Cadence Design Systems, Inc. (CDNS) Earnings Call Transcript & Summary

Hello, and welcome to the Cadence Design Systems 2021 Annual Meeting of Stockholders. [Operator Instructions] It is now my pleasure to turn today's meeting over to Alinka Flaminia, Senior Vice President, Chief Legal Officer and Corporate Secretary of Cadence. Ms. Flaminia, the floor is yours.

Thank you, operator. Good afternoon, and welcome. I am Alinka Flaminia, Senior Vice President, Chief Legal Officer and Corporate Secretary of Cadence. On behalf of our Board of Directors and our 9,000 employees around the world, I would like to welcome you Cadence's 2021 Annual Meeting of Stockholders. Lip-Bu Tan, our Chief Executive Officer, will Chair the meeting, and I will act as secretary. Due to the continued public health impact of the COVID-19 pandemic, we are holding Cadence's 2021 annual meeting today in a virtual-only live audio webcast format. Please bear with us if we have technical glitches or delays during the meeting. We thank everyone who is in attendance today. We are conducting this meeting in accordance with our bylaws and the meeting rules of conduct. The rules of conduct, annual report, proxy statements and the agenda for this meeting are available on the meeting website on the left side of your screen. Now I'd like to introduce you to our Board nominees who are with us virtually. They are: Mark Adams; Ita Brennan; Lewis Chew; Julia Liuson; James Plummer; Alberto Sangiovanni-Vincentelli; our Chairman, John Shoven; Young Sohn; and Lip-Bu Tan. Also virtually with us are Kristian Gusmer and Kevin Healy, representatives of PricewaterhouseCoopers, Cadence's independent auditor. As a reminder, stockholders attend the virtual meeting -- attending the virtual meeting can vote their shares or change their votes online from now through the closing of the polls by logging into the meeting website as a stockholder and clicking the link provided on their screen. If you have previously voted by proxy and do not wish to change your vote, your vote will be cast as previously instructed and no further action is required. In order to log in as a registered stockholder, you will need to input the 15-digit control number that you received from Computershare with your proxy materials. In order to log in as a beneficial stockholder, you will need to input the control number provided to you by your broker's proxy distributor, likely in a communication from either proxyvote.com or proxypush.com. Alternatively, a beneficial holder could have obtained a control number from Computershare by submitting a legal proxy from your broker, all as described on Pages 82 and 83 of the proxy statement. We will begin by attending to the formal business of this meeting. After the formal meeting is adjourned and to the extent time and format permits, we will conclude with a general question-and-answer session. Participants who are logged into the meeting website as a stockholder will be able to submit questions online for the general Q&A session by clicking on the messages icon at the top of the page -- on top of the meeting center screen. I now call your attention to the rules of conduct for today's meeting, which can be accessed by clicking on the link on the left side of the screen. In order to conduct an orderly meeting, we ask that you abide by these rules. Now at the request of Mr. Tan and the Board, I will conduct the business portion of this meeting. The 2021 Annual Meeting of Cadence's Stockholders will now come to order. We will proceed with the formal business of the meeting as set forth in your notice of annual meeting and proxy statement. A list of the holders of record of Cadence's common stock, as of the close of business on March 8, 2021, which is the record date set for this meeting, has been available for inspection by stockholders for the past 10 days, and is currently available for inspection by stockholders using the registered stockholder list link found on the meeting center website. I also have affidavits certifying that, as of March 26, 2021, notices of this meeting and Internet availability of proxy materials were deposited in the U.S. Mail to stockholders as of the record date in accordance with SEC rules and Delaware law. A representative from Computershare, who will be acting as the inspector of election for this meeting, is also in attendance and has taken his customary oath. I now ask the inspector of election to advise whether quorum has been reached for this meeting.

We have present in person or by proxy shares representing approximately 89.08% of Cadence's common -- outstanding common stock, which constitutes a quorum to -- for the conduct of business.

As I indicated in the meeting introduction, the polls are open for voting on all matters to be presented and will be closed after we go through all of the matters up for vote. After the business of the meeting has concluded and the meeting has adjourned, a question-and-answer session will follow to address questions that have been properly submitted to the company during this meeting. The first order of business is the election of directors as described beginning on Page 23 of the proxy statement. The Board recommends the election of the following individuals: Mark Adams, Ita Brennan, Lewis Chew, Julia Liuson, James Plummer, Alberto Sangiovanni-Vincentelli, John Shoven, Young Sohn and Lip-Bu Tan. In accordance with Cadence's bylaws, stockholders are required to provide advanced notice of their intent to nominate candidates for directors. No such notice was received. Proposal 2. The next item of business is the approval of the following advisory resolution. Resolved, that the compensation paid to the Cadence's named executive officers disclosed pursuant to Item 402 of Regulation S-K of the Exchange Act, including the compensation discussion and analysis, compensation tables and narrative discussion in the proxy statement, is hereby approved. This proposal is discussed beginning on Page 31 of the proxy statement. The Board recommends stockholders vote for this resolution. The next item of business is proposal number 3, the ratification of the selection of PricewaterhouseCoopers LLP as Cadence's independent registered public accounting firm for the fiscal year ending January 1, 2022 as described beginning on Page 32 of the proxy statement. The Board recommends a vote in favor of this proposal. The fourth and last item of business is proposal number 4, the stockholder proposal submitted by John Chevedden regarding written consent. In accordance with the meeting rules of conduct, Mr. Cheven will not -- excuse me, Mr. Chevedden will now have 4 minutes to present his proposal. Operator, please connect Mr. Chevedden now.

