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Cadence (CDNS) Earnings & Revenues Top Q3 Estimates, Up Y/Y

Zacks Equity Research

Cadence Design Systems, Inc. CDNS reported third-quarter 2019 non-GAAP earnings of 54 cents per share, which surpassed the Zacks Consensus Estimate of 51 cents and surged 10.2% from the year-ago quarter. Management had envisioned earnings between 50-52 cents per share.

On a GAAP basis, earnings per share during the quarter came in at 36 cents compared with 35 cents reported in the year-ago quarter.

Revenues of $579.6 million outpaced the Zacks Consensus Estimate of $575 million and improved 9% on a year-over-year basis. Moreover, the top line came within management’s expectation of $570 million to $580 million.

The outperformance can be attributed to robust adoption of the company’s digital and signoff, IP solutions, and solid order renewal drove. Moreover, better-expected demand for Tensilica products and robust growth in audio, imaging, computer vision, and machine learning drove revenues.

Notably, Cadence stock has returned 42.5% in past year, outperforming the industry’s rally of 21.1%.

 

Quarter in Detail

Product & Maintenance revenues (94.6% of total revenues) of $548.1 million beat the Zacks Consensus Estimate of $543 million and advanced 10.7% year over year.

Meanwhile, Services revenues (5.4%) of $31.5 million marginally missed the Zacks Consensus Estimate of $31.7 million. However, the figure was down 15.9% from the year-ago quarter.

Geographically, Americas, China, Other Asia, Europe, Middle East and Africa (EMEA) and Japan contributed 44%, 10%, 21%, 18% and 7%, respectively, to total revenues.

Product-wise, Functional Verification, Digital IC & Signoff, Custom IC Design & Simulation, Systems Interconnect & Analysis, and IP, comprised 20%, 30%, 26%, 9% and 15% of total revenues, respectively.

Considering Verification Suite, the company’s flagship emulation platform Palladium Z1, witnessed eight new customer wins and eight repeat orders.

Management is optimistic about Protium X1, loaded with robust debug capabilities, aimed at enabling software developers to design advanced 5G and AI chips. The expansion of Cadence Verification Suite with the latest prototyping platform is expected to provide the company a competitive edge against Synopsys in the Electronic Design Automation (EDA) market.

In fact, chip-making giant NVIDIA is implementing Protium X1, which is a noteworthy win.

During the quarter under review, revenues from IP witnessed growth of more than 20%. Furthermore, management is elated with growing clout of the company’s innovative cloud-ready solutions.

Non-GAAP operating margin during the reported quarter remained flat year over year and came in at 32%.

Balance Sheet & Cash Flow

The company ended the reported quarter with cash and cash equivalents of approximately $655.2 million compared with the previous-quarter figure of $633.4 million.

Cadence’s long-term debt at the quarter’s end was $345.8 million compared with $345.7 million in the previous quarter.

The company generated operating cash flow of $139 million in the reported quarter compared with prior-quarter figure of $246 million.

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

Guidance

For fourth-quarter 2019, Cadence expects total revenues in the range of $590 million to $600 million. The Zacks Consensus Estimate for revenues is pegged at $594.9 million.

Management guided non-GAAP earnings in the range of 52-54 cents per share. The Zacks Consensus Estimate for earnings is pegged at 53 cents.

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

For fiscal 2019, Cadence raised outlook. Revenues are now projected in the range of $2.327-$2.337 billion compared with the previously guided range of $2.315-$2.335 billion. The Zacks Consensus Estimate for 2019 revenues is currently pegged at $2.33 billion.

Non-GAAP earnings are expected in the range of $2.18-$2.20 per share compared with the previously predicted range of $2.11-$2.17. Notably, the current Zacks Consensus Estimate for earnings is pegged at $2.15 per share.

Further, non-GAAP operating margin for 2019 is now expected in the range of 31.5-32% compared with the previous guidance of 31-32%. Operating cash flow is now anticipated in the range of $700-$740 million, compared with previously predicted range of $680-$720 million.

Zacks Rank & Key Pick

Currently, Cadence carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Alphabet Inc. GOOG, Cirrus Logic, Inc. CRUS and Taiwan Semiconductor Manufacturing Company Ltd. TSM. Each of the stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Alphabet, Cirrus Logic and Taiwan Semiconductor is currently pegged at 16.6%, 15% and 6.98%, respectively.

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