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Published: 2021-04-26 00:00:00 ET
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EX-99.02 3 cfocommentary04262021ex9902.htm CFO COMMENTARY Document
Exhibit 99.02
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CADENCE REPORTS FIRST QUARTER
2021
CADENCE DESIGN SYSTEMS, INC.
CFO COMMENTARY
Key Takeaways
• Q1 exceeded our expectations for key operating metrics, resulting in a raise to our 2021 outlook.
• 2021 outlook includes recent NUMECA and Pointwise acquisitions, as we continue to invest in our expanding multiphysics platform.
• Repurchased $172 million of Cadence stock in Q1.
Q2 2021 Outlook
• Revenue : $705 - $725 million.
• GAAP operating margin: approximately 22%.
• Non-GAAP operating margin: approximately 36%.
• GAAP EPS: $0.44 - $0.48
• Non-GAAP EPS: $0.74 - $0.78
Q1 2021 KEY METRICS
• Revenue $736 million
• GAAP operating margin 28%
• Non-GAAP operating margin 38%
• GAAP EPS $0.67
• Non-GAAP EPS $0.83
• Operating cash flow $208 million

FY 2021 Outlook
• Revenue: $2.88 - $2.93 billion.
• GAAP operating margin: 23% - 24%.
• Non-GAAP operating margin: 35% - 36%.
• GAAP EPS: $2.01 - $2.09
• Non-GAAP EPS $2.99 - $3.07
• Operating cash flow: $900 - $950 million.
• Expect to use at least 50% of free cash flow for the year to repurchase Cadence shares.
Financial Results Webcast
Our Q1 2021 financial results webcast will begin April 26, 2021 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 26, 2021 until 5:00 p.m. (Pacific) on June 18, 2021.

April 26, 2021Cadence Q1 2021 Financial Results
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Cadence Design Systems, Inc.
Financial Metrics
(In Millions, except per share data)20162017*201820192020*2021E
Revenue$1,816 $1,943 $2,138 $2,336 $2,683 $2,880- $2,930
Revenue growth*7%7%10%9%15%7% - 9%
3-year CAGR8%7%8%9%11%~11%
3-year CAGR without 53rd week impact8%11%
GAAP operating expenses$1,571 $1,619 $1,742 $1,845 $2,037 ~$2,212
Non-GAAP operating expenses$1,348 $1,409 $1,491 $1,587 $1,739 ~$1,874
Non-GAAP operating expense growth5%6%6%10%~8%
GAAP operating margin13%17%19%21%24%
Implied GAAP operating margin**~23.5%
Non-GAAP operating margin26%28%30%32%35%
Implied Non-GAAP operating margin**~35.5%
GAAP earnings per share$0.70 $0.73 $1.23 $3.53 $2.11 $2.01 - $2.09
Non-GAAP earning per share$1.21 $1.40 $1.87 $2.20 $2.80 $2.99 - $3.07
Weighted average shares diluted outstanding291.3280.2281.1280.5279.6279 - 281
Cash flow from operations445471605730905$900 - $950
Capital expenditures5458627595~$100
* 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.

Non-GAAP Operating Margin Adjusted for Stock-Based Compensation
201620172018201920202021E
Non-GAAP operating margin26 %28 %30 %32 %35 %35% - 36%
Stock-based compensation(6)%(7)%(8)%(8)%(7)%~(8)%
Net20 %21 %22 %24 %28 %27% - 28%








April 26, 2021Cadence Q1 2021 Financial Results
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Cadence Design Systems, Inc.
Second Quarter 2021 Financial Outlook
Q2 2020AQ1 2021Q2 2021E
Total Revenue ($ Millions)$638 $736 $705 - $725
   Q/Q Growth(3)%(4)% - (1)%
   Y/Y Growth19%11% - 14%
GAAP Operating Margin24%28%~22%
Non-GAAP Operating Margin35%38%~36%
GAAP EPS$0.47 $0.67 $0.44 - $0.48
Non-GAAP EPS$0.66 $0.83 $0.74 - $0.78
   Q/Q Growth0%(11)% - (6)%
   Y/Y Growth38%12% - 18%

