| Product Segment                                      | Q4 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
|------------------------------------------------------|---------|---------|---------|---------|---------|---------|---------|---------|
| Custom IC Design and Simulation (% of total revenue) | **22%**  **[0000813672-23-000010_cdns02132023ex9901.htm:9]**  | **20%**  **[0000813672-23-000024_cfocommentary04242023ex9902.htm:2]**  | **22%**  **[0000813672-23-000040_cfocommentary07242023ex9902.htm:2]**  | **22%**  **[0000813672-23-000067_cfocommentary10232023ex9902.htm:2]**  | **22%**  **[0000813672-24-000030_cdns02122024ex9901.htm:9]**  | **22%**  **[0000813672-24-000083_cfocommentary04222024ex9902.htm:2]**  | **21%**  **[0000813672-24-000150_cfocommentary07222024ex9902.htm:2]**  | **19%**  **[0000813672-24-000188_cfocommentary10282024ex9902.htm:2]**  |
| Digital IC Design and Signoff (% of total revenue)   | **28%**  **[0000813672-23-000010_cdns02132023ex9901.htm:9]**  | **25%**  **[0000813672-23-000024_cfocommentary04242023ex9902.htm:2]**  | **27%**  **[0000813672-23-000040_cfocommentary07242023ex9902.htm:2]**  | **28%**  **[0000813672-23-000067_cfocommentary10232023ex9902.htm:2]**  | **29%**  **[0000813672-24-000030_cfocommentary02122024ex9902.htm:2]**  | **29%**  **[0000813672-24-000083_cfocommentary04222024ex9902.htm:2]**  | **27%**  **[0000813672-24-000150_cfocommentary07222024ex9902.htm:2]**  | **24%**  **[0000813672-24-000188_cfocommentary10282024ex9902.htm:2]**  |
| Functional Verification (% of total revenue)         | **25%**  **[0000813672-23-000010_cfocommentary02132023ex9902.htm:2]**  | **32%**  **[0000813672-23-000024_cfocommentary04242023ex9902.htm:2]**  | **27%**  **[0000813672-23-000040_cfocommentary07242023ex9902.htm:2]**  | **26%**  **[0000813672-23-000067_cfocommentary10232023ex9902.htm:2]**  | **24%**  **[0000813672-24-000030_cfocommentary02122024ex9902.htm:2]**  | **25%**  **[0000813672-24-000092_cdns-20240331.htm:27]**  | **25%**  **[0000813672-24-000150_cfocommentary07222024ex9902.htm:2]**  | **27%**  **[0000813672-24-000188_cfocommentary10282024ex9902.htm:2]**  |
| IP (% of total revenue)                              | **12%**  **[0000813672-23-000010_cdns02132023ex9901.htm:9]**  | **11%**  **[0000813672-23-000024_cfocommentary04242023ex9902.htm:2]**  | **11%**  **[0000813672-23-000040_cfocommentary07242023ex9902.htm:2]**  | **11%**  **[0000813672-23-000067_cfocommentary10232023ex9902.htm:2]**  | **13%**  **[0000813672-24-000030_cfocommentary02122024ex9902.htm:2]**  | **12%**  **[0000813672-24-000083_cfocommentary04222024ex9902.htm:2]**  | **13%**  **[0000813672-24-000150_cfocommentary07222024ex9902.htm:2]**  | **14%**  **[0000813672-24-000188_cfocommentary10282024ex9902.htm:2]**  |
| System Design and Analysis (% of total revenue)      | **13%**  **[0000813672-23-000010_cfocommentary02132023ex9902.htm:2]**  | **12%**  **[0000813672-23-000024_cfocommentary04242023ex9902.htm:2]**  | **13%**  **[0000813672-23-000040_cfocommentary07242023ex9902.htm:2]**  | **13%**  **[0000813672-23-000067_cfocommentary10232023ex9902.htm:2]**  | **12%**  **[0000813672-24-000030_cfocommentary02122024ex9902.htm:2]**  | **12%**  **[0000813672-24-000083_cfocommentary04222024ex9902.htm:2]**  | **14%**  **[0000813672-24-000150_cfocommentary07222024ex9902.htm:2]**  | **16%**  **[0000813672-24-000188_cfocommentary10282024ex9902.htm:2]**  |

1a04ab31686e001533ea2fad72f62aa76dfd5985e6af07561a72400423949e07

Total Revenue [USD, Thousands]

Cost of Goods Sold (COGS) [USD, Thousands]

SG&A [USD, Thousands]

R&D [USD, Thousands]

D&A [USD, Thousands]

Interest Expense [USD, Thousands]

Operating Income (EBIT) [USD, Thousands]

Net Income [USD, Thousands]

EPS - Basic [USD, Units]

EPS - Diluted [USD, Units]

956c0ff732c8977b85511015a3f4456cba08084c9e629bea301b710fa9e60ca2

Cadence Design Systems, Inc. is a leader in electronic system design software and intellectual property (IP), offering computational software, special-purpose computational hardware, IP, and services across various sectors such as automotive, AI, aerospace and defense, and high-performance computing **[0000813672-24-000034_cdns-20231231.htm:62]** **[0000813672-24-000034_cdns-20231231.htm:102]** **[0000813672-24-000131_s-3cdns06052024.htm:6]**. The company organizes its offerings into five main product categories, which are crucial to its business operations **[0000813672-24-000034_cdns-20231231.htm:62]** **[0000813672-24-000034_cdns-20231231.htm:102]** **[0000813672-24-000131_s-3cdns06052024.htm:6]**. Cadence's revenue is primarily driven by the increasing complexity of semiconductor and electronic systems, with a significant portion recognized over time from software arrangements, services, and maintenance **[0000813672-24-000192_cdns-20240930.htm:9]** **[0000813672-24-000034_cdns-20231231.htm:113]**. The company has expanded its capabilities through acquisitions like Invecas and BETA CAE Systems to enhance its product offerings and market reach **[0000813672-24-000092_cdns-20240331.htm:23]** **[0000813672-24-000192_cdns-20240930.htm:31]**.

1. **Digital IC Design and Signoff** - Provides tools and solutions for designing and verifying digital integrated circuits, ensuring they meet performance and power specifications.
2. **Functional Verification** - Offers comprehensive verification solutions to ensure the functionality and reliability of complex electronic systems.
3. **Custom IC Design and Simulation** - Delivers software and tools for designing and simulating custom integrated circuits, focusing on analog, RF, and mixed-signal designs.
4. **IP** - Supplies a broad range of intellectual property cores and solutions to accelerate the development of semiconductor products.
5. **System Design and Analysis** - Provides tools and services for designing and analyzing complete electronic systems, enhancing performance and efficiency.

