Cadence Reports Fourth Quarter and Fiscal Year 2023 Financial Results
Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the fourth quarter and fiscal year 2023. Fourth Quarter 2023 Financial Highlights Revenue of $1.069 billion, compared to revenu...
Fiscal Year 2023 Total Revenue Up 15% Year Over Year
EPS Up Over 20% Year Over Year
Record Backlog of $6.0 Billion and cRPO of $3.2 Billion
SAN JOSE, Calif.: Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the fourth quarter and fiscal year 2023.
Fourth Quarter 2023 Financial Highlights
- Revenue of $1.069 billion, compared to revenue of $900 million in Q4 2022
- GAAP operating margin of 31%, compared to 23% in Q4 2022
- Non-GAAP operating margin of 43%, compared to 36% in Q4 2022
- GAAP diluted net income per share of $1.19, compared to $0.88 in Q4 2022
- Non-GAAP diluted net income per share of $1.38, compared to $0.96 in Q4 2022
Fiscal Year 2023 Financial Highlights
- Revenue of $4.090 billion, compared to revenue of $3.562 billion in 2022
- GAAP operating margin of 31%, compared to 30% in 2022
- Non-GAAP operating margin of 42%, compared to 40% in 2022
- GAAP diluted net income per share of $3.82, compared to $3.09 in 2022
- Non-GAAP diluted net income per share of $5.15, compared to $4.27 in 2022
- Year-end backlog was $6.0 billion and current remaining performance obligations (“cRPO”), contract revenue expected to be recognized as revenue in the next 12 months, was $3.2 billion
“Cadence delivered exceptional results for 2023, propelled by our innovative solutions and the successful execution of our Intelligent System Design strategy,” said Anirudh Devgan, president and chief executive officer. “I'm thrilled about the opportunities ahead of us, particularly in AI and 3D-IC. And I look forward to continuing to drive our broad-based business momentum through our technology leadership.”
“We had a strong finish to the year, with growth across all our businesses in 2023,” said John Wall, senior vice president and chief financial officer. “I’m pleased with our record year-end backlog of $6.0 billion and cRPO of $3.2 billion, and I look forward to building on that strength in 2024.”
CFO Commentary
Commentary on the fourth quarter and fiscal year 2023 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 $4.55 billion to $4.61 billion
- GAAP operating margin in the range of 32% to 33%
- Non-GAAP operating margin in the range of 42% to 43%
- GAAP diluted net income per share in the range of $4.08 to $4.18
- Non-GAAP diluted net income per share in the range of $5.87 to $5.97
For the first quarter of 2024, the company expects:
- Revenue in the range of $990 million to $1.01 billion
- GAAP operating margin in the range of 24.5% to 25.5%
- Non-GAAP operating margin in the range of 36.5% to 37.5%
- GAAP diluted net income per share in the range of $0.74 to $0.78
- Non-GAAP diluted net income per share in the range of $1.10 to $1.14
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 highlights 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
- Further broadened Cadence.AI generative AI portfolio with introduction of Voltus™ InsightAI for intelligent power analysis and Celsius™ Studio for AI-driven full system thermal analysis. Accelerating momentum of our Cadence.AI portfolio has led to an almost tenfold increase in the number of customers adopting our GenAI solutions in 2023
- System Design and Analysis grew 22% year over year in 2023, with strong momentum from the company's multiphysics platform delivering superior results to customers across multiple segments including aerospace and defense and automotive
- The Millennium™ Enterprise Multiphysics Platform, which was announced earlier this month, is the industry’s first hardware/software platform combining AI, HPC and digital twin technology delivering 20x energy efficiency and up to 100x design impact
- Expanded long-standing collaborations with strategic partners NVIDIA, Arm and Intel
- 2023 was another record year for Palladium® and Protium™ hardware systems, with an exceptionally strong Q1 2023 hardware quarter when the company expanded production capacity to improve delivery lead times against the backlog
Audio Webcast Scheduled
Anirudh Devgan, president and chief executive officer, and John Wall, senior vice president and chief financial officer, will host the fourth quarter and fiscal year 2023 financial results audio webcast today, February 12, 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 February 12, 2024 at 5 p.m. (Pacific) and ending March 15, 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 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 nine 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, strategic objectives, business prospects, technology and product developments, industry trends 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 rates, currency exchange rate fluctuations, inflation rates, Cadence's upcoming debt maturities and Cadence’s ability to access capital and debt markets; (vii) the continued 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:
