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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________ 
FORM 10-Q
_____________________________________  
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
Commission file number 000-15867
_____________________________________ 
cdns-20220702_g1.jpg
CADENCE DESIGN SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
_____________________________________ 
Delaware 00-0000000
(State or Other Jurisdiction of
Incorporation or Organization)
 (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
_____________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareCDNSNasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated FilerSmaller Reporting Company
Non-accelerated FilerEmerging 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.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
On July 2, 2022, approximately 273,870,000 shares of the registrant’s common stock, $0.01 par value, were outstanding.




CADENCE DESIGN SYSTEMS, INC.
INDEX
 
  Page
PART I.FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II.OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.











PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
As of
July 2,
2022
January 1,
2022
ASSETS
Current assets:
Cash and cash equivalents$1,029,544 $1,088,940 
Receivables, net391,738 337,596 
Inventories106,372 115,721 
Prepaid expenses and other129,966 173,512 
Total current assets1,657,620 1,715,769 
Property, plant and equipment, net316,741 305,911 
Goodwill924,460 928,358 
Acquired intangibles, net215,781 233,265 
Deferred taxes802,886 763,770 
Other assets443,786 439,226 
Total assets$4,361,274 $4,386,299 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities$437,195 $417,283 
Current portion of deferred revenue605,296 553,942 
Total current liabilities1,042,491 971,225 
Long-term liabilities:
Long-term portion of deferred revenue114,573 101,148 
Long-term debt347,999 347,588 
Other long-term liabilities230,982 225,663 
Total long-term liabilities693,554 674,399 
Commitments and contingencies (Note 12)
Stockholders’ equity:
Common stock and capital in excess of par value2,590,893 2,467,701 
Treasury stock, at cost(3,352,827)(2,740,003)
Retained earnings3,468,543 3,046,288 
Accumulated other comprehensive loss(81,380)(33,311)
Total stockholders’ equity2,625,229 2,740,675 
Total liabilities and stockholders’ equity$4,361,274 $4,386,299 





See notes to condensed consolidated financial statements.



CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
 
 Three Months Ended Six Months Ended
 July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Revenue:
Product and maintenance$802,285 $687,884 $1,648,529 $1,386,938 
Services55,236 40,401 110,758 77,375 
Total revenue857,521 728,285 1,759,287 1,464,313 
Costs and expenses:
Cost of product and maintenance68,717 55,842 141,512 120,748 
Cost of services23,948 20,917 48,996 39,978 
Marketing and sales139,296 135,967 279,482 268,793 
Research and development286,597 285,227 577,492 556,219 
General and administrative51,426 40,333 100,363 80,285 
Amortization of acquired intangibles4,633 5,030 9,597 9,661 
Restructuring16 (469)28 (746)
Total costs and expenses574,633 542,847 1,157,470 1,074,938 
Income from operations282,888 185,438 601,817 389,375 
Interest expense(4,281)(4,316)(8,389)(8,533)
Other income (expenses), net(5,962)2,143 (10,862)4,844 
Income before provision for income taxes272,645 183,265 582,566 385,686 
Provision for income taxes85,725 27,365 160,311 42,617 
Net income$186,920 $155,900 $422,255 $343,069 
Net income per share – basic$0.69 $0.57 $1.55 $1.25 
Net income per share – diluted$0.68 $0.56 $1.53 $1.23 
Weighted average common shares outstanding – basic271,520 273,565 272,028 273,843 
Weighted average common shares outstanding – diluted275,172 278,558 276,097 279,399 










See notes to condensed consolidated financial statements.



CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 Three Months Ended Six Months Ended
 July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Net income$186,920 $155,900 $422,255 $343,069 
Other comprehensive income (loss), net of tax effects:
Foreign currency translation adjustments(35,222)5,788 (49,996)(4,136)
Changes in defined benefit plan liabilities1,761 (543)1,927 (231)
Total other comprehensive income (loss), net of tax effects(33,461)5,245 (48,069)(4,367)
Comprehensive income$153,459 $161,145 $374,186 $338,702 






































See notes to condensed consolidated financial statements.



CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Three Months Ended July 2, 2022
Common Stock
Par ValueAccumulated
and CapitalOther
in ExcessTreasuryRetainedComprehensive
Sharesof ParStockEarningsLossTotal
Balance, April 2, 2022275,759 $2,552,207 $(3,025,728)$3,281,623 $(47,919)$2,760,183 
Net income
— — — 186,920 — $186,920 
Other comprehensive loss, net of taxes — — — — (33,461)$(33,461)
Purchase of treasury stock
(2,138)— (320,033)— — $(320,033)
Equity forward contract— (30,000)— — — $(30,000)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures
288 5,829 (1,278)— — $4,551 
Stock received for payment of employee taxes on vesting of restricted stock
(39)(1,413)(5,788)— — $(7,201)
Stock-based compensation expense
— 64,270 — — — $64,270 
Balance, July 2, 2022273,870 $2,590,893 $(3,352,827)$3,468,543 $(81,380)$2,625,229 
Three Months Ended July 3, 2021
Common Stock
Par ValueAccumulated
and CapitalOther
in ExcessTreasuryRetainedComprehensive
Sharesof ParStockEarningsLossTotal
Balance, April 3, 2021278,265 $2,307,965 $(2,275,998)$2,537,502 $(27,037)$2,542,432 
Net income
— — — 155,900 — $155,900 
Other comprehensive income, net of taxes — — — — 5,245 $5,245 
Purchase of treasury stock
(1,720)— (220,023)— — $(220,023)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures
367 791 3,548 — — $4,339 
Stock received for payment of employee taxes on vesting of restricted stock
(132)(4,473)(17,195)— — $(21,668)
Stock-based compensation expense
— 50,518 — — — $50,518 
Balance, July 3, 2021276,780 $2,354,801 $(2,509,668)$2,693,402 $(21,792)$2,516,743 



Six Months Ended July 2, 2022
Common Stock
Par ValueAccumulated
and CapitalOther
in ExcessTreasuryRetainedComprehensive
Sharesof ParStockEarningsLossTotal
Balance, January 1, 2022276,796 $2,467,701 $(2,740,003)$3,046,288 $(33,311)$2,740,675 
Net income
— — — 422,255 — $422,255 
Other comprehensive loss, net of taxes — — — — (48,069)$(48,069)
Purchase of treasury stock
(3,704)— (570,049)— — $(570,049)
Equity forward contract— (30,000)— — — $(30,000)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures
1,163 37,232 12,990 — — $50,222 
Stock received for payment of employee taxes on vesting of restricted stock
(385)(7,779)(55,765)— — $(63,544)
Stock-based compensation expense
— 123,739 — — — $123,739 
Balance, July 2, 2022273,870 $2,590,893 $(3,352,827)$3,468,543 $(81,380)$2,625,229 
Six Months Ended July 3, 2021
Common Stock
Par ValueAccumulated
and CapitalOther
in ExcessTreasuryRetainedComprehensive
Sharesof ParStockEarningsLossTotal
Balance, January 2, 2021278,941 $2,217,939 $(2,057,829)$2,350,333 $(17,425)$2,493,018 
Net income
— — — 343,069 — $343,069 
Other comprehensive loss, net of taxes — — — — (4,367)$(4,367)
Purchase of treasury stock
(3,043)— (392,290)— — $(392,290)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures
1,391 42,917 9,335 — — $52,252 
Stock received for payment of employee taxes on vesting of restricted stock
(509)(9,169)(68,884)— — $(78,053)
Stock-based compensation expense
— 103,114 — — — $103,114 
Balance, July 3, 2021276,780 $2,354,801 $(2,509,668)$2,693,402 $(21,792)$2,516,743 










See notes to condensed consolidated financial statements.



CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months Ended
 July 2,
2022
July 3,
2021
Cash and cash equivalents at beginning of period$1,088,940 $928,432 
Cash flows from operating activities:
Net income422,255 343,069 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization67,690 71,799 
Amortization of debt discount and fees539 687 
Stock-based compensation123,739 103,114 
(Gain) loss on investments, net3,124 (795)
Deferred income taxes(41,597)1,710 
Provisions for losses on receivables133 242 
ROU asset amortization and change in operating lease liabilities1,742 (2,483)
Other non-cash items88 183 
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables(64,036)(48,016)
Inventories367 (14,527)
Prepaid expenses and other40,571 7,690 
Other assets14,476 6,991 
Accounts payable and accrued liabilities17,470 (14,771)
Deferred revenue80,460 127,286 
Other long-term liabilities(5,872)6,639 
Net cash provided by operating activities661,149 588,818 
Cash flows from investing activities:
Purchases of non-marketable investments(1,000) 
Purchases of property, plant and equipment(42,202)(31,139)
Purchases of intangible assets(750) 
Cash paid in business combinations, net of cash acquired(25,000)(220,660)
Net cash used for investing activities(68,952)(251,799)
Cash flows from financing activities:
Payment of debt issuance costs (1,285)
Proceeds from issuance of common stock50,224 52,252 
Stock received for payment of employee taxes on vesting of restricted stock(63,544)(78,053)
Payments for repurchases of common stock(600,049)(392,290)
Net cash used for financing activities(613,369)(419,376)
Effect of exchange rate changes on cash and cash equivalents(38,224)1,085 
Decrease in cash and cash equivalents(59,396)(81,272)
Cash and cash equivalents at end of period$1,029,544 $847,160 
Supplemental cash flow information:
Cash paid for interest$7,973 $7,920 
Cash paid for taxes, net79,277 28,619 







See notes to condensed consolidated financial statements.



CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by Cadence Design Systems, Inc. (“Cadence”) without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, Cadence believes that the disclosures contained in this Quarterly Report on Form 10-Q comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) for a Quarterly Report on Form 10-Q and are adequate to make the information presented not misleading. These condensed consolidated financial statements are meant to be, and should be, read in conjunction with the consolidated financial statements and the Notes thereto included in Cadence’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022.
The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q reflect all adjustments (which include only normal, recurring adjustments and those items discussed in these Notes) that are, in the opinion of management, necessary to state fairly the results of operations, cash flows and financial position for the periods and dates presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year. Certain prior period balances have been reclassified to conform to the current period presentation. Management has evaluated subsequent events through the issuance date of the unaudited condensed consolidated financial statements.
Use of Estimates
Preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.
Due to the ongoing COVID-19 pandemic and rising tensions in the geopolitical climate, there continues to be uncertainty and disruption in the global economy and financial markets. Cadence is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of July 25, 2022, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Recently Adopted Accounting Standards
Lessors - Certain Leases with Variable Lease Payments
In July 2021, the Financial Accounting Standards Board (“FASB”), issued ASU 2021-05, “Lessors - Certain Leases with Variable Lease Payments,” which allows lessors to classify and account for a lease with variable payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: (1) the lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria as defined in ASC Topic 842 and (2) the lessor would have otherwise recognized a day-one loss on the lease arrangement. This standard better aligns the accounting with the underlying economics of these arrangements as lessors are not permitted to include most variable payments which do not depend on a reference index or a rate in the lease receivable while assets are derecognized at lease commencement. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Cadence adopted this standard on January 2, 2022, the first day of fiscal 2022, on a prospective basis. The adoption of this standard did not have a material impact on Cadence’s condensed consolidated financial statements and related disclosures.
Business Combinations
In October 2021, the FASB issued ASU 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with “Revenue from Contracts with Customers (Topic 606)” as if the acquiring entity had originated the contracts. This approach differs from the previous requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted. Cadence adopted this standard on January 2, 2022, the first day of fiscal 2022. The impact of the standard on Cadence’s condensed consolidated financial statements is dependent on the size and frequency of future acquisitions and does not affect contract assets or contract liabilities related to acquisitions completed prior to the adoption date.
6


