings (Loss) Per Share

	ASC 606	ASC 606	ASC 606	ASC 606
	Q1 2018	Q2 2018	Q3 2018	Q4 2018
GAAP Net Income Per Share	$0.26	$0.27	$0.35	$0.35
Non-GAAP Net Income Per Share	$0.40	$0.45	$0.49	$0.52

	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018
GAAP Net Income (Loss) Per Share	$(0.05)	$0.30	$0.26	$0.34	$0.36
Y/Y Growth	(136)%	20%	4%	17%	820%
Non-GAAP Net Income Per Share	$0.39	$0.44	$0.44	$0.49	$0.51
Y/Y Growth	15%	38%	29%	40%	31%

	ASC 606
	2018
GAAP Net Income Per Share	$1.23
Non-GAAP Net Income Per Share	$1.87

	ASC 605	ASC 605	ASC 605	ASC 605
	2015	2016	2017	2018
GAAP Net Income Per Share	$0.81	$0.70	$0.73	$1.25
Y/Y Growth	56%	(14)%	4%	71%
Non-GAAP Net Income Per Share	$1.09	$1.21	$1.40	$1.88
Y/Y Growth	16%	11%	16%	34%

Total DSO

	ASC 606	ASC 606	ASC 606	ASC 606
	Q1 2018	Q2 2018	Q3 2018	Q4 2018
DSO	41	39	42	48

	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018
DSO	36	38	36	39	46

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 7

Cadence Design Systems, Inc.

Balance Sheet and Cash Review

Cash Flow from Operating Activities

(In Thousands)	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018
Net Cash from Operating Activities	$126,856	$157,647	$205,266	$109,954	$131,884

(In Thousands)	2015	2016	2017	2018
Net Cash from Operating Activities	$378,200	$444,879	$470,740	$604,751

Capital Expenditures

(In Thousands)	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018
Capital Expenditures	$18,225	$13,128	$17,977	$10,656	$19,742

(In Thousands)	2015	2016	2017	2018
Capital Expenditures	$44,808	$53,712	$57,901	$61,503

Cash and Cash Equivalents

(In Thousands)	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018
Cash and Cash Equivalents	$688,087	$746,968	$819,540	$544,585	$533,298

• Approximately 25 percent of our cash and cash equivalents were in the U.S. at quarter-end.

(In Thousands)	2015	2016	2017	2018
Cash and Cash Equivalents	$616,686	$465,232	$688,087	$533,298

Stock Repurchase

(In Thousands, Except Share Price)	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018
Share Repurchase	$50,012	$50,013	$50,012	$50,011	$100,023
Number of Shares	1,164	1,289	1,224	1,098	2,323
Average Share Price	$42.97	$38.80	$40.86	$45.55	$43.06

(In Thousands, Except Share Price)	2015	2016	2017	2018
Share Repurchase	$333,189	$960,289	$100,025	$250,059
Number of Shares	16,255	40,493	2,495	5,934
Average Share Price	$20.50	$23.71	$40.09	$42.14

Employees

	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018
Headcount	7,214	7,229	7,288	7,417	7,499

	2015	2016	2017	2018
Headcount	6,664	7,094	7,214	7,499

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 8

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 timing and amount of Cadence's repurchase of its common stock under the authorizations will be 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, 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.

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 9

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		ASC 606		ASC 606
(In Thousands)	Q1 2018		Q2 2018		Q3 2018		Q4 2018
GAAP total costs and expenses	$431,480		$425,335		$428,838		$456,160
Reconciling items to non-GAAP total costs and expenses
Amortization of acquired intangibles	(13,907	)	(13,509	)	(12,975	)	(12,942	)
Stock-based compensation expense	(37,901	)	(40,956	)	(46,264	)	(42,594	)
Non-qualified deferred compensation (expenses) credits	(127	)	(468	)	(1,120	)	3,186
Restructuring and other (charges) credits	1,991		447		172		(13,699	)
Acquisition and integration-related (costs) credits	(7,783	)	(6,765	)	(6,670	)	1,360
Non-GAAP total costs and expenses†	$373,753		$364,084		$361,981		$391,471

