SAN JOSE, Calif. — July 24, 2023 — Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the second quarter of 2023.

Cadence reported second quarter 2023 revenue of $977 million, compared to revenue of $858 million for the same period in 2022. On a GAAP basis, Cadence achieved operating margin of 31 percent and recognized net income of $221 million, or $0.81 per share on a diluted basis, in the second quarter of 2023, compared to operating margin of 33 percent and net income of $187 million, or $0.68 per share on a diluted basis, for the same period in 2022.

Using the non-GAAP measures defined below, operating margin for the second quarter of 2023 was 42 percent and net income was $334 million, or $1.22 per share on a diluted basis, compared to operating margin of 42 percent and net income of $298 million, or $1.08 per share on a diluted basis, for the same period in 2022.

“Cadence delivered excellent results for the second quarter of 2023, with strong ongoing customer demand for our innovative technologies,” said Anirudh Devgan, president and chief executive officer. “With its unparalleled promise, Generative AI is beginning to make a significant impact globally. Our dedicated focus on AI over the past several years, combined with our computational software expertise and invaluable data that lies at the core of AI, uniquely positions us to deliver to the tremendous potential of this transformative technology.”

“We achieved another quarter of strong financial results and are raising our revenue, operating margin and EPS guidance for 2023 yet again,” said John Wall, senior vice president and chief financial officer. “Our revenue outlook for the second half represents a year-over-year growth of approximately 15%, allowing us to raise our 2023 revenue guidance to more than 14% growth over 2022.”

Commentary on the second quarter 2023 financial results by John Wall, senior vice president and chief financial officer, is available at www.cadence.com/cadence/investor_relations.

For the second half of 2023, the company expects total revenue in the range of $2.052 billion to $2.092 billion. Second half GAAP operating margin is expected to be in the range of 30 percent to 31 percent and GAAP net income per diluted share is expected to be in the range of $1.65 to $1.71. 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 $2.54 to $2.60.

For fiscal year 2023, the company expects total revenue in the range of $4.05 billion to $4.09 billion. On a GAAP basis, operating margin for 2023 is expected to be in the range of 30.2 percent to 31.2 percent and GAAP net income per diluted share for 2023 is expected to be in the range of $3.35 to $3.41. Using the non-GAAP measures defined below, operating margin for 2023 is expected to be in the range of 41.2 percent to 42.2 percent and net income per diluted share for 2023 is expected to be in the range of $5.05 to $5.11.

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 second quarter 2023 financial results audio webcast today, July 24, 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 July 24, 2023 at 5 p.m. (Pacific) and ending September 15, 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 nine years in a row, Fortune magazine has named Cadence one of the 100 Best Companies to Work For. Learn more at www.cadence.com.

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

All forward-looking statements in this press release are based on management's expectations as of the date of this press release and, except as required by law, Cadence disclaims any obligation to update these forward-looking statements to reflect future events or circumstances.

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
						June 30, 2023						July 2, 2022
						(unaudited)
GAAP operating margin as a percent of total revenue						31%						33%
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						1%						1%
Restructuring						0%						0%
Non-qualified deferred compensation expenses (credits)						0%						(1)%
Non-GAAP operating margin as a percent of total revenue						42%						42%

For more information, please contact:

Cadence Investor Relations

408-944-7100

investor_relations@cadence.com

Cadence Newsroom

408-944-7039

newsroom@cadence.com

 

						June 30, 2023						December 31, 2022
Current assets:
Cash and cash equivalents						$	873,925					$	882,325
Receivables, net						440,915						486,710
Inventories						139,576						128,005
Prepaid expenses and other						188,634						209,727
Total current assets						1,643,050						1,706,767
Property, plant and equipment, net						370,193						371,451
Goodwill						1,428,772						1,374,268
Acquired intangibles, net						340,742						354,617
Deferred taxes						872,151						853,691
Other assets						500,216						476,277
Total assets						$	5,155,124					$	5,137,071
Current liabilities:
Revolving credit facility						$	—					$	100,000
Accounts payable and accrued liabilities						510,007						557,158
Current portion of deferred revenue						686,293						690,538
Total current liabilities						1,196,300						1,347,696
Long-term liabilities:
Long-term portion of deferred revenue						96,653						91,524
Long-term debt						648,551						648,078
Other long-term liabilities						305,165						304,660
Total long-term liabilities						1,050,369						1,044,262
Stockholders’ equity						2,908,455						2,745,113
Total liabilities and stockholders’ equity						$	5,155,124					$	5,137,071