NOTE 2. REVENUE
Cadence groups its products and services into five categories related to major design activities. The following table shows the percentage of revenue contributed by each of Cadence’s five product categories for the three and six months ended July 2, 2022 and July 3, 2021:
 Three Months Ended Six Months Ended
 July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Custom Integrated Circuit (“IC”) Design and Simulation23 %23 %22 %23 %
Digital IC Design and Signoff27 %28 %27 %28 %
Functional Verification, including Emulation and Prototyping Hardware*24 %25 %26 %26 %
Intellectual Property (“IP”)14 %13 %14 %13 %
System Design and Analysis12 %11 %11 %10 %
Total100 %100 %100 %100 %
_____________
* Includes immaterial amount of revenue accounted for under leasing arrangements.
Cadence generates revenue from contracts with customers and applies judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition. Certain of Cadence’s licensing arrangements allow customers the ability to remix among software products. Cadence also has arrangements with customers that include a combination of products, with the actual product selection and number of licensed users to be determined at a later date. For these arrangements, Cadence estimates the allocation of the revenue to product categories based upon the expected usage of products. Revenue by product category fluctuates from period to period based on demand for products and services, and Cadence’s available resources to deliver them. No one customer accounted for 10% or more of total revenue during the three and six months ended July 2, 2022 or the three and six months ended July 3, 2021.
Generally, between 85% and 90% of Cadence’s annual revenue is characterized as recurring revenue. Recurring revenue includes revenue recognized over time from our software arrangements, services, royalties, maintenance on IP licenses and hardware, and operating leases of hardware. Recurring revenue also includes revenue recognized at varying points in time over the term of other arrangements with non-cancelable commitments, whereby the customer commits to a fixed dollar amount over a specified period of time that can be used to purchase from a list of products or services. These arrangements do not meet the definition of a revenue contract until the customer executes a separate selection form to identify the products and services that they are purchasing. Each separate selection form under the arrangement is treated as an individual contract and accounted for based on the respective performance obligations.
The remainder of Cadence’s revenue is recognized at a point in time and is characterized as up-front revenue. Up-front revenue is primarily generated by sales of emulation and prototyping hardware and individual IP licenses. The percentage of Cadence’s recurring and up-front revenue may be impacted by delivery of hardware and IP products to its customers in any single fiscal period. The following table shows the percentage of Cadence’s revenue that is classified as recurring or up-front for the three and six months ended July 2, 2022 and July 3, 2021:
 Three Months Ended Six Months Ended
 July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Revenue recognized over time84 %84 %82 %83 %
Revenue from arrangements with non-cancelable commitments2 %3 %2 %3 %
Recurring revenue86 %87 %84 %86 %
Up-front revenue14 %13 %16 %14 %
Total100 %100 %100 %100 %
7


