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 June 30, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number 000-15867

_____________________________________ 

CADENCE DESIGN SYSTEMS, INC.

(Exact Name of Registrant as Specified in Its Charter)

_____________________________________ 

Delaware			00-0000000
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)
2655 Seely Avenue, Building 5,	San Jose,	California	95134
(Address of Principal Executive Offices)			(Zip Code)

(408) 943-1234

Registrant’s Telephone Number, including Area Code

_____________________________________ 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	CDNS	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐	Smaller Reporting Company	☐
Non-accelerated Filer	☐			Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

On June 30, 2024, approximately 273,820,000 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.	Financial Statements:
	Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023	1
	Condensed Consolidated Income Statements for the three and six months ended June 30, 2024 and June 30, 2023	2
	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2024 and June 30, 2023	3
	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2024 and June 30, 2023	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and June 30, 2023	6
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
	Signatures	44

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

	As of
	June 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	1,058,955	$	1,008,152
Receivables, net	564,851		489,224
Inventories	171,508		181,661
Prepaid expenses and other	401,074		297,180
Total current assets	2,196,388		1,976,217
Property, plant and equipment, net	449,422		403,213
Goodwill	2,417,747		1,535,845
Acquired intangibles, net	664,038		336,843
Deferred taxes	892,963		880,001
Other assets	605,183		537,372
Total assets	$	7,225,741	$	5,669,491
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	349,732	$	349,285
Accounts payable and accrued liabilities	505,392		576,558
Current portion of deferred revenue	678,598		665,024
Total current liabilities	1,533,722		1,590,867
Long-term liabilities:
Long-term portion of deferred revenue	88,823		98,931
Long-term debt	998,935		299,771
Other long-term liabilities	343,369		275,651
Total long-term liabilities	1,431,127		674,353
Commitments and contingencies (Note 14)
Stockholders’ equity:
Common stock and capital in excess of par value	3,928,477		3,166,964
Treasury stock, at cost	(4,971,955)		(4,604,323)
Retained earnings	5,413,547		4,936,384
Accumulated other comprehensive loss	(109,177)		(94,754)
Total stockholders’ equity	4,260,892		3,404,271
Total liabilities and stockholders’ equity	$	7,225,741	$	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				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Revenue:
Product and maintenance	$	960,457	$	922,790	$	1,873,842	$	1,886,532
Services	100,224		53,789		195,942		111,737
Total revenue	1,060,681		976,579		2,069,784		1,998,269
Costs and expenses:
Cost of product and maintenance	94,363		74,218		169,758		174,456
Cost of services	44,907		22,640		94,709		46,874
Marketing and sales	186,725		167,070		367,314		333,736
Research and development	370,740		354,416		749,698		704,711
General and administrative	63,436		54,605		132,152		108,132
Amortization of acquired intangibles	6,667		4,302		12,074		8,569
Restructuring	(33)		—		247		—
Total costs and expenses	766,805		677,251		1,525,952		1,376,478
Income from operations	293,876		299,328		543,832		621,791
Interest expense	(12,905)		(8,877)		(21,597)		(18,137)
Other income, net	34,739		7,973		103,518		16,257
Income before provision for income taxes	315,710		298,424		625,753		619,911
Provision for income taxes	86,190		77,304		148,590		156,987
Net income	$	229,520	$	221,120	$	477,163	$	462,924
Net income per share – basic	$	0.85	$	0.82	$	1.77	$	1.72
Net income per share – diluted	$	0.84	$	0.81	$	1.74	$	1.70
Weighted average common shares outstanding – basic	270,912		269,714		270,259		269,607
Weighted average common shares outstanding – diluted	273,520		272,996		273,532		273,078

See notes to condensed consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Net income	$	229,520	$	221,120	$	477,163	$	462,924
Other comprehensive income (loss), net of tax effects:
Foreign currency translation adjustments	(1,338)		(2,809)		(13,967)		1,146
Changes in defined benefit plan liabilities	145		142		123		405
Unrealized losses on investments	(187)		(454)		(579)		(424)
Total other comprehensive income (loss), net of tax effects	(1,380)		(3,121)		(14,423)		1,127
Comprehensive income	$	228,140	$	217,999	$	462,740	$	464,051

