Form 8-K CADENCE DESIGN SYSTEMS For: Jul 22

July 22, 2019 4:11 PM

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO

SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): July 22, 2019

CADENCE DESIGN SYSTEMS, INC.

(Exact Name of Registrant as Specified in its Charter)




Delaware	000-15867	00-0000000
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

2655 Seely Avenue, Building 5 San Jose, California		95134
(Address of Principal Executive Offices)		(Zip Code)

(408) 943-1234

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:



o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CDNS	Nasdaq Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Item 2.02. Results of Operations and Financial Condition.

On July 22, 2019, Cadence Design Systems, Inc. ("Cadence") issued a press release announcing its financial results for the quarter ended June 29, 2019.

A copy of the press release is attached hereto as Exhibit 99.01 and a copy of the commentary by the Chief Financial Officer of Cadence regarding Cadence's financial results for the quarter ended June 29, 2019 is attached hereto as Exhibit 99.02, and the press release and the commentary are incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.


(d)	Exhibits



Exhibit No.		Description

99.01		Press Release issued by Cadence Design Systems, Inc. on July 22, 2019.
99.02		CFO Commentary on Results of Quarter Ended June 29, 2019.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: July 22, 2019



CADENCE DESIGN SYSTEMS, INC.

By:		/s/ John M. Wall
		John M. Wall
		Senior Vice President and Chief Financial Officer

Exhibit 99.01

Cadence Reports Second Quarter 2019 Financial Results

SAN JOSE, Calif. — July 22, 2019 — Cadence Design Systems, Inc. (NASDAQ: CDNS) today announced results for the second quarter of 2019.

Cadence reported second quarter 2019 revenue of $580 million, compared to revenue of $518 million reported for the same period in 2018. On a GAAP basis, Cadence achieved operating margin of 23 percent and recognized net income of $107 million, or $0.38 per share on a diluted basis, in the second quarter of 2019, compared to operating margin of 18 percent and net income of $75 million, or $0.27 per share on a diluted basis, for the same period in 2018.

Using the non-GAAP measure defined below, operating margin for the second quarter of 2019 was 34 percent and net income was $161 million, or $0.57 per share on a diluted basis, compared to operating margin of 30 percent and net income of $126 million, or $0.45 per share on a diluted basis, for the same period in 2018.

“Cadence achieved strong operating results for the second quarter of 2019, delivering 12 percent year-over-year revenue growth on broad-based strength across our product lines,” said Lip-Bu Tan, chief executive officer. “We continue to lead with innovation, introducing important new products, including the Protium™ X1 Enterprise Prototyping Platform for early software development and Spectre® X, a massively parallel circuit simulator with increased speed and capacity, for analog design.”

“I am pleased with our Q2 results and outlook,” said John Wall, senior vice president and chief financial officer. “We are raising our outlook for revenue, operating margin, earnings and cash from operations for the year while we continue to invest in TAM expansion opportunities that result from our Intelligent System Design strategy.”

CFO Commentary

Commentary on the second quarter 2019 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 2019, the company expects total revenue in the range of $570 million to $580 million. Third quarter GAAP operating margin is expected to be approximately 19 percent and GAAP net income per diluted share is expected to be in the range of $0.32 to $0.34. Using the non-GAAP measure defined below, operating margin is expected to be approximately 30 percent and net income per diluted share is expected to be in the range of $0.50 to $0.52.

For 2019, the company expects total revenue in the range of $2.315 billion to $2.335 billion. On a GAAP basis, operating margin is expected to be in the range of 21 percent to 22 percent and net income per diluted share for 2019 is expected to be in the range of $1.44 to $1.50. Using the non-GAAP measure defined below, operating margin for 2019 is expected to be in the range of 31 percent to 32 percent and net income per diluted share for 2019 is expected to be in the range of $2.11 to $2.17.

A schedule showing a reconciliation of the business outlook from GAAP operating margin, GAAP net income and diluted net income per share to non-GAAP operating margin and non-GAAP net income and diluted net income per share is included in this release.

