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Why Is Cadence (CDNS) Up 5.8% Since Last Earnings Report?
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A month has gone by since the last earnings report for Cadence Design Systems (CDNS - Free Report) . Shares have added about 5.8% 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 drivers.
Cadence Q4 Earnings & Revenues Top Estimates
Cadence posted non-GAAP earnings of $1.38 per share in fourth-quarter 2023, which beat the Zacks Consensus Estimate by 3% and increased 43.8% year over year.
Revenues of $1.069 billion surpassed the Zacks Consensus Estimate by 0.3% and rose 18.8% on a year-over-year basis. The top line benefited from higher customer demand amid robust design activity and strong operational execution. CDNS ended the quarter with a backlog of $6 billion and current remaining performance obligations of $3.2 billion.
For 2023, the company delivered 15% growth in revenues to $4.09 billion while earnings were up 20% to $5.15 per share.
Management provided full-year guidance for 2024. The company highlighted that the design activity continued to be robust owing to transformative generational trends such hyperscale computing, 5G and autonomous driving, bolstered by proliferation of AI. Management also noted that momentum in 3D-IC and chiplet designs boded well. CDNS has also expanded its well-established partnerships with strategic partners like NVIDIA, Arm and Intel.
Revenues for 2024 are now projected in the range of $4.55-$4.61 billion. Non-GAAP earnings per share for 2024 are expected to be between $5.87 and $5.97.
Non-GAAP operating margin for 2024 is forecast in the range of 42-43%. Management envisions operating cash flow to be between $1.35 billion and $1.45 billion. CDNS expects to utilize 50% of the free cash flow to repurchase shares in 2024.
For first-quarter 2024, revenues are estimated in the $990 million-$1.01 billion band. The company reported sales of $1.022 billion in the year-ago quarter.
Non-GAAP EPS for first-quarter 2024 are anticipated to be between $1.10 and $1.14. CDNS reported EPS of $1.29 in the year-ago quarter.
Non-GAAP operating margin is estimated to be between 36.5% and 37.5% for the first quarter.
Performance in Details
In the fourth quarter, Product & Maintenance revenues (91.9% of total revenues) of $982 million rose 16.1% year over year. Services revenues (8.1%) of $87 million increased 61.1% year over year. Our estimate for revenues from the Product & Maintenance and Service segments was $1 billion and $60.4 million, respectively.
Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 44%, 15%, 19%, 16% and 6%, respectively, to total revenues in the quarter under review.
Product-wise, Custom IC Design & Simulation, Digital IC Design & Signoff, Functional Verification, Intellectual Property and Systems Design & Analysis accounted for 22%, 29%, 24%, 13% and 12% of total revenues, respectively.
The System Design & Analysis business was up 18% year over year in the fourth quarter. It expanded its presence beyond electronic design automation.
The Digital IC business was up 22% year over year in the fourth quarter. CDNS’ digital full flow was adopted by 34 additional customers during the year.
The Functional Verification business increased 11% year over year in the fourth quarter due to rising complexity of system verification and software bring-up. Palladium and Protium (especially Z2 and X2) platforms witnessed continued traction with many deal wins. It added 26 new and over 110 repeat customers during 2023.
Recently, the company also announced a new set of applications designed to enhance the capabilities of its flagship Palladium Z2 Enterprise Emulation System. The applications are domain-specific apps that are tailored to help customers navigate the increasing complexity of system design.
The Custom IC business delivered 16% year-over-year revenue growth in the fourth quarter. CDNS highlighted that its Virtuoso Studio solution is gaining significant traction with over 2000 downloads so far.
The IP business registered 36% year-over-year growth in revenues in the fourth quarter.
For the fourth quarter, total non-GAAP costs and expenses increased 5.4% year over year to $610 million.
Non-GAAP gross margin contracted 60 basis points (bps) to 91.7%. Non-GAAP operating margin expanded 730 bps on a year-over-year basis to 42.9%.
Balance Sheet & Cash Flow
As of Dec 31, 2023, CDNS had cash and cash equivalents of $1.008 billion compared with $961.9 million as of Sep 30, 2023
Long-term debt was $299.8 million as of Dec 31, 2023, compared with $648.8 million as of Sep 30, 2023.
Cadence generated operating cash flow of $272 million in the reported quarter compared with the prior quarter’s $396 million. Free cash flow was $238 million compared with $374 million in the previous quarter.
For 2023, Cadence generated operating cash flow of $1.349 billion compared with the prior year’s $1.242 billion. Free cash flow was $1.247 billion compared with $1.119 billion a year ago.
It repurchased shares worth $125 million in the fourth quarter and $700 million for 2023.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -20.42% due to these changes.
VGM Scores
Currently, Cadence has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cadence has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Cadence is part of the Zacks Computer - Software industry. Over the past month, PTC Inc. (PTC - Free Report) , a stock from the same industry, has gained 5.7%. The company reported its results for the quarter ended December 2023 more than a month ago.
PTC Inc. reported revenues of $550.21 million in the last reported quarter, representing a year-over-year change of +18.1%. EPS of $1.11 for the same period compares with $0.99 a year ago.
PTC Inc. is expected to post earnings of $1.23 per share for the current quarter, representing a year-over-year change of +6%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for PTC Inc. Also, the stock has a VGM Score of D.
