SAN JOSE, Calif. — February 13, 2023 — Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the fourth quarter and fiscal year 2022.

Cadence reported 2022 revenue of $3.562 billion, compared to revenue of $2.988 billion for 2021. On a GAAP basis, Cadence achieved operating margin of 30 percent and recognized net income of $849 million, or $3.09 per share on a diluted basis, in 2022, compared to operating margin of 26 percent and net income of $696 million, or $2.50 per share on a diluted basis for 2021. Revenue for the fourth quarter of 2022 totaled $900 million, compared to revenue of $773 million for the same period in 2021. Cadence achieved operating margin of 23 percent and recognized net income of $240 million, or $0.88 per share on a diluted basis, in the fourth quarter of 2022, compared to operating margin of 25 percent and net income of $177 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 2022 was 40 percent and net income was $1.173 billion, or $4.27 per share on a diluted basis, compared to operating margin of 37 percent and net income of $918 million, or $3.29 per share on a diluted basis, for the same period in 2021. For the fourth quarter of 2022, operating margin was 36 percent and net income was $262 million, or $0.96 per share on a diluted basis, compared to operating margin of 36 percent and net income of $227 million, or $0.82 per share on a diluted basis, for the same period in 2021.

“Cadence delivered record results for 2022 driven by our innovative solutions and strong execution to our Intelligent System Design™ strategy,” said Anirudh Devgan, president and chief executive officer. “I remain confident in the long-term secular mega-trends that continue to fuel robust design activity across semi and system companies. As we start off 2023, I’m excited about our momentum and look forward to driving further innovation and customer success.”

“We delivered another year 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 2022, and look forward to building on that strength in 2023.”

Commentary on the fourth quarter and fiscal year 2022 financial results by John Wall, senior vice president and chief financial officer, is available at www.cadence.com/cadence/investor_relations.

For the first quarter of 2023, the company expects total revenue in the range of $1.00 billion to $1.02 billion. First quarter GAAP operating margin is expected to be in the range of 31 percent to 32 percent and GAAP net income per diluted share is expected to be in the range of $0.84 to $0.88. Using the non-GAAP measures defined below, operating margin is expected to be in the range of 41 percent to 42 percent and net income per diluted share is expected to be in the range of $1.23 to $1.27.

For fiscal year 2023, the company expects total revenue in the range of $4.00 billion to $4.06 billion. On a GAAP basis, operating margin for 2023 is expected to be in the range of 30.5 percent to 32.0 percent and GAAP net income per diluted share for 2023 is expected to be in the range of $3.24 to $3.34. Using the non-GAAP measures defined below, operating margin for 2023 is expected to be in the range of 40.5 percent to 42.0 percent and net income per diluted share for 2023 is expected to be in the range of $4.90 to $5.00.

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 press release.

Anirudh Devgan, president and chief executive officer, and John Wall, senior vice president and chief financial officer, will host the fourth quarter and fiscal year 2022 financial results audio webcast today, February 13, 2023, at 2 p.m. (Pacific) / 5 p.m. (Eastern). Attendees are asked to register at the website at least 10 minutes prior to the scheduled webcast. An archive of the webcast will be available starting February 13, 2023 at 5 p.m. (Pacific) and ending March 17, 2023 at 5 p.m. (Pacific). Webcast access is available at www.cadence.com/cadence/investor_relations.

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.

This press release contains forward-looking statements, including Cadence's outlook on future operating results, strategic objectives, business prospects, technology and product developments, industry trends and other statements using words such as “anticipates,” “believes,” “expects,” “intends,” “plans,” “will,” and words of similar import and the negatives thereof. Forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside Cadence’s control, and which may cause actual results to differ materially from expectations expressed or implied in the forward-looking statements, including, among others: (i) Cadence’s ability to compete successfully in the highly competitive industries in which it operates; (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 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, 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.

Non-GAAP financial measures should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with generally accepted accounting principles, or GAAP. Investors are encouraged to review the reconciliation of non-GAAP measures contained within this press release with their most directly comparable GAAP results. Investors are also encouraged to look at the GAAP results as the best measure of financial performance.

