Cadence Design Systems CDNS reported fourth-quarter 2024 non-GAAP earnings per share (EPS) of $1.88, which beat the Zacks Consensus Estimate by 3.3%. The bottom line increased 36.2% year over year, exceeding management’s guided range of $1.78-$1.84.

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Revenues of $1.356 billion topped the Zacks Consensus Estimate by 0.6% and increased 26.9% year over year. The figure was within management’s guided range of $1.325-$1.365 billion. The top line was driven by broad-based demand for its solutions amid robust design activity and solid execution.

CDNS ended the quarter with a backlog of $6.8 billion and current-remaining performance obligations of $3.4 billion.

The company highlighted that the AI super cycle was now entering a new phase. The focus on Generative AI, Agentic AI and Physical AI is leading to an exponential increase in computing demand and semiconductor innovation. CDNS has been collaborating with several tech giants including Qualcomm and NVIDIA on their next-generation AI designs across both training and inferencing.

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

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

Amid rapid AI proliferation, the Cadence.ai portfolio is gaining momentum along with AI-powered products such as Cadence Cerebrus, SimAI and Allegro X AI, and JedAI data platform. Cadence Cerebrus had more than 300 tapeouts in the fourth quarter. CDNS is eyeing new AI markets like Life Sciences through its OpenEye drug discovery software. The company is also expanding partnerships with its foundry partners like Taiwian Semiconductor Manufacturing, Intel and Arm Holdings.

Management initiated its outlook for 2025. Revenues for 2025 are now estimated to be in the range of $5.14-$5.22 billion compared with $4.64 billion (up 13.5%) reported in 2024. The Zacks Consensus Estimate is currently pegged at $5.21 billion, which indicates growth of 12.5% from the year-ago levels.

Non-GAAP EPS for 2025 is expected to be between $6.65 and $6.75 compared with $5.97 (up 15.9%) reported in 2024. The Zacks Consensus Estimate is pegged at $6.80 per share, which implies a rise of 15% from the prior-year actuals.

The stock is down 4% in the pre-market trading today. Shares of Cadence have lost 1.9% against the Computer - Software industry’s growth of 8.6% in the past year.

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CDNS Business Segment Performance

Product & Maintenance revenues (91.4% of total revenues) of $1.239 billion rose 26.2% year over year. Services revenues (8.6%) of $117 million increased 34.5% year over year. Our estimate for revenues from Product & Maintenance and Service segments was $1.229 billion and $117 million, respectively. Geographically, the Americas, China, Other Asia, Europe, the Middle East and Africa, and Japan contributed 49%, 13%, 17%, 15% and 6%, respectively, to total revenues in the reported quarter.

Product-wise, Core EDA, Intellectual Property and Systems Design & Analysis accounted for 68%, 13% and 19% of total revenues, respectively.

The System Design & Analysis business benefited from the multi-physics portfolio along with AI-driven design-optimization platforms, with revenues from this segment increasing 40% in 2024. Acquisition of BETA CAE and higher demand for its Allegro X design and Integrity 3D-IC platform were other tailwinds.

CDNS’ core EDA business (constitutes Custom IC, Digital IC and Functional Verification businesses) witnessed 15% year-over-year revenue growth in the fourth quarter. Demand for the new hardware systems was the primary catalyst along with the rapid adoption of digital full-flow solutions, and Virtuoso Studio and Spectre offerings. In 2024, hardware solutions added more than 30 customers and almost 200 repeat customers, especially among AI and hyperscale clients. The digital portfolio had 36 new full-flow customers in 2024, including 17 in the fourth quarter. Virtuoso Studio now has more than 450 customers. 

The IP business benefited owing to increasing demand for solutions (PCIe, UCIe, DDR and HBM) in AI, HPC and chiplet use cases, with revenues from the segment up 28% year over year in the fourth quarter. The acquisition of Secure-IC will expand its IP portfolio including interface, memory, AI and DSP solutions.

CDNS’ Margin Performance

Total non-GAAP costs and expenses increased 20.2% year over year to $733 million.

Non-GAAP gross margin contracted 620 basis points (bps) to 85.5%. Non-GAAP operating margin expanded 310 bps on a year-over-year basis to 46%.

CDNS’ Balance Sheet & Cash Flow

As of Dec. 31, 2024, CDNS had cash and cash equivalents of $2.644 billion compared with $2.786 billion as of Sept. 30.

Long-term debt was $2.476 billion as of Dec. 31, 2024, compared with $2.475 million as of Sept 30. CDNS issued $2.5 billion of senior notes at a weighted average interest rate of 4.44% in September 2024.

Cadence generated an operating cash flow of $441 million in the reported quarter compared with the prior quarter’s $410 million. Free cash flow was $404 million compared with $383 million in the previous quarter.

The company repurchased its shares worth $150 million in the fourth quarter and $550 million for 2024.

CDNS Provides Q1 & FY25 Outlook

Non-GAAP operating margin for 2025 is forecasted to be in the range of 43.25% to 44.25% compared with 42.5% reported in 2024.  Also, operating cash flow is expected to be between $1.6 billion and $1.7 billion. CDNS expects to utilize 50% of the free cash flow to repurchase its shares in 2025.

For the first quarter of 2025, revenues are estimated to be in the $1.23-$1.25 billion band. The company reported sales of $1.01 billion in the year-ago quarter. The Zacks Consensus Estimate is currently pegged at $1.22 billion.

Non-GAAP EPS for the first quarter is anticipated to be between $1.46 and $1.52. CDNS reported an EPS of $1.17 in the year-ago quarter. The Zacks Consensus Estimate is currently pegged at $1.56 per share.

Non-GAAP operating margin is estimated to be between 40% and 41% for the first quarter.

CDNS’ Zacks Rank

Cadence currently carries a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here. 

Recent Performance of Other Software Companies 

Microsoft Corporation MSFT reported second-quarter fiscal 2025 earnings of $3.23 per share, which beat the Zacks Consensus Estimate by 3.86% and increased 10.2% on a year-over-year basis. Revenues of $69.63 billion increased 12.3% year over year and beat the Zacks Consensus Estimate by 1.35%. At constant currency (cc), revenues grew 12% year over year.

PTC Inc PTC reported first-quarter fiscal 2025 non-GAAP EPS of $1.10, beating the Zacks Consensus Estimate by 20.9%. The company reported non-GAAP EPS of $1.11 in the prior-year quarter.  Revenues came in at $565 million, up 3% year over year (up 2% at cc). The top line beat the consensus estimate by 2.4%.  Despite a challenging sales environment, the top line came close to the upper limit of PTC’s guidance, backed by strong demand for its product lifecycle management or PLM and computer-aided design or CAD solutions.

Commvault Systems CVLT reported third-quarter fiscal 2025 results wherein adjusted earnings of 94 cents per share beat the Zacks Consensus Estimate of 87 cents per share. The figure compares with earnings of 78 cents per share a year ago. Quarterly revenues jumped 21% year over year to $ $262.6 million. Subscription revenues were $158.3 million, up 39% year over year.

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