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Cadence (CDNS) Down 11% Since Last Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Cadence Design Systems (CDNS - Free Report) . Shares have lost about 11% in that time frame, underperforming the S&P 500.
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 the most recent earnings report in order to get a better handle on the recent catalysts for Cadence Design Systems, Inc. before we dive into how investors and analysts have reacted as of late.
Cadence Q3 Earnings Top Estimates
Cadence reported third-quarter 2025 non-GAAP earnings per share (EPS) of $1.93, which beat the Zacks Consensus Estimate by 7.8%. The bottom line increased 17.7% year over year, exceeding management’s guided range of $1.75-$1.81.
Revenues of $1.339 billion beat the Zacks Consensus Estimate by 0.9% and increased 10.2% year over year. The figure also beat the management’s guided range of $1.305-$1.335 billion. The top line was driven by broad-based demand for its solutions, especially the AI-driven portfolio, amid robust design activity. Management 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.
Backlog was $7 billion and current-remaining performance obligations were $3.5 billion at the end of the third quarter.
Driven by strong momentum, management upgraded its outlook for 2025. Revenues for 2025 are now estimated to be in the range of $5.262-$5.292 billion compared with $5.21-$5.27 billion guided earlier.
Non-GAAP EPS for 2025 is expected to be between $7.02 and $7.08 compared with $6.85-$6.95 guided earlier.
Segment Performance
Product & Maintenance revenues (90.2% of total revenues) of $1.208 billion rose 9.8% year over year. Services revenues (9.8%) of $131 million increased 13.9% year over year. Our estimate for revenues from Product & Maintenance and Service segments was $1.201 billion and $122 million, respectively. Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 43%, 18%, 18%, 14% and 7%, respectively, to total revenues in the reported quarter.
Product-wise, Core EDA, Intellectual Property (“IP”) and Systems Design & Analysis accounted for 71%, 14% and 15% of total revenues, respectively.
The System Design & Analysis business benefited from higher demand for BETA CAE solutions, AI-powered Allegro X, Clarity and Sigrity solutions. In the third quarter, Cadence announced a major expansion of its Cadence Reality Digital Twin Platform with the addition of a digital twin of NVIDIA DGX SuperPOD with DGX GB200 systems.
The company also signed a definitive agreement to acquire the Design & Engineering division of Hexagon AB, including its renowned MSC Software business. The buyout will aid in accelerating footprint expansion in SDA and gain access to newer opportunities across automotive, aerospace, industrial and physical AI.
Core EDA business, which includes Custom IC, Digital IC and Functional Verification, experienced strong growth driven by AI-driven design and verification solutions like Cerebrus AI Studio, Virtuoso Studio, Spectre and Verisium SimAI. The demand for new hardware systems remained robust among AI and HPC clients. OpenAI also leveraged the Palladium emulation platform in the third quarter.
The IP business benefited owing to a broadening silicon solutions portfolio and increasing demand for solutions in AI, HPC, automotive, foundry and chiplet use cases. In the quarter under review, Cadence completed its acquisition of Arm’s Artisan foundation IP business — covering standard cell libraries, memory compilers and GPIOs optimized for advanced process nodes. The deal strengthens Cadence’s design IP portfolio, adding to its leadership in protocol, memory interface and SerDes IP at advanced nodes.
Margin Performance
Total non-GAAP costs and expenses increased 4.5% year over year to $701 million. Non-GAAP gross margin contracted 60 basis points (bps) to 88%. Non-GAAP operating margin expanded 280 bps on a year-over-year basis to 47.6%.
Balance Sheet & Cash Flow
As of Sept. 30, 2025, Cadence had cash and cash equivalents of $2.753 billion compared with $2.823 billion as of June 30.
Long-term debt was $2.479 billion as of Sept. 30, 2025, compared with $2.478 million as of June 30. Cadence 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 $311 million in the reported quarter compared with the prior quarter’s $378 million. Free cash flow was $277 million compared with $334 million in the previous quarter.
The company repurchased its shares worth $200 million in the third quarter and expects another $200 million worth of buybacks in the fourth quarter.
Outlook
Non-GAAP operating margin for 2025 is forecasted to be in the range of 43.9% to 44.9% (previous view: 43.5% to 44.5%) compared with 42.5% reported in 2024. Also, operating cash flow is expected to be between $1.65 billion and $1.75 billion. It expects to utilize at least 50% of its free cash flow to repurchase shares in 2025.
For the fourth quarter of 2025, revenues are estimated to be in the $1.405-$1.435 billion band. The company reported sales of $1.356 billion in the year-ago quarter. Non-GAAP EPS is anticipated to be between $1.88 and $1.94. It reported an EPS of $1.88 in the year-ago quarter.
Non-GAAP operating margin is estimated to be between 44.5% and 45.5% in the fourth quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a upward trend in fresh estimates.
VGM Scores
At this time, Cadence has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock has a score of F on the value side, putting it in the fifth quintile for value investors.