Fiscal Year 2021 Financial Outlook
PreviousCurrent
FY 2020*FY 2021EFY 2021E
Recurring Revenue85% - 90%85% - 90%85% - 90%
Total Revenue ($ Millions)$2,683 $2.860 - $2.920$2,880 - $2,930
   Y/Y Growth*15%7% - 9%7% - 9%
Revenue from Beginning Backlog~70%~75%~75%
GAAP Operating Margin24.1%24.5% - 26%23% - 24%
Non-GAAP Operating Margin35.2%34.5% - 36%35% - 36%
GAAP Other Income & Expense ($ Millions)$(13)$(13) - $(21)$(13) - $(19)
Non-GAAP Other Income & Expense ($ Millions)$(13)$(13) - $(21)$(16) - $(22)
GAAP Tax Rate7%
~14%
~15%
Non-GAAP Tax Rate16%16%16%
Weighted Average Diluted Shares Outstanding (Millions)279.6279 - 282279 - 281
GAAP EPS$2.11 $2.09 - $2.19$2.01 - $2.09
Non-GAAP EPS$2.80 $2.95 - $3.05$2.99 - $3.07
   Y/Y Growth27%5% - 9%7% - 10%
Cash Flow from Operations ($ Millions)$905 $900 - $950$900 - $950
DSO44~45~45
Capital Expenditures ($ Millions)$95 ~$100~$100
* Fiscal 2020 was a 53-week year.

April 26, 2021Cadence Q1 2021 Financial Results
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Cadence Design Systems, Inc.
First Quarter Financial Results
Backlog
(In Billions)201820192020Q1 2021
Backlog$3.0 $3.6 $3.9 $3.6 

Revenue
(In Millions)Q1 2020Q2 2020Q3 2020Q4 2020*Q1 2021
Product and Maintenance$582 $601 $631 $723 $699 
Services36 37 36 37 37 
   Total Revenue$618 $638 $667 $760 $736 
* Q4 2020 was a 14-week quarter.

Revenue Mix by Geography
(% of Total Revenue)Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021
Americas43 %44 %42 %41 %46 %
China13 %12 %17 %17 %12 %
Other Asia18 %19 %19 %18 %18 %
Europe, Middle East and Africa19 %18 %16 %17 %18 %
Japan7 %7 %6 %7 %6 %
   Total100 %100 %100 %100 %100 %

Revenue Mix by Product Category
(% of Total Revenue)Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021
Custom IC Design and Simulation25 %24 %24 %26 %23 %
Digital IC Design and Signoff29 %28 %27 %31 %27 %
Functional Verification23 %24 %23 %19 %26 %
IP14 %14 %15 %13 %14 %
System Design and Analysis9 %10 %11 %11 %10 %
   Total100 %100 %100 %100 %100 %

Gross Margin
Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021
GAAP Gross Margin88.0 %88.2 %87.7 %90.3 %88.6 %
Non-GAAP Gross Margin89.9 %90.3 %89.6 %92.2 %90.4 %

Total Costs and Expenses
(In Millions)Q1 2020Q2 2020Q3 2020Q4 2020*Q1 2021
Total GAAP Costs and Expenses$479 $486 $497 $575 $532 
Total Non-GAAP Costs and Expenses$419 $415 $428 $478 $456 
* Q4 2020 was a 14-week quarter.

