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Cadence (CDNS) Beats on Q2 Earnings & Revenues, Raises View

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Cadence Design Systems Inc (CDNS - Free Report) posted second-quarter 2021 non-GAAP earnings of 86 cents per share, which topped the Zacks Consensus Estimate by 14.7%. The bottom line increased 30.3% year over year.

Revenues of $728 million surpassed the Zacks Consensus Estimate by 1.7% and increased 14% on a year-over-year basis. The top line benefitted from continued strength across all segments. The company ended second quarter with backlog of $3.9 billion.

Cadence announced that president Anirudh Devgan will succeed Lip-Bu Tan as the company’s CEO on Dec 15, 2021. Lip-Bu Tan will assume the role of executive chairman.

In the past year, the company’s stock has returned 39.3% compared with the industry’s surge of 40.4%.

Cadence Design Systems, Inc. Price, Consensus and EPS Surprise

 

Cadence Design Systems, Inc. Price, Consensus and EPS Surprise

Cadence Design Systems, Inc. price-consensus-eps-surprise-chart | Cadence Design Systems, Inc. Quote

 

Performance in Details

Product & Maintenance revenues (94.5% of total revenues) of $687.9 million increased 14.4% year over year.

Services revenues (5.5%) of $40.4 million increased 9% from the year-ago quarter’s figure.

Geographically, Americas, China, Other Asia, Europe, Middle East and Africa (EMEA) and Japan contributed 44%, 14%, 19%, 17% and 6%, respectively, to total revenues.

Product-wise, Custom IC Design & Simulation, Digital IC Design & Signoff, Functional Verification, IP and Systems Design & Analysis contributed 23%, 28%, 25%, 13% and 11% to total revenues, respectively.

Cadence Digital Full Flow saw robust traction in the second quarter with 13 new customer wins.

Palladium and Protium (Z1 and X1 as well as Z2 and X2) platforms witnessed continued momentum with 15 new deal wins and 65 repeat orders.

In second quarter, Cadence introduced Allegro X Design Platform, powered by Allegro and OrCAD core technology. The platform can offer four times enhanced design team productivity compared with traditional design tools, added the company.

Synergies from Integrand and AWR acquisition are boosting adoption of Cadence’s System Analysis portfolio offerings. The company also acquired several systems customers driven by improvement in go-to-market and channel organization efforts.

In second-quarter conference call, the company noted that integration of NUMECA and Pointwise buyouts is advancing well.

Total non-GAAP costs and expenses increased 6.3% year over year to $441 million.
    
Non-GAAP gross margin expanded 150 basis points (bps) to 91.8%, while non-GAAP operating margin was 39.5%, up 440 bps on a year-over-year basis.

Balance Sheet & Cash Flow

As of Jul 3, 2021, the company had cash and cash equivalents of approximately $847 million compared with $743 million as of Apr 3, 2021.

The company’s long-term debt came in at $347.2 million as of Jul 3, 2021 compared with $347 million as of Apr 3, 2021.

The company generated operating cash flow of $380 million in the reported quarter compared with prior-quarter’s figure of $208 million. Free cash flow in the quarter under review was $366 million compared with $191 million reported in previous quarter.

The company repurchased shares worth approximately $220 million in the second quarter.  The company had $346 million worth of shares under its buyback authorization as of Jul 3, 2021.

Guidance

Driven by better-than-expected second-quarter results, management raised revenue outlook for 2021. Cadence projects increase in expenses in second-half 2021 due to headcount additions. The guidance also includes dilutive impact of the NUMECA and Pointwise acquisitions.

For 2021, revenues are now projected in the range of $2.925-$2.965 billion compared with the previous guidance of $2.88-$2.93 billion. The Zacks Consensus Estimate for 2021 revenues is currently pegged at $2.91 billion, which indicates year-over-year growth of 8.4%.

Non-GAAP earnings are now expected in the range of $3.14-$3.20 per share compared with $2.99-$3.07 per share guided previously. The Zacks Consensus Estimate for 2021 earnings is pegged at $3.04 per share, which suggests year-over-year growth of 8.6%.

Non-GAAP operating margin is now forecast in the range of 36-36.75% compared with 35-36% anticipated previously.

For 2021, operating cash flow is now projected in the range of $925-$975 million versus earlier guided range of $900-$950 million. Management expects to utilize of 50% of free cash flow generated to buy back shares for the year.

For third-quarter 2021, revenues are projected in the range of $730-$750 million. The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $718.3 million, which suggests year-over-year growth of 7.8%.

Non-GAAP earnings are expected in the range of 74-76 cents per share. The Zacks Consensus Estimate for third-quarter earnings is pegged at 71 cents per share, which suggests year-over-year growth of 1.43%.

Non-GAAP operating margin is forecast at around 34% for the third quarter.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks worth considering in the broader technology sector are Avnet (AVT - Free Report) , Shopify (SHOP - Free Report) and ServiceNow (NOW - Free Report) . All the stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Shopify and ServiceNow are scheduled to release earnings on Jul 28, while Avnet is slated to announce results on Aug 11.

Long-term earnings growth rate for Avnet, Shopify and ServiceNow are currently pegged at 22.7%, 25%, and 27.8%, respectively.


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