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Cadence (CDNS) Q4 Earnings Miss Estimates, Revenues Rise Y/Y

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Cadence Design Systems, Inc. (CDNS - Free Report) reported fourth-quarter 2019 non-GAAP earnings of 54 cents per share, which increased 3.8% from the year-ago quarter.

The Zacks Consensus Estimate for fourth-quarter earnings was pegged at 55 cents per share.

Revenues of $599.6 million outpaced the Zacks Consensus Estimate by 0.5% and improved 5.3% on a year-over-year basis.

The year-over-year outperformance can be attributed to robust adoption of the company’s digital & signoff, and IP solutions along with an expanded customer base. Moreover, better-than-expected demand for Tensilica products and robust growth in audio, imaging, computer vision, and machine learning drove revenues.
 

Quarter Details    

Product & Maintenance revenues (94.2% of total revenues) of $565 million advanced 5.7% year over year.

However, Services revenues (5.8%) of $34.6 million declined 2.4% from the year-ago quarter.

Geographically, Americas, China, Other Asia, Europe, Middle East and Africa (EMEA), and Japan contributed 46%, 9%, 20%, 18% and 7%, respectively, to total revenues.

Product-wise, Functional Verification, Digital IC & Signoff, Custom IC Design & Simulation, Systems Interconnect & Analysis, and IP comprised 24%, 29%, 25%, 9% and 13% of total revenues, respectively.

Verification Suite, the company’s flagship emulation platform Palladium Z1, witnessed 19 new customer wins while Protium X1 witnessed 11 wins. Moreover, a global marquee customer expanded its hardware footprint with additional Z1 capacity as well as X1, which was one the largest hardware orders ever for Cadence.  

Meanwhile, non-GAAP gross margin increased 110 basis points (bps) year over year to 89.7%.

Total non-GAAP costs and expenses increased 6% year over year to $415.1 million.

Non-GAAP operating margin was 30.8%, down 50 bps from the year-ago quarter.

Balance Sheet & Cash Flow

As of Dec 28, 2019, the company had cash and cash equivalents of approximately $705.2 million compared with $655.2 million as Sep 30, 2019.

The company generated operating cash flow of $159.3 million in the reported quarter compared with prior-quarter figure of $138.5 million.

The company repurchased shares worth approximately $75 million in the fourth quarter.

Guidance

For first-quarter 2020, Cadence expects total revenues in the range of $610 million to $620 million. The Zacks Consensus Estimate for revenues is pegged at $609.8 million, indicating year-over-year growth of 5.7%

Management guided non-GAAP earnings in the range of 53-55 cents per share. The Zacks Consensus Estimate for earnings is pegged at 55 cents, indicating growth of 1.9% from the year-ago quarter.

Non-GAAP operating margin for first-quarter 2020 is expected at around 30%.

For 2020, revenues are projected in the range of $2.545-$2.585 billion. The Zacks Consensus Estimate for 2020 revenues is currently pegged at $2.49 billion, indicating year-over-year growth of 6.7%.

Non-GAAP earnings are expected in the range of $2.40-$2.50 per share. Notably, the current Zacks Consensus Estimate for earnings is pegged at $2.34 per share, indicating growth of 6.9% from the year-ago-quarter.

Further, non-GAAP operating margin for 2020 is expected in the range of 32-33%. Operating cash flow is anticipated in the range of $775-$825 million.

Notably, the guidance for 2020 takes into account the export limitations for certain Chinese customers, two recent acquisitions and the effect of the coronavirus outbreak in China.

Zacks Rank & Other Stocks to Consider

Currently, Cadence sports a Zacks Rank #1 (Strong Buy).

CEVA, Inc. (CEVA - Free Report) , Alteryx, Inc. (AYX - Free Report) and Garmin Ltd. (GRMN - Free Report) are some other top-ranked stocks in the same industry. All the three stocks sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for CEVA, Alteryx and Garmin is currently pegged at 20%, 39.9% and 7.4% respectively.

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