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Cadence Design Systems, Inc. (CDNS - Free Report) delivered robust third-quarter 2018 results, wherein both the top and bottom lines outpaced the respective Zacks Consensus Estimate and also management’s guided ranges. Notably, the company adopted the new accounting standard rules of ASC 606 from the first quarter of fiscal 2018 and accordingly incorporated the same while reporting the third-quarter results.
Cadence delivered non-GAAP earnings of 49 cents per share for the third quarter, surpassing the Zacks Consensus Estimate by 8 cents. Management had predicted earnings between 40 cents and 42 cents. The figure surged 40% from the year-ago figure of 35 cents.
Under the old accounting standard revenues increased 8.4% year over year to almost $526 million. Under ASC 606, the company reported revenues of $532.5 million comfortably beating the Zacks Consensus Estimate of $518 million. Moreover, the top line was ahead of the high end of management’s expectation of $510-$520 million.
Robust adoption of the company’s digital and signoff, custom and analog, and IP solutions along with an ever expanding customer base drove year-over-year growth.
Shares of Cadence are up 11.1% in the after-hours trading. This can primarily be attributed to robust earnings beat and raised fiscal 2018 outlook. Notably, Cadence stock has returned 1.3% in the past six months, against the industry’s rally of 11.7%.
Quarter in Detail
Under ASC 606, Product & Maintenance revenues came in at approximately $495 million and accounted for almost 93% of total revenues. The figure was well ahead of Zacks Consensus Estimate of $487 million. Notably, as per old ASC 605, Product & Maintenance revenues effectively grew 8.5% year over year and came in at $489.5 million.
Under ASC 606, Services revenues of $37.5 million contributed 7% to total revenues, was ahead of the Zacks Consensus Estimate of $31.5 million. Per ASC 605, Services revenues effectively increased 6.7% and came in at $36.5 million.
Geographically, Americas, Asia, Europe, Middle East and Africa (EMEA) and Japan contributed 44%, 29%, 19% and 8%, respectively to the total revenues under the new accounting standard.
The company reported non-GAAP operating margin of 32% during the quarter.
Product-wise, Functional Verification, Digital IC & signoff, Custom IC design, Systems Interconnect & Analysis and IP, comprised 22%, 30%, 26%, 9% and 13% of the total revenues, respectively per ASC 606 standard.
IP segment witnessed strong quarter driven by robust adoption of the company’s PCIe and DDR products.
The company enhanced Tensilica solution with DNA 100 Processor, a deep neural-network based accelerator. The accelerator will improve efficiency and performance for emerging applications in drones, Intenet of Things (IoT), automotive sensor fusion, surveillance, among others.
Considering, System Design and Verification solutions, traction witnessed by Xcelium Parallel Simulator and Palladium Z1 drove revenues. Traction witnessed by Palladium Z1 on the back of strong demand for growing hardware capacity was notable. Further, two customers expanded Palladium Z1 installation in the quarter. Five new logos were also added in the quarter.
Cadence Verification Suite reported revenue growth of 9% on a year-over-year basis.
The management is also elated on the order strength in Palladium Cloud solution which offers cloud-based emulation capacity as per the customers’ demand.
In the Digital and Signoff space, the company added 19 new logos, with revenues growing 9% year-over-year. Cadence taped-out greater than twelve 7-nanometer (nm) designs in the quarter by leveraging Innovus. Management noted that around 50 customers have selected Innovus.
The company remains optimistic about it ongoing collaboration with Taiwan Semiconductor Manufacturing Company (TSM - Free Report) . Notably Cadence garnered four partner of the year awards at TSM’s Open Innovation Platform, comprising 5 nm design architcture collaboration.
Furthermore, Cadence collaborated with Microsoft’s (MSFT - Free Report) Azure, Amazon’s (AMZN - Free Report) Amazon Web Services (“AWS”) and Google Cloud platform to enable smooth design development of electronic systems and semiconductors. The management is elated with the sturdy pipeline of the company’s innovative cloud-ready solutions.
With Cadence Cloud, the company aims to offer a comprehensive cloud portfolio enabling the development of semiconductors and other electronic systems.
The considerable customer wins and repeat orders bolstered the top-line.
