cdns-202409300000813672false2024Q3December 31364532379364xbrli:sharesiso4217:USDiso4217:USDxbrli:sharesxbrli:purecdns:Customer00008136722024-01-012024-09-3000008136722024-09-3000008136722023-12-310000813672cdns:ProductandmaintenanceMember2024-07-012024-09-300000813672cdns:ProductandmaintenanceMember2023-07-012023-09-300000813672cdns:ProductandmaintenanceMember2024-01-012024-09-300000813672cdns:ProductandmaintenanceMember2023-01-012023-09-300000813672us-gaap:TechnologyServiceMember2024-07-012024-09-300000813672us-gaap:TechnologyServiceMember2023-07-012023-09-300000813672us-gaap:TechnologyServiceMember2024-01-012024-09-300000813672us-gaap:TechnologyServiceMember2023-01-012023-09-3000008136722024-07-012024-09-3000008136722023-07-012023-09-3000008136722023-01-012023-09-300000813672us-gaap:CommonStockMember2024-06-300000813672us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2024-06-300000813672us-gaap:TreasuryStockCommonMember2024-06-300000813672us-gaap:RetainedEarningsMember2024-06-300000813672us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-06-3000008136722024-06-300000813672us-gaap:RetainedEarningsMember2024-07-012024-09-300000813672us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-07-012024-09-300000813672us-gaap:CommonStockMember2024-07-012024-09-300000813672us-gaap:TreasuryStockCommonMember2024-07-012024-09-300000813672us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2024-07-012024-09-300000813672us-gaap:CommonStockMember2024-09-300000813672us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2024-09-300000813672us-gaap:TreasuryStockCommonMember2024-09-300000813672us-gaap:RetainedEarningsMember2024-09-300000813672us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-09-300000813672us-gaap:CommonStockMember2023-06-300000813672us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2023-06-300000813672us-gaap:TreasuryStockCommonMember2023-06-300000813672us-gaap:RetainedEarningsMember2023-06-300000813672us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-06-3000008136722023-06-300000813672us-gaap:RetainedEarningsMember2023-07-012023-09-300000813672us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-07-012023-09-300000813672us-gaap:CommonStockMember2023-07-012023-09-300000813672us-gaap:TreasuryStockCommonMember2023-07-012023-09-300000813672us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2023-07-012023-09-300000813672us-gaap:CommonStockMember2023-09-300000813672us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2023-09-300000813672us-gaap:TreasuryStockCommonMember2023-09-300000813672us-gaap:RetainedEarningsMember2023-09-300000813672us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-09-3000008136722023-09-300000813672us-gaap:CommonStockMember2023-12-310000813672us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2023-12-310000813672us-gaap:TreasuryStockCommonMember2023-12-310000813672us-gaap:RetainedEarningsMember2023-12-310000813672us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310000813672us-gaap:RetainedEarningsMember2024-01-012024-09-300000813672us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-09-300000813672us-gaap:CommonStockMember2024-01-012024-09-300000813672us-gaap:TreasuryStockCommonMember2024-01-012024-09-300000813672us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2024-01-012024-09-300000813672us-gaap:CommonStockMember2022-12-310000813672us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2022-12-310000813672us-gaap:TreasuryStockCommonMember2022-12-310000813672us-gaap:RetainedEarningsMember2022-12-310000813672us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-3100008136722022-12-310000813672us-gaap:RetainedEarningsMember2023-01-012023-09-300000813672us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-09-300000813672us-gaap:CommonStockMember2023-01-012023-09-300000813672us-gaap:TreasuryStockCommonMember2023-01-012023-09-300000813672us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember2023-01-012023-09-300000813672cdns:CustomICDesignMember2024-07-012024-09-300000813672cdns:CustomICDesignMember2023-07-012023-09-300000813672cdns:CustomICDesignMember2024-01-012024-09-300000813672cdns:CustomICDesignMember2023-01-012023-09-300000813672cdns:DigitalICDesignandSignoffMember2024-07-012024-09-300000813672cdns:DigitalICDesignandSignoffMember2023-07-012023-09-300000813672cdns:DigitalICDesignandSignoffMember2024-01-012024-09-300000813672cdns:DigitalICDesignandSignoffMember2023-01-012023-09-300000813672cdns:FunctionalVerificationincludingEmulationandPrototypingHardwareMember2024-07-012024-09-300000813672cdns:FunctionalVerificationincludingEmulationandPrototypingHardwareMember2023-07-012023-09-300000813672cdns:FunctionalVerificationincludingEmulationandPrototypingHardwareMember2024-01-012024-09-300000813672cdns:FunctionalVerificationincludingEmulationandPrototypingHardwareMember2023-01-012023-09-300000813672cdns:IPMember2024-07-012024-09-300000813672cdns:IPMember2023-07-012023-09-300000813672cdns:IPMember2024-01-012024-09-300000813672cdns:IPMember2023-01-012023-09-300000813672cdns:SystemDesignAndAnalysisMember2024-07-012024-09-300000813672cdns:SystemDesignAndAnalysisMember2023-07-012023-09-300000813672cdns:SystemDesignAndAnalysisMember2024-01-012024-09-300000813672cdns:SystemDesignAndAnalysisMember2023-01-012023-09-300000813672us-gaap:TransferredOverTimeMembercdns:RevenueArrangementRecognizedOverTimeMember2024-07-012024-09-300000813672us-gaap:TransferredOverTimeMembercdns:RevenueArrangementRecognizedOverTimeMember2023-07-012023-09-300000813672us-gaap:TransferredOverTimeMembercdns:RevenueArrangementRecognizedOverTimeMember2024-01-012024-09-300000813672us-gaap:TransferredOverTimeMembercdns:RevenueArrangementRecognizedOverTimeMember2023-01-012023-09-300000813672us-gaap:TransferredOverTimeMembercdns:RevenueArrangementWithNonCancelableCommitmentsMember2024-07-012024-09-300000813672us-gaap:TransferredOverTimeMembercdns:RevenueArrangementWithNonCancelableCommitmentsMember2023-07-012023-09-300000813672us-gaap:TransferredOverTimeMembercdns:RevenueArrangementWithNonCancelableCommitmentsMember2024-01-012024-09-300000813672us-gaap:TransferredOverTimeMembercdns:RevenueArrangementWithNonCancelableCommitmentsMember2023-01-012023-09-300000813672us-gaap:TransferredOverTimeMember2024-07-012024-09-300000813672us-gaap:TransferredOverTimeMember2023-07-012023-09-300000813672us-gaap:TransferredOverTimeMember2024-01-012024-09-300000813672us-gaap:TransferredOverTimeMember2023-01-012023-09-300000813672us-gaap:TransferredAtPointInTimeMember2024-07-012024-09-300000813672us-gaap:TransferredAtPointInTimeMember2023-07-012023-09-300000813672us-gaap:TransferredAtPointInTimeMember2024-01-012024-09-300000813672us-gaap:TransferredAtPointInTimeMember2023-01-012023-09-3000008136722024-04-012024-09-3000008136722025-04-022024-09-3000008136722026-04-012024-09-300000813672cdns:SeniorNotesDueTwentyTwentyFourMemberus-gaap:SeniorNotesMember2024-09-300000813672cdns:SeniorNotesDueTwentyTwentyFourMemberus-gaap:SeniorNotesMember2023-12-310000813672cdns:TermLoanDueTwentyTwentyFiveMemberus-gaap:NotesPayableToBanksMember2024-09-300000813672cdns:TermLoanDueTwentyTwentyFiveMemberus-gaap:NotesPayableToBanksMember2023-12-310000813672cdns:SeniorNotesDueTwentyTwentySevenMemberus-gaap:SeniorNotesMember2024-09-300000813672cdns:SeniorNotesDueTwentyTwentySevenMemberus-gaap:SeniorNotesMember2023-12-310000813672cdns:SeniorNotesDueTwentyTwentyNineMemberus-gaap:SeniorNotesMember2024-09-300000813672cdns:SeniorNotesDueTwentyTwentyNineMemberus-gaap:SeniorNotesMember2023-12-310000813672cdns:SeniorNotesDueTwentyThirtyFourMemberus-gaap:SeniorNotesMember2024-09-300000813672cdns:SeniorNotesDueTwentyThirtyFourMemberus-gaap:SeniorNotesMember2023-12-310000813672cdns:SeniorNotesDueTwentyTwentyFourMemberus-gaap:SeniorNotesMember2014-10-090000813672cdns:SeniorNotesDueTwentyTwentyFourMemberus-gaap:SeniorNotesMemberus-gaap:SubsequentEventMember2024-10-152024-10-150000813672cdns:SeniorNotesDueTwentyTwentySevenMemberus-gaap:SeniorNotesMember2024-09-100000813672cdns:SeniorNotesDueTwentyTwentyNineMemberus-gaap:SeniorNotesMember2024-09-100000813672cdns:SeniorNotesDueTwentyThirtyFourMemberus-gaap:SeniorNotesMember2024-09-100000813672cdns:TermLoanDueTwentyTwentyFiveMember2022-09-070000813672cdns:TermLoanDueTwentyTwentySixMember2024-05-300000813672us-gaap:RevolvingCreditFacilityMember2024-09-300000813672us-gaap:RevolvingCreditFacilityMember2024-01-012024-09-300000813672us-gaap:RevolvingCreditFacilityMember2024-08-012024-08-310000813672us-gaap:RevolvingCreditFacilityMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMembersrt:MinimumMember2024-01-012024-09-300000813672us-gaap:RevolvingCreditFacilityMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMembersrt:MaximumMember2024-01-012024-09-300000813672us-gaap:RevolvingCreditFacilityMembercdns:TermSecuredOvernightFinancingRateSOFRMember2024-01-012024-09-300000813672us-gaap:RevolvingCreditFacilityMemberus-gaap:BaseRateMembersrt:MinimumMember2024-01-012024-09-300000813672us-gaap:RevolvingCreditFacilityMemberus-gaap:BaseRateMembersrt:MaximumMember2024-01-012024-09-300000813672srt:MinimumMemberus-gaap:RevolvingCreditFacilityMember2024-01-012024-09-300000813672srt:MaximumMemberus-gaap:RevolvingCreditFacilityMember2024-01-012024-09-300000813672cdns:BETACAEMember2024-05-300000813672cdns:BETACAEMember2024-01-012024-09-300000813672cdns:BETACAEMembercdns:ExistingTechnologyMember2024-01-012024-09-300000813672cdns:BETACAEMembercdns:AgreementsAndRelationshipMember2024-01-012024-09-300000813672cdns:BETACAEMembercdns:TradenameTrademarkAndPatentsMember2024-01-012024-09-300000813672cdns:InvecasMember2024-01-080000813672cdns:InvecasMember2024-01-012024-09-300000813672cdns:InvecasMembercdns:AgreementsAndRelationshipMember2024-01-080000813672cdns:InvecasMembercdns:TradenameTrademarkAndPatentsMember2024-01-080000813672cdns:OtherBusinessCombinationsMember2024-01-012024-09-300000813672cdns:OtherBusinessCombinationsMember2024-09-300000813672cdns:ExistingTechnologyMember2024-09-300000813672cdns:AgreementsAndRelationshipMember2024-09-300000813672cdns:TradenameTrademarkAndPatentsMember2024-09-300000813672cdns:ExistingTechnologyMember2023-12-310000813672cdns:AgreementsAndRelationshipMember2023-12-310000813672cdns:TradenameTrademarkAndPatentsMember2023-12-310000813672us-gaap:CostOfSalesMember2024-07-012024-09-300000813672us-gaap:CostOfSalesMember2023-07-012023-09-300000813672us-gaap:CostOfSalesMember2024-01-012024-09-300000813672us-gaap:CostOfSalesMember2023-01-012023-09-300000813672cdns:CostOfServicesMember2024-07-012024-09-300000813672cdns:CostOfServicesMember2023-07-012023-09-300000813672cdns:CostOfServicesMember2024-01-012024-09-300000813672cdns:CostOfServicesMember2023-01-012023-09-300000813672us-gaap:SellingAndMarketingExpenseMember2024-07-012024-09-300000813672us-gaap:SellingAndMarketingExpenseMember2023-07-012023-09-300000813672us-gaap:SellingAndMarketingExpenseMember2024-01-012024-09-300000813672us-gaap:SellingAndMarketingExpenseMember2023-01-012023-09-300000813672us-gaap:ResearchAndDevelopmentExpenseMember2024-07-012024-09-300000813672us-gaap:ResearchAndDevelopmentExpenseMember2023-07-012023-09-300000813672us-gaap:ResearchAndDevelopmentExpenseMember2024-01-012024-09-300000813672us-gaap:ResearchAndDevelopmentExpenseMember2023-01-012023-09-300000813672us-gaap:GeneralAndAdministrativeExpenseMember2024-07-012024-09-300000813672us-gaap:GeneralAndAdministrativeExpenseMember2023-07-012023-09-300000813672us-gaap:GeneralAndAdministrativeExpenseMember2024-01-012024-09-300000813672us-gaap:GeneralAndAdministrativeExpenseMember2023-01-012023-09-300000813672cdns:StockoptionandrestrictedstockgrantsMember2024-09-300000813672cdns:StockoptionandrestrictedstockgrantsMember2024-01-012024-09-300000813672cdns:ShareRepurchaseOnOpenMarketMember2024-07-012024-09-300000813672cdns:ShareRepurchaseOnOpenMarketMember2024-01-012024-09-300000813672cdns:ShareRepurchaseOnOpenMarketMember2023-07-012023-09-300000813672cdns:ShareRepurchaseOnOpenMarketMember2023-01-012023-09-300000813672cdns:A2023AcceleratedShareRepurchaseProgramMember2023-09-300000813672cdns:A2023AcceleratedShareRepurchaseProgramMember2023-06-012023-06-300000813672cdns:A2023AcceleratedShareRepurchaseProgramMember2023-08-012023-08-310000813672cdns:A2023AcceleratedShareRepurchaseProgramMember2023-06-012023-08-310000813672us-gaap:EmployeeSeveranceMember2023-12-310000813672us-gaap:FacilityClosingMember2023-12-310000813672us-gaap:EmployeeSeveranceMember2024-01-012024-09-300000813672us-gaap:FacilityClosingMember2024-01-012024-09-300000813672us-gaap:EmployeeSeveranceMember2024-09-300000813672us-gaap:FacilityClosingMember2024-09-300000813672us-gaap:PerformanceSharesMember2024-07-012024-09-300000813672us-gaap:PerformanceSharesMember2023-07-012023-09-300000813672us-gaap:PerformanceSharesMember2024-01-012024-09-300000813672us-gaap:PerformanceSharesMember2023-01-012023-09-300000813672us-gaap:EmployeeStockOptionMember2024-07-012024-09-300000813672us-gaap:EmployeeStockOptionMember2023-07-012023-09-300000813672us-gaap:EmployeeStockOptionMember2024-01-012024-09-300000813672us-gaap:EmployeeStockOptionMember2023-01-012023-09-300000813672us-gaap:RestrictedStockMember2024-07-012024-09-300000813672us-gaap:RestrictedStockMember2023-07-012023-09-300000813672us-gaap:RestrictedStockMember2024-01-012024-09-300000813672us-gaap:RestrictedStockMember2023-01-012023-09-300000813672cdns:PrivatelyHeldCompanyEquityMethodMember2024-09-300000813672cdns:PrivatelyHeldCompanyEquityMethodMember2023-12-310000813672cdns:PrivatelyHeldCompanyEquityMethodMember2024-07-012024-09-300000813672cdns:PrivatelyHeldCompanyEquityMethodMember2024-01-012024-09-300000813672cdns:PrivatelyHeldCompanyEquityMethodMember2023-07-012023-09-300000813672cdns:PrivatelyHeldCompanyEquityMethodMember2023-01-012023-09-300000813672us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2024-09-300000813672us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2023-12-310000813672us-gaap:MoneyMarketFundsMember2024-09-300000813672us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMember2024-09-300000813672us-gaap:FairValueInputsLevel2Memberus-gaap:MoneyMarketFundsMember2024-09-300000813672us-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2024-09-300000813672us-gaap:FairValueInputsLevel1Member2024-09-300000813672us-gaap:FairValueInputsLevel2Member2024-09-300000813672us-gaap:FairValueInputsLevel3Member2024-09-300000813672us-gaap:FairValueInputsLevel1Memberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2024-09-300000813672us-gaap:FairValueInputsLevel2Memberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2024-09-300000813672us-gaap:FairValueInputsLevel3Memberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2024-09-300000813672us-gaap:MoneyMarketFundsMember2023-12-310000813672us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMember2023-12-310000813672us-gaap:FairValueInputsLevel2Memberus-gaap:MoneyMarketFundsMember2023-12-310000813672us-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2023-12-310000813672us-gaap:FairValueInputsLevel1Member2023-12-310000813672us-gaap:FairValueInputsLevel2Member2023-12-310000813672us-gaap:FairValueInputsLevel3Member2023-12-310000813672us-gaap:FairValueInputsLevel1Memberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2023-12-310000813672us-gaap:FairValueInputsLevel2Memberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2023-12-310000813672us-gaap:FairValueInputsLevel3Memberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2023-12-310000813672cdns:A2024AcquisitionsMember2024-01-012024-09-300000813672cdns:A2024AcquisitionsMemberus-gaap:FairValueInputsLevel3Memberus-gaap:TechnologyBasedIntangibleAssetsMemberus-gaap:MeasurementInputDiscountRateMember2024-01-012024-09-300000813672cdns:A2024AcquisitionsMembersrt:MinimumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:CustomerRelationshipsMemberus-gaap:MeasurementInputDiscountRateMember2024-01-012024-09-300000813672cdns:A2024AcquisitionsMembersrt:MaximumