Cadence Reports Fourth Quarter and Fiscal Year 2023 Financial Results
Fiscal Year 2023 Total Revenue Up 15% Year Over Year
EPS Up Over 20% Year Over Year
Record Backlog of $6.0 Billion and cRPO of $3.2 Billion
SAN JOSE, Calif. — February 12, 2024 — Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the fourth quarter and fiscal year 2023.
Fourth Quarter 2023 Financial Highlights
•Revenue of $1.069 billion, compared to revenue of $900 million in Q4 2022
•GAAP operating margin of 31%, compared to 23% in Q4 2022
•Non-GAAP operating margin of 43%, compared to 36% in Q4 2022
•GAAP diluted net income per share of $1.19, compared to $0.88 in Q4 2022
•Non-GAAP diluted net income per share of $1.38, compared to $0.96 in Q4 2022
Fiscal Year 2023 Financial Highlights
•Revenue of $4.090 billion, compared to revenue of $3.562 billion in 2022
•GAAP operating margin of 31%, compared to 30% in 2022
•Non-GAAP operating margin of 42%, compared to 40% in 2022
•GAAP diluted net income per share of $3.82, compared to $3.09 in 2022
•Non-GAAP diluted net income per share of $5.15, compared to $4.27 in 2022
•Year-end backlog was $6.0 billion and current remaining performance obligations (“cRPO”), contract revenue expected to be recognized as revenue in the next 12 months, was $3.2 billion
“Cadence delivered exceptional results for 2023, propelled by our innovative solutions and the successful execution of our Intelligent System Design strategy,” said Anirudh Devgan, president and chief executive officer. “I'm thrilled about the opportunities ahead of us, particularly in AI and 3D-IC. And I look forward to continuing to drive our broad-based business momentum through our technology leadership.”
“We had a strong finish to the year, with growth across all our businesses in 2023,” said John Wall, senior vice president and chief financial officer. “I’m pleased with our record year-end backlog of $6.0 billion and cRPO of $3.2 billion, and I look forward to building on that strength in 2024.”
CFO Commentary
Commentary on the fourth quarter and fiscal year 2023 financial results by John Wall, senior vice president and chief financial officer, is available at www.cadence.com/cadence/investor_relations.
Business Outlook
For fiscal year 2024, the company expects:
•Revenue in the range of $4.55 billion to $4.61 billion
•GAAP operating margin in the range of 32% to 33%
•Non-GAAP operating margin in the range of 42% to 43%
•GAAP diluted net income per share in the range of $4.08 to $4.18
•Non-GAAP diluted net income per share in the range of $5.87 to $5.97
For the first quarter of 2024, the company expects:
•Revenue in the range of $990 million to $1.01 billion
•GAAP operating margin in the range of 24.5% to 25.5%
•Non-GAAP operating margin in the range of 36.5% to 37.5%
•GAAP diluted net income per share in the range of $0.74 to $0.78
•Non-GAAP diluted net income per share in the range of $1.10 to $1.14
The company utilizes a long-term projected non-GAAP tax rate, which reflects currently available information, as well as other factors and assumptions. The non-GAAP tax rate is subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in the company’s geographic earnings mix, or other changes to the company’s strategy or business operations. The company expects to use the current normalized non-GAAP tax rate through fiscal 2025 but will re-evaluate this rate periodically for significant items that may materially affect its projections.
Reconciliations of the financial highlights and business outlook from GAAP operating margin, GAAP net income and GAAP diluted net income per share to non-GAAP operating margin, non-GAAP net income and non-GAAP diluted net income per share, respectively, are included in this press release.
Business Highlights
•Further broadened Cadence.AI generative AI portfolio with introduction of Voltus™ InsightAI for intelligent power analysis and Celsius™ Studio for AI-driven full system thermal analysis. Accelerating momentum of our Cadence.AI portfolio has led to an almost tenfold increase in the number of customers adopting our GenAI solutions in 2023
•System Design and Analysis grew 22% year over year in 2023, with strong momentum from the company's multiphysics platform delivering superior results to customers across multiple segments including aerospace and defense and automotive
•The Millennium™ Enterprise Multiphysics Platform, which was announced earlier this month, is the industry’s first hardware/software platform combining AI, HPC and digital twin technology delivering 20x energy efficiency and up to 100x design impact
•Expanded long-standing collaborations with strategic partners NVIDIA, Arm and Intel
•2023 was another record year for Palladium® and Protium™ hardware systems, with an exceptionally strong Q1 2023 hardware quarter when the company expanded production capacity to improve delivery lead times against the backlog
Audio Webcast Scheduled
Anirudh Devgan, president and chief executive officer, and John Wall, senior vice president and chief financial officer, will host the fourth quarter and fiscal year 2023 financial results audio webcast today, February 12, 2024, 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 12, 2024 at 5 p.m. (Pacific) and ending March 15, 2024 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 systems 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 products from chips to boards to complete systems for the most dynamic market applications, including hyperscale computing, 5G communications, automotive, mobile, aerospace, consumer, industrial and healthcare. For nine years in a row, Fortune magazine has named Cadence one of the 100 Best Companies to Work For. Learn more at www.cadence.com.