Cadence Design Systems, Inc. Price, Consensus and EPS Surprise
The company ended the quarter with cash and cash equivalents & short-term investments of approximately $550 million compared with the previous quarter’s figure of $825.4 million. We may note that at the end of the quarter, around 25% of cash and short-term investments were in the United States.
Cadence’s long-term debt as on Sep 29, 2018, was $345.1 million compared with $344.9 million, as on Jun 30, 2018.
The company generated operating cash flow of almost $110 million in the quarter compared with previous quarter’s reported figure of $205.3 million.
The company repurchased shares worth approximately $50 million in the third quarter.
Guidance
For fourth-quarter 2018, Cadence expects total revenues under ASC 606 in the range of $545-$555 million and non-GAAP earnings in the range of 46-48 cents per share. Non-GAAP operating margin is anticipated to be in the range of 29-30%.
The Zacks Consensus Estimates for revenues and earnings are pegged at $530.2 million and 42 cents, respectively.
The company raised 2018 outlook expecting the third-quarter momentum to continue. Revenues are now projected in the range of $2.113-$2.123 billion, up from $2.07-$2.09 billion anticipated earlier. Non-GAAP earnings are now guided in the range of $1.80-$1.82 per share, raised from the previous band of $1.64-$1.70.
The Zacks Consensus Estimate for revenues and earnings are pegged at $2.08 billion and $1.69 per share, respectively.
Further, non-GAAP operating margin for 2018 is expected at 29.5-30%. Previously, the company has predicted non-GAAP operating margin to come in at 28%.
Similarly, operating cash flow is anticipated in the range of $550-$580 million, instead of earlier prediction of $535-$565 million.
The company anticipates repurchasing shares worth approximately $75 million in the fourth quarter.
Bottom Line
Cadence is focusing on providing end-to-end solutions, which rapidly reduces the time required to introduce a semiconductor product in the market.
The company is experiencing strong demand for its software – particularly verification and digital design products – from customers providing datacenter servers, networking products and smartphones that continuous to invest in new design concepts and projects.
The strong collaborations and smart product launches augur well for Cadence in the longer haul.
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
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Cadence (CDNS) Q3 Earnings & Revenues Top, Hikes '18 View
Cadence Design Systems, Inc. (CDNS - Free Report) delivered robust third-quarter 2018 results, wherein both the top and bottom lines outpaced the respective Zacks Consensus Estimate and also management’s guided ranges. Notably, the company adopted the new accounting standard rules of ASC 606 from the first quarter of fiscal 2018 and accordingly incorporated the same while reporting the third-quarter results.
Cadence delivered non-GAAP earnings of 49 cents per share for the third quarter, surpassing the Zacks Consensus Estimate by 8 cents. Management had predicted earnings between 40 cents and 42 cents. The figure surged 40% from the year-ago figure of 35 cents.
Under the old accounting standard revenues increased 8.4% year over year to almost $526 million. Under ASC 606, the company reported revenues of $532.5 million comfortably beating the Zacks Consensus Estimate of $518 million. Moreover, the top line was ahead of the high end of management’s expectation of $510-$520 million.
Robust adoption of the company’s digital and signoff, custom and analog, and IP solutions along with an ever expanding customer base drove year-over-year growth.
Shares of Cadence are up 11.1% in the after-hours trading. This can primarily be attributed to robust earnings beat and raised fiscal 2018 outlook. Notably, Cadence stock has returned 1.3% in the past six months, against the industry’s rally of 11.7%.
Quarter in Detail
Under ASC 606, Product & Maintenance revenues came in at approximately $495 million and accounted for almost 93% of total revenues. The figure was well ahead of Zacks Consensus Estimate of $487 million. Notably, as per old ASC 605, Product & Maintenance revenues effectively grew 8.5% year over year and came in at $489.5 million.
Under ASC 606, Services revenues of $37.5 million contributed 7% to total revenues, was ahead of the Zacks Consensus Estimate of $31.5 million. Per ASC 605, Services revenues effectively increased 6.7% and came in at $36.5 million.
Geographically, Americas, Asia, Europe, Middle East and Africa (EMEA) and Japan contributed 44%, 29%, 19% and 8%, respectively to the total revenues under the new accounting standard.
The company reported non-GAAP operating margin of 32% during the quarter.
