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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________ 
FORM 10-Q
_____________________________________  
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
_____________________________________ 
cdnslogoa02.jpg
CADENCE DESIGN SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
_____________________________________ 
Delaware 00-0000000
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)
2655 Seely Avenue, Building 5, San Jose,California 95134
(Address of Principal Executive Offices) (Zip Code)
(408) 943-1234
Registrant’s Telephone Number, including Area Code
_____________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareCDNSNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated FilerSmaller Reporting Company
Non-accelerated FilerEmerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒
On March 31, 2024, approximately 272,134,000 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
March 31,
2024
December 31,
2023
ASSETS
Current assets:
Cash and cash equivalents$1,012,418 $1,008,152 
Receivables, net389,865 489,224 
Inventories185,784 181,661 
Prepaid expenses and other341,865 297,180 
Total current assets1,929,932 1,976,217 
Property, plant and equipment, net433,016 403,213 
Goodwill1,575,107 1,535,845 
Acquired intangibles, net334,644 336,843 
Deferred taxes886,576 880,001 
Other assets562,855 537,372 
Total assets$5,722,130 $5,669,491 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt
$349,507 $349,285 
Accounts payable and accrued liabilities456,608 576,558 
Current portion of deferred revenue659,628 665,024 
Total current liabilities1,465,743 1,590,867 
Long-term liabilities:
Long-term portion of deferred revenue87,003 98,931 
Long-term debt299,805 299,771 
Other long-term liabilities301,983 275,651 
Total long-term liabilities688,791 674,353 
Commitments and contingencies (Note 14)
Stockholders’ equity:
Common stock and capital in excess of par value3,331,547 3,166,964 
Treasury stock, at cost(4,840,181)(4,604,323)
Retained earnings5,184,027 4,936,384 
Accumulated other comprehensive loss(107,797)(94,754)
Total stockholders’ equity3,567,596 3,404,271 
Total liabilities and stockholders’ equity$5,722,130 $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
 March 31,
2024
March 31,
2023
Revenue:
Product and maintenance$913,385 $963,742 
Services95,718 57,948 
Total revenue1,009,103 1,021,690 
Costs and expenses:
Cost of product and maintenance75,395 100,238 
Cost of services49,802 24,234 
Marketing and sales180,589 166,666 
Research and development378,958 350,295 
General and administrative68,716 53,527 
Amortization of acquired intangibles5,407 4,267 
Restructuring280  
Total costs and expenses759,147 699,227 
Income from operations249,956 322,463 
Interest expense(8,692)(9,260)
Other income, net
68,779 8,284 
Income before provision for income taxes310,043 321,487 
Provision for income taxes62,400 79,683 
Net income$247,643 $241,804 
Net income per share – basic$0.92 $0.90 
Net income per share – diluted$0.91 $0.89 
Weighted average common shares outstanding – basic269,606 269,501 
Weighted average common shares outstanding – diluted273,544 273,159 












See notes to condensed consolidated financial statements.



CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 Three Months Ended
 March 31,
2024
March 31,
2023
Net income$247,643 $241,804 
Other comprehensive income (loss), net of tax effects:
Foreign currency translation adjustments(12,630)3,955 
Changes in defined benefit plan liabilities(21)263 
Unrealized gains (losses) on investments
(392)30 
Total other comprehensive income (loss), net of tax effects
(13,043)4,248 
Comprehensive income$234,600 $246,052 





































See notes to condensed consolidated financial statements.



CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Three Months Ended March 31, 2024
Common Stock
Par ValueAccumulated
and CapitalOther
in ExcessTreasuryRetainedComprehensive
Sharesof ParStockEarningsLossTotal
Balance, December 31, 2023271,706 $3,166,964 $(4,604,323)$4,936,384 $(94,754)$3,404,271 
Net income— — — 247,643 — $247,643 
Other comprehensive loss, net of taxes
— — — — (13,043)$(13,043)
Purchase of treasury stock (425)— (125,006)— — $(125,006)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures1,319 89,159 27,566 — — $116,725 
Stock received for payment of employee taxes on vesting of restricted stock(466)(12,705)(138,418)— — $(151,123)
Stock-based compensation expense— 88,129 — — — $88,129 
Balance, March 31, 2024272,134 $3,331,547 $(4,840,181)$5,184,027 $(107,797)$3,567,596 
Three Months Ended March 31, 2023
Common Stock
Par ValueAccumulated
and CapitalOther
in ExcessTreasuryRetainedComprehensive
Sharesof ParStockEarningsLossTotal
Balance, December 31, 2022272,675 $2,765,673 $(3,824,163)$3,895,240 $(91,637)$2,745,113 
Net income— — — 241,804 — $241,804 
Other comprehensive income, net of taxes
— — — — 4,248 $4,248 
Purchase of treasury stock (668)— (125,010)— — $(125,010)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures972 47,246 20,899 — — $68,145 
Stock received for payment of employee taxes on vesting of restricted stock(295)(8,458)(59,254)— — $(67,712)
Stock-based compensation expense— 74,288 — — — $74,288 
Balance, March 31, 2023
272,684 $2,878,749 $(3,987,528)$4,137,044 $(87,389)$2,940,876 









See notes to condensed consolidated financial statements.



CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Three Months Ended
 March 31,
2024
March 31,
2023
Cash and cash equivalents at beginning of period$1,008,152 $882,325 
Cash flows from operating activities:
Net income247,643 241,804 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization39,556 34,400 
Amortization of debt discount and fees320 311 
Stock-based compensation88,129 74,288 
Gain on investments, net
(55,394)(123)
Deferred income taxes(1,523)(11,640)
Provisions for losses on receivables158 214 
ROU asset amortization and change in operating lease liabilities(917)(1,392)
Other non-cash items78 99 
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables102,991 (8,719)
Inventories(10,689)399 
Prepaid expenses and other(15,073)56,212 
Other assets(7,535)(42,084)
Accounts payable and accrued liabilities(117,291)(117,915)
Deferred revenue(23,941)40,650 
Other long-term liabilities6,720 897 
Net cash provided by operating activities253,232 267,401 
Cash flows from investing activities:
Purchases of investments(2,095)(9,055)
Proceeds from the sale and maturity of investments43,377 102 
Purchases of property, plant and equipment(49,601)(26,719)
Cash paid in business combinations, net of cash acquired(71,450) 
Net cash used for investing activities(79,769)(35,672)
Cash flows from financing activities:
Proceeds from revolving credit facility 50,000 
Payments on revolving credit facility (120,000)
Proceeds from issuance of common stock116,725 65,370 
Stock received for payment of employee taxes on vesting of restricted stock(151,123)(67,712)
Payments for repurchases of common stock(125,006)(125,010)
Net cash used for financing activities(159,404)(197,352)
Effect of exchange rate changes on cash and cash equivalents(9,793)261 
Increase in cash and cash equivalents
4,266 34,638 
Cash and cash equivalents at end of period$1,012,418 $916,963 
Supplemental cash flow information:
Cash paid for interest$4,903 $5,142 
Cash paid for income taxes, net23,850 19,814 





