cdns-20201019

Exhibit 99.01

Cadence Reports Third Quarter 2020 Financial Results

SAN JOSE, Calif. — October 19, 2020 — Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the third quarter of 2020.

Cadence reported third quarter 2020 revenue of $667 million, compared to revenue of $580 million reported for the same period in 2019. On a GAAP basis, Cadence achieved operating margin of 25 percent and recognized net income of $162 million, or $0.58 per share on a diluted basis, in the third quarter of 2020, compared to operating margin of 21 percent and net income of $102 million, or $0.36 per share on a diluted basis, for the same period in 2019.

Using the non-GAAP measure defined below, operating margin for the third quarter of 2020 was 36 percent and net income was $197 million, or $0.70 per share on a diluted basis, compared to operating margin of 32 percent and net income of $153 million, or $0.54 per share on a diluted basis, for the same period in 2019.

“Cadence delivered outstanding results in the third quarter by continuing to innovate and delight customers,” said Lip-Bu Tan, chief executive officer. “System and semiconductor design activity remains strong and our Intelligent System Design strategy uniquely positions us to enable our customers to realize their cutting-edge designs. In the third quarter we expanded the scale and scope of our relationship with a global marquee company, and I am especially pleased with the momentum of our new systems products.”

“We are raising our 2020 revenue and earnings guidance primarily due to higher second half hardware and IP sales activity in China and continuing progress in our System Design and Analysis business,” said John Wall, senior vice president and chief financial officer.

During the third quarter of 2020, Cadence repurchased $75 million of its common stock and the Board of Directors has increased the previously announced authorization by an additional $750 million. As of the end of the third quarter of 2020, approximately $869 million remained available under the authorization to repurchase Cadence common stock. The actual timing and amount of repurchases will be subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors.

CFO Commentary

Commentary on the third 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 fourth quarter of 2020, the company expects total revenue in the range of $720 million to $740 million. Fourth quarter GAAP operating margin is expected to be in the range of 23 percent to 24 percent and GAAP net income per diluted share is expected to be in the range of $0.48 to $0.52. Using the non-GAAP measure defined below, operating margin is expected to be in the range of 34 percent to 35 percent and net income per diluted share is expected to be in the range of $0.72 to $0.76.

For 2020, the company expects total revenue in the range of $2.643 billion to $2.663 billion. On a GAAP basis, operating margin is expected to be in the range of 23 percent to 24 percent and GAAP net income per diluted share for 2020 is expected to be in the range of $1.97 to $2.01. Using the non-GAAP measure defined below, operating margin for 2020 is expected to be in the range of 34 percent to 35 percent and net income per diluted share for 2020 is expected to be in the range of $2.68 to $2.72.

Our fiscal years are 52- or 53-week periods ending on the Saturday closest to December 31. Fiscal 2020 will be a 53-week fiscal year, with an additional week in our fourth quarter of 2020. Fiscal 2019 was a 52-week fiscal year.

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 third quarter 2020 financial results audio webcast today, October 19, 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

October 19, 2020 at 5 p.m. (Pacific) and ending December 18, 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 healthcare. 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.

This document includes 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 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
	September 26, 2020	September 28, 2019
	(unaudited)
GAAP operating margin as a percent of total revenue	25%	21%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Amortization of acquired intangibles	3%	2%
Stock-based compensation expense	7%	9%
Non-qualified deferred compensation expenses	0%	0%
Restructuring and other charges (credits)	0%	0%
Acquisition and integration-related costs	1%	0%

Non-GAAP operating margin as a percent of total revenue	36%	32%


Net Income Reconciliation	Three Months Ended
	September 26, 2020		September 28, 2019
	(unaudited)
(in thousands)
Net income on a GAAP basis	$	161,630	$	101,514
Amortization of acquired intangibles	15,885		12,799
Stock-based compensation expense	45,334		48,279
Non-qualified deferred compensation expenses	1,779		52
Restructuring and other charges (credits)	13		(186)
Acquisition and integration-related costs	6,739		1,838

Other income or expense related to investments and non-qualified deferred compensation plan assets*	(876)		2,344