Significant Judgments
Cadence’s contracts with customers often include promises to transfer to a customer multiple software and/or IP licenses and services, including professional services, technical support services, and rights to unspecified updates. Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. In some arrangements, such as most of Cadence’s IP license arrangements, Cadence has concluded that the licenses and associated services are distinct from each other. In others, like Cadence’s time-based software arrangements, the licenses and certain services are not distinct from each other. Cadence’s time-based software arrangements include multiple software licenses and updates to the licensed software products, as well as technical support, and Cadence has concluded that these promised goods and services are a single, combined performance obligation.
The accounting for contracts with multiple performance obligations requires the contract’s transaction price to be allocated to each distinct performance obligation based on relative standalone selling price (“SSP”). Judgment is required to determine the SSP for each distinct performance obligation because Cadence rarely licenses or sells products on a standalone basis. In instances where the SSP is not directly observable because Cadence does not sell the license, product or service separately, Cadence determines the SSP using information that maximizes the use of observable inputs and may include market conditions. Cadence typically has more than one SSP for individual performance obligations due to the stratification of those items by classes of customers and circumstances. In these instances, Cadence may use information such as the size of the customer and geographic region of the customer in determining the SSP.
Revenue is recognized over time for Cadence’s combined performance obligations that include software licenses, updates, technical support and maintenance that are separate performance obligations with the same term. For Cadence’s professional services, revenue is recognized over time, generally using costs incurred or hours expended to measure progress. Judgment is required in estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes. For Cadence’s other performance obligations recognized over time, revenue is generally recognized using a time-based measure of progress reflecting generally consistent efforts to satisfy those performance obligations throughout the arrangement term.
If a group of agreements are so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. Cadence exercises significant judgment to evaluate the relevant facts and circumstances in determining whether the separate agreements should be accounted for separately or as, in substance, a single arrangement. Cadence’s judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved.
Cadence is required to estimate the total consideration expected to be received from contracts with customers. In limited circumstances, the consideration expected to be received is variable based on the specific terms of the contract or based on Cadence’s expectations of the term of the contract. Generally, Cadence has not experienced significant returns or refunds to customers. These estimates require significant judgment and a change in these estimates could have an effect on its results of operations during the periods involved.
Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to customers, and these timing differences result in receivables, contract assets, or contract liabilities (deferred revenue) on Cadence’s condensed consolidated balance sheets. For certain software, hardware and IP agreements with payment plans, Cadence records an unbilled receivable related to revenue recognized upon transfer of control because it has an unconditional right to invoice and receive payment in the future related to those transferred products or services. Cadence records a contract asset when revenue is recognized prior to invoicing and Cadence does not have the unconditional right to invoice or retains performance risk with respect to that performance obligation. Cadence records deferred revenue when revenue is recognized subsequent to invoicing. For Cadence’s time-based software agreements, customers are generally invoiced in equal, quarterly amounts, although some customers prefer to be invoiced in single or annual amounts.
The contract assets indicated below are included in prepaid expenses and other in the condensed consolidated balance sheets and primarily relate to Cadence’s rights to consideration for work completed but not billed as of the balance sheet date on services and customized IP contracts. The contract assets are transferred to receivables when the rights become unconditional, usually upon completion of a milestone.
8


Cadence’s contract balances as of July 2, 2022 and January 1, 2022 were as follows:
 As of
 July 2,
2022
January 1,
2022
 (In thousands)
Contract assets$23,273 $6,811 
Deferred revenue719,869 655,090 
Cadence recognized revenue of $143.4 million and $425.0 million during the three and six months ended July 2, 2022, and $103.4 million and $330.0 million during the three and six months ended July 3, 2021, that was included in the deferred revenue balance at the beginning of each respective fiscal year. All other activity in deferred revenue is due to the timing of invoices in relation to the timing of revenue as described above.
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, Cadence has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing Cadence’s products and services, and not to facilitate financing arrangements.
Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Cadence has elected to exclude the potential future royalty receipts from the remaining performance obligations. Contracted but unsatisfied performance obligations were approximately $5.6 billion as of July 2, 2022, which included $171.3 million of non-cancelable commitments from customers where actual product selection and quantities of specific products or services are to be determined by customers at a later date. As of July 2, 2022, Cadence expected to recognize 51% of the contracted but unsatisfied performance obligations, excluding non-cancelable commitments, as revenue over the next 12 months and the remainder thereafter.
Cadence recognized revenue of $10.9 million and $23.1 million during the three and six months ended July 2, 2022, and $11.5 million and $21.7 million during the three and six months ended July 3, 2021, from performance obligations satisfied in previous periods. These amounts represent royalties earned during the period and exclude contracts with nonrefundable prepaid royalties. Nonrefundable prepaid royalties are recognized upon delivery of the IP because Cadence’s right to the consideration is not contingent upon customers’ future shipments.
NOTE 3. RECEIVABLES, NET
Cadence’s current and long-term receivables balances as of July 2, 2022 and January 1, 2022 were as follows:
 As of
 July 2,
2022
January 1,
2022
 (In thousands)
Accounts receivable$241,342 $185,599 
Unbilled accounts receivable153,451 155,689 
Long-term receivables6,223 5,098 
Total receivables401,016 346,386 
Less allowance for doubtful accounts(3,055)(3,692)
Total receivables, net$397,961 $342,694 
Cadence’s customers are primarily concentrated within the semiconductor and electronics systems industries. As of July 2, 2022, one customer accounted for 11% of Cadence’s total receivables. As of January 1, 2022, no customer accounted for 10% or more of Cadence’s total receivables.

