• Q1 results exceeded expectations for key financial metrics, with backlog > $5 billion.
• Raising FY 2022 outlook; expect revenue growth and non-GAAP operating margin to exceed 14% and 39%, respectively, for FY 2022.
• As a result, 3-year revenue CAGR projected to exceed 13% and on track to achieve non-GAAP incremental margin of > 50% for the sixth year in a row.
Q2 2022 Outlook
• Revenue : $825 - $845 million.
• GAAP operating margin: 29% - 30%.
• Non-GAAP operating margin: 39% - 40%.
• GAAP EPS: $0.59 - $0.63
• Non-GAAP EPS: $0.95 - $0.99
• Expect to repurchase at least $125 million of Cadence shares in Q2.
Q1 2022 KEY METRICS
• Revenue $902 million
• GAAP operating margin 35%
• Non-GAAP operating margin 44%
• GAAP EPS $0.85
• Non-GAAP EPS $1.17
• Operating cash flow $337 million
FY 2022 Outlook
• Revenue: $3.395 - $3.435 billion.
• GAAP operating margin: 28.5% - 30%.
• Non-GAAP operating margin: 38.5% - 40%.
• GAAP EPS: $2.51 - $2.59
• Non-GAAP EPS $3.89 - $3.97
• Operating cash flow: $1.19 - $1.29 billion.
• Expect to use at least 50% of free cash flow to repurchase Cadence shares for the year.
Financial Results Webcast
Our Q1 2022 financial results webcast will begin April 25, 2022 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 25, 2022 until 5:00 p.m. (Pacific) on June 17, 2022.
April 25, 2022
Cadence Q1 2022 Financial Results
1
Cadence Design Systems, Inc.
Financial Metrics
(In Millions, except per share data)
2016
2017*
2018
2019
2020*
2021
2022E
Revenue
$
1,816
$
1,943
$
2,138
$
2,336
$
2,683
$
2,988
$3,395- $3,435
Revenue growth*
7%
7%
10%
9%
15%
11%
14% - 15%
3-year CAGR
8%
7%
8%
9%
11%
12%
~13%
3-year CAGR without 53rd week impact
8%
11%
GAAP operating expenses
$
1,571
$
1,619
$
1,742
$
1,845
$
2,037
$
2,209
~$2,404
Non-GAAP operating expenses
$
1,348
$
1,409
$
1,491
$
1,587
$
1,739
$
1,877
~$2,075
Non-GAAP operating expense growth
5%
6%
6%
10%
8%
~11%
GAAP operating margin
13%
17%
19%
21%
24%
26%
Implied GAAP operating margin**
29.25%
Non-GAAP operating margin
26%
28%
30%
32%
35%
37%
Implied Non-GAAP operating margin**
39.25%
GAAP earnings per share
$
0.70
$
0.73
$
1.23
$
3.53
$
2.11
$
2.50
$2.51 - $2.59
Non-GAAP earning per share
$
1.21
$
1.40
$
1.87
$
2.20
$
2.80
$
3.29
$3.89 - $3.97
Weighted average shares diluted outstanding
291.3
280.2
281.1
280.5
279.6
278.9
276 - 279
Cash flow from operations
445
471
605
730
905
1,101
$1,190 - $1,290
Capital expenditures
54
58
62
75
95
65
~$115
* Fiscal 2014 and 2020 were 53-week years, compared to all other years which are 52 week years. 2020 included approximately $45 million revenue impact for the extra week. 2014 revenue (which impacts the 3 year CAGR in 2017) included approximately $27 million revenue impact for the extra week.