Income tax effect of non-GAAP adjustments	(33,451)		(13,899)
Net income on a non-GAAP basis	$	197,053	$	152,741


*			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
	September 26, 2020		September 28, 2019
	(unaudited)
(in thousands, except per share data)
Diluted net income per share on a GAAP basis	$	0.58	$	0.36
Amortization of acquired intangibles	0.06		0.04
Stock-based compensation expense	0.16		0.17
Non-qualified deferred compensation expenses	—		—
Restructuring and other charges (credits)	—		—
Acquisition and integration-related costs	0.02		0.01

Other income or expense related to investments and non-qualified deferred compensation plan assets*	—		0.01

Income tax effect of non-GAAP adjustments	(0.12)		(0.05)
Diluted net income per share on a non-GAAP basis	$	0.70	$	0.54
Shares used in calculation of diluted net income per share — GAAP**	280,024		280,666
Shares used in calculation of diluted net income per share — non-GAAP**	280,024		280,666


*			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 December 18, 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 fourth quarter 2020 earnings release is published, which is currently scheduled for February 22, 2021.

For more information, please contact:

Cadence Investor Relations

408-944-7100

[email protected]

Cadence Newsroom

408-944-7039

[email protected]

Cadence Design Systems, Inc.

Condensed Consolidated Balance Sheets

September 26, 2020 and December 28, 2019

(In thousands)

(Unaudited)


	September 26, 2020		December 28, 2019
Current assets:
Cash and cash equivalents	$	1,306,564	$	705,210
Receivables, net	300,413		304,546
Inventories	47,979		55,802
Prepaid expenses and other	81,526		103,785
Total current assets	1,736,482		1,169,343
Property, plant and equipment, net	288,163		275,855
Goodwill	780,842		661,856
Acquired intangibles, net	227,753		172,375
Deferred taxes	722,656		732,367
Other assets	384,256		345,429
Total assets	$	4,140,152	$	3,357,225
Current liabilities:
Revolving credit facility	$	350,000	$	—
Accounts payable and accrued liabilities	290,886		316,908
Current portion of deferred revenue	477,003		355,483
Total current liabilities	1,117,889		672,391
Long-term liabilities:
Long-term portion of deferred revenue	84,646		73,400
Long-term debt	346,584		346,019
Other long-term liabilities	195,315		162,521
Total long-term liabilities	626,545		581,940
Stockholders’ equity	2,395,718		2,102,894
Total liabilities and stockholders’ equity	$	4,140,152	$	3,357,225

Cadence Design Systems, Inc.

Condensed Consolidated Income Statements

For the Three and Nine Months Ended September 26, 2020 and September 28, 2019

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 26, 2020		September 28, 2019		September 26, 2020		September 28, 2019
Revenue:
Product and maintenance	$	630,329	$	548,105	$	1,813,384	$	1,639,651
Services	36,278		31,498		109,598		97,113
Total revenue	666,607		579,603		1,922,982		1,736,764
Costs and expenses:
Cost of product and maintenance	64,800		41,715		175,915		135,625
Cost of services	17,484		19,260		56,047		57,404
Marketing and sales	123,738		121,368		369,958		354,406
Research and development	250,934		240,542		743,423		700,566
General and administrative	35,928		33,204		105,161		97,713
Amortization of acquired intangibles	4,438		2,874		13,234		9,341
Restructuring and other charges (credits)	13		(186)		(1,329)		(1,188)
Total costs and expenses	497,335		458,777		1,462,409		1,353,867
Income from operations	169,272		120,826		460,573		382,897
Interest expense	(5,325)		(4,240)		(15,876)		(14,607)
Other income, net	1,766		122		1,862		5,253
Income before provision for income taxes	165,713		116,708		446,559		373,543
Provision for income taxes	4,083		15,194		29,653		44,239
Net income	$	161,630	$	101,514	$	416,906	$	329,304
Net income per share - basic	$	0.59	$	0.37	$	1.52	$	1.21
Net income per share - diluted	$	0.58	$	0.36	$	1.49	$	1.17
Weighted average common shares outstanding - basic	273,996		273,329		273,633		273,224
Weighted average common shares outstanding - diluted	280,024		280,666		279,455		280,817