Audio Webcast Scheduled

Lip-Bu Tan, chief executive officer, and John Wall, senior vice president and chief financial officer, will host the second quarter 2019 financial results audio webcast today, July 22, 2019, 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 22, 2019 at 5 p.m. (Pacific) and ending September 13, 2019 at 5 p.m. (Pacific). Webcast access is available at www.cadence.com/cadence/investor_relations.

About Cadence

Cadence enables electronic systems and semiconductor companies to create the innovative end products that are transforming the way people live, work and play. Cadence^® software, hardware and semiconductor IP are used by customers to deliver products to market faster. The company’s Intelligent System Design strategy helps customers develop differentiated products—from chips to boards to systems—in mobile, consumer, cloud datacenter, automotive, aerospace, IoT, industrial and other market segments. Cadence is listed as one of Fortune Magazine's 100 Best Companies to Work For. Learn more at www.cadence.com.

Cadence, the Cadence logo, Protium and Spectre are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

The statements contained above, as well as the information in the Business Outlook section, are or include forward-looking statements based on current expectations or beliefs and preliminary assumptions about future events 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 electronic design automation product and the commercial electronic design and methodology services industries; (ii) the success of Cadence’s efforts to improve operational efficiency and growth; (iii) the mix of products and services sold and the timing of significant orders for and delivery of Cadence’s products and services; (iv) change in customer demands, including those resulting from consolidation among Cadence’s customers, restructurings and other efforts to improve operational efficiency of Cadence’s customers, economic conditions, government regulations or trade restrictions could result in delays in purchases or deliveries of Cadence’s products and services; (v) economic and industry conditions and trade restrictions in regions in which Cadence does business; (vi) fluctuations in rates of exchange between the U.S. dollar and the currencies of other countries in which Cadence does business; (vii) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rates and Cadence’s ability to access capital and debt markets; (viii) the acquisition of other companies or technologies or the failure to successfully integrate and operate these companies or technologies Cadence acquires, including the potential inability to retain customers, key employees or vendors; (ix) the effects of Cadence’s efforts to improve operational efficiency in its business, including strategic, customer and supplier relationships, and its ability to retain key employees; (x) events that affect cash flow, liquidity, reserves or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation or other matters; and (xi) the effects of any litigation or other proceedings to which Cadence is or may become a party. In addition, the timing and amount of Cadence's repurchase of its common stock under the authorizations will be 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
	June 29, 2019	June 30, 2018
	(unaudited)
GAAP operating margin as a percent of total revenue	23%	18%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Amortization of acquired intangibles	3%	3%
Stock-based compensation expense	8%	8%
Non-qualified deferred compensation expenses	0%	0%
Restructuring and other credits	0%	0%
Acquisition and integration-related costs	0%	1%
Non-GAAP operating margin as a percent of total revenue	34%	30%



Net Income Reconciliation	Three Months Ended
	June 29, 2019			June 30, 2018
	(unaudited)
(in thousands)
Net income on a GAAP basis	$	107,235		$	75,149
Amortization of acquired intangibles	14,458			13,509
Stock-based compensation expense	44,257			40,956
Non-qualified deferred compensation expenses	862			468
Restructuring and other credits	(313		)	(447		)
Acquisition and integration-related costs	1,889			6,765
Other income or expense related to investments and non-qualified deferred compensation plan assets*	2,042			(1,013		)
Income tax effect of non-GAAP adjustments	(9,331		)	(9,166		)
Net income on a non-GAAP basis	$	161,099		$	126,221



*	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
	June 29, 2019			June 30, 2018
	(unaudited)
(in thousands, except per share data)
Diluted net income per share on a GAAP basis	$	0.38		$	0.27
Amortization of acquired intangibles	0.05			0.05
Stock-based compensation expense	0.16			0.14
Non-qualified deferred compensation expenses	—			—
Restructuring and other credits	—			—
Acquisition and integration-related costs	—			0.02
Other income or expense related to investments and non-qualified deferred compensation plan assets*	0.01			—
Income tax effect of non-GAAP adjustments	(0.03		)	(0.03		)
Diluted net income per share on a non-GAAP basis	$	0.57		$	0.45
Shares used in calculation of diluted net income per share — GAAP**	281,054			280,774
Shares used in calculation of diluted net income per share — non-GAAP**	281,054			280,774



*	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.