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:CustomerRelationshipsMemberus-gaap:MeasurementInputDiscountRateMember2024-01-012024-09-300000813672us-gaap:TreasuryLockMember2024-09-050000813672country:US2024-07-012024-09-300000813672country:US2023-07-012023-09-300000813672country:US2024-01-012024-09-300000813672country:US2023-01-012023-09-300000813672cdns:OtherAmericaMember2024-07-012024-09-300000813672cdns:OtherAmericaMember2023-07-012023-09-300000813672cdns:OtherAmericaMember2024-01-012024-09-300000813672cdns:OtherAmericaMember2023-01-012023-09-300000813672srt:AmericasMember2024-07-012024-09-300000813672srt:AmericasMember2023-07-012023-09-300000813672srt:AmericasMember2024-01-012024-09-300000813672srt:AmericasMember2023-01-012023-09-300000813672country:CN2024-07-012024-09-300000813672country:CN2023-07-012023-09-300000813672country:CN2024-01-012024-09-300000813672country:CN2023-01-012023-09-300000813672cdns:OtherAsiaMember2024-07-012024-09-300000813672cdns:OtherAsiaMember2023-07-012023-09-300000813672cdns:OtherAsiaMember2024-01-012024-09-300000813672cdns:OtherAsiaMember2023-01-012023-09-300000813672srt:AsiaMember2024-07-012024-09-300000813672srt:AsiaMember2023-07-012023-09-300000813672srt:AsiaMember2024-01-012024-09-300000813672srt:AsiaMember2023-01-012023-09-300000813672us-gaap:EMEAMember2024-07-012024-09-300000813672us-gaap:EMEAMember2023-07-012023-09-300000813672us-gaap:EMEAMember2024-01-012024-09-300000813672us-gaap:EMEAMember2023-01-012023-09-300000813672country:JP2024-07-012024-09-300000813672country:JP2023-07-012023-09-300000813672country:JP2024-01-012024-09-300000813672country:JP2023-01-012023-09-300000813672country:US2024-09-300000813672country:US2023-12-310000813672cdns:OtherAmericaMember2024-09-300000813672cdns:OtherAmericaMember2023-12-310000813672srt:AmericasMember2024-09-300000813672srt:AmericasMember2023-12-310000813672country:CN2024-09-300000813672country:CN2023-12-310000813672cdns:OtherAsiaMember2024-09-300000813672cdns:OtherAsiaMember2023-12-310000813672srt:AsiaMember2024-09-300000813672srt:AsiaMember2023-12-310000813672us-gaap:EMEAMember2024-09-300000813672us-gaap:EMEAMember2023-12-310000813672country:JP2024-09-300000813672country:JP2023-12-310000813672cdns:ChinChiTengMember2024-07-012024-09-300000813672cdns:ChinChiTengMember2024-09-300000813672cdns:AnirudhDevganMember2024-07-012024-09-300000813672cdns:AnirudhDevganMember2024-09-300000813672cdns:KarnaNisewanerMember2024-07-012024-09-300000813672cdns:KarnaNisewanerMember2024-09-300000813672cdns:PaulScannellMember2024-07-012024-09-300000813672cdns:PaulScannellMember2024-09-300000813672cdns:AnirudhDevganTradingArrangementPerformanceStockAwardsMembercdns:AnirudhDevganMember2024-09-300000813672cdns:PaulScannellTradingArrangementPerformanceStockAwardsMemberMembercdns:PaulScannellMember2024-09-30
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 September 30, 2024
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
_____________________________________
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 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 (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 Filer | ☒ | | Accelerated Filer | ☐ | | Smaller Reporting Company | ☐ | |
| | | |
Non-accelerated Filer | ☐ | | | | | 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
On September 30, 2024, approximately 274,263,000 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 |
| September 30, 2024 | | December 31, 2023 |
ASSETS |
Current assets: | | | |
Cash and cash equivalents | $ | 2,786,040 | | | $ | 1,008,152 | |
Receivables, net | 560,973 | | | 489,224 | |
Inventories | 293,350 | | | 181,661 | |
Prepaid expenses and other | 459,560 | | | 297,180 | |
Total current assets | 4,099,923 | | | 1,976,217 | |
Property, plant and equipment, net | 448,652 | | | 403,213 | |
Goodwill | 2,493,467 | | | 1,535,845 | |
Acquired intangibles, net | 662,343 | | | 336,843 | |
Deferred taxes | 889,939 | | | 880,001 | |
Other assets | 572,707 | | | 537,372 | |
Total assets | $ | 9,167,031 | | | $ | 5,669,491 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: | | | |
| | | |
Current portion of long-term debt | $ | 349,958 | | | $ | 349,285 | |
Accounts payable and accrued liabilities | 627,200 | | | 576,558 | |
Current portion of deferred revenue | 697,836 | | | 665,024 | |
Total current liabilities | 1,674,994 | | | 1,590,867 | |
Long-term liabilities: | | | |
Long-term portion of deferred revenue | 102,439 | | | 98,931 | |
Long-term debt | 2,475,232 | | | 299,771 | |
Other long-term liabilities | 351,028 | | | 275,651 | |
Total long-term liabilities | 2,928,699 | | | 674,353 | |
Commitments and contingencies (Note 15) | | | |
Stockholders’ equity: | | | |
Common stock and capital in excess of par value | 4,067,586 | | | 3,166,964 | |
Treasury stock, at cost | (5,141,957) | | | (4,604,323) | |
Retained earnings | 5,651,658 | | | 4,936,384 | |
Accumulated other comprehensive loss | (13,949) | | | (94,754) | |
Total stockholders’ equity | 4,563,338 | | | 3,404,271 | |
Total liabilities and stockholders’ equity | $ | 9,167,031 | | | $ | 5,669,491 | |
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 | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
Revenue: | | | | | | | |
Product and maintenance | $ | 1,100,380 | | | $ | 965,840 | | | $ | 2,974,222 | | | $ | 2,852,372 | |
Services | 115,119 | | | 57,254 | | | 311,061 | | | 168,991 | |
Total revenue | 1,215,499 | | | 1,023,094 | | | 3,285,283 | | | 3,021,363 | |
Costs and expenses: | | | | | | | |
Cost of product and maintenance | 109,593 | | | 85,813 | | | 279,351 | | | 260,269 | |
Cost of services | 53,451 | | | 23,768 | | | 148,160 | | | 70,642 | |
Marketing and sales | 189,763 | | | 176,215 | | | 557,077 | | | 509,951 | |
Research and development | 407,369 | | | 369,642 | | | 1,157,067 | | | 1,074,353 | |
General and administrative | 71,581 | | | 58,556 | | | 203,733 | | | 166,688 | |
Amortization of acquired intangibles | 9,148 | | | 4,612 | | | 21,222 | | | 13,181 | |
Restructuring | 24,538 | | | 11,582 | | | 24,785 | | | 11,582 | |
Total costs and expenses | 865,443 | | | 730,188 | | | 2,391,395 | | | 2,106,666 | |
Income from operations | 350,056 | | | 292,906 | | | 893,888 | | | 914,697 | |
Interest expense | (24,495) | | | (9,059) | | | (46,092) | | | (27,196) | |
Other income, net | 7,853 | | | 16,106 | | | 111,371 | | | 32,363 | |
Income before provision for income taxes | 333,414 | | | 299,953 | | | 959,167 | | | 919,864 | |
Provision for income taxes | 95,303 | | | 45,632 | | | 243,893 | | | 202,619 | |
Net income | $ | 238,111 | | | $ | 254,321 | | | $ | 715,274 | | | $ | 717,245 | |
Net income per share – basic | $ | 0.87 | | | $ | 0.94 | | | $ | 2.64 | | | $ | 2.66 | |
Net income per share – diluted | $ | 0.87 | | | $ | 0.93 | | | $ | 2.61 | | | $ | 2.63 | |
Weighted average common shares outstanding – basic | 272,244 | | | 269,229 | | | 270,925 | | | 269,480 | |
Weighted average common shares outstanding – diluted | 273,958 | | | 272,427 | | | 273,679 | | | 272,859 | |
See notes to condensed consolidated financial statements.
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
Net income | $ | 238,111 | | | $ | 254,321 | | | $ | 715,274 | | | $ | 717,245 | |
Other comprehensive income (loss), net of tax effects: | | | | | | | |
Foreign currency translation adjustments | 101,297 | | | (21,692) | | | 87,330 | | | (20,546) | |
Changes in defined benefit plan liabilities | (92) | | | 132 | | | 31 | | | 537 | |
Unrealized losses on derivatives designated as hedging instruments | (7,131) | | | — | | | (7,131) | | | — | |
Unrealized gains (losses) on available-for-sale debt securities | 1,154 | | | (991) | | | 575 | | | (1,415) | |
Total other comprehensive income (loss), net of tax effects | 95,228 | | | (22,551) | | | 80,805 | | | (21,424) | |
Comprehensive income | $ | 333,339 | | | $ | 231,770 | | | $ | 796,079 | | | $ | 695,821 | |
See notes to condensed consolidated financial statements.