Cadence Design Systems, Inc.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 26, 2020 and September 28, 2019

(In thousands)

(Unaudited)


	Nine Months Ended
	September 26, 2020		September 28, 2019
Cash and cash equivalents at beginning of period	$	705,210	$	533,298
Cash flows from operating activities:
Net income	416,906		329,304
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	107,019		91,400
Amortization of debt discount and fees	770		747
Stock-based compensation	138,723		134,789
Loss on investments, net	5,118		2,655
Deferred income taxes	(18,966)		(10,938)
Provisions for losses (recoveries) on receivables	1,087		(358)
ROU asset amortization and change in operating lease liabilities	2,064		4,285
Other non-cash items	410		197
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables	9,945		26,553
Inventories	6,376		(43,781)
Prepaid expenses and other	22,769		38,703
Other assets	(21,287)		3,554
Accounts payable and accrued liabilities	(30,455)		(4,001)
Deferred revenue	124,491		(6,968)
Other long-term liabilities	4,430		4,163
Net cash provided by operating activities	769,400		570,304
Cash flows from investing activities:


Purchases of non-marketable investments	—		(33,717)
Proceeds from the sale of non-marketable investments	—		2,952
Purchases of property, plant and equipment	(63,745)		(47,527)
Cash paid in business combinations, net of cash acquired	(197,562)		(338)
Net cash used for investing activities	(261,307)		(78,630)
Cash flows from financing activities:
Proceeds from revolving credit facility	350,000		150,000

Payment on revolving credit facility	—		(250,000)


Proceeds from issuance of common stock	71,451		49,127
Stock received for payment of employee taxes on vesting of restricted stock	(85,515)		(75,016)
Payments for repurchases of common stock	(250,047)		(231,131)
Net cash provided by (used for) financing activities	85,889		(357,020)
Effect of exchange rate changes on cash and cash equivalents	7,372		(12,736)
Increase in cash and cash equivalents	601,354		121,918
Cash and cash equivalents at end of period	$	1,306,564	$	655,216

Cadence Design Systems, Inc.

(Unaudited)

Revenue Mix by Geography (% of Total Revenue)


	2019																2020
GEOGRAPHY	Q1		Q2		Q3		Q4		Year		Q1		Q2		Q3
Americas	44	%	42	%	44	%	46	%	44	%	43	%	44	%	42	%
China	10	%	12	%	10	%	9	%	10	%	13	%	12	%	17	%
Other Asia	19	%	19	%	21	%	20	%	20	%	18	%	19	%	19	%
Europe, Middle East and Africa	18	%	20	%	18	%	18	%	18	%	19	%	18	%	16	%
Japan	9	%	7	%	7	%	7	%	8	%	7	%	7	%	6	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%

Revenue Mix by Product Category (% of Total Revenue)


	2019																2020
PRODUCT CATEGORY	Q1		Q2		Q3		Q4		Year		Q1		Q2		Q3
Custom IC Design and Simulation	25	%	26	%	26	%	25	%	25	%	25	%	24	%	24	%
Digital IC Design and Signoff	30	%	31	%	30	%	29	%	30	%	29	%	28	%	27	%
Functional Verification, including Emulation and Prototyping Hardware	24	%	22	%	20	%	24	%	23	%	23	%	24	%	23	%
IP	12	%	11	%	15	%	13	%	13	%	14	%	14	%	15	%
System Design and Analysis	9	%	10	%	9	%	9	%	9	%	9	%	10	%	11	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%

Cadence Design Systems, Inc.

Impact of Non-GAAP Adjustments on Forward Looking Operating Margin

As of October 19, 2020

(Unaudited)


	Three Months Ending January 2, 2021	Year Ending January 2, 2021
	Forecast	Forecast
GAAP operating margin as a percent of total revenue	23% - 24%	23% - 24%

Reconciling items to non-GAAP operating margin as a percent of total revenue:
Amortization of acquired intangibles	2%	3%
Stock-based compensation expense	8%	7%


Acquisition and integration-related costs	1%	1%
Non-GAAP operating margin as a percent of total revenue†	34% - 35%	34% - 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.