**	Shares used in the calculation of GAAP net income per share are expected to be the same as shares used in the calculation of non-GAAP net income per share, except when the company reports a GAAP net loss and non-GAAP net income, or GAAP net income and a non-GAAP net loss.

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 13, 2019, 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 2019 earnings release is published, which is currently scheduled for October 21, 2019.

For more information, please contact:

Cadence Investor Relations

408-944-7100

[email protected]

Cadence Newsroom

408-944-7039

[email protected]

Cadence Design Systems, Inc.

Condensed Consolidated Balance Sheets

June 29, 2019 and December 29, 2018

(In thousands)

(Unaudited)



	June 29, 2019		December 29, 2018
Current assets:
Cash and cash equivalents	$	633,415	$	533,298
Receivables, net of allowances of $1,149 and $3,936, respectively	237,609		297,082
Inventories	49,299		28,162
Prepaid expenses and other	58,918		92,550
Total current assets	979,241		951,092
Property, plant and equipment, net of accumulated depreciation of $719,785 and $698,493, respectively	257,882		252,630
Goodwill	662,713		662,272
Acquired intangibles, net of accumulated amortization of $338,855 and $333,687, respectively	197,840		225,457
Long-term receivables	2,140		5,972
Other assets	512,509		371,231
Total assets	$	2,612,325	$	2,468,654
Current liabilities:
Revolving credit facility	$	—	$	100,000
Accounts payable and accrued liabilities	246,591		256,526
Current portion of deferred revenue	363,592		352,456
Total current liabilities	610,183		708,982
Long-term liabilities:
Long-term portion of deferred revenue	57,280		48,718
Long-term debt	345,652		345,291
Other long-term liabilities	168,665		77,262
Total long-term liabilities	571,597		471,271
Stockholders’ equity	1,430,545		1,288,401
Total liabilities and stockholders’ equity	$	2,612,325	$	2,468,654

Cadence Design Systems, Inc.

Condensed Consolidated Income Statements

For the Three and Six Months Ended June 29, 2019 and June 30, 2018

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Revenue:
Product and maintenance	$	548,028		$	487,870		$	1,091,546		$	968,479
Services	32,391			30,521			65,615			67,225
Total revenue	580,419			518,391			1,157,161			1,035,704
Costs and expenses:
Cost of product and maintenance	43,388			40,127			93,910			81,857
Cost of services	18,081			18,833			38,144			40,312
Marketing and sales	116,208			109,300			233,038			218,448
Research and development	231,814			219,129			460,024			443,314
General and administrative	34,407			34,875			64,509			68,174
Amortization of acquired intangibles	3,159			3,518			6,467			7,148
Restructuring and other credits	(313		)	(447		)	(1,002		)	(2,438		)
Total costs and expenses	446,744			425,335			895,090			856,815
Income from operations	133,675			93,056			262,071			178,889
Interest expense	(4,976		)	(6,669		)	(10,367		)	(13,644		)
Other income (expense), net	(110		)	3,638			5,131			2,949
Income before provision for income taxes	128,589			90,025			256,835			168,194
Provision for income taxes	21,354			14,876			29,045			20,160
Net income	$	107,235		$	75,149		$	227,790		$	148,034
Net income per share - basic	$	0.39		$	0.27		$	0.83		$	0.54
Net income per share - diluted	$	0.38		$	0.27		$	0.81		$	0.53
Weighted average common shares outstanding - basic	273,159			273,564			273,155			273,703
Weighted average common shares outstanding - diluted	281,054			280,774			280,877			281,247

Cadence Design Systems, Inc.

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 29, 2019 and June 30, 2018

(In thousands)

(Unaudited)



