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): April 20, 2020

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, 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:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CDNS	Nasdaq Global Select Market

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 April 20, 2020, Cadence Design Systems, Inc. ("Cadence") issued a press release announcing its financial results for the quarter ended March 28, 2020.

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 March 28, 2020 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 April 20, 2020.
99.02	CFO Commentary on Results of Quarter Ended March 28, 2020.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

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: April 20, 2020

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 First Quarter 2020 Financial Results

SAN JOSE, Calif. — April 20, 2020 — Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the first quarter of 2020.

Cadence reported first quarter 2020 revenue of $618 million, compared to revenue of $577 million reported for the same period in 2019. On a GAAP basis, Cadence achieved operating margin of 23 percent and recognized net income of $124 million, or $0.44 per share on a diluted basis, in the first quarter of 2020, compared to operating margin of 22 percent and net income of $121 million, or $0.43 per share on a diluted basis, for the same period in 2019.

Using the non-GAAP measure defined below, operating margin for the first quarter of 2020 was 32 percent and net income was $166 million, or $0.60 per share on a diluted basis, compared to operating margin of 32 percent and net income of $152 million, or $0.54 per share on a diluted basis, for the same period in 2019.

“I am pleased to report that in a difficult environment we have continued to deliver on our strategy and commitments, leading to excellent financial results for the first quarter of 2020, and we are reaffirming our 10 percent revenue growth guidance for the year,” said Lip-Bu Tan, chief executive officer. “We are going through truly unprecedented times and our first priority is ensuring the safety and well-being of our employees, customers and communities.  From a business continuity perspective, our infrastructure, collaboration platforms and tight communication have enabled us to maintain a high level of productivity, and our R&D innovation projects and customer deliverables continue to track well.”

“Cadence met or exceeded its key financial metrics for the first quarter despite some disruption caused by the COVID-19 pandemic,” said John Wall, senior vice president and chief financial officer. “The vast majority of our team are effectively working from home, including our sales and application engineering teams that have adapted well to this new work model as they continue to engage productively with customers on the business, training and support fronts.”

CFO Commentary

Commentary on the first quarter 2020 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 second quarter of 2020, the company expects total revenue in the range of $580 million to $600 million. Second quarter GAAP operating margin is expected to be approximately 18 percent and GAAP net income per diluted share is expected to be in the range of $0.28 to $0.32. Using the non-GAAP measure defined below, operating margin is expected to be approximately 30 percent and net income per diluted share is expected to be in the range of $0.50 to $0.54.

For 2020, the company expects total revenue in the range of $2.545 billion to $2.585 billion. On a GAAP basis, operating margin is expected to be in the range of 21 percent to 22 percent and net income per diluted share for 2020 is expected to be in the range of $1.58 to $1.68. Using the non-GAAP measure defined below, operating margin for 2020 is expected to be in the range of 32 percent to 33 percent and net income per diluted share for 2020 is expected to be in the range of $2.40 to $2.50.

A schedule showing a reconciliation of the business outlook from GAAP operating margin, GAAP net income and diluted net income per share to non-GAAP operating margin and 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 first quarter 2020 financial results audio webcast today, April 20, 2020, 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 April 20, 2020 at 5 p.m. (Pacific) and ending June 12, 2020 at 5 p.m. (Pacific). Webcast access is available at www.cadence.com/cadence/investor_relations.

About Cadence

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

© 2020 Cadence Design Systems, Inc. All rights reserved worldwide. Cadence, the Cadence logo and the other Cadence marks found at www.cadence.com/go/trademarks are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

The statements contained above, as well as the information in the Business Outlook section, are or include forward-looking statements based on current expectations and preliminary assumptions 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, including strategic, customer and supplier relationships; (iii) the mix of products and services sold, the timing of orders and the ability to develop, install or deliver Cadence’s products or services; (iv) change in customer demands that could result in delays in purchases, development, installations or deliveries of Cadence's products or services, including those resulting from consolidation, restructurings and other operational efficiency improvements of Cadence’s customers, economic conditions, government regulations, trade restrictions or the COVID-19 pandemic; (v) economic and industry conditions, government regulations, trade restrictions and the duration and severity of the COVID-19 pandemic and containment measures 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 maintain and improve operational efficiency in its business, including its ability to retain key employees and to have the vast majority of its employees work remotely during the COVID-19 pandemic; (x) events that affect cash flow, liquidity, or reserves, or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation or other matters; (xi) the effects of any litigation or other proceedings to which Cadence is or may become a party; and (xii) the effects of the COVID-19 pandemic and containment measures. 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, executive severance and other significant items not directly related to Cadence’s core business operations, and the income tax effect of non-GAAP pre-tax adjustments.