 

						Three Months Ended												Six Months Ended
						June 30, 2023						July 2, 2022						June 30, 2023						July 2, 2022
Revenue:
Product and maintenance						$	922,790					$	802,285					$	1,886,532					$	1,648,529
Services						53,789						55,236						111,737						110,758
Total revenue						976,579						857,521						1,998,269						1,759,287
Costs and expenses:
Cost of product and maintenance						74,218						68,717						174,456						141,512
Cost of services						22,640						23,948						46,874						48,996
Marketing and sales						167,070						139,296						333,736						279,482
Research and development						354,416						286,597						704,711						577,492
General and administrative						54,605						51,426						108,132						100,363
Amortization of acquired intangibles						4,302						4,633						8,569						9,597
Restructuring						—						16						—						28
Total costs and expenses						677,251						574,633						1,376,478						1,157,470
Income from operations						299,328						282,888						621,791						601,817
Interest expense						(8,877)						(4,281)						(18,137)						(8,389)
Other income (expense), net						7,973						(5,962)						16,257						(10,862)
Income before provision for income taxes						298,424						272,645						619,911						582,566
Provision for income taxes						77,304						85,725						156,987						160,311
Net income						$	221,120					$	186,920					$	462,924					$	422,255
Net income per share - basic						$	0.82					$	0.69					$	1.72					$	1.55
Net income per share - diluted						$	0.81					$	0.68					$	1.70					$	1.53
Weighted average common shares outstanding - basic						269,714						271,520						269,607						272,028
Weighted average common shares outstanding - diluted						272,996						275,172						273,078						276,097

 

			2022																														2023
GEOGRAPHY			Q1						Q2						Q3						Q4						Year						Q1						Q2
Americas			47		%				45		%				45		%				46		%				46		%				44		%				41		%
China			16		%				13		%				17		%				13		%				15		%				17		%				18		%
Other Asia			18		%				18		%				17		%				18		%				18		%				18		%				18		%
Europe, Middle East and Africa			14		%				18		%				16		%				17		%				16		%				15		%				17		%
Japan			5		%				6		%				5		%				6		%				5		%				6		%				6		%
Total			100		%				100		%				100		%				100		%				100		%				100		%				100		%

 

			2022																														2023
PRODUCT CATEGORY			Q1						Q2						Q3						Q4						Year						Q1						Q2
Custom IC Design and Simulation			22		%				23		%				22		%				22		%				22		%				20		%				22		%
Digital IC Design and Signoff			27		%				27		%				29		%				28		%				28		%				25		%				27		%
Functional Verification, including Emulation and Prototyping Hardware			28		%				24		%				25		%				25		%				26		%				32		%				27		%
IP			13		%				14		%				12		%				12		%				12		%				11		%				11		%
System Design and Analysis			10		%				12		%				12		%				13		%				12		%				12		%				13		%
Total			100		%				100		%				100		%				100		%				100		%				100		%				100		%

 

						Six Months Ending December 31, 2023						Year Ending December 31, 2023
						Forecast						Forecast
GAAP operating margin as a percent of total revenue						30% - 31%						30.2% - 31.2%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense						8%						8%
Amortization of acquired intangibles						2%						2%
Acquisition and integration-related costs						1%						1%
Non-qualified deferred compensation expenses						0%						0%
Non-GAAP operating margin as a percent of total revenue†						41% - 42%						41.2% - 42.2%

 

						Six Months Ending December 31, 2023						Year Ending December 31, 2023
						Forecast						Forecast
Diluted net income per share on a GAAP basis						$1.65 to $1.71						$3.35 to $3.41
Stock-based compensation expense						0.65						1.20
Amortization of acquired intangibles						0.12						0.23
Acquisition and integration-related costs						0.06						0.17
Non-qualified deferred compensation expenses						—						0.02
Other income or expense related to investments and non-qualified deferred compensation plan assets*						—						(0.02)
Income tax effect of non-GAAP adjustments						0.06						0.10
Diluted net income per share on a non-GAAP basis†						$2.54 to $2.60						$5.05 to $5.11