Cadence Design Systems, Inc.

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

As of October 19, 2020

(Unaudited)


	Three Months Ending January 2, 2021	Year Ending January 2, 2021
	Forecast	Forecast
Diluted net income per share on a GAAP basis	$0.48 to $0.52	$1.97 to $2.01
Amortization of acquired intangibles	0.06	0.23
Stock-based compensation expense	0.21	0.70
Non-qualified deferred compensation expenses	—	—
Restructuring and other charges (credits)	—	—
Acquisition and integration-related costs	0.02	0.08
Other income or expense related to investments and non-qualified deferred compensation plan assets*	—	0.02
Income tax effect of non-GAAP adjustments	(0.05)	(0.32)
Diluted net income per share on a non-GAAP basis†	$0.72 to $0.76	$2.68 to $2.72

Cadence Design Systems, Inc.

Impact of Non-GAAP Adjustments on Forward Looking Net Income

As of October 19, 2020

(Unaudited)


	Three Months Ending January 2, 2021	Year Ending January 2, 2021
($ in millions)	Forecast	Forecast
Net income on a GAAP basis	$134 to $146	$551 to $563
Amortization of acquired intangibles	17	64
Stock-based compensation expense	58	196
Non-qualified deferred compensation expenses	—	1
Restructuring and other charges (credits)	—	(1)
Acquisition and integration-related costs	5	21
Other income or expense related to investments and non-qualified deferred compensation plan assets*	1	5
Income tax effect of non-GAAP adjustments	(14)	(88)
Net income on a non-GAAP basis†	$201 to $213	$749 to $761


†			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.

Exhibit 99.02

CADENCE REPORTS THIRD QUARTER
2020

CADENCE DESIGN SYSTEMS, INC.

CFO COMMENTARY

Key Takeaways

• Q3 results exceeded our expectations for key financial metrics.

• Raising 2020 revenue outlook by $53 million.

• Q4 2020 is a 14-week quarter. Revenue outlook for Q4 includes $45 million for the extra week.

Q4 2020 Outlook

• Revenue : $720 - $740 million.

• GAAP operating margin: 23% - 24%.

• Non-GAAP operating margin: 34% - 35%.

• GAAP EPS: $0.48 - $0.52

• Non-GAAP EPS: $0.72 - $0.76

Q3 2020 KEY METRICS

• Revenue $667 million

• GAAP operating margin 25%

• Non-GAAP operating margin 36%

• GAAP EPS $0.58

• Non-GAAP EPS $0.70

• Operating cash flow $207 million

FY 2020 Outlook

• Revenue: $2.643 - $2.663 billion.

• GAAP operating margin: 23% - 24%.

• Non-GAAP operating margin: 34% - 35%.

• GAAP EPS: $1.97 - $2.01

• Non-GAAP EPS $2.68 - $2.72

• Operating cash flow: $840 - $870 million.

• Expect to use approximately 50% of free cash flow to repurchase Cadence shares for the year.

Financial Results Webcast

Our Q3 2020 financial results webcast will begin October 19, 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 October 19, 2020 until 5:00 p.m. (Pacific) on December 18, 2020.



October 19, 2020	Cadence Q3 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		$2,643 - $2,663
Revenue growth	7%		7%		10%		9%		13% - 14%
3-year CAGR	8%		7%		8%		9%		~11%
3-year CAGR without 53rd week impact	8%		8%		8%		9%		~10%

GAAP operating expenses	$	1,571	$	1,619	$	1,742	$	1,845	~$2,019

Non-GAAP operating expenses	$	1,348	$	1,409	$	1,491	$	1,587	~$1,738
Non-GAAP operating expense growth			5%		6%		6%		~10%

