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Cadence (CDNS) Beats Earnings and Revenue Estimates in Q4

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Cadence Design Systems Inc (CDNS - Free Report) posted fourth-quarter 2020 non-GAAP earnings of 83 cents per share, which topped the Zacks Consensus Estimate by 10.7%. Also, the bottom line increased 54% year over year.

Revenues of $760 million surpassed the Zacks Consensus Estimate by 3.8% and increased 27% on a year-over-year basis.

Revenue growth was benefitted by continued strength in the company’s digital & signoff solutions as well as Cadence Verification Suite that includes Xcelium, Palladium, Jasper, and Protium offerings along with expanding customer base.

In spite of better-than-expected fourth-quarter results, shares are down 2% in the pre-market trading on Feb 23. In the past year, the company’s stock has returned 86.6% compared with the industry’s surge of 33.5%.

Performance in Details

Product & Maintenance revenues (95.1% of total revenues) of $723 million increased 28% year over year.

Services revenues (4.9%) of $37 million increased 6% from the year-ago quarter’s figure.

Geographically, Americas, China, Other Asia, Europe, Middle East and Africa (EMEA), and Japan contributed 41%, 17%, 18%, 17% and 7%, respectively, to total revenues.

Product-wise, Functional Verification, Digital IC & Signoff, Custom IC Design & Simulation, Systems Design & Analysis, and IP contributed 19%, 31%, 26%, 11% and 13% to total revenues, respectively.

Cadence Digital Full Flow saw robust traction in the fourth quarter. More than 45 customers including Samsung, MediaTek and Micron adopted the Cadence digital full flow offerings .

The company’s Palladium Z1 witnessed robust traction in 2020 with 24 new customer wins and 34 expansions. Similarly, Protium X1 had 14 expansions and 13 new customers in 2020.

Also, the pending buyout of NUMECA International will boost the total addressable market of System Analysis portfolio by adding Computational Fluid Dynamics (CFD) technology. Numeca boasts 450 customers including the likes of NASA, Ford and Honda.

Synergies from Integrand and AWR acquisition are boosting adoption of Cadence’s System Analysis portfolio offerings.

Further, Cadence’s Advanced Packaging solutions continue to witness incremental adoption in hyperscale and automotive verticals. The company added that there was healthy interest shown in its Virtuoso, Innovus, Allegro and AWR Microwave Office solutions by the customers.

Meanwhile, total non-GAAP costs and expenses increased 15.2% year over year to $478 million.

Non-GAAP gross margin expanded 200 basis points (bps) to 92%, while non- GAAP operating margin was 37%, which expanded 600 bps on a year-over-year basis.

Balance Sheet & Cash Flow

As of Jan 2, 2021, the company had cash and cash equivalents of approximately $928 million compared with $1.31 million as of Sep 26, 2020.

Moreover, the company’s long-term debt came in at $346.8 million as of, Jan 2, 2021 compared with $346.6 million as of Sep 26, 2020.

The company generated operating cash flow of $136 million in the reported quarter compared with prior-quarter’s figure of $206.6 million. Free cash flow for the quarter under review was $105 million compared with $186 million reported in third-quarter 2020.

The company repurchased shares worth approximately $130 million in the fourth quarter. For 2020, the company repurchased shares worth $380 million.  The company had $739 million worth of shares under its buyback authorization at the end of fourth-quarter 2020.

2020 Numbers in Details

Cadence reported revenues of $2.683 billion in 2020, up 15% over 2019 tally. The Zacks Consensus Estimate was pegged at $2.65 billion.

Non-GAAP earnings per share were $2.80 compared with earnings per share of $2.20 reported in 2019.

For 2020, Cadence’s non-GAAP operating margin expanded 300 bps 35%.

In 2020, Cadence generated cash flow from operations of $905 million compared with $730 million in the previous year. Free cash flow for full year was $810 million compared with $655 million reported in 2019.


Management expects strong revenue growth for the first half of 2021. However, it anticipates a relatively muted performance in the remaining half of the year.  Also, Cadence projects increase in travel expenses in 2021 as shelter in place guidelines ease across the globe. The guidance also includes impact of the pending NUMECA acquisition

For 2021, revenues are projected in the range of $2.86-$2.92 billion. The Zacks Consensus Estimate for 2021 revenues is currently pegged at $2.79 billion, which indicates year-over-year growth of 5.3%.

Non-GAAP earnings are expected in the range of $2.95-$3.05 per share. The Zacks Consensus Estimate for 2021 earnings is pegged at $2.92 per share, which suggests year-over-year growth of 7.9%.

Further, non-GAAP operating margin is forecast in the range of 34.5-36% for 2021.

Operating cash flow is anticipated in the range of $900-$950 million for 2021. Management expects to utilize of 50% of free cash flow generated to buy back shares for the year.

For the first quarter of 2021, revenues are projected in the range of $710-$730 million. The Zacks Consensus Estimate for first quarter revenues is currently pegged at $685.3 million.

Non-GAAP earnings are expected in the range of 72-76 cents per share. The Zacks Consensus Estimate for first-quarter earnings is pegged at 69 cents per share.

Further, non-GAAP operating margin is forecast to be around 35% for the first quarter of 2021.

For the first quarter of 2021, Cadence expects to buy back $110 million worth of shares.

Zacks Rank & Stocks to Consider

Cadence currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are HP Inc (HPQ - Free Report) , CrowdStrike (CRWD - Free Report) and Workday (WDAY - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.

HP Inc and Workday are scheduled to release earnings on Feb 25, while CrowdStrike is slated to announce results on Mar 16.

Long-term earnings growth rate for HP, CrowdStrike and Workday are currently pegged at 5.4%, 25%, and 25.4%, respectively.

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