SAN JOSE, Calif. — February 12, 2024 — Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the fourth quarter and fiscal year 2023.

•Revenue of $1.069 billion, compared to revenue of $900 million in Q4 2022

•GAAP operating margin of 31%, compared to 23% in Q4 2022

•Non-GAAP operating margin of 43%, compared to 36% in Q4 2022

•GAAP diluted net income per share of $1.19, compared to $0.88 in Q4 2022

•Non-GAAP diluted net income per share of $1.38, compared to $0.96 in Q4 2022

•Revenue of $4.090 billion, compared to revenue of $3.562 billion in 2022

•GAAP operating margin of 31%, compared to 30% in 2022

•Non-GAAP operating margin of 42%, compared to 40% in 2022

•GAAP diluted net income per share of $3.82, compared to $3.09 in 2022

•Non-GAAP diluted net income per share of $5.15, compared to $4.27 in 2022

•Year-end backlog was $6.0 billion and current remaining performance obligations (“cRPO”), contract revenue expected to be recognized as revenue in the next 12 months, was $3.2 billion

“Cadence delivered exceptional results for 2023, propelled by our innovative solutions and the successful execution of our Intelligent System Design strategy,” said Anirudh Devgan, president and chief executive officer. “I'm thrilled about the opportunities ahead of us, particularly in AI and 3D-IC. And I look forward to continuing to drive our broad-based business momentum through our technology leadership.”

“We had a strong finish to the year, with growth across all our businesses in 2023,” said John Wall, senior vice president and chief financial officer. “I’m pleased with our record year-end backlog of $6.0 billion and cRPO of $3.2 billion, and I look forward to building on that strength in 2024.”

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

For fiscal year 2024, the company expects:

•Revenue in the range of $4.55 billion to $4.61 billion

•GAAP operating margin in the range of 32% to 33%

•Non-GAAP operating margin in the range of 42% to 43%

•GAAP diluted net income per share in the range of $4.08 to $4.18

•Non-GAAP diluted net income per share in the range of $5.87 to $5.97

For the first quarter of 2024, the company expects:

•Revenue in the range of $990 million to $1.01 billion

•GAAP operating margin in the range of 24.5% to 25.5%

•Non-GAAP operating margin in the range of 36.5% to 37.5%

•GAAP diluted net income per share in the range of $0.74 to $0.78

•Non-GAAP diluted net income per share in the range of $1.10 to $1.14

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

Reconciliations of the financial highlights and 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, are included in this press release.

•Further broadened Cadence.AI generative AI portfolio with introduction of Voltus™ InsightAI for intelligent power analysis and Celsius™ Studio for AI-driven full system thermal analysis. Accelerating momentum of our Cadence.AI portfolio has led to an almost tenfold increase in the number of customers adopting our GenAI solutions in 2023

•System Design and Analysis grew 22% year over year in 2023, with strong momentum from the company's multiphysics platform delivering superior results to customers across multiple segments including aerospace and defense and automotive

•The Millennium™ Enterprise Multiphysics Platform, which was announced earlier this month, is the industry’s first hardware/software platform combining AI, HPC and digital twin technology delivering 20x energy efficiency and up to 100x design impact

•Expanded long-standing collaborations with strategic partners NVIDIA, Arm and Intel

•2023 was another record year for Palladium® and Protium™ hardware systems, with an exceptionally strong Q1 2023 hardware quarter when the company expanded production capacity to improve delivery lead times against the backlog

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 2023 financial results audio webcast today, February 12, 2024, 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 12, 2024 at 5 p.m. (Pacific) and ending March 15, 2024 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 and realize the benefits of its investments in research and development, including opportunities presented by AI; (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, and rising tensions and conflicts around the world such as in the Middle East and with respect to Taiwan; (vi) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rates, currency exchange rate fluctuations, inflation rates, Cadence's upcoming debt maturities and Cadence’s ability to access capital and debt markets; (vii) the continued acquisition of other companies, businesses or technologies or the failure to successfully integrate and operate them; (viii) potential harm caused by compromises in cybersecurity and cybersecurity attacks; (ix) 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; (x) 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, technologies or properties are subject; and (xi) Cadence's ability to successfully meet corporate governance, environmental and social targets and strategies. 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
						December 31, 2023						December 31, 2022
						(unaudited)
GAAP operating margin as a percent of total revenue						31%						23%
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%						2%
Restructuring						0%						0%
Non-qualified deferred compensation expenses						1%						1%
Non-GAAP operating margin as a percent of total revenue						43%						36%