	Six Months Ended
	June 29, 2019			June 30, 2018
Cash and cash equivalents at beginning of period	$	533,298		$	688,087
Cash flows from operating activities:
Net income	227,790			148,034
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	61,197			59,282
Amortization of debt discount and fees	497			586
Stock-based compensation	86,510			78,857
(Gain) loss on investments, net	259			(1,541		)
Deferred income taxes	(8,159		)	1,664
Provisions for losses (recoveries) on receivables	(386		)	1,015
ROU asset amortization and change in operating lease liabilities	2,504			—
Other non-cash items	160			(133		)
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables	63,876			(2,606		)
Inventories	(25,689		)	1,932
Prepaid expenses and other	33,055			13,294
Other assets	2,547			5,027
Accounts payable and accrued liabilities	(34,670		)	(11,832		)
Deferred revenue	19,707			71,667
Other long-term liabilities	2,576			(2,333		)
Net cash provided by operating activities	431,774			362,913
Cash flows from investing activities:
Purchases of non-marketable investments	(33,717		)	—
Proceeds from the sale of non-marketable investments	2,952			—
Purchases of property, plant and equipment	(30,562		)	(31,105		)
Cash paid in business combinations	(338		)	—
Net cash used for investing activities	(61,665		)	(31,105		)
Cash flows from financing activities:
Proceeds from revolving credit facility	150,000			—
Payment on revolving credit facility	(250,000		)	(85,000		)
Proceeds from issuance of common stock	32,855			25,656
Stock received for payment of employee taxes on vesting of restricted stock	(45,698		)	(30,125		)
Payments for repurchases of common stock	(156,120		)	(100,025		)
Change in book overdraft	—			(3,867		)
Net cash used for financing activities	(268,963		)	(193,361		)
Effect of exchange rate changes on cash and cash equivalents	(1,029		)	(6,994		)
Increase in cash and cash equivalents	100,117			131,453
Cash and cash equivalents at end of period	$	633,415		$	819,540

Cadence Design Systems, Inc.

(Unaudited)

Revenue Mix by Geography (% of Total Revenue)



	2018										2019
GEOGRAPHY	Q1		Q2		Q3		Q4		Year		Q1		Q2
Americas	45	%	46	%	44	%	44	%	45	%	44	%	42	%
China	9	%	8	%	9	%	13	%	10	%	10	%	12	%
Other Asia	18	%	18	%	20	%	18	%	18	%	19	%	19	%
Europe, Middle East and Africa	20	%	20	%	19	%	17	%	19	%	18	%	20	%
Japan	8	%	8	%	8	%	8	%	8	%	9	%	7	%
Total	100	%	100	%	100	%	100	%	100	%	100	%	100	%

Revenue Mix by Product Group (% of Total Revenue)



	2018										2019
PRODUCT GROUP	Q1		Q2		Q3		Q4		Year		Q1		Q2
Functional Verification, including Emulation and Prototyping Hardware	26	%	23	%	22	%	25	%	24	%	24	%	22	%
Digital IC Design and Signoff	30	%	30	%	30	%	28	%	29	%	30	%	31	%
Custom IC Design and Simulation	26	%	26	%	26	%	25	%	26	%	25	%	26	%
System Interconnect and Analysis	9	%	9	%	9	%	9	%	9	%	9	%	10	%
IP	9	%	12	%	13	%	13	%	12	%	12	%	11	%
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 22, 2019

(Unaudited)



	Three Months Ending September 28, 2019	Year Ending December 28, 2019
	Forecast	Forecast
GAAP operating margin as a percent of total revenue	~19%	21% - 22%

Reconciling items to non-GAAP operating margin as a percent of total revenue:
Amortization of acquired intangibles	2%	2%
Stock-based compensation expense	8%	8%
Non-qualified deferred compensation expenses	0%	0%
Restructuring and other charges (credits)	0%	0%
Acquisition and integration-related costs	1%	0%
Non-GAAP operating margin as a percent of total revenue†	~30%	31% - 32%



†	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 22, 2019

(Unaudited)



	Three Months Ending September 28, 2019	Year Ending December 28, 2019
	Forecast	Forecast
Diluted net income per share on a GAAP basis	$0.32 to $0.34	$1.44 to $1.50
Amortization of acquired intangibles	0.05	0.19
Stock-based compensation expense	0.17	0.65
Non-qualified deferred compensation expenses	—	0.01
Restructuring and other charges (credits)	—	—
Acquisition and integration-related costs	0.01	0.02
Other income or expense related to investments and non-qualified deferred compensation plan assets*	—	—
Income tax effect of non-GAAP adjustments	(0.05)	(0.20)
Diluted net income per share on a non-GAAP basis†	$0.50 to $0.52	$2.11 to $2.17

Cadence Design Systems, Inc.

