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Why Is Cadence (CDNS) Down 6.1% 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 lost about 6.1% in that time frame, underperforming the S&P 500.
But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is Cadence due for a breakout? Well, first let's take a quick look at its latest earnings report in order to get a better handle on the recent drivers for Cadence Design Systems, Inc. before we dive into how investors and analysts have reacted as of late.
Cadence Q2 Earnings & Revenues Beat Estimates
Cadence reported second-quarter 2025 non-GAAP earnings per share (EPS) of $1.65, which beat the Zacks Consensus Estimate by 5.1%. The bottom line increased 28.9% year over year, exceeding management’s guided range of $1.55-$1.61.
Revenues of $1.275 billion beat the Zacks Consensus Estimate by 1.3% and increased 20.3% year over year. The figure beat the management’s guided range of $1.25-$1.27 billion. The top line was driven by broad-based demand for its solutions, especially the AI-driven portfolio, amid robust design activity. Cadence added that its efforts to unify EDA, IP, 3D-IC, PCB and system analysis are aiding in capitalizing on the opportunity presented by the AI super cycle. Also, customer R&D investments, especially in AI, remain robust.
Cadence also settled with the Department of Justice and BIS, related to previously disclosed investigations into certain China sales (worth $45 million) from 2015 to 2021. The company will have to shell out approximately $141 million as a settlement in the third quarter. With the enactment of the One Big Beautiful Bill Act, management expects the company’s U.S. federal tax payments for the remainder of fiscal 2025 to decrease by approximately $140 million.
Cadence ended the quarter with a backlog of $6.4 billion and current-remaining performance obligations of $3.1 billion.
Driven by strong results and a strong pipeline, management upgraded its outlook for 2025. Revenues for 2025 are now estimated to be in the range of $5.21-$5.27 billion compared with $5.15-$5.23 billion guided earlier.
Non-GAAP EPS for 2025 is expected to be between $6.85 and $6.95 compared with $6.73-$6.83 guided earlier.
Segment Performance
Product & Maintenance revenues (91.8% of total revenues) of $1.17 billion rose 21.7% year over year. Services revenues (8.2%) of $105 million increased 5% year over year. Our estimate for revenues from Product & Maintenance and Service segments was $1.144 billion and $113.5 million, respectively. Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 49%, 9%, 19%, 16% and 7%, respectively, to total revenues in the reported quarter.
Product-wise, Core EDA, Intellectual Property (IP) and Systems Design & Analysis accounted for 71%, 13% and 16% of total revenues, respectively.
The System Design & Analysis business benefited from the adoption of 3DIC technologies and the AI-driven Advanced Substrate Router. Higher demand for BETA CAE solutions in the automotive space and increased demand for its Allegro X PCB design wins with Aerospace and Defense, hyperscale and EV customers were additional tailwinds.
Core EDA business, which includes Custom IC, Digital IC and Functional Verification, experienced 16% year-over-year revenue growth in the second quarter. The main driver was the continued demand for new hardware systems, especially among AI, automotive and HPC clients, along with the rapid adoption of digital full-flow solutions and the Spectre X circuit simulator. The verification software suite also continued to expand, adding 27 new logos during the quarter.
It also unveiled Cerebrus AI Studio, which is an agentic AI multi-block and multi-user SoC design platform. It offers up to 20% PPA improvement, while speeding up chip delivery time by 5-10 times. It was endorsed by Samsung and ST Microelectronics at launch.
The IP business benefited owing to a broadening silicon solutions portfolio and increasing demand for solutions in AI, HPC, foundry ecosystem buildout and chiplet use cases, with revenues from the segment up 25% year over year in the second quarter.
Margin Performance
Total non-GAAP costs and expenses increased 14.8% year over year to $729 million.
Non-GAAP gross margin contracted 130 basis points (bps) to 87.2%. Non-GAAP operating margin expanded 270 bps on a year-over-year basis to 42.8%.
Balance Sheet & Cash Flow
As of June 30, 2025, Cadence had cash and cash equivalents of $2.823 billion compared with $2.778 billion as of March 31.
Long-term debt was $2.478 billion as of June 30, 2025, compared with $2.477 million as of March 31. It 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 $378 million in the reported quarter compared with the prior quarter’s $487 million. Free cash flow was $334 million compared with $464 million in the previous quarter.
The company repurchased its shares worth $175 million in the second quarter. It expects to execute $200 million in repurchases in the third quarter.
Q3 & FY25 Outlook
Non-GAAP operating margin for 2025 is forecasted to be in the range of 43.5% to 44.5% (previous view: 43.25% to 44.25%) compared with 42.5% reported in 2024. Also, operating cash flow is expected to be between $1.65 billion and $1.75 billion (earlier view: $1.6 billion and $1.7 billion). It expects to utilize at least 50% of its free cash flow to repurchase shares in 2025.
For the third quarter of 2025, revenues are estimated to be in the $1.305-$1.335 billion band. The company reported sales of $1.215 billion in the year-ago quarter.
Non-GAAP EPS for the third quarter is anticipated to be between $1.75 and $1.81. It reported an EPS of $1.64 in the year-ago quarter.
Non-GAAP operating margin is estimated to be between 45% and 46% in the third quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a upward trend in fresh estimates.
VGM Scores
Currently, Cadence has a average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock has a grade of F on the value side, putting it in the bottom 20% 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, Cadence has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Cadence (CDNS) Down 6.1% Since Last Earnings Report?