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, 2023						December 31, 2022
Current assets:
Cash and cash equivalents						$	1,008,152					$	882,325
Receivables, net						489,224						486,710
Inventories						181,661						128,005
Prepaid expenses and other						297,180						209,727
Total current assets						1,976,217						1,706,767
Property, plant and equipment, net						403,213						371,451
Goodwill						1,535,845						1,374,268
Acquired intangibles, net						336,843						354,617
Deferred taxes						880,001						853,691
Other assets						537,372						476,277
Total assets						$	5,669,491					$	5,137,071
Current liabilities:
Revolving credit facility						$	—					$	100,000
Current portion of long-term debt						349,285						—
Accounts payable and accrued liabilities						576,558						557,158
Current portion of deferred revenue						665,024						690,538
Total current liabilities						1,590,867						1,347,696
Long-term liabilities:
Long-term portion of deferred revenue						98,931						91,524
Long-term debt						299,771						648,078
Other long-term liabilities						275,651						304,660
Total long-term liabilities						674,353						1,044,262
Stockholders’ equity						3,404,271						2,745,113
Total liabilities and stockholders’ equity						$	5,669,491					$	5,137,071

 

						Three Months Ended												Years Ended
						December 31, 2023						December 31, 2022						December 31, 2023						December 31, 2022
Revenue:
Product and maintenance						$	981,987					$	845,880					$	3,834,359					$	3,340,197
Services						86,636						53,997						255,627						221,521
Total revenue						1,068,623						899,877						4,089,986						3,561,718
Costs and expenses:
Cost of product and maintenance						71,491						69,702						331,760						273,565
Cost of services						32,639						23,813						103,281						98,058
Marketing and sales						180,368						171,817						690,319						604,224
Research and development						367,443						350,423						1,441,796						1,251,544
General and administrative						75,742						68,065						242,430						242,116
Amortization of acquired intangibles						4,981						4,927						18,162						18,470
Restructuring						(569)						13						11,013						55
Total costs and expenses						732,095						688,760						2,838,761						2,488,032
Income from operations						336,528						211,117						1,251,225						1,073,686
Interest expense						(8,989)						(9,082)						(36,185)						(22,934)
Other income (expense), net						34,523						8,490						66,886						(5,389)
Income before provision (benefit) for income taxes						362,062						210,525						1,281,926						1,045,363
Provision (benefit) for income taxes						38,163						(29,867)						240,782						196,411
Net income						$	323,899					$	240,392					$	1,041,144					$	848,952
Net income per share - basic						$	1.20					$	0.89					$	3.86					$	3.13
Net income per share - diluted						$	1.19					$	0.88					$	3.82					$	3.09
Weighted average common shares outstanding - basic						269,088						269,709						269,381						271,198
Weighted average common shares outstanding - diluted						272,419						272,997						272,748						275,011

 

			2022																														2023
GEOGRAPHY			Q1						Q2						Q3						Q4						Year						Q1						Q2						Q3						Q4						Year
Americas			47		%				45		%				45		%				46		%				46		%				44		%				41		%				43		%				44		%				43		%
China			16		%				13		%				17		%				13		%				15		%				17		%				18		%				17		%				15		%				17		%
Other Asia			18		%				18		%				17		%				18		%				18		%				18		%				18		%				19		%				19		%				19		%
Europe, Middle East and Africa			14		%				18		%				16		%				17		%				16		%				15		%				17		%				15		%				16		%				16		%
Japan			5		%				6		%				5		%				6		%				5		%				6		%				6		%				6		%				6		%				5		%
Total			100		%				100		%				100		%				100		%				100		%				100		%				100		%				100		%				100		%				100		%

 

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

 

						Three Months Ending March 31, 2024						Year Ending December 31, 2024
						Forecast						Forecast
GAAP operating margin as a percent of total revenue						24.5% - 25.5%						32% - 33%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense						9%						8%
Amortization of acquired intangibles						2%						1%
Acquisition and integration-related costs						1%						1%
Non-GAAP operating margin as a percent of total revenue†						36.5% - 37.5%						42% - 43%

 

Three Months Ending March 31, 2024

Year Ending December 31, 2024

Forecast

Forecast

Diluted net income per share on a GAAP basis

$0.74 to $0.78

$4.08 to $4.18

Stock-based compensation expense

0.32

1.36

Amortization of acquired intangibles

0.06

0.24

Acquisition and integration-related costs

0.04

0.14

Income tax effect of non-GAAP adjustments

(0.06)

0.05

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

$1.10 to $1.14

$5.87 to $5.97

 

Three Months Ending March 31, 2024

Year Ending December 31, 2024

($ in millions)

Forecast

Forecast

Net income on a GAAP basis

$202 to $213

$1,111 to $1,138

Stock-based compensation expense

88

370

Amortization of acquired intangibles

16

66

Acquisition and integration-related costs

12

39

Income tax effect of non-GAAP adjustments

(16)

13

Net income on a non-GAAP basis†

$302 to $313

$1,599 to $1,626

* Fiscal 2020 was a 53-week year, compared to all other years which were 52 week years. 2020 (which impacts the 3 year CAGR in 2023) included approximately $45 million revenue impact for the extra week.