This press release contains forward-looking statements, including Cadence's outlook on future operating results, strategic objectives, business prospects, technology and product developments, industry trends and other statements using words such as “anticipates,” “believes,” “expects,” “intends,” “plans,” “will,” and words of similar import and the negatives thereof. Forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside Cadence’s control, and which may cause actual results to differ materially from expectations expressed or implied in the forward-looking statements, including, among others: (i) Cadence’s ability to compete successfully in the highly competitive industries in which it operates and realize the benefits of its investments in research and development, including opportunities presented by AI; (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, geopolitical and industry conditions, including that of the semiconductor and electronics industries, government regulations and trade restrictions, and rising tensions and conflicts around the world such as in the Middle East and with respect to Taiwan; (vi) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rates, currency exchange rate fluctuations, inflation rates, Cadence's upcoming debt maturities and Cadence’s ability to access capital and debt markets; (vii) the continued acquisition of other companies, businesses or technologies or the failure to successfully integrate and operate them; (viii) potential harm caused by compromises in cybersecurity and cybersecurity attacks; (ix) 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; (x) the effects of any litigation, regulatory, tax or other proceedings to which Cadence is or may become a party or to which Cadence or its products, services, technologies or properties are subject; and (xi) Cadence's ability to successfully meet corporate governance, environmental and social targets and strategies. In addition, the timing and amount of Cadence’s repurchases of its common stock are 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, including its most recent report on Form 10-K, subsequent reports on Form 10-Q and future filings.
All forward-looking statements in this press release are based on management's expectations as of the date of this press release and, except as required by law, Cadence disclaims any obligation to update these forward-looking statements to reflect future events or circumstances.
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 measures contained within this press release with their most directly comparable GAAP 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 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
December 31, 2023
December 31, 2022
(unaudited)
GAAP operating margin as a percent of total revenue
31%
23%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense
8%
8%
Amortization of acquired intangibles
2%
2%
Acquisition and integration-related costs
1%
2%
Restructuring
0%
0%
Non-qualified deferred compensation expenses
1%
1%
Non-GAAP operating margin as a percent of total revenue
43%
36%
Operating Margin Reconciliation
Years Ended
December 31, 2023
December 31, 2022
(unaudited)
GAAP operating margin as a percent of total revenue
31%
30%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Non-GAAP operating margin as a percent of total revenue
42%
40%
Net Income Reconciliation
Three Months Ended
December 31, 2023
December 31, 2022
(in thousands)
(unaudited)
Net income on a GAAP basis
$
323,899
$
240,392
Stock-based compensation expense
86,683
73,249
Amortization of acquired intangibles
16,920
15,369
Acquisition and integration-related costs
12,583
17,510
Restructuring
(569)
13
Non-qualified deferred compensation expenses
6,295
3,233
Other income or expense related to investments and non-qualified deferred compensation plan assets*
(27,966)
(2,584)
Income tax effect of non-GAAP adjustments
(41,638)
(85,397)
Net income on a non-GAAP basis
$
376,207
$
261,785
*
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.
Other income or expense related to investments and non-qualified deferred compensation plan assets*
(45,502)
14,171
Income tax effect of non-GAAP adjustments
(57,139)
(52,475)
Net income on a non-GAAP basis
$
1,404,490
$
1,173,319
*
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
December 31, 2023
December 31, 2022
(in thousands, except per share data)
(unaudited)
Diluted net income per share on a GAAP basis
$
1.19
$
0.88
Stock-based compensation expense
0.32
0.27
Amortization of acquired intangibles
0.06
0.06
Acquisition and integration-related costs
0.04
0.06
Restructuring
—
—
Non-qualified deferred compensation expenses
0.02
0.01
Other income or expense related to investments and non-qualified deferred compensation plan assets*
(0.10)
(0.01)
Income tax effect of non-GAAP adjustments
(0.15)
(0.31)
Diluted net income per share on a non-GAAP basis
$
1.38
$
0.96
Shares used in calculation of diluted net income per share
272,419
272,997
*
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.
