Business Wire | Jul 26, 2021 04:05PM EDT

Cadence Reports Second Quarter 2021 Financial Results

Jul. 26, 2021

SAN JOSE, Calif.--(BUSINESS WIRE)--Jul. 26, 2021--Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the second quarter of 2021.

Cadence reported second quarter 2021 revenue of $728 million, compared to revenue of $638 million for the same period in 2020. On a GAAP basis, Cadence achieved operating margin of 25 percent and recognized net income of $156 million, or $0.56 per share on a diluted basis, in the second quarter of 2021, compared to operating margin of 24 percent and net income of $131 million, or $0.47 per share on a diluted basis for the same period in 2020.

Using the non-GAAP measure defined below, operating margin for the second quarter of 2021 was 39 percent and net income was $238 million, or $0.86 per share on a diluted basis, compared to operating margin of 35 percent and net income of $185 million, or $0.66 per share on a diluted basis, for the same period in 2020.

"Cadence delivered outstanding financial results for the second quarter on broad based customer demand as the Cadence team continues to execute exceedingly well," said Lip-Bu Tan, chief executive officer. "Generational drivers are fueling strong design activity and our ISD strategy coupled with a strong innovation engine that has led to introducing eight significant new products so far this year, positions us extremely well to delight our customers and accelerate growth."

"Cadence exceeded all of its key financial metrics for the second quarter and as a result we are raising our outlook for the year," said John Wall, senior vice president and chief financial officer.

CFO Commentary

Commentary on the second quarter 2021 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 2021, the company expects total revenue in the range of $730 million to $750 million. Third quarter GAAP operating margin is expected to be approximately 23 percent and GAAP net income per diluted share is expected to be in the range of $0.48 to $0.50. Using the non-GAAP measure defined below, operating margin is expected to be approximately 34 percent and net income per diluted share is expected to be in the range of $0.74 to $0.76.

For 2021, the company expects total revenue in the range of $2.925 billion to $2.965 billion. On a GAAP basis, operating margin is expected to be in the range of 24.5 percent to 25.25 percent and GAAP net income per diluted share for 2021 is expected to be in the range of $2.15 to $2.21. Using the non-GAAP measure defined below, operating margin for 2021 is expected to be in the range of 36 percent to 36.75 percent and net income per diluted share for 2021 is expected to be in the range of $3.14 to $3.20.

Our fiscal years are 52- or 53-week periods ending on the Saturday closest to December 31. Fiscal 2021 will be a 52-week fiscal year. Fiscal 2020 was a 53-week fiscal year, with an additional week in our fourth quarter of 2020.

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, Anirudh Devgan, president and John Wall, senior vice president and chief financial officer, will host the second quarter 2021 financial results audio webcast today, July 26, 2021, 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 26, 2021 at 5 p.m. (Pacific) and ending September 17, 2021 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 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 electronic products from chips to boards to systems for the most dynamic market applications, including consumer, hyperscale computing, 5G communications, automotive, mobile, aerospace, industrial and healthcare. For seven years in a row, Fortune magazine has named Cadence one of the 100 Best Companies to Work For. Learn more at cadence.com.

(c) 2021 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 the ability to develop, install or deliver Cadence's products or services; (iv) change in customer demands 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 and Cadence's ability to access capital and debt markets; (vii) the acquisition of other companies 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 or other matters; (ix) the effects of any litigation or other proceedings to which Cadence is or may become a party; and (x) the duration, severity 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 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, executive severance 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 3, June 27, 2021 2020

(unaudited)

GAAP operating margin as a percent of total revenue 25% 24%

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 and other credits 0% 0%

Non-qualified deferred compensation expenses 0% 1%

Special charges* 4% 0%

Non-GAAP operating margin as a percent of total revenue 39% 35%

*

Q2 2021 includes costs related to a voluntary retirement program.

* Q2 2021 includes costs related to a voluntary retirement program.

Net Income Reconciliation

Three Months Ended

July 3, 2021

June 27, 2020

(in thousands)

(unaudited)

Net income on a GAAP basis

$

155,900

$

131,288

Stock-based compensation expense

50,518

46,907

Amortization of acquired intangibles

17,262

16,074

Acquisition and integration-related costs

5,631

5,315

Restructuring and other credits

(469

)

(275

)

Non-qualified deferred compensation expenses

2,411

3,618

Special charges*

26,832

270

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

(1,774

)

(2,797

)

Income tax effect of non-GAAP adjustments

(18,023

)

(15,786

)

Net income on a non-GAAP basis

$

238,288

$

184,614

Net Income Reconciliation Three Months Ended

July 3, June 27, 2021 2020

(in thousands) (unaudited)

Net income on a GAAP basis $ 155,900 $ 131,288

Stock-based compensation expense 50,518 46,907

Amortization of acquired intangibles 17,262 16,074

Acquisition and integration-related costs 5,631 5,315

Restructuring and other credits (469 ) (275 )

Non-qualified deferred compensation expenses 2,411 3,618

Special charges* 26,832 270

Other income or expense related to investments and (1,774 ) (2,797 )non-qualified deferred compensation plan assets**

Income tax effect of non-GAAP adjustments (18,023 ) (15,786 )

Net income on a non-GAAP basis $ 238,288 $ 184,614

*

Q2 2021 includes costs related to a voluntary retirement program.

