• Raising FY 2022 outlook for revenue growth and non-GAAP operating margin to 18.5% and 40.2%, respectively; resulting in non-GAAP EPS growth of 28.3%.
• FY 2022 outlook includes latest China export controls.
• OpenEye acquisition closed on August 31st.
Q4 2022 Outlook
• Revenue : $870 - $890 million.
• GAAP operating margin: approximately 24%.
• Non-GAAP operating margin: approximately 35%.
• GAAP EPS: $0.50 - $0.54
• Non-GAAP EPS: $0.89 - $0.93
• Expect to use approximately $300 million to repurchase Cadence shares in Q4.
Q3 2022 KEY METRICS
• Revenue $903 million
• GAAP operating margin 29%
• Non-GAAP operating margin 39%
• GAAP EPS $0.68
• Non-GAAP EPS $1.06
• Operating cash flow $317 million
FY 2022 Outlook
• Revenue: $3.532 - $3.552 billion.
• GAAP operating margin: 29.7% - 30.7%.
• Non-GAAP operating margin: 39.7% - 40.7%.
• GAAP EPS: $2.71 - $2.75
• Non-GAAP EPS $4.20 - $4.24
• Operating cash flow: $1.20 - $1.26 billion.
• Expect to use approximately $1.05 billion of free cash flow to repurchase Cadence shares for the year.
Financial Results Webcast
Our Q3 2022 financial results webcast will begin October 24, 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 October 24, 2022 until 5:00 p.m. (Pacific) on December 16, 2022.
October 24, 2022
Cadence Q3 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
$3,532- $3,552
Revenue growth*
7%
7%
10%
9%
15%
11%
18% - 19%
3-year CAGR
8%
7%
8%
9%
11%
12%
~15%
3-year CAGR without 53rd week impact
8%
11%
GAAP operating expenses
$
1,571
$
1,619
$
1,742
$
1,845
$
2,037
$
2,209
~$2,470
Non-GAAP operating expenses
$
1,348
$
1,409
$
1,491
$
1,587
$
1,739
$
1,877
~$2,118
Non-GAAP operating expense growth
5%
6%
6%
10%
8%
~13%
GAAP operating margin
13%
17%
19%
21%
24%
26%
Implied GAAP operating margin**
30.2%
Non-GAAP operating margin
26%
28%
30%
32%
35%
37%
Implied Non-GAAP operating margin**
40.2%
GAAP earnings per share
$
0.70
$
0.73
$
1.23
$
3.53
$
2.11
$
2.50
$2.71 - $2.75
Non-GAAP earning per share
$
1.21
$
1.40
$
1.87
$
2.20
$
2.80
$
3.29
$4.20 - $4.24
Weighted average shares diluted outstanding
291.3
280.2
281.1
280.5
279.6
278.9
275 - 276
Cash flow from operations
445
471
605
730
905
1,101
$1,200 - $1,260
Capital expenditures
54
58
62
75
95
65
~$120
* 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
$
3,542
Revenue Growth
7%
7%
10%
9%
15%
11%
~19%
3-Year Revenue Growth CAGR
8%
7%
8%
9%
11%
12%
~15%
Non-GAAP operating margin
26%
28%
30%
32%
35%
37%
39.7% - 40.7%
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%
31.7% - 32.7%
Non-GAAP operating income
$
469
$
534
$
647
$
749
$
944
$
1,111
$
1,424
Non-GAAP operating income adjusted for stock-based compensation
$
360
$
404
$
479
$
567
$
747
$
901
$
1,153
October 24, 2022
Cadence Q3 2022 Financial Results
2
Cadence Design Systems, Inc.
