CADENCE DESIGN SYSTEMS INC - FORM 8-K - EX-99.02 - CFO COMMENTARY

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EX-99.01 - PRESS RELEASE - CADENCE DESIGN SYSTEMS INC	cdns4232018ex9901.htm
8-K - 8-K - CADENCE DESIGN SYSTEMS INC	cdns42320188-k.htm

Exhibit 99.02



CADENCE REPORTS FIRST QUARTER 2018
CADENCE DESIGN SYSTEMS, INC.


CFO COMMENTARY
April 23, 2018 Q1 2018 Key Takeaways • Exceeded our expectations for key operating metrics including revenue, operating margin, EPS and operating cash flow. • Raised outlook for the year on strength of Q1 business and continuing momentum. • Now expect revenue growth of approximately 8 percent for 2018 on same accounting basis as 2017. • Repurchased $50 million of Cadence shares.	Q2 2018 Outlook * (ASC Topic 606 Basis) • Revenue : $510 - $520 million. • GAAP operating margin: 15% to 16%. • Non-GAAP operating margin: 27% to 28%. • GAAP EPS: $0.20 - $0.22. • Non-GAAP EPS: $0.39 - $0.41.	Q1 2018 KEY METRICS
		• Revenue $517 million • GAAP operating margin 17% • Non-GAAP operating margin 28% • GAAP EPS $0.26 • Non-GAAP EPS $0.40 • Operating cash flow $158 million






FY 2018 Outlook * (ASC Topic 606 Basis) • Revenue: $2.055 - $2.085 billion. • GAAP operating margin: 15% to 16%. • Non-GAAP operating margin: 27% to 28%. • GAAP EPS: $0.86 - $0.94. • Non-GAAP EPS $1.57 - $1.65. • Operating cash flow: $510 - $550 million. • Expect to repurchase $50 million of Cadence shares per quarter in 2018.	FY 2018 Implied Outlook * (ASC Topic 605 Basis at midpoint) • Revenue: ~$2.100 billion. • GAAP operating margin: ~17.0%. • Non-GAAP operating margin: ~28.6%. • GAAP EPS: ~$1.01. • Non-GAAP EPS: ~$1.70. • Operating cash flow: $510 - $550 million.	Financial Results Webcast
		Our Q1 2018 financial results webcast will begin April 23, 2018 at 2:00 p.m. (Pacific). The webcast may be accessed at cadence.com/cadence/investor_relations. An archive of the webcast will be available on April 23, 2018 until 5:00 p.m. (Pacific) on June 15, 2018.




* As required by the new standard, Cadence will report revenue under both methods for the 2018 transition year.




April 23, 2018	Cadence Q1 2018 Financial Results	1



Cadence Design Systems, Inc.

Second Quarter 2018 Financial Outlook (ASC 606 Basis)



	ASC 606	ASC 606
	Q1 2018A	Q2 2018E

Total Revenue ($ Million)	$517.3	$510 - $520

GAAP Operating Margin	17%	15% to 16%

Non-GAAP Operating Margin	28%	27% to 28%

GAAP EPS	$0.26	$0.20 - $0.22

Non-GAAP EPS	$0.40	$0.39 - $0.41

Fiscal Year 2018 Financial Outlook (ASC 606 Basis)



	Previous	Current
	ASC 606	ASC 606
	FY 2018E	FY 2018E

Revenue Recognized Over Time	~90%	~90%

Total Revenue ($ Billion)	$2.015 - $2.055	$2.055 - $2.085

Revenue from Beginning Backlog	~70%	70% - 75%

GAAP Operating Margin	~15%	15% - 16%

Non-GAAP Operating Margin	~27%	27% - 28%

GAAP Other Income & Expense ($ Million)	($30) - ($20)	($31) - ($23)

Non-GAAP Other Income & Expense ($ Million)	($30) - ($20)	($32) - ($24)

GAAP Tax Rate	12% - 13%	14% - 15%

Non-GAAP Tax Rate	16%	16%

Weighted Average Diluted Shares Outstanding (Million)	280 - 286	280 - 284

GAAP EPS	$0.80 - $0.90	$0.86 - $0.94

Non-GAAP EPS	$1.50 - $1.60	$1.57 - $1.65

Cash Flow from Operations ($ Million)	$480 - $530	$510 - $550

DSO	~40	~40

Capital Expenditures ($ Million)	~$60	~$60



April 23, 2018	Cadence Q1 2018 Financial Results	2



Cadence Design Systems, Inc.