* 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.

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 3, 2021

June 27, 2020

(in thousands, except per share data)

(unaudited)

Diluted net income per share on a GAAP basis

$

0.56

$

0.47

Stock-based compensation expense

0.18

0.17

Amortization of acquired intangibles

0.06

0.06

Acquisition and integration-related costs

0.02

0.02

Restructuring and other credits

-

-

Non-qualified deferred compensation expenses

0.01

0.01

Special charges*

0.10

-

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

(0.01

)

(0.01

)

Income tax effect of non-GAAP adjustments

(0.06

)

(0.06

)

Diluted net income per share on a non-GAAP basis

$

0.86

$

0.66

Shares used in calculation of diluted net income per share

278,558

279,080

Diluted Net Income Per Share Reconciliation Three Months Ended

July 3, June 27, 2021 2020

(in thousands, except per share data) (unaudited)

Diluted net income per share on a GAAP basis $ 0.56 $ 0.47

Stock-based compensation expense 0.18 0.17

Amortization of acquired intangibles 0.06 0.06

Acquisition and integration-related costs 0.02 0.02

Restructuring and other credits - -

Non-qualified deferred compensation expenses 0.01 0.01

Special charges* 0.10 -

Other income or expense related to investments and (0.01 ) (0.01 )non-qualified deferred compensation plan assets**

Income tax effect of non-GAAP adjustments (0.06 ) (0.06 )

Diluted net income per share on a non-GAAP basis $ 0.86 $ 0.66

Shares used in calculation of diluted net income per 278,558 279,080 share

*

Q2 2021 includes costs related to a voluntary retirement program.

* 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 17, 2021, 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 2021 earnings release is published, which is currently scheduled for October 25, 2021.

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 17, 2021, 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 2021 earnings release is published, which is currently scheduled for October 25, 2021.

Cadence Design Systems, Inc.Condensed Consolidated Balance SheetsJuly 3, 2021 and January 2, 2021(In thousands)(Unaudited) July 3, 2021 January 2, 2021 Current assets: Cash and cash equivalents $ 847,160 $ 928,432

Receivables, net 389,986 338,487

Inventories 90,479 75,956

Prepaid expenses and other 129,442 135,712

Total current assets 1,457,067 1,478,587

Property, plant and equipment, net 301,979 311,125

Goodwill 929,525 782,087

Acquired intangibles, net 264,789 210,590

Deferred taxes 729,790 732,290

Other assets 439,398 436,106

Total assets $ 4,122,548 $ 3,950,785

Current liabilities: Accounts payable and accrued liabilities $ 340,607 $ 349,951

Current portion of deferred revenue 586,109 446,857

Total current liabilities 926,716 796,808

Long-term liabilities: Long-term portion of deferred revenue 98,408 107,064

Long-term debt 347,186 346,793

Other long-term liabilities 233,495 207,102

Total long-term 679,089 660,959 liabilities Stockholders' equity 2,516,743 2,493,018

Total liabilities and stockholders' equity $ 4,122,548 $ 3,950,785

Cadence Design Systems, Inc.Condensed Consolidated Income StatementsFor the Three and Six Months Ended July 3, 2021 and June 27, 2020(In thousands, except per share amounts)(Unaudited)Three Months EndedSix Months EndedJuly 3, 2021June 27, 2020July 3, 2021June 27, 2020Revenue:Product and maintenance$

687,884

$

601,356

$

1,386,938

$

1,183,055

Services40,401

37,062

77,375

73,320

Total revenue728,285

638,418

1,464,313

1,256,375

Costs and expenses:Cost of product and maintenance55,842

55,669

120,748

111,115

Cost of services20,917

19,546

39,978

38,563

Marketing and sales135,967

120,476

268,793

246,220

Research and development285,227

250,821

556,219

492,489

General and administrative40,333

35,641

80,285

69,233

Amortization of acquired intangibles5,030

4,590

9,661

8,796

Restructuring and other credits(469

)