April 26, 2021Cadence Q1 2021 Financial Results
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Cadence Design Systems, Inc.
Operating Margin
Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021
GAAP Operating Margin22.6 %23.8 %25.4 %24.3 %27.7 %
Non-GAAP Operating Margin32.2 %35.1 %35.9 %37.1 %38.1 %

Earnings Per Share
Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021
GAAP Net Income Per Share$0.44 $0.47 $0.58 $0.62 $0.67 
Non-GAAP Net Income Per Share$0.60 $0.66 $0.70 $0.83 $0.83 

Total DSO
Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021
DSO4245414448

Balance Sheet and Cash Review
Free Cash Flow
(In Millions)Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021
Net Cash from Operating Activities$218 $345 $206 $136 $208 
Capital Expenditures22 22 20 31 17 
Free Cash Flow$196 $323 $186 $105 $191 

Cash and Cash Equivalents
(In Millions)Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021
Cash and Cash Equivalents$946 $1,189 $1,307 $928 $743 
•Approximately 40 percent of our cash and cash equivalents were in the U.S. at quarter-end.

Stock Repurchase
(In Millions, Except Share Price)Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021
Share Repurchase$100 $75 $75 $130 $172 
Number of Shares1.488 0.920 0.717 1.123 1.323 
Average Share Price$67.22 $81.54 $104.62 $115.78 $130.01 

Employees
Q1 2020Q2 2020Q3 2020Q4 2020Q1 2021
Headcount8,205 8,375 8,674 8,746 8,990 

April 26, 2021Cadence Q1 2021 Financial Results
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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 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; (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 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 or other matters; (ix) the effects of any litigation or other proceedings to which Cadence is or may become a party; and (x) the duration, severity 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.

© 2021 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 26, 2021Cadence Q1 2021 Financial Results
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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 Millions)Q1 2020Q2 2020Q3 2020Q4 2020*Q1 2021
GAAP total costs and expenses$479 $486 $497 $575 $532 
Reconciling items to non-GAAP total costs and expenses
Stock-based compensation expense(47)(47)(45)(59)(53)
Amortization of acquired intangibles(15)(16)(16)(17)(16)
Acquisition and integration-related costs(4)(5)(6)(7)(5)
Restructuring and other (charges) credits1 1 — (10)— 
Non-qualified deferred compensation (expenses) credits5 (4)(2)(4)(2)
Special charges — — — — — 
Non-GAAP total costs and expenses †
$419 $415 $428 $478 $456 
* Q4 2020 was a 14-week quarter.
† 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)2017201820192020*2021E
GAAP total costs and expenses$1,619 $1,742 $1,845 $2,037 $2,212
Reconciling items to non-GAAP total costs and expenses
Stock-based compensation expense(130)(168)(182)(197)~(222)
Amortization of acquired intangibles(57)(53)(53)(64)~(67)
Acquisition and integration-related costs(8)(20)(8)(23)~(21)
Restructuring and other charges(9)(11)(9)(9)— 
Non-qualified deferred compensation (expenses) credits(6)1 (5)(5)~(2)
Special charges **— — (1)— ~(26)
Non-GAAP total costs and expenses †
$1,409 $1,491 $1,587 $1,739 ~$1,874
* Fiscal 2020 was a 53-week year.
** 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 26, 2021Cadence Q1 2021 Financial Results
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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 2020Q2 2020Q3 2020Q4 2020Q1 2021
GAAP gross margin as a percent of total revenue88%88%88%90%89%
Reconciling items to non-GAAP gross margin as a percent of total revenue
Stock-based compensation expense0%0%0%0%0%
Amortization of acquired intangibles2%2%2%2%1%
Non-qualified deferred compensation expenses (credits)0%0%0%0%0%
Non-GAAP gross margin as a percent of total revenue †
90%90%90%92%90%
† 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 26, 2021Cadence Q1 2021 Financial Results
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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 2020Q2 2020Q3 2020Q4 2020Q1 2021Q2 2021E
GAAP operating margin as a percent of total revenue23%24%25%24%28%~22%
Reconciling items to non-GAAP operating margin as a percent of total revenue
Stock-based compensation expense7%7%7%8%7%7%
Amortization of acquired intangibles2%2%3%2%2%2%
Acquisition and integration-related costs1%1%1%1%1%1%
Restructuring and other charges (credits)0%0%0%1%0%0%
Non-qualified deferred compensation expenses (credits)(1)%1%0%1%0%0%
Special charges *0%0%0%0%0%4%
Non-GAAP operating margin as a percent of total revenue †
32%35%36%37%38%~36%

* 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.