See notes to condensed consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Three Months Ended June 30, 2024
	Common Stock
		Par Value						Accumulated
		and Capital						Other
		in Excess		Treasury		Retained		Comprehensive
	Shares	of Par		Stock		Earnings		Loss		Total
Balance, March 31, 2024	272,134	$	3,331,547	$	(4,840,181)	$	5,184,027	$	(107,797)	$	3,567,596
Net income	—	—		—		229,520		—		$	229,520
Other comprehensive loss, net of taxes	—	—		—		—		(1,380)		$	(1,380)
Purchase of treasury stock	(423)	—		(125,004)		—		—		$	(125,004)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	409	10,881		5,666		—		—		$	16,547
Issuance of common stock in a business combination	1,741	501,824		—		—		—		$	501,824
Stock received for payment of employee taxes on vesting of restricted stock	(41)	(3,344)		(12,436)		—		—		$	(15,780)
Stock-based compensation expense	—	87,569		—		—		—		$	87,569
Balance, June 30, 2024	273,820	$	3,928,477	$	(4,971,955)	$	5,413,547	$	(109,177)	$	4,260,892
	Three Months Ended June 30, 2023
	Common Stock
		Par Value						Accumulated
		and Capital						Other
		in Excess		Treasury		Retained		Comprehensive
	Shares	of Par		Stock		Earnings		Loss		Total
Balance, March 31, 2023	272,684	$	2,878,749	$	(3,987,528)	$	4,137,044	$	(87,389)	$	2,940,876
Net income	—	—		—		221,120		—		$	221,120
Other comprehensive loss, net of taxes	—	—		—		—		(3,121)		$	(3,121)
Purchase of treasury stock	(1,178)	—		(265,109)		—		—		$	(265,109)
Equity forward contract	—	(60,000)		—		—		—		$	(60,000)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	325	4,838		4,519		—		—		$	9,357
Stock received for payment of employee taxes on vesting of restricted stock	(41)	(2,310)		(8,966)		—		—		$	(11,276)
Stock-based compensation expense	—	76,608		—		—		—		$	76,608
Balance, June 30, 2023	271,790	$	2,897,885	$	(4,257,084)	$	4,358,164	$	(90,510)	$	2,908,455

	Six Months Ended June 30, 2024
	Common Stock
		Par Value						Accumulated
		and Capital						Other
		in Excess		Treasury		Retained		Comprehensive
	Shares	of Par		Stock		Earnings		Loss		Total
Balance, December 31, 2023	271,706	$	3,166,964	$	(4,604,323)	$	4,936,384	$	(94,754)	$	3,404,271
Net income	—	—		—		477,163		—		$	477,163
Other comprehensive loss, net of taxes	—	—		—		—		(14,423)		$	(14,423)
Purchase of treasury stock	(848)	—		(250,010)		—		—		$	(250,010)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	1,728	100,040		33,232		—		—		$	133,272
Issuance of common stock in a business combination	1,741	501,824		—		—		—		$	501,824
Stock received for payment of employee taxes on vesting of restricted stock	(507)	(16,049)		(150,854)		—		—		$	(166,903)
Stock-based compensation expense	—	175,698		—		—		—		$	175,698
Balance, June 30, 2024	273,820	$	3,928,477	$	(4,971,955)	$	5,413,547	$	(109,177)	$	4,260,892
	Six Months Ended June 30, 2023
	Common Stock
		Par Value						Accumulated
		and Capital						Other
		in Excess		Treasury		Retained		Comprehensive
	Shares	of Par		Stock		Earnings		Loss		Total
Balance, December 31, 2022	272,675	$	2,765,673	$	(3,824,163)	$	3,895,240	$	(91,637)	$	2,745,113
Net income	—	—		—		462,924		—		$	462,924
Other comprehensive income, net of taxes	—	—		—		—		1,127		$	1,127
Purchase of treasury stock	(1,846)	—		(390,119)		—		—		$	(390,119)
Equity forward contract	—	(60,000)				—		—		$	(60,000)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures	1,297	52,084		25,418		—		—		$	77,502
Stock received for payment of employee taxes on vesting of restricted stock	(336)	(10,768)		(68,220)		—		—		$	(78,988)
Stock-based compensation expense	—	150,896		—		—		—		$	150,896
Balance, June 30, 2023	271,790	$	2,897,885	$	(4,257,084)	$	4,358,164	$	(90,510)	$	2,908,455

See notes to condensed consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended
	June 30, 2024		June 30, 2023
Cash and cash equivalents at beginning of period	$	1,008,152	$	882,325
Cash flows from operating activities:
Net income	477,163		462,924
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	87,202		70,432
Amortization of debt discount and fees	684		626
Stock-based compensation	175,698		150,896
(Gain) loss on investments, net	(80,599)		554
Deferred income taxes	(9,506)		(20,171)
Provisions for losses on receivables	614		720
ROU asset amortization and change in operating lease liabilities	(1,410)		(3,543)
Other non-cash items	212		1,834
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables	(49,384)		41,208
Inventories	(15,978)		(16,981)
Prepaid expenses and other	(39,868)		50,793
Other assets	(38,967)		(31,838)
Accounts payable and accrued liabilities	(93,078)		(37,049)
Deferred revenue	(18,599)		1,269
Other long-term liabilities	15,013		9,497
Net cash provided by operating activities	409,197		681,171
Cash flows from investing activities:
Purchases of investments	(2,095)		(29,212)
Proceeds from the sale and maturity of investments	43,864		1,505
Purchases of property, plant and equipment	(78,800)		(46,655)
Cash paid in business combinations, net of cash acquired	(720,821)		(55,379)
Net cash used for investing activities	(757,852)		(129,741)
Cash flows from financing activities:
Proceeds from revolving credit facility	—		50,000
Payments on revolving credit facility	—		(150,000)
Proceeds from term loan	700,000		—
Payment of debt issuance costs	(944)		—
Proceeds from issuance of common stock	133,272		77,502
Stock received for payment of employee taxes on vesting of restricted stock	(166,903)		(78,988)
Payments for repurchases of common stock	(250,010)		(450,119)
Net cash provided by (used for) financing activities	415,415		(551,605)
Effect of exchange rate changes on cash and cash equivalents	(15,957)		(8,225)
Increase (decrease) in cash and cash equivalents	50,803		(8,400)
Cash and cash equivalents at end of period	$	1,058,955	$	873,925
Supplemental cash flow information:
Cash paid for interest	$	21,282	$	17,566
Cash paid for income taxes, net	197,475		61,893