88a4135ae4a4988c33bc5ad630fe9177ba88d790d14518ff91e3b165c5efad53

| Geographical Segment | Q4 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
|----------------------|---------|---------|---------|---------|---------|---------|---------|---------|
| **United States** ($ million) | N/A | $434.3  **[0000813672-23-000025_cdns-20230331.htm:24]**  | $385.6  **[0000813672-23-000041_cdns-20230630.htm:31]**  | $421.6  **[0000813672-23-000068_cdns-20230930.htm:32]**  | N/A | $435.5  **[0000813672-24-000092_cdns-20240331.htm:27]**  | $507.2  **[0000813672-24-000155_cdns-20240630.htm:34]**  | $580.5  **[0000813672-24-000192_cdns-20240930.htm:35]**  |
| **Other Americas** ($ million) | N/A | $16.1  **[0000813672-23-000025_cdns-20230331.htm:24]**  | $16.0  **[0000813672-23-000041_cdns-20230630.htm:31]**  | $15.8  **[0000813672-23-000068_cdns-20230930.htm:32]**  | N/A | $27.4  **[0000813672-24-000092_cdns-20240331.htm:27]**  | $11.7  **[0000813672-24-000155_cdns-20240630.htm:34]**  | $24.9  **[0000813672-24-000192_cdns-20240930.htm:35]**  |
| **China** ($ million) | N/A | $177.6  **[0000813672-23-000025_cdns-20230331.htm:24]**  | $174.1  **[0000813672-23-000041_cdns-20230630.htm:31]**  | $172.0  **[0000813672-23-000068_cdns-20230930.htm:32]**  | N/A | $117.2  **[0000813672-24-000092_cdns-20240331.htm:27]**  | $127.8  **[0000813672-24-000155_cdns-20240630.htm:34]**  | $156.7  **[0000813672-24-000192_cdns-20240930.htm:35]**  |
| **Other Asia** ($ million) | N/A | $184.0  **[0000813672-23-000025_cdns-20230331.htm:24]**  | $176.9  **[0000813672-23-000041_cdns-20230630.htm:31]**  | $197.8  **[0000813672-23-000068_cdns-20230930.htm:32]**  | N/A | $208.5  **[0000813672-24-000092_cdns-20240331.htm:27]**  | $197.9  **[0000813672-24-000155_cdns-20240630.htm:34]**  | $211.1  **[0000813672-24-000192_cdns-20240930.htm:35]**  |
| **EMEA** ($ million) | N/A | $154.3  **[0000813672-23-000025_cdns-20230331.htm:24]**  | $166.8  **[0000813672-23-000041_cdns-20230630.htm:31]**  | $158.2  **[0000813672-23-000068_cdns-20230930.htm:32]**  | N/A | $169.1  **[0000813672-24-000092_cdns-20240331.htm:27]**  | $152.5  **[0000813672-24-000155_cdns-20240630.htm:34]**  | $174.6  **[0000813672-24-000192_cdns-20240930.htm:35]**  |
| **Japan** ($ million) | N/A | $55.4  **[0000813672-23-000025_cdns-20230331.htm:24]**  | $57.2  **[0000813672-23-000041_cdns-20230630.htm:31]**  | $57.7  **[0000813672-23-000068_cdns-20230930.htm:32]**  | N/A | $51.4  **[0000813672-24-000092_cdns-20240331.htm:27]**  | $63.6  **[0000813672-24-000155_cdns-20240630.htm:34]**  | $67.7  **[0000813672-24-000192_cdns-20240930.htm:35]**  |
| **Total Revenue** ($ million) | N/A | $1,022  **[0000813672-23-000024_cdns04242023ex9901.htm:0]**  | $976.6  **[0000813672-23-000041_cdns-20230630.htm:31]**  | $1,023.1  **[0000813672-23-000068_cdns-20230930.htm:32]**  | N/A | $1,009  **[0000813672-24-000083_cdns04222024ex9901.htm:0]**  | $1,060.7  **[0000813672-24-000155_cdns-20240630.htm:34]**  | $1,215.5  **[0000813672-24-000192_cdns-20240930.htm:35]**  |

9955a19cf5b68e7d002aa47ed532092632e9cb4ae49d80ccead8d211d6840f44

1. Given the strong demand for your new hardware systems but current production constraints, how do you plan to balance meeting customer demand with managing inventory levels, and can you provide more clarity on when you expect production to catch up with demand?

2. With bookings being stronger than expected in Q2 and reduced expectations for China, how does this impact your outlook for the second half of 2024, and what steps are you taking to mitigate potential risks in that region?

3. Considering the significant upfront investment in raw materials to support multi-year hardware demand, how do you expect this to affect your operating cash flow in future quarters, and what assurances can you provide regarding the longevity of demand for these systems?

4. As your memory customers shift towards more advanced digital design and 3D-IC integration, how are you positioning your advanced digital implementation and verification products to capture this opportunity, and what competitive advantages do you have in this area?

5. With the expansion of your multiphysics platform through acquisitions like beta CAE and the development of integrated solutions, can you elaborate on your strategy for bundling and packaging products, and how this approach will drive growth in both EDA and System Design and Analysis segments?

e0a7a4b932a04ac359e1ee551f2800399859aeecbc6ab1db5353dd1441fea374

| Program Details          | Program 1       |
|--------------------------|-----------------|
| Approval Date            | **August 2, 2023**  **[0000813672-24-000192_cdns-20240930.htm:58]**  |
| End Date/Duration        | No expiration date  **[0000813672-24-000192_cdns-20240930.htm:45]** **[0000813672-24-000192_cdns-20240930.htm:58]**  |
| Total Additional Amount  | **$1.0 billion**  **[0000813672-24-000192_cdns-20240930.htm:58]**  |
| Remaining Authorization  | **$1.0 billion**  **[0000813672-24-000192_cdns-20240930.htm:20]** **[0000813672-24-000192_cdns-20240930.htm:45]**  |
| Details                  | Prevent share dilution associated with stock compensation plans  **[0000813672-23-000011_cdns-20221231.htm:45]** **[0000813672-24-000034_cdns-20231231.htm:50]**  |

c076dd92dce42fb8a93403971c34ce95e0b83be1b3183ec5940f5b598b1a01fa

Adjustments for Non-Cash Items

Stock-Based Compensation

Changes in Working Capital

Capital Expenditures (CapEx)

Proceeds from / Repayments of Debt

Share Repurchases

Dividend Payments

Net Change in Cash

38fd9e2e9a887905e18ecbabdc5eba0e7f3ed3b2eb0df795ead1e32d1c3b5d0f

719e4875bd7acd9cfd774a541e1ba4e995b8f3a2f0f33d39a360d7c85e56729c

31f8079e21e9546bc86c85ba35479d9ec56da558ab790a5101c0167377779797

United States

Other Americas

China

Other Asia

Asia

EMEA

Japan

Total Revenue

6b66b8b5086cd571cd6ea6012b932852b5db5ca11664e96d46557f7e978cca58

23794d91c53ae875c8e247d72561e35d9d06ee07c70c9e0dbcc977a6d161504a

- **Synopsys, Inc.** - Frequently competes with Cadence in the EDA industry  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **Siemens EDA** - Another frequent competitor in the EDA industry  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **ANSYS, Inc.** - Competes with Cadence in the EDA industry  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **Keysight Technologies, Inc.** - U.S. based competitor  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **Schrödinger, Inc.** - U.S. based competitor  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **CEVA, Inc.** - U.S. based competitor  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **Altium Limited** - Based in Australia  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **Zuken Ltd.** - Based in Japan  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **Huada Empyrean** - Emerging competitor in China  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **Xpeedic** - Emerging competitor in China  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **X-EPIC** - Emerging competitor in China  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **Primarius Technologies** - Emerging competitor in China  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **Univista** - Emerging competitor in China  **[0000813672-24-000034_cdns-20231231.htm:17]** .
- **Giga-DA** - Emerging competitor in China  **[0000813672-24-000034_cdns-20231231.htm:17]** .

1490318950ab937231d4e49d57464c85b76a8bcc582095b32d36e48e739f5168

### Q3 2024 Earnings Call
- **Issued Period:** Q3 2024
- **Guided Period:** Q3 2024
  - **Revenue:** $1.165 billion to $1.195 billion  **[CDNS_3393865_3]** .
  - **GAAP Operating Margin:** 27.7% to 29.3%  **[CDNS_3393865_3]** .
  - **Non-GAAP Operating Margin:** 40.7% to 42.3%  **[CDNS_3393865_3]** .
  - **GAAP EPS:** $0.83 to $0.93  **[CDNS_3393865_3]** .
  - **Non-GAAP EPS:** $1.39 to $1.49  **[CDNS_3393865_3]** .