Other income or expense related to investments and non-qualified deferred compensation plan assets*
(0.17)
0.05
Income tax effect of non-GAAP adjustments
(0.21)
(0.19)
Diluted net income per share on a non-GAAP basis
$
5.15
$
4.27
Shares used in calculation of diluted net income per share
272,748
275,011
*
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.
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 31, 2023 and December 31, 2022
(In thousands)
(Unaudited)
December 31, 2023
December 31, 2022
Current assets:
Cash and cash equivalents
$
1,008,152
$
882,325
Receivables, net
489,224
486,710
Inventories
181,661
128,005
Prepaid expenses and other
297,180
209,727
Total current assets
1,976,217
1,706,767
Property, plant and equipment, net
403,213
371,451
Goodwill
1,535,845
1,374,268
Acquired intangibles, net
336,843
354,617
Deferred taxes
880,001
853,691
Other assets
537,372
476,277
Total assets
$
5,669,491
$
5,137,071
Current liabilities:
Revolving credit facility
$
—
$
100,000
Current portion of long-term debt
349,285
—
Accounts payable and accrued liabilities
576,558
557,158
Current portion of deferred revenue
665,024
690,538
Total current liabilities
1,590,867
1,347,696
Long-term liabilities:
Long-term portion of deferred revenue
98,931
91,524
Long-term debt
299,771
648,078
Other long-term liabilities
275,651
304,660
Total long-term liabilities
674,353
1,044,262
Stockholders’ equity
3,404,271
2,745,113
Total liabilities and stockholders’ equity
$
5,669,491
$
5,137,071
Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three Months and Years Ended December 31, 2023 and December 31, 2022
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
Years Ended
December 31, 2023
December 31, 2022
December 31, 2023
December 31, 2022
Revenue:
Product and maintenance
$
981,987
$
845,880
$
3,834,359
$
3,340,197
Services
86,636
53,997
255,627
221,521
Total revenue
1,068,623
899,877
4,089,986
3,561,718
Costs and expenses:
Cost of product and maintenance
71,491
69,702
331,760
273,565
Cost of services
32,639
23,813
103,281
98,058
Marketing and sales
180,368
171,817
690,319
604,224
Research and development
367,443
350,423
1,441,796
1,251,544
General and administrative
75,742
68,065
242,430
242,116
Amortization of acquired intangibles
4,981
4,927
18,162
18,470
Restructuring
(569)
13
11,013
55
Total costs and expenses
732,095
688,760
2,838,761
2,488,032
Income from operations
336,528
211,117
1,251,225
1,073,686
Interest expense
(8,989)
(9,082)
(36,185)
(22,934)
Other income (expense), net
34,523
8,490
66,886
(5,389)
Income before provision (benefit) for income taxes
362,062
210,525
1,281,926
1,045,363
Provision (benefit) for income taxes
38,163
(29,867)
240,782
196,411
Net income
$
323,899
$
240,392
$
1,041,144
$
848,952
Net income per share - basic
$
1.20
$
0.89
$
3.86
$
3.13
Net income per share - diluted
$
1.19
$
0.88
$
3.82
$
3.09
Weighted average common shares outstanding - basic
269,088
269,709
269,381
271,198
Weighted average common shares outstanding - diluted
272,419
272,997
272,748
275,011
Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Years Ended December 31, 2023 and December 31, 2022
(In thousands)
(Unaudited)
Years Ended
December 31, 2023
December 31, 2022
Cash and cash equivalents at beginning of year
$
882,325
$
1,088,940
Cash flows from operating activities:
Net income
1,041,144
848,952
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
145,292
132,088
Amortization of debt discount and fees
1,262
1,134
Stock-based compensation
325,611
270,439
(Gain) loss on investments, net
(34,602)
5,425
Deferred income taxes
(36,512)
(107,606)
Provisions for losses on receivables
3,325
204
ROU asset amortization and change in operating lease liabilities
451
3,342
Other non-cash items
1,983
371
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables
(11,748)
(138,471)
Inventories
(65,895)
(23,073)
Prepaid expenses and other
39,015
(38,927)
Other assets
(45,784)
(933)
Accounts payable and accrued liabilities
5,415
113,945
Deferred revenue
(21,583)
131,462
Other long-term liabilities
1,802
43,542
Net cash provided by operating activities
1,349,176
1,241,894
Cash flows from investing activities:
Purchases of investments
(176,170)
(1,000)
Proceeds from the sale and maturity of investments
64,775
366
Purchases of property, plant and equipment
(102,337)
(123,215)
Purchases of intangible assets
(166)
(1,000)
Cash paid in business combinations, net of cash acquired
(198,351)
(613,785)
Net cash used for investing activities
(412,249)
(738,634)
Cash flows from financing activities:
Proceeds from revolving credit facility
50,000
585,000
Payments on revolving credit facility
(150,000)
(485,000)
Proceeds from term loan
—
300,000
Payment of debt issuance costs
—
(425)
Proceeds from issuance of common stock
132,957
105,331
Stock received for payment of employee taxes on vesting of restricted stock
(136,396)
(111,864)
Payments for repurchases of common stock
(700,134)
(1,050,091)
Net cash used for financing activities
(803,573)
(657,049)
Effect of exchange rate changes on cash and cash equivalents
(7,527)
(52,826)
Increase (decrease) in cash and cash equivalents
125,827
(206,615)
Cash and cash equivalents at end of year
$
1,008,152
$
882,325
Cadence Design Systems, Inc.