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 July 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 and six months ended June 30, 2024 and June 30, 2023:

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Custom Integrated Circuit (“IC”) Design and Simulation	21	%	22	%	21	%	21	%
Digital IC Design and Signoff	27	%	27	%	28	%	26	%
Functional Verification, including Emulation and Prototyping Hardware*	25	%	27	%	25	%	30	%
Intellectual Property (“IP”)	13	%	11	%	13	%	11	%
System Design and Analysis	14	%	13	%	13	%	12	%
Total	100	%	100	%	100	%	100	%

_____________

* Includes immaterial amount of revenue accounted for under leasing arrangements.

Cadence generates revenue from contracts with customers and applies judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition. Certain of Cadence’s licensing arrangements allow customers the ability to remix among software products. Cadence also has arrangements with customers that include a combination of products, with the actual product selection and number of licensed users to be determined at a later date. For these arrangements, Cadence estimates the allocation of the revenue to product categories based upon the expected usage of products. Revenue by product category fluctuates from period to period based on demand for products and services, and Cadence’s available resources to deliver them. No single customer accounted for 10% or more of total revenue during the three and six months ended June 30, 2024 or June 30, 2023.

Recurring revenue includes revenue recognized over time from Cadence’s software arrangements, services, royalties, maintenance on IP licenses and hardware, and operating leases of hardware. Recurring revenue also includes revenue recognized at varying points in time over the term of other arrangements with non-cancelable commitments, whereby the customer commits to a fixed dollar amount over a specified period of time that can be used to purchase from a list of products or services. These arrangements do not meet the definition of a revenue contract until the customer executes a separate selection form to identify the products and services that they are purchasing. Each separate selection form under the arrangement is treated as an individual contract and accounted for based on the respective performance obligations.

The remainder of Cadence’s revenue is recognized at a point in time and is characterized as up-front revenue. Up-front revenue is primarily generated by sales of emulation and prototyping hardware, individual IP licenses and certain software licenses.

The percentage of Cadence’s recurring and up-front revenue in any single fiscal period is primarily impacted by delivery of hardware and IP products to its customers.

The following table shows the percentage of Cadence’s revenue that is classified as recurring or up-front for the three and six months ended June 30, 2024 and June 30, 2023:

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Revenue recognized over time	85	%	82	%	86	%	79	%
Revenue from arrangements with non-cancelable commitments	3	%	3	%	3	%	3	%
Recurring revenue	88	%	85	%	89	%	82	%
Up-front revenue	12	%	15	%	11	%	18	%
Total	100	%	100	%	100	%	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.

Cadence’s contract balances as of June 30, 2024 and December 31, 2023 were as follows:

	As of
	June 30, 2024		December 31, 2023
	(In thousands)
Contract assets	$	25,400	$	17,554
Deferred revenue	767,421		763,955

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Cadence recognized revenue of $185.9 million and $510.3 million during the three and six months ended June 30, 2024, and $162.6 million and $525.8 million during the three and six months ended June 30, 2023, that was included in the deferred revenue balance at the beginning of each respective fiscal year. All other activity in deferred revenue, with the exception of deferred revenue assumed from acquisitions, is due to the timing of invoices in relation to the timing of revenue as described above.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, Cadence has determined that its contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing Cadence’s products and services, and not to facilitate financing arrangements.

Remaining Performance Obligations

Revenue allocated to remaining performance obligations represents the transaction price allocated to the performance obligations that are unsatisfied, or partially unsatisfied, which includes unearned revenue and amounts that will be invoiced and recognized as revenue in future periods. Cadence has elected to exclude the potential future royalty receipts from the remaining performance obligations. Contracted but unsatisfied performance obligations were approximately $6.0 billion as of June 30, 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 June 30, 2024, Cadence expected to recognize 56% of the contracted but unsatisfied performance obligations, excluding non-cancelable commitments, as revenue over the next 12 months, 39% over the next 13 to 36 months and the remainder thereafter.

