Yahoo Finance Why Is Cadence (CDNS) Up 3% Since Last Earnings Report?
A month has gone by since the last earnings report for Cadence Design Systems (CDNS). Shares have added about 3% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.
Cadence Q1 Earnings Top Estimates
Cadence Design Systems reported first-quarter 2024 non-GAAP earnings per share (EPS) of $1.17, which beat the Zacks Consensus Estimate by 3.5%. However, it decreased 9.3% year over year.
Revenues of $1.009 billion missed the Zacks Consensus Estimate by 0.5% and decreased 1.2% on a year-over-year basis. The top line was affected by weakness in Product & Maintenance revenues. CDNS ended the quarter with a backlog of $6 billion and current remaining performance obligations of $3.1 billion.
Management provided full-year guidance for 2024. The company highlighted that the design activity continued to be robust owing to transformative generational trends such as hyperscale computing, 5G and autonomous driving, bolstered by the proliferation of AI. CDNS has also expanded its well-established partnerships with strategic partners like NVIDIA, GlobalFoundries and IBM.
Revenues for 2024 are now projected to be in the range of $4.56-$4.62 billion compared with the previous guidance of $4.55-$4.61 billion.
Non-GAAP EPS for 2024 is expected to be between $5.88 and $5.98 compared with the previous guidance of $5.87 and $5.97.
Non-GAAP operating margin for 2024 is forecasted to be in the range of 42-43%. Management envisions operating cash flow between $1.35 billion and $1.45 billion. The company expects to utilize 50% of the free cash flow to repurchase shares in 2024.
For second-quarter 2024, revenues are estimated to be in the $1.03 million-$1.05 billion band. The company reported sales of $977 million in the year-ago quarter.
Non-GAAP EPS for second-quarter 2024 is anticipated to be between 73 and 77 cents. CDNS reported an EPS of $1.22 in the year-ago quarter.
Non-GAAP operating margin is estimated to be between 38.5% and 39.5% for the second quarter.
Performance in Details
In the first quarter, Product & Maintenance revenues (90.5% of total revenues) of $913 million fell 5.3% year over year. Services revenues (9.5%) of $96 million increased 65.5% year over year. Our estimate for revenues from the Product & Maintenance and Service segments was $945.6 million and $62.7 million, respectively.
Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 46%, 12%, 20%, 17% and 5%, 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%, 25%, 12% and 12% of total revenues, respectively.
The System Design & Analysis business benefited from AI-driven design optimization platforms integrated with its physics-based analysis solutions. The Digital IC business benefited from the rapid adoption of digital full flow. CDNS’ digital solutions were adopted by 50 additional customers during the year.
The Functional Verification business benefited from the rising complexity of system verification and software bring-up. The Verisium platform witnessed accelerating customer adoption. The Custom IC business benefited owing to the rapid adoption of the Virtuoso Studio solution.
The IP business business benefited owing to AI and multichiplet based architectures. In the first quarter, CDNS partnered with Intel Foundry to provide design software and IP solutions at multiple Intel advanced nodes.
In the first quarter, total non-GAAP costs and expenses increased 6.1% year over year to $627 million.
Non-GAAP gross margin remained constant at 89.1%. Non-GAAP operating margin contracted 430 bps on a year-over-year basis to 37.8%.
Balance Sheet & Cash Flow
As of Mar 31, 2024, CDNS had cash and cash equivalents of $1.012 billion compared with $1.008 billion as of Dec 31, 2023.
Long-term debt was $299.8 million as of Mar 31, 2024, compared with $299.7 million as of Dec 31, 2023.
Cadence generated an operating cash flow of $253 million in the reported quarter compared with the prior quarter’s $272 million. Free cash flow was $204 million compared with $238 million in the previous quarter. The company repurchased shares worth $125 million in the first quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -18.82% due to these changes.
VGM Scores
At this time, Cadence has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
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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Cadence Design Systems, Inc. (CDNS) : Free Stock Analysis Report