9


NOTE 4. DEBT
Revolving Credit Facility
In June 2021, Cadence entered into a five-year senior unsecured revolving credit facility with a group of lenders led by Bank of America, N.A., as administrative agent (the “2021 Credit Facility”). The 2021 Credit Facility provides for borrowings up to $700 million, with the right to request increased capacity up to an additional $350 million upon the receipt of lender commitments, for total maximum borrowings of $1.05 billion. The 2021 Credit Facility expires on June 30, 2026. Any outstanding loans drawn under such credit facility are due at maturity on June 30, 2026, subject to an option to extend the maturity date. Outstanding borrowings may be repaid at any time prior to maturity. Debt issuance costs of $1.3 million were recorded to other assets in Cadence’s condensed consolidated balance sheet at the inception of the agreement and are being amortized to interest expense over the term of the 2021 Credit Facility.
Interest accrues on borrowings under the 2021 Credit Facility at a rate equal to, at Cadence’s option, either (1) LIBOR plus a margin between 0.750% and 1.250% per annum, determined by reference to the credit rating of Cadence’s unsecured debt, or (2) the base rate plus a margin between 0.000% and 0.250% per annum, determined by reference to the credit rating of Cadence’s unsecured debt. Interest is payable quarterly. A commitment fee ranging from 0.070% to 0.175% is assessed on the daily average undrawn portion of revolving commitments. The 2021 Credit Facility also includes provisions addressing the potential transition from LIBOR to a new replacement benchmark.
The 2021 Credit Facility contains customary negative covenants that, among other things, restrict Cadence’s ability to incur additional indebtedness and grant liens. In addition, the 2021 Credit Facility contains financial covenants that require Cadence to maintain a funded debt to EBITDA ratio not greater than 3.25 to 1, with a step up to 3.75 to 1 for one year following an acquisition by Cadence of at least $250.0 million that results in a pro forma leverage ratio between 3.00 to 1 and 3.50 to 1. As of July 2, 2022, Cadence was in compliance with all financial covenants associated with the 2021 Credit Facility.
2024 Notes
In October 2014, Cadence issued $350.0 million aggregate principal amount of 4.375% Senior Notes due October 15, 2024 (the “2024 Notes”). Cadence received net proceeds of $342.4 million from the issuance of the 2024 Notes, net of a discount of $1.4 million and issuance costs of $6.2 million. Both the discount and issuance costs are being amortized to interest expense over the term of the 2024 Notes using the effective interest method. Interest is payable in cash semi-annually in April and October. The 2024 Notes are unsecured and rank equal in right of payment to all of Cadence’s existing and future senior indebtedness. The carrying value of the 2024 Notes was $348.0 million and $347.6 million as of July 2, 2022 and January 1, 2022, respectively. The fair value of the 2024 Notes was approximately $355.3 million as of July 2, 2022.
Cadence may redeem the 2024 Notes, in whole or in part, at a redemption price equal to the greater of (a) 100% of the principal amount of the notes to be redeemed, and (b) the sum of the present values of the remaining scheduled payments of principal and interest, plus any accrued and unpaid interest, as more particularly described in the indenture governing the 2024 Notes.
The indenture governing the 2024 Notes includes customary representations, warranties and restrictive covenants, including, but not limited to, restrictions on Cadence’s ability to grant liens on assets, enter into sale and lease-back transactions, or merge, consolidate or sell assets, and also includes customary events of default.
NOTE 5. ACQUISITIONS
During the second quarter of fiscal 2022, Cadence completed one business combination for aggregate cash consideration of $25.0 million. The total purchase consideration was allocated to assets acquired based on their respective estimated fair values on the acquisition date. Cadence recorded $15.0 million of acquired intangible assets, which consisted of $8.2 million of existing technology and $6.8 million of in-process technology. Cadence also recognized $10.0 million of goodwill, which is primarily attributed to an assembled workforce. The goodwill recognized is expected to be deductible for tax purposes.
Transaction costs associated with acquisitions are included in general and administrative expense in Cadence’s condensed consolidated income statement. During the three and six months ended July 2, 2022, transaction costs associated with acquisitions were $6.3 million and $6.5 million, respectively. During the three and six months ended July 3, 2021, transaction costs associated with acquisitions were $0.3 million and $1.9 million, respectively. For additional information relating to Cadence’s acquisitions subsequent to the period end date covered by this quarterly report, see Note 15 in the notes to condensed consolidated financial statements.
10