Fiscal Year 2018 Financial Outlook (ASC 605 Basis)



			Previous	Current
	ASC 605		ASC 605	ASC 605
	FY 2017A		FY 2018E	FY 2018E

Revenue Recognized Over Time	~90%		~90%	~90%

Total Revenue ($ Billion)	$1.943		$2.055 - $2.095	~$2.100
Y/Y Growth	7	%	6% - 8%	8%

Revenue from Beginning Backlog	~70%		~70%	70% - 75%

GAAP Operating Margin	16.7%		~16.5%	~17.0%

Non-GAAP Operating Margin	27.5%		~28.4%	~28.6%

GAAP Other Income & Expense ($ Million)	$(8.9)		($30) - ($20)	($31) - ($23)

Non-GAAP Other Income & Expense ($ Million)	$(24.6)		($30) - ($20)	($32) - ($24)

GAAP Tax Rate	35%		12% - 13%	13% - 14%

Non-GAAP Tax Rate	23%		16%	16%

Weighted Average Diluted Shares Outstanding (Million)	280.2		280 - 286	280 - 284

GAAP EPS	$0.73		$0.93 - $1.03	~$1.01
Y/Y Growth	4%		27% - 41%	38	%

Non-GAAP EPS	$1.40		$1.62 - $1.72	~$1.70
Y/Y Growth	16%		16% - 23%	21%

Cash Flow from Operations ($ Million)	$470.7		$480 - $530	$510 - $550

DSO	36		~35	~35

Capital Expenditures ($ Million)	$57.9		~$60	~$60

Fiscal Year 2018 Financial Outlook (ASC 606 compared to ASC 605)



	ASC 606		ASC 605
	FY 2018E	Adjustments	FY 2018E

Revenue @ Midpoint	$2.070 billion	$30.0 million	$2.100 billion

Non-GAAP Operating Margin @ Midpoint	27.5%	1.1%	28.6%

Non-GAAP EPS @ Mid-point	$1.61	$0.09	$1.70



April 23, 2018	Cadence Q1 2018 Financial Results	3



Cadence Design Systems, Inc.

First Quarter Financial Results

Revenue



			ASC 606
(In Thousands)			Q1 2018

Product and Maintenance			$480,609
Services			36,704
Total Revenue			$517,313



	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
(In Thousands)	Q1 2017	Q2 2017	Q3 2017	Q4 2017	Q1 2018

Product and Maintenance	$451,407	$443,847	$451,229	$467,504	$486,789
Services	25,504	35,154	34,169	34,218	38,668
Total Revenue	$476,911	$479,001	$485,398	$501,722	$525,457
Y/Y Growth	6%	6%	9%	7%	10%

Revenue Mix by Geography



	ASC 606
(% of Total Revenue)	Q1 2018

Americas	45	%
Asia	27	%
Europe, Middle East and Africa	20	%
Japan	8	%
Total	100	%



	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
(% of Total Revenue)	Q1 2017		Q2 2017		Q3 2017		Q4 2017		Q1 2018

Americas	45	%	45	%	45	%	44	%	45	%
Asia	26	%	28	%	27	%	28	%	26	%
Europe, Middle East and Africa	20	%	19	%	19	%	20	%	21	%
Japan	9	%	8	%	9	%	8	%	8	%
Total	100	%	100	%	100	%	100	%	100	%



April 23, 2018	Cadence Q1 2018 Financial Results	4



Cadence Design Systems, Inc.