Mr. Chevedden, you are now on the line.

This is John Chevedden. Can you hear me okay?

Yes.

This is proposal 4, improve shareholder written consent. Shareholders request that our Board of Directors take the steps necessary to enable 10% of shares to request a record date to initiate written consent. If you have voted against this proposal, please consider changing your vote before the polls close in a few minutes. Currently, it takes the formal backing of almost 1/3 of the shares that normally cast ballots at the annual meeting to do so little as to ask for a record date for written consent. Enabling 10% of shares to apply for a record date for written consent is reasonable because scores of companies do not even require 1% of stock ownership to do so little as request a record date. This proposal topic just won majority support at BorgWarner a few days ago. Our current version of written consent is useless. It would not be used by any group of shareholders in their right mind. Why would any group owning almost 1/3 of our stock that votes seek to do so little as to ask management to look at a calendar and name a date for written consent when a smaller group of shareholders can compel management to hold a special meeting on a topic of their choosing. Door number 1 is a calendar date from management and door number 2, with less effort, is a mandatory shareholder meeting. Thus, our written consent is useless. This proposal will convert our current useless right deck by written consent into a useful right to help us hold management accountable. Taking action by written consent is a means shareholders can use to raise important matters outside the normal annual meeting cycle, like the election of a new director. For instance, shareholders might determine that a poor performing director is in need of replacement, especially if that director chairs an important Board committee. Now more than ever, shareholders need a more viable option to take action outside of a shareholder meeting, since online shareholder meetings are a shareholder-engagement-and-a-management-transparency wasteland. The online Eastman Chemical meeting this morning was only 10 minutes. Shareholders were locked out unless they registered a week in advance, and the company answered no questions. With the near universal use of online annual shareholder meetings, which can be only 10 minutes of stilted formalities, shareholders no longer have the right for engagement with other shareholders, management and directors at a shareholder meeting. Management promotes a fallacy that shareholders should be distracted from improving our corporate governance with this proposal simply because we have average market standard governance practices that were adopted years ago. Please vote, yes, improve shareholder written consent, proposal 4.

Thank you, Mr. Chevedden. As stated in our proxy statement, after careful review, and for the reasons stated on Page 37 of our proxy statement, our Board recommends a vote against proposal 4 because it is not in the best interest of Cadence or its stockholders. That concludes the matters to be voted on as outlined in the Notice of the Annual Meeting. I propose that the foregoing matters be put to a vote at this meeting. If you have not voted or wish to change your vote, you may do so now by clicking on the link provided on the meeting center website. Any stockholder who has already voted and does not wish to change their vote may not take any further action. Will the common stockholders and proxies please conclude their voting? And we'll go silent here for a minute to allow that to happen. [Voting]

It is now 1:11 p.m. Pacific Time on May 6, 2021. And every stockholder has had the opportunity to vote. As of this date and time, which shall be recorded in the minutes, and in accordance with our bylaws, I hereby declare the polls for online voting at the Cadence 2021 Annual Meeting closed. The inspector of election will complete his tabulation of the voting results after the close of the meeting. I now turn the call over to the inspector of election to announce the preliminary results of the vote.

Preliminary review of the votes cast, each person nominated as director has been elected. The advisory resolution to approve named executive officer compensation has been approved. The proposal to ratify the appointment of PricewaterhouseCoopers has been approved, and a stockholder proposal regarding written consent improvement has not been approved.

Thank you. The final vote count with respect to the matters voted on today will be reported on a Form 8-K as required by the SEC. This concludes the 2021 Annual Meeting of Cadence Stockholders. Again, on behalf of the entire Cadence Board and management team, I would like to express our gratitude to all of our stockholders for their continued support. This meeting is now adjourned. It is my pleasure to begin the Q&A session. Before I do, I will go through the safe harbor statement and Regulation G reconciliation announcement. The Q&A session, including any responses provided after the meeting on the Investor Relations website, may contain forward-looking statements. And Cadence's actual results may differ materially from those expectations discussed here. Additional information concerning factors that could cause such a difference can be found in our recent reports on forms 10-K and 10-Q, our future filings with the SEC and the cautionary statements regarding forward-looking statements in our recent earnings press release. Today's Q&A session, including any responses provided after the meeting on the Investor Relations website, may also contain certain non-GAAP financial measures. You are encouraged to review the reconciliation of any such non-GAAP financial measures with their most direct comparable GAAP financial results, which can be found on the Investor Relations page of our website. Just a reminder on process for Q&A. You may submit up to 2 questions by clicking on the message icon at the top of the meeting center screen. Questions should be relevant to the business of the meeting.

And we do have a couple of questions that were lodged before. The first is regarding what impact the coronavirus infections in India may have. We are not going to speculate on the arc of the pandemic. We are extremely concerned about the current situation in India and other growing hotspots. As far as its impact on Cadence, our employees have demonstrated incredible resilience and effectiveness at working from home, and we are well positioned to continue to do so as long as necessary. The next question is whether we expect to use less office space in 2021. As mentioned, we have shown that we can work very well from home, and we will continue to do so as we need to. And we are looking at our infrastructure investment, looking at focusing those investments on people, maybe less in places, and doing what we can to optimize our workspaces. If -- those are the 2 questions that have been lodged so far. I'll pause. Okay. If there are no questions or all questions have been answered, I'd like to close by thanking everybody who participated in the virtual meeting. On behalf of the Board of Directors and employees of Cadence, thank you for your interest in and support of our company.

Thank you for participating in Cadence's 2021 Annual Meeting of Stockholders. The webcast will now end, and you may now disconnect.