To supplement Cadence’s financial results presented on a GAAP basis, Cadence management uses non-GAAP measures that it believes are helpful in understanding Cadence’s performance. One such measure is non-GAAP net income, which is a financial measure not calculated under GAAP. Non-GAAP net income is calculated by Cadence management by taking GAAP net income and excluding, as applicable, amortization of intangible assets, stock-based compensation expense, acquisition and integration-related costs including retention expenses, investment gains or losses, income or expenses related to Cadence’s non-qualified deferred compensation plan, restructuring and other significant items not directly related to Cadence’s core business operations, and the income tax effect of non-GAAP pre-tax adjustments.

Cadence management uses non-GAAP net income because it excludes items that are generally not directly related to the performance of Cadence’s core business operations and therefore provides supplemental information to Cadence management and investors regarding the performance of the business operations, facilitates comparisons to the historical operating results and allows the review of Cadence's business from the same perspective as Cadence management, including forecasting and budgeting.

The following tables reconcile the specific items excluded from GAAP operating margin, GAAP net income and GAAP net income per diluted share in the calculation of non-GAAP operating margin, non-GAAP net income and non-GAAP net income per diluted share for the periods shown below:

 

Operating Margin Reconciliation						Three Months Ended
						December 31, 2022						January 1, 2022
						(unaudited)
GAAP operating margin as a percent of total revenue						23%						25%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense						8%						7%
Amortization of acquired intangibles						2%						2%
Acquisition and integration-related costs						2%						1%
Restructuring						0%						0%
Non-qualified deferred compensation expenses						1%						1%
Non-GAAP operating margin as a percent of total revenue						36%						36%

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 March 17, 2023, 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 first quarter 2023 earnings release is published, which is currently scheduled for April 24, 2023.

For more information, please contact:

Cadence Investor Relations

408-944-7100

investor_relations@cadence.com

Cadence Newsroom

408-944-7039

newsroom@cadence.com

 

						December 31, 2022						January 1, 2022
Current assets:
Cash and cash equivalents						$	882,325					$	1,088,940
Receivables, net						486,710						337,596
Inventories						128,005						115,721
Prepaid expenses and other						209,727						173,512
Total current assets						1,706,767						1,715,769
Property, plant and equipment, net						371,451						305,911
Goodwill						1,374,268						928,358
Acquired intangibles, net						354,617						233,265
Deferred taxes						853,691						763,770
Other assets						476,277						439,226
Total assets						$	5,137,071					$	4,386,299
Current liabilities:
Revolving credit facility						$	100,000					$	—
Accounts payable and accrued liabilities						557,158						417,283
Current portion of deferred revenue						690,538						553,942
Total current liabilities						1,347,696						971,225
Long-term liabilities:
Long-term portion of deferred revenue						91,524						101,148
Long-term debt						648,078						347,588
Other long-term liabilities						304,660						225,663
Total long-term liabilities						1,044,262						674,399
Stockholders’ equity						2,745,113						2,740,675
Total liabilities and stockholders’ equity						$	5,137,071					$	4,386,299

 

						Three Months Ended												Years Ended
						December 31, 2022						January 1, 2022						December 31, 2022						January 1, 2022
Revenue:
Product and maintenance						$	845,880					$	719,849					$	3,340,197					$	2,812,947
Services						53,997						53,187						221,521						175,297
Total revenue						899,877						773,036						3,561,718						2,988,244
Costs and expenses:
Cost of product and maintenance						69,702						47,714						273,565						222,647
Cost of services						23,813						21,979						98,058						84,359
Marketing and sales						171,817						148,068						604,224						560,262
Research and development						350,423						288,953						1,251,544						1,134,277
General and administrative						68,065						65,743						242,116						189,018
Amortization of acquired intangibles						4,927						4,979						18,470						19,640
Restructuring						13						(80)						55						(1,048)
Total costs and expenses						688,760						577,356						2,488,032						2,209,155
Income from operations						211,117						195,680						1,073,686						779,089
Interest expense						(9,082)						(4,251)						(22,934)						(16,980)
Other income (expense), net						8,490						2,625						(5,389)						6,326
Income before provision (benefit) for income taxes						210,525						194,054						1,045,363						768,435
Provision (benefit) for income taxes						(29,867)						17,475						196,411						72,480
Net income						$	240,392					$	176,579					$	848,952					$	695,955
Net income per share - basic						$	0.89					$	0.65					$	3.13					$	2.54
Net income per share - diluted						$	0.88					$	0.63					$	3.09					$	2.50
Weighted average common shares outstanding - basic						269,709						273,066						271,198						273,504
Weighted average common shares outstanding - diluted						272,997						278,253						275,011						278,858

