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Cadence Design Systems, Inc. (CDNS - Free Report) delivered robust second-quarter 2018 results, wherein both the top and bottom lines outpaced the respective Zacks Consensus Estimate and also management’s guided ranges. Notably, the company adopted the new accounting standard rules of ASC 606 from the first quarter of fiscal 2018 and accordingly incorporated the same while reporting the second-quarter results.
Cadence delivered non-GAAP earnings of 45 cents per share for the secondquarter, surpassing the Zacks Consensus Estimate by 5 cents. Management had predicted earnings between 39cents and 41 cents.
Under the old accounting standard revenues increased 7.5% year over year to $515.1 million. Under ASC 606, the company reported revenues of $518.4 million beating the Zacks Consensus Estimate of $515 million. The top line was near the high end of management’s expectation of $510-$520 million.
Robust adoption of the company’s digital and signoff, custom and analog, and IP solutions along with an ever expanding customer base drove year-over-year growth.
Cadence has also witnessed significant demand from aerospace and defense sectors.
Under ASC 606, Product & Maintenance revenues came in at $487.9 million and accounted for 94.1% of total revenues. Notably, as per old ASC 605, Product & Maintenance revenues effectively grew 8.9% year over year and came in at $483.3 million.
Under ASC 606, Services revenues of $30.5 million contributed 5.9% to total revenues. Per ASC 605, Services revenues effectively declined 9.4% and came in at $31.9 million.
Geographically, Americas, Asia, Europe, Middle East and Africa (EMEA) and Japan contributed 46%, 26%, 20% and 8%, respectively to the total revenues under the new accounting standard.
The company reported non-GAAP operating margin of 29.8% during the quarter.
Product-wise, Functional Verification, Digital IC & signoff, Custom IC design, Systems Interconnect & Analysis and IP, comprised 23%, 30%, 26%, 9% and 12% of the total revenues, respectively.
IP segment witnessed strong quarter driven by robust adoption of the company’sPCIeand DDR products. The company’s DDR5 test chip, achieved 4400 megatransfers per second data rate in Taiwan Semiconductor Manufacturing Company’s (TSM - Free Report) 7nm process.
Cadence Tensilica introduced five new logos with customer wins for emerging applications in crypto mining, Intenet of Things (IoT), photonics and wearables.
Considering, System Design and Verification solutions, traction witnessed by Xcelium Parallel Simulator and Palladium Z1 drove revenues.Further, the company’s popular emulator, Palladium, won six new customers, and successfully signed nine repeat orders. Out of the six new wins, two customers leverage Palladium Cloud.
In the Digital and Signoff space, the company strengthened Voltus IC Power Integrity Solution with an algorithm to upscale performance. The new cloud ready Voltus solution is already gaining traction. The company noted that in the first half of 2018, more than 20 customers selected full digital flow.
Cadence also enabled its clientele with “More-than-Moore” technologies comprising MEMS, RF, and sensors by delivering packaging and tooling solutions. In partnership with National Instruments, the company unveiled new Virtuoso RF Solution to simplify the verification and related processes of both RF and analog modules and ICs.
Notably, the newly launched Legato Reliability Solutionis being leveraged by Infineon (IFNNY - Free Report) to accelerate simulation significantly.
The considerable customer wins and repeat orders bolstered the top-line.
Balance Sheet & Cash Flow
The company ended the quarter with cash and short-term investments of $825.4 million compared with the previous quarter’s figure of $752.4 million. We may note that at the end of the quarter, around58% of total cash and short-term investments were in the United States.
Cadence’s long-term debt has almost remained flat sequentially at $344.9 million. The company generated operating cash flow of $205.3 million in the quartercompared with previous quarter’s reported figure of $157.6 million.
The company repurchased shares worth approximately $50 million in the second quarter.
Cadence Design Systems, Inc. Price, Consensus and EPS Surprise
For third-quarter 2018, Cadence expects total revenues under ASC 606 in the range of $510-$520 million and non-GAAP earnings in the range of 40-42 cents per share. Non-GAAP operating margin is anticipated to be in the range of 27-28%.
The Zacks Consensus Estimates for revenues and earnings are pegged at $518.1 million and 41 cents, respectively.
The company raised 2018 outlook expecting the second-quarter momentum to continue. Revenues are now projected in the range of $2.07-$2.09 billion, up from $2.055-$2.085 billion anticipated earlier. Non-GAAP earnings are now guided in the range of $1.64-$1.70 per share, raised from the previous band of $1.57-$1.65.
The Zacks Consensus Estimate for revenues and earnings are pegged at $2.08 billion and $1.63 per share, respectively.
Further, non-GAAP operating margin for 2018 is expected at 28%. Previously, the company has predicted non-GAAP operating margin to lie in 27-28% range. Similarly, operating cash flow is anticipatedin the range of $535-$565 million, instead of earlier prediction of $510-$550 million.
Bottom Line
Management is optimistic regarding its System Design Enablement strategy. With Cadence Cloud, the company aims to offeracomprehensive cloud portfolio enabling the development of semiconductors and other electronic systems.
Furthermore, Cadence recently collaborated with Microsoft’s Azure, Amazon Web Services (“AWS”) and Google Cloud platform to enable smooth design development of electronic systems and semiconductors.
We believe the innovative cloud-ready solutions broaden the company’s portfolio in an effective manner. The strong collaborations and smart product launches augur well for Cadence in the longer haul.
The long-term earnings growth rate for Mellanoxis pegged at 15%.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Cadence (CDNS) Q2 Earnings & Revenues Top, Raises '18 View
Cadence Design Systems, Inc. (CDNS - Free Report) delivered robust second-quarter 2018 results, wherein both the top and bottom lines outpaced the respective Zacks Consensus Estimate and also management’s guided ranges. Notably, the company adopted the new accounting standard rules of ASC 606 from the first quarter of fiscal 2018 and accordingly incorporated the same while reporting the second-quarter results.