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 April 23, 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.
6


NOTE 2. REVENUE
Cadence groups its products and services into five categories related to major design activities. The following table shows the percentage of revenue contributed by each of Cadence’s five product categories for the three months ended March 31, 2024 and March 31, 2023:
 Three Months Ended
 March 31,
2024
March 31,
2023
Custom Integrated Circuit (“IC”) Design and Simulation22 %20 %
Digital IC Design and Signoff29 %25 %
Functional Verification, including Emulation and Prototyping Hardware*25 %32 %
Intellectual Property (“IP”)12 %11 %
System Design and Analysis12 %12 %
Total100 %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 months ended March 31, 2024 or March 31, 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 and individual IP licenses.
The percentage of Cadence’s recurring and up-front revenue is impacted by delivery of hardware and IP products to its customers in any single fiscal period.
The following table shows the percentage of Cadence’s revenue that is classified as recurring or up-front for the three months ended March 31, 2024 and March 31, 2023:
 Three Months Ended
 March 31,
2024
March 31,
2023
Revenue recognized over time87 %77 %
Revenue from arrangements with non-cancelable commitments3 %3 %
Recurring revenue90 %80 %
Up-front revenue10 %20 %
Total100 %100 %
7


Significant Judgments
Cadence’s contracts with customers often include promises to transfer to a customer multiple software and/or IP licenses and services, including professional services, technical support services, and rights to unspecified updates. Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. In some arrangements, such as most of Cadence’s IP license arrangements, Cadence has concluded that the licenses and associated services are distinct from each other. In others, like Cadence’s time-based software arrangements, the licenses and certain services are not distinct from each other. Cadence’s time-based software arrangements include multiple software licenses and updates to the licensed software products, as well as technical support, and Cadence has concluded that these promised goods and services are a single, combined performance obligation.
The accounting for contracts with multiple performance obligations requires the contract’s transaction price to be allocated to each distinct performance obligation based on relative 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.
8


Cadence’s contract balances as of March 31, 2024 and December 31, 2023 were as follows:
 As of
 March 31,
2024
December 31,
2023
 (In thousands)
Contract assets$49,895 $17,554 
Deferred revenue746,631 763,955 
Cadence recognized revenue of $324.4 million during the three months ended March 31, 2024, and $363.2 million during the three months ended March 31, 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 $6.0 billion as of March 31, 2024, which included $0.4 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 March 31, 2024, Cadence expected to recognize 56% of the contracted but unsatisfied performance obligations, excluding non-cancelable commitments, as revenue over the next 12 months, 38% over the next 13 to 36 months and the remainder thereafter.
Cadence recognized revenue of $15.0 million during the three months ended March 31, 2024, and $15.2 million during the three months ended March 31, 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 March 31, 2024 and December 31, 2023 were as follows:
 As of
 March 31,
2024
December 31,
2023
 (In thousands)
Accounts receivable$219,937 $299,814 
Unbilled accounts receivable174,169 193,963 
Long-term receivables12,898 10,755 
Total receivables407,004 504,532 
Less allowance for doubtful accounts(4,241)(4,553)
Total receivables, net$402,763 $499,979 
Cadence’s customers are primarily concentrated within the semiconductor and electronics systems industries. As of March 31, 2024 and December 31, 2023, no single customer accounted for 10% or more of Cadence’s total receivables.
9


NOTE 4. DEBT
Cadence’s outstanding debt was as follows:
 March 31, 2024December 31, 2023
 (In thousands)
PrincipalUnamortized DiscountCarrying ValuePrincipalUnamortized DiscountCarrying Value
2024 Notes$350,000 $(493)$349,507 $350,000 $(715)$349,285 
2025 Term Loan300,000 (195)299,805 300,000 (229)299,771 
Total outstanding debt$650,000 $(688)$649,312 $650,000 $(944)$649,056 
Revolving Credit Facility
In June 2021, Cadence entered into a five-year senior unsecured revolving credit facility with a group of lenders led by Bank of America, N.A., as administrative agent (the “2021 Credit Facility”). In September 2022, Cadence amended the 2021 Credit Facility to, among other things, allow Cadence to change its fiscal year to match the calendar year commencing in 2023 and change the interest rate benchmark for loans under the 2021 Credit Facility from the London Inter-Bank Offered Rate (“LIBOR”) to Term Secured Overnight Financing Rate (“SOFR”). The material terms of the 2021 Credit Facility otherwise remain unchanged.
The 2021 Credit Facility provides for borrowings up to $700.0 million, with the right to request increased capacity up to an additional $350.0 million upon the receipt of lender commitments, for total maximum borrowings of $1.05 billion. The 2021 Credit Facility expires on June 30, 2026. Any outstanding loans drawn under the 2021 Credit Facility are due at maturity on June 30, 2026, subject to an option to extend the maturity date. Outstanding borrowings may be repaid at any time prior to maturity. Debt issuance costs of $1.3 million were recorded to other assets in Cadence’s condensed consolidated balance sheet at the inception of the agreement and are being amortized to interest expense over the term of the 2021 Credit Facility. As of March 31, 2024, there were no outstanding borrowings under the 2021 Credit Facility.
Interest accrues on borrowings under the 2021 Credit Facility at a rate equal to, at Cadence’s option, either (1) SOFR plus a margin between 0.750% and 1.250% 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 0.250% per annum, determined by reference to the credit rating of Cadence’s unsecured debt. Interest is payable quarterly. A commitment fee ranging from 0.070% to 0.175% is assessed on the daily average undrawn portion of revolving commitments. Borrowings bear interest at what is estimated to be current market rates of interest. Accordingly, the carrying value of the 2021 Credit Facility approximates fair value.
The 2021 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 2021 Credit Facility contains financial covenants that require Cadence to maintain a funded debt to EBITDA ratio not greater than 3.25 to 1, with a step up to 3.75 to 1 for one year following an acquisition by Cadence of at least $250.0 million that results in a pro forma leverage ratio between 3.00 to 1 and 3.50 to 1. As of March 31, 2024, Cadence was in compliance with all financial covenants associated with the 2021 Credit Facility.
2024 Notes
In October 2014, Cadence issued a $350.0 million aggregate principal amount of 4.375% Senior Notes due October 15, 2024 (the “2024 Notes”). Cadence received net proceeds of $342.4 million from the issuance of the 2024 Notes, net of a discount of $1.4 million and issuance costs of $6.2 million. Both the discount and issuance costs are being amortized to interest expense over the term of the 2024 Notes using the effective interest method. Interest is payable in cash semi-annually in April and October. The 2024 Notes are unsecured and rank equal in right of payment to all of Cadence’s existing and future senior indebtedness. As of March 31, 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 March 31, 2024, the fair value of the 2024 Notes was approximately $347.4 million.
Cadence may redeem the 2024 Notes, in whole or in part, at a redemption price equal to the greater of (a) 100% of the principal amount of the notes to be redeemed and (b) the sum of the present values of the remaining scheduled payments of principal and interest, plus any accrued and unpaid interest, as more particularly described in the indenture governing the 2024 Notes.
The indenture governing the 2024 Notes includes customary representations, warranties and restrictive covenants, including, but not limited to, restrictions on Cadence’s ability to grant liens on assets, enter into sale and lease-back transactions, or merge, consolidate or sell assets, and also includes customary events of default.
10