Product-wise, Functional Verification, Digital IC & signoff, Custom IC design, Systems Interconnect & Analysis and IP, comprised 22%, 30%, 26%, 9% and 13% of the total revenues, respectively per ASC 606 standard.
IP segment witnessed strong quarter driven by robust adoption of the company’s PCIe and DDR products.
The company enhanced Tensilica solution with DNA 100 Processor, a deep neural-network based accelerator. The accelerator will improve efficiency and performance for emerging applications in drones, Intenet of Things (IoT), automotive sensor fusion, surveillance, among others.
Considering, System Design and Verification solutions, traction witnessed by Xcelium Parallel Simulator and Palladium Z1 drove revenues. Traction witnessed by Palladium Z1 on the back of strong demand for growing hardware capacity was notable. Further, two customers expanded Palladium Z1 installation in the quarter. Five new logos were also added in the quarter.
Cadence Verification Suite reported revenue growth of 9% on a year-over-year basis.
The management is also elated on the order strength in Palladium Cloud solution which offers cloud-based emulation capacity as per the customers’ demand.
In the Digital and Signoff space, the company added 19 new logos, with revenues growing 9% year-over-year. Cadence taped-out greater than twelve 7-nanometer (nm) designs in the quarter by leveraging Innovus. Management noted that around 50 customers have selected Innovus.
The company remains optimistic about it ongoing collaboration with Taiwan Semiconductor Manufacturing Company (TSM - Free Report) . Notably Cadence garnered four partner of the year awards at TSM’s Open Innovation Platform, comprising 5 nm design architcture collaboration.
Furthermore, Cadence collaborated with Microsoft’s (MSFT - Free Report) Azure, Amazon’s (AMZN - Free Report) Amazon Web Services (“AWS”) and Google Cloud platform to enable smooth design development of electronic systems and semiconductors. The management is elated with the sturdy pipeline of the company’s innovative cloud-ready solutions.
With Cadence Cloud, the company aims to offer a comprehensive cloud portfolio enabling the development of semiconductors and other electronic systems.
The considerable customer wins and repeat orders bolstered the top-line.
Cadence Design Systems, Inc. Price, Consensus and EPS Surprise
Cadence Design Systems, Inc. Price, Consensus and EPS Surprise | Cadence Design Systems, Inc. Quote
Balance Sheet & Cash Flow
The company ended the quarter with cash and cash equivalents & short-term investments of approximately $550 million compared with the previous quarter’s figure of $825.4 million. We may note that at the end of the quarter, around 25% of cash and short-term investments were in the United States.
Cadence’s long-term debt as on Sep 29, 2018, was $345.1 million compared with $344.9 million, as on Jun 30, 2018.
The company generated operating cash flow of almost $110 million in the quarter compared with previous quarter’s reported figure of $205.3 million.
The company repurchased shares worth approximately $50 million in the third quarter.
Guidance
For fourth-quarter 2018, Cadence expects total revenues under ASC 606 in the range of $545-$555 million and non-GAAP earnings in the range of 46-48 cents per share. Non-GAAP operating margin is anticipated to be in the range of 29-30%.
The Zacks Consensus Estimates for revenues and earnings are pegged at $530.2 million and 42 cents, respectively.
The company raised 2018 outlook expecting the third-quarter momentum to continue. Revenues are now projected in the range of $2.113-$2.123 billion, up from $2.07-$2.09 billion anticipated earlier. Non-GAAP earnings are now guided in the range of $1.80-$1.82 per share, raised from the previous band of $1.64-$1.70.
The Zacks Consensus Estimate for revenues and earnings are pegged at $2.08 billion and $1.69 per share, respectively.
Further, non-GAAP operating margin for 2018 is expected at 29.5-30%. Previously, the company has predicted non-GAAP operating margin to come in at 28%.
Similarly, operating cash flow is anticipated in the range of $550-$580 million, instead of earlier prediction of $535-$565 million.
The company anticipates repurchasing shares worth approximately $75 million in the fourth quarter.
Bottom Line
Cadence is focusing on providing end-to-end solutions, which rapidly reduces the time required to introduce a semiconductor product in the market.
The company is experiencing strong demand for its software – particularly verification and digital design products – from customers providing datacenter servers, networking products and smartphones that continuous to invest in new design concepts and projects.
The strong collaborations and smart product launches augur well for Cadence in the longer haul.
Cadence carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
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