NOTE 6. GOODWILL AND ACQUIRED INTANGIBLES
Goodwill
The changes in the carrying amount of goodwill during the six months ended July 2, 2022 were as follows:
 Gross Carrying
Amount
 (In thousands)
Balance as of January 1, 2022$928,358 
Goodwill resulting from acquisitions9,984 
Effect of foreign currency translation(13,882)
Balance as of July 2, 2022$924,460 
Acquired Intangibles, Net
Acquired intangibles as of July 2, 2022 were as follows, excluding intangibles that were fully amortized as of January 1, 2022:
Gross Carrying
Amount
Accumulated
Amortization
Acquired
Intangibles, Net
 (In thousands)
Existing technology$397,401 $(259,372)$138,029 
Agreements and relationships193,674 (129,517)64,157 
Tradenames, trademarks and patents9,048 (2,253)6,795 
Total acquired intangibles with definite lives600,123 (391,142)208,981 
In-process technology6,800 — 6,800 
Total acquired intangibles$606,923 $(391,142)$215,781 
In-process technology as of July 2, 2022 consisted of acquired projects that, if completed, will contribute to Cadence’s existing product offerings. As of July 2, 2022, these projects were expected to be completed during the second quarter of fiscal 2023. During the three and six months ended July 2, 2022, there were no transfers from in-process technology to existing technology.
Acquired intangibles as of January 1, 2022 were as follows, excluding intangibles that were fully amortized as of January 2, 2021:
Gross Carrying
Amount
Accumulated
Amortization
Acquired
Intangibles, Net
 (In thousands)
Existing technology$405,481 $(254,599)$150,882 
Agreements and relationships205,057 (130,187)74,870 
Tradenames, trademarks and patents10,666 (3,153)7,513 
Total acquired intangibles$621,204 $(387,939)$233,265 
Amortization expense from existing technology and maintenance agreements is included in cost of product and maintenance. Amortization expense for the three and six months ended July 2, 2022 and July 3, 2021 by condensed consolidated income statement caption was as follows:
 Three Months Ended Six Months Ended
 July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
 (In thousands)
Cost of product and maintenance$10,068 $12,232 $22,039 $24,000 
Amortization of acquired intangibles4,633 5,030 9,597 9,661 
Total amortization of acquired intangibles$14,701 $17,262 $31,636 $33,661 
11


As of July 2, 2022, the estimated amortization expense for intangible assets with definite lives was as follows for the following five fiscal years and thereafter:
 (In thousands)
2022 - remaining period$20,763 
202337,432 
202435,672 
202523,744 
202618,379 
202716,862 
Thereafter56,129 
Total estimated amortization expense$208,981 

NOTE 7. STOCK-BASED COMPENSATION
Stock-based compensation expense is reflected in Cadence’s condensed consolidated income statements for the three and six months ended July 2, 2022 and July 3, 2021 as follows:
Three Months Ended Six Months Ended
July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
(In thousands)
Cost of product and maintenance$875 $909 $1,705 $1,716 
Cost of services1,113 992 2,163 2,019 
Marketing and sales12,902 10,294 24,659 21,500 
Research and development37,067 31,286 72,189 64,144 
General and administrative12,313 7,037 23,023 13,735 
Total stock-based compensation expense$64,270 $50,518 $123,739 $103,114 
Cadence had total unrecognized compensation expense related to stock option and restricted stock grants of $408.7 million as of July 2, 2022, which will be recognized over the remaining vesting period. The remaining weighted average vesting period of unvested awards is 2.3 years.