Overall, the stock has an aggregate VGM Score of C. 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 indicates a downward shift. Interestingly, 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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Cadence (CDNS) Down 11% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Cadence Design Systems (CDNS - Free Report) . Shares have lost about 11% in that time frame, underperforming the S&P 500.
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 the most recent earnings report in order to get a better handle on the recent catalysts for Cadence Design Systems, Inc. before we dive into how investors and analysts have reacted as of late.
Cadence Q3 Earnings Top Estimates
Cadence reported third-quarter 2025 non-GAAP earnings per share (EPS) of $1.93, which beat the Zacks Consensus Estimate by 7.8%. The bottom line increased 17.7% year over year, exceeding management’s guided range of $1.75-$1.81.
Revenues of $1.339 billion beat the Zacks Consensus Estimate by 0.9% and increased 10.2% year over year. The figure also beat the management’s guided range of $1.305-$1.335 billion. The top line was driven by broad-based demand for its solutions, especially the AI-driven portfolio, amid robust design activity. Management 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.
Backlog was $7 billion and current-remaining performance obligations were $3.5 billion at the end of the third quarter.
Driven by strong momentum, management upgraded its outlook for 2025. Revenues for 2025 are now estimated to be in the range of $5.262-$5.292 billion compared with $5.21-$5.27 billion guided earlier.
Non-GAAP EPS for 2025 is expected to be between $7.02 and $7.08 compared with $6.85-$6.95 guided earlier.
Segment Performance
Product & Maintenance revenues (90.2% of total revenues) of $1.208 billion rose 9.8% year over year. Services revenues (9.8%) of $131 million increased 13.9% year over year. Our estimate for revenues from Product & Maintenance and Service segments was $1.201 billion and $122 million, respectively. Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 43%, 18%, 18%, 14% and 7%, respectively, to total revenues in the reported quarter.
Product-wise, Core EDA, Intellectual Property (“IP”) and Systems Design & Analysis accounted for 71%, 14% and 15% of total revenues, respectively.
The System Design & Analysis business benefited from higher demand for BETA CAE solutions, AI-powered Allegro X, Clarity and Sigrity solutions. In the third quarter, Cadence announced a major expansion of its Cadence Reality Digital Twin Platform with the addition of a digital twin of NVIDIA DGX SuperPOD with DGX GB200 systems.
The company also signed a definitive agreement to acquire the Design & Engineering division of Hexagon AB, including its renowned MSC Software business. The buyout will aid in accelerating footprint expansion in SDA and gain access to newer opportunities across automotive, aerospace, industrial and physical AI.
Core EDA business, which includes Custom IC, Digital IC and Functional Verification, experienced strong growth driven by AI-driven design and verification solutions like Cerebrus AI Studio, Virtuoso Studio, Spectre and Verisium SimAI. The demand for new hardware systems remained robust among AI and HPC clients. OpenAI also leveraged the Palladium emulation platform in the third quarter.
The IP business benefited owing to a broadening silicon solutions portfolio and increasing demand for solutions in AI, HPC, automotive, foundry and chiplet use cases. In the quarter under review, Cadence completed its acquisition of Arm’s Artisan foundation IP business — covering standard cell libraries, memory compilers and GPIOs optimized for advanced process nodes. The deal strengthens Cadence’s design IP portfolio, adding to its leadership in protocol, memory interface and SerDes IP at advanced nodes.
Margin Performance
Total non-GAAP costs and expenses increased 4.5% year over year to $701 million. Non-GAAP gross margin contracted 60 basis points (bps) to 88%. Non-GAAP operating margin expanded 280 bps on a year-over-year basis to 47.6%.
Balance Sheet & Cash Flow
As of Sept. 30, 2025, Cadence had cash and cash equivalents of $2.753 billion compared with $2.823 billion as of June 30.
Long-term debt was $2.479 billion as of Sept. 30, 2025, compared with $2.478 million as of June 30. Cadence 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 $311 million in the reported quarter compared with the prior quarter’s $378 million. Free cash flow was $277 million compared with $334 million in the previous quarter.
The company repurchased its shares worth $200 million in the third quarter and expects another $200 million worth of buybacks in the fourth quarter.
Outlook
Non-GAAP operating margin for 2025 is forecasted to be in the range of 43.9% to 44.9% (previous view: 43.5% to 44.5%) compared with 42.5% reported in 2024. Also, operating cash flow is expected to be between $1.65 billion and $1.75 billion. It expects to utilize at least 50% of its free cash flow to repurchase shares in 2025.
For the fourth quarter of 2025, revenues are estimated to be in the $1.405-$1.435 billion band. The company reported sales of $1.356 billion in the year-ago quarter. Non-GAAP EPS is anticipated to be between $1.88 and $1.94. It reported an EPS of $1.88 in the year-ago quarter.
Non-GAAP operating margin is estimated to be between 44.5% and 45.5% in the fourth quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a upward trend in fresh estimates.
VGM Scores
At this time, Cadence has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock has a score of F on the value side, putting it in the fifth quintile for value investors.
Overall, the stock has an aggregate VGM Score of C. 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 indicates a downward shift. Interestingly, Cadence has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.