(275

)

(746

)

(1,342

)

Total costs and expenses542,847

486,468

1,074,938

965,074

Income from operations185,438

151,950

389,375

291,301

Interest expense(4,316

)

(5,914

)

(8,533

)

(10,551

)

Other income, net2,143

4,630

4,844

96

Income before provision for income taxes183,265

150,666

385,686

280,846

Provision for income taxes27,365

19,378

42,617

25,570

Net income$

155,900

$

131,288

$

343,069

$

255,276

Net income per share - basic$

0.57

$

0.48

$

1.25

$

0.93

Net income per share - diluted$

0.56

$

0.47

$

1.23

$

0.91

Weighted average common shares outstanding - basic273,565

273,432

273,843

273,488

Weighted average common shares outstanding - diluted278,558

279,080

279,399

279,207

Cadence Design Systems, Inc.Condensed Consolidated Income StatementsFor the Three and Six Months Ended July 3, 2021 and June 27, 2020(In thousands, except per share amounts)(Unaudited) Three Months Ended Six Months Ended July 3, June 27, July 3, 2021 June 27, 2020 2021 2020 Revenue: Product and $ 687,884 $ 601,356 $ 1,386,938 $ 1,183,055 maintenance Services 40,401 37,062 77,375 73,320

Total revenue 728,285 638,418 1,464,313 1,256,375

Costs andexpenses: Cost of product and 55,842 55,669 120,748 111,115 maintenance Cost of 20,917 19,546 39,978 38,563 services Marketing and 135,967 120,476 268,793 246,220 sales Research and 285,227 250,821 556,219 492,489 development General and 40,333 35,641 80,285 69,233 administrative Amortization of 5,030 4,590 9,661 8,796 acquired intangibles Restructuring and (469 ) (275 ) (746 ) (1,342 ) other credits Total costs and 542,847 486,468 1,074,938 965,074 expenses Income from 185,438 151,950 389,375 291,301 operations Interest (4,316 ) (5,914 ) (8,533 ) (10,551 ) expense Other income, 2,143 4,630 4,844 96 net Income before 183,265 150,666 385,686 280,846 provision for income taxes Provision for 27,365 19,378 42,617 25,570 income taxes Net income $ 155,900 $ 131,288 $ 343,069 $ 255,276

Net income per $ 0.57 $ 0.48 $ 1.25 $ 0.93 share - basic Net income per share - $ 0.56 $ 0.47 $ 1.23 $ 0.91 diluted Weighted average common 273,565 273,432 273,843 273,488 shares outstanding -basic Weighted average common 278,558 279,080 279,399 279,207 shares outstanding -dilutedCadence Design Systems, Inc.Condensed Consolidated Statements of Cash FlowsFor the Six Months Ended July 3, 2021 and June 27, 2020(In thousands)(Unaudited)Six Months EndedJuly 3,June 27,2021

2020

Cash and cash equivalents at beginning of period$

928,432

$

705,210

Cash flows from operating activities:Net income343,069

255,276

Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization71,799

69,902

Amortization of debt discount and fees687

512

Stock-based compensation103,114

93,389

(Gain) loss on investments, net(795

)

4,036

Deferred income taxes1,710

(1,609

)

Provisions for losses on receivables242

922

ROU asset amortization and change in operating lease liabilities(2,483

)

1,502

Other non-cash items183

296

Changes in operating assets and liabilities, net of effect of acquired businesses:Receivables(48,016

)

(2,497

)

Inventories(14,527

)

11,020

Prepaid expenses and other7,690

9,910

Other assets6,991

(17,687

)

Accounts payable and accrued liabilities(14,771

)

(11,141

)

Deferred revenue127,286

148,508

Other long-term liabilities6,639

504

Net cash provided by operating activities588,818

562,843

Cash flows from investing activities:Purchases of property, plant and equipment(31,139

)

(43,535

)

Cash paid in business combinations, net of cash acquired(220,660

)

(195,118

)

Net cash used for investing activities(251,799

)

(238,653

)

Cash flows from financing activities:Proceeds from revolving credit facility-

350,000

Payment of debt issuance costs(1,285

)

-

Proceeds from issuance of common stock52,252

43,667

Stock received for payment of employee taxes on vesting of restricted stock(78,053

)

(53,657

)

Payments for repurchases of common stock(392,290

)

(175,036

)

Net cash provided by (used for) financing activities(419,376

)

164,974

Effect of exchange rate changes on cash and cash equivalents1,085

(5,188

)

Increase (decrease) in cash and cash equivalents(81,272

)