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2024 |
| Common Stock | | | | | | | | |
| | | Par Value | | | | | | Accumulated | | |
| | | and Capital | | | | | | Other | | |
| | | in Excess | | Treasury | | Retained | | Comprehensive | | |
| Shares | | of Par | | Stock | | Earnings | | Loss | | Total |
Balance, June 30, 2024 | 273,820 | | | $ | 3,928,477 | | | $ | (4,971,955) | | | $ | 5,413,547 | | | $ | (109,177) | | | $ | 4,260,892 | |
Net income | — | | | — | | | — | | | 238,111 | | | — | | | $ | 238,111 | |
Other comprehensive income, net of taxes | — | | | — | | | — | | | — | | | 95,228 | | | $ | 95,228 | |
Purchase of treasury stock | (563) | | | — | | | (150,008) | | | — | | | — | | | $ | (150,008) | |
| | | | | | | | | | | |
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures | 1,145 | | | 41,736 | | | 18,925 | | | — | | | — | | | $ | 60,661 | |
| | | | | | | | | | | |
Stock received for payment of employee taxes on vesting of restricted stock | (139) | | | (11,640) | | | (38,919) | | | — | | | — | | | $ | (50,559) | |
Stock-based compensation expense | — | | | 109,013 | | | — | | | — | | | — | | | $ | 109,013 | |
Balance, September 30, 2024 | 274,263 | | | $ | 4,067,586 | | | $ | (5,141,957) | | | $ | 5,651,658 | | | $ | (13,949) | | | $ | 4,563,338 | |
| | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
| Common Stock | | | | | | | | |
| | | Par Value | | | | | | Accumulated | | |
| | | and Capital | | | | | | Other | | |
| | | in Excess | | Treasury | | Retained | | Comprehensive | | |
| Shares | | of Par | | Stock | | Earnings | | Loss | | Total |
Balance, June 30, 2023 | 271,790 | | | $ | 2,897,885 | | | $ | (4,257,084) | | | $ | 4,358,164 | | | $ | (90,510) | | | $ | 2,908,455 | |
Net income | — | | | — | | | — | | | 254,321 | | | — | | | $ | 254,321 | |
Other comprehensive loss, net of taxes | — | | | — | | | — | | | — | | | (22,551) | | | $ | (22,551) | |
Purchase of treasury stock | (811) | | | — | | | (125,008) | | | — | | | — | | | $ | (125,008) | |
Equity forward contract | — | | | 61,688 | | | (61,688) | | | — | | | — | | | $ | — | |
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures | 1,230 | | | 39,810 | | | 14,029 | | | — | | | — | | | $ | 53,839 | |
Stock received for payment of employee taxes on vesting of restricted stock | (147) | | | (9,461) | | | (33,733) | | | — | | | — | | | $ | (43,194) | |
Stock-based compensation expense | — | | | 88,032 | | | — | | | — | | | — | | | $ | 88,032 | |
Balance, September 30, 2023 | 272,062 | | | $ | 3,077,954 | | | $ | (4,463,484) | | | $ | 4,612,485 | | | $ | (113,061) | | | $ | 3,113,894 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Nine Months Ended September 30, 2024 |
| Common Stock | | | | | | | | |
| | | Par Value | | | | | | Accumulated | | |
| | | and Capital | | | | | | Other | | |
| | | in Excess | | Treasury | | Retained | | Comprehensive | | |
| Shares | | of Par | | Stock | | Earnings | | Loss | | Total |
Balance, December 31, 2023 | 271,706 | | | $ | 3,166,964 | | | $ | (4,604,323) | | | $ | 4,936,384 | | | $ | (94,754) | | | $ | 3,404,271 | |
Net income | — | | | — | | | — | | | 715,274 | | | — | | | $ | 715,274 | |
Other comprehensive income, net of taxes | — | | | — | | | — | | | — | | | 80,805 | | | $ | 80,805 | |
Purchase of treasury stock | (1,411) | | | — | | | (400,018) | | | — | | | — | | | $ | (400,018) | |
| | | | | | | | | | | |
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures | 2,873 | | | 141,777 | | | 52,156 | | | — | | | — | | | $ | 193,933 | |
Issuance of common stock in a business combination | 1,741 | | | 501,824 | | | — | | | — | | | — | | | $ | 501,824 | |
Stock received for payment of employee taxes on vesting of restricted stock | (646) | | | (27,690) | | | (189,772) | | | — | | | — | | | $ | (217,462) | |
Stock-based compensation expense | — | | | 284,711 | | | — | | | — | | | — | | | $ | 284,711 | |
Balance, September 30, 2024 | 274,263 | | | $ | 4,067,586 | | | $ | (5,141,957) | | | $ | 5,651,658 | | | $ | (13,949) | | | $ | 4,563,338 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| Common Stock | | | | | | | | |
| | | Par Value | | | | | | Accumulated | | |
| | | and Capital | | | | | | Other | | |
| | | in Excess | | Treasury | | Retained | | Comprehensive | | |
| Shares | | of Par | | Stock | | Earnings | | Loss | | Total |
Balance, December 31, 2022 | 272,675 | | | $ | 2,765,673 | | | $ | (3,824,163) | | | $ | 3,895,240 | | | $ | (91,637) | | | $ | 2,745,113 | |
Net income | — | | | — | | | — | | | 717,245 | | | — | | | $ | 717,245 | |
Other comprehensive loss, net of taxes | — | | | — | | | — | | | — | | | (21,424) | | | $ | (21,424) | |
Purchase of treasury stock | (2,657) | | | — | | | (515,127) | | | — | | | — | | | $ | (515,127) | |
Equity forward contract | — | | | 1,688 | | | (61,688) | | | — | | | — | | | $ | (60,000) | |
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures | 2,527 | | | 91,894 | | | 39,447 | | | — | | | — | | | $ | 131,341 | |
Stock received for payment of employee taxes on vesting of restricted stock | (483) | | | (20,229) | | | (101,953) | | | — | | | — | | | $ | (122,182) | |
Stock-based compensation expense | — | | | 238,928 | | | — | | | — | | | — | | | $ | 238,928 | |
Balance, September 30, 2023 | 272,062 | | | $ | 3,077,954 | | | $ | (4,463,484) | | | $ | 4,612,485 | | | $ | (113,061) | | | $ | 3,113,894 | |
See notes to condensed consolidated financial statements.
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) | | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2024 | | September 30, 2023 |
Cash and cash equivalents at beginning of period | $ | 1,008,152 | | | $ | 882,325 | |
Cash flows from operating activities: | | | |
Net income | 715,274 | | | 717,245 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 142,252 | | | 106,783 | |
Amortization of debt discount and fees | 2,381 | | | 942 | |
Stock-based compensation | 284,711 | | | 238,928 | |
Gain on investments, net | (64,458) | | | (12,732) | |
Deferred income taxes | (5,082) | | | (23,506) | |
Provisions for losses on receivables | 1,124 | | | 1,692 | |
ROU asset amortization and change in operating lease liabilities | (1,100) | | | (2,684) | |
Other non-cash items | 309 | | | 1,962 | |
Changes in operating assets and liabilities, net of effect of acquired businesses: | | | |
Receivables | (44,766) | | | 50,024 | |
Inventories | (139,179) | | | (47,293) | |
Prepaid expenses and other | (114,785) | | | 33,307 | |
Other assets | (8,759) | | | (26,580) | |
Accounts payable and accrued liabilities | 21,858 | | | 43,111 | |
Deferred revenue | 6,680 | | | (14,628) | |
Other long-term liabilities | 22,732 | | | 10,514 | |
Net cash provided by operating activities | 819,192 | | | 1,077,085 | |
Cash flows from investing activities: | | | |
Purchases of investments | (2,095) | | | (145,150) | |
Proceeds from the sale and maturity of investments | 45,656 | | | 64,174 | |
Purchases of property, plant and equipment | (105,340) | | | (68,634) | |
| | | |
Cash paid in business combinations, net of cash acquired | (735,327) | | | (163,963) | |
Net cash used for investing activities | (797,106) | | | (313,573) | |
Cash flows from financing activities: | | | |
| | | |
Proceeds from revolving credit facility | — | | | 50,000 | |
Payments on revolving credit facility | — | | | (150,000) | |
Proceeds from issuance of debt | 3,196,595 | | | — | |
Payment of term loans | (1,000,000) | | | — | |
Payment of debt issuance costs | (22,669) | | | — | |
Proceeds from issuance of common stock | 193,933 | | | 131,341 | |
Stock received for payment of employee taxes on vesting of restricted stock | (217,462) | | | (122,182) | |
Payments for repurchases of common stock | (400,018) | | | (575,127) | |
Net cash provided by (used for) financing activities | 1,750,379 | | | (665,968) | |
Effect of exchange rate changes on cash and cash equivalents | 5,423 | | | (17,887) | |
Increase in cash and cash equivalents | 1,777,888 | | | 79,657 | |
Cash and cash equivalents at end of period | $ | 2,786,040 | | | $ | 961,982 | |
| | | |
Supplemental cash flow information: | | | |
Cash paid for interest | $ | 35,323 | | | $ | 22,226 | |
Cash paid for income taxes, net | 296,117 | | | 104,721 | |
| | | |
| | | |
| | | |
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 December 31, 2023.
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 or other periods. 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.
Fiscal Year End
Cadence’s fiscal year end is December 31, and its fiscal quarters end on March 31, June 30, and September 30.
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.
Despite continued uncertainty and disruption in the macroeconomic and geopolitical environment, 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 October 29, 2024, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events or developments occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Recently Adopted Accounting Standards
Cadence has not recently adopted any accounting standard updates that are material or potentially material to its condensed consolidated financial statements.
New Accounting Standards Not Yet Adopted
Segment Reporting
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” intended to improve reportable segment disclosure requirements, primarily through enhanced annual and interim disclosures about significant segment expenses. This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Cadence is currently evaluating the impact of adopting this standard on its financial statement disclosures.
Income Taxes
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This standard is effective for fiscal years beginning after December 15, 2024, and may be applied on a retrospective or prospective basis. Cadence is currently evaluating the impact of adopting this standard on its financial statement disclosures.