Cadence management uses non-GAAP net income because it excludes items that are generally not directly related to the performance of Cadence’s core business operations and therefore provides supplemental information to Cadence management and investors regarding the performance of the business operations, facilitates comparisons to the historical operating results and allows the review of Cadence's business from the same perspective as Cadence management, including forecasting and budgeting.

The following tables reconcile the specific items excluded from GAAP operating margin, GAAP net income and GAAP net income per diluted share in the calculation of non-GAAP operating margin, non-GAAP net income and non-GAAP net income per diluted share for the periods shown below:

Operating Margin Reconciliation	Three Months Ended
	March 28, 2020	March 30, 2019
	(unaudited)
GAAP operating margin as a percent of total revenue	23%	22%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Amortization of acquired intangibles	2%	2%
Stock-based compensation expense	7%	7%
Non-qualified deferred compensation expenses (credits)	(1)%	1%
Restructuring and other credits	0%	0%
Acquisition and integration-related costs	1%	0%
Special charges	0%	0%
Non-GAAP operating margin as a percent of total revenue	32%	32%

Net Income Reconciliation	Three Months Ended
	March 28, 2020			March 30, 2019
	(unaudited)
(in thousands)
Net income on a GAAP basis	$	123,988		$	120,555
Amortization of acquired intangibles	15,066			13,162
Stock-based compensation expense	46,482			42,253
Non-qualified deferred compensation expenses (credits)	(4,796		)	2,540
Restructuring and other credits	(1,067		)	(689		)
Acquisition and integration-related costs	3,970			914
Special charges	124			—
Other income or expense related to investments and non-qualified deferred compensation plan assets*	8,011			(5,187		)
Income tax effect of non-GAAP adjustments	(25,483		)	(21,307		)
Net income on a non-GAAP basis	$	166,295		$	152,241

* 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
	March 28, 2020			March 30, 2019
	(unaudited)
(in thousands, except per share data)
Diluted net income per share on a GAAP basis	$	0.44		$	0.43
Amortization of acquired intangibles	0.05			0.05
Stock-based compensation expense	0.17			0.15
Non-qualified deferred compensation expenses (credits)	(0.02		)	0.01
Restructuring and other credits	—			—
Acquisition and integration-related costs	0.02			—
Special charges	—			—
Other income or expense related to investments and non-qualified deferred compensation plan assets*	0.03			(0.02		)
Income tax effect of non-GAAP adjustments	(0.09		)	(0.08		)
Diluted net income per share on a non-GAAP basis	$	0.60		$	0.54
Shares used in calculation of diluted net income per share — GAAP**	279,265			280,615
Shares used in calculation of diluted net income per share — non-GAAP**	279,265			280,615

* 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 June 12, 2020, 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 second quarter 2020 earnings release is published, which is currently scheduled for the week of July 20, 2020.

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

March 28, 2020 and December 28, 2019

(In thousands)

(Unaudited)

	March 28, 2020		December 28, 2019
Current assets:
Cash and cash equivalents	$	946,285	$	705,210
Receivables, net	284,093		304,546
Inventories	60,575		55,802
Prepaid expenses and other	108,554		103,785
Total current assets	1,399,507		1,169,343
Property, plant and equipment, net	281,207		275,855
Goodwill	778,992		661,856
Acquired intangibles, net	258,617		172,375
Deferred taxes	699,194		732,367
Other assets	350,456		345,429
Total assets	$	3,767,973	$	3,357,225
Current liabilities:
Revolving credit facility	$	350,000	$	—
Accounts payable and accrued liabilities	236,813		316,908
Current portion of deferred revenue	425,616		355,483
Total current liabilities	1,012,429		672,391
Long-term liabilities:
Long-term portion of deferred revenue	95,503		73,400
Long-term debt	346,205		346,019
Other long-term liabilities	155,842		162,521
Total long-term liabilities	597,550		581,940
Stockholders’ equity	2,157,994		2,102,894
Total liabilities and stockholders’ equity	$	3,767,973	$	3,357,225

Cadence Design Systems, Inc.