Impact of Non-GAAP Adjustments on Forward Looking Net Income

As of July 22, 2019

(Unaudited)



	Three Months Ending September 28, 2019	Year Ending December 28, 2019
($ in millions)	Forecast	Forecast
Net income on a GAAP basis	$90 to $96	$406 to $423
Amortization of acquired intangibles	13	53
Stock-based compensation expense	47	182
Non-qualified deferred compensation expenses	—	3
Restructuring and other charges (credits)	—	(1)
Acquisition and integration-related costs	2	6
Other income or expense related to investments and non-qualified deferred compensation plan assets*	1	—
Income tax effect of non-GAAP adjustments	(13)	(56)
Net income on a non-GAAP basis†	$140 to $146	$593 to $610



†	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.

Exhibit 99.02



CADENCE REPORTS SECOND QUARTER 2019
CADENCE DESIGN SYSTEMS, INC.


CFO COMMENTARY
Q2 2019 Key Takeaways • Operating cash flow now expected to be ~$700 million at the midpoint of guidance for 2019. • Raising non-GAAP operating margin guidance to midpoint of 31.5%. • Repurchased $75 million of Cadence stock in Q2.	Q3 2019 Outlook • Revenue : $570 - $580 million. • GAAP operating margin: ~19%. • Non-GAAP operating margin: ~30%. • GAAP EPS: $0.32 - $0.34 • Non-GAAP EPS: $0.50 - $0.52	Q2 2019 KEY METRICS
		• Revenue $580 million • GAAP operating margin 23% • Non-GAAP operating margin 33.6% • GAAP EPS $0.38 • Non-GAAP EPS $0.57 • Operating cash flow $246 million






FY 2019 Outlook • Revenue: $2.315 - $2.335 billion. • GAAP operating margin: 21% - 22%. • Non-GAAP operating margin: 31% - 32%. • GAAP EPS: $1.44 - $1.50 • Non-GAAP EPS $2.11 - $2.17 • Operating cash flow: $680 - $720 million. • Expect to repurchase approximately $75 million of Cadence stock per quarter in 2019.	Financial Results Webcast
	Our Q2 2019 financial results webcast will begin July 22, 2019 at 2:00 p.m. (Pacific). The webcast may be accessed at www.cadence.com/cadence/investor_relations. An archive of the webcast will be available on July 22, 2019 until 5:00 p.m. (Pacific) on September 13, 2019.




July 22, 2019	Cadence Q2 2019 Financial Results	1



Cadence Design Systems, Inc.

Third Quarter 2019 Financial Outlook



	Q3 2018A	Q2 2019A	Q3 2019E

Total Revenue ($ Million)	$532.5	$580.4	$570 - $580
Q/Q Growth		1%	(2)% - (0)%
Y/Y Growth		12%	7% - 9%

GAAP Operating Margin	19%	23%	~19%

Non-GAAP Operating Margin	32%	34%	~30%

GAAP EPS	$0.35	$0.38	$0.32 - $0.34

Non-GAAP EPS	$0.49	$0.57	$0.50 - $0.52
Q/Q Growth		6%	(12)% - (9)%
Y/Y Growth		27%	2% - 6%

Fiscal Year 2019 Financial Outlook



		Previous	Current
	FY 2018A	FY 2019E	FY 2019E

Revenue Recognized Over Time	~90%	85% - 90%	85% - 90%

Total Revenue ($ Billion)	$2.138	$2.305 - $2.335	$2.315 - $2.335
Y/Y Growth		8% - 9%	8% - 9%

Revenue from Beginning Remaining Performance Obligations		~75%	~75%

GAAP Operating Margin	18.5%	~21%	21% - 22%

Non-GAAP Operating Margin	30.2%	~31%	31% - 32%

GAAP Other Income & Expense ($ Million)	$(19.8)	$(15) - $(23)	$(13) - $(20)

Non-GAAP Other Income & Expense ($ Million)	$(21.1)	$(20) - $(28)	$(13) - $(20)