Revenue Mix by Product Group



	ASC 606
(% of Total Revenue)	Q1 2018

Functional Verification	26	%
Digital IC Design and Signoff	30	%
Custom IC Design	26	%
System Interconnect and Analysis	9	%
IP	9	%
Total	100	%



	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
(% of Total Revenue)	Q1 2017		Q2 2017		Q3 2017		Q4 2017		Q1 2018

Functional Verification	23	%	23	%	21	%	23	%	26	%
Digital IC Design and Signoff	29	%	30	%	30	%	29	%	29	%
Custom IC Design	26	%	26	%	28	%	26	%	26	%
System Interconnect and Analysis	10	%	10	%	10	%	10	%	9	%
IP	12	%	11	%	11	%	12	%	10	%
Total	100	%	100	%	100	%	100	%	100	%

Total Costs and Expenses



			ASC 606
(In Thousands)			Q1 2018

Total GAAP Costs and Expenses			$431,480
Total Non-GAAP Costs and Expenses			$373,753



	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
(In Thousands)	Q1 2017	Q2 2017	Q3 2017	Q4 2017	Q1 2018

Total GAAP Costs and Expenses	$397,309	$396,311	$405,013	$420,444	$428,419
Y/Y Growth	2%	3%	7%	1%	8%
Total Non-GAAP Costs and Expenses	$354,601	$350,647	$351,787	$351,503	$370,692
Y/Y Growth	6%	4%	6%	2%	5%



April 23, 2018	Cadence Q1 2018 Financial Results	5



Cadence Design Systems, Inc.

Operating Margin



	ASC 606
	Q1 2018

GAAP Operating Margin	16.6	%
Non-GAAP Operating Margin	27.8	%



	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
	Q1 2017		Q2 2017		Q3 2017		Q4 2017		Q1 2018

GAAP Operating Margin	16.7	%	17.3	%	16.6	%	16.2	%	18.5	%
Non-GAAP Operating Margin	25.6	%	26.8	%	27.5	%	29.9	%	29.5	%

Earnings (Loss) Per Share



			ASC 606
			Q1 2018

GAAP Net Income Per Share			$0.26
Non-GAAP Net Income Per Share			$0.40



	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
	Q1 2017	Q2 2017	Q3 2017	Q4 2017	Q1 2018

GAAP Net Income (Loss) Per Share	$0.25	$0.25	$0.29	$(0.05)	$0.30
Y/Y Growth	47%	47%	26%	(136)%	20%
Non-GAAP Net Income Per Share	$0.32	$0.34	$0.35	$0.39	$0.44
Y/Y Growth	14%	17%	17%	15%	38%

Total DSO



			ASC 606
			Q1 2018

DSO			41



	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
	Q1 2017	Q2 2017	Q3 2017	Q4 2017	Q1 2018

DSO	37	31	34	36	38



April 23, 2018	Cadence Q1 2018 Financial Results	6



Cadence Design Systems, Inc.

Balance Sheet and Cash Review

Cash Flow from Operating Activities



(In Thousands)	Q1 2017	Q2 2017	Q3 2017	Q4 2017	Q1 2018

Net Cash from Operating Activities	$92,430	$162,140	$89,314	$126,856	$157,647

Capital Expenditures



(In Thousands)	Q1 2017	Q2 2017	Q3 2017	Q4 2017	Q1 2018

Capital Expenditures	$14,843	$12,645	$12,188	$18,225	$13,128

Cash and Short-Term Investments



(In Thousands)	Q1 2017	Q2 2017	Q3 2017	Q4 2017	Q1 2018

Cash and Short-Term Investments	$547,607	$659,227	$682,419	$692,542	$752,434


•	Approximately 30 percent of our cash and short-term investments were in the U.S. at quarter-end.

Stock Repurchase



(In Thousands, Except Share Price)	Q1 2017	Q2 2017	Q3 2017	Q4 2017	Q1 2018

Share Repurchase	—	—	$50,013	$50,012	$50,013
Number of Shares	—	—	1,331	1,164	1,289
Average Share Price	—	—	$37.58	$42.97	$38.80

Employees



	Q1 2017	Q2 2017	Q3 2017	Q4 2017	Q1 2018

Headcount	7,101	7,190	7,233	7,214	7,229



April 23, 2018	Cadence Q1 2018 Financial Results	7



Cadence Design Systems, Inc.