Cadence recognized revenue of $15.1 million and $30.1 million during the three and six months ended June 30, 2024, and $11.6 million and $26.8 million during the three and six months ended June 30, 2023, from performance obligations satisfied in previous periods. These amounts represent royalties earned during the period and exclude contracts with nonrefundable prepaid royalties. Nonrefundable prepaid royalties are recognized upon delivery of the IP because Cadence’s right to the consideration is not contingent upon customers’ future shipments.

NOTE 3. RECEIVABLES, NET

Cadence’s current and long-term receivables balances as of June 30, 2024 and December 31, 2023 were as follows:

	As of
	June 30, 2024		December 31, 2023
	(In thousands)
Accounts receivable	$	386,713	$	299,814
Unbilled accounts receivable	182,823		193,963
Long-term receivables	11,718		10,755
Total receivables	581,254		504,532
Less allowance for doubtful accounts	(4,685)		(4,553)
Total receivables, net	$	576,569	$	499,979

Cadence’s customers are primarily concentrated within the semiconductor and electronics systems industries. As of June 30, 2024, one customer accounted for approximately 11% of Cadence’s total receivables. As of December 31, 2023, no single customer accounted for 10% or more of Cadence’s total receivables.

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NOTE 4. DEBT

Cadence’s outstanding debt was as follows:

	June 30, 2024						December 31, 2023
	(In thousands)
	Principal		Unamortized Discount		Carrying Value		Principal		Unamortized Discount		Carrying Value
2024 Notes	350,000		(268)		349,732		350,000		(715)		349,285
2025 Term Loan	300,000		(161)		299,839		300,000		(229)		299,771
2026 Term Loan	700,000		(904)		699,096		—		—		—
Total outstanding debt	$	1,350,000	$	(1,333)	$	1,348,667	$	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 June 30, 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 June 30, 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 June 30, 2024 and December 31, 2023, the carrying value of the 2024 Notes was classified as a current liability on Cadence’s condensed consolidated balance sheet. As of June 30, 2024, the fair value of the 2024 Notes was approximately $348.4 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.

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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 June 30, 2024, the interest rate on the 2025 Term Loan was 6.18%. 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 June 30, 2024, Cadence was in compliance with all financial covenants associated with the 2025 Term Loan.

2026 Term Loan

On May 30, 2024, Cadence entered into a $700.0 million two-year senior non-amortizing term loan facility due on May 30, 2026 with a group of lenders led by Bank of America, N.A., as administrative agent (the “2026 Term Loan”). The 2026 Term Loan is unsecured and ranks equal in right of payment to all of Cadence’s unsecured indebtedness. All proceeds from the 2026 Term Loan were used to finance Cadence’s acquisition of BETA CAE Systems International AG (“BETA CAE”). Debt issuance costs associated with the 2026 Term Loan were not material.

Amounts outstanding under the 2026 Term Loan accrue interest at a rate equal to, at Cadence’s option, either (1) Term SOFR plus a margin of between 0.875% and 1.375% 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 of between 0.000% and 0.375% per annum, determined by reference to the credit rating of Cadence’s unsecured debt. As of June 30, 2024, the interest rate on the 2026 Term Loan was 6.44%. Interest is payable quarterly. Borrowings bear interest at what is estimated to be current market rates of interest. Accordingly, the carrying value of the 2026 Term Loan approximates fair value.

The 2026 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 2026 Term Loan contains a financial covenant that requires Cadence to maintain a funded debt to Consolidated 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 June 30, 2024, Cadence was in compliance with all financial covenants associated with the 2026 Term Loan.

NOTE 5. ACQUISITIONS

Acquisition of BETA CAE

On May 30, 2024, Cadence acquired all of the outstanding equity of BETA CAE, a system analysis platform provider of multi-domain, engineering simulation solutions. The aggregate purchase consideration for Cadence’s acquisition of BETA CAE, net of cash acquired of $91.3 million, was $1.14 billion. The aggregate purchase consideration was comprised of $636.2 million of cash and non-cash consideration of 1.74 million shares of Cadence common stock with an aggregate acquisition date fair value of $501.8 million. The addition of BETA CAE’s technologies and talent is intended to accelerate Cadence’s Intelligent System Design™ strategy by expanding its multiphysics system analysis portfolio and enabling entry into the structural analysis space.

In connection with its acquisition of BETA CAE, Cadence paid an additional $55.8 million to a third-party escrow agent that will be released to certain former BETA CAE shareholders, now employed by Cadence, through the second quarter of fiscal 2026. The release of these funds is subject to continuous service and other conditions and is accounted for over the required service period as post-acquisition compensation expense in Cadence’s condensed consolidated income statements.