GAAP Tax Rate	8%	~12%	~12%

Non-GAAP Tax Rate	16%	16%	16%

Weighted Average Diluted Shares Outstanding (Million)	281.1	279 - 282	280 - 282

GAAP EPS	$1.23	$1.39 - $1.47	$1.44 - $1.50
Y/Y Growth		13% - 20%	17% - 22%

Non-GAAP EPS	$1.87	$2.04 - $2.12	$2.11 - $2.17
Y/Y Growth		9% - 13%	13% - 16%

Cash Flow from Operations ($ Million)	$605	$665 - $705	$680 - $720

DSO	48	~45	~45

Capital Expenditures ($ Million)	$62	~$90	~$90



July 22, 2019	Cadence Q2 2019 Financial Results	2



Cadence Design Systems, Inc.

Second Quarter Financial Results

Revenue



(In Thousands)	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019

Product and Maintenance	$487,870	$494,990	$534,418	$543,518	$548,028
Services	30,521	37,478	35,432	33,224	32,391
Total Revenue	$518,391	$532,468	$569,850	$576,742	$580,419

Revenue Mix by Geography



(% of Total Revenue)	Q2 2018		Q3 2018		Q4 2018		Q1 2019		Q2 2019

Americas	46	%	44	%	44	%	44	%	42	%
China	8	%	9	%	13	%	10	%	12	%
Other Asia	18	%	20	%	18	%	19	%	19	%
Europe, Middle East and Africa	20	%	19	%	17	%	18	%	20	%
Japan	8	%	8	%	8	%	9	%	7	%
Total	100	%	100	%	100	%	100	%	100	%

Revenue Mix by Product Group



(% of Total Revenue)	Q2 2018		Q3 2018		Q4 2018		Q1 2019		Q2 2019

Functional Verification	23	%	22	%	25	%	24	%	22	%
Digital IC Design and Signoff	30	%	30	%	28	%	30	%	31	%
Custom IC Design and Simulation	26	%	26	%	25	%	25	%	26	%
System Interconnect and Analysis	9	%	9	%	9	%	9	%	10	%
IP	12	%	13	%	13	%	12	%	11	%
Total	100	%	100	%	100	%	100	%	100	%

Gross Margin



	Q2 2018		Q3 2018		Q4 2018		Q1 2019		Q2 2019

GAAP Gross Margin	88.6	%	88.6	%	86.6	%	87.8	%	89.4	%
Non-GAAP Gross Margin	90.8	%	90.8	%	88.6	%	89.7	%	91.6	%

Total Costs and Expenses



(In Thousands)	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019

Total GAAP Costs and Expenses	$425,335	$428,838	$456,160	$448,346	$446,744
Total Non-GAAP Costs and Expenses	$364,084	$361,981	$391,471	$390,166	$385,591

Operating Margin



	Q2 2018		Q3 2018		Q4 2018		Q1 2019		Q2 2019

GAAP Operating Margin	18.0	%	19.5	%	20.0	%	22.3	%	23.0	%
Non-GAAP Operating Margin	29.8	%	32.0	%	31.3	%	32.3	%	33.6	%



July 22, 2019	Cadence Q2 2019 Financial Results	3



Cadence Design Systems, Inc.

Earnings Per Share



	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019

GAAP Net Income Per Share	$0.27	$0.35	$0.35	$0.43	$0.38
Non-GAAP Net Income Per Share	$0.45	$0.49	$0.52	$0.54	$0.57

Total DSO



	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019

DSO	39	42	48	42	38

Balance Sheet and Cash Review

Cash Flow from Operating Activities



(In Thousands)	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019

Net Cash from Operating Activities	$205,266	$109,954	$131,884	$185,414	$246,360

Capital Expenditures



(In Thousands)	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019

Capital Expenditures	$17,977	$10,656	$19,742	$15,275	$15,287

Cash and Cash Equivalents



(In Thousands)	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019

Cash and Cash Equivalents	$819,540	$544,585	$533,298	$538,898	$633,415


•	Approximately 47 percent of our cash and cash equivalents were in the U.S. at quarter-end.

Stock Repurchase



(In Thousands, Except Share Price)	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019

Share Repurchase	$50,012	$50,011	$100,023	$81,114	$75,006
Number of Shares	1,224	1,098	2,323	1,529	1,125
Average Share Price	$40.86	$45.55	$43.06	$53.05	$66.67

Employees



	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019

Headcount	7,288	7,417	7,499	7,570	7,743



July 22, 2019	Cadence Q2 2019 Financial Results	4



Cadence Design Systems, Inc.

