Cadence (CDNS) Q4 Earnings & Revenues Top Estimates, Up Y/Y
Cadence Design Systems CDNS posted fourth-quarter 2023 non-GAAP earnings of $1.38 per share, which beat the Zacks Consensus Estimate by 3% and increased 43.8% year over year.
Revenues of $1.069 billion surpassed the Zacks Consensus Estimate by 0.3% and rose 18.8% on a year-over-year basis. The top line benefited from higher customer demand amid robust design activity and strong operational execution. CDNS ended the quarter with a backlog of $6 billion and current remaining performance obligations of $3.2 billion.
For 2023, the company delivered 15% growth in revenues to $4.09 billion while earnings were up 20% to $5.15 per share.
Management provided full-year guidance for 2024. The company highlighted that the design activity continued to be robust owing to transformative generational trends such hyperscale computing, 5G and autonomous driving, bolstered by proliferation of AI. Management also noted that momentum in 3D-IC and chiplet designs boded well. CDNS has also expanded its well-established partnerships with strategic partners like NVIDIA, Arm and Intel.
Cadence Design Systems, Inc. Price, Consensus and EPS Surprise
Cadence Design Systems, Inc. price-consensus-eps-surprise-chart | Cadence Design Systems, Inc. Quote
Revenues for 2024 are now projected in the range of $4.55-$4.61 billion. The Zacks Consensus Estimate is currently pegged at $4.55 billion, which indicates growth of 11.4% from the year-ago levels.
Non-GAAP earnings per share (EPS) for 2024 are expected to be between $5.87 and $5.97. The Zacks Consensus Estimate is pegged at $5.81, which suggests a rise of 13.7% from the prior-year actuals.
Non-GAAP operating margin for 2024 is forecast in the range of 42-43%. Management envisions operating cash flow to be between $1.35 billion and $1.45 billion. CDNS expects to utilize 50% of the free cash flow to repurchase shares in 2024.
For first-quarter 2024, revenues are estimated in the $990 million-$1.01 billion band. The company reported sales of $1.022 billion in the year-ago quarter.
Non-GAAP EPS for first-quarter 2024 are anticipated to be between $1.10 and $1.14. CDNS reported EPS of $1.29 in the year-ago quarter.
Non-GAAP operating margin is estimated to be between 36.5% and 37.5% for the first quarter.
The stock is down 7.9% in the pre-market trading on Feb 13. Shares of Cadence have gained 54% compared with the sub-industry’s growth of 49.5% in the past year.
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Performance in Details
In the fourth quarter, Product & Maintenance revenues (91.9% of total revenues) of $982 million rose 16.1% year over year. Services revenues (8.1%) of $87 million increased 61.1% year over year. Our estimate for revenues from the Product & Maintenance and Service segments was $1 billion and $60.4 million, respectively.
Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 44%, 15%, 19%, 16% and 6%, respectively, to total revenues in the quarter under review.
Product-wise, Custom IC Design & Simulation, Digital IC Design & Signoff, Functional Verification, Intellectual Property, and Systems Design & Analysis accounted for 22%, 29%, 24%, 13% and 12% of total revenues, respectively.
The System Design & Analysis business was up 18% year over year in the fourth quarter. It expanded its presence beyond electronic design automation.
The Digital IC business was up 22% year over year in the fourth quarter. CDNS’ digital full flow was adopted by 34 additional customers during the year.
The Functional Verification business increased 11% year over year in the fourth quarter due to rising complexity of system verification and software bring-up. Palladium and Protium (especially Z2 and X2) platforms witnessed continued traction with many deal wins. It added 26 new and over 110 repeat customers during 2023.
Recently, the company also announced a new set of applications designed to enhance the capabilities of its flagship Palladium Z2 Enterprise Emulation System. The applications are domain-specific apps that are tailored to help customers navigate the increasing complexity of system design.
The Custom IC business delivered 16% year-over-year revenue growth in the fourth quarter. CDNS highlighted that its Virtuoso Studio solution is gaining significant traction with over 2000 downloads so far.
The IP business registered 36% year-over-year growth in revenues in the fourth quarter.
For the fourth quarter, total non-GAAP costs and expenses increased 5.4% year over year to $610 million.
Non-GAAP gross margin contracted 60 basis points (bps) to 91.7%. Non-GAAP operating margin expanded 730 bps on a year-over-year basis to 42.9%.
Balance Sheet & Cash Flow
As of Dec 31, 2023, CDNS had cash and cash equivalents of $1.008 billion compared with $961.9 million as of Sep 30, 2023
Long-term debt was $299.8 million as of Dec 31, 2023, compared with $648.8 million as of Sep 30, 2023.
Cadence generated operating cash flow of $272 million in the reported quarter compared with the prior quarter’s $396 million. Free cash flow was $238 million compared with $374 million in the previous quarter.
For 2023, Cadence generated operating cash flow of $1.349 billion compared with the prior year’s $1.242 billion. Free cash flow was $1.247 billion compared with $1.119 billion a year ago.
It repurchased shares worth $125 million in the fourth quarter and $700 million for 2023.
Zacks Rank & Other Key Picks
Cadence currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks worth consideration in the broader technology space are Watts Water Technologies WTS, Manhattan Associates MANH and Microsoft MSFT. While Manhattan Associates currently sports a Zacks Rank #1 (Strong Buy), Watts Water and Microsoft carry a Zacks Rank of 2 each. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Watts Water’s 2024 EPS has improved by 3 cents to $8.35 in the past 60 days. The long-term earnings growth rate is pegged at 16.2%. Shares of WTS have jumped 22.6% in the past year.
The Zacks Consensus Estimate for MANH’s 2024 EPS has increased by 3.6% in the past 60 days to $3.76.
Manhattan Associates’ earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 27.6%. Shares of MANH have surged 68.9% in the past year.
The Zacks Consensus Estimate for Microsoft’s fiscal 2024 earnings is pegged at $11.60 per share, indicating growth of 18.3% from the year-ago levels. Microsoft’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 8.8%. The long-term earnings growth rate is pegged at 16.2%. MSFT has gained 52.6% in the past year.
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