 

						Six Months Ending December 31, 2023						Year Ending December 31, 2023
($ in millions)						Forecast						Forecast
Net income on a GAAP basis						$452 to $468						$915 to $931
Stock-based compensation expense						178						329
Amortization of acquired intangibles						33						63
Acquisition and integration-related costs						17						47
Non-qualified deferred compensation expenses						—						6
Other income or expense related to investments and non-qualified deferred compensation plan assets*						—						(6)
Income tax effect of non-GAAP adjustments						15						26
Net income on a non-GAAP basis†						$695 to $711						$1,380 to $1,396

* 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								$	4,070
Revenue Growth			7%						10%						9%						15%						11%						19%									~14%
3-Year Revenue Growth CAGR			7%						8%						9%						11%						12%						15%									~15%
GAAP operating margin			17%						19%						21%						24%						26%						30%									30.7%
Non-GAAP operating margin			28%						30%						32%						35%						37%						40%									41.7%
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%									33.7%
GAAP operating income			$	324					$	396					$	492					$	646					$	779					$	1,074								$	1,252
Non-GAAP operating income			$	534					$	647					$	749					$	944					$	1,111					$	1,436								$	1,697
Non-GAAP operating income adjusted for stock-based compensation			$	404					$	479					$	567					$	747					$	901					$	1,166								$	1,368

* At midpoint of guidance.

Backlog

(In Billions)			2019						2020						2021						2022									Q2 2023
Backlog			$	3.6					$	3.9					$	4.4					$	5.8								$	5.3

Revenue

(In Millions)			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
Product and Maintenance			$	803					$	846					$	846					$	964								$	923
Services			55						57						54						58									54
Total Revenue			$	858					$	903					$	900					$	1,022								$	977

Recurring and Up-Front Revenue

			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
Revenue recognized over time			84		%				81		%				84		%				77		%							82		%
Revenue from arrangements with non-cancelable commitments			2		%				3		%				3		%				3		%							3		%
Recurring Revenue			86		%				84		%				87		%				80		%							85		%
Up-Front Revenue			14		%				16		%				13		%				20		%							15		%
Total			100		%				100		%				100		%				100		%							100		%

Trailing Twelve Months Recurring and Up-Front Revenue

			Trailing Twelve Months Ended
			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
Recurring Revenue			87		%				86		%				85		%				84		%							84		%
Up-Front Revenue			13		%				14		%				15		%				16		%							16		%
Total			100		%				100		%				100		%				100		%							100		%

Revenue Mix by Geography

(% of Total Revenue)			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
Americas			45		%				45		%				46		%				44		%							41		%
China			13		%				17		%				13		%				17		%							18		%
Other Asia			18		%				17		%				18		%				18		%							18		%
Europe, Middle East and Africa			18		%				16		%				17		%				15		%							17		%
Japan			6		%				5		%				6		%				6		%							6		%
Total			100		%				100		%				100		%				100		%							100		%

Revenue Mix by Product Category

(% of Total Revenue)			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
Custom IC Design and Simulation			23		%				22		%				22		%				20		%							22		%
Digital IC Design and Signoff			27		%				29		%				28		%				25		%							27		%
Functional Verification			24		%				25		%				25		%				32		%							27		%
IP			14		%				12		%				12		%				11		%							11		%
System Design and Analysis			12		%				12		%				13		%				12		%							13		%
Total			100		%				100		%				100		%				100		%							100		%

Gross Margin

			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
GAAP Gross Margin			89.2		%				90.3		%				89.6		%				87.8		%							90.1		%
Non-GAAP Gross Margin			90.6		%				91.5		%				91.1		%				89.1		%							91.4		%

Total Costs and Expenses

(In Millions)			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
Total GAAP Costs and Expenses			$	575					$	642					$	689					$	699								$	677
Total Non-GAAP Costs and Expenses			$	494					$	547					$	579					$	591								$	569

Operating Margin

			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
GAAP Operating Margin			33.0		%				28.9		%				23.5		%				31.6		%							30.7		%
Non-GAAP Operating Margin			42.4		%				39.4		%				35.6		%				42.1		%							41.8		%

