Cadence Reports Second Quarter 2022 Financial Results

Jul 25th, 2022 20:05 EST

SAN JOSE, Calif.--(BUSINESS WIRE)--Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the second quarter of 2022.

Cadence reported second quarter 2022 revenue of $858 million, compared to revenue of $728 million for the same period in 2021. On a GAAP basis, Cadence achieved operating margin of 33 percent and recognized net income of $187 million, or $0.68 per share on a diluted basis, in the second quarter of 2022, compared to operating margin of 25 percent and net income of $156 million, or $0.56 per share on a diluted basis, for the same period in 2021.

Using the non-GAAP measures defined below, operating margin for the second quarter of 2022 was 42 percent and net income was $298 million, or $1.08 per share on a diluted basis, compared to operating margin of 39 percent and net income of $238 million, or $0.86 per share on a diluted basis, for the same period in 2021.

“This quarter’s outstanding results are a testament to Cadence’s relentless focus on innovation and continued strong execution by the Cadence team,” said Anirudh Devgan, president and chief executive officer. “Our strong performance is emblematic of the megatrends of the long-term strength of semis, systems companies investing more in silicon, and the convergence of system and chip designs. We are delighted with the pivotal role our technology portfolio plays in our customers’ successes and are especially excited by the pending acquisition of OpenEye Scientific, which will accelerate our Intelligent System Design strategy and extend our computational software competency to the life sciences market.”

“We delivered another quarter of strong financial results with double-digit growth across all product categories,” 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 second 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 third quarter of 2022, the company expects total revenue in the range of $860 million to $880 million. Third quarter GAAP operating margin is expected to be in the range of 26 percent to 27 percent and GAAP net income per diluted share is expected to be in the range of $0.58 to $0.62. Using the non-GAAP measures defined below, operating margin is expected to be in the range of 37 percent to 38 percent and net income per diluted share is expected to be in the range of $0.94 to $0.98.

For fiscal year 2022, the company expects total revenue in the range of $3.470 billion to $3.510 billion. On a GAAP basis, operating margin for 2022 is expected to be in the range of 29.25 percent to 30.25 percent and GAAP net income per diluted share for 2022 is expected to be in the range of $2.59 to $2.65. Using the non-GAAP measures defined below, operating margin for 2022 is expected to be in the range of 39.25 percent to 40.25 percent and net income per diluted share for 2022 is expected to be in the range of $4.06 to $4.12.

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 second quarter 2022 financial results audio webcast today, July 25, 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 July 25, 2022 at 5 p.m. (Pacific) and ending September 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 preliminary assumptions that are subject to factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside Cadence’s control, including, among others: (i) Cadence’s ability to compete successfully in the highly competitive industries in which it operates; (ii) the success of Cadence’s efforts to maintain and improve operational efficiency and growth; (iii) the mix of products and services sold, the timing of orders and 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 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 OpenEye Scientific or 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; 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, which include Cadence’s most recent reports on Form 10-K and Form 10-Q, including Cadence’s future filings.

GAAP to Non-GAAP Reconciliation

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

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

 

 

July 2, 2022

 

July 3, 2021

 

 

(unaudited)

GAAP operating margin as a percent of total revenue

 

33%

 

25%

Reconciling items to non-GAAP operating margin as a percent of total revenue:

 

 

 

 

Stock-based compensation expense

 

7%

 

7%

Amortization of acquired intangibles

 

2%

 

2%

Acquisition and integration-related costs

 

1%

 

1%

Restructuring

 

0%

 

0%

Non-qualified deferred compensation expenses (credits)

 

(1)%

 

0%

Special charges*

 

0%

 

4%

Non-GAAP operating margin as a percent of total revenue

 

42%

 

39%

*

Q2 2021 includes costs related to a voluntary retirement program.

Net Income Reconciliation

 

Three Months Ended

 

 

July 2, 2022

 

July 3, 2021

(in thousands)

 

(unaudited)

Net income on a GAAP basis

 

$

186,920

 

 

$

155,900

 

Stock-based compensation expense

 

 

64,270

 

 

 

50,518

 

Amortization of acquired intangibles

 

 

14,701

 

 

 

17,262

 

Acquisition and integration-related costs

 

 

8,278

 

 

 

5,631

 

Restructuring

 

 

16

 

 

 

(469

)

Non-qualified deferred compensation expenses (credits)

 

 

(6,524

)

 

 

2,411

 

Special charges*

 

 

 

 

 

26,832

 

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

 

 

7,610

 

 

 

(1,774

)

Income tax effect of non-GAAP adjustments

 

 

22,551

 

 

 

(18,023

)

Net income on a non-GAAP basis

 

$

297,822

 

 

$

238,288

 

*

Q2 2021 includes costs related to a voluntary retirement program.

