Item 1. Financial Statements

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

			As of
			April 2, 2022						January 1, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	1,134,752					$	1,088,940
Receivables, net			361,789						337,596
Inventories			110,213						115,721
Prepaid expenses and other			128,143						173,512
Total current assets			1,734,897						1,715,769
Property, plant and equipment, net			310,690						305,911
Goodwill			923,719						928,358
Acquired intangibles, net			219,110						233,265
Deferred taxes			787,111						763,770
Other assets			419,540						439,226
Total assets			$	4,395,067					$	4,386,299
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities			$	360,547					$	417,283
Current portion of deferred revenue			600,279						553,942
Total current liabilities			960,826						971,225
Long-term liabilities:
Long-term portion of deferred revenue			106,838						101,148
Long-term debt			347,792						347,588
Other long-term liabilities			219,428						225,663
Total long-term liabilities			674,058						674,399
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock and capital in excess of par value			2,552,207						2,467,701
Treasury stock, at cost			(3,025,728)						(2,740,003)
Retained earnings			3,281,623						3,046,288
Accumulated other comprehensive loss			(47,919)						(33,311)
Total stockholders’ equity			2,760,183						2,740,675
Total liabilities and stockholders’ equity			$	4,395,067					$	4,386,299

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
															April 2, 2022						April 3, 2021
Revenue:
Product and maintenance															$	846,244					$	699,054
Services															55,522						36,974
Total revenue															901,766						736,028
Costs and expenses:
Cost of product and maintenance															72,795						64,906
Cost of services															25,048						19,061
Marketing and sales															140,186						132,826
Research and development															290,895						270,992
General and administrative															48,937						39,952
Amortization of acquired intangibles															4,964						4,631
Restructuring															12						(277)
Total costs and expenses															582,837						532,091
Income from operations															318,929						203,937
Interest expense															(4,108)						(4,217)
Other income (expenses), net															(4,900)						2,701
Income before provision for income taxes															309,921						202,421
Provision for income taxes															74,586						15,252
Net income															$	235,335					$	187,169
Net income per share – basic															$	0.86					$	0.68
Net income per share – diluted															$	0.85					$	0.67
Weighted average common shares outstanding – basic															272,431						274,021
Weighted average common shares outstanding – diluted															276,918						280,140

See notes to condensed consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

									Three Months Ended
															April 2, 2022						April 3, 2021
Net income															$	235,335					$	187,169
Other comprehensive loss, net of tax effects:
Foreign currency translation adjustments															(14,774)						(9,923)
Changes in defined benefit plan liabilities															166						311
Total other comprehensive loss, net of tax effects															(14,608)						(9,612)
Comprehensive income															$	220,727					$	177,557

See notes to condensed consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

			Three Months Ended April 2, 2022
			Common Stock
									Par Value																		Accumulated
									and Capital																		Other
									in Excess						Treasury						Retained						Comprehensive
			Shares						of Par						Stock						Earnings						Loss						Total
Balance, January 1, 2022			276,796						$	2,467,701					$	(2,740,003)					$	3,046,288					$	(33,311)					$	2,740,675
Net income			—						—						—						235,335						—						$	235,335
Other comprehensive loss, net of taxes			—						—						—						—						(14,608)						$	(14,608)
Purchase of treasury stock			(1,566)						—						(250,016)						—						—						$	(250,016)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures			874						31,402						14,269						—						—						$	45,671
Stock received for payment of employee taxes on vesting of restricted stock			(345)						(6,365)						(49,978)						—						—						$	(56,343)
Stock-based compensation expense			—						59,469						—						—						—						$	59,469
Balance, April 2, 2022			275,759						$	2,552,207					$	(3,025,728)					$	3,281,623					$	(47,919)					$	2,760,183
			Three Months Ended April 3, 2021
			Common Stock
									Par Value																		Accumulated
									and Capital																		Other
									in Excess						Treasury						Retained						Comprehensive
			Shares						of Par						Stock						Earnings						Loss						Total
Balance, January 2, 2021			278,941						$	2,217,939					$	(2,057,829)					$	2,350,333					$	(17,425)					$	2,493,018
Net income			—						—						—						187,169						—						$	187,169
Other comprehensive loss, net of taxes			—						—						—						—						(9,612)						$	(9,612)
Purchase of treasury stock			(1,323)						—						(172,267)						—						—						$	(172,267)
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures			1,024						42,125						5,788						—						—						$	47,913
Stock received for payment of employee taxes on vesting of restricted stock			(377)						(4,695)						(51,690)						—						—						$	(56,385)
Stock-based compensation expense			—						52,596						—						—						—						$	52,596
Balance, April 3, 2021			278,265						$	2,307,965					$	(2,275,998)					$	2,537,502					$	(27,037)					$	2,542,432

