Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced
results for the third quarter of 2023.
Cadence reported third quarter 2023 revenue of $1.023 billion,
compared to revenue of $903 million for the same period in 2022. On
a GAAP basis, Cadence achieved operating margin of 29 percent and
recognized net income of $254 million, or $0.93 per share on a
diluted basis, in the third quarter of 2023, compared to operating
margin of 29 percent and net income of $186 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 third quarter of 2023 was 41 percent and net income was $343
million, or $1.26 per share on a diluted basis, compared to
operating margin of 39 percent and net income of $290 million, or
$1.06 per share on a diluted basis, for the same period in
2022.
“I’m pleased with our strong Q3 performance and our relentless
focus on driving innovation and delighting our customers,” said
Anirudh Devgan, president and chief executive officer.
“Generational trends including AI, HPC, and autonomous driving
continue to fuel robust design activities, and 3D-IC designs are
accelerating. We are excited about the momentum of our JedAI
platform based Generative AI applications that are delivering
breakthrough results for our customers.”
“Cadence delivered yet another strong quarter of top and
bottom-line results in Q3, driven by growth across our businesses,”
said John Wall, senior vice president and chief financial officer.
“Our team’s strong execution and operational efficiency allowed us
to raise our outlook for the year.”
CFO Commentary
Commentary on the third quarter 2023 financial results by John
Wall, senior vice president and chief financial officer, is
available at www.cadence.com/cadence/investor_relations.
Business Outlook
For the fourth quarter of 2023, the company expects total
revenue in the range of $1.039 billion to $1.079 billion. Fourth
quarter GAAP operating margin is expected to be approximately 31
percent and GAAP net income per diluted share is expected to be in
the range of $0.85 to $0.91. Using the non-GAAP measures defined
below, operating margin is expected to be approximately 42 percent
and net income per diluted share is expected to be in the range of
$1.30 to $1.36.
For fiscal year 2023, the company expects total revenue in the
range of $4.06 billion to $4.10 billion. On a GAAP basis, operating
margin for 2023 is expected to be in the range of 30.5 percent to
31.0 percent and GAAP net income per diluted share for 2023 is
expected to be in the range of $3.48 to $3.54. Using the non-GAAP
measures defined below, operating margin for 2023 is expected to be
in the range of 41.5 percent to 42.0 percent and net income per
diluted share for 2023 is expected to be in the range of $5.07 to
$5.13.
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.
Audio Webcast Scheduled
Anirudh Devgan, president and chief executive officer, and John
Wall, senior vice president and chief financial officer, will host
the third quarter 2023 financial results audio webcast today,
October 23, 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 October 23, 2023 at 5 p.m. (Pacific) and ending December
15, 2023 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 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.
© 2023 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 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.
For a detailed discussion of these and other cautionary
statements related to Cadence’s business, please refer to Cadence’s
filings with the U.S. Securities and Exchange Commission, including
its most recent report on Form 10-K, subsequent reports on Form
10-Q and future filings.
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.
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 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
September 30, 2023
October 1, 2022
(unaudited)
GAAP operating margin as a percent of
total revenue
29
%
29
%
Reconciling items to non-GAAP operating
margin as a percent of total revenue:
Stock-based compensation expense
9
%
8
%
Amortization of acquired intangibles
1
%
1
%
Acquisition and integration-related
costs
1
%
1
%
Restructuring
1
%
0
%
Non-qualified deferred compensation
credits
0
%
0
%
Non-GAAP operating margin as a percent of
total revenue
41
%
39
%
Net Income Reconciliation
Three Months Ended
September 30, 2023
October 1, 2022
(in thousands)
(unaudited)
Net income on a GAAP basis
$
254,321
$
186,305
Stock-based compensation expense
88,032
73,451
Amortization of acquired intangibles
15,603
12,813
Acquisition and integration-related
costs
14,213
11,418
Restructuring
11,582
14
Non-qualified deferred compensation
credits
(1,749
)
(2,885
)
Other income or expense related to
investments and non-qualified deferred compensation plan
assets*
(11,755
)
4,539
Income tax effect of non-GAAP
adjustments
(27,147
)
4,433
Net income on a non-GAAP basis
$
343,100
$
290,088
*
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
September 30, 2023
October 1, 2022
(in thousands, except per share data)
(unaudited)
Diluted net income per share on a GAAP
basis
$
0.93
$
0.68
Stock-based compensation expense
0.32
0.27
Amortization of acquired intangibles
0.06
0.05
Acquisition and integration-related
costs
0.05
0.04
Restructuring
0.04
—
Non-qualified deferred compensation
credits
—
(0.01
)
Other income or expense related to
investments and non-qualified deferred compensation plan
assets*
(0.04
)
0.02
Income tax effect of non-GAAP
adjustments
(0.10
)
0.01
Diluted net income per share on a non-GAAP
basis
$
1.26
$
1.06
Shares used in calculation of diluted net
income per share
272,427
274,957
*
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 Design Systems,
Inc.