2025 Term Loan
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”). The 2025 Term Loan is unsecured and ranks equal in right of payment to all of Cadence’s unsecured indebtedness. 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.
Amounts outstanding under the 2025 Term Loan accrue interest at a rate equal to, at Cadence’s option, either (1) Term 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) 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. As of March 31, 2024, the interest rate on the 2025 Term Loan was 6.17%. Interest is payable quarterly. Borrowings bear interest at what is estimated to be current market rates of interest. Accordingly, the carrying value of the 2025 Term Loan approximates fair value.
The 2025 Term Loan 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 2025 Term Loan contains a financial covenant that requires Cadence to maintain a funded debt to EBITDA ratio not greater than 3.25 to 1, with a step-up to 3.75 to 1 for one year following an acquisition by Cadence of at least $250.0 million that results in a pro forma leverage ratio between 3.00 to 1 and 3.50 to 1. As of March 31, 2024, Cadence was in compliance with all financial covenants associated with the 2025 Term Loan.
NOTE 5. ACQUISITIONS
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 $71.5 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. Subject to service and other conditions, Cadence expects to recognize expense for consideration paid to certain former Invecas shareholders, now employed by Cadence, through the first quarter of fiscal 2028.
The total purchase consideration was allocated to the assets acquired and liabilities assumed based on their respective fair values on the acquisition date as follows:
 Fair Value
 (In thousands)
Current assets$50,608 
Goodwill42,480 
Acquired intangibles15,500 
Other long-term assets24,402 
Total assets acquired132,990 
Current liabilities17,114 
Long-term liabilities20,635 
Total liabilities assumed37,749 
Total purchase consideration$95,241 
As of March 31, 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.
Pro Forma Financial Information
Cadence has not presented pro forma financial information for its acquisition of Invecas because the results of operations for Invecas are not material to Cadence’s condensed consolidated financial statements.
11


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 statement. During the three months ended March 31, 2024 and March 31, 2023, transaction costs associated with acquisitions were $9.0 million and $2.9 million, respectively.
NOTE 6. GOODWILL AND ACQUIRED INTANGIBLES
Goodwill
The changes in the carrying amount of goodwill during the three months ended March 31, 2024 were as follows:
 Gross Carrying
Amount
 (In thousands)
Balance as of December 31, 2023$1,535,845 
Goodwill resulting from acquisitions42,480 
Effect of foreign currency translation(3,218)
Balance as of March 31, 2024$1,575,107 
Acquired Intangibles, Net
Acquired intangibles as of March 31, 2024 were as follows:
Gross Carrying
Amount
Accumulated
Amortization
Acquired
Intangibles, Net
 (In thousands)
Existing technology$329,816 $(150,929)$178,887 
Agreements and relationships203,417 (56,766)146,651 
Tradenames, trademarks and patents13,899 (4,793)9,106 
Total acquired intangibles$547,132 $(212,488)$334,644 
During the three months ended March 31, 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 relationships198,259 (61,395)136,864 
Tradenames, trademarks and patents13,460 (4,332)9,128 
Total acquired intangibles with definite lives$537,429 $(207,386)$330,043 
In-process technology6,800 — 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 months ended March 31, 2024 and March 31, 2023 by condensed consolidated income statement caption was as follows:
 Three Months Ended
 March 31,
2024
March 31,
2023
 (In thousands)
Cost of product and maintenance$11,348 $10,260 
Amortization of acquired intangibles5,407 4,267 
Total amortization of acquired intangibles$16,755 $14,527 
12


As of March 31, 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$50,873 
202554,698 
202649,102 
202746,595 
202842,441 
202927,957 
Thereafter62,978 
Total estimated amortization expense$334,644 
NOTE 7. STOCK-BASED COMPENSATION
Stock-based compensation expense is reflected in Cadence’s condensed consolidated income statements for the three months ended March 31, 2024 and March 31, 2023 as follows:
Three Months Ended
March 31,
2024
March 31,
2023
(In thousands)
Cost of product and maintenance$1,280 $1,066 
Cost of services1,629 1,357 
Marketing and sales17,836 15,091 
Research and development53,637 44,322 
General and administrative13,747 12,452 
Total stock-based compensation expense$88,129 $74,288 
Cadence had total unrecognized compensation expense related to stock option and restricted stock grants of $567.5 million as of March 31, 2024, which will be recognized over a weighted average vesting period of 2.0 years.
NOTE 8. STOCK REPURCHASE PROGRAM
In August 2023, Cadence’s Board of Directors increased the prior authorization to repurchase shares of Cadence common stock by authorizing an additional $1.0 billion. The actual timing and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors.
As of March 31, 2024, approximately $1.3 billion of Cadence’s share repurchase authorization remained available to repurchase shares of Cadence common stock.
The shares repurchased under Cadence’s repurchase authorizations and the total cost of repurchased shares, including commissions, during the three months ended March 31, 2024 and March 31, 2023 were as follows:
Three Months Ended
March 31,
2024
March 31,
2023
(In thousands)
Shares repurchased425 668 
Total cost of repurchased shares$125,006 $125,010 
13