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The total purchase consideration was allocated to the assets acquired and liabilities assumed with Cadence’s acquisition of BETA CAE based on their respective fair values on the acquisition date as follows:

	Fair Value
	(In thousands)
Current assets	$	122,215
Goodwill	827,212
Acquired intangibles	345,000
Other long-term assets	16,890
Total assets acquired	1,311,317
Current liabilities	41,175
Long-term liabilities	40,907
Total liabilities assumed	82,082
Total purchase consideration	$	1,229,235

The recorded goodwill is attributed to intangible assets that do not qualify for separate recognition, including the acquired assembled workforce, and is expected to be deductible for U.S. income tax purposes.

Definite-lived intangible assets acquired with Cadence’s acquisition of BETA CAE were as follows:

	Fair Value		Weighted Average Amortization Period
	(In thousands)		(in years)
Existing technology	$	140,000	6.0 years
Agreements and relationships	190,000		15.0 years
Tradenames, trademarks and patents	15,000		7.0 years
Total acquired intangibles with definite lives	$	345,000	11.0 years

As of June 30, 2024, the allocation of purchase consideration to the acquired assets and assumed liabilities from BETA CAE was preliminary. Cadence will continue to evaluate the estimates and assumptions used to derive the fair value of certain acquired assets and assumed liabilities, primarily related to contracts with customers and income taxes, during the measurement period (up to one year from the acquisition date). The allocation of purchase consideration may change materially as additional information about conditions existing at the acquisition date becomes available.

Acquisition of Invecas, Inc.

On January 8, 2024, Cadence acquired all of the outstanding equity of Invecas, Inc. (“Invecas”), a provider of design engineering, embedded software and system-level solutions. The aggregate cash consideration for Cadence’s acquisition of Invecas, net of cash acquired of $23.8 million, was $71.5 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. In connection with its acquisition of Invecas, Cadence paid an additional amount to a third-party escrow agent that will be released to certain former Invecas shareholders, now employed by Cadence, through the first quarter of fiscal 2028. The release of these funds is subject to continuous service and other conditions and is accounted for over the required service period as post-acquisition compensation expense in Cadence’s condensed consolidated income statements.

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The total purchase consideration was allocated to the assets acquired and liabilities assumed with Cadence’s acquisition of Invecas based on their respective fair values on the acquisition date as follows:

	Fair Value
	(In thousands)
Current assets	$	50,608
Goodwill	42,480
Acquired intangibles	15,500
Other long-term assets	24,402
Total assets acquired	132,990
Current liabilities	17,114
Long-term liabilities	20,635
Total liabilities assumed	37,749
Total purchase consideration	$	95,241

As of June 30, 2024, the allocation of purchase consideration to certain assets and liabilities was preliminary. Cadence will continue to evaluate certain estimates and assumptions, primarily related to assumed tax liabilities, during the measurement period (up to one year from the acquisition date). The allocation of purchase consideration may change materially as additional information about conditions existing at the acquisition date becomes available.

The recorded goodwill is attributed to intangible assets that do not qualify for separate recognition, including the acquired assembled workforce, and will not be deductible for tax purposes.

The definite-lived intangible assets acquired with Cadence’s acquisition of Invecas include agreements and relationships of $15.0 million and tradenames of $0.5 million. These assets will be amortized over a weighted average life of 6.8 years.

Other Acquisitions

During the second quarter of fiscal 2024, Cadence completed one other business combination for aggregate cash consideration of $13.3 million, net of cash acquired. The total purchase consideration was allocated to assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition dates. Cadence recorded $3.5 million of definite-lived intangible assets with a weighted average amortization period of 6.3 years. Cadence also recognized $13.1 million of goodwill, which is primarily attributed to the assembled workforce of the acquired business. The goodwill recognized with this acquisition is not expected to be deductible for tax purposes.

Pro Forma Financial Information

Cadence has not presented pro forma financial information for its fiscal 2024 acquisitions because the results of operations are not material to Cadence’s condensed consolidated financial statements.

Acquisition-Related Transaction Costs

Transaction costs associated with acquisitions, which consist of professional fees and administrative costs, are expensed as incurred and are included in general and administrative expense in Cadence’s condensed consolidated income statement. During the three and six months ended June 30, 2024, transaction costs associated with acquisitions were $3.4 million and $12.3 million, respectively. During the three and six months ended June 30, 2023, transaction costs associated with acquisitions were $3.1 million and $6.0 million, respectively.

NOTE 6. GOODWILL AND ACQUIRED INTANGIBLES

Goodwill

The changes in the carrying amount of goodwill during the six months ended June 30, 2024 were as follows:

	Gross Carrying Amount
	(In thousands)
Balance as of December 31, 2023	$	1,535,845
Goodwill resulting from acquisitions	882,813
Effect of foreign currency translation	(911)
Balance as of June 30, 2024	$	2,417,747

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Acquired Intangibles, Net

Acquired intangibles as of June 30, 2024 were as follows:

	Gross Carrying Amount		Accumulated Amortization		Acquired Intangibles, Net
	(In thousands)
Existing technology	$	472,024	$	(164,369)	$	307,655
Agreements and relationships	395,646		(62,747)		332,899
Tradenames, trademarks and patents	28,940		(5,456)		23,484
Total acquired intangibles	$	896,610	$	(232,572)	$	664,038

During the six months ended June 30, 2024, Cadence completed certain projects previously included in in-process technology and transferred $6.8 million to existing technology.