Condensed Consolidated Balance
Sheets
September 30, 2023 and
December 31, 2022
(In thousands)
(Unaudited)
September 30, 2023
December 31, 2022
Current assets: Cash and cash equivalents
$
961,982
$
882,325
Receivables, net
426,505
486,710
Inventories
163,693
128,005
Prepaid expenses and other
272,283
209,727
Total current assets
1,824,463
1,706,767
Property, plant and equipment, net
379,776
371,451
Goodwill
1,500,442
1,374,268
Acquired intangibles, net
347,617
354,617
Deferred taxes
874,805
853,691
Other assets
504,272
476,277
Total assets
$
5,431,375
$
5,137,071
Current liabilities: Revolving credit facility
$
-
$
100,000
Accounts payable and accrued liabilities
598,261
557,158
Current portion of deferred revenue
665,906
690,538
Total current liabilities
1,264,167
1,347,696
Long-term liabilities: Long-term portion of deferred revenue
100,609
91,524
Long-term debt
648,801
648,078
Other long-term liabilities
303,904
304,660
Total long-term liabilities
1,053,314
1,044,262
Stockholders' equity
3,113,894
2,745,113
Total liabilities and stockholders' equity
$
5,431,375
$
5,137,071
Cadence Design Systems,
Inc.
Condensed Consolidated Income
Statements
For the Three and Nine Months
Ended September 30, 2023 and October 1, 2022
(In thousands, except per
share amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30, 2023
October 1, 2022
September 30, 2023
October 1, 2022
Revenue: Product and maintenance
$
965,840
$
845,788
$
2,852,372
$
2,494,317
Services
57,254
56,766
168,991
167,524
Total revenue
1,023,094
902,554
3,021,363
2,661,841
Costs and expenses: Cost of product and maintenance
85,813
62,351
260,269
203,863
Cost of services
23,768
25,249
70,642
74,245
Marketing and sales
176,215
152,925
509,951
432,407
Research and development
369,642
323,629
1,074,353
901,121
General and administrative
58,556
73,688
166,688
174,051
Amortization of acquired intangibles
4,612
3,946
13,181
13,543
Restructuring
11,582
14
11,582
42
Total costs and expenses
730,188
641,802
2,106,666
1,799,272
Income from operations
292,906
260,752
914,697
862,569
Interest expense
(9,059
)
(5,463
)
(27,196
)
(13,852
)
Other income (expense), net
16,106
(3,017
)
32,363
(13,879
)
Income before provision for income taxes
299,953
252,272
919,864
834,838
Provision for income taxes
45,632
65,967
202,619
226,278
Net income
$
254,321
$
186,305
$
717,245
$
608,560
Net income per share - basic
$
0.94
$
0.69
$
2.66
$
2.24
Net income per share - diluted
$
0.93
$
0.68
$
2.63
$
2.21
Weighted average common shares outstanding - basic
269,229
271,131
269,480
271,694
Weighted average common shares outstanding - diluted
272,427
274,957
272,859
275,683
Cadence Design Systems,
Inc.
Condensed Consolidated
Statements of Cash Flows
For the Nine Months Ended
September 30, 2023 and October 1, 2022
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
October 1,
2023
2022
Cash and cash equivalents at beginning of period
$
882,325
$
1,088,940
Cash flows from operating activities: Net income
717,245
608,560
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
106,783
98,178
Amortization of debt discount and fees
942
810
Stock-based compensation
238,928
197,190
(Gain) loss on investments, net
(12,732
)
4,777
Deferred income taxes
(23,506
)
(49,834
)
Provisions for losses on receivables
1,692
471
ROU asset amortization and change in operating lease liabilities
(2,684
)
(883
)
Other non-cash items
1,962
158
Changes in operating assets and liabilities, net of effect of
acquired businesses: Receivables
50,024
(57,309
)
Inventories
(47,293
)
(8,020
)
Prepaid expenses and other
33,307
30,596
Other assets
(26,580
)
17,644
Accounts payable and accrued liabilities
43,111
24,514
Deferred revenue
(14,628
)
113,712
Other long-term liabilities
10,514
(2,305
)
Net cash provided by operating activities
1,077,085
978,259
Cash flows from investing activities: Purchases of
investments
(145,150
)
(1,000
)
Proceeds from the sale and maturity of investments
64,174
-
Purchases of property, plant and equipment
(68,634
)
(86,295
)
Purchases of intangible assets
-
(1,000
)
Cash paid in business combinations, net of cash acquired
(163,963
)
(586,163
)
Net cash used for investing activities
(313,573
)
(674,458
)
Cash flows from financing activities: Proceeds from term
loan
-
300,000
Proceeds from revolving credit facility
50,000
450,000
Payments on revolving credit facility
(150,000
)
(300,000
)
Payment of debt issuance costs
-
(425
)
Proceeds from issuance of common stock
131,341
103,682
Stock received for payment of employee taxes on vesting of
restricted stock
(122,182
)
(103,093
)
Payments for repurchases of common stock
(575,127
)
(750,062
)
Net cash used for financing activities
(665,968
)
(299,898
)
Effect of exchange rate changes on cash and cash equivalents
(17,887
)
(66,792
)
Increase (decrease) in cash and cash equivalents
79,657
(62,889
)
Cash and cash equivalents at end of period
$
961,982
$
1,026,051
Cadence Design Systems,
Inc.
