8-K - CDNS - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): October 24, 2022

CADENCE DESIGN SYSTEMS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	000-15867	00-0000000
(State or Other Jurisdiction<br>of Incorporation)	(Commission File Number)	(I.R.S. Employer<br>Identification No.)

2655 Seely Avenue, San Jose, California 95134

(Address of Principal Executive Offices) (Zip Code)

(408) 943-1234

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	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))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CDNS	Nasdaq Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item 2.02. Results of Operations and Financial Condition.

On October 24, 2022, Cadence Design Systems, Inc. ("Cadence") issued a press release announcing its financial results for the quarter ended October 1, 2022.

A copy of the press release is attached hereto as Exhibit 99.01 and a copy of the commentary by the Chief Financial Officer of Cadence regarding Cadence's financial results for the quarter ended October 1, 2022 is attached hereto as Exhibit 99.02, and the press release and the commentary are incorporated herein by reference.

The information contained in this Current Report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01. Financial Statements and Exhibits.

(d)Exhibits

Exhibit No.	Description
99.01	Press Release issued by Cadence Design Systems, Inc. on October 24, 2022.
99.02	CFO Commentary on Results of Quarter Ended October 1, 2022.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: October 24, 2022

CADENCE DESIGN SYSTEMS, INC.
By:	/s/ John M. Wall
	John M. Wall
	Senior Vice President and Chief Financial Officer

Document

Exhibit 99.01

Cadence Reports Third Quarter 2022 Financial Results

SAN JOSE, Calif. — October 24, 2022 — Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the third quarter of 2022.

Cadence reported third quarter 2022 revenue of $903 million, compared to revenue of $751 million for the same period in 2021. On a GAAP basis, Cadence achieved operating margin of 29 percent and recognized net income of $186 million, or $0.68 per share on a diluted basis, in the third quarter of 2022, compared to operating margin of 26 percent and net income of $176 million, or $0.63 per share on a diluted basis, for the same period in 2021.

Using the non-GAAP measures defined below, operating margin for the third quarter of 2022 was 39 percent and net income was $290 million, or $1.06 per share on a diluted basis, compared to operating margin of 36 percent and net income of $222 million, or $0.80 per share on a diluted basis, for the same period in 2021.

“I’m pleased with our excellent results for Q3 driven by our technology leadership, strong execution, diversified customer base and resilient business model,” said Anirudh Devgan, president and chief executive officer. “Generational industry trends are driving continued investment by semiconductor and system companies, and our broad, differentiated portfolio positions us extremely well to help our customers accelerate their next generation innovation.”

“We delivered another quarter of strong financial results,” said John Wall, senior vice president and chief financial officer. “I am pleased that we exceeded all key operating metrics for the quarter, allowing us to raise our full year outlook.”

CFO Commentary

Commentary on the third quarter 2022 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 2022, the company expects total revenue in the range of $870 million to $890 million. Fourth quarter GAAP operating margin is expected to be approximately 24 percent and GAAP net income per diluted share is expected to be in the range of $0.50 to $0.54. Using the non-GAAP measures defined below, operating margin is expected to be approximately 35 percent and net income per diluted share is expected to be in the range of $0.89 to $0.93.

For fiscal year 2022, the company expects total revenue in the range of $3.532 billion to $3.552 billion. On a GAAP basis, operating margin for 2022 is expected to be in the range of 29.7 percent to 30.7 percent and GAAP net income per diluted share for 2022 is expected to be in the range of $2.71 to $2.75. Using the non-GAAP measures defined below, operating margin for 2022 is expected to be in the range of 39.7 percent to 40.7 percent and net income per diluted share for 2022 is expected to be in the range of $4.20 to $4.24.

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 could be 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 this normalized non-GAAP tax rate through fiscal 2025 but will re-evaluate this rate periodically for significant items that may materially affect its projections.

A schedule showing reconciliations of the 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, is included in this release.