### Q2 2024 Earnings Call
- **Issued Period:** Q2 2024
- **Guided Period:** Q3 2024 and FY 2024
  - **Q3 2024 Guidance:**
    - **Revenue:** $1.165 billion to $1.195 billion  **[CDNS_3393865_3]** .
    - **GAAP Operating Margin:** 27.7% to 29.3%  **[CDNS_3393865_3]** .
    - **Non-GAAP Operating Margin:** 40.7% to 42.3%  **[CDNS_3393865_3]** .
    - **GAAP EPS:** $0.83 to $0.93  **[CDNS_3393865_3]** .
    - **Non-GAAP EPS:** $1.39 to $1.49  **[CDNS_3393865_3]** .
  - **FY 2024 Guidance:**
    - **Revenue:** $4.6 billion to $4.66 billion  **[CDNS_3393865_3]** .
    - **GAAP Operating Margin:** 29.7% to 31.3%  **[CDNS_3393865_3]** .
    - **Non-GAAP Operating Margin:** 41.7% to 43.3%  **[CDNS_3393865_3]** .
    - **GAAP EPS:** $3.82 to $4.02  **[CDNS_3393865_3]** .
    - **Non-GAAP EPS:** $5.77 to $5.97  **[CDNS_3393865_3]** .
    - **Operating Cash Flow:** $1 billion to $1.2 billion  **[CDNS_3393865_3]** .
    - **Share Repurchase:** Approximately 50% of annual free cash flow to repurchase shares  **[CDNS_3393865_3]** .

### Q1 2024 Earnings Call
- **Issued Period:** Q1 2024
- **Guided Period:** Q2 2024 and FY 2024
  - **Q2 2024 Guidance:**
    - **Revenue:** $1.03 billion to $1.05 billion  **[CDNS_3380182_4]** .
    - **GAAP Operating Margin:** 26.5% to 27.5%  **[CDNS_3380182_4]** .
    - **Non-GAAP Operating Margin:** 38.5% to 39.5%  **[CDNS_3380182_4]** .
    - **GAAP EPS:** $0.73 to $0.77  **[CDNS_3380182_4]** .
    - **Non-GAAP EPS:** $1.20 to $1.24  **[CDNS_3380182_4]** .
  - **FY 2024 Guidance:**
    - **Revenue:** $4.56 billion to $4.62 billion  **[CDNS_3380182_4]** .
    - **GAAP Operating Margin:** 31% to 32%  **[CDNS_3380182_4]** .
    - **Non-GAAP Operating Margin:** 42% to 43%  **[CDNS_3380182_4]** .
    - **GAAP EPS:** $4.04 to $4.14  **[CDNS_3380182_4]** .
    - **Non-GAAP EPS:** $5.88 to $5.98  **[CDNS_3380182_4]** .
    - **Operating Cash Flow:** $1.35 billion to $1.45 billion  **[CDNS_3380182_4]** .
    - **Share Repurchase:** At least 50% of annual free cash flow for repurchasing shares  **[CDNS_3380182_4]** .

### Q4 2023 Earnings Call
- **Issued Period:** Q4 2023
- **Guided Period:** Q1 2024 and FY 2024
  - **Q1 2024 Guidance:**
    - **Revenue:** $990 million to $1.01 billion  **[CDNS_3372994_4]** .
    - **GAAP Operating Margin:** 24.5% to 25.5%  **[CDNS_3372994_4]** .
    - **Non-GAAP Operating Margin:** 36.5% to 37.5%  **[CDNS_3372994_4]** .
    - **GAAP EPS:** $0.74 to $0.78  **[CDNS_3372994_4]** .
    - **Non-GAAP EPS:** $1.10 to $1.14  **[CDNS_3372994_4]** .
  - **FY 2024 Guidance:**
    - **Revenue:** $4.55 billion to $4.61 billion  **[CDNS_3372994_4]** .
    - **GAAP Operating Margin:** 32% to 33%  **[CDNS_3372994_4]** .
    - **Non-GAAP Operating Margin:** 42% to 43%  **[CDNS_3372994_4]** .
    - **GAAP EPS:** $4.08 to $4.18  **[CDNS_3372994_4]** .
    - **Non-GAAP EPS:** $5.87 to $5.97  **[CDNS_3372994_4]** .
    - **Operating Cash Flow:** $1.35 billion to $1.45 billion  **[CDNS_3372994_4]** .
    - **Share Repurchase:** Approximately 50% of free cash flow for repurchasing shares  **[CDNS_3372994_4]** .
    - **Upfront Revenue Mix:** Expected to increase to approximately 17.5% for the year  **[CDNS_3372994_4]** .
    - **Tax Rate for Non-GAAP EPS:** 16.5%  **[CDNS_3372994_4]** .
    - **Export Control Regulations:** Assumed to remain substantially similar for the remainder of the year  **[CDNS_3372994_4]** .

beb53028f983b9aef92dc9f68552a98c6d32fdeab2f8c79ec7c7e95be07400fd

| Name             | Position                                                                 | Start Date          | Short Bio                                                                                                                                                                                                                                                                                                                                 |
|------------------|--------------------------------------------------------------------------|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Anirudh Devgan   | President and Chief Executive Officer                                    | December 2021       | Anirudh Devgan has served as the CEO of Cadence since December 2021 and as President since November 2017. He joined Cadence in 2012, initially serving as Executive Vice President and General Manager of the Digital & Signoff and System & Verification groups. He is an IEEE Fellow and has received numerous awards  **[0000813672-24-000034_cdns-20231231.htm:20]** **[0001193125-24-064868_d649284dpre14a.htm:28]** **[0001193125-23-076688_d447637ddef14a.htm:25]** .            |
| John M. Wall     | Senior Vice President and Chief Financial Officer                        | October 2017        | John M. Wall has served as Senior Vice President and CFO of Cadence since October 2017. He previously held several positions at Cadence, including Corporate Vice President and Corporate Controller. He is a Fellow of the Association of Chartered Certified Accountants  **[0000813672-24-000034_cdns-20231231.htm:20]** **[0000813672-23-000011_cdns-20221231.htm:18]** .                                                        |
| Thomas P. Beckley| Senior Vice President and General Manager of the Custom IC and PCB Group | 2018                | Thomas P. Beckley has served as Senior Vice President and General Manager of the Custom IC and PCB Group at Cadence since 2018. He was previously Senior Vice President of Research and Development at Cadence. Before joining Cadence, he was the CEO of Neolinear, Inc.  **[0000813672-24-000034_cdns-20231231.htm:20]** **[0000813672-23-000011_cdns-20221231.htm:18]** .                                                          |
| Paul Cunningham  | Senior Vice President and General Manager of the System Verification Group| March 2021          | Paul Cunningham has served as Senior Vice President and General Manager of the System Verification Group at Cadence since March 2021. He was previously Corporate Vice President of the System Verification Group. He co-founded Azuro, Inc., which Cadence acquired in 2011  **[0000813672-24-000034_cdns-20231231.htm:20]** **[0000813672-23-000011_cdns-20221231.htm:18]** .                                                       |
| Karna Nisewaner  | Senior Vice President, General Counsel, and Corporate Secretary          | February 2024       | Karna Nisewaner has served as Senior Vice President, General Counsel, and Corporate Secretary of Cadence since February 2024. She previously held several positions at Cadence, including Corporate Vice President, General Counsel, and Corporate Secretary  **[0000813672-24-000034_cdns-20231231.htm:21]** **[0000813672-24-000034_cdns-20231231.htm:20]** .                                                                       |
| Chin-Chi Teng    | Senior Vice President and General Manager of the Digital and Signoff Group| September 2018      | Chin-Chi Teng has served as Senior Vice President and General Manager of the Digital and Signoff Group at Cadence since September 2018. He previously held several positions at Cadence, including Corporate Vice President, Research and Development  **[0000813672-24-000034_cdns-20231231.htm:21]** **[0000813672-23-000011_cdns-20221231.htm:19]** .                                                                             |
| Neil Zaman       | Senior Advisor (transitioning from Senior Vice President and Chief Revenue Officer) | May 6, 2024 (transition period until May 12, 2025) | Neil Zaman has served as Senior Vice President and Chief Revenue Officer of Cadence since October 2020. He has been with Cadence since October 1999, holding various positions. He will transition from his role as Senior Vice President and Chief Revenue Officer starting May 6, 2024  **[0000813672-24-000034_cdns-20231231.htm:21]** **[0000813672-23-000011_cdns-20221231.htm:19]** **[0000813672-24-000155_ex104cdns06302024.htm:0]** . |
| Moshe Gavrielov  | Upcoming Director                                                        | January 1, 2025     | Moshe Gavrielov has been appointed as a director of Cadence, effective January 1, 2025. He has a rich history in the technology sector, having served as the president and CEO of Xilinx, Inc. from 2008 to 2018  **[0000813672-24-000209_ex991cdns12122024.htm:0]** **[0000813672-24-000209_cdns-20241212.htm:1]** .                                                                                                                  |
| Paul Scannell    | Senior Vice President of Worldwide Field Operations                      | N/A                 | Paul Scannell serves as the Senior Vice President of Worldwide Field Operations at Cadence. He adopted a trading plan on September 13, 2024, but specific details on his start date are not provided  **[0000813672-24-000192_cdns-20240930.htm:61]** .                                                                                                                               |