(Unaudited)
Revenue Mix by Geography (% of Total Revenue)
2022
2023
GEOGRAPHY
Q1
Q2
Q3
Q4
Year
Q1
Q2
Q3
Americas
47%
45%
45%
46%
46%
44%
41%
43%
China
16%
13%
17%
13%
15%
17%
18%
17%
Other Asia
18%
18%
17%
18%
18%
18%
18%
19%
Europe, Middle East and Africa
14%
18%
16%
17%
16%
15%
17%
15%
Japan
5%
6%
5%
6%
5%
6%
6%
6%
Total
100%
100%
100%
100%
100%
100%
100%
100%
Revenue Mix by Product Category (% of Total
Revenue)
2022
2023
PRODUCT CATEGORY
Q1
Q2
Q3
Q4
Year
Q1
Q2
Q3
Custom IC Design and Simulation
22%
23%
22%
22%
22%
20%
22%
22%
Digital IC Design and Signoff
27%
27%
29%
28%
28%
25%
27%
28%
Functional Verification, including Emulation and Prototyping
Hardware
28%
24%
25%
25%
26%
32%
27%
26%
IP
13%
14%
12%
12%
12%
11%
11%
11%
System Design and Analysis
10%
12%
12%
13%
12%
12%
13%
13%
Total
100%
100%
100%
100%
100%
100%
100%
100%
Cadence Design Systems,
Inc.
Impact of Non-GAAP Adjustments
on Forward Looking Operating Margin
As of October 23, 2023
(Unaudited)
Three Months Ending
Year Ending
December 31, 2023
December 31, 2023
Forecast
Forecast
GAAP operating margin as a percent of total revenue
~31%
30.5% - 31.0%
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%
Restructuring
0%
0%
Non-qualified deferred compensation expenses
0%
0%
Non-GAAP operating margin as a percent of total revenue†
~42%
41.5% - 42.0%
†The non-GAAP measures
presented in the table above should not be considered a substitute
for financial results and measures determined or calculated in
accordance with GAAP.
Cadence Design Systems,
Inc.
Impact of Non-GAAP Adjustments
on Forward Looking Diluted Net Income Per Share
As of October 23, 2023
(Unaudited)
Three Months Ending
Year Ending
December 31, 2023
December 31, 2023
Forecast
Forecast
Diluted net income per share on a GAAP basis
$0.85 to $0.91
$3.48 to $3.54
Stock-based compensation expense
0.32
1.20
Amortization of acquired intangibles
0.06
0.22
Acquisition and integration-related costs
0.04
0.20
Restructuring
-
0.04
Non-qualified deferred compensation expenses
-
0.02
Other income or expense related to investments and non-qualified
deferred compensation plan assets*
-
(0.06)
Income tax effect of non-GAAP adjustments
0.03
(0.03)
Diluted net income per share on a non-GAAP basis†
$1.30 to $1.36
$5.07 to $5.13
Cadence Design Systems,
Inc.
Impact of Non-GAAP Adjustments
on Forward Looking Net Income
As of October 23, 2023
(Unaudited)
Three Months Ending
Year Ending
December 31, 2023
December 31, 2023
($ in millions)
Forecast
Forecast
Net income on a GAAP basis
$232 to $248
$949 to $965
Stock-based compensation expense
88
327
Amortization of acquired intangibles
16
61
Acquisition and integration-related costs
10
54
Restructuring
-
12
Non-qualified deferred compensation expenses
-
5
Other income or expense related to investments and non-qualified
deferred compensation plan assets*
-
(18)
Income tax effect of non-GAAP adjustments
9
(7)
Net income on a non-GAAP basis†
$355 to $371
$1,383 to $1,399
†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
Category: Financial, Featured
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