Cadence Design Systems Inc

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those described in the Risk Factors sections in our Annual Report, that  and subsequent Quarterly Reports on Form 10-Q, including this Quarterly Report, that could adversely affect our business, financial condition, results of operations, cash flows, liquidity, revenue, growth, prospects, demand, reputation, and the trading price of our common stock, and make an investment in us speculative or risky. We have updated below five of the risk factors in our Annual Report. The R, including three risk Ffactors sectionthat were updated in our AnnualQuarterly Report ofor therwise remains current in all ma fiscal quarterial respects ended June 30, 2024. The risk factors described in our Annual Report and thissubsequent Quarterly Reports do not include all of the risks that we face, and there may be additional risks or uncertainties that are currently unknown or not believed to be material that occur or become material.

We have experienced varied operating results, and our operating results for any particular fiscal period are affected by the timing of revenue recognition, particularly for our emulation and prototyping hardware, IP and certain software products.

Historical results of operations shOur debt obligations expose us to risks that could not be viewed as reliable indicators of our future performance. Various factors affect adversely affect our operating resultbusiness, and some of them are not within our control. Our ooperating results for any period are affected by the mix of products financial condition, and services socould in a given period and the timing of reprevenue recognition, particularly for our emulation and prototypt us from fulfilling hardware, IP products and certain software licenses where revenue is recognized at a point in time rather than over time. In addition, we have recorded net losses in the past and may record net losses in the future. Also, our cash flows from operating activities our obligations under such indebtedness.

We have and will continue to fluctuate due to a number of factors, including the timing of our billings, collections, disbursements and tax payments.

A substantial portion of the product revenue related to our hardware business and our IP offersignificant outstandings is recognized upon delivery, and our forecas indebted revenue results are based, in part, on our expectations of hardware and IP to be delivered in a particular quarter. Therefore, changes in hardwarness, as well as the and IP bookings or deliveries relativebility to expectations will have a more immediate impact on our revenue than changes in software or services bookaccess additional borrowings under our revolvings, for which revenue is generally recognized over time.

As we  credit facility. Subject to the limits continue to expand our IP offerings, a portion of tained in the revenue related to our IP bookings will be deferred until we complete and delicredit agreement gover the licensed IP to oning our customers. As a result, costs related to the research and development of IP may be incurred prior to the recognition of the related revenue.

Revenue relaterevolving credit facility and to our hardware and IP products is inherently difficult to predict because sales of our hardware and IP products depend onhe indenture governing the commencement of new projects for the design and development of complex ICs and systems by our customers, our customers willingnessNew Notes, we may be able to expend capital to deploy oincur new and existing hardware or IP products in those projects and the availability of our new and existing hardware or IP products for delivery. Therefore, our hardware or IP sales may be delayed or may decrease if our customers delay or csubstantial additional debt from time to time to financel projects because their spend working is constrained or if there are problems or delays with the supply, delivery or inscapital, capitallation of our hardware or IP products or our hardware suppliers. Moreover, the market environment f expenditures, investments or hardware and IP is highly competitive, and our customers may choose to acquisitions, share repurchase a competitors hardware or IP product based on cost, performance or other factors. These factors may result in lower revenue, which would have an adverse effect ons or for other purposes. If we do so, the risks related to our business, resultslevel of operations and cash flows.

A substantial portion of our software licenses yield revenue recognized over time, which may make it difficult for us to rapidly increase debt could intensify.

Specifically, our rlevenue in future fiscal periods and means that a decrease in orders in a given period wol of debt could negatively affect our revenue in future periods.

We plan our operating expenses based on forecasted revenue, expected business needs and other factors such as inflation. These expenses and have important consequences, including the effect of long-term commitments are relatively fixed in the short term. Boofollowing:

makings and the related revenue are harder to forecast in a  it more difficult economic environment. If we experience a shortfall in bookings, our operfor us to sating results could differ from osfy our expectations because we may not be able to quickly reduce our expenses in response obligations to short-term business changes. Oervice our operating expenses are also impactdebt as described by economic conditions, such as inflation. Unexpected increases above;

limiting our ability to obtain inflaaddition could cause our expenses to increase at a rate faster than our product pricial financing to recover such increases.