A month has gone by since the last earnings report for Cadence Design Systems (CDNS - Free Report) . Shares have lost about 6.1% in that time frame, underperforming the S&P 500.
But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is Cadence due for a breakout? Well, first let's take a quick look at its latest earnings report in order to get a better handle on the recent drivers for Cadence Design Systems, Inc. before we dive into how investors and analysts have reacted as of late.
Cadence Q2 Earnings & Revenues Beat Estimates
Cadence reported second-quarter 2025 non-GAAP earnings per share (EPS) of $1.65, which beat the Zacks Consensus Estimate by 5.1%. The bottom line increased 28.9% year over year, exceeding management’s guided range of $1.55-$1.61.
Revenues of $1.275 billion beat the Zacks Consensus Estimate by 1.3% and increased 20.3% year over year. The figure beat the management’s guided range of $1.25-$1.27 billion. The top line was driven by broad-based demand for its solutions, especially the AI-driven portfolio, amid robust design activity. Cadence added that its efforts to unify EDA, IP, 3D-IC, PCB and system analysis are aiding in capitalizing on the opportunity presented by the AI super cycle. Also, customer R&D investments, especially in AI, remain robust.
Cadence also settled with the Department of Justice and BIS, related to previously disclosed investigations into certain China sales (worth $45 million) from 2015 to 2021. The company will have to shell out approximately $141 million as a settlement in the third quarter. With the enactment of the One Big Beautiful Bill Act, management expects the company’s U.S. federal tax payments for the remainder of fiscal 2025 to decrease by approximately $140 million.
Cadence ended the quarter with a backlog of $6.4 billion and current-remaining performance obligations of $3.1 billion.
Driven by strong results and a strong pipeline, management upgraded its outlook for 2025. Revenues for 2025 are now estimated to be in the range of $5.21-$5.27 billion compared with $5.15-$5.23 billion guided earlier.
Non-GAAP EPS for 2025 is expected to be between $6.85 and $6.95 compared with $6.73-$6.83 guided earlier.
Segment Performance
Product & Maintenance revenues (91.8% of total revenues) of $1.17 billion rose 21.7% year over year. Services revenues (8.2%) of $105 million increased 5% year over year. Our estimate for revenues from Product & Maintenance and Service segments was $1.144 billion and $113.5 million, respectively. Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 49%, 9%, 19%, 16% and 7%, respectively, to total revenues in the reported quarter.
Product-wise, Core EDA, Intellectual Property (IP) and Systems Design & Analysis accounted for 71%, 13% and 16% of total revenues, respectively.
The System Design & Analysis business benefited from the adoption of 3DIC technologies and the AI-driven Advanced Substrate Router. Higher demand for BETA CAE solutions in the automotive space and increased demand for its Allegro X PCB design wins with Aerospace and Defense, hyperscale and EV customers were additional tailwinds.
Core EDA business, which includes Custom IC, Digital IC and Functional Verification, experienced 16% year-over-year revenue growth in the second quarter. The main driver was the continued demand for new hardware systems, especially among AI, automotive and HPC clients, along with the rapid adoption of digital full-flow solutions and the Spectre X circuit simulator. The verification software suite also continued to expand, adding 27 new logos during the quarter.
It also unveiled Cerebrus AI Studio, which is an agentic AI multi-block and multi-user SoC design platform. It offers up to 20% PPA improvement, while speeding up chip delivery time by 5-10 times. It was endorsed by Samsung and ST Microelectronics at launch.
The IP business benefited owing to a broadening silicon solutions portfolio and increasing demand for solutions in AI, HPC, foundry ecosystem buildout and chiplet use cases, with revenues from the segment up 25% year over year in the second quarter.
Margin Performance
Total non-GAAP costs and expenses increased 14.8% year over year to $729 million.
Non-GAAP gross margin contracted 130 basis points (bps) to 87.2%. Non-GAAP operating margin expanded 270 bps on a year-over-year basis to 42.8%.
Balance Sheet & Cash Flow
As of June 30, 2025, Cadence had cash and cash equivalents of $2.823 billion compared with $2.778 billion as of March 31.
Long-term debt was $2.478 billion as of June 30, 2025, compared with $2.477 million as of March 31. It 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 $378 million in the reported quarter compared with the prior quarter’s $487 million. Free cash flow was $334 million compared with $464 million in the previous quarter.
The company repurchased its shares worth $175 million in the second quarter. It expects to execute $200 million in repurchases in the third quarter.
Q3 & FY25 Outlook
Non-GAAP operating margin for 2025 is forecasted to be in the range of 43.5% to 44.5% (previous view: 43.25% to 44.25%) compared with 42.5% reported in 2024. Also, operating cash flow is expected to be between $1.65 billion and $1.75 billion (earlier view: $1.6 billion and $1.7 billion). It expects to utilize at least 50% of its free cash flow to repurchase shares in 2025.
For the third quarter of 2025, revenues are estimated to be in the $1.305-$1.335 billion band. The company reported sales of $1.215 billion in the year-ago quarter.
Non-GAAP EPS for the third quarter is anticipated to be between $1.75 and $1.81. It reported an EPS of $1.64 in the year-ago quarter.
Non-GAAP operating margin is estimated to be between 45% and 46% in the third quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a upward trend in fresh estimates.
VGM Scores
Currently, Cadence has a average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock has a grade of F on the value side, putting it in the bottom 20% 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, Cadence has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.