Audio Webcast Scheduled

Anirudh Devgan, president and chief executive officer, and John Wall, senior vice president and chief financial officer, will host the third quarter 2022 financial results audio webcast today, October 24, 2022, 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 24, 2022 at 5 p.m. (Pacific) and ending December 16, 2022 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 eight years in a row, Fortune magazine has named Cadence one of the 100 Best Companies to Work For. Learn more at www.cadence.com.

© 2022 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 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 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 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
	October 1, 2022	October 2, 2021
	(unaudited)
GAAP operating margin as a percent of total revenue	29%	26%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense	8%	7%
Amortization of acquired intangibles	1%	2%
Acquisition and integration-related costs	1%	1%
Restructuring	0%	0%
Non-qualified deferred compensation credits	0%	0%
Non-GAAP operating margin as a percent of total revenue	39%	36%
Net Income Reconciliation	Three Months Ended
---	---	---	---	---
	October 1, 2022		October 2, 2021
(in thousands)	(unaudited)
Net income on a GAAP basis	$	186,305	$	176,307
Stock-based compensation expense	73,451		52,746
Amortization of acquired intangibles	12,813		16,774
Acquisition and integration-related costs	11,418		5,326
Restructuring	14		(222)
Non-qualified deferred compensation credits	(2,885)		(351)
Other income or expense related to investments and non-qualified deferred compensation plan assets*	4,539		815
Income tax effect of non-GAAP adjustments	4,433		(29,817)
Net income on a non-GAAP basis	$	290,088	$	221,578
*	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
---	---	---	---	---
	October 1, 2022		October 2, 2021
(in thousands, except per share data)	(unaudited)
Diluted net income per share on a GAAP basis	$	0.68	$	0.63
Stock-based compensation expense	0.27		0.19
Amortization of acquired intangibles	0.05		0.06
Acquisition and integration-related costs	0.04		0.02
Restructuring	—		—
Non-qualified deferred compensation credits	(0.01)		—
Other income or expense related to investments and non-qualified deferred compensation plan assets*	0.02		—
Income tax effect of non-GAAP adjustments	0.01		(0.10)
Diluted net income per share on a non-GAAP basis	$	1.06	$	0.80
Shares used in calculation of diluted net income per share	274,957		278,311
*	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.
---	---

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 16, 2022, 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 2022 earnings release is published, which is currently scheduled for February 13, 2023.

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

October 1, 2022 and January 1, 2022

(In thousands)

(Unaudited)

	October 1, 2022		January 1, 2022
Current assets:
Cash and cash equivalents	$	1,026,051	$	1,088,940
Receivables, net	391,181		337,596
Inventories	114,283		115,721
Prepaid expenses and other	138,968		173,512
Total current assets	1,670,483		1,715,769
Property, plant and equipment, net	348,238		305,911
Goodwill	1,348,494		928,358
Acquired intangibles, net	353,912		233,265
Deferred taxes	783,315		763,770
Other assets	463,645		439,226
Total assets	$	4,968,087	$	4,386,299
Current liabilities:
Revolving credit facility	$	150,000	$	—
Accounts payable and accrued liabilities	454,688		417,283
Current portion of deferred revenue	652,306		553,942
Total current liabilities	1,256,994		971,225
Long-term liabilities:
Long-term portion of deferred revenue	102,167		101,148
Long-term debt	647,799		347,588
Other long-term liabilities	252,999		225,663
Total long-term liabilities	1,002,965		674,399
Stockholders’ equity	2,708,128		2,740,675
Total liabilities and stockholders’ equity	$	4,968,087	$	4,386,299

Cadence Design Systems, Inc.

