Cadence (NASDAQ:CDNS) Reports Q4 In Line With Expectations But Stock Drops
Semiconductor design software provider Cadence Design Systems (NASDAQ:CDNS) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 18.8% year on year to $1.07 billion. On the other hand, next quarter's revenue guidance of $1 billion was less impressive, coming in 8.5% below analysts' estimates. It made a non-GAAP profit of $1.38 per share, improving from its profit of $0.96 per share in the same quarter last year.
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Cadence (CDNS) Q4 FY2023 Highlights:
Revenue: $1.07 billion vs analyst estimates of $1.06 billion (small beat)
EPS (non-GAAP): $1.38 vs analyst estimates of $1.33 (3.7% beat)
Revenue Guidance for Q1 2024 is $1 billion at the midpoint, below analyst estimates of $1.09 billion
Management's revenue guidance for the upcoming financial year 2024 is $4.58 billion at the midpoint, in line with analyst expectations and implying 12% growth (vs 14.8% in FY2023)
Free Cash Flow of $238.4 million, down 36.2% from the previous quarter
Gross Margin (GAAP): 90.3%, in line with the same quarter last year
Market Capitalization: $84.87 billion
“Cadence delivered exceptional results for 2023, propelled by our innovative solutions and the successful execution of our Intelligent System Design strategy,” said Anirudh Devgan, president and chief executive officer.
With the name chosen to reflect the idea of a repeating pattern or rhythm in electronic design, Cadence Design Systems (NASDAQ:CDNS) offers a software-as-a-service platform for semiconductor engineering and design.
Design Software
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Sales Growth
As you can see below, Cadence's revenue growth has been mediocre over the last two years, growing from $773 million in Q4 FY2021 to $1.07 billion this quarter.
This quarter, Cadence's quarterly revenue was once again up 18.8% year on year. We can see that Cadence's revenue increased by $45.53 million in Q4, which was roughly the same growth rate observed in Q3 2023. This steady quarter-on-quarter growth shows that the company can maintain its paced growth trajectory.
Next quarter, Cadence is guiding for a 2.1% year-on-year revenue decline to $1 billion, a further deceleration from the 13.3% year-on-year decrease it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $4.58 billion at the midpoint, growing 12% year on year compared to the 14.8% increase in FY2023.
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Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Cadence's free cash flow came in at $238.4 million in Q4, up 5.1% year on year.
Cadence has generated $1.25 billion in free cash flow over the last 12 months, an eye-popping 30.7% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.
Key Takeaways from Cadence's Q4 Results
It was good to see Cadence slightly improve its gross margin and beat analysts' revenue and EPS estimates this quarter. On the other hand, its year-end backlog of $6 billion fell short of Wall Street's projections ($6.4 billion). Looking ahead, the company's full-year 2024 revenue and EPS guidance were in line with expectations, but next quarter's forecast was soft. Overall, the results could have been better. The company is down 5.2% on the results and currently trades at $291 per share.
Cadence may not have had the best quarter, but does that create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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