Operating Margin Reconciliation | Three Months Ended | |||||
| December 31, 2023 | December 31, 2022 | ||||
| (unaudited) | |||||
GAAP operating margin as a percent of total revenue | 31 | % | 23 | % | ||
Reconciling items to non-GAAP operating margin as a percent of total revenue: |
|
| ||||
Stock-based compensation expense | 8 | % | 8 | % | ||
Amortization of acquired intangibles | 2 | % | 2 | % | ||
Acquisition and integration-related costs | 1 | % | 2 | % | ||
Restructuring | 0 | % | 0 | % | ||
Non-qualified deferred compensation expenses | 1 | % | 1 | % | ||
Non-GAAP operating margin as a percent of total revenue | 43 | % | 36 | % | ||
Operating Margin Reconciliation | Years Ended | |||||
| December 31, 2023 | December 31, 2022 | ||||
| (unaudited) | |||||
GAAP operating margin as a percent of total revenue | 31 | % | 30 | % | ||
Reconciling items to non-GAAP operating margin as a percent of total revenue: |
|
| ||||
Stock-based compensation expense | 8 | % | 8 | % | ||
Amortization of acquired intangibles | 2 | % | 2 | % | ||
Acquisition and integration-related costs | 1 | % | 1 | % | ||
Restructuring | 0 | % | 0 | % | ||
Non-qualified deferred compensation expenses (credits) | 0 | % | (1 | )% | ||
Non-GAAP operating margin as a percent of total revenue | 42 | % | 40 | % | ||
Net Income Reconciliation | Three Months Ended | |||||||
| December 31, 2023 | December 31, 2022 | ||||||
(in thousands) | (unaudited) | |||||||
Net income on a GAAP basis | $ | 323,899 |
| $ | 240,392 |
| ||
Stock-based compensation expense |
| 86,683 |
|
| 73,249 |
| ||
Amortization of acquired intangibles |
| 16,920 |
|
| 15,369 |
| ||
Acquisition and integration-related costs |
| 12,583 |
|
| 17,510 |
| ||
Restructuring |
| (569 | ) |
| 13 |
| ||
Non-qualified deferred compensation expenses |
| 6,295 |
|
| 3,233 |
| ||
Other income or expense related to investments and non-qualified deferred compensation plan assets* |
| (27,966 | ) |
| (2,584 | ) | ||
Income tax effect of non-GAAP adjustments |
| (41,638 | ) |
| (85,397 | ) | ||
Net income on a non-GAAP basis | $ | 376,207 |
| $ | 261,785 |
| ||
* | Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense. |
| Net Income Reconciliation | Years Ended | |||||||
| December 31, 2023 |
| December 31, 2022 | |||||
(in thousands) | (unaudited) | |||||||
Net income on a GAAP basis | $ | 1,041,144 |
| $ | 848,952 |
| ||
Stock-based compensation expense |
| 325,611 |
|
| 270,439 |
| ||
Amortization of acquired intangibles |
| 61,970 |
|
| 59,818 |
| ||
Acquisition and integration-related costs |
| 56,542 |
|
| 41,103 |
| ||
Restructuring |
| 11,013 |
|
| 55 |
| ||
Non-qualified deferred compensation expenses (credits) |
| 10,851 |
|
| (8,744 | ) | ||
Other income or expense related to investments and non-qualified deferred compensation plan assets* |
| (45,502 | ) |
| 14,171 |
| ||
Income tax effect of non-GAAP adjustments |
| (57,139 | ) |
| (52,475 | ) | ||
Net income on a non-GAAP basis | $ | 1,404,490 |
| $ | 1,173,319 |
| ||
* | Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense. |
Diluted Net Income Per Share Reconciliation |
| Three Months Ended | ||||||
|
| December 31, 2023 |
| December 31, 2022 | ||||
(in thousands, except per share data) |
| (unaudited) | ||||||
Diluted net income per share on a GAAP basis |
| $ | 1.19 |
|
| $ | 0.88 |
|
Stock-based compensation expense |
|
| 0.32 |
|
|
| 0.27 |
|
Amortization of acquired intangibles |
|
| 0.06 |
|
|
| 0.06 |
|
Acquisition and integration-related costs |
|
| 0.04 |
|
|
| 0.06 |
|
Restructuring |
|
| — |
|
|
| — |
|
Non-qualified deferred compensation expenses |
|
| 0.02 |
|
|
| 0.01 |
|
Other income or expense related to investments and non-qualified deferred compensation plan assets* |
|
| (0.10 | ) |
|
| (0.01 | ) |
Income tax effect of non-GAAP adjustments |
|
| (0.15 | ) |
|
| (0.31 | ) |
Diluted net income per share on a non-GAAP basis |
| $ | 1.38 |
|
| $ | 0.96 |
|
Shares used in calculation of diluted net income per share |
|
| 272,419 |
|
|
| 272,997 |
|
* | Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense. |
Diluted Net Income Per Share Reconciliation |
| Years Ended | ||||||
|
| December 31, 2023 |
| December 31, 2022 | ||||
(in thousands, except per share data) |
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