** At midpoint of guidance.
Profitability Trends
(In Millions)
2016
2017
2018
2019
2020
2021
2022E
Revenue
$
1,816
$
1,943
$
2,138
$
2,336
$
2,683
$
2,988
$
3,415
Revenue Growth
7%
7%
10%
9%
15%
11%
~14%
3-Year Revenue Growth CAGR
8%
7%
8%
9%
11%
12%
~13%
Non-GAAP operating margin
26%
28%
30%
32%
35%
37%
38.5% - 40%
Stock-based compensation
(6)%
(7)%
(8)%
(8)%
(7)%
(7)%
~(8)%
Non-GAAP operating margin adjusted for stock-based compensation
20%
21%
22%
24%
28%
30%
30.5% - 32%
Non-GAAP operating income
$
469
$
534
$
647
$
749
$
944
$
1,111
$
1,340
Non-GAAP operating income adjusted for stock-based compensation
$
360
$
404
$
479
$
567
$
747
$
901
$
1,068
April 25, 2022
Cadence Q1 2022 Financial Results
2
Cadence Design Systems, Inc.
Second Quarter 2022 Financial Outlook
Q2 2021
Q1 2022
Q2 2022E
Total Revenue ($ Millions)
$
728
$
902
$825 - $845
Q/Q Growth
17%
(9)% - (6)%
Y/Y Growth
23%
13% - 16%
GAAP Operating Margin
25%
35%
29% - 30%
Non-GAAP Operating Margin
39%
44%
39% - 40%
GAAP EPS
$
0.56
$
0.85
$0.59 - $0.63
Non-GAAP EPS
$
0.86
$
1.17
$0.95 - $0.99
Q/Q Growth
43%
(19)% -(15)%
Y/Y Growth
41%
10% -15%
Fiscal Year 2022 Financial Outlook
Previous
Current
FY 2021
FY 2022E
FY 2022E
Recurring Revenue
85% - 90%
85% - 90%
85% - 90%
Total Revenue ($ Millions)
$
2,988
$3,320 - $3,380
$3,395 - $3,435
Y/Y Growth
11%
11% - 13%
14% - 15%
Revenue from Beginning Backlog
~70%
~75%
~75%
GAAP Operating Margin
26.1%
27.5% - 29%
28.5% - 30%
Non-GAAP Operating Margin
37.2%
37.5% - 39%
38.5% - 40%
GAAP Other Income & Expense ($ Millions)
$
(11)
$(15) - $(23)
$(21) - $(27)
Non-GAAP Other Income & Expense ($ Millions)
$
(17)
$(15) - $(23)
$(16) - $(22)
GAAP Tax Rate
9%
~25%
~28%
Non-GAAP Tax Rate
16%
17.5%
17.5%
Weighted Average Diluted Shares Outstanding (Millions)
278.9
277 - 279
276 - 279
GAAP EPS
$
2.50
$2.46 - $2.56
$2.51 - $2.59
Non-GAAP EPS
$
3.29
$3.70 - $3.80
$3.89 - $3.97
Y/Y Growth
18%
12% - 16%
18% - 21%
Cash Flow from Operations ($ Millions)
$
1,101
$1,150 - $1,250
$1,190 - $1,290
DSO
40
~45
~45
Capital Expenditures ($ Millions)
$
65
~$125
~$115
April 25, 2022
Cadence Q1 2022 Financial Results
3
Cadence Design Systems, Inc.
First Quarter Financial Results
Backlog
(In Billions)
2018
2019
2020
2021
Q1 2022
Backlog
$
3.0
$
3.6
$
3.9
$
4.4
$
5.1
Revenue
(In Millions)
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Product and Maintenance
$
699
$
688
$
706
$
720
$
846
Services
37
40
45
53
56
Total Revenue
$
736
$
728
$
751
$
773
$
902
Recurring and Up-Front Revenue
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Revenue recognized over time
82
%
84
%
86
%
88
%
81
%
Revenue from arrangements with non-cancelable commitments
4
%
3
%
3
%
3
%
2
%
Recurring Revenue
86
%
87
%
89
%
91
%
83
%
Up-Front Revenue
14
%
13
%
11
%
9
%
17
%
Total
100
%
100
%
100
%
100
%
100
%
Trailing Twelve Months Recurring and Up-Front Revenue
Trailing Twelve Months Ended
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Recurring Revenue
87
%
87
%
87
%
88
%
87
%
Up-Front Revenue
13
%
13
%
13
%
12
%
13
%
Total
100
%
100
%
100
%
100
%
100
%
Revenue Mix by Geography
(% of Total Revenue)
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Americas
46
%
44
%
46
%
43
%
47
%
China
12
%
14
%
13
%
12
%
16
%
Other Asia
18
%
19
%
18
%
21
%
18
%
Europe, Middle East and Africa
18
%
17
%
17
%
18
%
14
%
Japan
6
%
6
%
6
%
6
%
5
%
Total
100
%
100
%
100
%
100
%
100
%
Revenue Mix by Product Category
(% of Total Revenue)
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Custom IC Design and Simulation
23
%
23
%
23
%
24
%
22
%
Digital IC Design and Signoff
27
%
28
%
29
%
29
%
27
%
Functional Verification
26
%
25
%
23
%
21
%
28
%
IP
14
%
13
%
14
%
14
%
13
%
System Design and Analysis
10
%
11
%
11
%
12
%
10
%
Total
100
%
100
%
100
%
100
%
100
%
April 25, 2022
Cadence Q1 2022 Financial Results
4
Cadence Design Systems, Inc.