GAAP operating margin	13%		17%		19%		21%

Implied GAAP operating margin**									~23.5%

Non-GAAP operating margin	26%		28%		30%		32%

Implied Non-GAAP operating margin**									~34.5%

GAAP earnings per share	$0.70		$0.73		$1.23		$3.53		$1.97 - $2.01

Non-GAAP earning per share	$1.21		$1.40		$1.87		$2.20		$2.68 - $2.72

Weighted average shares diluted outstanding	291.3		280.2		281.1		280.5		279 - 281

Cash flow from operations	445		471		605		730		$840 - $870

Capital expenditures	54		58		62		75		~$95

* Fiscal 2014 and 2020 are 53-week years, compared to fiscal 2015-2019, which were 52 week years. 2020 outlook includes approximately $45 million revenue impact for the extra week. 2014 revenue included approximately $27 million revenue impact for the extra week.

** At midpoint of guidance.

Fourth Quarter 2020 Financial Outlook


	Q4 2019A	Q3 2020A	Q4 2020E

Total Revenue ($ Million)	$599.6	$666.6	$720 - $740
Q/Q Growth		4%	8% - 11%
Y/Y Growth		15%	20% - 23%

GAAP Operating Margin	18%	25%	23% - 24%

Non-GAAP Operating Margin	31%	36%	34% - 35%

GAAP EPS	$2.36	$0.58	$0.48 - $0.52



Non-GAAP EPS	$0.54	$0.70	$0.72 - $0.76
Q/Q Growth		6%	3% - 9%
Y/Y Growth		30%	33% - 41%


October 19, 2020			Cadence Q3 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	$2.585 - $2.615	$2.643 - $2.663
Y/Y Growth	9%	11% - 12%	13% - 14%

Revenue from Beginning Backlog*	~75%	~75%	~75%

GAAP Operating Margin	21.1%	~22%	23% - 24%

Non-GAAP Operating Margin	32.1%	~33%	34% - 35%

GAAP Other Income & Expense ($ Million)	$(12.8)	$(21) - $(25)	$(21) - $(23)

Non-GAAP Other Income & Expense ($ Million)	$(14.1)	$(15) - $(19)	$(16) - $(18)

GAAP Tax Rate	-106%	~6%	~9%

Non-GAAP Tax Rate	16%	16%	16%

Weighted Average Diluted Shares Outstanding (Million)	280.5	279 - 281	279 - 281

GAAP EPS	$3.53	$1.84 - $1.90	$1.97 - $2.01


Non-GAAP EPS	$2.20	$2.50 - $2.56	$2.68 - $2.72
Y/Y Growth	18%	14% - 16%	22% - 24%

Cash Flow from Operations ($ Million)	$730	$810 - $840	$840 - $870

DSO	47	~45	~45

Capital Expenditures ($ Million)	$75	~$80	~$95

*Backlog = Remaining Performance Obligations + IP Access Agreements


October 19, 2020			Cadence Q3 2020 Financial Results			3

Cadence Design Systems, Inc.

Third Quarter Financial Results

Backlog


(In Billions)	2018	2019	Q3 2020


Backlog*	$3.0	$3.6	$3.8

*Backlog = Remaining Performance Obligations + IP Access Agreements

Revenue


(In Thousands)	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020

Product and Maintenance	$548,105	$564,964	$581,699	$601,356	$630,329
Services	31,498	34,591	36,258	37,062	36,278
Total Revenue	$579,603	$599,555	$617,957	$638,418	$666,607

Revenue Mix by Geography


(% of Total Revenue)	Q3 2019		Q4 2019		Q1 2020		Q2 2020		Q3 2020


Americas	44	%	46	%	43	%	44	%	42	%
China	10	%	9	%	13	%	12	%	17	%
Other Asia	21	%	20	%	18	%	19	%	19	%
Europe, Middle East and Africa	18	%	18	%	19	%	18	%	16	%
Japan	7	%	7	%	7	%	7	%	6	%
Total	100	%	100	%	100	%	100	%	100	%