Fourth Quarter 2022 Financial Outlook
Q4 2021
Q3 2022
Q4 2022E
Total Revenue ($ Millions)
$
773
$
903
$870 - $890
Q/Q Growth
5%
(4)% - (1)%
Y/Y Growth
20%
13% - 15%
GAAP Operating Margin
25%
29%
~24%
Non-GAAP Operating Margin
36%
39%
~35%
GAAP EPS
$
0.63
$
0.68
$0.50 - $0.54
Non-GAAP EPS
$
0.82
$
1.06
$0.89 - $0.93
Q/Q Growth
(2)%
(16)% -(12)%
Y/Y Growth
33%
9% -13%
Fiscal Year 2022 Financial Outlook
Previous
Current
FY 2021
FY 2022E
FY 2022E
Recurring Revenue
85% - 90%
85% - 90%
~85%
Total Revenue ($ Millions)
$
2,988
$3,470 - $3,510
$3,532 - $3,552
Y/Y Growth
11%
16% - 17%
18% - 19%
Revenue from Beginning Backlog
~70%
~70%
~70%
GAAP Operating Margin
26.1%
29.25% - 30.25%
29.7% - 30.7%
Non-GAAP Operating Margin
37.2%
39.25% - 40.25%
39.7% - 40.7%
GAAP Other Income & Expense ($ Millions)
$
(11)
$(28) - $(32)
$(32) - $(34)
Non-GAAP Other Income & Expense ($ Millions)
$
(17)
$(16) - $(20)
$(15) - $(17)
GAAP Tax Rate
9%
~28%
~28%
Non-GAAP Tax Rate
16%
17.5%
17.5%
Weighted Average Diluted Shares Outstanding (Millions)
278.9
275 - 277
275 - 276
GAAP EPS
$
2.50
$2.59 - $2.65
$2.71 - $2.75
Non-GAAP EPS
$
3.29
$4.06 - $4.12
$4.20 - $4.24
Y/Y Growth
18%
23% - 25%
28% - 29%
Cash Flow from Operations ($ Millions)
$
1,101
$1,150 - $1,250
$1,200 - $1,260
DSO
40
~45
~45
Capital Expenditures ($ Millions)
$
65
~$115
~$120
October 24, 2022
Cadence Q3 2022 Financial Results
3
Cadence Design Systems, Inc.
Third Quarter Financial Results
Backlog
(In Billions)
2018
2019
2020
2021
Q3 2022
Backlog
$
3.0
$
3.6
$
3.9
$
4.4
$
5.5
Revenue
(In Millions)
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Product and Maintenance
$
706
$
720
$
846
$
803
$
846
Services
45
53
56
55
57
Total Revenue
$
751
$
773
$
902
$
858
$
903
Recurring and Up-Front Revenue
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Revenue recognized over time
86
%
88
%
81
%
84
%
81
%
Revenue from arrangements with non-cancelable commitments
3
%
3
%
2
%
2
%
3
%
Recurring Revenue
89
%
91
%
83
%
86
%
84
%
Up-Front Revenue
11
%
9
%
17
%
14
%
16
%
Total
100
%
100
%
100
%
100
%
100
%
Trailing Twelve Months Recurring and Up-Front Revenue
Trailing Twelve Months Ended
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Recurring Revenue
87
%
88
%
87
%
87
%
86
%
Up-Front Revenue
13
%
12
%
13
%
13
%
14
%
Total
100
%
100
%
100
%
100
%
100
%
Revenue Mix by Geography
(% of Total Revenue)
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Americas
46
%
43
%
47
%
45
%
45
%
China
13
%
12
%
16
%
13
%
17
%
Other Asia
18
%
21
%
18
%
18
%
17
%
Europe, Middle East and Africa
17
%
18
%
14
%
18
%
16
%
Japan
6
%
6
%
5
%
6
%
5
%
Total
100
%
100
%
100
%
100
%
100
%
Revenue Mix by Product Category
(% of Total Revenue)
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Custom IC Design and Simulation
23
%
24
%
22
%
23
%
22
%
Digital IC Design and Signoff
29
%
29
%
27
%
27
%
29
%
Functional Verification
23
%
21
%
28
%
24
%
25
%
IP
14
%
14
%
13
%
14
%
12
%
System Design and Analysis
11
%
12
%
10
%
12
%
12
%
Total
100
%
100
%
100
%
100
%
100
%
October 24, 2022
Cadence Q3 2022 Financial Results
4
Cadence Design Systems, Inc.