NOTE 9. OTHER INCOME, NET
Cadence’s other income, net, for the three months ended March 31, 2024 and March 31, 2023 were as follows:
 Three Months Ended
 March 31,
2024
March 31,
2023
 (In thousands)
Interest income$9,512 $6,373 
Gains on investments
55,394 123 
Gains on securities in Non-Qualified Deferred Compensation (“NQDC”) trust
4,588 3,150 
Losses on foreign exchange
(331)(1,043)
Other expense, net(384)(319)
Total other income, net
$68,779 $8,284 
For additional information relating to Cadence’s investments and the gains on investments, see Note 11 in the notes to condensed consolidated financial statements.
NOTE 10. 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 months ended March 31, 2024 and March 31, 2023 are as follows:
 Three Months Ended
 March 31,
2024
March 31,
2023
 (In thousands, except per share amounts)
Net income$247,643 $241,804 
Weighted average common shares used to calculate basic net income per share269,606 269,501 
Stock-based awards3,938 3,658 
Weighted average common shares used to calculate diluted net income per share273,544 273,159 
Net income per share - basic$0.92 $0.90 
Net income per share - diluted$0.91 $0.89 
The following table presents shares of Cadence’s common stock outstanding for the three months ended March 31, 2024 and March 31, 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
 March 31,
2024
March 31,
2023
 (In thousands)
Long-term market-based awards 1,826 
Options to purchase shares of common stock59 332 
Non-vested shares of restricted stock8 50 
Total potential common shares excluded67 2,208 
14


NOTE 11. 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 (expense), net in Cadence’s condensed consolidated income statements. The carrying value of marketable equity investments was $93.6 million and $80.6 million as of March 31, 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 $109.6 million and $111.1 million as of March 31, 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 (expense), net in Cadence’s condensed consolidated income statements. For the three months ended March 31, 2024 and March 31, 2023, Cadence recognized losses of $0.4 million and $0.1 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 $27.1 million and $27.2 million as of March 31, 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
March 31,
2024
March 31,
2023
(In thousands)
Net gains recognized on equity securities
$55,398 $123 
Less: Net gains recognized on equity securities sold(20,367) 
Net gains recognized on equity securities still held$35,031 $123 
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 March 31, 2024
  Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated
Fair Value
 (In thousands)
Available-for-sale debt securities
Mortgage-backed and asset-backed securities$51,268 $206 $(466)$51,008 
Total available-for-sale securities$51,268 $206 $(466)$51,008 
 
As of December 31, 2023
  Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated
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 
15


Gross unrealized gains and losses are recorded as a component of accumulated other comprehensive loss on Cadence's condensed consolidated balance sheets.
As of March 31, 2024, the fair values of available-for-sale debt securities, by remaining contractual maturity, were as follows:
 (In thousands)
Due within 1 year
$ 
Due after 1 year through 5 years10,856 
Due after 5 years through 10 years16,564 
Due after 10 years23,588 
Total$51,008 
As of March 31, 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 12. 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 three months ended March 31, 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 March 31, 2024 and December 31, 2023:
 Fair Value Measurements as of March 31, 2024
  TotalLevel 1Level 2Level 3
 (In thousands)
Assets
Cash equivalents:
Money market funds$472,883 $472,883 $ $ 
Marketable securities:
Marketable equity securities93,591 93,591   
Mortgage-backed and asset-backed securities51,008  51,008  
Securities held in NQDC trust
81,464 81,464   
Total Assets$698,946 $647,938 $51,008 $ 
  TotalLevel 1Level 2Level 3
 (In thousands)
Liabilities
Foreign currency exchange contracts$345 $ $345 $ 
Total Liabilities$345 $ $345 $ 
16