The methods, estimates and judgments that we use in applying our accountfund future working policies have a significant impact on our results of operations (see Criticcapital, capital Accounting Estimates under Part II, Item 7, Managements Discussion and Analysis of Financial Condiexpenditures, acquisition and Results of Operations in our Annus or other general Recorport). Such methods, estimates and judgate requirements are subject to;

requiring a substantial risks, uncertainties and assumptions, and factors may arise over time that may lead us to change our methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect our results of operations.

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Asportion of our cash flows (including U.S. cash) to be dedicated to debt we continue to acquire and invest in companies or technologies, we may not realize the expected business or financial benefits and these acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and adversely affect our operatservice payments instead of other purposes, thereby reducing results and tthe market value amount of our common stock.

As part of our business strategy, we invest in, and acquire complementary businesses, joint ventures, services and technologies and IP rights, some of which may be material to our financial condition and operatcash flows available for working results. We continue to engage in investments and acquisitions and evaluate such opportunities andcapital, capital expect to continue to make such investments and acquisitions in the future. There can be no guarantee that we will be able to find and identify desirable investment or nditures, acquisition targets,s and we may not be successful in entering into an agreement with any particular target.

Acquisitions and other transactions, arrangements and investments involve numerous risksother general corporate purposes and potential operating difficulties and expenditures, including:

the failure to realize, or a delay inly requiring realizing, anticipated benefits or synergies, including as a result of any conditions placed upon approvals from governmental authorities;

the failure to complete transactions on a timely basis or at all, including duriation of cash from outside to a failure to obtain required approvals on a timely basis, or at all, from governmental authorities;

potential identified or unknown securityhe U.S.;

increasing our vulnerabilities in acquired companies, technologies or products that expose us to additional security risks or delay our ability to integrate them into our organization and offeringy to adverse economic and industry conditions;

brand or reputational harm;

in the case of acquisitions with large greenhouse gas emissions,exposing us to the failure or perceived failure to achieve our publicly disclosed greenhouse gas emissions reduction target;

the failure to understand, compete and operisk of increased interest rate effectively in markets where we have limited experience or where competitors may have stronger market positions;

the failus as certain of our borrowings are to integrate, combine or manage acquired products, infrastructure, technologies and businesses effectively or to obtain customer acceptance at variable rates of multiple platforms on a temporary or permanent basis;

difficulties in integrating and assimilainterest;

limiting acquired employees, which may lead to retention risk with respect to both acquired and existiour flexibility in planning employees;

the need to integrate operations across different cultures and languagfor and reacting to changes and to address tin the particular economic, currency, political and regulatoindustry risks associated with specific countries;

diversion of financial resources and managements attention from day-to-day business;

overlappin which we compete;

placing customers and product sets that impact our ability to maintain revenue at historical rates;

unanticipated costs or assumed liabilities, including those related to an acquired cus at a disadvantage company's disclosure controls and procedures, internal control over financial reporting, cybersecurity, taxes and other compliance programs, whether discored to other, less levered during due diligence or thereafter;

contingent payments in connection with acquisitions in the future where we may be required to make certain contingent payments without derivingaged competitors and competitors the value we expect to derive from an acquisition in excess of such payments or at all;

unwillingness of customers, suppliers or other business partners of an acquired businessat have greater access to continue licensing or do business with us, or delays in such activitiapital resources;

difficulties managing any strategic investment or collaboration that we do not control or for which we do not have sole decision-making authority;

impairment charges limiting our interest deductions for other adverse accounting outU.S. incomes related to acquisitions or strategic investments;

the failure or cessation of operations by entities in which we made strategic investments o tax purposes; and

increasing our collaboration agreements;

the loss of some or all of the value of our investment;

additional stock-based compensation issued or assumed in connecst of borrowing.