Gross Margin
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
GAAP Gross Margin
88.6
%
89.5
%
89.8
%
91.0
%
89.1
%
Non-GAAP Gross Margin
90.4
%
91.8
%
91.6
%
92.7
%
90.7
%
Total Costs and Expenses
(In Millions)
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Total GAAP Costs and Expenses
$
532
$
543
$
557
$
577
$
583
Total Non-GAAP Costs and Expenses
$
456
$
441
$
483
$
498
$
505
Operating Margin
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
GAAP Operating Margin
27.7
%
25.5
%
25.8
%
25.3
%
35.4
%
Non-GAAP Operating Margin
38.1
%
39.5
%
35.7
%
35.5
%
44.0
%
Earnings Per Share
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
GAAP Net Income Per Share
$
0.67
$
0.56
$
0.63
$
0.63
$
0.85
Non-GAAP Net Income Per Share
$
0.83
$
0.86
$
0.80
$
0.82
$
1.17
Total DSO
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
DSO
48
49
40
40
37
Balance Sheet and Cash Review
Free Cash Flow
(In Millions)
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Net Cash from Operating Activities
$
208
$
380
$
296
$
216
$
337
Capital Expenditures
17
14
19
15
18
Free Cash Flow
$
191
$
366
$
277
$
201
$
319
Cash and Cash Equivalents
(In Millions)
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Cash and Cash Equivalents
$
743
$
847
$
1,014
$
1,089
$
1,135
•Approximately 37 percent of our cash and cash equivalents were in the U.S. at quarter-end.
Share Repurchase
(In Millions, Except Share Price)
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Share Repurchase
$
172
$
220
$
110
$
110
$
250
Number of Shares
1.323
1.720
0.723
0.635
1.566
Average Share Price
$
130.01
$
127.91
$
152.14
$
173.22
$
159.64
Employees
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Headcount
8,990
9,092
9,257
9,298
9,411
April 25, 2022
Cadence Q1 2022 Financial Results
5
Cadence Design Systems, Inc.
Forward Looking Statements
The statements in this CFO Commentary contain forward-looking statements which are 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 highly competitive industries in which it operates; (ii) the success of Cadence’s efforts to maintain and improve operational efficiency and growth; (iii) the mix of products and services sold, the timing of orders and deliveries and the ability to develop, install or deliver Cadence’s products or services; (iv) change in customer demands or supply constraints that could result in delays in purchases, development, installations or deliveries of Cadence's products or services, including those resulting from consolidation, restructurings and other operational efficiency improvements of Cadence’s customers; (v) economic and industry conditions, including that of the semiconductor and electronics industries, government regulations and trade restrictions; (vi) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rates, currency exchange rate fluctuations, inflation rates and Cadence’s ability to access capital and debt markets; (vii) the acquisition of other companies or technologies or the failure to successfully integrate and operate them; (viii) events that affect cash flow, liquidity, or reserves, or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation, regulatory or other matters; (ix) the effects of any litigation, regulatory or other proceedings to which Cadence is or may become a party; and (x) the duration, severity, volatility and effects of the COVID-19 pandemic and containment measures on Cadence, its employees, and its suppliers and customers, which may also have the effect of heightening the other risks described in this paragraph. 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.