Acquired intangibles as of December 31, 2023 were as follows:

	Gross Carrying Amount		Accumulated Amortization		Acquired Intangibles, Net
	(In thousands)
Existing technology	$	325,710	$	(141,659)	$	184,051
Agreements and relationships	198,259		(61,395)		136,864
Tradenames, trademarks and patents	13,460		(4,332)		9,128
Total acquired intangibles with definite lives	$	537,429	$	(207,386)	$	330,043
In-process technology	6,800		—		6,800
Total acquired intangibles	$	544,229	$	(207,386)	$	336,843

Amortization expense from existing technology and maintenance agreements is included in cost of product and maintenance. Amortization expense for the three and six months ended June 30, 2024 and June 30, 2023 by condensed consolidated income statement caption was as follows:

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
	(In thousands)
Cost of product and maintenance	$	13,488	$	10,618	$	24,836	$	20,878
Amortization of acquired intangibles	6,667		4,302		12,074		8,569
Total amortization of acquired intangibles	$	20,155	$	14,920	$	36,910	$	29,447

As of June 30, 2024, the estimated amortization expense for intangible assets with definite lives was as follows for the following five fiscal years and thereafter:

	(In thousands)
2024 - remaining period	$	53,697
2025	93,905
2026	88,301
2027	85,875
2028	81,455
2029	66,765
Thereafter	194,040
Total estimated amortization expense	$	664,038

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NOTE 7. STOCK-BASED COMPENSATION

Stock-based compensation expense is reflected in Cadence’s condensed consolidated income statements for the three and six months ended June 30, 2024 and June 30, 2023 as follows:

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
	(In thousands)
Cost of product and maintenance	$	1,352	$	1,035	$	2,632	$	2,101
Cost of services	1,721		1,317		3,350		2,674
Marketing and sales	16,000		15,686		33,836		30,777
Research and development	54,491		44,807		108,128		89,129
General and administrative	14,005		13,763		27,752		26,215
Total stock-based compensation expense	$	87,569	$	76,608	$	175,698	$	150,896

Cadence had total unrecognized compensation expense related to stock option and restricted stock grants of $495.4 million as of June 30, 2024, which is expected to be recognized over a weighted average vesting period of 1.8 years.

NOTE 8. STOCK REPURCHASE PROGRAM

Cadence is authorized to repurchase shares of its common stock under a publicly announced program that was most recently increased by its Board of Directors in August 2023. The actual timing and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors.

During the three and six months ended June 30, 2024, Cadence purchased approximately 0.4 million and 0.8 million shares of Cadence stock on the open market for an aggregate purchase price of $125.0 million and $250.0 million, respectively, in accordance with its current authorization from its Board of Directors. As of June 30, 2024, approximately $1.1 billion of Cadence’s share repurchase authorization remained available to repurchase shares of Cadence common stock.

During the three and six months ended June 30, 2023, Cadence repurchased approximately 0.6 million and 1.2 million shares of Cadence common stock on the open market for an aggregate purchase price of $125.0 million and $250.0 million, respectively.

In June 2023, Cadence also entered into an accelerated share repurchase (“ASR”) agreement with HSBC Bank USA, National Association (“HSBC”) to repurchase an aggregate of $200.0 million of Cadence common stock. The ASR agreement was accounted for as two separate transactions: (1) a repurchase of common stock and (2) an equity-linked contract on Cadence’s own stock. In June 2023, Cadence received an initial share delivery of approximately 0.6 million shares, which represented the number of shares at a market price equal to $140.0 million. An equity-linked contract for $60.0 million, representing the remaining shares to be delivered by HSBC under the ASR agreement, was recorded to stockholders' equity as of June 30, 2023. In August 2023, the ASR agreement settled and resulted in a delivery of approximately 0.3 million additional shares to Cadence. In total, Cadence received approximately 0.9 million shares under the ASR agreement at an average price per share of $228.26. The shares received were treated as repurchased common stock for purposes of calculating earnings per share.

The shares repurchased under Cadence’s repurchase authorizations, which includes shares repurchased on the open market and under an ASR, and the total cost of repurchased shares, including commissions, during the three and six months ended June 30, 2024 and June 30, 2023 were as follows:

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
	(In thousands)
Shares repurchased	423		1,178		848		1,846
Total cost of repurchased shares	$	125,004	$	265,109	$	250,010	$	390,119

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NOTE 9. OTHER INCOME, NET

Cadence’s other income, net, for the three and six months ended June 30, 2024 and June 30, 2023 were as follows:

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
	(In thousands)
Interest income	$	8,885	$	7,427	$	18,397	$	13,800
Gains (loss) on investments	25,205		(647)		80,599		(525)
Gains on securities in Non-Qualified Deferred Compensation (“NQDC”) trust	1,697		3,155		6,285		6,305
Losses on foreign exchange	(708)		(37)		(1,039)		(1,080)
Other expense, net	(340)		(1,925)		(724)		(2,243)
Total other income, net	$	34,739	$	7,973	$	103,518	$	16,257

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 and six months ended June 30, 2024 and June 30, 2023 are as follows:

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
	(In thousands, except per share amounts)
Net income	$	229,520	$	221,120	$	477,163	$	462,924
Weighted average common shares used to calculate basic net income per share	270,912		269,714		270,259		269,607
Stock-based awards	2,608		3,282		3,273		3,471
Weighted average common shares used to calculate diluted net income per share	273,520		272,996		273,532		273,078
Net income per share - basic	$	0.85	$	0.82	$	1.77	$	1.72
Net income per share - diluted	$	0.84	$	0.81	$	1.74	$	1.70

The following table presents shares of Cadence’s common stock outstanding for the three and six months ended June 30, 2024 and June 30, 2023 that were excluded from the computation of diluted net income per share because the effect of including these shares in the computation of diluted net income per share would have been anti-dilutive:

	Three Months Ended		Six Months Ended
	June 30, 2024	June 30, 2023	June 30, 2024	June 30, 2023
	(In thousands)
Long-term market-based awards	—	1,830	—	1,828
Options to purchase shares of common stock	229	525	144	429
Non-vested shares of restricted stock	3	6	6	28
Total potential common shares excluded	232	2,361	150	2,285

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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, net in Cadence’s condensed consolidated income statements. The carrying value of marketable equity investments was $119.6 million and $80.6 million as of June 30, 2024 and December 31, 2023, respectively.

Non-Marketable Equity Investments

Cadence’s investments in non-marketable equity securities generally consist of stock or other instruments of privately held entities and are included in other assets on Cadence’s condensed consolidated balance sheets. Cadence holds a 16% interest in a privately held company that is accounted for using the equity method of accounting. The carrying value of this investment was $108.1 million and $111.1 million as of June 30, 2024 and December 31, 2023, respectively.

Cadence records its proportionate share of net income from the investee, offset by amortization of basis differences, to other income, net in Cadence’s condensed consolidated income statements. For the three and six months ended June 30, 2024, Cadence recognized losses of $0.2 million and $0.6 million, respectively. For the three and six months ended June 30, 2023, Cadence recognized losses of $1.0 million and $1.1 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 $26.7 million and $27.2 million as of June 30, 2024 and December 31, 2023, respectively. Gains and losses on these investments were not material to Cadence’s condensed consolidated financial statements for the periods presented.

The portion of gains and losses included in Cadence’s condensed consolidated income statements related to equity securities still held at the end of the period were as follows:

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
	(In thousands)
Net gains (losses) recognized on equity securities	$	25,351	$	(647)	$	80,749	$	(525)
Less: Net gains (losses) recognized on equity securities sold	—		—		(20,367)		—
Net gains (losses) recognized on equity securities still held	$	25,351	$	(647)	$	60,382	$	(525)

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 June 30, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
Available-for-sale debt securities
Mortgage-backed and asset-backed securities	$	50,624	$	165	$	(612)	$	50,177
Total available-for-sale securities	$	50,624	$	165	$	(612)	$	50,177

	As of December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
Available-for-sale debt securities
Mortgage-backed and asset-backed securities	$	49,653	$	375	$	(243)	$	49,785
Total available-for-sale securities	$	49,653	$	375	$	(243)	$	49,785

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Gross unrealized gains and losses are recorded as a component of accumulated other comprehensive loss on Cadence's condensed consolidated balance sheets.

As of June 30, 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 years	11,227
Due after 5 years through 10 years	15,827
Due after 10 years	23,123
Total	$	50,177

As of June 30, 2024, Cadence did not intend to sell any of its available-for-sale debt securities in an unrealized loss position, and it was more likely than not that Cadence will hold the securities until maturity or a recovery of the cost basis.

NOTE 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 six months ended June 30, 2024.

On a quarterly basis, Cadence measures at fair value certain financial assets and liabilities. The fair value of financial assets and liabilities was determined using the following levels of inputs as of June 30, 2024 and December 31, 2023:

	Fair Value Measurements as of June 30, 2024
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	403,454	$	403,454	$	—	$	—
Marketable securities:
Marketable equity securities	119,551		119,551		—		—
Mortgage-backed and asset-backed securities	50,177		—		50,177		—
Securities held in NQDC trust	85,295		85,295		—		—
Total Assets	$	658,477	$	608,300	$	50,177	$	—
	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities
Foreign currency exchange contracts	$	11	$	—	$	11	$	—
Total Liabilities	$	11	$	—	$	11	$	—

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	Fair Value Measurements as of December 31, 2023
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets
Cash equivalents:
Money market funds	$	490,983	$	490,983	$	—	$	—
Marketable securities:
Marketable equity securities	80,575		80,575		—		—
Mortgage-backed and asset-backed securities	49,785		—		49,785		—
Securities held in NQDC trust	75,671		75,671		—		—
Foreign currency exchange contracts	9,327		—		9,327		—
Total Assets	$	706,341	$	647,229	$	59,112	$	—
As of December 31, 2023, Cadence did not have any financial liabilities requiring a recurring fair value measurement.

