Exceeded Q3 guidance for revenue and operating margin

On track to deliver strong second half

Raising midpoint of 2024 non-GAAP EPS outlook to $5.90

Cadence Design Systems, Inc. (NASDAQ: CDNS) today announced results for the third quarter of 2024.

Third Quarter 2024 Financial Results

• Revenue of $1.215 billion, compared to revenue of $1.023 billion in Q3 2023
• GAAP operating margin of 29%, compared to 29% in Q3 2023
• Non-GAAP operating margin of 45%, compared to 41% in Q3 2023
• GAAP diluted net income per share of $0.87, compared to $0.93 in Q3 2023
• Non-GAAP diluted net income per share of $1.64, compared to $1.26 in Q3 2023
• Quarter-end backlog was $5.6 billion and current remaining performance obligations (“cRPO”), contract revenue expected to be recognized as revenue in the next 12 months, was $2.9 billion

“Cadence delivered exceptional results for the third quarter of 2024, driven by broad-based strength across our portfolio, especially in IP, SD&A, and hardware systems,” said Anirudh Devgan, president and chief executive officer. “Customers are achieving outstanding results with Cadence.AI, and I’m excited by its accelerating proliferation as AI rapidly becomes an integral part of the design workflow.”

“I am pleased to report that Cadence delivered strong Q3 results, with total revenue growing 19% year-over-year. Our Q3 recurring revenue growth returned to low teens on a year-over-year basis, and China revenue continues to improve, representing 13% of our total revenue for Q3,” said John Wall, senior vice president and chief financial officer. “Our Q4 bookings pipeline looks exceptionally strong, and we are well positioned to deliver a strong 2024.”

CFO Commentary

Commentary on the third quarter of 2024 financial results by John Wall, senior vice president and chief financial officer, is available at www.cadence.com/cadence/investor_relations.

Business Outlook

For fiscal year 2024, the company expects:

• Revenue in the range of $4.61 billion to $4.65 billion
• GAAP operating margin in the range of 29% to 30%
• Non-GAAP operating margin in the range of 42% to 43%
• GAAP diluted net income per share in the range of $3.70 to $3.76
• Non-GAAP diluted net income per share in the range of $5.87 to $5.93

The company utilizes a long-term projected non-GAAP tax rate, which reflects currently available information, as well as other factors and assumptions. The non-GAAP tax rate is subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in the company’s geographic earnings mix, or other changes to the company’s strategy or business operations. The company expects to use the current normalized non-GAAP tax rate through fiscal 2025 but will re-evaluate this rate periodically for significant items that may materially affect its projections.

Reconciliations of the financial results and business outlook from GAAP operating margin, GAAP net income and GAAP diluted net income per share to non-GAAP operating margin, non-GAAP net income and non-GAAP diluted net income per share, respectively, are included in this press release.

Business Highlights

• Cadence.AI portfolio powered by GenAI agents, AI-driven optimization and the big data analytics JedAI platform, offers unparalleled quality of results and productivity benefits, further proliferated with revenue nearly tripling over the last year

• System Design & Analysis business achieved 47 percent year-over-year revenue growth in Q3 with strong growth of Cadence's comprehensive multi-physics portfolio that couples the company's expertise in physics-based modeling with AI driven optimization

• Strong IP business momentum, with 59 percent year-over-year growth as Cadence executed to its profitable and scalable growth strategy. A long-term IP partner signed a major deal for Cadence's hardware, IP and services offering to help deliver its AI product roadmap and next generation subsystems

• Functional Verification delivered 22 percent year-over-year revenue growth, fueled by strong demand for Cadence's new ground-breaking hardware systems, especially at AI, hyperscale and automotive companies

Audio Webcast Scheduled

Anirudh Devgan, president and chief executive officer, and John Wall, senior vice president and chief financial officer, will host the third quarter 2024 financial results audio webcast today, October 28, 2024, at 2 p.m. (Pacific) / 5 p.m. (Eastern). Attendees are asked to register at the website at least 10 minutes prior to the scheduled webcast. An archive of the webcast will be available starting October 28, 2024 at 5 p.m. (Pacific) and ending December 17, 2024 at 5 p.m. (Pacific). Webcast access is available at www.cadence.com/cadence/investor_relations.