Condensed Consolidated Income Statements

For the Three Months Ended March 28, 2020 and March 30, 2019

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	March 28, 2020			March 30, 2019
Revenue:
Product and maintenance	$	581,699		$	543,518
Services	36,258			33,224
Total revenue	617,957			576,742
Costs and expenses:
Cost of product and maintenance	55,446			50,522
Cost of services	19,017			20,063
Marketing and sales	125,744			116,830
Research and development	241,668			228,210
General and administrative	33,592			30,102
Amortization of acquired intangibles	4,206			3,308
Restructuring and other credits	(1,067		)	(689		)
Total costs and expenses	478,606			448,346
Income from operations	139,351			128,396
Interest expense	(4,637		)	(5,391		)
Other income (expense), net	(4,534		)	5,241
Income before provision for income taxes	130,180			128,246
Provision for income taxes	6,192			7,691
Net income	$	123,988		$	120,555
Net income per share - basic	$	0.45		$	0.44
Net income per share - diluted	$	0.44		$	0.43
Weighted average common shares outstanding - basic	273,476			273,066
Weighted average common shares outstanding - diluted	279,265			280,615

Cadence Design Systems, Inc.

Condensed Consolidated Statements of Cash Flows

For the Three Months Ended March 28, 2020 and March 30, 2019

(In thousands)

(Unaudited)

	Three Months Ended
	March 28, 2020			March 30, 2019
Cash and cash equivalents at beginning of period	$	705,210		$	533,298
Cash flows from operating activities:
Net income	123,988			120,555
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	33,321			29,740
Amortization of debt discount and fees	254			247
Stock-based compensation	46,482			42,253
(Gain) loss on investments, net	3,215			(2,646		)
Deferred income taxes	3,904			(4,966		)
Recoveries on receivables	(77		)	(183		)
ROU asset amortization and change in operating lease liabilities	706			1,341
Other non-cash items	183			122
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables	26,475			35,681
Inventories	(5,260		)	(10,618		)
Prepaid expenses and other	(4,964		)	15,618
Other assets	(8,344		)	4,559
Accounts payable and accrued liabilities	(84,839		)	(41,261		)
Deferred revenue	86,914			(4,451		)
Other long-term liabilities	(4,239		)	(577		)
Net cash provided by operating activities	217,719			185,414
Cash flows from investing activities:
Purchases of non-marketable investments	—			(33,664		)
Proceeds from the sale of non-marketable investments	—			2,952
Purchases of property, plant and equipment	(22,179		)	(15,275		)
Cash paid in business combinations	(193,820		)	—
Net cash used for investing activities	(215,999		)	(45,987		)
Cash flows from financing activities:
Proceeds from revolving credit facility	350,000			50,000
Payment on revolving credit facility	—			(100,000		)
Proceeds from issuance of common stock	33,312			29,858
Stock received for payment of employee taxes on vesting of restricted stock	(37,528		)	(32,822		)
Payments for repurchases of common stock	(100,022		)	(81,114		)
Net cash provided by (used for) financing activities	245,762			(134,078		)
Effect of exchange rate changes on cash and cash equivalents	(6,407		)	251
Increase in cash and cash equivalents	241,075			5,600
Cash and cash equivalents at end of period	$	946,285		$	538,898

Cadence Design Systems, Inc.

(Unaudited)

Revenue Mix by Geography (% of Total Revenue)

	2019										2020
GEOGRAPHY	Q1		Q2		Q3		Q4		Year		Q1
Americas	44	%	42	%	44	%	46	%	44	%	43	%
China	10	%	12	%	10	%	9	%	10	%	13	%
Other Asia	19	%	19	%	21	%	20	%	20	%	18	%
Europe, Middle East and Africa	18	%	20	%	18	%	18	%	18	%	19	%
Japan	9	%	7	%	7	%	7	%	8	%	7	%
Total	100	%	100	%	100	%	100	%	100	%	100	%

Revenue Mix by Product Group (% of Total Revenue)

	2019										2020
PRODUCT GROUP	Q1		Q2		Q3		Q4		Year		Q1
Functional Verification	24	%	22	%	20	%	24	%	23	%	23	%
Digital IC Design and Signoff	30	%	31	%	30	%	29	%	30	%	29	%
Custom IC Design and Simulation	25	%	26	%	26	%	25	%	25	%	25	%
System Interconnect and Analysis	9	%	10	%	9	%	9	%	9	%	9	%
IP	12	%	11	%	15	%	13	%	13	%	14	%
Total	100	%	100	%	100	%	100	%	100	%	100	%

Cadence Design Systems, Inc.