483,976

Cash and cash equivalents at end of period$

847,160

$

1,189,186

Cadence Design Systems, Inc.Condensed Consolidated Statements of Cash FlowsFor the Six Months Ended July 3, 2021 and June 27, 2020(In thousands)(Unaudited) Six Months Ended July 3, June 27, 2021 2020

Cash and cash equivalents at beginning of period $ 928,432 $ 705,210

Cash flows from operating activities:Net income 343,069 255,276

Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization 71,799 69,902

Amortization of debt discount and fees 687 512

Stock-based compensation 103,114 93,389

(Gain) loss on investments, net (795 ) 4,036

Deferred income taxes 1,710 (1,609 )

Provisions for losses on receivables 242 922

ROU asset amortization and change in operating (2,483 ) 1,502 lease liabilitiesOther non-cash items 183 296

Changes in operating assets and liabilities, netof effect of acquired businesses:Receivables (48,016 ) (2,497 )

Inventories (14,527 ) 11,020

Prepaid expenses and other 7,690 9,910

Other assets 6,991 (17,687 )

Accounts payable and accrued liabilities (14,771 ) (11,141 )

Deferred revenue 127,286 148,508

Other long-term liabilities 6,639 504

Net cash provided by operating activities 588,818 562,843

Cash flows from investing activities:Purchases of property, plant and equipment (31,139 ) (43,535 )

Cash paid in business combinations, net of cash (220,660 ) (195,118 )acquiredNet cash used for investing activities (251,799 ) (238,653 )

Cash flows from financing activities:Proceeds from revolving credit facility - 350,000

Payment of debt issuance costs (1,285 ) -

Proceeds from issuance of common stock 52,252 43,667

Stock received for payment of employee taxes on (78,053 ) (53,657 )vesting of restricted stockPayments for repurchases of common stock (392,290 ) (175,036 )

Net cash provided by (used for) financing (419,376 ) 164,974 activities Effect of exchange rate changes on cash and cash 1,085 (5,188 )equivalents Increase (decrease) in cash and cash equivalents (81,272 ) 483,976

Cash and cash equivalents at end of period $ 847,160 $ 1,189,186

Cadence Design Systems, Inc.(Unaudited)Revenue Mix by Geography (% of Total Revenue)2020

2021

GEOGRAPHYQ1

Q2

Q3

Q4

Year

Q1

Q2

Americas43%

44%

42%

41%

42%

46%

44%

China13%

12%

17%

17%

15%

12%

14%

Other Asia18%

19%

19%

18%

18%

18%

19%

Europe, Middle East and Africa19%

18%

16%

17%

18%

18%

17%

Japan7%

7%

6%

7%

7%

6%

6%

Total100%

100%

100%

100%

100%

100%

100%

Revenue Mix by Product Category (% of Total Revenue)2020

2021

PRODUCT CATEGORYQ1

Q2

Q3

Q4

Year

Q1

Q2

Custom IC Design and Simulation25%

24%

24%

26%

25%

23%

23%

Digital IC Design and Signoff29%

28%

27%

31%

29%

27%

28%

Functional Verification, including Emulation and Prototyping Hardware23%

24%

23%

19%

22%

26%

25%

IP14%

14%

15%

13%

14%

14%

13%

System Design and Analysis9%

10%

11%

11%

10%

10%

11%

Total100%

100%

100%

100%

100%

100%

100%

Cadence Design Systems, Inc.(Unaudited) Revenue Mix by Geography (% of Total Revenue) 2020 2021

GEOGRAPHY Q1 Q2 Q3 Q4 Year Q1 Q2

Americas 43% 44% 42% 41% 42% 46% 44%

China 13% 12% 17% 17% 15% 12% 14%

Other Asia 18% 19% 19% 18% 18% 18% 19%

Europe, Middle East and 19% 18% 16% 17% 18% 18% 17%AfricaJapan 7% 7% 6% 7% 7% 6% 6%

Total 100% 100% 100% 100% 100% 100% 100%

Revenue Mix by Product Category (% of Total Revenue) 2020 2021

PRODUCT CATEGORY Q1 Q2 Q3 Q4 Year Q1 Q2

Custom IC Design and 25% 24% 24% 26% 25% 23% 23%SimulationDigital IC Design and Signoff 29% 28% 27% 31% 29% 27% 28%

Functional Verification, 23% 24% 23% 19% 22% 26% 25%including Emulation and Prototyping HardwareIP 14% 14% 15% 13% 14% 14% 13%

System Design and Analysis 9% 10% 11% 11% 10% 10% 11%

Total 100% 100% 100% 100% 100% 100% 100%

Cadence Design Systems, Inc.Impact of Non-GAAP Adjustments on Forward Looking Operating MarginAs of July 26, 2021(Unaudited)Three Months EndingYear EndingOctober 2, 2021January 1, 2022ForecastForecastGAAP operating margin as a percent of total revenue~23%24.5% - 25.25%

