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Cadence (CDNS) Beats on Q1 Earnings & Revenues, Ups '19 View

Zacks Equity Research

Cadence Design Systems, Inc. CDNS delivered first-quarter 2019 non-GAAP earnings of 54 cents per share, surpassing the Zacks Consensus Estimate by 4 cents. The figure surged 35% from the year-ago quarter. Management had predicted earnings between 48 cents and 50 cents.

Revenues of $576.7 million outpaced the Zacks Consensus Estimate of $560 million and improved 11.5% on a year-over-year basis. Moreover, the top line fared better than the high end of management’s expectation of $565-$575 million.

Robust adoption of the company’s digital and signoff, IP solutions, and solid order renewal drove earnings outperformance.

Shares of Cadence are up 5.6% in the pre-market. This can primarily be attributed to optimism regarding outlook for the second quarter and fiscal 2019. Notably, Cadence stock has returned 60.2% in past year, substantially outperforming the industry’s rally of 30.1%.



Quarter in Detail

Product & Maintenance revenues (94.2% of total revenues) of $543.5 million beat the Zacks Consensus Estimate of $534 million and surged 13.1% year over year.

Meanwhile, Services revenues (5.8%) of $33.2 million lagged the Zacks Consensus Estimate of $34.7 million and were down 9.5% from the year-ago quarter.

Geographically, Americas, China, Other Asia, Europe, Middle East and Africa (EMEA) and Japan contributed 44%, 10%, 19%, 18% and 9%, respectively to total revenues.

Product-wise, Functional Verification, Digital IC &Signoff, Custom IC Design& Simulation, Systems Interconnect & Analysis, and IP, comprised 24%, 30%, 25%, 9% and 12% of total revenues, respectively.

Cadence Design Systems, Inc. Revenue (Quarterly)

Cadence Design Systems, Inc. Revenue (Quarterly) | Cadence Design Systems, Inc. Quote

Considering Verification Suite, the company’s flagship emulation platform Palladium Z1, witnessed two new customer wins which included SambaNova Systems. The platform garnered 13 repeat orders, including Annapurna Labs, which has been acquired by Amazon AMZN.

Momentum witnessed by Protium S1 prototyping platform and Palladium Cloud was noteworthy.

IP segment also witnessed strong quarter driven by high demand for Tensilica, registering eight new customer additions. In the first quarter, the company rolled out silicon-based LPDDR5 solution with an aim to enhance presence in IP domain. Cadence’s latest 112G long-reach SerDes IP is also witnessing adoption.

Furthermore, management is elated with growing clout of the company’s innovative cloud-ready solutions.

In the reported quarter, Cadence formed an alliance with Green Hills Software, in a bid to explore embedded system security and safety end-market, which is estimated around $3 billion.

Operating Margin Expansion Noteworthy

Non-GAAP gross margin of 89.7% contracted 30 basis points (bps) from the year-ago figure.

In the first quarter, non-GAAP costs and expenses totaled $390.2 million, increasing 4.4% year over year. As a percentage of revenues, the figure contracted approximately 450 bps to 67.7%.

Consequently, non-GAAP operating margin expanded 450 bps to 32.3% in the reported quarter.

Balance Sheet & Cash Flow

The company ended the reported quarter with cash and cash equivalents of approximately $538.9 million compared with the previous-quarter’s figure of $533.3 million. The company noted that at the end of the reported quarter, the United States comprised 16% of cash and cash equivalents.

Cadence’s long-term debt as on Mar 30, 2019, was $345.5 million compared with $345.3 million, as on Dec 29, 2018.

The company generated operating cash flow of $185.4 million in the reported quarter compared with previous quarter’s figure of $131.9 million.

The company repurchased shares worth approximately $81 million in the first 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 Q2 Holds Promise

For second-quarter 2019, Cadence expects total revenues in the range of $575-$585 million, higher than the current Zacks Consensus Estimate of $562.08 million.

Management guided non-GAAP earnings in the range of 52-54 cents per share, above the current Zacks Consensus Estimate of 50 cents.

Elevated 2019 View Raises Optimism

For fiscal 2019, Cadence raised outlook. Revenues are now projected in the range of $2.305-$2.335 billion compared with the previously guided range of $2.270-$2.310 billion. The Zacks Consensus Estimate for 2019 revenues is currently pegged at $2.28 billion.

Non-GAAP earnings are now guided in the range of $2.04-$2.12 per share (mid-point of $2.08) compared with the earlier predicted range of $1.97-$2.07. Notably, the mid-point of the guided range is above the current Zacks Consensus Estimate of $2.05.

Further, non-GAAP operating margin for 2019 is expected at around 31%. Operating cash flow is now anticipated in the range of $665-$705 million, compared with previously predicted range of $640-$690 million.

Conclusion

Cadence is evolving its silicon-based design strategy with an aim to meet complex computing demands of 5G and AI applications. In fact, the company has carved a new System Analysis Group to focus exclusively on system analysis and design.

Increasing digital transformation across aerospace, automotive andmedicaldomains is fueling demand for robust computational software and developer tools, which enhances growth prospects of the company.

Cadence recently unveiled CloudBurst Platform, which offers access to the company’s design tools in hybrid cloud infrastructure. It was recently utilized by Barefoot Networks.

Moreover, Cadence’s association with Northrop Grumman NOC, which is utilizing the company’s IP and EDA solutions, is noteworthy. We believe the deal will aid the company enhance presence in aerospace and defense end market.

Furthermore, the company recently rolled out Clarity 3D Solver, marking its foray into the 3D modeling software market. The fact that Clarity 3D Solver can be integrated with Cadence’s implementation platforms to enhance performance provides leverage to its 3D modeling goals. Notably, the company noted that the product has been approved by Teradyne TER and HiSilicon.

Cadence is anticipated to benefit considerably from latest customer wins and product roll outs in strategic growth markets, consequently, favoring its top line.

Zacks Rank

Currently, Cadence carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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