Level 1 Measurements

Cadence’s cash equivalents held in money market funds, marketable equity securities and the trading securities held in Cadence’s NQDC trust are measured at fair value using Level 1 inputs.

Level 2 Measurements

The valuation techniques used to determine the fair value of Cadence’s investments in marketable debt securities, foreign currency forward exchange contracts and 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 six months ended June 30, 2024, Cadence acquired intangible assets of $364.0 million, primarily through its acquisitions of BETA CAE and Invecas. The fair value of the intangible assets acquired was determined using variations of the income approach that utilizes unobservable inputs classified as Level 3 measurements.

For existing technology, the fair value was determined by applying the relief-from-royalty method. This method is based on the application of a royalty rate to forecasted revenue to quantify the benefit of owning the intangible asset rather than paying a royalty for use of the asset. To estimate royalty savings over time, Cadence projected revenue from the acquired existing technology over the estimated remaining life of the technology, including the effect of assumed technological obsolescence, before applying an assumed royalty rate. Cadence assumed technological obsolescence at a rate of 10% annually, before applying an assumed royalty rate of 30%.

For agreements and relationships, the fair value was determined by using the multi-period excess earnings method. This method reflects the present value of the projected cash flows that are expected to be generated from existing customers, less charges representing the contribution of other assets to those cash flows. Projected income from existing customer relationships was determined using customer retention rates between 85% and 92%. The present value of operating cash flows from existing customers was determined using discount rates between 10% and 14%.

NOTE 13. INVENTORY

Cadence’s inventory balances as of June 30, 2024 and December 31, 2023 were as follows:

	As of
	June 30, 2024		December 31, 2023
	(In thousands)
Inventories:
Raw materials	$	146,449	$	162,754
Work-in-process	2,033		—
Finished goods	23,026		18,907
Total inventories	$	171,508	$	181,661

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NOTE 14. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, Cadence is involved in various disputes and litigation that arise in the ordinary course of business. These include disputes and legal proceedings related to intellectual property, indemnification obligations, mergers and acquisitions, licensing, contracts, customers, products, distribution and other commercial arrangements and employee relations matters. Cadence is also subject from time to time to inquiries, investigations and regulatory proceedings involving governments and regulatory agencies in the jurisdictions in which Cadence operates. At least quarterly, Cadence reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount or the range of loss can be estimated, Cadence accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on Cadence’s judgments using the best information available at the time. As additional information becomes available, Cadence reassesses the potential liability related to pending claims and 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 June 30, 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 and six months ended June 30, 2024 and June 30, 2023.

Cadence’s product license and services agreements typically include a limited indemnification provision for claims from third parties relating to Cadence’s intellectual property. If the potential loss from any indemnification claim is considered probable and the amount or the range of loss can be estimated, Cadence accrues a liability for the estimated loss.

Cadence did not incur any material losses from indemnification claims during the three and six months ended June 30, 2024 and June 30, 2023.

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 June 30, 2024 and December 31, 2023:

	As of
	June 30, 2024		December 31, 2023
	(In thousands)
Foreign currency translation loss	$	(104,645)	$	(90,678)
Changes in defined benefit plan liabilities	(4,085)		(4,208)
Unrealized gains (losses) on investments	(447)		132
Total accumulated other comprehensive loss	$	(109,177)	$	(94,754)

For the three and six months ended June 30, 2024 and June 30, 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.

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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 and six months ended June 30, 2024 and June 30, 2023:

	Three Months Ended				Six Months Ended
	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
	(In thousands)
Americas:
United States	$	507,169	$	385,595	$	942,692	$	819,941
Other Americas	11,660		15,966		39,007		32,084
Total Americas	518,829		401,561		981,699		852,025
Asia:
China	127,809		174,116		245,038		351,672
Other Asia	197,928		176,894		406,459		360,856
Total Asia	325,737		351,010		651,497		712,528
Europe, Middle East and Africa	152,521		166,804		321,577		321,074
Japan	63,594		57,204		115,011		112,642
Total	$	1,060,681	$	976,579	$	2,069,784	$	1,998,269

The following table presents a summary of long-lived assets by geography as of June 30, 2024 and December 31, 2023:

	As of
	June 30, 2024		December 31, 2023
	(In thousands)
Americas:
United States	$	406,512	$	383,807
Other Americas	8,436		10,219
Total Americas	414,948		394,026
Asia:
China	26,239		29,598
Other Asia	84,905		71,365
Total Asia	111,144		100,963
Europe, Middle East and Africa	67,132		56,449