Gross Margin
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
GAAP Gross Margin
89.8
%
91.0
%
89.1
%
89.2
%
90.3
%
Non-GAAP Gross Margin
91.6
%
92.7
%
90.7
%
90.6
%
91.5
%
Total Costs and Expenses
(In Millions)
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Total GAAP Costs and Expenses
$
557
$
577
$
583
$
575
$
642
Total Non-GAAP Costs and Expenses
$
483
$
498
$
505
$
494
$
547
Operating Margin
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
GAAP Operating Margin
25.8
%
25.3
%
35.4
%
33.0
%
28.9
%
Non-GAAP Operating Margin
35.7
%
35.5
%
44.0
%
42.4
%
39.4
%
Earnings Per Share
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
GAAP Net Income Per Share
$
0.63
$
0.63
$
0.85
$
0.68
$
0.68
Non-GAAP Net Income Per Share
$
0.80
$
0.82
$
1.17
$
1.08
$
1.06
Total DSO
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
DSO
40
40
37
42
40
Balance Sheet and Cash Review
Free Cash Flow
(In Millions)
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Net Cash from Operating Activities
$
296
$
216
$
337
$
325
$
317
Capital Expenditures
19
15
18
24
44
Free Cash Flow
$
277
$
201
$
319
$
301
$
273
Cash and Cash Equivalents
(In Millions)
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Cash and Cash Equivalents
$
1,014
$
1,089
$
1,135
$
1,030
$
1,026
•Approximately 28 percent of our cash and cash equivalents were in the U.S. at quarter-end.
Share Repurchase
(In Millions, Except Share Price)
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Share Repurchase
$
110
$
110
$
250
$
320
$
180
Number of Shares
0.723
0.635
1.566
2.138
0.959
•Q3 2022 includes 109,365 shares and $30 million equity forward contract from Q2 2022 ASR settled in Q3 2022.
Employees
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Headcount
9,257
9,298
9,411
9,570
9,994
October 24, 2022
Cadence Q3 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 assumptions that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those described in the forward-looking statements. Statements regarding our 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 constitute forward-looking statements. 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, geopolitical 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, businesses or technologies or the failure to successfully integrate and operate OpenEye Scientific, Future Facilities or other acquired companies, businesses or technologies; (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 or to which Cadence or its products, services or properties are subject; 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 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 reports on Form 10-K and Form 10-Q and 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.
† 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
$
2,470
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.
October 24, 2022
Cadence Q3 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
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
GAAP gross margin as a percent of total revenue
89.8%
91.0%
89.1%
89.2%
90.3%
Reconciling items to non-GAAP gross margin as a percent of total revenue
Non-GAAP gross margin as a percent of total revenue †
91.6%
92.7%
90.7%
90.6%
91.5%
† 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.
October 24, 2022
Cadence Q3 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
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022E
GAAP operating margin as a percent of total revenue
26%
25%
35%
33%
29%
~24%
Reconciling items to non-GAAP operating margin as a percent of total revenue
Non-GAAP operating margin as a percent of total revenue †
36%
36%
44%
42%
39%
~35%
† 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%
29.7% - 30.7%
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%
39.7% - 40.7%
* 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.
October 24, 2022
Cadence Q3 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)
0.02
0.03
0.02
—
Income tax effect of non-GAAP adjustments
(0.10)
(0.09)
0.02
0.08
0.01
0.03
Diluted net income per share on a non-GAAP basis †
$
0.80
$
0.82
$
1.17
$
1.08
$
1.06
$0.89 - $0.93
Shares used in calculation of diluted net income per share
278,311
278,253
276,918
275,172
274,957
† 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.
October 24, 2022
Cadence Q3 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)
0.06
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)
0.15
Diluted net income per share on a non-GAAP basis †
$
1.21
$
1.40
$
1.87
$
2.20
$
2.80
$
3.29
$4.20 - $4.24
Shares used in calculation of diluted net income per share
291,256
280,221
281,144
280,515
279,641
278,858
275 - 276M
† 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.
October 24, 2022
Cadence Q3 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)
$(32) - $(34)
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)
17
Non-GAAP total other income and expense†
$
(13.3)
$
(17.4)
$(15) - $(17)
† 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.
