Cadence Design Systems Inc CDNS posted non-GAAP earnings of $1.06 per share in third-quarter 2022, which topped the Zacks Consensus Estimate by 9.3% and increased 32.5% year over year.
Revenues of $903 million surpassed the Zacks Consensus Estimate by 3.8% and increased 20.2% on a year-over-year basis. The top line benefited from continued strength across all segments driven by higher demand for its products. CDNS ended the quarter with a backlog of $5.5 billion.
Driven by strong third-quarter results, the company raised its outlook for 2022. Revenues for the full year are now projected in the range of $3.53-$3.55 billion compared with the earlier guidance of $3.47-$3.51 billion. The Zacks Consensus Estimate for 2022 revenues is currently pegged at $3.5 billion, which indicates year-over-year growth of 17.1%.
Cadence Design Systems, Inc. Price, Consensus and EPS Surprise
Cadence Design Systems, Inc. price-consensus-eps-surprise-chart | Cadence Design Systems, Inc. Quote
Non-GAAP earnings for 2022 are expected in the range of $4.2-$4.24 per share compared with the earlier guidance of $4.06-$4.12 per share. The Zacks Consensus Estimate for 2022 earnings is pegged at $4.12 per share, which suggests year-over-year growth of 25.2%.
In the past year, the company’s stock has lost 7.4% compared with the industry’s decline of 27.3%.
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Performance in Details
In the third quarter, Product & Maintenance revenues (93.7% of total revenues) of $846 million were up 19.9% year over year. Services revenues (6.3%) of $57 million increased 26.7% from the year-ago quarter’s figure.
Geographically, the Americas, China, Other Asia, Europe, Middle East and Africa (EMEA) and Japan contributed 45%, 17%, 17%, 16% and 5%, respectively, to total revenues in the quarter under review.
Product-wise, Custom IC Design & Simulation, Digital IC Design & Signoff, Functional Verification, IP and Systems Design & Analysis contributed 22%, 29%, 25%, 12% and 12% to total revenues, respectively.
The company’s digital business delivered 22% year-over-year growth in revenues. Digital Full Flow saw robust traction with 13 new customer wins in the third quarter of 2022. The company’s Cadence Cerebrus solution witnessed accelerating momentum and was deployed by several customers, which helped them to improve productivity by approximately 30 times, added the company.
Palladium and Protium (especially Z2 and X2) platforms witnessed continued momentum with many deals wins. The company noted that it won three new clients and 20 repeat orders in the third quarter. Most deal wins came from clients in the hyperscale, AI and high-end mobile customers.
Cadence’s System Design & Analysis Business segment reported 29% year-over-year growth as it expands its presence in Aerospace & Defense and high-tech electronics.
In the reported quarter, Cadence announced the launch of Verisium Artificial Intelligence (AI)-Driven Verification Platform to address complex design workloads and accelerate bug analysis for SoC. The platform also features a wide array of applications like Verisium SemanticDiff and Verisium AutoTriage, which help to rank different codes and build machine learning models, respectively.
The company also announced the delivery of the Cadence Joint Enterprise Data and AI Platform, which leverages machine learning and big data to help organizations improve verification flow. It helps to collaborate AI innovations across Cadence Cerebrus, Optimality and Verisium.
Cadence completed the acquisition of OpenEye Scientific Software to expand its market reach in the pharmaceutical and biotechnology market in the third quarter.
The acquisition is aimed at accelerating Cadence’s Intelligent System Design strategy and expanding its total addressable market. The company wants to expand its reach in the molecular modeling and simulation market as pharmaceutical and biotechnology companies leverage computational software solutions for drug discovery.
In the quarter under review, the company launched Certus Closure Solution to tackle the growing chip-level design size and complexity challenges. The new solution automates and accelerates the design closure cycle and improves by 10 times, per the company report.
For the third quarter ended, the total non-GAAP costs and expenses increased 13.3% year over year to $547 million.
Non-GAAP gross margin contracted 10 basis points (bps) to 91.5%, but the non-GAAP operating margin was up 370 bps on a year-over-year basis to 39.4% in the quarter under review.
Balance Sheet & Cash Flow
As of Oct 1, 2022, the company had cash and cash equivalents of approximately $1.026 billion compared with $1.03 billion as of Jul 2, 2022.
The company’s long-term debt came in at $647.8 million as of Oct 1, 2022, compared with $348 million as of Jul 2, 2022.
The company generated an operating cash flow of $317 million in the reported quarter compared with the prior quarter’s figure of $325 million. The free cash flow in the quarter under review was $273 million compared with $301 million reported in the previous quarter.
The company repurchased shares worth approximately $150 million in the third quarter.
2022 Outlook Raised
For 2022, the non-GAAP operating margin is forecast in the range of 39.7-40.7% compared with the range of 39.25-40.25% guided previously.
For 2022, operating cash flow is projected to be $1.2 to $1.26 billion. Management expects to utilize the free cash flow to repurchase shares worth approximately $1.05 billion.
For fourth-quarter 2022, revenues are projected in the range of $870-$890 million. The Zacks Consensus Estimate for revenues is currently pegged at $867 million, suggesting a year-over-year increase of 12.2%.
Non-GAAP earnings are expected to be 89-93 cents per share. The Zacks Consensus Estimate for earnings is pegged at 90 cents per share, suggesting a year-over-year increase of 9.8%.
Non-GAAP operating margin is projected to be 35% for the fourth quarter. The company expects to repurchase shares for approximately $300 million in the fourth quarter.
Zacks Rank & Stocks to Consider
Cadence currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader technology space are InterDigital IDCC, Pure Storage PSTG and Aspen Technology AZPN. Pure Storage and InterDigital currently sport a Zacks Rank #1 (Strong Buy), whereas Aspen Technology presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks.
The Zacks Consensus Estimate for InterDigital’s 2022 earnings is pegged at $2.45 per share, up 2.5% in the past 60 days. The long-term earnings growth rate is anticipated to be 25%.
InterDigital’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 81.9%. Shares of IDCC have decreased 27.9% in the past year.
The Zacks Consensus Estimate for PSTG 2022 earnings is pegged at $1.18 per share, rising 24.2% in the past 60 days. The long-term earnings growth rate is anticipated to be 35.5%.
Pure Storage’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 171.8%. Shares of PSTG have increased 8.6% in the past year.
The Zacks Consensus Estimate for Aspen Technology’s fiscal 2023 earnings is pegged at $6.77 per share, increasing 0.5% in the past 60 days. The long-term earnings growth rate is anticipated to be 18.2%.
Aspen Technology’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 6.2%. Shares of AZPN have increased 61.3% in the past year
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