Cadence (CDNS) Beats On Q4 Earnings & Revenues, Guides Strong

Cadence Design Systems, Inc. (NASDAQ:CDNS) delivered robust fourth-quarter 2018 results, wherein both the top and bottom line outpaced the respective Zacks Consensus Estimate. The figures also were higher than management’s respective guided ranges.

Cadence delivered non-GAAP earnings of 52 cents per share for the fourth quarter, surpassing the Zacks Consensus Estimate by 4 cents. Management had predicted earnings between 46 cents and 48 cents. The figure surged 33.3% from the year-ago figure of 39 cents.

Under ASC 606, the company reported revenues of $569.8 million comfortably beating the Zacks Consensus Estimate of $551 million. Moreover, the top line was higher than the high end of management’s expectation of $545-$555 million. The figure advanced 13.6% on a year-over-year basis.

Robust adoption of the company’s digital and signoff, custom and analog, IP solutions, and an ever expanding customer base and delivery of hardware systems drove year-over-year growth.

Shares of Cadence are up 8.9% in the after-hours trading. This can primarily be attributed to robust fourth-quarter results and strong outlook. Notably, Cadence stock has returned 34.1% in past one year, substantially outperforming the industry’s rally of 18.3%.

Quarter in Detail

Under ASC 606, Product & Maintenance revenues came in at approximately $534.4 million and accounted for almost 93.8% of total revenues. The figure was well ahead of Zacks Consensus Estimate of $515 million.

Under ASC 606, Services revenues of $35.4 million contributed 6.2% to total revenues, lagging the Zacks Consensus Estimate of $36.5 million.

Geographically, Americas, Asia, Europe, Middle East and Africa (EMEA) and Japan contributed 44%, 31%, 17% and 8%, respectively to the total revenues under the new accounting standard.

The company reported non-GAAP operating margin of 31% during the quarter under review.

Product-wise, Functional Verification, Digital IC & signoff, Custom IC design, Systems Interconnect & Analysis and IP, comprised 25%, 28%, 25%, 9% and 13% of the total revenues, respectively per ASC 606 standard.

IP segment witnessed strong quarter driven by robust adoption of the company’s PCIe and DDR products.

The company enhanced Tensilica solution with DNA 100 Processor, a deep neural-network based accelerator. The accelerator will improve efficiency and performance for emerging applications in drones, Intenet of Things (IoT), automotive sensor fusion, surveillance, among others.

During the reported quarter, the company also expanded alliance with Samsung (KS:005930) via strong adoption of its digital, custom and verification products. It also expanded long-term partnership with Analog Devices (NASDAQ:ADI) for the development of mixed signal solutions for IoT, automotive, medical and industrial applications, including the adoption of several of new digital and verification products.

Traction witnessed by Xcelium Parallel Simulator and Palladium Z1 drove revenues in System Design and Verification solutions. Traction witnessed by Palladium Z1 on the back of strong demand for growing hardware capacity was notable.

Management is also elated on the order strength in Palladium Cloud solution which offers cloud-based emulation capacity as per the customers’ demand.

In the Digital and Signoff space, the company announced its latest DDR5 test chip. Cadence taped-out greater than 80 7-nanometer (nm) designs in the quarter by leveraging Innovus. Management noted that around 50 customers have selected Innovus.

The company remains optimistic about its ongoing collaboration with Taiwan Semiconductor Manufacturing Company. Notably, Cadence garnered four partner of the year awards at TSM’s Open Innovation Platform, comprising 5 nm design architecture collaboration.

Furthermore, Cadence collaborated with Microsoft’s Azure, Amazon’s Amazon (NASDAQ:AMZN) Web Services (“AWS”) and Google (NASDAQ:GOOGL) Cloud platform to enable smooth design development of electronic systems and semiconductors. Management is elated with the sturdy pipeline of the company’s innovative cloud-ready solutions.

With Cadence Cloud, the company aims to offer a comprehensive cloud portfolio enabling the development of semiconductors and other electronic systems.

Balance Sheet & Cash Flow

The company ended the reported quarter with cash and cash equivalents of approximately $533.3 million compared with the previous quarter’s figure of $550 million. Cadence’s long-term debt as on Dec 29, 2018, was $345.3 million compared with $345.1 million, as on Sep 29, 2018.

The company generated operating cash flow of almost $132 million in the quarter compared with previous quarter’s reported figure of $110 million.

The company repurchased shares worth approximately $100 million in the fourth quarter.

Guidance

For first-quarter 2019, Cadence expects total revenues under ASC 606 in the range of $565-$575 million and non-GAAP earnings in the range of 48-50 cents per share.

The Zacks Consensus Estimates for revenues and earnings are pegged at $547.5 million and 46 cents, respectively.

The company provided 2019 outlook. Revenues are now projected in the range of $2.270-$2.310 billion. Non-GAAP earnings are now guided in the range of $1.97-$2.07 per share.

The Zacks Consensus Estimate for revenues and earnings are pegged at $2.24 billion and $1.95 per share, respectively.

Further, non-GAAP operating margin for 2019 is expected at 30-31%. Operating cash flow is anticipated in the range of $640-$690 million.

Zacks Rank and Stocks to Consider

Cadence currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Symantec Corporation (NASDAQ:SYMC) , salesforce.com, inc. (NYSE:CRM) and Fortinet, Inc. (NASDAQ:FTNT) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Symantec, salesforce and Fortinet have a long-term earnings growth rate of 7.9%, 24.2% and 16.8%, respectively.

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