Impact of Non-GAAP Adjustments on Forward Looking Operating Margin

As of April 20, 2020

(Unaudited)

	Three Months Ending June 27, 2020	Year Ending January 2, 2021
	Forecast	Forecast
GAAP operating margin as a percent of total revenue	~18%	21% - 22%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Amortization of acquired intangibles	3%	2%
Stock-based compensation expense	8%	8%
Acquisition and integration-related costs	1%	1%
Non-GAAP operating margin as a percent of total revenue†	~30%	32% - 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.

Cadence Design Systems, Inc.

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

As of April 20, 2020

(Unaudited)

	Three Months Ending June 27, 2020	Year Ending January 2, 2021
	Forecast	Forecast
Diluted net income per share on a GAAP basis	$0.28 to $0.32	$1.58 to $1.68
Amortization of acquired intangibles	0.06	0.23
Stock-based compensation expense	0.17	0.71
Non-qualified deferred compensation expenses (credits)	—	(0.02)
Restructuring and other charges (credits)	—	—
Acquisition and integration-related costs	0.02	0.06
Other income or expense related to investments and non-qualified deferred compensation plan assets*	—	0.03
Income tax effect of non-GAAP adjustments	(0.03)	(0.19)
Diluted net income per share on a non-GAAP basis†	$0.50 to $0.54	$2.40 to $2.50

Cadence Design Systems, Inc.

Impact of Non-GAAP Adjustments on Forward Looking Net Income

As of April 20, 2020

(Unaudited)

	Three Months Ending June 27, 2020	Year Ending January 2, 2021
($ in millions)	Forecast	Forecast
Net income on a GAAP basis	$79 to $89	$441 to $469
Amortization of acquired intangibles	16	64
Stock-based compensation expense	48	200
Non-qualified deferred compensation expenses (credits)	—	(5)
Restructuring and other charges (credits)	—	(1)
Acquisition and integration-related costs	4	16
Other income or expense related to investments and non-qualified deferred compensation plan assets*	1	10
Income tax effect of non-GAAP adjustments	(9)	(53)
Net income on a non-GAAP basis†	$139 to $149	$672 to $700

† 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.

EX-99.02

Exhibit 99.02

CADENCE REPORTS FIRST QUARTER 2020
CADENCE DESIGN SYSTEMS, INC.
CFO COMMENTARY
Key Takeaways • Q1 results met or exceeded our expectations for key financial metrics. • Repurchased $100 million of Cadence stock in Q1.	Q2 2020 Outlook • Revenue : $580 - $600 million. • GAAP operating margin: ~18%. • Non-GAAP operating margin: ~30%. • GAAP EPS: $0.28 - $0.32 • Non-GAAP EPS: $0.50 - $0.54	Q1 2020 KEY METRICS
		• Revenue $618 million • GAAP operating margin 23% • Non-GAAP operating margin 32% • GAAP EPS $0.44 • Non-GAAP EPS $0.60 • Operating cash flow $218 million
FY 2020 Outlook • Revenue: $2.545 - $2.585 billion. • GAAP operating margin: 21% - 22%. • Non-GAAP operating margin: 32% - 33%. • GAAP EPS: $1.58 - $1.68 • Non-GAAP EPS $2.40 - $2.50 • Operating cash flow: $775 - $825 million. • Expect to use approximately 50% of free cash flow to repurchase Cadence shares for the year.	Financial Results Webcast
	Our Q1 2020 financial results webcast will begin April 20, 2020 at 2:00 p.m. (Pacific). The webcast may be accessed at www.cadence.com/cadence/investor_relations. An archive of the webcast will be available on April 20, 2020 until 5:00 p.m. (Pacific) on June 12, 2020.