Condensed Consolidated Income Statements

For the Three and Nine Months Ended October 1, 2022 and October 2, 2021

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended				Nine Months Ended
	October 1, 2022		October 2, 2021		October 1, 2022		October 2, 2021
Revenue:
Product and maintenance	$	845,788	$	706,160	$	2,494,317	$	2,093,098
Services	56,766		44,735		167,524		122,110
Total revenue	902,554		750,895		2,661,841		2,215,208
Costs and expenses:
Cost of product and maintenance	62,351		54,185		203,863		174,933
Cost of services	25,249		22,402		74,245		62,380
Marketing and sales	152,925		143,401		432,407		412,194
Research and development	323,629		289,105		901,121		845,324
General and administrative	73,688		42,990		174,051		123,275
Amortization of acquired intangibles	3,946		5,000		13,543		14,661
Restructuring	14		(222)		42		(968)
Total costs and expenses	641,802		556,861		1,799,272		1,631,799
Income from operations	260,752		194,034		862,569		583,409
Interest expense	(5,463)		(4,196)		(13,852)		(12,729)
Other income (expense), net	(3,017)		(1,143)		(13,879)		3,701
Income before provision for income taxes	252,272		188,695		834,838		574,381
Provision for income taxes	65,967		12,388		226,278		55,005
Net income	$	186,305	$	176,307	$	608,560	$	519,376
Net income per share - basic	$	0.69	$	0.65	$	2.24	$	1.90
Net income per share - diluted	$	0.68	$	0.63	$	2.21	$	1.86
Weighted average common shares outstanding - basic	271,131		273,194		271,694		273,636
Weighted average common shares outstanding - diluted	274,957		278,311		275,683		279,046

Cadence Design Systems, Inc.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended October 1, 2022 and October 2, 2021

(In thousands)

(Unaudited)

	Nine Months Ended
	October 1, 2022		October 2, 2021
Cash and cash equivalents at beginning of period	$	1,088,940	$	928,432
Cash flows from operating activities:
Net income	608,560		519,376
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	98,178		106,962
Amortization of debt discount and fees	810		952
Stock-based compensation	197,190		155,860
(Gain) loss on investments, net	4,777		(330)
Deferred income taxes	(49,834)		(34,566)
Provisions for losses on receivables	471		234
ROU asset amortization and change in operating lease liabilities	(883)		(2,917)
Other non-cash items	158		146
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables	(57,309)		15,132
Inventories	(8,020)		(25,608)
Prepaid expenses and other	30,596		36,632
Other assets	17,644		8,127
Accounts payable and accrued liabilities	24,514		10,501
Deferred revenue	113,712		84,183
Other long-term liabilities	(2,305)		10,417
Net cash provided by operating activities	978,259		885,101
Cash flows from investing activities:
Purchases of non-marketable investments	(1,000)		—
Proceeds from the sale of non-marketable investments	—		128
Purchases of property, plant and equipment	(86,295)		(49,977)
Purchases of intangible assets	(1,000)		—
Cash paid in business combinations, net of cash acquired	(586,163)		(220,026)
Net cash used for investing activities	(674,458)		(269,875)
Cash flows from financing activities:
Proceeds from term loan	300,000		—
Proceeds from revolving credit facility	450,000		—
Payment on revolving credit facility	(300,000)		—
Payment of debt issuance costs	(425)		(1,285)
Proceeds from issuance of common stock	103,682		83,632
Stock received for payment of employee taxes on vesting of restricted stock	(103,093)		(108,185)
Payments for repurchases of common stock	(750,062)		(502,301)
Net cash used for financing activities	(299,898)		(528,139)
Effect of exchange rate changes on cash and cash equivalents	(66,792)		(1,700)
Increase (decrease) in cash and cash equivalents	(62,889)		85,387
Cash and cash equivalents at end of period	$	1,026,051	$	1,013,819

Cadence Design Systems, Inc.

(Unaudited)

Revenue Mix by Geography (% of Total Revenue)

	2021										2022
GEOGRAPHY	Q1		Q2		Q3		Q4		Year		Q1		Q2		Q3
Americas	46	%	44	%	46	%	43	%	45	%	47	%	45	%	45	%
China	12	%	14	%	13	%	12	%	13	%	16	%	13	%	17	%
Other Asia	18	%	19	%	18	%	21	%	19	%	18	%	18	%	17	%
Europe, Middle East and Africa	18	%	17	%	17	%	18	%	17	%	14	%	18	%	16	%
Japan	6	%	6	%	6	%	6	%	6	%	5	%	6	%	5	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%	100	%

Revenue Mix by Product Category (% of Total Revenue)