Forward Looking Statements

The statements in this CFO Commentary contain forward-looking statements based on current expectations or beliefs and preliminary assumptions about future events that are subject to factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside Cadence’s control, including, among others: (i) Cadence’s ability to compete successfully in the electronic design automation product and the commercial electronic design and methodology services industries; (ii) the success of Cadence’s efforts to improve operational efficiency and growth; (iii) the mix of products and services sold and the timing of significant orders for Cadence’s products; (iv) change in customer demands, including those resulting from consolidation among Cadence’s customers and the possibility that the restructurings and other efforts to improve operational efficiency of Cadence’s customers could result in delays in purchases of Cadence’s products and services; (v) economic and industry conditions in regions in which Cadence does business; (vi) fluctuations in rates of exchange between the U.S. dollar and the currencies of other countries in which Cadence does business; (vii) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rates and Cadence’s ability to access capital and debt markets; (viii) the acquisition of other companies or technologies or the failure to successfully integrate and operate these companies or technologies Cadence acquires, including the potential inability to retain customers, key employees or vendors; (ix) the effects of Cadence’s efforts to improve operational efficiency in its business, including strategic, customer and supplier relationships, and its ability to retain key employees; (x) events that affect cash flow, liquidity, reserves or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation or other matters; and (xi) the effects of any litigation or other proceedings to which Cadence is or may become a party. In addition, the actual timing and amount of Cadence's repurchase of its common stock under the existing authorization will be subject to business and market conditions, corporate and regulatory requirements, acquisition opportunities and other factors.

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

GAAP to Non-GAAP Reconciliation

Non-GAAP financial measures should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this CFO Commentary with their most directly comparable GAAP financial results. Investors are also encouraged to look at the GAAP results as the best measure of financial performance. See our earnings press release issued today for further discussion of our non-GAAP financial measures, as well as the reconciliation provided in the Appendix to this CFO Commentary.

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

Cadence's non-GAAP net income for the fourth quarter of 2017 excludes the effect of the transition tax expense and income tax expense related to the reduction in value of the deferred tax assets caused by the U.S. corporate tax rate reduction. Cadence management believes it is useful to exclude these tax expenses since it does not expect these tax expenses to be recorded frequently.

Cadence and the Cadence logo are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.



April 23, 2018	Cadence Q1 2018 Financial Results	8



Cadence Design Systems, Inc.

APPENDIX I

Reconciliation of GAAP to Non-GAAP Financial Measures (Unaudited)

Reconciliation of GAAP Total Expenses to Non-GAAP Total Expenses



	ASC 606
(In Thousands)	Q1 2018

GAAP total costs and expenses	$431,480

Reconciling items to non-GAAP total costs and expenses
Amortization of acquired intangibles	(13,907	)
Stock-based compensation expense	(37,901	)
Non-qualified deferred compensation expenses	(127	)
Restructuring and other credits	1,991
Acquisition and integration-related costs	(7,783	)
Non-GAAP total costs and expenses†	$373,753



	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
(In Thousands)	Q1 2017		Q2 2017		Q3 2017		Q4 2017		Q1 2018

GAAP total costs and expenses	$397,309		$396,311		$405,013		$420,444		$428,419

Reconciling items to non-GAAP total costs and expenses
Amortization of acquired intangibles	(14,434	)	(14,704	)	(13,618	)	(13,741	)	(13,907	)
Stock-based compensation expense	(27,436	)	(30,482	)	(36,090	)	(36,015	)	(37,901	)
Non-qualified deferred compensation expenses	(1,269	)	(756	)	(2,825	)	(1,295	)	(127	)
Restructuring and other (charges) credits	1,788		929		55		(12,178	)	1,991
Acquisition and integration-related costs	(1,357	)	(651	)	(748	)	(5,712	)	(7,783	)
Non-GAAP total costs and expenses†	$354,601		$350,647		$351,787		$351,503		$370,692

† The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.



April 23, 2018	Cadence Q1 2018 Financial Results	9



Cadence Design Systems, Inc.

Reconciliation of GAAP Operating Margin as Percent of Total Revenue to Non-GAAP Operating Margin as Percent of Total Revenue



	ASC 606	ASC 606
	Q1 2018	Q2 2018E

GAAP operating margin as percent of total revenue	17%	15% - 16%

Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	3%	3%
Stock-based compensation expense	7%	8%
Non-qualified deferred compensation expenses	0%	0%
Restructuring and other charges (credits)	0%	0%
Acquisition and integration-related costs	1%	1%
Non-GAAP operating margin as percent of total revenue†	28%	27% - 28%

† The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.