8564be90df28be3ee1706e32e14889c2783f9806a41efc373b86fbaee0fe8fa3

**Quarterly guidance for Q3 2024:**
- **Revenue**: $1.165 billion to $1.195 billion    (no change from prior guidance  **[CDNS_3393865_3]** )  
- **GAAP Operating Margin**: 27.7% to 29.3%    (no change from prior guidance  **[CDNS_3393865_3]** )  
- **Non-GAAP Operating Margin**: 40.7% to 42.3%    (no change from prior guidance  **[CDNS_3393865_3]** )  
- **GAAP EPS**: $0.83 to $0.93    (no change from prior guidance  **[CDNS_3393865_3]** )  
- **Non-GAAP EPS**: $1.39 to $1.49    (no change from prior guidance  **[CDNS_3393865_3]** )

4d6b71257ba8f69ae916200b33d93c0be855cd2fb86aa56ed972868af0cffc67

| Name                        | Start Date  | End Date   | Reason for Change                                                                 |
|-----------------------------|-------------|------------|----------------------------------------------------------------------------------|
| PricewaterhouseCoopers LLP  | 2020  **[0000813672-21-000009_cdns-20210102.htm:89]** | Present| Current auditor.                                                             |
| KPMG LLP                    | N/A         | 2020  **[0001193125-20-060527_d873816d8k.htm:1]** | The Audit Committee conducted a competitive process and decided to dismiss KPMG LLP after reviewing proposals from several firms.  **[0001193125-20-060527_d873816d8k.htm:1]**  |

fd2e8d6e7ebe3a05d0a7d91d1584b5056ed6cc1af45681ce117c2fd4154df3db

d69f4fa97959d661dbd78c94c064678a5aa0359f9a9e6f4128c98992d6a8e612

- Total Revenue: $1,215.5 million (**+19%** YoY)  **[0000813672-24-000192_cdns-20240930.htm:34]** **[0000813672-23-000068_cdns-20230930.htm:31]**   
- Operating Income (EBIT): $350.1 million (**+19%** YoY)  **[0000813672-23-000068_cdns-20230930.htm:2]** **[0000813672-24-000192_cdns-20240930.htm:2]**   
- Net Income: $238.1 million (**-6%** YoY)  **[0000813672-23-000068_cdns-20230930.htm:2]** **[0000813672-24-000192_cdns-20240930.htm:2]**   
- Diluted EPS: $0.87 (**-6%** YoY)  **[0000813672-23-000068_cdns-20230930.htm:2]** **[0000813672-24-000192_cdns-20240930.htm:2]**   
- U.S. Revenue: $580.5 million (**+38%** YoY)  **[0000813672-23-000068_cdns-20230930.htm:32]** **[0000813672-24-000192_cdns-20240930.htm:35]**   
- EMEA Revenue: $174.6 million (+10% YoY)  **[0000813672-23-000068_cdns-20230930.htm:32]** **[0000813672-24-000192_cdns-20240930.htm:35]**   
- Japan Revenue: $67.7 million (+17% YoY)  **[0000813672-23-000068_cdns-20230930.htm:32]** **[0000813672-24-000192_cdns-20240930.htm:35]**   
- Other Asia Revenue: $211.1 million (+7% YoY)  **[0000813672-23-000068_cdns-20230930.htm:32]** **[0000813672-24-000192_cdns-20240930.htm:35]**   

16f0a80cdf50b1d91d8114e39bb0f7823196505647f26cd6d36d55a6fc87cd47

d5c3f26fa7b8c596abd3b2700056cc3077bd00368e21b7dc3f92bb0c4b946010

| Year | Amount Due (in millions) | Debt Type          | Interest Rate (%) | % of Total Debt                                                                 |
|----------|------------------------------|------------------------|-----------------------|------------------------------------------------------------------------------------|
| 2024     | $350.0 **[0000813672-24-000192_cdns-20240930.htm:14]**               | 4.375% Senior Notes    | 4.375 **[0000813672-24-000192_cdns-20240930.htm:14]**         | 12.4% = (350.0 / 2,825.19) * 100 **[0000813672-24-000192_cdns-20240930.htm:2]** **[0000813672-24-000192_cdns-20240930.htm:14]**                                   |
| 2027     | $500.0 **[0000813672-24-000192_cdns-20240930.htm:14]**               | 4.200% Senior Notes    | 4.200 **[0000813672-24-000192_cdns-20240930.htm:14]**         | 17.7% = (500.0 / 2,825.19) * 100 **[0000813672-24-000192_cdns-20240930.htm:2]** **[0000813672-24-000192_cdns-20240930.htm:14]**                                   |
| 2029     | $1,000.0 **[0000813672-24-000192_cdns-20240930.htm:14]**             | 4.300% Senior Notes    | 4.300 **[0000813672-24-000192_cdns-20240930.htm:14]**         | 35.4% = (1,000.0 / 2,825.19) * 100 **[0000813672-24-000192_cdns-20240930.htm:2]** **[0000813672-24-000192_cdns-20240930.htm:14]**                                 |
| 2034     | $1,000.0 **[0000813672-24-000192_cdns-20240930.htm:14]**             | 4.700% Senior Notes    | 4.700 **[0000813672-24-000192_cdns-20240930.htm:14]**         | 35.4% = (1,000.0 / 2,825.19) * 100 **[0000813672-24-000192_cdns-20240930.htm:2]** **[0000813672-24-000192_cdns-20240930.htm:14]**                                 |

af35526c45e14bdcb552a1a6ed7ed8e993538523d8f8ab15dd014a5af1f8ec34

5a2ae08f0fb155105919f5f438f23c261479902b6382ad69768c73a2214d652b

- **Significant Growth in AI-driven Solutions:** Cadence reported that **orders for Cadence.AI tripled year-over-year**, indicating strong demand for their AI-driven automation solutions  **[CDNS_3393865_26]** . The integration of Cadence.AI into new contracts is enhancing value and is expected to contribute more noticeably to revenue in future quarters  **[CDNS_3393865_26]** .
- **Strengthened Position in the Automotive Sector:** The acquisition of **beta CAE** completes Cadence's system analysis portfolio by adding structural analysis capabilities, thereby **strengthening their position in the automotive market**  **[CDNS_3393865_9]** . With the automotive industry moving towards chiplets and 3D-IC, Cadence is well-positioned to capitalize on the increasing **silicon content and AI adoption** in this sector  **[CDNS_3393865_9]** .
- **Expanding Opportunities in Memory and AI Supercycle:** Cadence is leveraging its **strong partnerships with leading memory companies** to capitalize on the essential role of memory in the AI supercycle  **[CDNS_3393865_18]** . The company's advanced solutions in **HBM and 3D-IC integration** are driving increased adoption of their digital implementation and verification products among memory customers  **[CDNS_3393865_18]** .

a69e8c7b0f6464c02039be615e4d991cfe10f5cd95dcbd13234bff30a2e8fd7b

1. **China Sales Outlook**  
   **Q:** Are China revenues improving or weakening in the second half?  
   **A:** Management noted that China revenue remained light in Q2, contributing **12%** in both Q1 and Q2. They only need China to reach **13%** of overall revenue to hit their guidance midpoint. While they've prudently assumed lower China revenue, they expect it to improve through the year.  **[CDNS_3393865_5]** **[CDNS_3393865_8]** **[CDNS_3393865_19]** 