In addition with the acquisition, including the impact on stockholder dilu, if we incur any addition and our results of operations; and

the tax effects of any such acquisitions including related integration and business operation changes, and assessment of the impact on the realizability of our future tax assets or liabilities

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Anyal indebtedness that ranks equally with the New Notes, of these risks could harm our business or negatively impan subject our results of operations. In addition, to facilitto any collate acquisitions or investral arrangements, we may seek additional equity or debt financing, which may not be available on terms favorable to uenter into, the holders or at all, which may affect our ability to complete subsequf that debt will be ent acquisitions or investments, and which may affect the risks of owning our common stock. For example, we have and maitled to share ratably in the future finance acquisitions or investments by issuing equity or convertible securities, or use such securities as any proceeds distributed in consideranection, which have and ma with any in the future cause our existing stockholders may be diluted. We also have and may in the future finance acsolvency, liquisidations or investments through debt financing, and we may face constraints related to the terms (including restrictive covenants) of, and repayment obliga, reorganization, dissolution related to, or othe incurrence of r windebtedness. Acquisitions or investments may also require the expenditureing up of substantial cash resources. These arrangements may impact our liquidity, financial position and results of opera company.

At the options or increase dilution of our stockholders equity interests in the company, all of which could adv of the holdersely affect the market price  of our common stock. Acquisitions are also often dilutive to margins and earnoutstandings, at least initially. In addition, in certain cases notes, we may be required to consolidate one or more of our strategic investee's financial results into ours. Fluctuations in any such investee's fin, under certain circumstancial results, due to general market conditions, bank failures or otherwise, could negatively affect our consolidates, be required financial condition,to results of operations, cash flows or the price of our common stock.

Our ability to acquire other businesses opurchase such notes.

Under technologies, make strategic investmenthe terms or integrate acquired businesses effectivelyf the New Notes, we may be impairequired by trade tensions and increto repurchased global scrutiny of foreign investments and acquisitions and investments in the technology sector. The United States and several other countries have adopted, or are considering adopting, restri for cash such notes prior to their respections on transactions involving foreign investments. Antitrust authove maturities in the United Sty dates and a number of countries have also reviewed acquisiin connections and investments in  with the technology industry with increased scrutiny. Governments may continue to adopt or tighten restrictions of this nature, some of which may apply to acquisitions, investments or integrations of businesses by us, and such restrictions or government actions could negatively impact our business and financial results.

Our debt obligations expose us to risks that could adversely affect our business, operating results or financial condition, and could prevent us from fulfilling our obligations underoccurrence of certain significant corporate events. Specifically, we are required to offer to repurchase such indebtedness.

We have significant outstanding indebtedness, as well as the ability to access additional borrowings under our revolvnotes upon a change of control triggering credit facility. Subject to the limits containevent (as defined in the credit agreement governing our revolving credit facility, the indenture that governs the 4.375% Senior Notes due October 15, 2024 (the 2024 Nindenture related to such notes), the loan agreement governing our senior non-amortizing term loan facility due September 7, 2025 (the 2025 Term Loan), the loan agreement governing our senior non-amortizing term loan facility due May 30, 2026 (the 2026 Term Loan) and our other debt instruments, we may be able to incur substantial additional debt from time to time to finance working capital, capital expensuch as a change of control accompanied by certain downgrades in the creditures, investments or acquisitions, share repurchases or for other purposes. If we do so, t ratings of such notes. The risks related to our level of debt could intensify. As of June 30, 2024, both our 2024 Notes and 2025 Term Loan will mature in the next 15 months, which could require us to consume a significant portion of our liquidity or raise additional financing in adverse capital markets conditions.

Specifically, our level of debt could epayment obligations under such notes may have important consequences, including tthe following:

making it more difficult for us to satisfy our obligations to service effect of discour debt as described above;

limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

requiriaging, delaying or preventing a substantial portiontakeover of our cash flows (including U.S. cash) to be dedicated to debt service payments instead of other purposes, therebyompany. If we were reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and oquired to pay ther general corporate purposes and potentially requiring repatriation of cash from outside the U.S.;

increasing our vulnerability to adverse economic and industry conditions;

exposing us to the risk of increased interest r New Notes prior to their respective maturity dates as certain of our borrowings are at variable rates of interest;

limiting our flexibility in planning for and reacting to changes in the industry in which we compete;

placing us at a disadvantage co, it could have a significant negative impared to other, less leveraged competitorsct on our cash and competitors that have greater access to capital resources;

limiting our interest deductions for U.S. income tax purposes; and

increasingliquidity and could impact our cost of borrowing.