 Fair Value Measurements as of December 31, 2023
  TotalLevel 1Level 2Level 3
 (In thousands)
Assets
Cash equivalents:
Money market funds$490,983 $490,983 $ $ 
Marketable securities:
Marketable equity securities80,575 80,575   
Mortgage-backed and asset-backed securities49,785 — 49,785 — 
Securities held in NQDC trust75,671 75,671   
Foreign currency exchange contracts9,327  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 2024 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 three months ended March 31, 2024, Cadence acquired intangible assets of $15.5 million. 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 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 a customer retention rate of 85%. The present value of operating cash flows from existing customers was determined using a discount rate of 14.0%.
NOTE 13. INVENTORY
Cadence’s inventory balances as of March 31, 2024 and December 31, 2023 were as follows:
 As of
 March 31,
2024
December 31,
2023
 (In thousands)
Inventories:
Raw materials$163,531 $162,754 
Work-in-process
626  
Finished goods21,627 18,907 
Total inventories$185,784 $181,661 
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NOTE 14. COMMITMENTS AND CONTINGENCIES
Acquisition of BETA CAE Systems International AG
On March 2, 2024, Cadence entered into a definitive agreement to acquire all of the outstanding equity of BETA CAE Systems International AG (“BETA CAE”), a system analysis platform provider of multi-domain, engineering simulation solutions. 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. The acquisition is expected to close during Cadence’s second quarter of fiscal 2024.
At close, Cadence will pay aggregate consideration based on an enterprise value of $1.24 billion (the “Purchase Price”), with 60% of the Purchase Price to be paid in cash and 40% to be paid through the issuance of Cadence common stock to current BETA CAE shareholders. Cadence intends to fund the cash consideration through a combination of cash on hand and borrowings under existing and/or new debt facilities.
The agreement contains warranties, covenants, closing conditions and indemnities customary for acquisitions of this nature. Among other conditions, the transaction is conditioned on the expiration or termination of the applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, and receipt of other required approvals under antitrust and foreign direct investment laws of certain other specified jurisdictions.
The agreement also provides for customary termination rights for the parties, including the right to terminate the agreement due to the failure to obtain required regulatory approvals on or prior to May 31, 2024 (subject to two automatic extensions until November 29, 2024, the “Longstop Date”). Under the terms of the agreement, Cadence will be required to pay a reverse termination fee of up to $60 million in the event the agreement is terminated due to the failure to obtain such required regulatory approvals on or prior to the Longstop Date.
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 litigation matters and may revise estimates.
Tax Proceedings
In December 2022, Cadence received a tax audit assessment of approximately $49 million from the Korea taxing authorities for years 2017-2019. The tax audit assessment is primarily related to value-added taxes. 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 recorded as a component of other assets in the condensed consolidated balance sheets. Payment of this amount is not an admission that Cadence is subject to such taxes, and Cadence continues to defend its position vigorously. Cadence did not record a reserve for this contingency as of March 31, 2024 or December 31, 2023 as Cadence does not believe a loss is probable. The entire dispute resolution process may take up to eight years.
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 months ended March 31, 2024 and March 31, 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 months ended March 31, 2024 and March 31, 2023.
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NOTE 15. 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 and unrealized gains and losses on investments, and is presented in Cadence’s condensed consolidated statements of comprehensive income.
Accumulated other comprehensive loss was comprised of the following as of March 31, 2024 and December 31, 2023:
As of
March 31,
2024
December 31,
2023
 (In thousands)
Foreign currency translation loss$(103,308)$(90,678)
Changes in defined benefit plan liabilities(4,229)(4,208)
Unrealized gains (losses) on investments
(260)132 
Total accumulated other comprehensive loss$(107,797)$(94,754)
For the three months ended March 31, 2024 and March 31, 2023, there were no significant amounts related to foreign currency translation loss, changes in defined benefit plan liabilities or unrealized gains and losses on investments reclassified from accumulated other comprehensive loss to net income.
NOTE 16. SEGMENT REPORTING
Segment reporting is based on the “management approach,” following the method that management organizes the company’s reportable segments for which separate financial information is made available to, and evaluated regularly by, the chief operating decision maker in allocating resources and in assessing performance. Cadence’s chief operating decision maker is its CEO, who reviews Cadence’s consolidated results as one operating segment. In making operating decisions, the CEO primarily considers consolidated financial information, accompanied by disaggregated information about revenues by geographic region.
Outside the United States, Cadence markets and supports its products and services primarily through its subsidiaries. Revenue is attributed to geography based upon the country in which the product is used, or services are delivered. Long-lived assets are attributed to geography based on the country where the assets are located.
The following table presents a summary of revenue by geography for the three months ended March 31, 2024 and March 31, 2023:
 Three Months Ended
 March 31,
2024
March 31,
2023
 (In thousands)
Americas:
United States$435,523 $434,346 
Other Americas27,347 16,118 
Total Americas462,870 450,464 
Asia:
China117,229 177,556 
Other Asia208,531 183,962 
Total Asia325,760 361,518 
Europe, Middle East and Africa169,056 154,270 
Japan51,417 55,438 
Total$1,009,103 $1,021,690 
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The following table presents a summary of long-lived assets by geography as of March 31, 2024 and December 31, 2023:
 As of
 March 31,
2024
December 31,
2023
 (In thousands)
Americas:
United States$404,492 $383,807 
Other Americas9,465 10,219 
Total Americas413,957 394,026 
Asia:
China27,949 29,598 
Other Asia84,454 71,365 
Total Asia112,403 100,963 
Europe, Middle East and Africa55,583 56,449 
Japan2,000 2,572 
Total$583,943 $554,010 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) and in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (our “Annual Report”). This Quarterly Report contains statements that are not historical in nature, are predictive, or that depend upon or refer to future events or conditions or contain other forward-looking statements. Statements including, but not limited to, statements regarding the extent, timing and mix of future revenues and customer demand; the deployment of our products and services; the impact of the macroeconomic and geopolitical environment, including but not limited to, expanded trade control laws and regulations, the conflicts in and around Ukraine, the Middle East and other areas of the world, volatility in foreign currency exchange rates, inflation and the rise in interest rates; the impact of government actions; future costs, expenses, tax rates and uses of cash; pending legal, administrative and tax proceedings; restructuring actions and associated benefits; pending acquisitions, the accounting for acquisitions and the integration of acquired businesses; and other statements using words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and “would,” and words of similar import and the negatives thereof, constitute forward-looking statements. These statements are predictions based upon our current expectations about future events. Actual results could vary materially as a result of certain factors, including, but not limited to, those expressed in these statements. We refer you to the “Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and “Liquidity and Capital Resources” sections contained in this Quarterly Report, the "Risk Factors" section contained in our Annual Report, and the risks discussed in our other Securities and Exchange Commission (“SEC”) filings, which identify important risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.
We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report. All subsequent written or oral forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. We disclaim any obligation to update these forward-looking statements, except as required by law.
Business Overview
Cadence is a leading pioneer in electronic system design software and intellectual property (“IP”), building upon more than 35 years of computational software expertise. Since our inception, we have been at the forefront of technology innovation, solving highly complex challenges in the semiconductor and electronic systems industries. We are a global company that provides computational software, special-purpose computational hardware, IP and services to multiple vertical sectors including automotive, artificial intelligence (“AI”), aerospace and defense, high-performance and mobile computing, hyperscalers, wireless communications, industrial internet of things and life sciences.
Our Intelligent System DesignTM strategy allows us to deliver essential computational software, hardware and IP that our customers use to turn their design concepts into reality. Our customers include many of the world's most innovative companies that design and build highly sophisticated semiconductor and electronic systems found in products used in everyday life. Our Intelligent System Design strategy allows us to quickly adapt to our customers' dynamic design requirements. Our products and services enable our customers to develop complex and innovative semiconductor and electronic systems, so demand for our technology and expertise is driven by increasing complexity and our customers’ need to invest in new designs and products that are highly differentiated. Historically, the industry that provided the tools used by IC engineers was referred to as Electronic Design Automation (“EDA”). Today, our offerings include and extend beyond EDA.
We group our products into categories related to major design activities:
Custom IC Design and Simulation;
Digital IC Design and Signoff;
Functional Verification;
IP; and
System Design and Analysis.
For additional information about our products, see the discussion in Item 1, “Business,” under the heading “Products and Product Categories,” in our Annual Report.
Management uses certain performance indicators to manage our business, including revenue, certain elements of operating expenses and cash flow from operations, and we describe these items further below under the headings “Results of Operations” and “Liquidity and Capital Resources.”
Recent Acquisition
Consistent with our Intelligent System Design strategy, during the first quarter of fiscal 2024, we completed our acquisition of Invecas, Inc. (“Invecas”), a leading provider of design engineering, embedded software and system-level solutions. We believe the addition of a skilled engineering team with vast experience in delivering end-to-end system solutions with deep expertise in advanced nodes, mixed-signal, verification, embedded software, packaging and turnkey custom silicon production will enhance our ability to pursue attractive opportunities in the markets we serve. Revenue and cost of revenue associated with contracts assumed with our acquisition of Invecas is primarily classified as services revenue and cost of services in our condensed consolidated income statements.
21