2. **Hardware Demand and Supply Constraints**  
   **Q:** Is strong hardware demand causing supply constraints and impacting deliveries?  
   **A:** Demand for new hardware systems, **Palladium Z3** and **Protium X3**, is strong, with orders exceeding production capacity. Lead times are longer as they work to build systems quickly. They are purchasing significant raw materials to build inventory, impacting operating cash flow by approximately **$300 million** in Q3.  **[CDNS_3393865_7]** **[CDNS_3393865_9]** **[CDNS_3393865_11]** **[CDNS_3393865_19]** **[CDNS_3393865_25]** 

3. **Confidence in Q4 Revenue Ramp**  
   **Q:** What gives confidence in achieving the implied Q4 growth ramp?  
   **A:** The Q4 revenue ramp is driven by timing of shipments, with more upfront revenue expected from IP and System Design & Analysis (**SD&A**) businesses in the second half. Management is confident due to strong bookings and execution against backlog, acknowledging the unique revenue curve this year.  **[CDNS_3393865_6]** **[CDNS_3393865_7]** **[CDNS_3393865_24]** 

4. **Bookings and Backlog Trends**  
   **Q:** Are bookings and backlog expected to grow in 2024?  
   **A:** They reported strong bookings in the first half and expect a book-to-bill ratio greater than **1** for the full year. The **Beta CAE** acquisition's contribution to backlog is immaterial. Backlog trends remain healthy, and they are focused on profitable revenue growth.  **[CDNS_3393865_8]** **[CDNS_3393865_17]** **[CDNS_3393865_25]** 

5. **Impact of Beta CAE Acquisition**  
   **Q:** How will the Beta CAE acquisition affect financials and when will it be accretive?  
   **A:** **Beta CAE** adds structural analysis to complete their system analysis portfolio, strengthening their position in automotive. It is expected to be operationally accretive next year but dilutive to non-GAAP EPS by **$0.12** in 2024. Some purchase price impacts operating cash flow.  **[CDNS_3393865_9]** **[CDNS_3393865_17]** **[CDNS_3393865_25]** 

6. **AI's Contribution to Growth**  
   **Q:** How is AI adoption impacting Cadence's business and revenue?  
   **A:** AI orders tripled year-over-year, integrating into the Cadence portfolio. Management sees increasing use cases across digital implementation, verification, and system design. AI adoption is leading to an uptick in customer deployment and is becoming essential in design processes.  **[CDNS_3393865_16]** **[CDNS_3393865_26]** 

7. **Automotive and 3D-IC Trends**  
   **Q:** How significant is the adoption of 3D-IC in automotive markets?  
   **A:** **3D-IC** is becoming more prevalent in automotive, with increased activity over the past 6 to 12 months. Both semiconductor companies and OEMs are adopting 3D-IC and chiplet architectures to customize and differentiate their products, which benefits Cadence's offerings.  **[CDNS_3393865_22]** 

8. **Memory Customers and Digital Design**  
   **Q:** Are memory customers adopting advanced digital design tools?  
   **A:** Memory companies are increasingly moving to advanced digital design, driven by trends like **HBM** and 3D-IC integration. Cadence's strong partnerships with major memory companies and strength in **Virtuoso** position them well as memory customers adopt more of their digital implementation and verification products.  **[CDNS_3393865_18]** 

9. **Recurring vs. Upfront Revenue Mix**  
   **Q:** How is the mix between recurring and upfront revenue expected to shape?  
   **A:** For the full year, recurring revenue is expected to be **80% to 85%** of total revenue. Q2 saw stronger bookings and an uplift in recurring revenue. Upfront revenue is more weighted towards Q4, driven by IP and SD&A businesses. Hardware revenue will contribute, but building inventory is necessary to meet demand.  **[CDNS_3393865_10]** **[CDNS_3393865_12]** **[CDNS_3393865_13]** **[CDNS_3393865_20]** **[CDNS_3393865_24]** 

10. **Product Packaging and Bundling Strategy**  
    **Q:** Is Cadence moving towards more integrated product packaging?  
    **A:** Yes, they are focusing on integrated solutions, with platforms like **Helium Studio** and **Verisium** integrating multiple tools. This trend facilitates workflow automation and enhances value to customers, especially as AI applications expand across the design process.  **[CDNS_3393865_15]** **[CDNS_3393865_16]**  

11. **Accelerated Customer Roadmaps**  
    **Q:** How is the acceleration of customer product roadmaps affecting Cadence?  
    **A:** The acceleration, particularly by customers like **NVIDIA** and **AMD**, is leading to increased design activity. AI is broadening into various verticals beyond data centers, such as automotive and consumer devices, creating more opportunities for Cadence's products and services.  **[CDNS_3393865_14]** 

12. **Impact of Raw Material Investments**  
    **Q:** Why is there a significant investment in raw materials impacting cash flow?  
    **A:** They are making a one-time, multi-year purchase of raw materials to build new hardware systems due to strong demand. This will impact operating cash flow in Q3 by about **$300 million**, but it's intended to support future demand and will be favorable for next year's cash flow.  **[CDNS_3393865_9]** **[CDNS_3393865_11]** **[CDNS_3393865_25]** 

13. **Verification and Hardware Systems Integration**  
    **Q:** Will new hardware systems lead to increased software consumption?  
    **A:** The stronger hardware products are expected to enhance adoption of software verification tools. Integrated solutions combining hardware and software provide greater value to customers, potentially leading to increased software consumption in the recurring revenue portfolio.  **[CDNS_3393865_23]** 

14. **Lead Times for New Hardware Systems**  
    **Q:** Are lead times for Palladium Z3 and Protium X3 longer due to high demand?  
    **A:** Yes, demand is strong with orders outpacing production. Lead times are extended as they build systems quickly. They are working to reduce lead times by purchasing raw materials and increasing production capacity.  **[CDNS_3393865_7]** **[CDNS_3393865_19]** **[CDNS_3393865_25]** 

15. **China Revenue Contribution**  
    **Q:** Is the China revenue percentage expected to improve?  
    **A:** While they've assumed lower China revenue for prudence, they expect it to improve from **12%** in Q1 and Q2 to reach **13%** by year-end, which is sufficient to meet guidance. Regional revenue remains difficult to predict.  **[CDNS_3393865_5]** **[CDNS_3393865_8]** **[CDNS_3393865_17]** **[CDNS_3393865_19]** 

16. **Shift in Revenue Timing**  
    **Q:** Is revenue more back-end loaded this year, and why?  
    **A:** Yes, due to timing of upfront revenue from IP and SD&A, as well as hardware shipments. The unique shape of the revenue curve this year requires prudence in guidance, but management is confident in achieving targets based on strong bookings and backlog.  **[CDNS_3393865_6]** **[CDNS_3393865_7]** **[CDNS_3393865_8]** **[CDNS_3393865_10]** 

17. **Growth in IP Business**  
    **Q:** How is the IP business performing?  
    **A:** The IP business is having a strong year with significant upfront revenue expected in the second half, particularly in Q4. This growth is contributing to the overall revenue outlook and is supported by orders in the backlog.  **[CDNS_3393865_6]** **[CDNS_3393865_13]** **[CDNS_3393865_20]** **[CDNS_3393865_21]** **[CDNS_3393865_24]** 

18. **Services Revenue Impact from AI/ML**  
    **Q:** Is AI/ML adoption affecting services revenue?  
    **A:** While not specifically quantified, management notes that AI adoption is increasing and becoming integral to customer workflows, potentially impacting various revenue streams, including services. AI tools are enhancing automation and efficiency in design processes.  **[CDNS_3393865_16]** **[CDNS_3393865_22]** 

19. **Effect of Hardware Mix on Financials**  
    **Q:** How is the mix of hardware and software affecting financial performance?  
    **A:** Strong hardware demand is leading to increased investment in inventory and raw materials, impacting operating cash flow. However, the integration of hardware and software solutions is expected to drive future growth and profitability.  **[CDNS_3393865_7]** **[CDNS_3393865_9]** **[CDNS_3393865_11]** **[CDNS_3393865_23]** **[CDNS_3393865_25]** 