About Cadence

Cadence is a pivotal leader in electronic systems design, building upon more than 30 years of computational software expertise. The company applies its underlying Intelligent System Design strategy to deliver software, hardware and IP that turn design concepts into reality. Cadence customers are the world’s most innovative companies, delivering extraordinary electronic products from chips to boards to complete systems for the most dynamic market applications, including hyperscale computing, 5G communications, automotive, mobile, aerospace, consumer, industrial and healthcare. For 10 years in a row, Fortune magazine has named Cadence one of the 100 Best Companies to Work For. Learn more at www.cadence.com.

© 2024 Cadence Design Systems, Inc. All rights reserved worldwide. Cadence, the Cadence logo and the other Cadence marks found at www.cadence.com/go/trademarks are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

This press release contains forward-looking statements, including Cadence's outlook on future operating results, financial condition, strategic objectives, business prospects, technology and product developments, industry trends, market growth and other statements using words such as “anticipates,” “believes,” “expects,” “intends,” “plans,” “will,” and words of similar import and the negatives thereof. Forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside Cadence’s control, and which may cause actual results to differ materially from expectations expressed or implied in the forward-looking statements, including, among others: (i) Cadence’s ability to compete successfully in the highly competitive industries in which it operates and realize the benefits of its investments in research and development, including opportunities presented by AI; (ii) the success of Cadence’s efforts to maintain and improve operational efficiency and growth; (iii) the mix of products and services sold, the timing of orders and deliveries and the ability to develop, install or deliver Cadence’s products or services; (iv) change in customer demands or supply constraints that could result in delays in purchases, development, installations or deliveries of Cadence’s products or services, including those resulting from consolidation, restructurings and other operational efficiency improvements of Cadence’s customers; (v) economic, geopolitical and industry conditions, including that of the semiconductor and electronics industries, government regulations and trade restrictions, and rising tensions and conflicts around the world such as in the Middle East and with respect to Taiwan; (vi) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rate and currency exchange rate fluctuations, inflation rates, Cadence’s increased debt levels and obligations and Cadence’s ability to access capital and debt markets in the future; (vii) Cadence’s acquisition of other companies, businesses or technologies or the failure to successfully integrate and operate them; (viii) potential harm caused by compromises in cybersecurity and cybersecurity attacks; (ix) events that affect cash flow, liquidity, or reserves, or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation, regulatory or other matters; (x) the effects of any litigation, regulatory, tax or other proceedings to which Cadence is or may become a party or to which Cadence or its products, services, technologies or properties are subject; and (xi) Cadence’s ability to successfully meet corporate governance, environmental and social targets and strategies. In addition, the timing and amount of Cadence’s repurchases of its common stock are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors.

For a detailed discussion of these and other cautionary statements related to Cadence’s business, please refer to Cadence’s filings with the U.S. Securities and Exchange Commission, including its most recent report on Form 10-K, subsequent reports on Form 10-Q and future filings.

All forward-looking statements in this press release are based on management's expectations as of the date of this press release and, except as required by law, Cadence disclaims any obligation to update these forward-looking statements to reflect future events or circumstances.

GAAP to Non-GAAP Reconciliation

Non-GAAP financial measures should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with generally accepted accounting principles, or GAAP. Investors are encouraged to review the reconciliation of non-GAAP measures contained within this press release with their most directly comparable GAAP results. Investors are also encouraged to look at the GAAP results as the best measure of financial performance.

To supplement Cadence’s financial results presented on a GAAP basis, Cadence management uses non-GAAP measures that it believes are helpful in understanding Cadence’s performance. One such measure is non-GAAP net income, which is a financial measure not calculated under GAAP. Non-GAAP net income is calculated by Cadence management by taking GAAP net income and excluding, as applicable, amortization of intangible assets, stock-based compensation expense, acquisition and integration-related costs including retention expenses, investment gains or losses, income or expenses related to Cadence’s non-qualified deferred compensation plan, restructuring and other significant items not directly related to Cadence’s core business operations, and the income tax effect of non-GAAP pre-tax adjustments.

Cadence management uses non-GAAP net income because it excludes items that are generally not directly related to the performance of Cadence’s core business operations and therefore provides supplemental information to Cadence management and investors regarding the performance of the business operations, facilitates comparisons to the historical operating results and allows the review of Cadence's business from the same perspective as Cadence management, including forecasting and budgeting.

The following tables reconcile the specific items excluded from GAAP operating margin, GAAP net income and GAAP net income per diluted share in the calculation of non-GAAP operating margin, non-GAAP net income and non-GAAP net income per diluted share for the periods shown below:

CDNS–IR

Category: Financial, Featured

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