Macroeconomic and Geopolitical Environment
Because we operate globally, our business is subject to the effects of economic downturns or recessions in the regions in which we do business, volatility in foreign currency exchange rates relative to the U.S. dollar, the rise in interest rates, expanded trade control laws and regulations, and geopolitical conflicts.
We have been impacted by the continued expansion of trade control laws and regulations, including certain export control restrictions concerning advanced node IC production in China, the inclusion of additional Chinese technology companies on the Bureau of Industry and Security “Entity List” and regulations governing the sale of certain technologies. Based on our current assessments, we expect the impact of these expanded trade control laws and regulations on our business to be limited.
We also continuously monitor geopolitical conflicts around the world, including the ongoing conflict between Russia and Ukraine and the conflict in the Middle East, and assess their impact on our business. These conflicts have not materially limited our ability to develop or support our products and have not had a material impact on our results of operations, financial condition, liquidity or cash flows.
While our business model provides some resilience against these factors, we will continue to monitor the direct and indirect impacts of these or similar circumstances on our business and financial results. For additional information on the potential impact of other macroeconomic and geopolitical conditions on our business, see the “Risk Factors” section in our Annual Report. For additional information on the potential impact of foreign currency exchange rates and interest rates on our business, see the “Quantitative and Qualitative Disclosures About Market Risk” section of this Quarterly Report.
Critical Accounting Estimates
In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our condensed consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary.
For additional information about our critical accounting estimates, see the discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Critical Accounting Estimates” in our Annual Report.
New Accounting Standards
For additional information about the adoption of new accounting standards, see Note 1 in the notes to condensed consolidated financial statements.
Results of Operations
Financial results for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, reflect the following:
Growth in revenue from our software, services and IP offerings;
Decreased revenue from our emulation and prototyping hardware offerings;
Continued investment in research and development activities and technical sales support, including headcount from acquisitions;
Incremental costs for professional services associated with acquisitions; and
Gains from our investments in equity securities.
Revenue
We primarily generate revenue from licensing our software and IP, selling or leasing our emulation and prototyping hardware technology, providing maintenance for our software, hardware and IP, providing engineering services and earning royalties generated from the use of our IP. The timing of our revenue is significantly affected by the mix of software, hardware and IP products generating revenue in any given period and whether the revenue is recognized over time or at a point in time, upon completion of delivery.
Recurring revenue includes revenue recognized over time from our software arrangements, services, royalties, maintenance on IP licenses and hardware, and operating leases of hardware. Recurring revenue also includes revenue recognized at varying points in time over the term of other arrangements with non-cancelable commitments, whereby the customer commits to a fixed dollar amount over a specified period of time that can be used to purchase from a list of products or services.
The remainder of our revenue is recognized at a point in time and is characterized as up-front revenue. Up-front revenue is primarily generated by our sales of emulation and prototyping hardware and individual IP licenses. The percentage of our recurring and up-front revenue and fluctuations in revenue within our geographies are impacted by delivery of hardware and IP products to our customers in any single fiscal period. 
22


The following table shows the percentage of our revenue that is classified as recurring or up-front for the three months ended March 31, 2024 and March 31, 2023: 
 Three Months Ended
 March 31,
2024
March 31,
2023
Revenue recognized over time87 %77 %
Revenue from arrangements with non-cancelable commitments%%
Recurring revenue90 %80 %
Up-front revenue10 %20 %
Total100 %100 %
While the percentage of revenue characterized as recurring compared to revenue characterized as up-front may vary between fiscal quarters, the overall mix of revenue is relatively consistent on an annual basis or over the course of twelve consecutive months. The following table shows the percentage of recurring revenue for the twelve-month periods ending concurrently with our five most recent fiscal quarters:
 Trailing Twelve Months Ended
 March 31,
2024
December 31,
2023
September 30,
2023
June 30,
2023
March 31,
2023
Recurring revenue87 %84 %84 %84 %84 %
Up-front revenue13 %16 %16 %16 %16 %
Total100 %100 %100 %100 %100 %
For additional information about the fluctuations in our revenue, see the discussion under the heading “Revenue by Period” below.
Revenue by Period
The following table shows our revenue for the three months ended March 31, 2024 and March 31, 2023 and the change in revenue between periods:
 Three Months EndedChange
 March 31,
2024
March 31,
2023
AmountPercentage
 (In millions, except percentages)
Product and maintenance$913.4 $963.7 $(50.3)(5)%
Services95.7 58.0 37.7 65 %
Total revenue$1,009.1 $1,021.7 $(12.6)(1)%
Our revenue in any given period is significantly affected by the mix of software, hardware and IP products generating revenue and whether the revenue is recognized over time or at a point in time, upon completion of delivery. During the three months ended March 31, 2023, hardware installations were relatively high in comparison to historical levels due to increased production capacity and our ability to fulfill customer orders that had been subject to longer than normal lead times. As a result, up-front revenue from our emulation and prototyping offerings classified as product and maintenance revenue decreased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.
The decrease in up-front revenue from our emulation and prototyping hardware offerings was partially offset by growth in revenue from software driven by new and existing customers' continued investment in complex designs for their products, including the design of electronic systems for consumer, hyperscale computing, mobile, communications, automotive, aerospace and defense, industrial and life sciences.
Services revenue increased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to increased revenue from our Cadence-managed cloud-based and design service offerings. Services revenue may fluctuate from period to period based on the timing of fulfillment of our services and IP performance obligations.
No single customer accounted for 10% or more of total revenue during the three months ended March 31, 2024 or March 31, 2023.
23