	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
(In Thousands)	Q4 2017		Q1 2018		Q2 2018		Q3 2018		Q4 2018
GAAP total costs and expenses	$420,444		$428,419		$424,283		$425,034		$468,595
Reconciling items to non-GAAP total costs and expenses
Amortization of acquired intangibles	(13,741	)	(13,907	)	(13,509	)	(12,975	)	(12,942	)
Stock-based compensation expense	(36,015	)	(37,901	)	(40,956	)	(46,264	)	(42,594	)
Non-qualified deferred compensation (expenses) credits	(1,295	)	(127	)	(468	)	(1,120	)	3,186
Restructuring and other (charges) credits	(12,178	)	1,991		447		172		(13,699	)
Acquisition and integration-related (costs) credits	(5,712	)	(7,783	)	(6,765	)	(6,670	)	1,360
Non-GAAP total costs and expenses†	$351,503		$370,692		$363,032		$358,177		$403,906

† 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.

February 19, 2019 Cadence Q4 and Fiscal Year 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 606	ASC 606	ASC 606	ASC 606	ASC 606
	Q1 2018	Q2 2018	Q3 2018	Q4 2018	Q1 2019E
GAAP operating margin as percent of total revenue	17%	18%	19%	20%	~20%
Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	3%	3%	3%	2%	2%
Stock-based compensation expense	7%	8%	9%	7%	7%
Non-qualified deferred compensation expenses (credits)	0%	0%	0%	0%	0%
Restructuring and other charges (credits)	0%	0%	0%	2%	0%
Acquisition and integration-related costs (credits)	1%	1%	1%	0%	1%
Non-GAAP operating margin as percent of total revenue†	28%	30%	32%	31%	~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.

	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
	Q4 2017	Q1 2018	Q2 2018	Q3 2018	Q4 2018
GAAP operating margin as percent of total revenue	16%	18%	18%	19%	19%
Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	3%	3%	3%	3%	2%
Stock-based compensation expense	7%	7%	8%	9%	7%
Non-qualified deferred compensation expenses (credits)	0%	0%	0%	0%	0%
Restructuring and other charges (credits)	3%	0%	0%	0%	2%
Acquisition and integration-related costs (credits)	1%	1%	1%	1%	0%
Non-GAAP operating margin as percent of total revenue†	30%	29%	30%	32%	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.

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 11

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	ASC 606
	2016	2017	2018	2018	2019E
GAAP operating margin as percent of total revenue	13%	17%	19%	19%	20% - 21%
Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	4%	3%	2%	2%	2%
Stock-based compensation expense	6%	7%	8%	8%	8%
Non-qualified deferred compensation expenses (credits)	0%	0%	0%	0%	0%
Restructuring and other charges (credits)	2%	1%	0%	0%	0%
Acquisition and integration-related costs	1%	0%	1%	1%	0%
Non-GAAP operating margin as percent of total revenue†	26%	28%	30%	30%	30% - 31%

† 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.

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 12

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		ASC 606		ASC 606
(In Thousands, Except Per Share Data)	Q1 2018		Q2 2018		Q3 2018		Q4 2018		Q1 2019E
Diluted net income per share on a GAAP basis	$0.26		$0.27		$0.35		$0.35		$0.36 - $0.38
Amortization of acquired intangibles	0.05		0.05		0.05		0.05		0.05
Stock-based compensation expense	0.13		0.14		0.16		0.15		0.15
Non-qualified deferred compensation expenses (credits)	—		—		—		(0.01	)	—
Restructuring and other charges (credits)	(0.01	)	—		—		0.05		—
Acquisition and integration-related costs (credits)	0.03		0.02		0.02		(0.01	)	0.01
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	)	(0.09	)	(0.06	)	(0.09	)
Diluted net income per share on a non-GAAP basis †	$0.40		$0.45		$0.49		$0.52		$0.48 - $0.50
Shares used in calculation of diluted net income per share - GAAP **	281,651		280,774		281,646		280,321
Shares used in calculation of diluted net income per share - non-GAAP **	281,651		280,774		281,646		280,321

† 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.