Revenue Mix by Product Category


(% of Total Revenue)	Q3 2019		Q4 2019		Q1 2020		Q2 2020		Q3 2020


Custom IC Design and Simulation	26	%	25	%	25	%	24	%	24	%
Digital IC Design and Signoff	30	%	29	%	29	%	28	%	27	%
Functional Verification	20	%	24	%	23	%	24	%	23	%
IP	15	%	13	%	14	%	14	%	15	%
System Design and Analysis	9	%	9	%	9	%	10	%	11	%
Total	100	%	100	%	100	%	100	%	100	%

Gross Margin


	Q3 2019		Q4 2019		Q1 2020		Q2 2020		Q3 2020


GAAP Gross Margin	89.5	%	87.8	%	88.0	%	88.2	%	87.7	%
Non-GAAP Gross Margin	91.5	%	89.7	%	89.9	%	90.3	%	89.6	%

Total Costs and Expenses


(In Thousands)	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020


Total GAAP Costs and Expenses	$458,777	$490,656	$478,606	$486,468	$497,335

Total Non-GAAP Costs and Expenses	$395,995	$415,140	$418,827	$414,559	$427,585


October 19, 2020			Cadence Q3 2020 Financial Results			4

Cadence Design Systems, Inc.

Operating Margin


	Q3 2019		Q4 2019		Q1 2020		Q2 2020		Q3 2020


GAAP Operating Margin	20.8	%	18.2	%	22.6	%	23.8	%	25.4	%
Non-GAAP Operating Margin	31.7	%	30.8	%	32.2	%	35.1	%	35.9	%

Earnings Per Share


	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020


GAAP Net Income Per Share	$0.36	$2.36	$0.44	$0.47	$0.58

Non-GAAP Net Income Per Share	$0.54	$0.54	$0.60	$0.66	$0.70

Total DSO


	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020


DSO	43	47	42	45	41

Balance Sheet and Cash Review

Cash Flow from Operating Activities


(In Thousands)	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020


Net Cash from Operating Activities	$138,530	$159,296	$217,719	$345,124	$206,557

Capital Expenditures


(In Thousands)	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020

					.
Capital Expenditures	$16,965	$27,078	$22,179	$21,356	$20,210

Cash and Cash Equivalents


(In Thousands)	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020


Cash and Cash Equivalents	$655,216	$705,210	$946,285	$1,189,186	$1,306,564

•Approximately 62 percent of our cash and cash equivalents were in the U.S. at quarter-end.

Stock Repurchase


(In Thousands, Except Share Price)	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020


Share Repurchase	$75,011	$75,017	$100,022	$75,014	$75,011
Number of Shares	1,065	1,122	1,488	920	717
Average Share Price	$70.43	$66.86	$67.22	$81.54	$104.62

Employees


	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020


Headcount	8,016	8,078	8,205	8,375	8,674


October 19, 2020			Cadence Q3 2020 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 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.

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.


October 19, 2020			Cadence Q3 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)	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020


GAAP total costs and expenses	$458,777	$490,656	$478,606	$486,468	$497,335

Reconciling items to non-GAAP total costs and expenses
Amortization of acquired intangibles	(12,799)	(12,660)	(15,066)	(16,074)	(15,885)
Stock-based compensation expense	(48,279)	(46,758)	(46,482)	(46,907)	(45,334)
Non-qualified deferred compensation (expenses) credits	(52)	(1,948)	4,796	(3,618)	(1,779)
Restructuring and other (charges) credits	186	(9,809)	1,067	275	(13)
Acquisition and integration-related costs	(1,838)	(3,466)	(3,970)	(5,315)	(6,739)
Special charges	—	(875)	(124)	(270)	—
Non-GAAP total costs and expenses†	$395,995	$415,140	$418,827	$414,559	$427,585

† 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	~$2,019

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)	~(196)
Non-qualified deferred compensation (expenses) credits	(2)	(6)	1	(5)	~(1)
Restructuring and other (charges) credits	(41)	(9)	(11)	(9)	~1
Acquisition and integration-related costs	(11)	(8)	(20)	(8)	~(21)
Special charges	—	—	—	(1)	—
Non-GAAP total costs and expenses†	$1,348	$1,409	$1,491	$1,587	~$1,738

† 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 19, 2020			Cadence Q3 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