 

**

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

 

 

July 2, 2022

 

July 3, 2021

(in thousands, except per share data)

 

(unaudited)

Diluted net income per share on a GAAP basis

 

$

0.68

 

 

$

0.56

 

Stock-based compensation expense

 

 

0.23

 

 

 

0.18

 

Amortization of acquired intangibles

 

 

0.05

 

 

 

0.06

 

Acquisition and integration-related costs

 

 

0.03

 

 

 

0.02

 

Restructuring

 

 

 

 

 

 

Non-qualified deferred compensation expenses (credits)

 

 

(0.02

)

 

 

0.01

 

Special charges*

 

 

 

 

 

0.10

 

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

 

 

0.03

 

 

 

(0.01

)

Income tax effect of non-GAAP adjustments

 

 

0.08

 

 

 

(0.06

)

Diluted net income per share on a non-GAAP basis

 

$

1.08

 

 

$

0.86

 

Shares used in calculation of diluted net income per share

 

 

275,172

 

 

 

278,558

 

*

Q2 2021 includes costs related to a voluntary retirement program.

 
**

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 September 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 third quarter 2022 earnings release is published, which is currently scheduled for October 24, 2022.

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
July 2, 2022 and January 1, 2022
(In thousands)
(Unaudited)
 
July 2, 2022 January 1, 2022
 
Current assets:
Cash and cash equivalents

$

1,029,544

$

1,088,940

Receivables, net

 

391,738

 

337,596

Inventories

 

106,372

 

115,721

Prepaid expenses and other

 

129,966

 

173,512

Total current assets

 

1,657,620

 

1,715,769

 
Property, plant and equipment, net

 

316,741

 

305,911

Goodwill

 

924,460

 

928,358

Acquired intangibles, net

 

215,781

 

233,265

Deferred taxes

 

802,886

 

763,770

Other assets

 

443,786

 

439,226

Total assets

$

4,361,274

$

4,386,299

 
Current liabilities:
Accounts payable and accrued liabilities

$

437,195

$

417,283

Current portion of deferred revenue

 

605,296

 

553,942

Total current liabilities

 

1,042,491

 

971,225

 
Long-term liabilities:
Long-term portion of deferred revenue

 

114,573

 

101,148

Long-term debt

 

347,999

 

347,588

Other long-term liabilities

 

230,982

 

225,663

Total long-term liabilities

 

693,554

 

674,399

 
Stockholders' equity

 

2,625,229

 

2,740,675

Total liabilities and stockholders' equity

$

4,361,274

$

4,386,299

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Six Months Ended July 2, 2022 and July 3, 2021
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended Six Months Ended
July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021
 
Revenue:
Product and maintenance

$

802,285

 

$

687,884

 

$

1,648,529

 

$

1,386,938

 

Services

 

55,236

 

 

40,401

 

 

110,758

 

 

77,375

 

 
Total revenue

 

857,521

 

 

728,285

 

 

1,759,287

 

 

1,464,313

 

 
Costs and expenses:
Cost of product and maintenance

 

68,717

 

 

55,842

 

 

141,512

 

 

120,748

 

Cost of services

 

23,948

 

 

20,917

 

 

48,996

 

 

39,978

 

Marketing and sales

 

139,296

 

 

135,967

 

 

279,482

 

 

268,793

 

Research and development

 

286,597

 

 

285,227

 

 

577,492

 

 

556,219

 

General and administrative

 

51,426

 

 

40,333

 

 

100,363

 

 

80,285

 

Amortization of acquired intangibles

 

4,633

 

 

5,030

 

 

9,597

 

 

9,661

 

Restructuring

 

16

 

 

(469

)

 

28

 

 

(746

)

 
Total costs and expenses

 

574,633

 

 

542,847

 

 

1,157,470

 

 

1,074,938

 

 
Income from operations

 

282,888

 

 

185,438

 

 

601,817

 

 

389,375

 

 
Interest expense

 

(4,281

)

 

(4,316

)

 

(8,389

)

 

(8,533

)

Other income (expense), net

 

(5,962

)

 

2,143

 

 

(10,862

)

 

4,844

 

 
Income before provision for income taxes

 

272,645

 

 

183,265

 

 

582,566

 

 

385,686

 

 
Provision for income taxes

 

85,725

 

 

27,365

 

 

160,311

 

 

42,617

 

 
Net income

$

186,920

 

$

155,900

 

$

422,255

 

$

343,069

 

 
 
Net income per share - basic

$

0.69

 

$

0.57

 

$

1.55

 

$

1.25

 

 
Net income per share - diluted

$

0.68

 

$

0.56

 

$

1.53

 

$

1.23

 

 
Weighted average common shares outstanding - basic

 

271,520

 

 

273,565

 

 

272,028

 

 

273,843

 

 
Weighted average common shares outstanding - diluted

 

275,172

 

 

278,558

 

 

276,097

 

 

279,399

 

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended July 2, 2022 and July 3, 2021
(In thousands)
(Unaudited)
 
Six Months Ended

July 2,

July 3,

2022

2021

 
Cash and cash equivalents at beginning of period

$

1,088,940

 

$

928,432

 

Cash flows from operating activities:
Net income

 

422,255

 

 

343,069

 

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization

 

67,690

 