Cadence delivered non-GAAP earnings of 45 cents per share for the secondquarter, surpassing the Zacks Consensus Estimate by 5 cents. Management had predicted earnings between 39cents and 41 cents.
Under the old accounting standard revenues increased 7.5% year over year to $515.1 million. Under ASC 606, the company reported revenues of $518.4 million beating the Zacks Consensus Estimate of $515 million. The top line was near the high end of management’s expectation of $510-$520 million.
Robust adoption of the company’s digital and signoff, custom and analog, and IP solutions along with an ever expanding customer base drove year-over-year growth.
Cadence has also witnessed significant demand from aerospace and defense sectors.
Cadence Design Systems, Inc. Revenue (TTM)
Cadence Design Systems, Inc. Revenue (TTM) | Cadence Design Systems, Inc. Quote
Quarter in Detail
Under ASC 606, Product & Maintenance revenues came in at $487.9 million and accounted for 94.1% of total revenues. Notably, as per old ASC 605, Product & Maintenance revenues effectively grew 8.9% year over year and came in at $483.3 million.
Under ASC 606, Services revenues of $30.5 million contributed 5.9% to total revenues. Per ASC 605, Services revenues effectively declined 9.4% and came in at $31.9 million.
Geographically, Americas, Asia, Europe, Middle East and Africa (EMEA) and Japan contributed 46%, 26%, 20% and 8%, respectively to the total revenues under the new accounting standard.
The company reported non-GAAP operating margin of 29.8% during the quarter.
Product-wise, Functional Verification, Digital IC & signoff, Custom IC design, Systems Interconnect & Analysis and IP, comprised 23%, 30%, 26%, 9% and 12% of the total revenues, respectively.
IP segment witnessed strong quarter driven by robust adoption of the company’sPCIeand DDR products. The company’s DDR5 test chip, achieved 4400 megatransfers per second data rate in Taiwan Semiconductor Manufacturing Company’s (TSM - Free Report) 7nm process.
Cadence Tensilica introduced five new logos with customer wins for emerging applications in crypto mining, Intenet of Things (IoT), photonics and wearables.
Considering, System Design and Verification solutions, traction witnessed by Xcelium Parallel Simulator and Palladium Z1 drove revenues.Further, the company’s popular emulator, Palladium, won six new customers, and successfully signed nine repeat orders. Out of the six new wins, two customers leverage Palladium Cloud.
In the Digital and Signoff space, the company strengthened Voltus IC Power Integrity Solution with an algorithm to upscale performance. The new cloud ready Voltus solution is already gaining traction. The company noted that in the first half of 2018, more than 20 customers selected full digital flow.
Cadence also enabled its clientele with “More-than-Moore” technologies comprising MEMS, RF, and sensors by delivering packaging and tooling solutions. In partnership with National Instruments, the company unveiled new Virtuoso RF Solution to simplify the verification and related processes of both RF and analog modules and ICs.
Notably, the newly launched Legato Reliability Solutionis being leveraged by Infineon (IFNNY - Free Report) to accelerate simulation significantly.
The considerable customer wins and repeat orders bolstered the top-line.
Balance Sheet & Cash Flow
The company ended the quarter with cash and short-term investments of $825.4 million compared with the previous quarter’s figure of $752.4 million. We may note that at the end of the quarter, around58% of total cash and short-term investments were in the United States.
Cadence’s long-term debt has almost remained flat sequentially at $344.9 million. The company generated operating cash flow of $205.3 million in the quartercompared with previous quarter’s reported figure of $157.6 million.
The company repurchased shares worth approximately $50 million in the second quarter.
Cadence Design Systems, Inc. Price, Consensus and EPS Surprise
Cadence Design Systems, Inc. Price, Consensus and EPS Surprise | Cadence Design Systems, Inc. Quote
Guidance
For third-quarter 2018, Cadence expects total revenues under ASC 606 in the range of $510-$520 million and non-GAAP earnings in the range of 40-42 cents per share. Non-GAAP operating margin is anticipated to be in the range of 27-28%.
The Zacks Consensus Estimates for revenues and earnings are pegged at $518.1 million and 41 cents, respectively.
The company raised 2018 outlook expecting the second-quarter momentum to continue. Revenues are now projected in the range of $2.07-$2.09 billion, up from $2.055-$2.085 billion anticipated earlier. Non-GAAP earnings are now guided in the range of $1.64-$1.70 per share, raised from the previous band of $1.57-$1.65.
The Zacks Consensus Estimate for revenues and earnings are pegged at $2.08 billion and $1.63 per share, respectively.
Further, non-GAAP operating margin for 2018 is expected at 28%. Previously, the company has predicted non-GAAP operating margin to lie in 27-28% range. Similarly, operating cash flow is anticipatedin the range of $535-$565 million, instead of earlier prediction of $510-$550 million.
Bottom Line
Management is optimistic regarding its System Design Enablement strategy. With Cadence Cloud, the company aims to offeracomprehensive cloud portfolio enabling the development of semiconductors and other electronic systems.
Furthermore, Cadence recently collaborated with Microsoft’s Azure, Amazon Web Services (“AWS”) and Google Cloud platform to enable smooth design development of electronic systems and semiconductors.
We believe the innovative cloud-ready solutions broaden the company’s portfolio in an effective manner. The strong collaborations and smart product launches augur well for Cadence in the longer haul.
Zacks Rank and Key Pick
Cadence carries a Zacks Rank #3 (Hold).
A better-ranked stock in the broader technology sector isMellanox , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term earnings growth rate for Mellanoxis pegged at 15%.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>