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 nine months ended September 30, 2024 and September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
Custom Integrated Circuit (“IC”) Design and Simulation | 19 | % | | 22 | % | | 20 | % | | 21 | % |
Digital IC Design and Signoff | 24 | % | | 28 | % | | 27 | % | | 27 | % |
Functional Verification, including Emulation and Prototyping Hardware* | 27 | % | | 26 | % | | 26 | % | | 29 | % |
Intellectual Property (“IP”) | 14 | % | | 11 | % | | 13 | % | | 11 | % |
System Design and Analysis | 16 | % | | 13 | % | | 14 | % | | 12 | % |
Total | 100 | % | | 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 single customer accounted for 10% or more of total revenue during the three and nine months ended September 30, 2024 or September 30, 2023.
Recurring revenue includes revenue recognized over time from Cadence’s 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, individual IP licenses and certain software licenses.
The percentage of Cadence’s recurring and up-front revenue in any single fiscal period is primarily impacted by delivery of hardware and IP products to its customers.
The following table shows the percentage of Cadence’s revenue that is classified as recurring or up-front for the three and nine months ended September 30, 2024 and September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
Revenue recognized over time | 80 | % | | 83 | % | | 83 | % | | 80 | % |
Revenue from arrangements with non-cancelable commitments | 2 | % | | 2 | % | | 3 | % | | 3 | % |
Recurring revenue | 82 | % | | 85 | % | | 86 | % | | 83 | % |
Up-front revenue | 18 | % | | 15 | % | | 14 | % | | 17 | % |
Total | 100 | % | | 100 | % | | 100 | % | | 100 | % |
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 stand-alone 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.
Cadence’s contract balances as of September 30, 2024 and December 31, 2023 were as follows:
| | | | | | | | | | | |
| As of |
| September 30, 2024 | | December 31, 2023 |
| | | |
| (In thousands) |
| | | |
Contract assets | $ | 51,285 | | | $ | 17,554 | |
Deferred revenue | 800,275 | | | 763,955 | |
Cadence recognized revenue of $106.1 million and $616.4 million during the three and nine months ended September 30, 2024, and $106.6 million and $632.4 million during the three and nine months ended September 30, 2023, that was included in the deferred revenue balance at the beginning of each respective fiscal year. All other activity in deferred revenue, with the exception of deferred revenue assumed from acquisitions, 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 September 30, 2024, which included $0.5 billion 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.
Cadence estimates its remaining performance obligations at a point in time. Actual amounts and timing of revenue recognition may differ from these estimates largely due to changes in actual installation and delivery dates, as well as contract renewals, modifications and terminations. As of September 30, 2024, Cadence expected to recognize 57% of the contracted but unsatisfied performance obligations, excluding non-cancelable commitments, as revenue over the next 12 months, 40% over the next 13 to 36 months and the remainder thereafter.
Cadence recognized revenue of $20.1 million and $50.2 million during the three and nine months ended September 30, 2024, and $13.5 million and $40.3 million during the three and nine months ended September 30, 2023, 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 September 30, 2024 and December 31, 2023 were as follows:
| | | | | | | | | | | |
| As of |
| September 30, 2024 | | December 31, 2023 |
| (In thousands) |
Accounts receivable | $ | 322,363 | | | $ | 299,814 | |
Unbilled accounts receivable | 243,951 | | | 193,963 | |
Long-term receivables | 16,254 | | | 10,755 | |
Total receivables | 582,568 | | | 504,532 | |
Less allowance for doubtful accounts | (5,341) | | | (4,553) | |
Total receivables, net | $ | 577,227 | | | $ | 499,979 | |
Cadence’s customers are primarily concentrated within the semiconductor and electronics systems industries. As of September 30, 2024 and December 31, 2023, no single customer accounted for 10% or more of Cadence’s total receivables.
NOTE 4. DEBT
Cadence’s outstanding debt was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
| (In thousands) |
| Principal | | Unamortized Discount and Issuance Costs | | Carrying Value | | Principal | | Unamortized Discount and Issuance Costs | | Carrying Value |
| | | | | | | | | | | |
2024 Notes | 350,000 | | | (42) | | | 349,958 | | | 350,000 | | | (715) | | | 349,285 | |
2025 Term Loan | — | | | — | | | — | | | 300,000 | | | (229) | | | 299,771 | |
2027 Notes | 500,000 | | | (3,479) | | | 496,521 | | | — | | | — | | | — | |
2029 Notes | 1,000,000 | | | (10,127) | | | 989,873 | | | — | | | — | | | — | |
2034 Notes | 1,000,000 | | | (11,162) | | | 988,838 | | | — | | | — | | | — | |
Total outstanding debt | $ | 2,850,000 | | | $ | (24,810) | | | $ | 2,825,190 | | | $ | 650,000 | | | $ | (944) | | | $ | 649,056 | |
Senior Notes
In October 2014, Cadence issued $350.0 million aggregate principal amount of 4.375% Senior Notes due October 15, 2024 (the “2024 Notes”). As of September 30, 2024 and December 31, 2023, the carrying value of the 2024 Notes was classified as a current liability on Cadence’s condensed consolidated balance sheet. As of September 30, 2024, the fair value of the 2024 Notes was approximately $349.6 million.
Subsequent to the balance sheet date, on October 15, 2024, Cadence settled the outstanding principal of $350.0 million and accrued interest on its 2024 Notes.
In September 2024, Cadence issued $500.0 million aggregate principal amount of 4.200% Senior Notes due September 10, 2027 (the “2027 Notes”). Cadence received net proceeds of $496.5 million from the issuance of the 2027 Notes, net of a discount of $0.1 million and issuance costs of $3.5 million. As of September 30, 2024, the fair value of the 2027 Notes was approximately $502.4 million.
In September 2024, Cadence issued $1.0 billion aggregate principal amount of 4.300% Senior Notes due September 10, 2029 (the “2029 Notes”). Cadence received net proceeds of $989.8 million from the issuance of the 2029 Notes, net of a discount of $1.4 million and issuance costs of $8.8 million. As of September 30, 2024, the fair value of the 2029 Notes was approximately $1.0 billion.
In September 2024, Cadence issued $1.0 billion aggregate principal amount of 4.700% Senior Notes due September 10, 2034 (the “2034 Notes,” and together with the 2027 Notes and the 2029 Notes, the “New Notes”, and together with the 2024 Notes, the “Senior Notes”). Cadence received net proceeds of $988.8 million from the issuance of the 2034 Notes, net of a discount of $1.9 million and issuance costs of $9.3 million. As of September 30, 2024, the fair value of the 2034 Notes was approximately $1.0 billion.
Cadence may redeem the New Notes, in whole or in part, at any time or from time to time, at redemption prices specified in the governing indenture. In addition, Cadence may be required to repurchase New Notes upon occurrence of a change of control triggering event, as set forth in the governing indenture.
The indentures governing Cadence’s Senior Notes include customary representations, warranties and restrictive covenants, including, but not limited to, restrictions on Cadence’s ability to grant liens on certain assets, enter into certain sale and lease-back transactions, or merge, consolidate or sell assets, and also includes customary events of default.
Both the discount and issuance costs are being amortized to interest expense over the term of Cadence’s Senior Notes using the effective interest method. Interest is payable in cash semi-annually. Interest on the 2027 Notes, the 2029 Notes and the 2034 Notes is payable semi-annually in arrears in March and September of each year, beginning March 2025. Cadence’s Senior Notes are unsecured and rank equal in right of payment to all of Cadence’s existing and future senior indebtedness. As of September 30, 2024, Cadence was in compliance with all covenants associated with the Senior Notes.
Term Loans
In September 2022, Cadence entered into a $300.0 million three-year senior non-amortizing term loan facility due on September 7, 2025 with a group of lenders led by Bank of America, N.A., as administrative agent (the “2025 Term Loan”). Proceeds from the loan were used to fund Cadence’s acquisition of OpenEye Scientific Software, Inc. in fiscal 2022. Debt issuance costs associated with the 2025 Term Loan were not material.
In May 2024, Cadence entered into a $700.0 million two-year senior non-amortizing term loan facility due on May 30, 2026 with a group of lenders led by Bank of America, N.A., as administrative agent (the “2026 Term Loan”). All proceeds from the 2026 Term Loan were used to finance Cadence’s acquisition of BETA CAE Systems International AG (“BETA CAE”). Debt issuance costs associated with the 2026 Term Loan were not material.
In September 2024, Cadence used a portion of the net proceeds from the New Notes to fully prepay the outstanding principal and accrued interest of both the 2025 Term Loan and the 2026 Term Loan.
Revolving Credit Facility
In August 2024, Cadence terminated its existing revolving credit facility, dated June 30, 2021, and amended in September 2022, and 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 “2024 Credit Facility”). The 2024 Credit Facility provides for borrowings up to $1.25 billion, with the right to request increased capacity up to an additional $500.0 million upon the receipt of lender commitments, for total maximum borrowings of $1.75 billion. The 2024 Credit Facility expires on August 14, 2029. Any outstanding loans drawn under the 2024 Credit Facility are due at maturity on August 14, 2029, subject to an option to extend the maturity date. Outstanding borrowings may be repaid at any time prior to maturity. Cadence paid debt issuance costs of $1.3 million that were recorded to other assets in Cadence’s condensed consolidated balance sheet at the inception of the agreement. The debt issuance costs will be amortized to interest expense over the term of the 2024 Credit Facility. As of September 30, 2024, there were no outstanding borrowings under the 2024 Credit Facility.