20. **Backlog Composition and Visibility**  
    **Q:** Does the backlog provide visibility into future revenue?  
    **A:** Management is pleased with the strong backlog, which provides confidence in future revenue. Orders for hardware systems and IP are in the backlog, and execution against these orders supports the revenue guidance.  **[CDNS_3393865_6]** **[CDNS_3393865_7]** **[CDNS_3393865_8]** **[CDNS_3393865_10]** **[CDNS_3393865_24]** 

21. **Beta CAE's Contribution to Backlog**  
    **Q:** How much does Beta CAE contribute to backlog and bookings?  
    **A:** The contribution from **Beta CAE** to backlog and bookings is minimal and considered immaterial. The acquisition is expected to be operationally accretive next year but has limited impact on current backlog figures.  **[CDNS_3393865_8]** **[CDNS_3393865_9]** **[CDNS_3393865_17]** **[CDNS_3393865_25]** 

22. **Cadence.AI Orders Growth**  
    **Q:** Is the growth in Cadence.AI orders impacting revenue noticeably?  
    **A:** While AI orders have tripled year-over-year, it's becoming embedded in contracts and workflows. The adoption of AI tools is leading to increased customer engagement and is expected to contribute more noticeably to revenue as deployments expand.  **[CDNS_3393865_10]** **[CDNS_3393865_26]** 

23. **Integration of Acquired Simulation Codes**  
    **Q:** How is Cadence integrating acquired simulation codes in SD&A?  
    **A:** They are focusing on providing integrated solutions in System Design & Analysis (**SD&A**), leveraging their complete portfolio to deliver value to customers. Integration facilitates comprehensive workflows and enhances the overall offering.  **[CDNS_3393865_15]**  

6d3f2cd5f3bd58477bfe21329c31b55641bc5bce9e66e22c90efb727becb6b71

- **Cadence is not providing bookings guidance and remains cautious about future orders, indicating potential uncertainty in demand.**  **[CDNS_3393865_17]**
- **The company's revenue growth may lag behind the faster growth in global semiconductor sales due to a lag in customers' R&D spending, which could delay Cadence's ability to capitalize on industry growth.**  **[CDNS_3393865_4]**
- **Cadence needs to significantly increase raw material purchases and build inventory to meet its revenue guidance, which could impact cash flow and working capital, and poses risks if supply chain challenges arise.**  **[CDNS_3393865_11]**

7f97e13d48dcbba4b911b003037b3fae9fa93ad85345f1eea2a665790033d017

1. **Sales Growth Outlook**  
   **Q:** Why is sales growth decelerating despite AI tailwinds?  
   **A:** Anirudh explained that while overall sales growth guidance is **12%** for 2024 compared to **15%** last year, they view growth over a 3-year CAGR basis, which remains strong at over **15%**. The deceleration is due to tough comparisons and their ratable business model, where AI contributions take time to manifest in revenue. They expect continued momentum as AI adoption grows.  **[CDNS_3372994_9]** 

2. **IP Business Growth**  
   **Q:** Why was IP growth modest, and what's the outlook?  
   **A:** The IP business had single-digit growth due to tough comparisons and macro uncertainties, but saw over **30%** growth in Q4. Anirudh anticipates IP growth to be higher than Cadence's average in 2024, driven by the AI super cycle and an expanded portfolio.  **[CDNS_3372994_9]** **[CDNS_3372994_13]** 

3. **Hardware Revenue and Backlog**  
   **Q:** How did hardware backlog and revenue shape outlook?  
   **A:** Last year, hardware lead times were over 6 months, leading to a large backlog. Now, lead times are normalized to about **8 weeks**, so 2024 hardware revenue will rely more on production capacity than backlog. They expect another record hardware revenue year, with production increasing each quarter to meet demand.  **[CDNS_3372994_10]** **[CDNS_3372994_16]** **[CDNS_3372994_19]** 

4. **China Revenue Expectations**  
   **Q:** What's the assumption for China revenue in 2024?  
   **A:** China contributed **17%** of revenue in 2023 due to strong hardware backlog, but they expect it to be flat or slightly down to **14-15%** in 2024, reflecting normalized hardware lead times and derisking the guide.  **[CDNS_3372994_9]** **[CDNS_3372994_17]** 

5. **Incremental Margins Outlook**  
   **Q:** Why are incremental EBIT margins below 50%?  
   **A:** Incremental margins start lower than **50%** and build over the year. Last year's margins were slightly lower due to acquisitions, which can be dilutive initially. For 2024, investments and front-loaded expenses contribute to lower margins in Q1, but margins are expected to improve in subsequent quarters.  **[CDNS_3372994_9]** **[CDNS_3372994_17]** 

6. **AI Contribution to Revenue Growth**  
   **Q:** How is AI impacting revenue growth and outlook?  
   **A:** AI is contributing through increased design activity and their AI-enabled products. Cerebrus business grew **4x**, but as revenue is ratable, AI's impact will manifest over multiple years. They are in early stages of AI adoption, with significant potential ahead.  **[CDNS_3372994_8]** **[CDNS_3372994_11]** **[CDNS_3372994_16]** **[CDNS_3372994_21]** 

7. **Competition with Synopsys-ANSYS Merger**  
   **Q:** Any thoughts on the Synopsys and ANSYS merger's impact?  
   **A:** Anirudh believes it won't change the competitive landscape. Cadence has been executing its strategy for six years, gaining market share in SD&A, and feels confident in their product differentiation and partnerships.  **[CDNS_3372994_7]** **[CDNS_3372994_15]** 

8. **Digital IC Design Revenue Sustainability**  
   **Q:** Is the strength in digital IC design revenue sustainable?  
   **A:** Anirudh attributes the growth to the AI super cycle, with increased design activity at advanced nodes. Cerebrus is seeing strong adoption, pulling through other products like synthesis and signoff. He is confident this momentum will continue.  **[CDNS_3372994_8]** 

9. **Operating Cash Flow Expectations**  
   **Q:** What are the expectations for operating cash flow?  
   **A:** Operating cash flow was slightly muted last year due to investments in inventory for hardware production. They plan similar investments in Q1 2024, which is included in the operating cash guide.  **[CDNS_3372994_17]** 

10. **Phasing of Revenue and Margins**  
    **Q:** How will revenue and margins phase in 2024 guidance?  
    **A:** Revenue mix differs from last year; expecting **14%** upfront revenue in Q1 and **17.5%** for the year. Expenses are more front-loaded due to investments, leading to lower Q1 margins, but margins are expected to improve in later quarters.  **[CDNS_3372994_17]** 

795100c1afa1c28172b1b3e328763cfdeed50c54a8c99ad9a8bac1a2bb06600f

1. **China Revenue Outlook**  
   **Q:** How did China revenue perform this quarter?  
   **A:** China revenue improved this quarter, with **Q3 stronger than Q2, which was stronger than Q1**.  **[CDNS_3404207_7]** **[CDNS_3404207_20]**  Although we expect China revenue to be lower this year than last—which has only happened **three times in the past 25 years**—design activity is recovering with strong momentum.  **[CDNS_3404207_7]** **[CDNS_3404207_20]** **[CDNS_3404207_24]** 

2. **Hardware Demand and Backlog**  
   **Q:** Can you discuss the strength of the hardware demand and backlog?  
   **A:** We are seeing **very robust demand** across all our businesses, with an **exceptionally strong pipeline** for Q4—the **biggest we've ever seen** for a fourth quarter.  **[CDNS_3404207_5]** **[CDNS_3404207_9]** **[CDNS_3404207_21]**  Demand is broad-based, not just hardware-driven, and we're ramping up production to meet it.  **[CDNS_3404207_6]** **[CDNS_3404207_9]** 