(Unaudited)
Revenue Mix by Geography (% of Total Revenue)
2022
2023
GEOGRAPHY
Q1
Q2
Q3
Q4
Year
Q1
Q2
Q3
Q4
Year
Americas
47
%
45
%
45
%
46
%
46
%
44
%
41
%
43
%
44
%
43
%
China
16
%
13
%
17
%
13
%
15
%
17
%
18
%
17
%
15
%
17
%
Other Asia
18
%
18
%
17
%
18
%
18
%
18
%
18
%
19
%
19
%
19
%
Europe, Middle East and Africa
14
%
18
%
16
%
17
%
16
%
15
%
17
%
15
%
16
%
16
%
Japan
5
%
6
%
5
%
6
%
5
%
6
%
6
%
6
%
6
%
5
%
Total
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
Revenue Mix by Product Category (% of Total Revenue)
2022
2023
PRODUCT CATEGORY
Q1
Q2
Q3
Q4
Year
Q1
Q2
Q3
Q4
Year
Custom IC Design and Simulation
22
%
23
%
22
%
22
%
22
%
20
%
22
%
22
%
22
%
22
%
Digital IC Design and Signoff
27
%
27
%
29
%
28
%
28
%
25
%
27
%
28
%
29
%
27
%
Functional Verification, including Emulation and Prototyping Hardware
28
%
24
%
25
%
25
%
26
%
32
%
27
%
26
%
24
%
27
%
IP
13
%
14
%
12
%
12
%
12
%
11
%
11
%
11
%
13
%
12
%
System Design and Analysis
10
%
12
%
12
%
13
%
12
%
12
%
13
%
13
%
12
%
12
%
Total
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
100
%
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of February 12, 2024
(Unaudited)
Three Months Ending
March 31, 2024
Year Ending
December 31, 2024
Forecast
Forecast
GAAP operating margin as a percent of total revenue
24.5% - 25.5%
32% - 33%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense
9%
8%
Amortization of acquired intangibles
2%
1%
Acquisition and integration-related costs
1%
1%
Non-GAAP operating margin as a percent of total revenue†
36.5% - 37.5%
42% - 43%
†
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 February 12, 2024
(Unaudited)
Three Months Ending
March 31, 2024
Year Ending
December 31, 2024
Forecast
Forecast
Diluted net income per share on a GAAP basis
$0.74 to $0.78
$4.08 to $4.18
Stock-based compensation expense
0.32
1.36
Amortization of acquired intangibles
0.06
0.24
Acquisition and integration-related costs
0.04
0.14
Income tax effect of non-GAAP adjustments
(0.06)
0.05
Diluted net income per share on a non-GAAP basis†
$1.10 to $1.14
$5.87 to $5.97
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of February 12, 2024
(Unaudited)
Three Months Ending
March 31, 2024
Year Ending
December 31, 2024
($ in millions)
Forecast
Forecast
Net income on a GAAP basis
$202 to $213
$1,111 to $1,138
Stock-based compensation expense
88
370
Amortization of acquired intangibles
16
66
Acquisition and integration-related costs
12
39
Income tax effect of non-GAAP adjustments
(16)
13
Net income on a non-GAAP basis†
$302 to $313
$1,599 to $1,626
†
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.
