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Cadence (CDNS) Q2 Earnings & Revenues Top Estimates, Up Y/Y

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Cadence Design Systems (CDNS - Free Report) reported second-quarter 2024 non-GAAP earnings per share (EPS) of $1.28, which beat the Zacks Consensus Estimate by 4.1%. The bottom-line number improved 4.9% year over year and exceeded the management’s guided range of $1.20-$1.24.

Revenues of $1.061 billion topped the Zacks Consensus Estimate by 1.2% and increased 8.6% on a year-over-year basis. It surpassed the management’s guided range of $1.03-$1.05 billion.

The top line was driven by broad-based customer demand. CDNS ended the quarter with a backlog of $6 billion and current remaining performance obligations of $3.1 billion.

The company highlighted that the design activity continued to be robust 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 its silicon amid increasing chip complexity. 

Customers have been significantly increasing their R&D budgets in AI-driven automation. This bodes well for the Cadence.AI portfolio. CDNS remains focused on embedding cutting-edge AI capabilities across its SDA, EDA and digital biology offerings.

Expanding collaborations along with solid demand for new hardware systems are other tailwinds.

As a result, management upgraded the revenue guidance for 2024. However, it narrowed guided ranges for earnings per share, operating margin and cash flow for 2024. 

Revenues for 2024 are now projected to be in the range of $4.6-$4.66 billion compared with the previous guidance of $4.56-$4.62 billion. It includes $40 million in revenues (at the midpoint) from the acquisition of BETA CAE completed in June 2024. 

The Zacks Consensus Estimate is currently pegged at $4.58 billion, which indicates growth of 12% from the year-ago levels.

Non-GAAP EPS for 2024 is expected to be between $5.77 and $5.97 compared with the previous guidance of $5.88 and $5.98. The Zacks Consensus Estimate is pegged at $5.93, which implies a rise of 15.2% from the prior-year actuals.

However, the non-GAAP operating margin for 2024 is now forecasted to be in the range of 41.7% to 43.3% compared with 42-43% guided earlier.  

Also, operating cash flow is now expected to be between $1 billion and $1.2 billion. Earlier, operating cash flow was projected to be between $1.35 billion and $1.45 billion. CDNS expects to utilize 50% of the free cash flow to repurchase its shares in 2024.

For the third quarter of 2024, revenues are estimated to be in the $1.165-$1.195 billion band. The company reported sales of $1.023 billion in the year-ago quarter. The Zacks Consensus Estimate is currently pegged at $1.21 billion.

Non-GAAP EPS for the third quarter is anticipated to be between $1.39 and $1.49. CDNS reported an EPS of $1.26 in the year-ago quarter. The Zacks Consensus Estimate is currently pegged at $1.63.

Non-GAAP operating margin is estimated to be between 40.7% and 42.3% for the third quarter.

The stock is trading down 1.1% in the pre-market trading on Jul 23. Shares of Cadence have gained 19% compared with the sub-industry’s growth of 24.2% in the past year.

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Quarterly Performance

Product & Maintenance revenues (90.6% of total revenues) of $961 million rose 4.1% year over year. Services revenues (9.4%) of $100 million increased 85.2% year over year. Our estimate for revenues from the Product & Maintenance and Service segments was $969.5 million and $74.9 million, respectively.

Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 49%, 12%, 19%, 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 21%, 27%, 25%, 13% and 14% of total revenues, respectively.

The System Design & Analysis business benefited from AI-driven design optimization platforms and higher demand for its 3D-IC platform, with revenues from this segment increasing 20% year over year. 

The Digital IC business benefited from the rapid adoption of digital full flow solutions. CDNS’ digital solutions were adopted by 40 additional customers in the past year.

The Custom IC business benefited owing to the rapid adoption of the Virtuoso Studio solution.

The IP business benefited owing to increasing AI use cases especially, HPC and heterogeneous integration, with revenues from the segment up 25% year over year. CDNS recently unveiled Cadence Janus Network-on-Chip (NoC) to boost electronic system connectivity. 

Janus NoC is designed to manage simultaneous high-speed communications within and between silicon components with minimal latency. This allows customers to achieve their power, performance and area (PPA) targets faster with relatively lower risk.

Total non-GAAP costs and expenses increased 11.6% year over year to $635 million.

Non-GAAP gross margin contracted 290 basis points (bps) to 88.5%. Non-GAAP operating margin contracted 170 bps on a year-over-year basis to 40.1%.

Balance Sheet & Cash Flow

As of Jun 30, 2024, CDNS had cash and cash equivalents of $1.059 billion compared with $1.012 billion as of Mar 31.

Long-term debt was $998.9 million as of Jun 30, 2024, compared with $299.8 million as of Mar 31.

Cadence generated an operating cash flow of 156 million in the reported quarter compared with the prior quarter’s $253 million. Free cash flow was $127 million compared with $204 million in the previous quarter.

The company repurchased its shares worth $125 million in the second quarter.

Zacks Rank & Key Picks

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

Some better-ranked stocks worth consideration in the broader technology space are Badger Meter (BMI - Free Report) , Generac Holdings (GNRC - Free Report) and Onto Innovation (ONTO - Free Report) . All these stocks carry a Zacks Rank #2 (Buy) each, at present. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The Zacks Consensus Estimate for Badger Meter’s 2024 EPS is pegged at $3.94, unchanged in the past seven days. BMI’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 12.9%. The long-term earnings growth rate is 16.7%. Shares of BMI have risen 23.2% in the past year.

The Zacks Consensus Estimate for Onto Innovation’s 2024 EPS is pegged at $5.05, unchanged in the past 30 days. ONTO’s earnings beat the Zacks Consensus Estimate in three of the last four quarters while missing the remaining one, with the average surprise being 2.6%. Shares of ONTO have gained 94.6% in the past year.

The Zacks Consensus Estimate for Generac’s 2024 EPS is pegged at $6.16. GNRC’s earnings beat the Zacks Consensus Estimate in two of the last four quarters while missing in the remaining quarters, with the average surprise being 5.8%. The long-term earnings growth rate is 12%. Shares of GNRC have risen 9% in the past year.

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