Interest accrues on borrowings under the 2024 Credit Facility at a rate equal to, at Cadence’s option, either (1) secured overnight financing rate (“SOFR”) plus a margin between 0.625% and 1.125% per annum, determined by reference to the credit rating of Cadence’s unsecured debt, plus a SOFR adjustment of 0.10% or (2) the base rate plus a margin between 0.000% and 0.125% per annum, determined by reference to the credit rating of Cadence’s unsecured debt. Interest is payable quarterly. A commitment fee ranging from 0.050% to 0.125% is assessed on the daily average undrawn portion of revolving commitments. Borrowings bear interest at what is estimated to be current market rates of interest. Accordingly, the carrying value of the 2024 Credit Facility approximates fair value.
The 2024 Credit Facility contains customary negative covenants that, among other things, restrict Cadence’s ability to incur additional indebtedness, grant liens and make certain asset dispositions. In addition, the 2024 Credit Facility contains financial covenants that require Cadence to maintain a funded debt to EBITDA ratio not greater than 3.5 to 1, with a step up to 4 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 3.25 to 1 and 3.75 to 1. As of September 30, 2024, Cadence was in compliance with all covenants associated with the 2024 Credit Facility.
NOTE 5. ACQUISITIONS
Acquisition of BETA CAE
On May 30, 2024, Cadence acquired all of the outstanding equity of BETA CAE, a system analysis platform provider of multi-domain, engineering simulation solutions. The aggregate purchase consideration for Cadence’s acquisition of BETA CAE, net of cash acquired of $91.3 million, was $1.14 billion. The aggregate purchase consideration was comprised of $636.2 million of cash and non-cash consideration of 1.74 million shares of Cadence common stock with an aggregate acquisition date fair value of $501.8 million. The addition of BETA CAE’s technologies and talent is intended to accelerate Cadence’s Intelligent System Design™ strategy by expanding its multiphysics system analysis portfolio and enabling entry into the structural analysis space.
In connection with its acquisition of BETA CAE, Cadence paid an additional $55.8 million to a third-party escrow agent that will be released to certain former BETA CAE shareholders, now employed by Cadence, through the second quarter of fiscal 2026. The release of these funds is subject to continuous service and other conditions and is accounted for over the required service period as post-acquisition compensation expense in Cadence’s condensed consolidated income statements.
The total purchase consideration was allocated to the assets acquired and liabilities assumed with Cadence’s acquisition of BETA CAE based on their respective fair values on the acquisition date as follows:
| | | | | |
| Fair Value |
| (In thousands) |
Current assets | $ | 118,676 | |
Goodwill | 830,795 | |
Acquired intangibles | 345,000 | |
Other long-term assets | 18,198 | |
Total assets acquired | 1,312,669 | |
Current liabilities | 38,039 | |
Long-term liabilities | 45,395 | |
Total liabilities assumed | 83,434 | |
Total purchase consideration | $ | 1,229,235 | |
The recorded goodwill is attributed to intangible assets that do not qualify for separate recognition, including the acquired assembled workforce, and is expected to be deductible for U.S. income tax purposes.
Definite-lived intangible assets acquired with Cadence’s acquisition of BETA CAE were as follows:
| | | | | | | | | | | |
| Fair Value | | Weighted Average Amortization Period |
| (In thousands) | | (in years) |
Existing technology | $ | 140,000 | | | 6.0 years |
Agreements and relationships | 190,000 | | | 15.0 years |
Tradenames, trademarks and patents | 15,000 | | | 7.0 years |
Total acquired intangibles with definite lives | $ | 345,000 | | | 11.0 years |
| | | |
| | | |
As of September 30, 2024, the allocation of purchase consideration to the acquired assets and assumed liabilities from BETA CAE was preliminary. Cadence will continue to evaluate the estimates and assumptions used to derive the fair value of certain acquired assets and assumed liabilities, primarily related to contracts with customers and income taxes, during the measurement period (up to one year from the acquisition date). The allocation of purchase consideration may change materially as additional information about conditions existing at the acquisition date becomes available.
Acquisition of Invecas, Inc.
On January 8, 2024, Cadence acquired all of the outstanding equity of Invecas, Inc. (“Invecas”), a provider of design engineering, embedded software and system-level solutions. The aggregate cash consideration for Cadence’s acquisition of Invecas, net of cash acquired of $23.8 million, was $71.2 million. The acquisition adds a skilled system design engineering team to Cadence, with expertise in providing customers with custom solutions across chip design, product engineering, advanced packaging and embedded software. In connection with its acquisition of Invecas, Cadence paid an additional amount to a third-party escrow agent that will be released to certain former Invecas shareholders, now employed by Cadence, through the first quarter of fiscal 2028. The release of these funds is subject to continuous service and other conditions and is accounted for over the required service period as post-acquisition compensation expense in Cadence’s condensed consolidated income statements.
The total purchase consideration was allocated to the assets acquired and liabilities assumed with Cadence’s acquisition of Invecas based on their respective fair values on the acquisition date as follows:
| | | | | |
| Fair Value |
| (In thousands) |
Current assets | $ | 50,608 | |
Goodwill | 42,209 | |
Acquired intangibles | 15,500 | |
Other long-term assets | 24,402 | |
Total assets acquired | 132,719 | |
Current liabilities | 17,114 | |
Long-term liabilities | 20,635 | |
Total liabilities assumed | 37,749 | |
Total purchase consideration | $ | 94,970 | |
As of September 30, 2024, the allocation of purchase consideration to certain assets and liabilities was preliminary. Cadence will continue to evaluate certain estimates and assumptions, primarily related to assumed tax liabilities, during the measurement period (up to one year from the acquisition date). The allocation of purchase consideration may change materially as additional information about conditions existing at the acquisition date becomes available.
The recorded goodwill is attributed to intangible assets that do not qualify for separate recognition, including the acquired assembled workforce, and will not be deductible for tax purposes.
The definite-lived intangible assets acquired with Cadence’s acquisition of Invecas include agreements and relationships of $15.0 million and tradenames of $0.5 million. These assets will be amortized over a weighted average life of 6.8 years.
Other Acquisitions
During the first three quarters of fiscal 2024, Cadence completed two other business combinations for aggregate cash consideration of $28.1 million, net of cash acquired. The total purchase consideration was allocated to assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition dates. Cadence recorded $5.5 million of definite-lived intangible assets with a weighted average amortization period of 4.9 years. Cadence also recognized $25.0 million of goodwill, which is primarily attributed to the assembled workforce of the acquired businesses. The goodwill recognized with these acquisitions is not expected to be deductible for tax purposes.
Pro Forma Financial Information
Cadence has not presented pro forma financial information for its fiscal 2024 acquisitions because the results of operations are not material to Cadence’s condensed consolidated financial statements.
Acquisition-Related Transaction Costs
Transaction costs associated with acquisitions, which consist of professional fees and administrative costs, are expensed as incurred and are included in general and administrative expense in Cadence’s condensed consolidated income statements. During the three and nine months ended September 30, 2024, transaction costs associated with acquisitions were $1.0 million and $13.3 million, respectively. During the three and nine months ended September 30, 2023, transaction costs associated with acquisitions were $4.3 million and $10.3 million, respectively.
NOTE 6. GOODWILL AND ACQUIRED INTANGIBLES
Goodwill
The changes in the carrying amount of goodwill during the nine months ended September 30, 2024 were as follows:
| | | | | |
| Gross Carrying Amount |
| (In thousands) |
Balance as of December 31, 2023 | $ | 1,535,845 | |
Goodwill resulting from acquisitions | 898,053 | |
| |
Effect of foreign currency translation | 59,569 | |
Balance as of September 30, 2024 | $ | 2,493,467 | |
Acquired Intangibles, Net
Acquired intangibles as of September 30, 2024 were as follows:
| | | | | | | | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Acquired Intangibles, Net |
| (In thousands) |
Existing technology | $ | 483,634 | | | $ | (182,912) | | | $ | 300,722 | |
Agreements and relationships | 409,467 | | | (71,290) | | | 338,177 | |
Tradenames, trademarks and patents | 30,003 | | | (6,559) | | | 23,444 | |
| | | | | |
| | | | | |
Total acquired intangibles | $ | 923,104 | | | $ | (260,761) | | | $ | 662,343 | |
During the nine months ended September 30, 2024, Cadence completed certain projects previously included in in-process technology and transferred $6.8 million to existing technology.