Reconciling items to non-GAAP operating margin as apercent of total revenue:Stock-based compensation expense8%

7.5%

Amortization of acquired intangibles2%

2.3%

Acquisition and integration-related costs1%

0.7%

Restructuring and other credits0%

0.0%

Non-qualified deferred compensation expenses0%

0.1%

Special charges*0%

0.9%

Non-GAAP operating margin as a percent of total revenue?~34%

36% - 36.75%

Cadence Design Systems, Inc.Impact of Non-GAAP Adjustments on Forward Looking Operating MarginAs of July 26, 2021(Unaudited) Three Months Year Ending Ending October 2, 2021 January 1, 2022 Forecast Forecast GAAP operating margin as a percent of total 24.5% -revenue ~23% 25.25%

Reconciling items to non-GAAP operating marginas apercent of total revenue: Stock-based compensation expense 8% 7.5%

Amortization of acquired intangibles 2% 2.3%

Acquisition and integration-related costs 1% 0.7%

Restructuring and other credits 0% 0.0%

Non-qualified deferred compensation expenses 0% 0.1%

Special charges* 0% 0.9%

Non-GAAP operating margin as a percent of total ~34% 36% - 36.75%revenue??The non-GAAP measures presented in the table above should not be considered a substitute forfinancial results and measures determined or calculated in accordance with GAAP.*Comprised of costs related to a voluntary retirement program. 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. * Comprised of costs related to a voluntary retirement program.Cadence Design Systems, Inc.Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per ShareAs of July 26, 2021(Unaudited)Three Months EndingYear EndingOctober 2, 2021January 1, 2022ForecastForecastDiluted net income per share on a GAAP basis$0.48 to $0.50$2.15 to $2.21Stock-based compensation expense0.20

0.79

Amortization of acquired intangibles0.06

0.24

Acquisition and integration-related costs0.02

0.08

Restructuring and other credits-

-

Non-qualified deferred compensation expenses-

0.01

Special charges*-

0.10

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

(0.02)

Income tax effect of non-GAAP adjustments(0.02)

(0.21)

Diluted net income per share on a non-GAAP basis?$0.74 to $0.76$3.14 to $3.20Cadence Design Systems, Inc.Impact of Non-GAAP Adjustments on Forward Looking Net IncomeAs of July 26, 2021(Unaudited)Three Months EndingYear EndingOctober 2, 2021January 1, 2022($ in millions)ForecastForecastNet income on a GAAP basis$133 to $139$600 to $616Stock-based compensation expense57

220

Amortization of acquired intangibles17

67

Acquisition and integration-related costs5

22

Restructuring and other credits-

(1)

Non-qualified deferred compensation expenses-

4

Special charges*-

27

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

(5)

Income tax effect of non-GAAP adjustments(7)

(57)

Net income on a non-GAAP basis?$205 to $211$877 to $893Cadence Design Systems, Inc.Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income PerShareAs of July 26, 2021(Unaudited) Three Year Months Ending Ending October 2, January 2021 1, 2022 Forecast Forecast Diluted net income per share on a GAAP basis $0.48 to $2.15 to $0.50 $2.21 Stock-based compensation expense 0.20 0.79

Amortization of acquired intangibles 0.06 0.24

Acquisition and integration-related costs 0.02 0.08

Restructuring and other credits - -

Non-qualified deferred compensation expenses - 0.01

Special charges* - 0.10

Other income or expense related to investments and - (0.02) non-qualified deferred compensation plan assets** Income tax effect of non-GAAP adjustments (0.02) (0.21)

Diluted net income per share on a non-GAAP basis? $0.74 to $3.14 to $0.76 $3.20 Cadence Design Systems, Inc.Impact of Non-GAAP Adjustments on Forward Looking Net IncomeAs of July 26, 2021(Unaudited) Three Year Months Ending Ending October 2, January 2021 1, 2022($ in millions) Forecast Forecast Net income on a GAAP basis $133 to $600 to $139 $616 Stock-based compensation expense 57 220

Amortization of acquired intangibles 17 67

Acquisition and integration-related costs 5 22

Restructuring and other credits - (1)

Non-qualified deferred compensation expenses - 4

Special charges* - 27

Other income or expense related to investments and - (5) non-qualified deferred compensation plan assets** Income tax effect of non-GAAP adjustments (7) (57)

Net income on a non-GAAP basis? $205 to $877 to $211 $893?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.*Comprised of 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. CDNS-IR

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