April 20, 2020 Cadence Q1 2020 Financial Results 1

Cadence Design Systems, Inc.

Financial Metrics

(In Millions, except per share data)	2016*	2017*	2018	2019	2020E
Revenue	$1,816	$1,943	$2,138	$2,336	$2,545 - $2,585
Revenue growth		7%	10%	9%	9% - 11%
GAAP operating expenses	1,571	1,619	1,742	1,845	~2,002
Non-GAAP operating expenses	1,348	1,409	1,491	1,587	~1,728
Non-GAAP operating expense growth		5%	6%	6%	~9%
GAAP operating margin	13%	17%	19%	21%
Implied GAAP operating margin**					21.5%
Non-GAAP operating margin	26%	28%	30%	32%
Implied Non-GAAP operating margin**					32.5%
GAAP earnings per share	$0.70	$0.73	$1.23	$3.53	$1.58 - $1.68
Non-GAAP earning per share	$1.21	$1.40	$1.87	$2.20	$2.40 - $2.50
Weighted average shares diluted outstanding	291.3	280.2	281.1	280.5	278 - 281
Cash flow from operations	445	471	605	730	$775 - $825
Capital expenditures	54	58	62	75	~$80

* Fiscal years 2016 and 2017 accounted for under ASC Topic 605, prior to adoption of ASC Topic 606 in 2018.

** At midpoint of guidance.

Second Quarter 2020 Financial Outlook

	Q2 2019A	Q1 2020A	Q2 2020E
Total Revenue ($ Million)	$580.4	$618.0	$580 - $600
Q/Q Growth		3%	(6)% - (3)%
Y/Y Growth		7%	(0)% - 3%
GAAP Operating Margin	23%	23%	~18%
Non-GAAP Operating Margin	34%	32%	~30%
GAAP EPS	$0.38	$0.44	$0.28 - $0.32
Non-GAAP EPS	$0.57	$0.60	$0.50 - $0.54
Q/Q Growth		11%	(17)% - (10)%
Y/Y Growth		11%	(12)% - (5)%

April 20, 2020 Cadence Q1 2020 Financial Results 2

Cadence Design Systems, Inc.

Fiscal Year 2020 Financial Outlook

		Previous	Current
	FY 2019A	FY 2020E	FY 2020E
Recurring Revenue	85% - 90%	85% - 90%	85% - 90%
Total Revenue ($ Billion)	$2.336	$2.545 - $2.585	$2.545 - $2.585
Y/Y Growth	9%	9% - 11%	9% - 11%
Revenue from Beginning Remaining Performance Obligations	~75%	~75%	~75%
GAAP Operating Margin	21.1%	21% - 22%	21% - 22%
Non-GAAP Operating Margin	32.1%	32% - 33%	32% - 33%
GAAP Other Income & Expense ($ Million)	$(12.8)	$(16) - $(25)	$(29) - $(33)
Non-GAAP Other Income & Expense ($ Million)	$(14.1)	$(12) - $(21)	$(19) - $(23)
GAAP Tax Rate	-106%	~20%	~14%
Non-GAAP Tax Rate	16%	16%	16%
Weighted Average Diluted Shares Outstanding (Million)	280.5	279 - 282	278 - 281
GAAP EPS	$3.53	$1.46 - $1.56	$1.58 - $1.68
Non-GAAP EPS	$2.20	$2.40 - $2.50	$2.40 - $2.50
Y/Y Growth	18%	9% - 14%	9% - 14%
Cash Flow from Operations ($ Million)	$730	$775 - $825	$775 - $825
DSO	47	~45	~45
Capital Expenditures ($ Million)	$75	~$90	~$80

April 20, 2020 Cadence Q1 2020 Financial Results 3

Cadence Design Systems, Inc.