 

			2021																														2022
GEOGRAPHY			Q1						Q2						Q3						Q4						Year						Q1						Q2						Q3						Q4						Year
Americas			46		%				44		%				46		%				43		%				45		%				47		%				45		%				45		%				46		%				46		%
China			12		%				14		%				13		%				12		%				13		%				16		%				13		%				17		%				13		%				15		%
Other Asia			18		%				19		%				18		%				21		%				19		%				18		%				18		%				17		%				18		%				18		%
Europe, Middle East and Africa			18		%				17		%				17		%				18		%				17		%				14		%				18		%				16		%				17		%				16		%
Japan			6		%				6		%				6		%				6		%				6		%				5		%				6		%				5		%				6		%				5		%
Total			100		%				100		%				100		%				100		%				100		%				100		%				100		%				100		%				100		%				100		%

 

			2021																														2022
PRODUCT CATEGORY			Q1						Q2						Q3						Q4						Year						Q1						Q2						Q3						Q4						Year
Custom IC Design and Simulation			23		%				23		%				23		%				24		%				23		%				22		%				23		%				22		%				22		%				22		%
Digital IC Design and Signoff			27		%				28		%				29		%				29		%				29		%				27		%				27		%				29		%				28		%				28		%
Functional Verification, including Emulation and Prototyping Hardware			26		%				25		%				23		%				21		%				24		%				28		%				24		%				25		%				25		%				26		%
IP			14		%				13		%				14		%				14		%				13		%				13		%				14		%				12		%				12		%				12		%
System Design and Analysis			10		%				11		%				11		%				12		%				11		%				10		%				12		%				12		%				13		%				12		%
Total			100		%				100		%				100		%				100		%				100		%				100		%				100		%				100		%				100		%				100		%

 

						Three Months Ending March 31, 2023						Year Ending December 31, 2023
						Forecast						Forecast
GAAP operating margin as a percent of total revenue						31% - 32%						30.5% - 32.0%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense						8%						8%
Amortization of acquired intangibles						1%						1%
Acquisition and integration-related costs						1%						1%
Non-GAAP operating margin as a percent of total revenue†						41% - 42%						40.5% - 42.0%

 

Three Months Ending March 31, 2023

Year Ending December 31, 2023

Forecast

Forecast

Diluted net income per share on a GAAP basis

$0.84 to $0.88

$3.24 to $3.34

Stock-based compensation expense

0.28

1.21

Amortization of acquired intangibles

0.05

0.21

Acquisition and integration-related costs

0.05

0.15

Income tax effect of non-GAAP adjustments

0.01

0.09

Diluted net income per share on a non-GAAP basis†

$1.23 to $1.27

$4.90 to $5.00

 

Three Months Ending March 31, 2023

Year Ending December 31, 2023

($ in millions)

Forecast

Forecast

Net income on a GAAP basis

$230 to $241

$886 to $913

Stock-based compensation expense

77

330

Amortization of acquired intangibles

15

58

Acquisition and integration-related costs

13

40

Income tax effect of non-GAAP adjustments

1

24

Net income on a non-GAAP basis†

$336 to $347

$1,338 to $1,365

* Fiscal 2014 and 2020 were 53-week years, compared to all other years which are 52 week years. 2020 (which impacts the 3 year CAGR in 2023) 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)			2017						2018						2019						2020						2021						2022									2023E*
Revenue			$	1,943					$	2,138					$	2,336					$	2,683					$	2,988					$	3,562								$	4,030
Revenue Growth			7%						10%						9%						15%						11%						19%									~13%
3-Year Revenue Growth CAGR			7%						8%						9%						11%						12%						15%									~15%
GAAP operating margin			17%						19%						21%						24%						26%						30%									31.25%
Non-GAAP operating margin			28%						30%						32%						35%						37%						40%									41.25%
Stock-based compensation			(7)%						(8)%						(8)%						(7)%						(7)%						(8)%									~(8)%
Non-GAAP operating margin adjusted for stock-based compensation			21%						22%						24%						28%						30%						32%									33.25%
GAAP operating income			$	324					$	396					$	492					$	646					$	779					$	1,074								$	1,234
Non-GAAP operating income			$	534					$	647					$	749					$	944					$	1,111					$	1,436								$	1,662
Non-GAAP operating income adjusted for stock-based compensation			$	404					$	479					$	567					$	747					$	901					$	1,166								$	1,332

* At midpoint of guidance.

