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Cadence (CDNS) Beats on Q3 Earnings & Revenues, Raises View

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Cadence Design Systems Inc (CDNS - Free Report) posted third-quarter 2021 non-GAAP earnings of 80 cents per share, which topped the Zacks Consensus Estimate by 6.7%. The bottom line increased 14.3% year over year.

Revenues of $750.9 million surpassed the Zacks Consensus Estimate by 1.5% and increased 12.6% on a year-over-year basis. The top line benefitted from continued strength across all the segments. The company ended the third quarter with a backlog of $3.7 billion.

Following the announcement, shares of Cadence are down 0.5% in the premarket trading on Oct 26. In the past year, the stock has returned 52.4% compared with the industry’s surge of 42.8%.

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% of total revenues) of $706.2 million increased 12% year over year.

Services revenues (6%) of $44.7 million increased 23.3% from the year-ago quarter’s figure.

Geographically, Americas, China, Other Asia, Europe, Middle East and Africa (EMEA) and Japan contributed 46%, 13%, 18%, 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%, 29%, 23%, 14% and 11% to total revenues, respectively.

Cadence Digital Full Flow saw robust traction in the quarter under review with 13 new customer wins. The company’s Cadence Cerebrus solution witnessed accelerating momentum and was deployed by several customers (including a global mobile semiconductor company) apart from Samsung and Renesas.

Palladium and Protium (especially Z2 and X2) platforms witnessed continued momentum with several deal wins among hyperscale and global mobile customers, added the company.

In the third quarter, Cadence introduced Cadence Helium Virtual and Hybrid Studio platform designed to ramp up development of virtual and hybrid prototypes of complex systems. The platform is currently endorsed by NVIDIA (NVDA - Free Report) .

Within the System Analysis and Design portfolio, the company unveiled Cadence Integrity 3D-IC platform. The platform combines 3D design planning, implementation and system analysis in a single cockpit. It can be used for 5G communications, hyperscale computing, mobile and automotive applications.

Total non-GAAP costs and expenses increased 12.9% year over year to $483 million.
    
Non-GAAP gross margin expanded 200 basis points (bps) to 91.6%, but non-GAAP operating margin was down 20 bps on a year-over-year basis to 35.7%.

Balance Sheet & Cash Flow

As of Oct 2, 2021, the company had cash and cash equivalents of approximately $1.014 billion compared with $847 million as of Jul 3, 2021.

The company’s long-term debt came in at $347.4 million as of Oct 2, 2021 compared with $347.2 million as of Jul 3, 2021.

The company generated operating cash flow of $296 million in the reported quarter compared with the prior-quarter’s figure of $380 million. Free cash flow in the quarter under review was $277 million compared with $366 million reported in the previous quarter.

The company repurchased shares worth approximately $110 million in the third quarter.  The company had $1.2 billion worth of shares under its buyback authorization as of Oct 2, 2021. In August 2021, Cadence authorized an additional $1 billion buyback plan.

Guidance

Driven by better-than-expected quarterly results, management raised revenue outlook for 2021.

For 2021, revenues are projected in the range of $2.96-$2.98 billion compared with the previous guidance of $2.925-$2.965 billion. The Zacks Consensus Estimate for 2021 revenues is currently pegged at $2.95 billion, which indicates year-over-year growth of 9.9%.

Non-GAAP earnings are now expected in the range of $3.24-$3.28 per share compared with $3.14-$3.20 per share guided previously. The Zacks Consensus Estimate for 2021 earnings is pegged at $3.17 per share, which suggests year-over-year growth of 13.2%.

Non-GAAP operating margin is now forecast in the range of 37% compared with 36-36.75% anticipated previously.

For 2021, operating cash flow is projected in the range of $975-$1.025 billion versus the earlier guidance of $925-$975 million.

For fourth-quarter 2021, revenues are projected in the range of $745-$765 million. The Zacks Consensus Estimate for revenues is currently pegged at $745.8 million, which suggests year-over-year decline of 1.9%.

Non-GAAP earnings are expected in the range of 76-80 cents per share. The Zacks Consensus Estimate for earnings is pegged at 73 cents per share, which suggests year-over-year decline of 12.1%.

Non-GAAP operating margin is forecast at around 35% for the fourth quarter. The company expects to repurchase shares worth $110 million in the current quarter. 

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader technology sector worth considering are Salesforce (CRM - Free Report) and HP Inc (HPQ - Free Report) . The stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Salesforce and HP Inc is currently pegged at 16.8%, and 12.7%, respectively.

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