First Quarter Financial Results

Backlog

(In Billions)	2018	2019	Q1 2020
Backlog*	$3.0	$3.6	$3.7

*Backlog = Remaining Performance Obligations + IP Access Agreements

Revenue

(In Thousands)	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020
Product and Maintenance	$543,518	$548,028	$548,105	$564,964	$581,699
Services	33,224	32,391	31,498	34,591	36,258
Total Revenue	$576,742	$580,419	$579,603	$599,555	$617,957

Revenue Mix by Geography

(% of Total Revenue)	Q1 2019		Q2 2019		Q3 2019		Q4 2019		Q1 2020
Americas	44	%	42	%	44	%	46	%	43	%
China	10	%	12	%	10	%	9	%	13	%
Other Asia	19	%	19	%	21	%	20	%	18	%
Europe, Middle East and Africa	18	%	20	%	18	%	18	%	19	%
Japan	9	%	7	%	7	%	7	%	7	%
Total	100	%	100	%	100	%	100	%	100	%

Revenue Mix by Product Group

(% of Total Revenue)	Q1 2019		Q2 2019		Q3 2019		Q4 2019		Q1 2020
Functional Verification	24	%	22	%	20	%	24	%	23	%
Digital IC Design and Signoff	30	%	31	%	30	%	29	%	29	%
Custom IC Design and Simulation	25	%	26	%	26	%	25	%	25	%
System Interconnect and Analysis	9	%	10	%	9	%	9	%	9	%
IP	12	%	11	%	15	%	13	%	14	%
Total	100	%	100	%	100	%	100	%	100	%

Gross Margin

	Q1 2019		Q2 2019		Q3 2019		Q4 2019		Q1 2020
GAAP Gross Margin	87.8	%	89.4	%	89.5	%	87.8	%	88.0	%
Non-GAAP Gross Margin	89.7	%	91.6	%	91.5	%	89.7	%	89.9	%

Total Costs and Expenses

(In Thousands)	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020
Total GAAP Costs and Expenses	$448,346	$446,744	$458,777	$490,656	$478,606
Total Non-GAAP Costs and Expenses	$390,166	$385,591	$395,995	$415,140	$418,827

April 20, 2020 Cadence Q1 2020 Financial Results 4

Cadence Design Systems, Inc.

Operating Margin

	Q1 2019		Q2 2019		Q3 2019		Q4 2019		Q1 2020
GAAP Operating Margin	22.3	%	23.0	%	20.8	%	18.2	%	22.6	%
Non-GAAP Operating Margin	32.3	%	33.6	%	31.7	%	30.8	%	32.2	%

Earnings Per Share

	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020
GAAP Net Income Per Share	$0.43	$0.38	$0.36	$2.36	$0.44
Non-GAAP Net Income Per Share	$0.54	$0.57	$0.54	$0.54	$0.60

Total DSO

	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020
DSO	42	38	43	47	42

Balance Sheet and Cash Review

Cash Flow from Operating Activities

(In Thousands)	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020
Net Cash from Operating Activities	$185,414	$246,360	$138,530	$159,296	$217,719

Capital Expenditures

(In Thousands)	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020
Capital Expenditures	$15,275	$15,287	$16,965	$27,078	$22,179

Cash and Cash Equivalents

(In Thousands)	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020
Cash and Cash Equivalents	$538,898	$633,415	$655,216	$705,210	$946,285

• Approximately 53 percent of our cash and cash equivalents were in the U.S. at quarter-end.

Stock Repurchase

(In Thousands, Except Share Price)	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020
Share Repurchase	$81,114	$75,006	$75,011	$75,017	$100,022
Number of Shares	1,529	1,125	1,065	1,122	1,488
Average Share Price	$53.05	$66.67	$70.43	$66.86	$67.22

Employees

	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020
Headcount	7,570	7,743	8,016	8,078	8,205

April 20, 2020 Cadence Q1 2020 Financial Results 5

Cadence Design Systems, Inc.

Forward Looking Statements

The statements in this CFO Commentary contain forward-looking statements based on current expectations and preliminary assumptions 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, including strategic, customer and supplier relationships; (iii) the mix of products and services sold, the timing of orders and the ability to develop, install or deliver Cadence’s products or services; (iv) change in customer demands that could result in delays in purchases, development, installations or deliveries of Cadence's products or services, including those resulting from consolidation, restructurings and other operational efficiency improvements of Cadence’s customers, economic conditions, government regulations, trade restrictions or the COVID-19 pandemic; (v) economic and industry conditions, government regulations, trade restrictions and the duration and severity of the COVID-19 pandemic and containment measures 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 maintain and improve operational efficiency in its business, including its ability to retain key employees and to have the vast majority of its employees work remotely during the COVID-19 pandemic; (x) events that affect cash flow, liquidity, or reserves, or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation or other matters; (xi) the effects of any litigation or other proceedings to which Cadence is or may become a party; and (xii) the effects of the COVID-19 pandemic and containment measures. 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.