See notes to condensed consolidated financial statements.

CADENCE DESIGN SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

			Three Months Ended
			April 2, 2022						April 3, 2021
Cash and cash equivalents at beginning of period			$	1,088,940					$	928,432
Cash flows from operating activities:
Net income			235,335						187,169
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			34,825						36,218
Amortization of debt discount and fees			268						264
Stock-based compensation			59,469						52,596
(Gain) loss on investments, net			2,038						(1,433)
Deferred income taxes			(24,920)						2,710
Provisions for losses (recoveries) on receivables			(344)						77
ROU asset amortization and change in operating lease liabilities			926						(2,136)
Other non-cash items			88						302
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables			(28,426)						(45,927)
Inventories			4,580						(669)
Prepaid expenses and other			44,419						(3,014)
Other assets			11,588						6,260
Accounts payable and accrued liabilities			(58,203)						(80,769)
Deferred revenue			56,225						59,166
Other long-term liabilities			(1,260)						(2,372)
Net cash provided by operating activities			336,608						208,442
Cash flows from investing activities:
Purchases of non-marketable investments			(1,000)						—
Purchases of property, plant and equipment			(18,130)						(16,968)
Purchases of intangible assets			(750)						—
Cash paid in business combinations, net of cash acquired			—						(189,262)
Net cash used for investing activities			(19,880)						(206,230)
Cash flows from financing activities:
Proceeds from issuance of common stock			45,673						46,384
Stock received for payment of employee taxes on vesting of restricted stock			(56,343)						(56,385)
Payments for repurchases of common stock			(250,016)						(172,267)
Net cash used for financing activities			(260,686)						(182,268)
Effect of exchange rate changes on cash and cash equivalents			(10,230)						(5,395)
Increase (decrease) in cash and cash equivalents			45,812						(185,451)
Cash and cash equivalents at end of period			$	1,134,752					$	742,981
Supplemental cash flow information:
Cash paid for interest			$	158					$	131
Cash paid for taxes, net			10,018						10,127

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 January 1, 2022.

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. 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.

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.

Due to the ongoing COVID-19 pandemic and rising tensions in the geopolitical climate, there continues to be uncertainty and disruption in the global economy and financial markets. 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 April 25, 2022, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

Recently Adopted Accounting Standards

Lessors - Certain Leases with Variable Lease Payments

In July 2021, the Financial Accounting Standards Board (“FASB”), issued ASU 2021-05, “Lessors - Certain Leases with Variable Lease Payments,” which allows lessors to classify and account for a lease with variable payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: (1) the lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria as defined in ASC Topic 842 and (2) the lessor would have otherwise recognized a day-one loss on the lease arrangement. This standard better aligns the accounting with the underlying economics of these arrangements as lessors are not permitted to include most variable payments which do not depend on a reference index or a rate in the lease receivable while assets are derecognized at lease commencement. This standard is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Cadence adopted this standard on January 2, 2022, the first day of fiscal 2022, on a prospective basis. The adoption of this standard did not have a material impact on Cadence’s condensed consolidated financial statements and related disclosures.

Business Combinations

In October 2021, the FASB issued ASU 2021-08, “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with “Revenue from Contracts with Customers (Topic 606)” as if the acquiring entity had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted. Cadence adopted this standard on January 2, 2022, the first day of fiscal 2022. The impact of the standard on Cadence’s condensed consolidated financial statements is dependent on the size and frequency of future acquisitions and does not affect contract assets or contract liabilities related to acquisitions completed prior to the adoption date.

