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Cadence (CDNS) Q1 Earnings & Revenues Top Estimates, Up Y/Y

Cadence Design Systems Inc CDNS posted non-GAAP earnings of $1.29 per share in first-quarter 2023, which topped the Zacks Consensus Estimate by 3.2% and increased 10.3% year over year.

Revenues of $1.02 billion surpassed the Zacks Consensus Estimate by 1.6% and increased 13.3% 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 $5.4 billion.

For second-quarter 2023, revenues are projected in the range of $960-$980 million. The Zacks Consensus Estimate for revenues is currently pegged at $1.02 billion, suggesting a year-over-year increase of 18.7%.

Cadence Design Systems, Inc. Price, Consensus and EPS Surprise

Cadence Design Systems, Inc. Price, Consensus and EPS Surprise
Cadence Design Systems, Inc. Price, Consensus and EPS Surprise

Cadence Design Systems, Inc. price-consensus-eps-surprise-chart | Cadence Design Systems, Inc. Quote

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Non-GAAP earnings are expected to be $1.15-$1.19 per share. The Zacks Consensus Estimate for earnings is pegged at $1.24 per share, suggesting a year-over-year increase of 14.8%.

Despite solid first-quarter results, shares of the company were down 5.6% in the pre-market trading on Apr 25 owing to weaker-than-expected second-quarter guidance. Shares of the company have gained 40.6% compared with the sub-industry’s growth of 7.6% in the past year.

Zacks Investment Research
Zacks Investment Research


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Performance in Details

In the first quarter, Product & Maintenance revenues (94.3% of total revenues) of $964 million were up 14% year over year. Services revenues (5.7%) of $58 million increased 3.6% from the year-ago quarter’s figure.

Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa and Japan contributed 44%, 17%, 18%, 15% 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 (IP) and Systems Design & Analysis contributed 20%, 25%, 32%, 11% and 12% to total revenues, respectively.

The company’s Cadence Cerebrus AI-driven solution witnessed accelerating momentum and was deployed by several customers.

The verification business increased 31% year over year due to the rising complexity of system verification and software bring-up.

Palladium and Protium (especially Z2 and X2) platforms witnessed continued momentum with many deals wins. The company won 14 new clients and 30 repeat orders in the first quarter. Most deal wins came from clients in the Aerospace & Defense and automotive segments.

Cadence’s System Design & Analysis Business segment reported 27% year-over-year growth as it expanded its presence beyond electronic design automation.

In the first quarter, Cadence announced the release of 13 new Verification IP (VIP) solutions to help engineers verify their designs per the latest industry standards. The VIPs support multiple application areas and specifications, including hyperscale data centers, automotive, consumer and mobile system-on-chips.

Also, the company announced that its Quantus FS solution had received certification from Samsung Foundry to support SF4, SF3E and SF3 process technologies.

For the first quarter, the total non-GAAP costs and expenses increased 17% year over year to $591 million.

Non-GAAP gross margin contracted 160 basis points (bps) to 89.1%, and the non-GAAP operating margin 190 bps on a year-over-year basis to 42.1%.

Balance Sheet & Cash Flow

As of Mar 31, 2023, the company had cash and cash equivalents of approximately $917 million compared with $882 million as of Dec 31, 2022

The company’s long-term debt came in at $648.3 million as of Mar 31, 2023, compared with $648.1 million as of Dec 31, 2022.

The company generated an operating cash flow of $267 million in the reported quarter compared with the prior quarter’s figure of $264 million. The free cash flow in the quarter under review was $241 million compared with $227 million reported in the previous quarter.

The company repurchased shares worth approximately $125 million in the first quarter.

Q2 and 2023 Guidance

Revenues for 2023 are now projected in the range of $4.03-$4.07 billion. The Zacks Consensus Estimate for 2023 revenues is currently pegged at $4.04 billion, which indicates year-over-year growth of 13.4%. Earlier, the company had projected revenues in the range of $4-$4.06 billion.

Non-GAAP earnings for 2023 are now expected in the range of $4.96-$5.04 per share. The Zacks Consensus Estimate for 2023 earnings is pegged at $4.97 per share, which suggests year-over-year growth of 16.4%. Earlier, the company had projected non-GAAP earnings in the range of $4.9-$5.0 per share.

For 2023, the non-GAAP operating margin is forecasted in the range of 41-42%.

For 2023, operating cash flow is projected to be $1.3 to $1.4 billion. Management expects to utilize 50% of the free cash flow to repurchase shares in 2023.

Non-GAAP operating margin is projected to be 40-41% for the second quarter. The company expects to repurchase shares for approximately $125 million in the second quarter.

Zacks Rank & Other Stocks to Consider

Cadence currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology space are Arista Networks ANET, Asure Software ASUR and Salesforce CRM. Asure Software and Salesforce currently sport a Zacks Rank #1 (Strong Buy), whereas Arista Networks carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Arista Networks’ 2023 earnings has increased 1.2% in the past 60 days to $5.83 per share. The long-term earnings growth rate is anticipated to be 14.2%.

Arista Networks’ earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 14.2%. Shares of ANET have increased 32% in the past year.

The Zacks Consensus Estimate for Asure Software’s 2023 earnings has increased 25% in the past 60 days to 35 cents per share. The long-term earnings growth rate is anticipated to be 25%.

Asure Software’s earnings beat the Zacks Consensus Estimate in all the last four quarters, the average being 445.8%. Shares of ASUR have increased 176.1% in the past year.

The Zacks Consensus Estimate for Salesforce’s 2023 earnings has increased 21.5% in the past 60 days to $7.11 per share. The long-term earnings growth rate is anticipated to be 16.8%.

Salesforce’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average surprise being 15.6%. Shares of the company have increased 15.2% in the past year.

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