© 2020 Cadence Design Systems, Inc. All rights reserved worldwide. Cadence, the Cadence logo and the other Cadence marks found at www.cadence.com/go/trademarks are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

April 20, 2020 Cadence Q1 2020 Financial Results 6

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

(In Thousands)	Q1 2019		Q2 2019		Q3 2019		Q4 2019		Q1 2020
GAAP total costs and expenses	$448,346		$446,744		$458,777		$490,656		$478,606
Reconciling items to non-GAAP total costs and expenses
Amortization of acquired intangibles	(13,162	)	(14,458	)	(12,799	)	(12,660	)	(15,066	)
Stock-based compensation expense	(42,253	)	(44,257	)	(48,279	)	(46,758	)	(46,482	)
Non-qualified deferred compensation (expenses) credits	(2,540	)	(862	)	(52	)	(1,948	)	4,796
Restructuring and other (charges) credits	689		313		186		(9,809	)	1,067
Acquisition and integration-related costs	(914	)	(1,889	)	(1,838	)	(3,466	)	(3,970	)
Special charges	—		—		—		(875	)	(124	)
Non-GAAP total costs and expenses†	$390,166		$385,591		$395,995		$415,140		$418,827

† 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.

Reconciliation of GAAP Total Expenses to Non-GAAP Total Expenses

(In Millions)	2016		2017		2018		2019		2020E
GAAP total costs and expenses	$1,571		$1,619		$1,742		$1,845		~$2,002
Reconciling items to non-GAAP total costs and expenses
Amortization of acquired intangibles	(60	)	(57	)	(53	)	(53	)	~(64)
Stock-based compensation expense	(109	)	(130	)	(168	)	(182	)	~(200)
Non-qualified deferred compensation (expenses) credits	(2	)	(6	)	1		(5	)	~5
Restructuring and other (charges) credits	(41	)	(9	)	(11	)	(9	)	~1
Acquisition and integration-related costs	(11	)	(8	)	(20	)	(8	)	~(16)
Special charges	—		—		—		(1	)	—
Non-GAAP total costs and expenses†	$1,348		$1,409		$1,491		$1,587		~$1,728

† 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.

April 20, 2020 Cadence Q1 2020 Financial Results 7

Cadence Design Systems, Inc.

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

	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020
GAAP gross margin as percent of total revenue	87.8%	89.4%	89.5%	87.8%	88.0%
Reconciling items to non-GAAP gross margin as a percent of total revenue
Amortization of acquired intangibles	1.7%	1.9%	1.7%	1.6%	1.7%
Stock-based compensation expense	0.2%	0.3%	0.3%	0.3%	0.2%
Non-qualified deferred compensation expenses (credits)	0.0%	0.0%	0.0%	0.0%	0.0%
Non-GAAP gross margin as percent of total revenue†	89.7%	91.6%	91.5%	89.7%	89.9%

† 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.

April 20, 2020 Cadence Q1 2020 Financial Results 8

Cadence Design Systems, Inc.

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

	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020	Q2 2020E
GAAP operating margin as percent of total revenue	22%	23%	21%	18%	23%	~18%
Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	2%	3%	2%	2%	2%	3%
Stock-based compensation expense	7%	8%	9%	8%	7%	8%
Non-qualified deferred compensation expenses (credits)	1%	0%	0%	0%	(1)%	0%
Restructuring and other charges (credits)	0%	0%	0%	2%	0%	0%
Acquisition and integration-related costs	0%	0%	0%	1%	1%	1%
Special charges	0%	0%	0%	0%	0%	0%
Non-GAAP operating margin as percent of total revenue†	32%	34%	32%	31%	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.

	2016	2017	2018	2019	2020E
GAAP operating margin as percent of total revenue	13%	17%	19%	21%	21% - 22%
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%	1%	0%
Acquisition and integration-related costs	1%	0%	1%	0%	1%
Special charges	0%	0%	0%	0%	0%
Non-GAAP operating margin as percent of total revenue†	26%	28%	30%	32%	32% - 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.

April 20, 2020 Cadence Q1 2020 Financial Results 9

Cadence Design Systems, Inc.