Acquired intangibles as of December 31, 2023 were as follows:
| | | | | | | | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Acquired Intangibles, Net |
| (In thousands) |
Existing technology | $ | 325,710 | | | $ | (141,659) | | | $ | 184,051 | |
Agreements and relationships | 198,259 | | | (61,395) | | | 136,864 | |
Tradenames, trademarks and patents | 13,460 | | | (4,332) | | | 9,128 | |
Total acquired intangibles with definite lives | $ | 537,429 | | | $ | (207,386) | | | $ | 330,043 | |
In-process technology | 6,800 | | | — | | | 6,800 | |
Total acquired intangibles | $ | 544,229 | | | $ | (207,386) | | | $ | 336,843 | |
Amortization expense from existing technology and maintenance agreements is included in cost of product and maintenance. Amortization expense for the three and nine months ended September 30, 2024 and September 30, 2023 by condensed consolidated income statement caption was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
| (In thousands) |
Cost of product and maintenance | $ | 17,615 | | | $ | 10,991 | | | $ | 42,451 | | | $ | 31,869 | |
Amortization of acquired intangibles | 9,148 | | | 4,612 | | | 21,222 | | | 13,181 | |
Total amortization of acquired intangibles | $ | 26,763 | | | $ | 15,603 | | | $ | 63,673 | | | $ | 45,050 | |
As of September 30, 2024, the estimated amortization expense for intangible assets with definite lives was as follows for the following five fiscal years and thereafter:
| | | | | |
| (In thousands) |
2024 - remaining period | $ | 27,687 | |
2025 | 97,418 | |
2026 | 91,795 | |
2027 | 88,570 | |
2028 | 84,112 | |
2029 | 69,404 | |
Thereafter | 203,357 | |
Total estimated amortization expense | $ | 662,343 | |
NOTE 7. STOCK-BASED COMPENSATION
Stock-based compensation expense is reflected in Cadence’s condensed consolidated income statements for the three and nine months ended September 30, 2024 and September 30, 2023 as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
| (In thousands) |
Cost of product and maintenance | $ | 1,855 | | | $ | 1,191 | | | $ | 4,487 | | | $ | 3,292 | |
Cost of services | 2,361 | | | 1,516 | | | 5,711 | | | 4,190 | |
Marketing and sales | 21,677 | | | 18,042 | | | 55,513 | | | 48,819 | |
Research and development | 67,857 | | | 53,013 | | | 175,985 | | | 142,142 | |
General and administrative | 15,263 | | | 14,270 | | | 43,015 | | | 40,485 | |
Total stock-based compensation expense | $ | 109,013 | | | $ | 88,032 | | | $ | 284,711 | | | $ | 238,928 | |
Cadence had total unrecognized compensation expense related to stock option and restricted stock grants of $763.1 million as of September 30, 2024, which is expected to be recognized over a weighted average vesting period of 1.9 years.
NOTE 8. STOCK REPURCHASE PROGRAM
Cadence is authorized to repurchase shares of its common stock under a publicly announced program that was most recently increased by its Board of Directors in August 2023. 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 and nine months ended September 30, 2024, Cadence purchased approximately 0.6 million and 1.4 million shares of Cadence stock on the open market for an aggregate purchase price of $150.0 million and $400.0 million, respectively, in accordance with its current authorization from its Board of Directors. As of September 30, 2024, approximately $1.0 billion of Cadence’s share repurchase authorization remained available to repurchase shares of Cadence common stock.
During the three and nine months ended September 30, 2023, Cadence repurchased approximately 0.5 million and 1.8 million shares of Cadence common stock on the open market for an aggregate purchase price of $125.0 million and $375.0 million, respectively.
In June 2023, Cadence also entered into an accelerated share repurchase (“ASR”) agreement with HSBC Bank USA, National Association (“HSBC”) to repurchase an aggregate of $200.0 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. In June 2023, Cadence received an initial share delivery of approximately 0.6 million shares, which represented the number of shares at a market price equal to $140.0 million. An equity-linked contract for $60.0 million, representing the remaining shares to be delivered by HSBC under the ASR agreement, was recorded to stockholders’ equity as of June 30, 2023. In August 2023, the ASR agreement settled and resulted in a delivery of approximately 0.3 million additional shares to Cadence. In total, Cadence received approximately 0.9 million shares under the ASR agreement at an average price per share of $228.26. The shares received were treated as repurchased common stock for purposes of calculating earnings per share.
The shares repurchased under Cadence’s repurchase authorizations, which includes shares repurchased on the open market and under an ASR, and the total cost of repurchased shares, including commissions, during the three and nine months ended September 30, 2024 and September 30, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
| (In thousands) |
Shares repurchased | 563 | | | 811 | | | 1,411 | | | 2,657 | |
Total cost of repurchased shares | $ | 150,008 | | | $ | 185,008 | | | $ | 400,018 | | | $ | 575,127 | |
NOTE 9. RESTRUCTURING
From time to time, Cadence has initiated various restructuring plans in an effort to better align its resources with its business strategy. The most recent of these plans was initiated in August 2024 (the “2024 Restructuring Plan”). The charges incurred with the 2024 Restructuring Plan during the three and nine months ended September 30, 2024 are comprised of severance payments and termination benefits related to headcount reductions and are included in restructuring on Cadence’s condensed consolidated income statements.
The following table presents activity for Cadence’s restructuring plans during the nine months ended September 30, 2024:
| | | | | | | | | | | | | | | | | |
| Severance and Benefits | | Excess Facilities | | Total |
| (In thousands) |
Balance as of December 31, 2023 | $ | 2,603 | | | $ | — | | | $ | 2,603 | |
Restructuring | 23,940 | | | 845 | | | 24,785 | |
Non-cash changes | — | | | (845) | | | (845) | |
Cash payments | (11,644) | | | — | | | (11,644) | |
Effect of foreign currency translation | 50 | | | — | | | 50 | |
Balance as of September 30, 2024 | $ | 14,949 | | | $ | — | | | $ | 14,949 | |
All liabilities for severance and related benefits under the 2024 Restructuring Plan are included in accounts payable and accrued liabilities on Cadence’s condensed consolidated balance sheets as of September 30, 2024. Cadence expects to make cash payments to settle these liabilities through fiscal 2025.
NOTE 10. OTHER INCOME, NET
Cadence’s other income, net, for the three and nine months ended September 30, 2024 and September 30, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
| (In thousands) |
Interest income | $ | 16,933 | | | $ | 8,453 | | | $ | 35,330 | | | $ | 22,253 | |
Gain (loss) on investments | (16,141) | | | 13,289 | | | 64,458 | | | 12,735 | |
Gain (loss) on securities in Non-Qualified Deferred Compensation (“NQDC”) trust | 4,567 | | | (1,749) | | | 10,852 | | | 4,556 | |
Gain (loss) on foreign exchange | 2,779 | | | (3,568) | | | 1,740 | | | (4,649) | |
Other expense, net | (285) | | | (319) | | | (1,009) | | | (2,532) | |
Total other income, net | $ | 7,853 | | | $ | 16,106 | | | $ | 111,371 | | | $ | 32,363 | |
For additional information relating to Cadence’s investment activity, see Note 12 in the notes to condensed consolidated financial statements.
NOTE 11. 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 nine months ended September 30, 2024 and September 30, 2023 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
| (In thousands, except per share amounts) |
Net income | $ | 238,111 | | | $ | 254,321 | | | $ | 715,274 | | | $ | 717,245 | |
Weighted average common shares used to calculate basic net income per share | 272,244 | | | 269,229 | | | 270,925 | | | 269,480 | |
Stock-based awards | 1,714 | | | 3,198 | | | 2,754 | | | 3,379 | |
Weighted average common shares used to calculate diluted net income per share | 273,958 | | | 272,427 | | | 273,679 | | | 272,859 | |
Net income per share - basic | $ | 0.87 | | | $ | 0.94 | | | $ | 2.64 | | | $ | 2.66 | |
Net income per share - diluted | $ | 0.87 | | | $ | 0.93 | | | $ | 2.61 | | | $ | 2.63 | |
The following table presents shares of Cadence’s common stock outstanding for the three and nine months ended September 30, 2024 and September 30, 2023 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 | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
| (In thousands) |
Long-term market-based awards | — | | | 1,866 | | | — | | | 1,841 | |
Options to purchase shares of common stock | 234 | | | 262 | | | 174 | | | 373 | |
Non-vested shares of restricted stock | 1,007 | | | 807 | | | 339 | | | 288 | |
Total potential common shares excluded | 1,241 | | | 2,935 | | | 513 | | | 2,502 | |
NOTE 12. INVESTMENTS
Investments in Equity Securities
Marketable Equity Investments
Cadence’s investments in marketable equity securities consist of purchased shares of publicly held companies and are included in prepaid expenses and other in Cadence’s condensed consolidated balance sheets. Changes in the fair value of these investments are recorded to other income, net in Cadence’s condensed consolidated income statements. The carrying value of marketable equity investments was $104.7 million and $80.6 million as of September 30, 2024 and December 31, 2023, respectively.
Non-Marketable Equity Investments
Cadence’s investments in non-marketable equity securities generally consist of stock or other instruments of privately held entities and are included in other assets on Cadence’s condensed consolidated balance sheets. Cadence holds a 16% interest in a privately held company that is accounted for using the equity method of accounting. The carrying value of this investment was $105.8 million and $111.1 million as of September 30, 2024 and December 31, 2023, respectively.
Cadence records its proportionate share of net income from the investee, offset by amortization of basis differences, to other income, net in Cadence’s condensed consolidated income statements. For the three and nine months ended September 30, 2024, Cadence recognized losses of $1.1 million and $1.7 million, respectively. For the three and nine months ended September 30, 2023, Cadence recognized losses of $1.0 million and $2.2 million, respectively.
Cadence also holds other non-marketable investments in privately held companies where Cadence does not have the ability to exercise significant influence and the fair value of the investments is not readily determinable. The carrying value of these investments was $26.7 million and $27.2 million as of September 30, 2024 and December 31, 2023, respectively. Gains and losses on these investments were not material to Cadence’s condensed consolidated financial statements for the periods presented.