	2021										2022
PRODUCT CATEGORY	Q1		Q2		Q3		Q4		Year		Q1		Q2		Q3
Custom IC Design and Simulation	23	%	23	%	23	%	24	%	23	%	22	%	23	%	22	%
Digital IC Design and Signoff	27	%	28	%	29	%	29	%	29	%	27	%	27	%	29	%
Functional Verification, including Emulation and Prototyping Hardware	26	%	25	%	23	%	21	%	24	%	28	%	24	%	25	%
IP	14	%	13	%	14	%	14	%	13	%	13	%	14	%	12	%
System Design and Analysis	10	%	11	%	11	%	12	%	11	%	10	%	12	%	12	%
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 24, 2022

(Unaudited)

	Three Months Ending<br>December 31, 2022	Year Ending<br>December 31, 2022
	Forecast	Forecast
GAAP operating margin as a percent of total revenue	~24%	29.7% - 30.7%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense	8%	7.7%
Amortization of acquired intangibles	2%	1.7%
Acquisition and integration-related costs	1%	0.9%
Non-qualified deferred compensation credits	0%	(0.3)%
Non-GAAP operating margin as a percent of total revenue†	~35%	39.7% - 40.7%
†	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 24, 2022

(Unaudited)

	Three Months Ending<br>December 31, 2022	Year Ending<br>December 31, 2022
	Forecast	Forecast
Diluted net income per share on a GAAP basis	$0.50 to $0.54	$2.71 to $2.75
Stock-based compensation expense	0.27	0.98
Amortization of acquired intangibles	0.05	0.22
Acquisition and integration-related costs	0.04	0.12
Non-qualified deferred compensation credits	—	(0.04)
Other income or expense related to investments and non-qualified deferred compensation plan assets*	—	0.06
Income tax effect of non-GAAP adjustments	0.03	0.15
Diluted net income per share on a non-GAAP basis†	$0.89 to $0.93	$4.20 to $4.24

Cadence Design Systems, Inc.

Impact of Non-GAAP Adjustments on Forward Looking Net Income

As of October 24, 2022

(Unaudited)

	Three Months Ending<br>December 31, 2022	Year Ending<br>December 31, 2022
($ in millions)	Forecast	Forecast
Net income on a GAAP basis	$137 to $147	$746 to $756
Stock-based compensation expense	74	271
Amortization of acquired intangibles	15	60
Acquisition and integration-related costs	10	33
Non-qualified deferred compensation credits	—	(12)
Other income or expense related to investments and non-qualified deferred compensation plan assets*	—	17
Income tax effect of non-GAAP adjustments	9	42
Net income on a non-GAAP basis†	$245 to $255	$1,157 to $1,167
†	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, 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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Document

Exhibit 99.02

CADENCE REPORTS THIRD QUARTER2022
CADENCE DESIGN SYSTEMS, INC.
CFO COMMENTARY
Key Takeaways• Exceeded all financial metrics for Q3.• 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.	Q3 2022 KEY METRICS

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.

All values are in US Dollars.

October 24, 2022	Cadence Q3 2022 Financial Results	1
Cadence Design Systems, Inc.
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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
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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
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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
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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
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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.

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 24, 2022	Cadence Q3 2022 Financial Results	6
Cadence Design Systems, Inc.
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APPENDIX I

Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited)

Reconciliation of GAAP Total Expenses to Non-GAAP Total Expenses

(In Millions)	Q3 2021		Q4 2021		Q1 2022		Q2 2022		Q3 2022
GAAP total costs and expenses	$	557	$	577	$	583	$	575	$	642
Reconciling items to non-GAAP total costs and expenses
Stock-based compensation expense	(53)		(54)		(59)		(64)		(74)
Amortization of acquired intangibles	(17)		(17)		(17)		(15)		(13)
Acquisition and integration-related costs	(5)		(6)		(4)		(8)		(11)
Restructuring	—		—		—		—		—
Non-qualified deferred compensation (expenses) credits	1		(2)		2		6		3
Non-GAAP total costs and expenses †	$	483	$	498	$	505	$	494	$	547