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

(In Thousands, Except Per Share Data)	Q1 2019		Q2 2019		Q3 2019		Q4 2019		Q1 2020		Q2 2020E
Diluted net income per share on a GAAP basis	$0.43		$0.38		$0.36		$2.36		$0.44		$0.28 - $0.32
Amortization of acquired intangibles	0.05		0.05		0.04		0.05		0.05		0.06
Stock-based compensation expense	0.15		0.16		0.17		0.17		0.17		0.17
Non-qualified deferred compensation expenses (credits)	0.01		—		—		0.01		(0.02	)	—
Restructuring and other charges (credits)	—		—		—		0.03		—		—
Acquisition and integration-related costs	—		—		0.01		0.01		0.02		0.02
Special charges	—		—		—		—		—		—
Other income or expense related to investments and non-qualified deferred compensation plan assets *	(0.02	)	0.01		0.01		—		0.03		—
Income tax benefit related to intercompany transfers of certain intellectual property rights	—		—		—		(2.06	)	—		—
Income tax effect of non-GAAP adjustments	(0.08	)	(0.03	)	(0.05	)	(0.03	)	(0.09	)	(0.03	)
Diluted net income per share on a non-GAAP basis †	$0.54		$0.57		$0.54		$0.54		$0.60		$0.50 - $0.54
Shares used in calculation of diluted net income per share - GAAP **	280,615		281,054		280,666		279,557		279,265
Shares used in calculation of diluted net income per share - non-GAAP **	280,615		281,054		280,666		279,557		279,265

† 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.

April 20, 2020 Cadence Q1 2020 Financial Results 10

Cadence Design Systems, Inc.

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

(In Thousands, Except Per Share Data)	2016		2017		2018		2019		2020E
Diluted net income per share on a GAAP basis	$0.70		$0.73		$1.23		$3.53		$1.58 - $1.68
Amortization of acquired intangibles	0.21		0.20		0.19		0.19		0.23
Stock-based compensation expense	0.37		0.46		0.60		0.65		0.71
Non-qualified deferred compensation expenses (credits)	0.01		0.02		(0.01	)	0.02		(0.02	)
Restructuring and other charges (credits)	0.14		0.03		0.04		0.03		—
Acquisition and integration-related costs	0.04		0.03		0.07		0.03		0.06
Special charges	—		—		—		—		—
Other income or expense related to investments and non-qualified deferred compensation plan assets *	(0.02	)	(0.05	)	—		(0.01	)	0.03
Income tax benefit related to intercompany transfers of certain intellectual property rights	—		—		—		(2.05	)	—
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	)	(0.25	)	(0.19	)	(0.19	)
Diluted net income per share on a non-GAAP basis †	$1.21		$1.40		$1.87		$2.20		$2.40 - $2.50
Shares used in calculation of diluted net income per share - GAAP **	291,256		280,221		281,144		280,515		278 - 281M
Shares used in calculation of diluted net income per share - non-GAAP **	291,256		280,221		281,144		280,515		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.

April 20, 2020 Cadence Q1 2020 Financial Results 11

Cadence Design Systems, Inc.

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

(In Millions)	FY 2018	FY 2019	FY 2020E
GAAP total other income and expense	$(19.8)	$(12.8)	$(29) - $(33)
Reconciling items to non-GAAP total income and expense
Other income or expense related to investments and non-qualified deferred compensation plan assets*	(1.3)	(1.3)	10
Non-GAAP total other income and expense†	$(21.1)	$(14.1)	$(19) - $(23)

† 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.

April 20, 2020 Cadence Q1 2020 Financial Results 12

XML

Document and Entity Information	Apr. 20, 2020
Cover [Abstract]
Document Type	8-K
Document Period End Date	Apr. 20, 2020
Entity Registrant Name	CADENCE DESIGN SYSTEMS, INC.
Entity Incorporation, State or Country Code	DE
Entity File Number	000-15867
Entity Tax Identification Number	00-0000000
Entity Address, Address Line One	2655 Seely Avenue,
Entity Address, City or Town	San Jose,
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	95134
City Area Code	(408)
Local Phone Number	943-1234
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, $0.01 par value per share
Trading Symbol	CDNS
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false
Entity Central Index Key	0000813672
Amendment Flag	false