* Q2 2021 includes costs related to a voluntary retirement program.
† 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
2020*
2021
2022E
GAAP total costs and expenses
$
1,571
$
1,619
$
1,742
$
1,845
$
2,037
$
2,209
$
2,404
Reconciling items to non-GAAP total costs and expenses
** 2021 includes costs related to a voluntary retirement program.
† 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 25, 2022
Cadence Q1 2022 Financial Results
7
Cadence Design Systems, Inc.
Reconciliation of GAAP Gross Margin as a Percent of Total Revenue to Non-GAAP Gross Margin as a Percent of Total Revenue
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
GAAP gross margin as a percent of total revenue
88.6%
89.5%
89.8%
91.0%
89.1%
Reconciling items to non-GAAP gross margin as a percent of total revenue
Non-GAAP gross margin as a percent of total revenue †
90.4%
91.8%
91.6%
92.7%
90.7%
* Q2 2021 includes costs related to a voluntary retirement program.
† 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 25, 2022
Cadence Q1 2022 Financial Results
8
Cadence Design Systems, Inc.
Reconciliation of GAAP Operating Margin as a Percent of Total Revenue to Non-GAAP Operating Margin as a Percent of Total Revenue
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022E
GAAP operating margin as a percent of total revenue
28%
25%
26%
25%
35%
29% - 30%
Reconciling items to non-GAAP operating margin as a percent of total revenue
Non-GAAP operating margin as a percent of total revenue †
38%
39%
36%
36%
44%
39% - 40%
* Q2 2021 includes costs related to a voluntary retirement program.
† 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
2020
2021
2022E
GAAP operating margin as a percent of total revenue
13%
17%
19%
21%
24%
26%
28.5% - 30%
Reconciling items to non-GAAP operating margin as a percent of total revenue
Non-GAAP operating margin as a percent of total revenue †
26%
28%
30%
32%
35%
37%
38.5% - 40%
* 2021 includes costs related to a voluntary retirement program.
† 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 25, 2022
Cadence Q1 2022 Financial Results
9
Cadence Design Systems, Inc.
Reconciliation of GAAP Diluted Net Income Per Share to Non-GAAP Diluted Net Income Per Share
Other income or expense related to investments and non-qualified deferred compensation plan assets **
(0.01)
(0.01)
—
(0.01)
0.02
—
Income tax effect of non-GAAP adjustments
(0.10)
(0.06)
(0.10)
(0.09)
0.02
0.07
Diluted net income per share on a non-GAAP basis †
$
0.83
$
0.86
$
0.80
$
0.82
$
1.17
$0.95 - $0.99
Shares used in calculation of diluted net income per share
280,140
278,558
278,311
278,253
276,918
† 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.
* Q2 2021 includes costs related to a voluntary retirement program.
** 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 25, 2022
Cadence Q1 2022 Financial Results
10
Cadence Design Systems, Inc.
Reconciliation of GAAP Diluted Net Income Per Share to Non-GAAP Diluted Net Income Per Share
Other income or expense related to investments and non-qualified deferred compensation plan assets**
(0.02)
(0.05)
—
(0.01)
—
(0.03)
0.02
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)
(0.38)
(0.37)
0.17
Diluted net income per share on a non-GAAP basis †
$
1.21
$
1.40
$
1.87
$
2.20
$
2.80
$
3.29
$3.89 - $3.97
Shares used in calculation of diluted net income per share
291,256
280,221
281,144
280,515
279,641
278,858
276 - 279M
† 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.
* 2021 includes costs related to a voluntary retirement program.
** 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 25, 2022
Cadence Q1 2022 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 2020
FY 2021
FY 2022E
GAAP total other income and expense
$
(12.8)
$
(10.7)
$(21) - $(27)
Reconciling items to non-GAAP total income and expense
Other income or expense related to investments and non-qualified deferred compensation plan assets*
(0.5)
(6.7)
5
Non-GAAP total other income and expense†
$
(13.3)
$
(17.4)
$(16) - $(22)
† 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.