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 months ended April 2, 2022 and April 3, 2021:

									Three Months Ended
															April 2, 2022						April 3, 2021
Custom Integrated Circuit (“IC”) Design and Simulation															22		%				23		%
Digital IC Design and Signoff															27		%				27		%
Functional Verification, including Emulation and Prototyping Hardware*															28		%				26		%
Intellectual Property (“IP”)															13		%				14		%
System Design and Analysis															10		%				10		%
Total															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 one customer accounted for 10% or more of total revenue during the three months ended April 2, 2022 or the three months ended April 3, 2021.

Generally, between 85% and 90% of Cadence’s annual revenue is characterized as recurring revenue. Recurring revenue includes revenue recognized over time from our 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 and individual IP licenses. The percentage of Cadence’s recurring and up-front revenue may be impacted by delivery of hardware and IP products to its customers in any single fiscal period. The following table shows the percentage of Cadence’s revenue that is classified as recurring or up-front for the three months ended April 2, 2022 and April 3, 2021:

									Three Months Ended
															April 2, 2022						April 3, 2021
Revenue recognized over time															81		%				82		%
Revenue from arrangements with non-cancelable commitments															2		%				4		%
Recurring revenue															83		%				86		%
Up-front revenue															17		%				14		%
Total															100		%				100		%

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 standalone 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 sheet 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 April 2, 2022 and January 1, 2022 were as follows:

			As of
			April 2, 2022						January 1, 2022
			(In thousands)
Contract assets			$	19,066					$	6,811
Deferred revenue			707,117						655,090

Cadence recognized revenue of $281.6 million during the three months ended April 2, 2022, and $226.6 million during the three months ended April 3, 2021, that was included in the deferred revenue balance at the beginning of each respective fiscal year. All other activity in deferred revenue 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 $5.1 billion as of April 2, 2022, which included $196.9 million 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. As of April 2, 2022, Cadence expected to recognize approximately 50% of the contracted but unsatisfied performance obligations, excluding non-cancelable commitments, as revenue over the next 12 months and the remainder thereafter.

Cadence recognized revenue of $12.2 million during the three months ended April 2, 2022, and $10.2 million during the three months ended April 3, 2021, 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 April 2, 2022 and January 1, 2022 were as follows:

			As of
			April 2, 2022						January 1, 2022
			(In thousands)
Accounts receivable			$	227,181					$	185,599
Unbilled accounts receivable			137,244						155,689
Long-term receivables			6,781						5,098
Total receivables			371,206						346,386
Less allowance for doubtful accounts			(2,636)						(3,692)
Total receivables, net			$	368,570					$	342,694

Cadence’s customers are primarily concentrated within the semiconductor and electronics systems industries. No one customer accounted for 10% or more of Cadence’s total receivables as of April 2, 2022 or January 1, 2022.

NOTE 4. DEBT

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”). The 2021 Credit Facility provides for borrowings up to $700 million, with the right to request increased capacity up to an additional $350 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 such 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.

Interest accrues on borrowings under the 2021 Credit Facility at a rate equal to, at Cadence’s option, either (1) LIBOR plus a margin between 0.750% and 1.250% per annum, determined by reference to the credit rating of Cadence’s unsecured debt, 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. The 2021 Credit Facility also includes provisions addressing the potential transition from LIBOR to a new replacement benchmark.

The 2021 Credit Facility contains customary negative covenants that, among other things, restrict Cadence’s ability to incur additional indebtedness and grant liens. 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 April 2, 2022, Cadence was in compliance with all financial covenants associated with the 2021 Credit Facility.

2024 Notes

In October 2014, Cadence issued $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. The carrying value of the 2024 Notes was $347.8 million and $347.6 million as of April 2, 2022 and January 1, 2022, respectively. The fair value of the 2024 Notes was approximately $358.6 million as of April 2, 2022.

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.