Forward Looking Statements

The statements in this CFO Commentary contain forward-looking statements based on current expectations or beliefs and preliminary assumptions about future events 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 electronic design automation product and the commercial electronic design and methodology services industries; (ii) the success of Cadence’s efforts to improve operational efficiency and growth; (iii) the mix of products and services sold and the timing of significant orders for and delivery of Cadence’s products and services; (iv) change in customer demands, including those resulting from consolidation among Cadence’s customers,restructurings and other efforts to improve operational efficiency of Cadence’s customers, economic conditions, government regulations or trade restrictions could result in delays in purchases or deliveries of Cadence’s products and services; (v) economic and industry conditions and trade restrictions in regions in which Cadence does business; (vi) fluctuations in rates of exchange between the U.S. dollar and the currencies of other countries in which Cadence does business; (vii) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rates and Cadence’s ability to access capital and debt markets; (viii) the acquisition of other companies or technologies or the failure to successfully integrate and operate these companies or technologies Cadence acquires, including the potential inability to retain customers, key employees or vendors; (ix) the effects of Cadence’s efforts to improve operational efficiency in its business, including strategic, customer and supplier relationships, and its ability to retain key employees; (x) events that affect cash flow, liquidity, reserves or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation or other matters; and (xi) the effects of any litigation or other proceedings to which Cadence is or may become a party. In addition, the timing and amount of Cadence's repurchase of its common stock under the authorizations will be subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors.

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 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.

Cadence and the Cadence logo are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.



July 22, 2019	Cadence Q2 2019 Financial Results	5



Cadence Design Systems, Inc.

APPENDIX I

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

Reconciliation of GAAP Total Expenses to Non-GAAP Total Expenses



(In Thousands)	Q2 2018		Q3 2018		Q4 2018		Q1 2019		Q2 2019

GAAP total costs and expenses	$425,335		$428,838		$456,160		$448,346		$446,744

Reconciling items to non-GAAP total costs and expenses
Amortization of acquired intangibles	(13,509	)	(12,975	)	(12,942	)	(13,162	)	(14,458	)
Stock-based compensation expense	(40,956	)	(46,264	)	(42,594	)	(42,253	)	(44,257	)
Non-qualified deferred compensation (expenses) credits	(468	)	(1,120	)	3,186		(2,540	)	(862	)
Restructuring and other (charges) credits	447		172		(13,699	)	689		313
Acquisition and integration-related (costs) credits	(6,765	)	(6,670	)	1,360		(914	)	(1,889	)
Non-GAAP total costs and expenses†	$364,084		$361,981		$391,471		$390,166		$385,591

† 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.

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



	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019

GAAP gross margin as percent of total revenue	88.6%	88.6%	86.6%	87.8%	89.4%

Reconciling items to non-GAAP gross margin as a percent of total revenue
Amortization of acquired intangibles	1.9%	1.8%	1.7%	1.7%	1.9%
Stock-based compensation expense	0.3%	0.4%	0.3%	0.2%	0.3%
Non-qualified deferred compensation expenses (credits)	0.0%	0.0%	0.0%	0.0%	0.0%
Non-GAAP gross margin as percent of total revenue†	90.8%	90.8%	88.6%	89.7%	91.6%

† 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.



July 22, 2019	Cadence Q2 2019 Financial Results	6



Cadence Design Systems, Inc.

Reconciliation of GAAP Operating Margin as Percent of Total Revenue to Non-GAAP Operating Margin as Percent of Total Revenue



	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019	Q3 2019E

GAAP operating margin as percent of total revenue	18%	19%	20%	22%	23%	~19%

Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	3%	3%	2%	2%	3%	2%
Stock-based compensation expense	8%	9%	7%	7%	8%	8%
Non-qualified deferred compensation expenses (credits)	0%	0%	0%	1%	0%	0%
Restructuring and other charges (credits)	0%	0%	2%	0%	0%	0%
Acquisition and integration-related costs (credits)	1%	1%	0%	0%	0%	1%
Non-GAAP operating margin as percent of total revenue†	30%	32%	31%	32%	34%	~30%

† 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.



