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Cadence (CDNS) Beats Q2 Earnings Estimates, Raises Guidance

Zacks Equity Research
·5 mins read

Cadence Design Systems, Inc. CDNS reported second-quarter 2020 non-GAAP earnings of 66 cents per share, which beat the Zacks Consensus Estimate by 26.9%. Also, the bottom line increased 15.8% year over year.

Revenues of $638.4 million beat the Zacks Consensus Estimate by 7.8% and increased 10% on a year-over-year basis.

The upside was driven by robust adoption of the company’s digital & signoff and IP solutions as well as expanding customer base. Moreover, better-than-expected demand for Tensilica products and the Cadence Verification Suite that includes Xcelium, Palladium, Jasper, and Protium drove revenues.

Increasing popularity of the company's products instill confidence in the stock. Notably, shares of Cadence have surged 54.4% in the year-to-date period compared with the industry’s rally of 22.8%.

Cadence Design Systems, Inc. Price, Consensus and EPS Surprise

Cadence Design Systems, Inc. Price, Consensus and EPS Surprise
Cadence Design Systems, Inc. Price, Consensus and EPS Surprise

Cadence Design Systems, Inc. price-consensus-eps-surprise-chart | Cadence Design Systems, Inc. Quote

Quarter Details

Product & Maintenance revenues (94.2% of total revenues) of $601.4 million increased 9.7% year over year.

Services revenues (5.8%) of $37.1 million increased 14.4% from the year-ago quarter’s reported figure.

Geographically, Americas, China, Other Asia, Europe, Middle East and Africa (EMEA), and Japan contributed 44%, 12%, 19%, 18% and 7%, respectively, to total revenues.

Product-wise, Functional Verification, Digital IC & Signoff, Custom IC Design & Simulation, Systems Interconnect & Analysis, and IP contributed 24%, 28%, 24%, 10% and 14% to total revenues, respectively.

Cadence Digital Full Flow saw robust traction in the second quarter, with 10 new full flow wins. Cadence also expanded its partnership with Micron MU during the quarter to ramp up the development of the latter’s next-gen products. Moreover, the Cadence Verification Suite witnessed solid adoption in the mobile, networking and medical end markets.

Meanwhile, total non-GAAP costs and expenses increased 7.5% year over year to $414.6 million.

Non-GAAP operating margin was 35%, which expanded 100 basis points (bps) on a year-over-year basis.

Balance Sheet & Cash Flow

As of Jun 27, 2020, the company had cash and cash equivalents of approximately $1.19 billion compared with $946.3 million as on Mar 28.

Moreover, the company’s long-term debt came in at $346.4 million as of Jun 27, 2020, compared with $346.2 million as of Mar 28.

The company generated operating cash flow of $345.1 million in the reported quarter compared with prior-quarter’s figure of $217.7 million.

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

Q3 Guidance

For third-quarter 2020, Cadence expects total revenues in the range of $630-$650 million (midpoint of $640 million). The Zacks Consensus Estimate for revenues is pegged at $647.3 million, which indicates growth of 11.7% from the year-ago quarter’s figure.

Management guided non-GAAP earnings in the range of 59-61 cents per share. The Zacks Consensus Estimate for second-quarter earnings is pegged at 63 cents, which suggests growth of 16.7% from the last-year quarter’s reported figure.

Non-GAAP operating margin for third-quarter 2020 is expected at 32%.

Raises 2020 View

Despite taking into account the export limitations for certain Chinese customers as well uncertainties stemming from the COVID-19 pandemic, Cadence raised its guidance for 2020 due to strong continued demand for the company’s innovative solutions.

Notably, revenues are now projected in the range of $2.585-$2.615 billion compared with the previous range of $2.545-$2.585 billion. The Zacks Consensus Estimate for 2020 revenues is currently pegged at $2.56 billion, which indicates growth of 9.6% from the year-ago quarter’s figure.

Non-GAAP earnings are now expected in the range of $2.50-$2.56 per share compared with the previous range of $2.40-$2.50. The Zacks Consensus Estimate for 2020 earnings is pegged at $2.46 per share, which suggests growth of 11.8% from the last-year quarter’s reported level.

Further, non-GAAP operating margin for 2020 is now expected to be 33%. Earlier, it was expected in the range of 32-33%. Operating cash flow is anticipated in the range of $810-$840 compared with the previous range of $775-$825 million.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader technology sector are Microchip Technology Incorporated MCHP and Dropbox, Inc. DBX, which sport a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Microchip and Dropbox are scheduled to report quarterly results on Aug 4 and 13, respectively.

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