Earnings Per Share

			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
GAAP Net Income Per Share			$	0.68					$	0.68					$	0.88					$	0.89								$	0.81
Non-GAAP Net Income Per Share			$	1.08					$	1.06					$	0.96					$	1.29								$	1.22

Total DSO

			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
DSO			42						40						49						44									42

Free Cash Flow

(In Millions)			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
Net Cash from Operating Activities			$	325					$	317					$	264					$	267								$	414
Capital Expenditures			24						44						37						26									20
Free Cash Flow			$	301					$	273					$	227					$	241								$	394

Cash and Cash Equivalents

(In Millions)			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
Cash and Cash Equivalents			$	1,030					$	1,026					$	882					$	917								$	874

•Approximately 27 percent of our cash and cash equivalents were in the U.S. at quarter-end.

Share Repurchase

(In Millions)			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
Share Repurchase			$	320					$	180					$	300					$	125								$	265
Number of Shares			2.138						0.959						1.939						0.668									1.178

•Q3 2022 includes 109,365 shares and $30 million equity forward contract from Q2 2022 ASR settled in Q3 2022.

•Paid $325 million for share repurchases during Q2 2023. $60 million worth of shares will settle during Q3 2023.

Employees

			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
Headcount			9,570						9,994						10,228						10,579									10,832

This CFO Commentary 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; and (ix) the effects of any litigation, regulatory, tax or other proceedings to which Cadence is or may become a party or to which Cadence or its products, services or properties are subject. 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.

All forward-looking statements in this document are based on management's expectations as of the date of this document and, except as required by law, Cadence disclaims any obligation to update these forward-looking statements to reflect future events or circumstances.

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.

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

Reconciliation of GAAP Total Expenses to Non-GAAP Total Expenses

(In Millions)			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
GAAP total costs and expenses			$	575					$	642					$	689					$	699								$	677
Reconciling items to non-GAAP total costs and expenses
Stock-based compensation expense			(64)						(74)						(73)						(74)									(76)
Amortization of acquired intangibles			(15)						(13)						(16)						(15)									(15)
Acquisition and integration-related costs			(8)						(11)						(18)						(16)									(14)
Restructuring			—						—						—						—									—
Non-qualified deferred compensation (expenses) credits			6						3						(3)						(3)									(3)
Non-GAAP total costs and expenses*			$	494					$	547					$	579					$	591								$	569

Reconciliation of GAAP Total Expenses to Non-GAAP Total Expenses

(In Millions)			2017						2018						2019						2020*						2021						2022									2023E
GAAP total costs and expenses			$	1,619					$	1,742					$	1,845					$	2,037					$	2,209					$	2,488								$	2,818
Reconciling items to non-GAAP total costs and expenses
Stock-based compensation expense			(130)						(168)						(182)						(197)						(210)						(270)									(329)
Amortization of acquired intangibles			(57)						(53)						(53)						(64)						(67)						(60)									(63)
Acquisition and integration-related costs			(8)						(20)						(8)						(23)						(23)						(41)									(47)
Restructuring			(9)						(11)						(9)						(9)						1						—									—
Non-qualified deferred compensation (expenses) credits			(6)						1						(5)						(5)						(6)						8									(6)
Special charges**			—						—						(1)						—						(27)						—									—
Non-GAAP total costs and expenses***			$	1,409					$	1,491					$	1,587					$	1,739					$	1,877					$	2,125								$	2,373

Reconciliation of GAAP Gross Margin as a Percent of Total Revenue to Non-GAAP Gross Margin as a Percent of Total Revenue

			Q2 2022						Q3 2022						Q4 2022						Q1 2023									Q2 2023
GAAP gross margin as a percent of total revenue			89.2%						90.3%						89.6%						87.8%									90.1%
Reconciling items to non-GAAP gross margin as a percent of total revenue
Stock-based compensation expense			0.2%						0.2%						0.3%						0.3%									0.2%
Amortization of acquired intangibles			1.2%						1.0%						1.2%						1.0%									1.1%
Non-qualified deferred compensation expenses (credits)			0.0%						0.0%						0.0%						0.0%									0.0%
Acquisition and integration-related costs			0.0%						0.0%						0.0%						0.0%									0.0%
Non-GAAP gross margin as a percent of total revenue*			90.6%						91.5%						91.1%						89.1%									91.4%

*			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.