	ASC 605	ASC 605	ASC 605	ASC 605	ASC 605
	Q1 2017	Q2 2017	Q3 2017	Q4 2017	Q1 2018

GAAP operating margin as percent of total revenue	17%	17%	17%	16%	18%

Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	3%	3%	3%	3%	3%
Stock-based compensation expense	6%	7%	7%	7%	7%
Non-qualified deferred compensation expenses	0%	0%	1%	0%	0%
Restructuring and other charges (credits)	0%	0%	0%	3%	0%
Acquisition and integration-related costs	0%	0%	0%	1%	1%
Non-GAAP operating margin as percent of total revenue†	26%	27%	28%	30%	29%

† The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.



April 23, 2018	Cadence Q1 2018 Financial Results	10



Cadence Design Systems, Inc.

Reconciliation of GAAP Operating Margin as Percent of Total Revenue to Non-GAAP Operating Margin as Percent of Total Revenue



	ASC 605	ASC 605	ASC 605	ASC 606
	2016	2017	2018E	2018E

GAAP operating margin as percent of total revenue	13%	17%	~17.0%	15% - 16%

Reconciling items to non-GAAP operating margin as a percent of total revenue
Amortization of acquired intangibles	4%	3%	2.6%	3%
Stock-based compensation expense	6%	7%	7.9%	8%
Non-qualified deferred compensation expenses	0%	0%	0.0%	0%
Restructuring and other charges (credits)	2%	1%	-0.1%	0%
Acquisition and integration-related costs	1%	0%	1.2%	1%
Non-GAAP operating margin as percent of total revenue†	26%	28%	~28.6%	27% - 28%

† The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.



April 23, 2018	Cadence Q1 2018 Financial Results	11



Cadence Design Systems, Inc.

Reconciliation of GAAP Diluted Net Income Per Share to Non-GAAP Diluted Net Income Per Share



	ASC 606		ASC 606
(In Thousands, Except Per Share Data)	Q1 2018		Q2 2018E

Diluted net income per share on a GAAP basis	$0.26		$0.20 - $0.22
Amortization of acquired intangibles	0.05		0.05
Stock-based compensation expense	0.13		0.14
Non-qualified deferred compensation expenses	—		—
Restructuring and other charges (credits)	(0.01	)	—
Acquisition and integration-related costs	0.03		0.02
Other income or expense related to investments and non-qualified deferred compensation plan assets *	—		—
Income tax effect of non-GAAP adjustments	(0.06	)	(0.02	)
Diluted net income per share on a non-GAAP basis †	$0.40		$0.39 - $0.41

Shares used in calculation of diluted net income per share - GAAP **	281,651
Shares used in calculation of diluted net income per share - non-GAAP **	281,651

† The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.

* Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense.

** Shares used in the calculation of GAAP net income per share are expected to be the same as shares used in the calculation of non-GAAP net income per share, except when the company reports a GAAP net loss and non-GAAP net income, or GAAP net income and a non-GAAP net loss.



April 23, 2018	Cadence Q1 2018 Financial Results	12



Cadence Design Systems, Inc.

Reconciliation of GAAP Diluted Net Income (Loss) Per Share to Non-GAAP Diluted Net Income Per Share



	ASC 605		ASC 605		ASC 605		ASC 605		ASC 605
(In Thousands, Except Per Share Data)	Q1 2017		Q2 2017		Q3 2017		Q4 2017		Q1 2018

Diluted net income (loss) per share on a GAAP basis	$0.25		$0.25		$0.29		$(0.05)		$0.30
Amortization of acquired intangibles	0.05		0.05		0.05		0.05		0.05
Stock-based compensation expense	0.10		0.11		0.13		0.13		0.13
Non-qualified deferred compensation expenses	—		—		0.01		—		—
Restructuring and other charges (credits)	(0.01	)	—		—		0.04		(0.01	)
Acquisition and integration-related costs	—		—		—		0.02		0.03
Other income or expense related to investments and non-qualified deferred compensation plan assets *	—		—		(0.04	)	(0.01	)	—
Income tax related to transition tax	—		—		—		0.24		—
Income tax related to tax rate change	—		—		—		0.09		—
Income tax effect of non-GAAP adjustments	(0.07	)	(0.07	)	(0.09	)	(0.12	)	(0.06	)
Diluted net income per share on a non-GAAP basis †	$0.32		$0.34		$0.35		$0.39		$0.44

Shares used in calculation of diluted net income (loss) per share - GAAP **	277,736		279,526		281,400		273,157		281,651
Shares used in calculation of diluted net income per share - non-GAAP **	277,736		279,526		281,400		282,206		281,651

† The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.