In addition, if we incur any additionalability to indebtedness that ranks equally with the 2024 Notes, then subject to any collateral arrangements we may enter into, the holders of that debt will be entitled to share ratably in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of our companyvest financial resources in other strategic initiatives.

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The terms of our debt agreements restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

The agreements governing our revolving credit facility, 2025 Term Loan, 2026 Term Loan and 2024  and our New Notes contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to incur liens or additional indebtedness and guarantee indebtedness, enter into transactions with affiliates, alter the businesses we conduct, consolidate, merge or sell all or substantially all of our assets and to enter into sale and leaseback transactions. In addition, the restrictive covenants in the aagreements governing our revolving credit facility, 2025 Term Loan and 2026 Term Loan re requires us to maintain a specified financial ratios. Our ability to meet thoseat financial ratios can be affected by events beyond our control, and we may be unable to meet themit.

A breach of the covenants or restrictions under the agreements governing our revolving credit facility, 2025 Term Loan, 2026 Term Loan and 2024  and New Notes could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement governing our revolving credit facility would permit the lenders under our revolving credit facility to terminate all commitments to extend further credit. In the event our lenders or note holders accelerate the repayment of our borrowings, we may not have sufficient assets to repay that indebtedness.

As a result of these restrictions, we may be limited in how we conduct our business, unable to raise additional debt or equity financing to operate during general economic or business downturns or unable to compete effectively, take advantage of new business opportunities or otherwise grow in accordance with our strategy. In addition, our financial results, our substantial indebtedness and our credit ratings could adversely affect the availability and terms of our financing.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under our revolving credit facility, 2025 Term Loan and 2026 Term Loan ar are at variable rates of interest and expose us to interest rate risk. When interest rates increase, our debt service obligations increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, could correspondingly decrease. We may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.

Our revolving credit facility utilizes, at our option, either (1) Term Sesecured Oovernight Ffinancing Rrate ("SOFR),") plus a margin between 0.750625% and 1.250125% per annum, 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 calculate tthe amount of accrued interest on any borrowcredit ratings. The 2025 Term Loan utilizes, at  of our option, either (1) Term SOFR, plus a margin between 0.625% and 1.125% per annumunsecured debt, plus a SOFR adjustment of 0.10% or (2) the base rate plus a margin between 0.000% and 0.125% per annum, to calculate the amount of accrudetermined interest on borrowings. The 2026 Term Loan utilizes, at our option, either (1) Term SOFR, plus a margin of between 0.875% and 1.375% per annum, plus a SOFR adjustmentby reference to the credit rating of 0.10%, or (2) base rate plus a margin between 0.000% and 0.375% per annum, to calculate the amount of accruour unsecured interest on borrowings. In each case, the debt. The applicable margin within the specified ranges is determined by reference to the credit rating of our unsecured debt. Accordingly, a credit rating downgrade would increase the applicable interest rates. Assuming all loans were four revolving credit facility was fully drawn and we were to fully exercise our right to increase borrowing capacity under our revolving credit facility and we made no prepayments on, each quarter point change in the interest rate would result in a $4.4 million change in annual interest expense.

Various factors could increase our future borrowing costs or reduce our access to capital, including a lowering or withdrawal of the ratings assigned to us and our 2025 Term Loan New Notes by credit rating agencies.

We may in the future seek additional financing for oa variety of reasons, and our 2026 Tfuture borrowing costs, term Loan, each quarter point change ins and access to capital could be affected by factors including the condition of the debt and equity markets, the condition of the economy generally, prevailing interest rates would result in a $5.1 milli, our level of indebtedness, our credit rating and our business and financial condition. In addition, the New Notes currently have an investment grade credit rating, which could be lowered or withdrawn entirely by a credit rating agency based on adverse change in annus to circumstances relating to the basis of the credit rating. Consequently, real interest eor anticipated changes in our credit ratings will generally affect the market value of the New Notes. Any future lowering of the credit ratings of the New Notes likely would make it more difficult or more expense.

ive for us to obtain additional debt financing.