	2018	2019E

GAAP operating margin as percent of total revenue	19%	21% - 22%

Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	2%	2%
Stock-based compensation expense	8%	8%
Non-qualified deferred compensation expenses (credits)	0%	0%
Restructuring and other charges (credits)	0%	0%
Acquisition and integration-related costs	1%	0%
Non-GAAP operating margin as percent of total revenue†	30%	31% - 32%

† 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.



July 22, 2019	Cadence Q2 2019 Financial Results	7



Cadence Design Systems, Inc.

Reconciliation of GAAP Diluted Net Income Per Share to Non-GAAP Diluted Net Income Per Share



(In Thousands, Except Per Share Data)	Q2 2018		Q3 2018		Q4 2018		Q1 2019		Q2 2019		Q3 2019E

Diluted net income per share on a GAAP basis	$0.27		$0.35		$0.35		$0.43		$0.38		$0.32 - $0.34
Amortization of acquired intangibles	0.05		0.05		0.05		0.05		0.05		0.05
Stock-based compensation expense	0.14		0.16		0.15		0.15		0.16		0.17
Non-qualified deferred compensation expenses (credits)	—		—		(0.01	)	0.01		—		—
Restructuring and other charges (credits)	—		—		0.05		—		—		—
Acquisition and integration-related costs (credits)	0.02		0.02		(0.01	)	—		—		0.01
Other income or expense related to investments and non-qualified deferred compensation plan assets *	—		—		—		(0.02	)	0.01		—
Income tax effect of non-GAAP adjustments	(0.03	)	(0.09	)	(0.06	)	(0.08	)	(0.03	)	(0.05	)
Diluted net income per share on a non-GAAP basis †	$0.45		$0.49		$0.52		$0.54		$0.57		$0.50 - $0.52

Shares used in calculation of diluted net income per share - GAAP **	280,774		281,646		280,321		280,615		281,054
Shares used in calculation of diluted net income per share - non-GAAP **	280,774		281,646		280,321		280,615		281,054

† 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.

** Shares used in the calculation of GAAP net income per share are expected to be the same as shares used in the calculation of non-GAAP net income per share, except when the company reports a GAAP net loss and non-GAAP net income, or GAAP net income and a non-GAAP net loss.



July 22, 2019	Cadence Q2 2019 Financial Results	8



Cadence Design Systems, Inc.

Reconciliation of GAAP Diluted Net Income Per Share to Non-GAAP Diluted Net Income Per Share



(In Thousands, Except Per Share Data)	2018		2019E

Diluted net income per share on a GAAP basis	$1.23		$1.44 - $1.50
Amortization of acquired intangibles	0.19		0.19
Stock-based compensation expense	0.60		0.65
Non-qualified deferred compensation expenses (credits)	(0.01	)	0.01
Restructuring and other charges (credits)	0.04		—
Acquisition and integration-related costs	0.07		0.02
Other income or expense related to investments and non-qualified deferred compensation plan assets *	—		—
Income tax effect of non-GAAP adjustments	(0.25	)	(0.20	)
Diluted net income per share on a non-GAAP basis †	$1.87		$2.11 - $2.17

Shares used in calculation of diluted net income per share - GAAP **	281,144		280 - 282M
Shares used in calculation of diluted net income per share - non-GAAP **	281,144		280 - 282M

† 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.



July 22, 2019	Cadence Q2 2019 Financial Results	9



Cadence Design Systems, Inc.

Reconciliation of GAAP Total Other Income and Expense to Non-GAAP Total Other Income and Expense



		Previous		Current
(In Millions)	FY 2018A	FY 2019E		FY 2019E

GAAP total other income and expense	$(19.8)	$(15) - $(23)		$(13) - $(20)

Reconciling items to non-GAAP total income and expense
Other income or expense related to investments and non-qualified deferred compensation plan assets*	(1.3)	(5	)	—
Non-GAAP total other income and expense†	$(21.1)	$(20) - $(28)		$(13) - $(20)

† 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.



July 22, 2019	Cadence Q2 2019 Financial Results	10

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