** Shares used in the calculation of GAAP net income (loss) per share are expected to be the same as shares used in the calculation of non-GAAP net income per share, except when the company reports a GAAP net loss and non-GAAP net income, or GAAP net income and a non-GAAP net loss.



April 23, 2018	Cadence Q1 2018 Financial Results	13



Cadence Design Systems, Inc.

Reconciliation of GAAP Diluted Net Income Per Share to Non-GAAP Diluted Net Income Per Share



	ASC 605		ASC 605		ASC 605		ASC 606
(In Thousands, Except Per Share Data)	2016		2017		2018E		2018E

Diluted net income per share on a GAAP basis	$0.70		$0.73		~$1.01		$0.86 - $0.94
Amortization of acquired intangibles	0.21		0.20		0.19		0.19
Stock-based compensation expense	0.37		0.46		0.59		0.59
Non-qualified deferred compensation expenses	0.01		0.02		—		—
Restructuring and other charges (credits)	0.14		0.03		(0.01	)	(0.01	)
Acquisition and integration-related costs	0.04		0.03		0.09		0.09
Other income or expense related to investments and non-qualified deferred compensation plan assets *	(0.02	)	(0.05	)	—		—
Income tax related to transition tax	—		0.24		—		—
Income tax related to tax rate change	—		0.09		—		—
Income tax effect of non-GAAP adjustments	(0.24	)	(0.35	)	(0.17	)	(0.15	)
Diluted net income per share on a non-GAAP basis †	$1.21		$1.40		~$1.70		$1.57 - $1.65

Shares used in calculation of diluted net income per share - GAAP **	291,256		280,221		280 - 284M		280 - 284M
Shares used in calculation of diluted net income per share - non-GAAP **	291,256		280,221		280 - 284M		280 - 284M

† The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.



April 23, 2018	Cadence Q1 2018 Financial Results	14



Cadence Design Systems, Inc.

Reconciliation of GAAP Total Other Income and Expense to Non-GAAP Total Other Income and Expense



		Previous	Current
(In Millions)	FY 2017A	FY 2018E	FY 2018E

GAAP total other income and expense	$(8.9)	$(30) - $(20)	$(31) - $(23)

Reconciling items to non-GAAP total income and expense
Other income or expense related to investments and non-qualified deferred compensation plan assets*	(15.7)	—	(1	)
Non-GAAP total other income and expense†	$(24.6)	$(30) - $(20)	$(32) - $(24)

† The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.



April 23, 2018	Cadence Q1 2018 Financial Results	15



Cadence Design Systems, Inc.

APPENDIX II

The following table summarizes the effects of adopting Topic 606 on Cadence’s condensed consolidated balance sheet as of March 31, 2018:



(In Millions)	As reported under Topic 606		Adjustments			Balances under Prior GAAP

Receivables	$	225,822	$	(18,538	)	$	207,284
Prepaid expenses and other	61,597		(5,255		)	56,342
Long-term receivables	9,380		569			9,949
Other assets	226,998		(11,947		)	215,051
Accounts payable and accrued liabilities	210,784		(40,357		)	170,427
Current portion of deferred revenue	310,639		78,462			389,101
Long-term portion of deferred revenue	56,276		4,275			60,551
Retained earnings	499,817		(79,876		)	419,941
Accumulated other comprehensive income	5,940		2,325			8,265

The following table summarizes the effects of adopting Topic 606 on Cadence’s condensed consolidated income statement for the three months ended March 31, 2018:



(In Millions)	As reported under Topic 606		Adjustments			Balances under Prior GAAP

Product and maintenance revenue	$	480,609	$	6,180		$	486,789
Services revenue	36,704		1,964			38,668
Cost of product and maintenance	41,730		(251		)	41,479
Marketing and sales expense	109,148		(2,810		)	106,338
Provision for income taxes	5,284		557			5,841
Net income	72,885		10,648			83,533
Net income per share - basic	0.27		0.04			0.31
Net income per share - diluted	0.26		0.04			0.30



April 23, 2018	Cadence Q1 2018 Financial Results	16

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