Revenue by Product Category
The following table shows the percentage of revenue contributed by each of our five product categories and services for the past five consecutive quarters:
 Three Months Ended
 March 31,
2024
December 31,
2023
September 30,
2023
June 30,
2023
March 31,
2023
Custom IC Design and Simulation22 %22 %22 %22 %20 %
Digital IC Design and Signoff29 %29 %28 %27 %25 %
Functional Verification, including Emulation and Prototyping Hardware25 %24 %26 %27 %32 %
IP12 %13 %11 %11 %11 %
System Design and Analysis12 %12 %13 %13 %12 %
Total100 %100 %100 %100 %100 %
Revenue by product category fluctuates from period to period based on demand for our products and services, our available resources and our ability to deliver and support them. For example, during the first quarter of fiscal 2023, we experienced growth in our Functional Verification product category due to increased production capacity and our ability to fulfill ongoing customer demand for our emulation and prototyping hardware. Certain of our licensing arrangements allow customers the ability to remix among software products. Additionally, we have arrangements with customers that include a combination of our products, with the actual product selection and number of licensed users to be determined at a later date. For these arrangements, we estimate the allocation of the revenue to product categories based upon the expected usage of our products. The actual usage of our products by these customers may differ and, if that proves to be the case, the revenue allocation in the table above would differ.
Revenue by Geography
 Three Months EndedChange
 March 31,
2024
March 31,
2023
AmountPercentage
 (In millions, except percentages)
United States$435.5 $434.3 $1.2 — %
Other Americas27.4 16.1 11.3 70 %
China117.2 177.6 (60.4)(34)%
Other Asia208.5 184.0 24.5 13 %
Europe, Middle East and Africa (“EMEA”)
169.1 154.3 14.8 10 %
Japan51.4 55.4 (4.0)(7)%
Total revenue$1,009.1 $1,021.7 $(12.6)(1)%
During the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, revenue in the United States and China was impacted by the decrease in revenue from our emulation and prototyping hardware offerings. Growth in revenue from our software offerings contributed to growth in Other Asia and EMEA.
Revenue by Geography as a Percent of Total Revenue
 Three Months Ended
 March 31,
2024
March 31,
2023
United States43 %42 %
Other Americas%%
China12 %17 %
Other Asia20 %18 %
EMEA
17 %15 %
Japan%%
Total100 %100 %
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Most of our revenue is transacted in the U.S. dollar. However, certain revenue transactions are denominated in foreign currencies. For an additional description of how changes in foreign exchange rates affect our condensed consolidated financial statements, see the discussion under Item 3, “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.”
Cost of Revenue
 Three Months EndedChange
 March 31,
2024
March 31,
2023
AmountPercentage
 (In millions, except percentages)
Cost of product and maintenance$75.4 $100.2 $(24.8)(25)%
Cost of services49.8 24.2 25.6 106 %
Cost of Product and Maintenance
Cost of product and maintenance includes costs associated with the sale and lease of our emulation and prototyping hardware and licensing of our software and IP products, certain employee salary and benefits and other employee-related costs, cost of our customer support services, amortization of technology-related and maintenance-related acquired intangibles, costs of technical documentation and royalties payable to third-party vendors. Cost of product and maintenance depends primarily on our hardware product sales in any given period, but is also affected by employee salary and benefits and other employee-related costs, reserves for inventory, and the timing and extent to which we acquire intangible assets, license third-party technology or IP, and sell our products that include such acquired or licensed technology or IP.
A summary of cost of product and maintenance is as follows:
 Three Months EndedChange
 March 31,
2024
March 31,
2023
AmountPercentage
 (In millions, except percentages)
Product and maintenance-related costs$64.1 $89.9 $(25.8)(29)%
Amortization of acquired intangibles11.3 10.3 1.0 10 %
Total cost of product and maintenance$75.4 $100.2 $(24.8)(25)%
The changes in product and maintenance-related costs for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, were due to the following:
 Change
 Three Months Ended
(In millions)
Emulation and prototyping hardware costs$(26.2)
Other items0.4 
Total change in product and maintenance-related costs$(25.8)
Costs associated with our emulation and prototyping hardware products include components, assembly, testing, applicable reserves and overhead. These costs make our cost of emulation and prototyping hardware products higher, as a percentage of revenue, than our cost of software and IP products. Emulation and prototyping hardware costs decreased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to decreased installations of emulation and prototyping hardware products.
Amortization of acquired intangibles included in cost of product and maintenance may fluctuate from period to period depending on the timing of newly acquired assets relative to assets becoming fully amortized in any given period.
Cost of Services
Cost of services primarily includes employee salary, benefits and other employee-related costs to perform work on revenue-generating projects, costs to maintain the infrastructure necessary to manage a services organization, and direct costs associated with certain design services. Cost of services may fluctuate from period to period based on our utilization of design services engineers on revenue-generating projects rather than internal development projects and the timing of design service projects being completed.
25


Operating Expenses
Our operating expenses include marketing and sales, research and development, and general and administrative expenses. Factors that tend to cause our operating expenses to fluctuate include changes in the number of employees due to hiring and acquisitions, our annual mid-year promotion and pay raise cycle, stock-based compensation, foreign exchange rate movements, acquisition-related costs, volatility in variable compensation programs that are driven by operating results, and charitable donations.
Many of our operating expenses are transacted in various foreign currencies. We recognize lower expenses in periods when the United States dollar strengthens in value against other currencies and we recognize higher expenses when the United States dollar weakens against other currencies. For an additional description of how changes in foreign exchange rates affect our condensed consolidated financial statements, see the discussion in Item 3, “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.”
Our operating expenses for the three months ended March 31, 2024 and March 31, 2023 were as follows:
 Three Months EndedChange
 March 31,
2024
March 31,
2023
AmountPercentage
 (In millions, except percentages)
Marketing and sales$180.6 $166.7 $13.9 %
Research and development379.0 350.3 28.7 %
General and administrative68.7 53.5 15.2 28 %
Total operating expenses$628.3 $570.5 $57.8 10 %
Our operating expenses, as a percentage of total revenue, for the three months ended March 31, 2024 and March 31, 2023 were as follows:
 Three Months Ended
 March 31,
2024
March 31,
2023
Marketing and sales18 %16 %
Research and development37 %35 %
General and administrative%%
Total operating expenses62 %56 %
Marketing and Sales
The increase in marketing and sales expense for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was due to the following:
 Change
 Three Months Ended
 (In millions)
Salary, benefits and other employee-related costs$10.5 
Stock-based compensation2.7 
Facilities and other infrastructure costs2.1 
Marketing programs and events(2.2)
Other items0.8 
Total change in marketing and sales expense$13.9 
Salary, benefits and other employee-related costs and stock-based compensation included in marketing and sales expense increased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to our continued investment in attracting and retaining talent dedicated to technical sales support, including additional headcount from the acquisitions completed in both fiscal 2023 and the first quarter of fiscal 2024. We expect to continue attracting and retaining talent dedicated to technical sales support through hiring and acquisitions.
26


Research and Development
The increase in research and development expense for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was due to the following:
 Change
 Three Months Ended
 (In millions)
Salary, benefits and other employee-related costs$13.4 
Stock-based compensation9.3 
Facilities and other infrastructure costs4.3 
Other items1.7 
Total change in research and development expense$28.7 
Salary, benefits and other employee-related costs and stock-based compensation included in research and development expense increased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to our continued investment in attracting and retaining talent for research and development activities, including additional headcount from the acquisitions completed in fiscal 2023. Facilities and other infrastructure costs included in research and development expense increased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to our growing workforce. We expect to continue attracting and retaining talent dedicated to research and development activities through hiring and acquisitions.
General and Administrative
The increase in general and administrative expense for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was due to the following:
 Change
 Three Months Ended
 (In millions)
Professional services
$6.1 
Foreign service tax5.0 
Salary, benefits and other employee-related costs3.1 
Other items1.0 
Total change in general and administrative expense$15.2 
Professional services increased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to increased legal and consulting services associated with acquisition-related activities. Also during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, we experienced an increase in foreign service tax, primarily because we did not benefit from any foreign service tax refunds as we did during the same period in fiscal 2023.
Restructuring
We have initiated restructuring plans in recent years, most recently in fiscal 2023, to better align our resources with our business strategy. Because the restructuring charges and related benefits are derived from management’s estimates made during the formulation of the restructuring plans, based on then-currently available information, our restructuring plans may not achieve the benefits anticipated on the timetable or at the level contemplated. Additional actions, including further restructuring of our operations, may be required in the future.
Operating Margin
Operating margin represents income from operations as a percentage of total revenue. Our operating margin for the three months ended March 31, 2024, and the three months ended March 31, 2023 was as follows:
Three Months Ended