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 13

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)	Q4 2017		Q1 2018		Q2 2018		Q3 2018		Q4 2018
Diluted net income (loss) per share on a GAAP basis	$(0.05)		$0.30		$0.26		$0.34		$0.36
Amortization of acquired intangibles	0.05		0.05		0.05		0.05		0.05
Stock-based compensation expense	0.13		0.13		0.14		0.16		0.15
Non-qualified deferred compensation expenses (credits)	—		—		—		—		(0.01	)
Restructuring and other charges (credits)	0.04		(0.01	)	—		—		0.05
Acquisition and integration-related costs (credits)	0.02		0.03		0.02		0.02		(0.01	)
Other income or expense related to investments and non-qualified deferred compensation plan assets *	(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	(0.12	)	(0.06	)	(0.03	)	(0.08	)	(0.08	)
Diluted net income per share on a non-GAAP basis †	$0.39		$0.44		$0.44		$0.49		$0.51
Shares used in calculation of diluted net income (loss) per share - GAAP **	273,157		281,651		280,774		281,646		280,321
Shares used in calculation of diluted net income per share - non-GAAP **	282,206		281,651		280,774		281,646		280,321

† 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.

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 14

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		ASC 606
(In Thousands, Except Per Share Data)	2016		2017		2018		2018		2019E
Diluted net income per share on a GAAP basis	$0.70		$0.73		$1.25		$1.23		$1.33 - $1.43
Amortization of acquired intangibles	0.21		0.20		0.19		0.19		0.19
Stock-based compensation expense	0.37		0.46		0.60		0.60		0.65
Non-qualified deferred compensation expenses (credits)	0.01		0.02		(0.01	)	(0.01	)	—
Restructuring and other charges	0.14		0.03		0.04		0.04		—
Acquisition and integration-related costs	0.04		0.03		0.07		0.07		0.03
Other income or expense related to investments and non-qualified deferred compensation plan assets *	(0.02	)	(0.05	)	—		—		—
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	)	(0.26	)	(0.25	)	(0.23	)
Diluted net income per share on a non-GAAP basis †	$1.21		$1.40		$1.88		$1.87		$1.97 - $2.07
Shares used in calculation of diluted net income per share - GAAP **	291,256		280,221		281,144		281,144		278 - 281M
Shares used in calculation of diluted net income per share - non-GAAP **	291,256		280,221		281,144		281,144		278 - 281M

† 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.

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 15

Cadence Design Systems, Inc.

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

(In Millions)	FY 2017	FY 2018	FY 2019E
GAAP total other income and expense	$(8.9)	$(19.8)	$(23) - $(33)
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)	(1.3)	—
Non-GAAP total other income and expense†	$(24.6)	$(21.1)	$(23) - $(33)

† 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.

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 16

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 December 29, 2018:

(In Thousands)	As reported under Topic 606			Adjustments			Balances under Prior GAAP
Receivables, net	$	297,082		$	(12,099	)	$	284,983
Prepaid expenses and other	92,550			(10,055		)	82,495
Long-term receivables	5,972			(623		)	5,349
Other assets	371,231			(17,013		)	354,218
Accounts payable and accrued liabilities*	256,526			(17,438		)	239,088
Current portion of deferred revenue	352,456			45,119			397,575
Long-term portion of deferred revenue	48,718			17,637			66,355
Retained earnings	772,709			(86,120		)	686,589
Accumulated other comprehensive loss	(24,780		)	1,012			(23,768		)

* 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 fiscal 2018:

(In Thousands)	As reported under Topic 606		Adjustments			Balances under Prior GAAP
Product and maintenance revenue	$	1,997,887	$	1,031		$	1,998,918
Services revenue	140,135		6,643			146,778
Cost of product and maintenance	173,011		571			173,582
Marketing and sales expense	439,669		3,947			443,616
Provision for income taxes	30,613		(2,364		)	28,249
Net income	345,777		5,520			351,297
Net income per share - basic	1.26		0.02			1.28
Net income per share - diluted	1.23		0.02			1.25

February 19, 2019 Cadence Q4 and Fiscal Year 2018 Financial Results 17