3. **AI Strategy and Cadence.AI Uptake**  
   **Q:** Is there growing interest in Cadence.AI suites?  
   **A:** Yes, our Cadence.AI portfolio is used by **all our top customers**, delivering **5% to 20% improvement in PPA** and significant productivity gains.  **[CDNS_3404207_8]**  The value lies in achieving better results, not just productivity, which can drive monetization.  **[CDNS_3404207_8]** **[CDNS_3404207_13]** 

4. **Opportunities with Intel and Samsung**  
   **Q:** Could challenges at Intel and Samsung be a net positive for Cadence?  
   **A:** Historically, we've been strong with TSMC, but we're strengthening our relationships with **Intel and Samsung**.  **[CDNS_3404207_11]** **[CDNS_3404207_12]**  When companies face challenges, it's often an opportunity for us, and we're seeing that change, especially last year and this year.  **[CDNS_3404207_11]** **[CDNS_3404207_12]** 

5. **IP Business Growth**  
   **Q:** How is the IP business performing, and what do you expect going forward?  
   **A:** Our IP business showed **59% growth** this quarter.  **[CDNS_3404207_17]**  We believe we're finally in a **very good position** in IP, with a strong portfolio, and expect good growth in Q4 and beyond.  **[CDNS_3404207_17]** **[CDNS_3404207_18]** 

6. **Margin Outlook and Revenue Expectations**  
   **Q:** Should investors expect smoother revenue and margin growth in 2025?  
   **A:** Q3 feels like a **more normal quarter** for Cadence.  **[CDNS_3404207_15]**  While we're not providing a specific outlook for 2025 yet, we believe the revenue lumpiness experienced earlier was atypical, and we aim for **double-digit revenue growth**.  **[CDNS_3404207_15]** **[CDNS_3404207_16]**  As growth comes through, it positively impacts our operating margin.  **[CDNS_3404207_18]** 

7. **System Design and Analysis Growth**  
   **Q:** How is the System Design and Analysis business performing?  
   **A:** With the BETA acquisition, our portfolio is **fairly complete**, and we're seeing **strong momentum** in SD&A, particularly in automotive and aerospace markets.  **[CDNS_3404207_14]** **[CDNS_3404207_17]**  Our go-to-market strategy includes direct sales, an indirect channel with over **100 partners**, and e-commerce with **tens of thousands of users** on OnCloud.  **[CDNS_3404207_14]** 

8. **Inventory Levels and Supply Constraints**  
   **Q:** Is demand exceeding supply for your hardware systems?  
   **A:** Demand is **very strong**, but the increase in inventories is due to a **multiyear contract** with a key supplier, amounting to purchases around **$100 million** for hardware inventory over the next three years.  **[CDNS_3404207_19]** **[CDNS_3404207_20]**  We're ramping up production to meet the robust demand.  **[CDNS_3404207_9]** **[CDNS_3404207_19]** 

9. **Bookings Pipeline and Q4 Outlook**  
   **Q:** Can you provide more color on the Q4 bookings pipeline?  
   **A:** We have an **exceptionally strong pipeline** for Q4—the **biggest we've ever seen**.  **[CDNS_3404207_5]**  It's broad-based across all businesses, reflecting strong design activity everywhere.  **[CDNS_3404207_5]** **[CDNS_3404207_6]** 

10. **Go-to-Market Strategy**  
    **Q:** How are you enhancing your go-to-market strategy for SD&A?  
    **A:** We're focusing on three channels: direct sales to top customers, an indirect channel with over **100 partners**, and e-commerce and cloud offerings through OnCloud, which has **tens of thousands of users**.  **[CDNS_3404207_14]**  This strategy improves cross-selling and lead generation.  **[CDNS_3404207_14]** 

f397907266c1c83547659dbd4af00d8ccbaf16fd72d59bc43a52f7e0cca68b35

- **Strong Demand for New Hardware Products**: Cadence is experiencing significant demand for their new hardware verification systems, **Palladium Z3 and Protium X3**, which are now available and will ramp in Q3 and Q4. The company expects **strong revenue growth in the second half of 2024** and is preparing for scale, anticipating that these systems will contribute to growth not just this year but in the following years.  **[CDNS_3380182_19]** ,  **[CDNS_3380182_16]** ,  **[CDNS_3380182_17]**
- **Accelerating Design Activity among AI and Hyperscaler Customers**: There is an **increasing design activity in AI accelerators from both semiconductor companies and hyperscalers**, such as NVIDIA, Google, Microsoft, Amazon, and Meta. Cadence is involved with all major players and expects their business with system companies developing their own silicon to grow faster than the company average.  **[CDNS_3380182_22]**
- **Strong Momentum in IP Business Driven by AI Applications and Partnerships**: Cadence's **IP business had a strong bookings quarter in Q1**, is on track for a **very strong growth year in 2024**, and is preparing to scale for deliveries in the second half. This growth is driven by high demand for AI-related IP, such as **HBM technology**, and is bolstered by new partnerships, including with **Intel Foundry Services**.  **[CDNS_3380182_19]** ,  **[CDNS_3380182_10]** ,  **[CDNS_3380182_12]**

13850c06b70889aface995fe9c87a5e6737bdc0d63378df182dd6de65bd7b8f2

- **Projected deceleration in sales growth**, guiding for **12%** revenue growth in 2024, down from **15%** in 2023 and **19%** in 2022, indicating a potential slowdown in growth rate.  **[CDNS_3372994_9]**
- **Lower margins expected in Q1 2024** due to increased expenses, including about **1,000 extra hires** and front-loaded acquisition costs, leading to lower margins in Q1 compared to the rest of the year.  **[CDNS_3372994_17]**
- **Expected decrease in revenue from China**, with contributions anticipated to drop from **17%** in 2023 to **14%-15%** in 2024, potentially impacting overall revenue growth.  **[CDNS_3372994_10]**

3b4d1bee10cc045693d9f9dd0564077b082f680009c80454730ce332f0b41161

- **Potential impact of geopolitical risks and export controls on China revenues:** The company expects China revenue to be flat to down in 2024 due to tough comparisons from a strong prior year and is attempting to derisk China exposure amidst geopolitical uncertainties and export controls.  **[CDNS_3380182_15]** ,  **[CDNS_3380182_7]**
- **Lower recurring revenue growth expectations:** The company forecasts recurring revenue growth of above 10%, compared to approximately 13% in previous years, partly due to customers adopting AI tools not purchasing add-ons as frequently.  **[CDNS_3380182_19]** ,  **[CDNS_3380182_13]**
- **Uncertainty around hardware revenue due to product transition:** The transition to new hardware systems (Z3 and X3) may cause customers to delay purchases, potentially impacting hardware revenue in Q2 and requiring another quarter to assess demand.  **[CDNS_3380182_16]** ,  **[CDNS_3380182_18]**

9bb3e8a9ab126e784c7f0432b733bc99a82f85c2ab9bfc3d53a4112f81570315

1. **Revenue Outlook and Upfront Revenue Shift**  
   **Q:** How is the revenue outlook affected by delivery schedules and upfront product revenue?  
   **A:** Management expects upfront revenue to be **15-20%** of total revenue this year, consistent with previous expectations.  **[CDNS_3380182_5]**  However, revenue will be more **second-half weighted** due to shifts in hardware revenue and the launch of new systems.  **[CDNS_3380182_5]**  Upfront revenue is projected to be around **$250 million** in the first half and **$550 million** in the second half, compared to **$350 million** and **$300 million** respectively last year.  **[CDNS_3380182_5]**  This shift is driven by substantial backlog in IP and the expected strong demand for new hardware systems.  **[CDNS_3380182_5]** 

2. **Impact of AI on Business Growth**  
   **Q:** How is AI affecting customer engagement and business growth?  
   **A:** AI has a profound impact on the business in three main areas: building AI infrastructure, applying AI to products, and opening new markets.  **[CDNS_3380182_6]**  Applying AI to Cadence's own products has led to significant improvements, with customers like MediaTek achieving **6% power improvement** and others getting **8-10% power improvement**.  **[CDNS_3380182_6]**  The AI run rate on a trailing 12-month basis is up **3x**.  **[CDNS_3380182_6]**  This is leading to increased deployment of the AI portfolio and accelerated adoption among customers.  **[CDNS_3380182_6]** 

