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Why Is Cadence (CDNS) Up 10.7% Since Last Earnings Report?
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It has been about a month since the last earnings report for Cadence Design Systems (CDNS - Free Report) . Shares have added about 10.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cadence due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Cadence Beats on Q2 Earnings & Revenues
Cadence 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 1.75% 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.
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 acquisition.
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. 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.
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. Non-GAAP earnings are expected in the range of 74-76 cents per share. Non-GAAP operating margin is forecast at around 34% for the third quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.11% due to these changes.
VGM Scores
Currently, Cadence has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cadence has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is Cadence (CDNS) Up 10.7% Since Last Earnings Report?
It has been about a month since the last earnings report for Cadence Design Systems (CDNS - Free Report) . Shares have added about 10.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cadence due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Cadence Beats on Q2 Earnings & Revenues
Cadence 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 1.75% 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.
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 acquisition.
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. 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.
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. Non-GAAP earnings are expected in the range of 74-76 cents per share. Non-GAAP operating margin is forecast at around 34% for the third quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.11% due to these changes.
VGM Scores
Currently, Cadence has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Cadence has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.