NOTE 5. GOODWILL AND ACQUIRED INTANGIBLES

Goodwill

The changes in the carrying amount of goodwill during the three months ended April 2, 2022 were as follows:

			Gross Carrying Amount
			(In thousands)
Balance as of January 1, 2022			$	928,358
Effect of foreign currency translation			(4,639)
Balance as of April 2, 2022			$	923,719

Acquired Intangibles, Net

Acquired intangibles as of April 2, 2022 were as follows, excluding intangibles that were fully amortized as of January 1, 2022:

			Gross Carrying Amount						Accumulated Amortization						Acquired Intangibles, Net
			(In thousands)
Existing technology			$	391,889					$	(249,550)					$	142,339
Agreements and relationships			194,781						(125,208)						69,573
Tradenames, trademarks and patents			9,257						(2,059)						7,198
Total acquired intangibles			$	595,927					$	(376,817)					$	219,110

Acquired intangibles as of January 1, 2022 were as follows, excluding intangibles that were fully amortized as of January 2, 2021:

			Gross Carrying Amount						Accumulated Amortization						Acquired Intangibles, Net
			(In thousands)
Existing technology			$	405,481					$	(254,599)					$	150,882
Agreements and relationships			205,057						(130,187)						74,870
Tradenames, trademarks and patents			10,666						(3,153)						7,513
Total acquired intangibles			$	621,204					$	(387,939)					$	233,265

Amortization expense from existing technology and maintenance agreements is included in cost of product and maintenance. Amortization expense for the three months ended April 2, 2022 and April 3, 2021 by condensed consolidated income statement caption was as follows:

									Three Months Ended
															April 2, 2022						April 3, 2021
															(In thousands)
Cost of product and maintenance															$	11,971					$	11,768
Amortization of acquired intangibles															4,964						4,631
Total amortization of acquired intangibles															$	16,935					$	16,399

As of April 2, 2022, the estimated amortization expense for intangible assets with definite lives was as follows for the following five fiscal years and thereafter:

			(In thousands)
2022 - remaining period			$	34,854
2023			36,566
2024			34,807
2025			22,887
2026			17,508
2027			15,950
Thereafter			56,538
Total estimated amortization expense			$	219,110

NOTE 6. STOCK-BASED COMPENSATION

Stock-based compensation expense is reflected in Cadence’s condensed consolidated income statements for the three months ended April 2, 2022 and April 3, 2021 as follows:

									Three Months Ended
															April 2, 2022						April 3, 2021
															(In thousands)
Cost of product and maintenance															$	830					$	807
Cost of services															1,050						1,027
Marketing and sales															11,757						11,206
Research and development															35,122						32,858
General and administrative															10,710						6,698
Total stock-based compensation expense															$	59,469					$	52,596

Cadence had total unrecognized compensation expense related to stock option and restricted stock grants of $420.2 million as of April 2, 2022, which will be recognized over the remaining vesting period. The remaining weighted average vesting period of unvested awards is 2.3 years.

NOTE 7. STOCK REPURCHASE PROGRAM

In August 2021, Cadence’s Board of Directors increased the prior authorization to repurchase shares of Cadence common stock by authorizing an additional $1 billion. 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. As of April 2, 2022, approximately $877 million of the share repurchase authorization remained available to repurchase shares of Cadence common stock.

The shares repurchased under Cadence’s repurchase authorizations and the total cost of repurchased shares, including commissions, during the three months ended April 2, 2022 and April 3, 2021 were as follows:

									Three Months Ended
															April 2, 2022						April 3, 2021
															(In thousands)
Shares repurchased															1,566						1,323
Total cost of repurchased shares															$	250,016					$	172,267

NOTE 8. 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 months ended April 2, 2022 and April 3, 2021 are as follows:

									Three Months Ended
															April 2, 2022						April 3, 2021
															(In thousands, except per share amounts)
Net income															$	235,335					$	187,169
Weighted average common shares used to calculate basic net income per share															272,431						274,021
Stock-based awards															4,487						6,119
Weighted average common shares used to calculate diluted net income per share															276,918						280,140
Net income per share - basic															$	0.86					$	0.68
Net income per share - diluted															$	0.85					$	0.67

The following table presents shares of Cadence’s common stock outstanding for the three months ended April 2, 2022 and April 3, 2021 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
															April 2, 2022						April 3, 2021
															(In thousands)
Long-term market-based awards															1,035						—
Options to purchase shares of common stock															663						138
Non-vested shares of restricted stock															82						58
Total potential common shares excluded															1,780						196

NOTE 9. 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.