** At midpoint of guidance.

Profitability Trends

(In Millions)			2018						2019						2020						2021						2022						2023									2024E*
Revenue			$	2,138					$	2,336					$	2,683					$	2,988					$	3,562					$	4,090								$	4,580
Revenue Growth			10%						9%						15%						11%						19%						15%									12%
3-Year Revenue Growth CAGR			8%						9%						11%						12%						15%						15%									15%
GAAP operating margin			19%						21%						24%						26%						30%						31%									32.5%
Non-GAAP operating margin			30%						32%						35%						37%						40%						42%									42.5%
Stock-based compensation			(8)%						(8)%						(7)%						(7)%						(8)%						(8)%									(8)%
Non-GAAP operating margin adjusted for stock-based compensation			22%						24%						28%						30%						32%						34%									34.5%
GAAP operating income			$	396					$	492					$	646					$	779					$	1,074					$	1,251								$	1,471
Non-GAAP operating income			$	647					$	749					$	944					$	1,111					$	1,436					$	1,717								$	1,946
Non-GAAP operating income adjusted for stock-based compensation			$	479					$	567					$	747					$	901					$	1,166					$	1,391								$	1,576

* At midpoint of guidance.

Backlog

(In Billions)			2019						2020						2021						2022									2023
Backlog			$	3.6					$	3.9					$	4.4					$	5.8								$	6.0

Revenue

(In Millions)			Q4 2022						Q1 2023						Q2 2023						Q3 2023									Q4 2023
Product and Maintenance			$	846					$	964					$	923					$	966								$	982
Services			54						58						54						57									87
Total Revenue			$	900					$	1,022					$	977					$	1,023								$	1,069

Recurring and Up-Front Revenue

			Q4 2022						Q1 2023						Q2 2023						Q3 2023									Q4 2023
Revenue recognized over time			84		%				77		%				82		%				83		%							85		%
Revenue from arrangements with non-cancelable commitments			3		%				3		%				3		%				2		%							2		%
Recurring Revenue			87		%				80		%				85		%				85		%							87		%
Up-Front Revenue			13		%				20		%				15		%				15		%							13		%
Total			100		%				100		%				100		%				100		%							100		%

Trailing Twelve Months Recurring and Up-Front Revenue

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

Revenue Mix by Geography

(% of Total Revenue)			Q4 2022						Q1 2023						Q2 2023						Q3 2023									Q4 2023
Americas			46		%				44		%				41		%				43		%							44		%
China			13		%				17		%				18		%				17		%							15		%
Other Asia			18		%				18		%				18		%				19		%							19		%
Europe, Middle East and Africa			17		%				15		%				17		%				15		%							16		%
Japan			6		%				6		%				6		%				6		%							6		%
Total			100		%				100		%				100		%				100		%							100		%

Revenue Mix by Product Category

(% of Total Revenue)			Q4 2022						Q1 2023						Q2 2023						Q3 2023									Q4 2023
Custom IC Design and Simulation			22		%				20		%				22		%				22		%							22		%
Digital IC Design and Signoff			28		%				25		%				27		%				28		%							29		%
Functional Verification			25		%				32		%				27		%				26		%							24		%
IP			12		%				11		%				11		%				11		%							13		%
System Design and Analysis			13		%				12		%				13		%				13		%							12		%
Total			100		%				100		%				100		%				100		%							100		%

3 Year Revenue CAGR by Product Category

(% of Total Revenue)			2019						2020						2021						2022									2023
Custom IC Design and Simulation			9		%				9		%				8		%				10		%							10		%
Digital IC Design and Signoff			10		%				11		%				11		%				13		%							13		%
Functional Verification			5		%				11		%				11		%				20		%							23		%
IP			16		%				18		%				16		%				15		%							8		%
System Design and Analysis			7		%				13		%				19		%				24		%							22		%
Total 3 Year CAGR			9		%				11		%				12		%				15		%							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 2022						Q1 2023						Q2 2023						Q3 2023									Q4 2023
GAAP Gross Margin			89.6		%				87.8		%				90.1		%				89.3		%							90.3		%
Non-GAAP Gross Margin			91.1		%				89.1		%				91.4		%				90.6		%							91.7		%

Total Costs and Expenses

(In Millions)			Q4 2022						Q1 2023						Q2 2023						Q3 2023									Q4 2023
Total GAAP Costs and Expenses			$	689					$	699					$	677					$	730								$	732
Total Non-GAAP Costs and Expenses			$	579					$	591					$	569					$	603								$	610