201620172018201920202021E
GAAP operating margin as a percent of total revenue13%17%19%21%24%23% - 24%
Reconciling items to non-GAAP operating margin as a percent of total revenue
Stock-based compensation expense6%7%8%8%7%8%
Amortization of acquired intangibles4%3%2%2%3%2%
Acquisition and integration-related costs1%0%1%0%1%1%
Restructuring and other charges2%1%0%1%0%0%
Non-qualified deferred compensation expenses (credits)0%0%0%0%0%0%
Special charges *0%0%0%0%0%1%
Non-GAAP operating margin as a percent of total revenue †
26%28%30%32%35%35% - 36%

* 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 26, 2021Cadence Q1 2021 Financial Results
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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 2020Q2 2020Q3 2020Q4 2020Q1 2020Q2 2021E
Diluted net income per share on a GAAP basis$0.44 $0.47 $0.58 $0.62 $0.67 $0.44 - $0.48
Stock-based compensation expense0.17 0.17 0.16 0.21 0.19 0.19 
Amortization of acquired intangibles0.05 0.06 0.06 0.06 0.06 0.06 
Acquisition and integration-related costs0.02 0.02 0.02 0.02 0.02 0.02 
Restructuring and other charges (credits)— — — 0.04 — — 
Non-qualified deferred compensation expenses (credits)(0.02)0.01 — 0.01 — — 
Special charges *— — — — — 0.09 
Other income or expense related to investments and non-qualified deferred compensation plan assets **0.03 (0.01)— (0.02)(0.01)— 
Income tax effect of non-GAAP adjustments(0.09)(0.06)(0.12)(0.11)(0.10)(0.06)
Diluted net income per share on a non-GAAP basis †
$0.60 $0.66 $0.70 $0.83 $0.83 $0.74 - $0.78
Shares used in calculation of diluted net income per share279,265 279,080 280,024 280,173 280,140 

† 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 26, 2021Cadence Q1 2021 Financial Results
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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)201620172018201920202021E
Diluted net income per share on a GAAP basis$0.70 $0.73 $1.23 $3.53 $2.11 $2.01 - $2.09
Stock-based compensation expense0.37 0.46 0.60 0.65 0.71 0.79 
Amortization of acquired intangibles0.21 0.20 0.19 0.19 0.23 0.24 
Acquisition and integration-related costs0.04 0.03 0.07 0.03 0.08 0.08 
Restructuring and other charges0.14 0.03 0.04 0.03 0.03 — 
Non-qualified deferred compensation expenses (credits)0.01 0.02 (0.01)0.02 0.02 0.01 
Special charges*— — — — — 0.09 
Other income or expense related to investments and non-qualified deferred compensation plan assets**(0.02)(0.05)— (0.01)— (0.01)
Income tax 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)(0.22)
Diluted net income per share on a non-GAAP basis †$1.21 $1.40 $1.87 $2.20 $2.80 $2.99 - $3.07
Shares used in calculation of diluted net income per share 291,256 280,221 281,144 280,515 279,641 279 - 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.

* 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 26, 2021Cadence Q1 2021 Financial Results
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Cadence Design Systems, Inc.
Reconciliation of GAAP Total Other Income and Expense to Non-GAAP Total Other Income and Expense
(In Millions)FY 2019FY 2020FY 2021E
GAAP total other income and expense$(12.8)$(12.8)$(13) - $(19)
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)(0.5)(3)
Non-GAAP total other income and expense†
$(14.1)$(13.3)$(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.



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