March 31,
2024
March 31,
2023
Operating margin25 %32 %
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Operating margin decreased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to the mix of products and services sold during each respective period. In addition, our acquisitions in fiscal 2023 and the first quarter of fiscal 2024 resulted in incremental expenses, including acquisition of acquired intangibles, that exceeded incremental revenue during the three months ended March 31, 2024.
Interest Expense
 Three Months Ended
 March 31,
2024
March 31,
2023
 (In millions)
Contractual cash interest expense:
2024 Notes$3.8 $3.8 
2025 Term Loan4.7 3.9 
2021 Credit Facility
— 1.3 
Amortization of debt discount:
2024 Notes0.2 0.2 
2025 Term Loan— — 
Other— 0.1 
Total interest expense$8.7 $9.3 
Interest expense decreased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to a decrease in borrowings under the 2021 Credit Facility, partially offset by an increase in interest expense for the 2025 Term Loan, which is subject to variable interest rates. For additional information relating to our debt arrangements, see Note 4 in the notes to condensed consolidated financial statements.
Income Taxes
The following table presents the provision for income taxes and the effective tax rate for the three months ended March 31, 2024 and March 31, 2023:
 Three Months Ended
 March 31,
2024
March 31,
2023
 (In millions, except percentages)
Provision for income taxes$62.4 $79.7 
Effective tax rate20.1 %24.8 %
Our provision for income taxes for the three months ended March 31, 2024 was primarily attributable to federal, state and foreign income taxes on our anticipated fiscal 2024 income. We also recognized a tax benefit of $22.8 million related to stock-based compensation that vested or was exercised during the period.
In 2021, the Organisation for Economic Co-operation and Development announced Pillar Two Model Rules which call for the taxation of large multinational corporations, such as Cadence, at a global minimum tax rate of 15%. Many non-U.S. tax jurisdictions, including Ireland and Hungary, have either recently enacted legislation to adopt certain components of the Pillar Two Model Rules beginning in fiscal 2024 or announced their plans to enact legislation in future years. The currently enacted Pillar Two Model Rules did not have a material impact to our provision for income taxes for the three months ended March 31, 2024.
Our provision for income taxes for the three months ended March 31, 2023 was primarily attributable to federal, state and foreign income taxes on our then anticipated fiscal 2023 income. We also recognized a tax benefit of $16.9 million related to stock-based compensation that vested or was exercised during the period.
In March 2024, we received a best judgment tax audit assessment of approximately $24.5 million from the Israel Tax Authority (“ITA”) for the tax years 2017 and 2018. The best judgment tax audit assessment is primarily related to transfer pricing and withholding taxes. We disagree with the ITA’s position and intend to appeal the tax assessment.
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Our future effective tax rates may also be materially impacted by tax amounts associated with our foreign earnings at rates different from the United States federal statutory rate, research credits, the tax impact of stock-based compensation, accounting for uncertain tax positions, business combinations, closure of statutes of limitations or settlement of tax audits and changes in tax law. A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland and Hungary. Our future effective tax rates may be adversely affected if our earnings were to be lower in countries where we have lower statutory tax rates. We currently expect that our fiscal 2024 effective tax rate will be approximately 25.0%. We expect that our quarterly effective tax rates will vary from our fiscal 2024 effective tax rate as a result of recognizing the income tax effects of stock-based awards in the quarterly periods that the awards vest or are settled and other items that we cannot anticipate. For additional discussion about how our effective tax rate could be affected by various risks, see Part I, Item 1A, “Risk Factors,” in our Annual Report.
Liquidity and Capital Resources
 As of 
 March 31,
2024
December 31,
2023
Change
 (In millions)
Cash and cash equivalents$1,012.4 $1,008.2 $4.2 
Net working capital464.2 385.4 78.8 
Cash and Cash Equivalents
As of March 31, 2024, our principal sources of liquidity consisted of approximately $1,012.4 million of cash and cash equivalents as compared to $1,008.2 million as of December 31, 2023.
Our primary sources of cash and cash equivalents during the three months ended March 31, 2024 were cash generated from operations, proceeds from the issuance of common stock resulting from stock purchases under our employee stock purchase plan and stock options exercised during the period, and proceeds from the sale of investments.
Our primary uses of cash and cash equivalents during the three months ended March 31, 2024 were payments related to employee salaries and benefits, operating expenses, payment of employee taxes on vesting of restricted stock, repurchases of our common stock, cash paid for acquired businesses, and purchases of property, plant and equipment.
Approximately 73% of our cash and cash equivalents were held by our foreign subsidiaries as of March 31, 2024. Our cash and cash equivalents held by our foreign subsidiaries may vary from period to period due to the timing of collections and repatriation of foreign earnings. We expect that current cash and cash equivalent balances and cash flows that are generated from operations and financing activities will be sufficient to meet the needs of our domestic and international operating activities and other capital and liquidity requirements, including acquisitions, investments and share repurchases, for at least the next 12 months and thereafter for the foreseeable future.
Net Working Capital
Net working capital is comprised of current assets less current liabilities, as shown on our condensed consolidated balance sheets. The increase in our net working capital as of March 31, 2024, as compared to December 31, 2023, is primarily due to the timing of investing and financing activities.
Cash Flows from Operating Activities
 Three Months Ended
 March 31,
2024
March 31,
2023
Change
(In millions)
Cash provided by operating activities$253.2 $267.4 $(14.2)
Cash flows from operating activities include net income, adjusted for certain non-cash items, as well as changes in the balances of certain assets and liabilities. Our cash flows provided by operating activities are significantly influenced by business levels and the payment terms set forth in our customer agreements. The decrease in cash flows from operating activities for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was primarily due to the timing of cash disbursements for operating assets and liabilities.
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Cash Flows Used for Investing Activities
 Three Months Ended
 March 31,
2024
March 31,
2023
Change
(In millions)
Cash used for investing activities$(79.8)$(35.7)$(44.1)
Cash used for investing activities increased during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to increases in payments for business combinations and purchases of property, plant and equipment, partially offset by an increase in proceeds from the sale and maturity of investments. We expect to continue our investing activities, including purchasing property, plant and equipment, purchasing intangible assets, acquiring other companies and businesses, and making investments.
Cash Flows Used for Financing Activities
 Three Months Ended
 March 31,
2024
March 31,
2023
Change
(In millions)