Back to top

Image: Bigstock

Cadence's Q3 Earnings & Revenues Top Estimates, Surge Y/Y, Stock Jumps

Read MoreHide Full Article

Cadence Design Systems (CDNS - Free Report) reported third-quarter 2024 non-GAAP earnings per share (EPS) of $1.64, which beat the Zacks Consensus Estimate by 13.9%. The bottom-line number increased 30.2% year over year, exceeding management’s guided range of $1.39-$1.49.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

Revenues of $1.215 billion topped the Zacks Consensus Estimate by 2.7% and increased 18.8% year over year. The figure surpassed management’s guided range of $1.165-$1.195 billion. Recurring revenue growth improved in low teens year over year.  The top line was driven by broad-based strength across the portfolio. CDNS ended the quarter with a backlog of $5.6 billion and current-remaining performance obligations of $2.9 billion.

The company highlighted that the design activity continues to be robust especially in datacenter and automotive verticals, owing to transformative generational trends such as hyperscale computing, 5G and autonomous driving, bolstered by the proliferation of AI. CDNS’ solutions are also witnessing rapid uptake as system companies endeavor to build next-gen AI and agentic AI products amid increasing chip complexity.

CDNS remains focused on expanding its portfolio across core EDA, IP and System Design and Analysis areas. Expanding collaborations along with solid demand for new hardware systems particularly at AI, hyperscale and automotive companies are other tailwinds. 

Customers have been significantly increasing their R&D budgets in AI-driven automation. This bodes well for the Cadence.AI portfolio. CDNS noted that sales for its Cadence.AI portfolio (powered by GenAI, AI-driven optimization and JedAI platform) nearly tripled year over year.  

Management tightened its outlook for 2024 following strong third quarter performance. Revenues for 2024 are now projected to be in the range of $4.61-$4.65 billion compared with the previous guidance of $4.6-$4.66 billion. The Zacks Consensus Estimate is currently pegged at $4.63 billion, which indicates growth of 13.1% from the year-ago levels.

Non-GAAP EPS for 2024 is expected to be between $5.87 and $5.93 compared with the previous guidance of $5.77- $5.97. The Zacks Consensus Estimate is pegged at $5.88 per share, which implies a rise of 14.2% from the prior-year actuals.

The non-GAAP operating margin for 2024 is now forecasted to be in the range of 42% to 43% compared with 41.7-43.3% guided earlier.  Also, operating cash flow is expected to be between $1 billion and $1.2 billion. CDNS expects to utilize 50% of the free cash flow to repurchase its shares in 2024.

Zacks Investment Research
Image Source: Zacks Investment Research

The stock is up 5.7% in the pre-market trading today. Shares of Cadence have gained 8.2% compared with the sub-industry’s growth of 34.9% in the past year.

CDNS’ Segment Performance

Product & Maintenance revenues (90.5% of total revenues) of $1.1 billion rose 13.9% year over year. Services revenues (9.5%) of $115 million increased 101.8% year over year. Our estimate for revenues from the Product & Maintenance and Service segments was $1,085.8 million and $96.5 million, respectively. Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 50%, 13%, 17%, 14% and 6%, respectively, to total revenues in the reported quarter.

Product-wise, Custom IC Design & Simulation, Digital IC Design & Signoff, Functional Verification, Intellectual Property and Systems Design & Analysis accounted for 19%, 24%, 27%, 14% and 16% of total revenues, respectively.

The System Design & Analysis business benefited from the multi-physics portfolio along with AI-driven design optimization platforms, with revenues from this segment increasing 40% year over year. Acquisition of BETA CAE and higher demand for its Clarity and Celsius solutions were other tailwinds.

CDNS’ core EDA business (constitutes Custom IC, Digital IC and Functional Verification businesses) witnessed 9% year-over-year revenue growth in the third quarter. Demand for the new hardware systems was the primary catalyst along with the rapid adoption of digital full-flow solutions and Virtuoso Studio. Virtuoso Studio won 30 new logos in the reported quarter.

The IP business benefited owing to increasing demand for solutions (PCIe, UCIe, DDR, HBM and high speed SerDes) in AI, HPC and chiplet use cases, with revenues from the segment up 50% year over year.

CDNS’ Margin Performance

Total non-GAAP costs and expenses increased 11.3% year over year to $671 million.

Non-GAAP gross margin contracted 200 basis points (bps) to 88.6%. Non-GAAP operating margin expanded 370 bps on a year-over-year basis to 44.8%.

Balance Sheet & Cash Flow of CDNS

As of Sept. 30, 2024, CDNS had cash and cash equivalents of $2.786 billion compared with $1.059 billion as of June 30.

Long-term debt was $2.475 billion as of Sept. 30, 2024, compared with $998.9 million as of June 30. CDNS issued $2.5 billion of senior notes at a weighted average interest rate of 4.44% in September 2024.

Cadence generated an operating cash flow of 410 million in the reported quarter compared with the prior quarter’s $156 million. Free cash flow was $383 million compared with $127 million in the previous quarter.

The company repurchased its shares worth $150 million in the third quarter.

Cadence’s Q4 Outlook

For the fourth quarter of 2024, revenues are estimated to be in the $1.325-$1.365 billion band. The company reported sales of $1.069 billion in the year-ago quarter. The Zacks Consensus Estimate is currently pegged at $1.37 billion.

Non-GAAP EPS for the fourth quarter is anticipated to be between $1.78 and $1.84. CDNS reported an EPS of $1.38 in the year-ago quarter. The Zacks Consensus Estimate is currently pegged at $1.99 per share.

Non-GAAP operating margin is estimated to be between 45.2% and 46.2% for the fourth quarter.

Zacks Rank of CDNS

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

Recent Performance of Other Companies in Tech Space

Seagate Technology Holdings plc (STX - Free Report) reported first-quarter fiscal 2025 non-GAAP earnings of $1.58 per share, beating the Zacks Consensus Estimate by 6.8%. The company reported a non-GAAP loss of 22 cents per share in the year-ago quarter. This improvement in the bottom line was driven by a favorable mix shift to mass-capacity products and a better pricing environment. Non-GAAP revenues of $2.168 billion beat the Zacks Consensus Estimate by 2.4%. The figure increased 49% on a year-over-year basis and 15% sequentially. Shares of STX have gained 48.1% in the past year

Badger Meter, Inc (BMI - Free Report) reported EPS of $1.08 for the third quarter of 2024, beating the Zacks Consensus Estimate by 5.9%. Quarterly net sales were $208.4 million, up 12% from $186.2 million in the year-ago quarter. The uptick resulted from continued strong yet normalizing demand for its tailorable water management solutions. Shares of BMI have gained 48.5% in the past year.

Iridium Communications (IRDM - Free Report) reported EPS of 21 cents for the third quarter of 2024, beating the Zacks Consensus Estimate by 5%. The company incurred a loss of 1 cent per share in the prior-year quarter. Quarterly revenues were $212.8 million, up 8% from the year-ago level, driven by strength across all three segments. The Zacks Consensus Estimate was pegged at $205.7 million. Shares of IRDM have lost 19.6% in the past year.
 

Published in