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Why Is Cadence (CDNS) Up 5.8% Since Last Earnings Report?
A month has gone by since the last earnings report for Cadence Design Systems (CDNS - Free Report) . Shares have added about 5.8% 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 drivers.
Cadence Q4 Earnings & Revenues Top Estimates
Cadence posted non-GAAP earnings of $1.38 per share in fourth-quarter 2023, which beat the Zacks Consensus Estimate by 3% and increased 43.8% year over year.
Revenues of $1.069 billion surpassed the Zacks Consensus Estimate by 0.3% and rose 18.8% on a year-over-year basis. The top line benefited from higher customer demand amid robust design activity and strong operational execution. CDNS ended the quarter with a backlog of $6 billion and current remaining performance obligations of $3.2 billion.
For 2023, the company delivered 15% growth in revenues to $4.09 billion while earnings were up 20% to $5.15 per share.
Management provided full-year guidance for 2024. The company highlighted that the design activity continued to be robust owing to transformative generational trends such hyperscale computing, 5G and autonomous driving, bolstered by proliferation of AI. Management also noted that momentum in 3D-IC and chiplet designs boded well. CDNS has also expanded its well-established partnerships with strategic partners like NVIDIA, Arm and Intel.
Revenues for 2024 are now projected in the range of $4.55-$4.61 billion. Non-GAAP earnings per share for 2024 are expected to be between $5.87 and $5.97.
Non-GAAP operating margin for 2024 is forecast in the range of 42-43%. Management envisions operating cash flow to be between $1.35 billion and $1.45 billion. CDNS expects to utilize 50% of the free cash flow to repurchase shares in 2024.
For first-quarter 2024, revenues are estimated in the $990 million-$1.01 billion band. The company reported sales of $1.022 billion in the year-ago quarter.
Non-GAAP EPS for first-quarter 2024 are anticipated to be between $1.10 and $1.14. CDNS reported EPS of $1.29 in the year-ago quarter.
Non-GAAP operating margin is estimated to be between 36.5% and 37.5% for the first quarter.
Performance in Details
In the fourth quarter, Product & Maintenance revenues (91.9% of total revenues) of $982 million rose 16.1% year over year. Services revenues (8.1%) of $87 million increased 61.1% year over year. Our estimate for revenues from the Product & Maintenance and Service segments was $1 billion and $60.4 million, respectively.
Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 44%, 15%, 19%, 16% and 6%, respectively, to total revenues in the quarter under review.
Product-wise, Custom IC Design & Simulation, Digital IC Design & Signoff, Functional Verification, Intellectual Property and Systems Design & Analysis accounted for 22%, 29%, 24%, 13% and 12% of total revenues, respectively.
The System Design & Analysis business was up 18% year over year in the fourth quarter. It expanded its presence beyond electronic design automation.
The Digital IC business was up 22% year over year in the fourth quarter. CDNS’ digital full flow was adopted by 34 additional customers during the year.
The Functional Verification business increased 11% year over year in the fourth quarter due to rising complexity of system verification and software bring-up. Palladium and Protium (especially Z2 and X2) platforms witnessed continued traction with many deal wins. It added 26 new and over 110 repeat customers during 2023.
Recently, the company also announced a new set of applications designed to enhance the capabilities of its flagship Palladium Z2 Enterprise Emulation System. The applications are domain-specific apps that are tailored to help customers navigate the increasing complexity of system design.
The Custom IC business delivered 16% year-over-year revenue growth in the fourth quarter. CDNS highlighted that its Virtuoso Studio solution is gaining significant traction with over 2000 downloads so far.
The IP business registered 36% year-over-year growth in revenues in the fourth quarter.
For the fourth quarter, total non-GAAP costs and expenses increased 5.4% year over year to $610 million.
Non-GAAP gross margin contracted 60 basis points (bps) to 91.7%. Non-GAAP operating margin expanded 730 bps on a year-over-year basis to 42.9%.
Balance Sheet & Cash Flow
As of Dec 31, 2023, CDNS had cash and cash equivalents of $1.008 billion compared with $961.9 million as of Sep 30, 2023
Long-term debt was $299.8 million as of Dec 31, 2023, compared with $648.8 million as of Sep 30, 2023.
Cadence generated operating cash flow of $272 million in the reported quarter compared with the prior quarter’s $396 million. Free cash flow was $238 million compared with $374 million in the previous quarter.
For 2023, Cadence generated operating cash flow of $1.349 billion compared with the prior year’s $1.242 billion. Free cash flow was $1.247 billion compared with $1.119 billion a year ago.
It repurchased shares worth $125 million in the fourth quarter and $700 million for 2023.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -20.42% due to these changes.
VGM Scores
Currently, Cadence has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cadence has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Cadence is part of the Zacks Computer - Software industry. Over the past month, PTC Inc. (PTC - Free Report) , a stock from the same industry, has gained 5.7%. The company reported its results for the quarter ended December 2023 more than a month ago.
PTC Inc. reported revenues of $550.21 million in the last reported quarter, representing a year-over-year change of +18.1%. EPS of $1.11 for the same period compares with $0.99 a year ago.
PTC Inc. is expected to post earnings of $1.23 per share for the current quarter, representing a year-over-year change of +6%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for PTC Inc. Also, the stock has a VGM Score of D.