	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020


GAAP gross margin as percent of total revenue	89.5%	87.8%	88.0%	88.2%	87.7%

Reconciling items to non-GAAP gross margin as a percent of total revenue
Amortization of acquired intangibles	1.7%	1.6%	1.7%	1.8%	1.7%
Stock-based compensation expense	0.3%	0.3%	0.2%	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†	91.5%	89.7%	89.9%	90.3%	89.6%

† 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 19, 2020			Cadence Q3 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


	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020	Q4 2020E


GAAP operating margin as percent of total revenue	21%	18%	23%	24%	25%	23% - 24%

Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	2%	2%	2%	2%	3%	2%
Stock-based compensation expense	9%	8%	7%	7%	7%	8%
Non-qualified deferred compensation expenses (credits)	0%	0%	(1)%	1%	0%	0%
Restructuring and other charges (credits)	0%	2%	0%	0%	0%	0%
Acquisition and integration-related costs	0%	1%	1%	1%	1%	1%
Special charges	0%	0%	0%	0%	0%	0%
Non-GAAP operating margin as percent of total revenue†	32%	31%	32%	35%	36%	34% - 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	2020E


GAAP operating margin as percent of total revenue	13%	17%	19%	21%	23% - 24%

Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	4%	3%	2%	2%	3%
Stock-based compensation expense	6%	7%	8%	8%	7%
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%	34% - 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.


October 19, 2020			Cadence Q3 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)	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020	Q4 2020E


Diluted net income per share on a GAAP basis	$0.36	$2.36	$0.44	$0.47	$0.58	$0.48 - $0.52
Amortization of acquired intangibles	0.04	0.05	0.05	0.06	0.06	0.06
Stock-based compensation expense	0.17	0.17	0.17	0.17	0.16	0.21
Non-qualified deferred compensation expenses (credits)	—	0.01	(0.02)	0.01	—	—
Restructuring and other charges (credits)	—	0.03	—	—	—	—
Acquisition and integration-related costs	0.01	0.01	0.02	0.02	0.02	0.02
Special charges	—	—	—	—	—	—
Other income or expense related to investments and non-qualified deferred compensation plan assets *	0.01	—	0.03	(0.01)	—	—
Income tax benefit related to intercompany transfers of certain intellectual property rights	—	(2.06)	—	—	—	—
Income tax effect of non-GAAP adjustments	(0.05)	(0.03)	(0.09)	(0.06)	(0.12)	(0.05)
Diluted net income per share on a non-GAAP basis †	$0.54	$0.54	$0.60	$0.66	$0.70	$0.72 - $0.76

Shares used in calculation of diluted net income per share - GAAP **	280,666	279,557	279,265	279,080	280,024
Shares used in calculation of diluted net income per share - non-GAAP **	280,666	279,557	279,265	279,080	280,024

† 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.


October 19, 2020			Cadence Q3 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	$1.97 - $2.01
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	0.70
Non-qualified deferred compensation expenses (credits)	0.01	0.02	(0.01)	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	0.08
Special charges	—	—	—	—	—
Other income or expense related to investments and non-qualified deferred compensation plan assets *	(0.02)	(0.05)	—	(0.01)	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)	(0.32)
Diluted net income per share on a non-GAAP basis †	$1.21	$1.40	$1.87	$2.20	$2.68 - $2.72

Shares used in calculation of diluted net income per share - GAAP **	291,256	280,221	281,144	280,515	279 - 281M
Shares used in calculation of diluted net income per share - non-GAAP **	291,256	280,221	281,144	280,515	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.


October 19, 2020			Cadence Q3 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)	$(21) - $(23)

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)	5
Non-GAAP total other income and expense†	$(21.1)	$(14.1)	$(16) - $(18)

† 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 19, 2020			Cadence Q3 2020 Financial Results			12


☐			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))


Exhibit No.						Description

99.01						Press Release issued by Cadence Design Systems, Inc. on October 19, 2020.
99.02						CFO Commentary on Results of Quarter Ended September 26, 2020.
104						Cover Page Interactive Data File (embedded within the Inline XBRL document).