The valuation techniques used to determine the fair value of Cadence’s 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.

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 three months ended April 2, 2022.

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 April 2, 2022 and January 1, 2022:

			Fair Value Measurements as of April 2, 2022
			Total						Level 1						Level 2						Level 3
			(In thousands)
Assets
Cash equivalents:
Money market funds			$	658,547					$	658,547					$	—					$	—
Marketable equity securities			5,080						5,080						—						—
Securities held in Non-Qualified Deferred Compensation (“NQDC”) trust			53,893						53,893						—						—
Total Assets			$	717,520					$	717,520					$	—					$	—
			Total						Level 1						Level 2						Level 3
			(In thousands)
Liabilities
Foreign currency exchange contracts			$	7,606					$	—					$	7,606					$	—
Total Liabilities			$	7,606					$	—					$	7,606					$	—

			Fair Value Measurements as of January 1, 2022
			Total						Level 1						Level 2						Level 3
			(In thousands)
Assets
Cash equivalents:
Money market funds			$	658,474					$	658,474					$	—					$	—
Marketable equity securities			5,956						5,956						—						—
Securities held in NQDC trust			56,165						56,165						—						—
Total Assets			$	720,595					$	720,595					$	—					$	—
			Total						Level 1						Level 2						Level 3
			(In thousands)
Liabilities
Foreign currency exchange contracts			$	306					$	—					$	306					$	—
Total Liabilities			$	306					$	—					$	306					$	—

NOTE 10. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

From time to time, Cadence is involved in various disputes and legal proceedings 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. 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 legal proceedings and may revise estimates.

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 months ended April 2, 2022 and April 3, 2021.

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. The indemnification is generally limited to the amount paid by the customer. Cadence did not incur any significant losses from indemnification claims during the three months ended April 2, 2022 and April 3, 2021.

NOTE 11. ACCUMULATED OTHER COMPREHENSIVE LOSS

Cadence’s accumulated other comprehensive loss is comprised of the aggregate impact of foreign currency translation gains and losses and changes in defined benefit plan liabilities and is presented in Cadence’s condensed consolidated statements of comprehensive income.

Accumulated other comprehensive loss was comprised of the following as of April 2, 2022 and January 1, 2022:

			As of
			April 2, 2022						January 1, 2022
			(In thousands)
Foreign currency translation loss			$	(41,327)					$	(26,553)
Changes in defined benefit plan liabilities			(6,592)						(6,758)
Total accumulated other comprehensive loss			$	(47,919)					$	(33,311)

For the three months ended April 2, 2022 and April 3, 2021 there were no significant amounts related to foreign currency translation loss or changes in defined benefit plan liabilities reclassified from accumulated other comprehensive loss to net income.

NOTE 12. 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 months ended April 2, 2022 and April 3, 2021:

									Three Months Ended
															April 2, 2022						April 3, 2021
															(In thousands)
Americas:
United States															$	413,538					$	326,324
Other Americas															11,802						9,676
Total Americas															425,340						336,000
Asia:
China															139,966						89,441
Other Asia															158,674						133,848
Total Asia															298,640						223,289
Europe, Middle East and Africa															130,634						130,233
Japan															47,152						46,506
Total															$	901,766					$	736,028

The following table presents a summary of long-lived assets by geography as of April 2, 2022 and January 1, 2022:

			As of
			April 2, 2022						January 1, 2022
			(In thousands)
Americas:
United States			$	270,486					$	267,202
Other Americas			1,096						975
Total Americas			271,582						268,177
Asia:
China			53,184						56,403
Other Asia			58,742						54,677
Total Asia			111,926						111,080
Europe, Middle East and Africa			51,464						53,748
Japan			2,449						3,030
Total			$	437,421					$	436,035