NOTE 8. STOCK REPURCHASE PROGRAM
In August 2021, Cadence’s Board of Directors increased the prior authorization to repurchase shares of Cadence common stock by authorizing an additional $1 billion. The actual timing and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors.
During the three months ended July 2, 2022, Cadence repurchased approximately 1.6 million shares on the open market, for an aggregate purchase price of $250.0 million.
In June 2022, Cadence also entered into an accelerated share repurchase (“ASR”) agreement with Royal Bank of Canada to repurchase an aggregate of $100.0 million of Cadence common stock. The ASR agreement was accounted for as two separate transactions (1) a repurchase of common stock and (2) an equity-linked contract on Cadence’s own stock. Under the ASR agreement, Cadence received an initial share delivery of approximately 0.5 million shares, which represented the number of shares at a market price equal to $70.0 million. An equity-linked contract for $30.0 million, representing the remaining shares to be delivered by Royal Bank of Canada under the ASR agreement, was recorded to stockholders’ equity as of July 2, 2022 and is expected to settle in the third quarter of fiscal 2022 upon completion of the repurchases. The shares Cadence receives are treated as a repurchase of common stock for purposes of calculating earnings per share. The final number of shares that Cadence will repurchase under the ASR agreement will be based on Cadence’s daily volume-weighted average share prices during the term of the ASR agreement, less a discount.
As of July 2, 2022, approximately $527 million of Cadence’s share repurchase authorization remained available to repurchase shares of Cadence common stock.
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The shares repurchased under Cadence’s repurchase authorizations and the total cost of repurchased shares, including commissions, during the three and six months ended July 2, 2022 and July 3, 2021 were as follows:
Three Months Ended Six Months Ended
July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
(In thousands)
Shares repurchased2,138 1,720 3,704 3,043 
Total cost of repurchased shares$320,033 $220,023 $570,049 $392,290 
NOTE 9. NET INCOME PER SHARE
Basic net income per share is computed by dividing net income during the period by the weighted average number of shares of common stock outstanding during that period, less unvested restricted stock awards. Diluted net income per share is impacted by equity instruments considered to be potential common shares, if dilutive, computed using the treasury stock method of accounting.
The calculations for basic and diluted net income per share for the three and six months ended July 2, 2022 and July 3, 2021 are as follows:
 Three Months Ended Six Months Ended
 July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
 (In thousands, except per share amounts)
Net income$186,920 $155,900 $422,255 $343,069 
Weighted average common shares used to calculate basic net income per share271,520 273,565 272,028 273,843 
Stock-based awards3,652 4,993 4,069 5,556 
Weighted average common shares used to calculate diluted net income per share275,172 278,558 276,097 279,399 
Net income per share - basic$0.69 $0.57 $1.55 $1.25 
Net income per share - diluted$0.68 $0.56 $1.53 $1.23 
The following table presents shares of Cadence’s common stock outstanding for the three and six months ended July 2, 2022 and July 3, 2021 that were excluded from the computation of diluted net income per share because the effect of including these shares in the computation of diluted net income per share would have been anti-dilutive:
 Three Months Ended Six Months Ended
 July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
 (In thousands)
Long-term market-based awards1,658  1,347  
Options to purchase shares of common stock857 331 760 235 
Non-vested shares of restricted stock81 75 82 67 
Total potential common shares excluded2,596 406 2,189 302 

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NOTE 10. FAIR VALUE
Inputs to valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Cadence’s market assumptions. These two types of inputs have created the following fair value hierarchy:
Level 1 – Quoted prices for identical instruments in active markets;
Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
This hierarchy requires Cadence to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. Cadence recognizes transfers between levels of the hierarchy based on the fair values of the respective financial instruments at the end of the reporting period in which the transfer occurred. There were no transfers between levels of the fair value hierarchy during the six months ended July 2, 2022.
On a quarterly basis, Cadence measures at fair value certain financial assets and liabilities. The fair value of financial assets and liabilities was determined using the following levels of inputs as of July 2, 2022 and January 1, 2022:
 Fair Value Measurements as of July 2, 2022
  TotalLevel 1Level 2Level 3
 (In thousands)
Assets
Cash equivalents:
Money market funds$501,795 $501,795 $ $ 
Marketable equity securities4,371 4,371   
Securities held in Non-Qualified Deferred Compensation (“NQDC”) trust49,196 49,196   
Total Assets$555,362 $555,362 $ $ 
  TotalLevel 1