Backlog

(In Billions)			2018						2019						2020						2021									2022
Backlog			$	3.0					$	3.6					$	3.9					$	4.4								$	5.8

Revenue

(In Millions)			Q4 2021						Q1 2022						Q2 2022						Q3 2022									Q4 2022
Product and Maintenance			$	720					$	846					$	803					$	846								$	846
Services			53						56						55						57									54
Total Revenue			$	773					$	902					$	858					$	903								$	900

Recurring and Up-Front Revenue

			Q4 2021						Q1 2022						Q2 2022						Q3 2022									Q4 2022
Revenue recognized over time			88		%				81		%				84		%				81		%							84		%
Revenue from arrangements with non-cancelable commitments			3		%				2		%				2		%				3		%							3		%
Recurring Revenue			91		%				83		%				86		%				84		%							87		%
Up-Front Revenue			9		%				17		%				14		%				16		%							13		%
Total			100		%				100		%				100		%				100		%							100		%

Trailing Twelve Months Recurring and Up-Front Revenue

			Trailing Twelve Months Ended
			Q4 2021						Q1 2022						Q2 2022						Q3 2022									Q4 2022
Recurring Revenue			88		%				87		%				87		%				86		%							85		%
Up-Front Revenue			12		%				13		%				13		%				14		%							15		%
Total			100		%				100		%				100		%				100		%							100		%

Revenue Mix by Geography

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

Revenue Mix by Product Category

(% of Total Revenue)			Q4 2021						Q1 2022						Q2 2022						Q3 2022									Q4 2022
Custom IC Design and Simulation			24		%				22		%				23		%				22		%							22		%
Digital IC Design and Signoff			29		%				27		%				27		%				29		%							28		%
Functional Verification			21		%				28		%				24		%				25		%							25		%
IP			14		%				13		%				14		%				12		%							12		%
System Design and Analysis			12		%				10		%				12		%				12		%							13		%
Total			100		%				100		%				100		%				100		%							100		%

3 Year Revenue CAGR by Product Category

(% of Total Revenue)			2018						2019						2020						2021									2022
Custom IC Design and Simulation			7		%				9		%				9		%				8		%							10		%
Digital IC Design and Signoff			9		%				10		%				11		%				11		%							13		%
Functional Verification			10		%				5		%				11		%				11		%							20		%
IP			8		%				16		%				18		%				16		%							15		%
System Design and Analysis			3		%				7		%				13		%				19		%							24		%
Total 3 Year CAGR			8		%				9		%				11		%				12		%							15		%

3 Year Revenue CAGR by Product Category Without 53rd Week Impact*

* Fiscal 2020 was a 53-week year and included approximately $45 million revenue impact for the extra week.

Gross Margin

			Q4 2021						Q1 2022						Q2 2022						Q3 2022									Q4 2022
GAAP Gross Margin			91.0		%				89.1		%				89.2		%				90.3		%							89.6		%
Non-GAAP Gross Margin			92.7		%				90.7		%				90.6		%				91.5		%							91.1		%

Total Costs and Expenses

(In Millions)			Q4 2021						Q1 2022						Q2 2022						Q3 2022									Q4 2022
Total GAAP Costs and Expenses			$	577					$	583					$	575					$	642								$	689
Total Non-GAAP Costs and Expenses			$	498					$	505					$	494					$	547								$	579

Operating Margin

			Q4 2021						Q1 2022						Q2 2022						Q3 2022									Q4 2022
GAAP Operating Margin			25.3		%				35.4		%				33.0		%				28.9		%							23.5		%
Non-GAAP Operating Margin			35.5		%				44.0		%				42.4		%				39.4		%							35.6		%