 

71,799

 

Amortization of debt discount and fees

 

539

 

 

687

 

Stock-based compensation

 

123,739

 

 

103,114

 

(Gain) loss on investments, net

 

3,124

 

 

(795

)

Deferred income taxes

 

(41,597

)

 

1,710

 

Provisions for losses on receivables

 

133

 

 

242

 

ROU asset amortization and change in operating lease liabilities

 

1,742

 

 

(2,483

)

Other non-cash items

 

88

 

 

183

 

Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables

 

(64,036

)

 

(48,016

)

Inventories

 

367

 

 

(14,527

)

Prepaid expenses and other

 

40,571

 

 

7,690

 

Other assets

 

14,476

 

 

6,991

 

Accounts payable and accrued liabilities

 

17,470

 

 

(14,771

)

Deferred revenue

 

80,460

 

 

127,286

 

Other long-term liabilities

 

(5,872

)

 

6,639

 

Net cash provided by operating activities

 

661,149

 

 

588,818

 

 
Cash flows from investing activities:
Purchases of non-marketable investments

 

(1,000

)

 

-

 

Purchases of property, plant and equipment

 

(42,202

)

 

(31,139

)

Purchases of intangible assets

 

(750

)

 

-

 

Cash paid in business combinations, net of cash acquired

 

(25,000

)

 

(220,660

)

Net cash used for investing activities

 

(68,952

)

 

(251,799

)

 
Cash flows from financing activities:
Payment of debt issuance costs

 

-

 

 

(1,285

)

Proceeds from issuance of common stock

 

50,224

 

 

52,252

 

Stock received for payment of employee taxes on vesting of restricted stock

 

(63,544

)

 

(78,053

)

Payments for repurchases of common stock

 

(600,049

)

 

(392,290

)

Net cash used for financing activities

 

(613,369

)

 

(419,376

)

 
Effect of exchange rate changes on cash and cash equivalents

 

(38,224

)

 

1,085

 

 
Decrease in cash and cash equivalents

 

(59,396

)

 

(81,272

)

 
Cash and cash equivalents at end of period

$

1,029,544

 

$

847,160

 

Cadence Design Systems, Inc.
(Unaudited)
 
 
 
Revenue Mix by Geography (% of Total Revenue)

2021

2022

GEOGRAPHY Q1 Q2 Q3 Q4 Year Q1 Q2
 
Americas

46%

44%

46%

43%

45%

47%

45%

China

12%

14%

13%

12%

13%

16%

13%

Other Asia

18%

19%

18%

21%

19%

18%

18%

Europe, Middle East and Africa

18%

17%

17%

18%

17%

14%

18%

Japan

6%

6%

6%

6%

6%

5%

6%

Total

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
 
Custom IC Design and Simulation

23%

23%

23%

24%

23%

22%

23%

Digital IC Design and Signoff

27%

28%

29%

29%

29%

27%

27%

Functional Verification, including Emulation and Prototyping Hardware

26%

25%

23%

21%

24%

28%

24%

IP

14%

13%

14%

14%

13%

13%

14%

System Design and Analysis

10%

11%

11%

12%

11%

10%

12%

Total

100%

100%

100%

100%

100%

100%

100%

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of July 25, 2022
(Unaudited)
 
Three Months Ending Year Ending
October 1, 2022 December 31, 2022
Forecast Forecast
 
GAAP operating margin as a percent of total revenue

26% - 27%

 

29.25% - 30.25%

 

 

 

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%

 

1.8%

Acquisition and integration-related costs

1%

 

0.8%

Non-qualified deferred compensation credits

0%

 

(0.3)%

 

 

 

Non-GAAP operating margin as a percent of total revenue†

37% - 38%

 

39.25% - 40.25%

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 July 25, 2022
(Unaudited)
 
Three Months Ending Year Ending
October 1, 2022 December 31, 2022
Forecast Forecast
 
Diluted net income per share on a GAAP basis

$0.58 to $0.62

$2.59 to $2.65

 

 

Stock-based compensation expense

0.26

0.98

Amortization of acquired intangibles

0.06

0.24

Acquisition and integration-related costs

0.02

0.10

Non-qualified deferred compensation credits

-

(0.03)

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

-

0.04

Income tax effect of non-GAAP adjustments

0.02

0.14

 

 

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

$0.94 to $0.98

$4.06 to $4.12

 
 
 
 
Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of July 25, 2022
(Unaudited)
 
 
Three Months Ending Year Ending
October 1, 2022 December 31, 2022
($ in millions) Forecast Forecast
 
Net income on a GAAP basis

$160 to $170

$716 to $732

 

 

Stock-based compensation expense

73

270

Amortization of acquired intangibles

16

65

Acquisition and integration-related costs

6

28

Non-qualified deferred compensation credits

-

(9)

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

-

12

Income tax effect of non-GAAP adjustments

5

39

 

 

Net income on a non-GAAP basis†

$260 to $270

$1,121 to $1,137

The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.

 

*

Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense.

CDNS-IR

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