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Cadence (CDNS) Q1 Earnings & Revenues Top Estimates, Shares Up

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Cadence Design Systems Inc (CDNS - Free Report) posted non-GAAP earnings of $1.17 per share in first-quarter 2022, which topped the Zacks Consensus Estimate by 15.8% and increased 41% year over year.

Revenues of $902 million surpassed the Zacks Consensus Estimate by 5% and increased 23% on a year-over-year basis. The top line benefited from continued strength across all segments driven by higher demand for its products. CDNS ended the quarter with a backlog of $5.1 billion.

Driven by strong first-quarter results, the company raised its outlook for 2022. Revenues for the full year are now projected in the range of $3.395-$3.435 billion compared with the earlier guidance of $3.32-$3.38 billion. The Zacks Consensus Estimate for 2022 revenues is currently pegged at $3.36 billion, which indicates year-over-year growth of 12.4%.

Non-GAAP earnings for 2022 are expected in the range of $3.89-$3.97 per share compared with the earlier guidance of $3.70-$3.80 per share. The Zacks Consensus Estimate for 2022 earnings is pegged at $3.73 per share, which suggests year-over-year growth of 13.4%.

Following the announcement, shares of Cadence are up 4% in the premarket trading on Apr 26. In the past year, the company’s stock has increased 13.9% compared with the industry’s decline of 3.9%.

Performance in Details

In the first quarter, Product & Maintenance revenues (93.8% of total revenues) of $846 million were up 21% year over year. Services revenues (6.2%) of $56 million increased 51.4% from the year-ago quarter’s figure.

Geographically, Americas, China, Other Asia, Europe, Middle East and Africa (EMEA) and Japan contributed 47%, 16%, 18%, 14% and 5%, respectively, to total revenues in the quarter under review.

Product-wise, Custom IC Design & Simulation, Digital IC Design & Signoff, Functional Verification, IP and Systems Design & Analysis contributed 22%, 27%, 28%, 13% and 10% to total revenues, respectively.

The company’ s digital and signoff business delivered 23% year-over-year growth in revenues. Digital Full Flow saw robust traction with 15 new customer wins. The company’s Cadence Cerebrus solution witnessed accelerating momentum and was deployed by several customers.

Palladium and Protium (especially Z2 and X2) platforms witnessed continued momentum with many deal wins. The company noted that it won 10 new clients and 50 repeat orders in the first quarter which included more than half for both the platforms. Most of the deal wins came from clients in the hyperscale, AI/ML and networking domains.

In 2021, Cadence introduced 13 new products, including Cadence Helium Virtual and Hybrid Studio, Midas Safety platform and Allegro X.

Cadence’s System Design & Analysis Business reported 22% year-over-year growth.

In the quarter under review, total non-GAAP costs and expenses increased 10.7% year over year to $505 million.
    
Non-GAAP gross margin expanded 30 basis points (bps) to 90.7%, but the non-GAAP operating margin was up 590 bps on a year-over-year basis to 44% in the quarter under review.

Balance Sheet & Cash Flow

As of Apr 2, 2022, the company had cash and cash equivalents of approximately $1.135 billion compared with $1.089 billion as of Jan 1, 2022.

The company’s long-term debt came in at $347.8 million as of Apr 2, 2022, compared with $347.6 million as of Jan 1, 2022.

The company generated an operating cash flow of $337 million in the reported quarter compared with the prior quarter’s figure of $216 million. Free cash flow in the quarter under review was $319 million compared with $201 million reported in the previous quarter.

The company repurchased shares worth approximately $250 million in the first quarter.

2022 Outlook Raised

For 2022, the non-GAAP operating margin is forecast in the range of 38.5-40% as against the range of 37.5-39% guided previously.

For 2022, operating cash flow is projected to be $1.19-$1.29 billion. Management expects to utilize 50% of the free cash flow generated to buy back shares for the year.

For second-quarter 2022, revenues are projected in the range of $825-$845 million. The Zacks Consensus Estimate for revenues is currently pegged at $815.8 million, suggesting a year-over-year increase of 12%.

Non-GAAP earnings are expected in the range of 95-99 cents per share. The Zacks Consensus Estimate for earnings is pegged at 89 cents per share, suggesting a year-over-year decline of 3.5%.

Non-GAAP operating margin is forecast between 39-40% for the second quarter. The company expects to repurchase shares for at least $200 million in the current quarter.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks from the broader technology sector are America Movil (AMX - Free Report) , Jabil (JBL - Free Report) and Broadcom (AVGO - Free Report) . America Movil and Jabil sport a Zacks Rank #1 (Strong Buy), while Broadcom carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The Zacks Consensus Estimate for America Movil’s 2022 earnings is pegged at $1.27 per share, up 10.4% in the past 60 days. The long-term earnings growth rate is pegged at 24.4%. Shares of AMX have rallied 45.5% in the past year.

The Zacks Consensus Estimate for Jabil fiscal 2022 earnings is pegged at $7.25 per share, up 10.2% in the past 60 days. The long-term earnings growth rate is 12%.

Jabil earnings beat the Zacks Consensus Estimate all last four quarters, with the average being 13.5%. Shares of JBL have gained 7.4% in the past year.

The Zacks Consensus Estimate for Broadcom’s fiscal 2022 earnings is pegged at $35.67 per share, up 7.6% in the past 60 days. AVGO’s long-term earnings growth rate is pegged at 14.5%.

Broadcom’s earnings beat the Zacks Consensus Estimate in all the preceding four quarters, with the average being 1.9%. Shares of AVGO have increased 26% in the past year.