It has been about a month since the last earnings report for Cadence Design Systems (CDNS). Shares have added about 14.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cadence due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Cadence Q1 Earnings & Revenues Rise Y/Y
Cadence Design Systems, Inc. first-quarter 2020 non-GAAP earnings of 60 cents per share, which increased 11.1% year over year.
Revenues of $618 million improved 7.1% on a year-over-year basis.
The upside can be attributed to 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.
Product & Maintenance revenues (94.1% of total revenues) of $581.7 million increased 7% year over year.
Services revenues (5.9%) of $36.3 million increased 9.1% from the year-ago quarter’s reported figure.
Geographically, Americas, China, Other Asia, Europe, Middle East and Africa (EMEA), and Japan contributed 43%, 13%, 18%, 19% and 7%, respectively, to total revenues.
Product-wise, Functional Verification, Digital IC & Signoff, Custom IC Design & Simulation, Systems Interconnect & Analysis, and IP contributed 23%, 29%, 25%, 9% and 14% to total revenues, respectively.
Cadence Verification Suite saw robust traction in the first quarter, with the company’s flagship emulation platform Palladium Z1, witnessing four new client wins and nine expansions while Protium X1 witnessed six new deals and six repeat orders.
The Protium X1’s adoption was driven by increased deployment in Palladium accounts as it shares a common front-end complier with the Palladium Z1.
Meanwhile, total non-GAAP costs and expenses increased 7.3% year over year to $418.8 million.
Non-GAAP operating margin was 32%, which was flat year over year.
Balance Sheet & Cash Flow
As of Mar 28, 2020, the company had cash and cash equivalents of approximately $946.3 million compared with $705.2 million as on Dec 28, 2019.
Moreover, the company’s long-term debt came in at $346.2 million as of Mar 28, 2020, compared with $346 million in the previous quarter.
The company generated operating cash flow of $217.7 million in the reported quarter compared with prior-quarter’s figure of $159.3 million.
The company repurchased shares worth approximately $100 million in the first quarter.
For second-quarter 2020, Cadence expects total revenues in the range of $580-$600 million.
Management guided non-GAAP earnings in the range of 50-54 cents per share.
Cadence reaffirmed its guidance for 2020, amid coronavirus-related headwinds.
Notably, revenues are projected in the range of $2.545-$2.585 billion.
Non-GAAP earnings are expected in the range of $2.40-$2.50 per share.
Notably, the guidance for 2020 takes into account the export limitations for certain Chinese customers as well as two recent acquisitions of AWR and Integrand that is expected to generate additional revenues.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -16.44% due to these changes.
At this time, Cadence has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Cadence has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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