The portion of gains and losses included in Cadence’s condensed consolidated income statements related to equity securities still held at the end of the period were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
| (In thousands) |
Net gains (losses) recognized on equity securities | $ | (16,149) | | | $ | 13,503 | | | $ | 64,600 | | | $ | 12,979 | |
Less: Net gains recognized on equity securities sold | — | | | (12,283) | | | (20,367) | | | (12,283) | |
Net gains (losses) recognized on equity securities still held | $ | (16,149) | | | $ | 1,220 | | | $ | 44,233 | | | $ | 696 | |
Investments in Debt Securities
The following is a summary of Cadence’s available-for-sale debt securities recorded within prepaid expenses and other on its condensed consolidated balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2024 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| (In thousands) |
Available-for-sale debt securities | |
Mortgage-backed and asset-backed securities | $ | 49,850 | | | $ | 784 | | | $ | (77) | | | $ | 50,557 | |
| | | | | | | |
Total available-for-sale securities | $ | 49,850 | | | $ | 784 | | | $ | (77) | | | $ | 50,557 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2023 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| (In thousands) |
Available-for-sale debt securities | |
Mortgage-backed and asset-backed securities | $ | 49,653 | | | $ | 375 | | | $ | (243) | | | $ | 49,785 | |
| | | | | | | |
Total available-for-sale securities | $ | 49,653 | | | $ | 375 | | | $ | (243) | | | $ | 49,785 | |
| | | | | | | |
Gross unrealized gains and losses are recorded as a component of accumulated other comprehensive loss on Cadence's condensed consolidated balance sheets.
As of September 30, 2024, the fair values of available-for-sale debt securities, by remaining contractual maturity, were as follows:
| | | | | |
| (In thousands) |
Due within 1 year | $ | 576 | |
Due after 1 year through 5 years | 9,675 | |
Due after 5 years through 10 years | 17,626 | |
Due after 10 years | 22,680 | |
Total | $ | 50,557 | |
As of September 30, 2024, Cadence did not intend to sell any of its available-for-sale debt securities in an unrealized loss position, and it was more likely than not that Cadence will hold the securities until maturity or a recovery of the cost basis.
NOTE 13. 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 nine months ended September 30, 2024.
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 September 30, 2024 and December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of September 30, 2024 |
| Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Assets | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 1,963,013 | | | $ | 1,963,013 | | | $ | — | | | $ | — | |
Marketable securities: | | | | | | | |
Marketable equity securities | 104,693 | | | 104,693 | | | — | | | — | |
Mortgage-backed and asset-backed securities | 50,557 | | | — | | | 50,557 | | | — | |
| | | | | | | |
Securities held in NQDC trust | 93,984 | | | 93,984 | | | — | | | — | |
Foreign currency exchange contracts | 7,308 | | | — | | | 7,308 | | | — | |
Total Assets | $ | 2,219,555 | | | $ | 2,161,690 | | | $ | 57,865 | | | $ | — | |
| | | | | | | |
| | | | | | | |
| |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
As of September 30, 2024, Cadence did not have any financial liabilities requiring a recurring fair value measurement. |
| | | | | | | |
| Fair Value Measurements as of December 31, 2023 |
| Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Assets | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 490,983 | | | $ | 490,983 | | | $ | — | | | $ | — | |
Marketable securities: | | | | | | | |
Marketable equity securities | 80,575 | | | 80,575 | | | — | | | — | |
Mortgage-backed and asset-backed securities | 49,785 | | | — | | | 49,785 | | | — | |
Securities held in NQDC trust | 75,671 | | | 75,671 | | | — | | | — | |
Foreign currency exchange contracts | 9,327 | | | — | | | 9,327 | | | — | |
Total Assets | $ | 706,341 | | | $ | 647,229 | | | $ | 59,112 | | | $ | — | |
| | | | | | | |
As of December 31, 2023, Cadence did not have any financial liabilities requiring a recurring fair value measurement. |
| | | | | | | |
| |
| |
| | | | | | | |
| | | | | | | |
Level 1 Measurements
Cadence’s cash equivalents held in money market funds, marketable equity securities and the trading securities held in Cadence’s NQDC trust are measured at fair value using Level 1 inputs.
Level 2 Measurements
The valuation techniques used to determine the fair value of Cadence’s investments in marketable debt securities, foreign currency forward exchange contracts and Senior Notes are classified within Level 2 of the fair value hierarchy. For additional information relating to Cadence’s debt arrangements, see Note 4 in the notes to condensed consolidated financial statements.
Level 3 Measurements
During the nine months ended September 30, 2024, Cadence acquired intangible assets of $366.0 million, primarily through its acquisitions of BETA CAE and Invecas. The fair value of the intangible assets acquired was determined using variations of the income approach that utilizes unobservable inputs classified as Level 3 measurements.
For existing technology, the fair value was determined by applying the relief-from-royalty method. This method is based on the application of a royalty rate to forecasted revenue to quantify the benefit of owning the intangible asset rather than paying a royalty for use of the asset. To estimate royalty savings over time, Cadence projected revenue from the acquired existing technology over the estimated remaining life of the technology, including the effect of assumed technological obsolescence, before applying an assumed royalty rate. Cadence assumed technological obsolescence at a rate of 10% annually, before applying an assumed royalty rate of 30%.
For agreements and relationships, the fair value was determined by using the multi-period excess earnings method. This method reflects the present value of the projected cash flows that are expected to be generated from existing customers, less charges representing the contribution of other assets to those cash flows. Projected income from existing customer relationships was determined using customer retention rates between 85% and 92%. The present value of operating cash flows from existing customers was determined using discount rates between 10% and 14%.
NOTE 14. INVENTORY
Cadence’s inventory balances as of September 30, 2024 and December 31, 2023 were as follows:
| | | | | | | | | | | |
| As of |
| September 30, 2024 | | December 31, 2023 |
| (In thousands) |
Inventories: | | | |
Raw materials | $ | 270,934 | | | $ | 162,754 | |
Work-in-process | 722 | | | — | |
Finished goods | 21,694 | | | 18,907 | |
Total inventories | $ | 293,350 | | | $ | 181,661 | |
NOTE 15. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, Cadence is involved in various disputes and litigation that arise in the ordinary course of business. These include disputes and legal proceedings related to intellectual property, indemnification obligations, mergers and acquisitions, licensing, contracts, customers, products, distribution and other commercial arrangements and employee relations matters. Cadence is also subject from time to time to inquiries, investigations and regulatory proceedings involving governments and regulatory agencies in the jurisdictions in which Cadence operates. At least quarterly, Cadence reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount or the range of loss can be estimated, Cadence accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on Cadence’s judgments using the best information available at the time. As additional information becomes available, Cadence reassesses the potential liability related to pending claims and legal proceedings and may revise estimates.
Tax Proceedings
In December 2022, Cadence received a tax audit assessment, primarily related to value-added taxes, of approximately $49 million from the Korea taxing authorities for years 2017-2019. Cadence was required to pay these assessed taxes, prior to being allowed to contest or litigate the assessment in administrative and judicial proceedings. The assessment was paid by Cadence in January 2023 and was recorded as a component of other assets in the condensed consolidated balance sheets. During August 2024, the Tax Tribunal cancelled the entire tax audit assessment, and during the fourth quarter of fiscal 2024, Cadence received a refund of the payment previously made to the Korea taxing authorities plus interest.
Other Contingencies
Cadence provides its customers with a warranty on sales of hardware products, generally for a 90-day period. Cadence did not incur any significant costs related to warranty obligations during the three and nine months ended September 30, 2024 and September 30, 2023.
Cadence’s product license and services agreements typically include a limited indemnification provision for claims from third parties relating to Cadence’s intellectual property. If the potential loss from any indemnification claim is considered probable and the amount or the range of loss can be estimated, Cadence accrues a liability for the estimated loss.
Cadence did not incur any material losses from indemnification claims during the three and nine months ended September 30, 2024 and September 30, 2023.
NOTE 16. ACCUMULATED OTHER COMPREHENSIVE LOSS
Cadence’s accumulated other comprehensive loss is comprised of the aggregate impact of foreign currency translation gains and losses, changes in defined benefit plan liabilities, unrealized losses on derivatives designated as hedging instruments and unrealized gains and losses on available-for-sale debt securities, and is presented in Cadence’s condensed consolidated statements of comprehensive income.
Accumulated other comprehensive loss was comprised of the following as of September 30, 2024 and December 31, 2023:
| | | | | | | | | | | |
| As of |
| September 30, 2024 | | December 31, 2023 |
| (In thousands) |
Foreign currency translation loss | $ | (3,348) | | | $ | (90,678) | |
Changes in defined benefit plan liabilities | (4,177) | | | (4,208) | |
Unrealized losses on derivatives designated as hedging instruments | (7,131) | | | — | |
Unrealized gains on available-for-sale debt securities | 707 | | | 132 | |
Total accumulated other comprehensive loss | $ | (13,949) | | | $ | (94,754) | |
During the third quarter of fiscal 2024, in anticipation of issuing the New Notes, Cadence entered into a series of treasury lock agreements which fixed benchmark U.S. Treasury rates for an aggregate notional amount of $850 million to hedge the impact of changes in the benchmark interest rate on future interest payments. Upon issuance of the New Notes in September 2024, Cadence settled the treasury lock agreements and incurred a loss of $9.7 million, which will be amortized to interest expense using the effective interest method over the term of the 2034 Notes.
For the three and nine months ended September 30, 2024 and September 30, 2023, there were no significant amounts reclassified from accumulated other comprehensive loss to net income.
NOTE 17.