3. **China Revenue Trends and Geopolitical Risks**  
   **Q:** How did China revenue perform, and are export controls impacting business?  
   **A:** China revenue in Q1 decreased to **12%** of total revenue, down from **20%** in Q1 last year, primarily due to lower upfront revenue and hardware deliveries.  **[CDNS_3380182_7]** **[CDNS_3380182_15]**  Management expects China revenue to be **flat to down** this year, factoring in tough comparisons and geopolitical risks.  **[CDNS_3380182_15]**  Despite this, design activity in China remains strong  **[CDNS_3380182_7]** **[CDNS_3380182_15]** , and the company anticipates the China percentage to increase with more upfront revenue in the second half.  **[CDNS_3380182_7]** 

4. **New Hardware Products Demand and Revenue Impact**  
   **Q:** What is the demand outlook for the new Z3 and X3 hardware systems?  
   **A:** The new systems offer a significant leap in capacity and performance, with Z3 providing **4x to 5x** more capacity than Z2.  **[CDNS_3380182_8]**  Demand is expected to be strong, driven by the need to design larger AI chips and systems.  **[CDNS_3380182_8]**  The transition to new systems may impact quarter-to-quarter results but is beneficial in the long run.  **[CDNS_3380182_8]**  Hardware revenue is expected to be **second-half weighted**, with ramp-up in Q3 and Q4.  **[CDNS_3380182_5]** **[CDNS_3380182_17]** **[CDNS_3380182_18]** 

5. **IP Business Growth and Second-Half Contributions**  
   **Q:** How is the IP business performing, and what are expectations for the year?  
   **A:** IP bookings were ahead of expectations in Q1, setting the stage for a **very strong growth year** in 2024.  **[CDNS_3380182_12]**  Timing of revenue recognition depends on deliveries, which are scheduled for the second half.  **[CDNS_3380182_12]**  The acquisition of Rambus IP assets and partnership with Intel Foundry Services are contributing to growth, with notable demand for **HBM** technology critical for AI.  **[CDNS_3380182_12]** 

6. **M&A Strategy and BETA CAE Acquisition**  
   **Q:** What is the company's approach to M&A, and how does the BETA CAE acquisition fit?  
   **A:** The company remains focused on its core business of **EDA and IP**, with a primary focus on **organic development**.  **[CDNS_3380182_10]**  They engage in opportunistic, **tuck-in acquisitions** that add to the portfolio, such as the acquisition of Rambus IP assets for HBM technology.  **[CDNS_3380182_10]**  The acquisition of BETA CAE, a leader in structural simulation for automotive and aerospace, is aligned with this strategy and will be integrated over time.  **[CDNS_3380182_10]** 

7. **Recurring Revenue Growth Expectations**  
   **Q:** What are the expectations for recurring revenue growth going forward?  
   **A:** Recurring revenue is guided to grow at about **10%** this year, compared to past growth rates of around **13%**.  **[CDNS_3380182_19]**  The company is focusing on proliferating AI tools into accounts and may not expect significant add-ons to increase this growth further.  **[CDNS_3380182_13]** **[CDNS_3380182_19]**  However, any additional uptake could provide upside to the guidance.  **[CDNS_3380182_19]** 

8. **Margin Expectations and M&A Impact**  
   **Q:** How is the greater mix of hardware and M&A affecting incremental EBIT margins?  
   **A:** The company aims for **over 50%** incremental margins and has achieved this for seven consecutive years.  **[CDNS_3380182_20]**  This year, incremental margins are expected to be in the high **40%** range, around **47%**, partly due to the short-term dilutive effects of M&A transactions like the BETA CAE acquisition.  **[CDNS_3380182_20]**  Management is striving to achieve the **50%** incremental margin target despite these challenges.  **[CDNS_3380182_20]** 

9. **Bookings Trends and Second-Half Expectations**  
   **Q:** What are the bookings trends for the balance of the year?  
   **A:** Management expects bookings to be weighted **40% in the first half** and **60% in the second half** of the year.  **[CDNS_3380182_16]** **[CDNS_3380182_19]**  Q2 is anticipated to be the lightest quarter for software renewals.  **[CDNS_3380182_19]**  Demand for new hardware systems like Z3 and X3 will contribute to bookings, but the extent will be clearer after another quarter.  **[CDNS_3380182_16]** 

10. **Partnership with Arm and Market Expansion**  
    **Q:** How is the partnership with Arm contributing to business growth?  
    **A:** The company has a strong and growing partnership with Arm, collaborating on projects like **Total Compute** and supporting Arm's expansion into **HPC server and automotive** markets.  **[CDNS_3380182_9]**  This partnership requires more collaboration in back-end digital flow and verification, leading to increased business opportunities.  **[CDNS_3380182_9]** 

b9fd19a8b45266288cba121c4824b89c62697d35832105eefe1a69132f340ec8

- **Consistent Revenue Growth with 15%+ CAGR**, demonstrating strong demand for Cadence's solutions and market share gains. John Wall stated, "we tend to look over a 3-year CAGR... and if you look at... our 3-year CAGR has been accelerating... at the midpoint of the guide for '24, the 3-year CAGR is about **15.3%**."  **[CDNS_3372994_9]**
- **Leadership in AI and System Design & Analysis (SDA) Innovations**, with new products like **Millennium** and **Cerebrus** gaining significant traction, addressing the AI super cycle and hardware acceleration in system simulation and CFD, positioning Cadence for future growth. Anirudh Devgan mentioned, "**I think this is the biggest innovation in CFD in the last 30 years.**"  **[CDNS_3372994_13]** **[CDNS_3372994_16]** **[CDNS_3372994_8]**
- **Strong Broad-Based Demand across Geographies and Product Segments**, with **normalized hardware lead times** and **great confidence in customer plans**, suggesting healthy and diversified demand. John Wall noted, "**it's broad-based across geographies and broad-based across all of the businesses.**"  **[CDNS_3372994_5]** **[CDNS_3372994_22]**

47a70a4b933eec5c13572549cead671c222a26cb8da74217aa760a345c3dee79

- **Cadence expects a very strong Q4, with strong bookings and particularly strong performance from the IP Silicon Solutions group, indicating potential upside.**  **[CDNS_3359264_4]** **[CDNS_3359264_14]** **[CDNS_3359264_8]**
- **Revenue from Cadence's AI products has nearly tripled in the last 12 months, demonstrating significant growth in this area.**  **[CDNS_3359264_6]**
- **Strong design activity in high-growth sectors such as AI, data centers, and automotive is driving demand for Cadence's products, with customers accelerating chip roadmaps and increasing complexity, leading to robust business momentum and visibility.**  **[CDNS_3359264_8]** **[CDNS_3359264_9]**

6dc495ce12145465b3f1d161ce2d4a25adc5995f2656d1fa8de46e3cc35d7260

- **Margin Pressure from Acquisitions:** The recent acquisitions are **more dilutive this year**, with Cadence picking up **more expense and very little revenue**, which **narrowed the range on the margin outcomes**.  **[CDNS_3359264_24]**  This indicates potential margin pressure in the near term.
- **Uncertainty in 2024 Growth Outlook:** The company **declined to provide guidance** on maintaining the mid-teens growth rate into 2024, stating they will **wait until the February earnings call** to share their assessment.  **[CDNS_3359264_16]**  This suggests uncertainty about future growth prospects.
- **Gradual Adoption of AI Tools:** While Cadence is seeing adoption of their AI tools, the rollout is expected to **take a couple of contract cycles**, with **some customers adopting more slowly** and even **reducing their configurations elsewhere**.  **[CDNS_3359264_19]**  This indicates that AI-driven growth may be incremental and slower than anticipated.

695c2f72262bef551de0b20d5c7531ed6a95037d9309756be3a96859d27100e1

Cadence Design Systems Inc (CDNS)

Financials