Core Viewpoint - Cadence Design Systems (CDNS) reported strong fourth-quarter 2024 results, with revenues of $1.36 billion, a 26.9% increase, and non-GAAP EPS of $1.88, up 36.2% year-over-year, exceeding management's guidance [1][2] Group 1: Financial Performance - For 2024, CDNS achieved revenue and EPS growth of 13.5% and 15.9% respectively [6] - The company provided soft guidance for 2025, projecting revenue growth of 11-12% and non-GAAP EPS growth of 12% [6] - Estimated revenues for 2025 are between $5.14 billion and $5.22 billion, with non-GAAP EPS expected to be between $6.65 and $6.75 [7] Group 2: Market Trends and Opportunities - Broad-based demand for solutions is driven by trends such as 5G, hyperscale computing, and autonomous driving, which are influencing design activity in semiconductor and systems companies [2] - The AI super cycle is entering a new phase, with increased focus on Generative AI, Agentic AI, and Physical AI, leading to higher computing demand and semiconductor innovation [3] - CDNS is collaborating with tech giants like Qualcomm and NVIDIA on next-generation AI designs and is exploring new markets like Life Sciences through its OpenEye drug discovery software [3] Group 3: Product Development and Customer Engagement - The verification business is gaining traction due to rising complexity in system verification, with the launch of advanced systems like Palladium Z3 Emulation and Protium X3 FPGA Prototyping [4] - In 2024, hardware solutions attracted over 30 new customers and nearly 200 repeat customers, particularly from AI and hyperscale clients [4] Group 4: Competitive Landscape and Challenges - CDNS faces competition from companies like Keysight Technologies, Synopsys, and ANSYS, with Synopsys' pending acquisition of ANSYS likely intensifying competition in the EDA space [9] - Analysts have revised earnings estimates downward, indicating bearish sentiment towards the stock [12] - The stock has declined 10.2% year-to-date, underperforming its industry and the broader technology sector [11]

Revenue and Financial Performance - Total revenue for fiscal 2024 was $4,641 million, a 13.5% increase from $4,090 million in fiscal 2023[51]. - Product and maintenance revenue accounted for 91% of total revenue in fiscal 2024, while services revenue represented 9%[51]. - Services revenue increased to $428 million in fiscal 2024, representing 9% of total revenue, compared to 6% in both fiscal 2023 and 2022[51]. - Contracted but unsatisfied performance obligations were approximately $6.8 billion as of December 31, 2024, with 54% expected to be recognized as revenue over the next 12 months[53][54]. - A substantial portion of software licenses yield revenue recognized over time, making rapid revenue increases challenging[94]. - Revenue related to hardware and IP products is recognized upon delivery, making it difficult to predict due to project commencement and customer spending constraints[95][96]. - The company has recorded net losses in the past and may do so in the future, with cash flows from operating activities expected to fluctuate[93]. - The company faces risks from customer payment delays and defaults, which could adversely affect revenue, operating expenses, and cash flow[146]. Research and Development - The company plans to continue significant investments in research and development to innovate and enhance current products[56]. - Significant investments in research and development are anticipated to continue, focusing on innovation and product enhancement[56]. - The company invests in research and development to maintain competitive position, but such investments may affect margins and operating results[145]. Market Position and Competition - The company competes with major players like Synopsys, Siemens EDA, and ANSYS, as well as emerging competitors in China[67]. - The company actively participates in industry groups to support third-party design tools and standards, enhancing its market position[50]. - The industries in which the company operates are highly competitive, requiring continuous innovation and adaptation to technological developments[147]. - Customer consolidation in the semiconductor industry may increase dependency on fewer customers, potentially affecting bargaining power and demand[141]. Employee and Organizational Structure - As of December 31, 2024, the company employed approximately 12,700 employees, with a majority in engineering roles[71]. - The company offers competitive compensation and benefits programs, linking employee compensation to business performance[72]. - Competition for highly skilled employees has intensified, particularly in high technology centers, impacting the ability to attract and retain talent[134]. - The management team is crucial for competitiveness, and failure to attract and retain qualified employees may harm operational results[90]. Risks and Challenges - The company is subject to various risks, including global economic uncertainty and competition in the semiconductor and electronics industries[90]. - Cyberattacks pose a risk to the confidentiality and integrity of the company's information systems, potentially harming business and financial condition[90]. - The company is subject to governmental export and import controls, which may impair competitiveness and affect the ability to sell products internationally[105]. - The company faces significant risks from IP infringement claims, which could lead to costly litigation and impact product shipments[117]. - The company is currently subject to tax audits and litigation in various jurisdictions, which could result in additional tax liabilities[154]. - Legal proceedings and regulatory inquiries could adversely affect the company's financial condition and operations[157]. - The company may incur significant costs related to cybersecurity incidents, which may not be fully covered by insurance[129]. Product and Service Offerings - The Cadence Cloud portfolio continues to expand with additional cloud-based and SaaS products, enhancing service offerings[48]. - The Core EDA product category addresses a wide variety of semiconductor chips, including analog, digital, and mixed-signal, across industries such as automotive and consumer electronics[28]. - The SD&A product category provides a comprehensive multiphysics platform for designing and simulating electronics and entire systems, addressing key areas like electromagnetic and thermal analysis[34]. - The Allegro System Design Platform includes PCB design and implementation, with advancements in AI to enhance engineer productivity and reduce cycle times[35]. - The Millennium™ Multiphysics Enterprise Platform is the first AI-enabled digital twin designed to overcome traditional CFD speed and accuracy limitations[38]. - The Cadence Integrity™ 3D-IC Platform allows for system-level design and analysis of stacked die systems, integrating with existing design environments[39]. - The company’s solutions support cloud access through the Cadence OnCloud Platform, addressing growing computational needs for customers[21]. Economic and Regulatory Environment - The semiconductor and electronics industries are cyclical, characterized by rapid technological change and price erosion, which may affect bookings and revenue[100]. - Uncertainty in the global economy and geopolitical conflicts could lead to decreased demand for products and services, impacting future revenue[102]. - The Inflation Reduction Act of 2022 introduced a minimum tax of 15% on large corporations, which may adversely affect the company's operating results[155]. - The company anticipates ongoing challenges in complying with evolving laws and regulations, which could have negative consequences on operations and financial condition[109]. - Regulatory scrutiny surrounding AI technologies is increasing, with potential fines of up to 7% of worldwide annual turnover for non-compliance with new laws like the EU AI Act[122]. Debt and Financial Obligations - The company has significant outstanding indebtedness, including $500 million in 4.200% Senior Notes due 2027, $1.0 billion in 4.300% Senior Notes due 2029, and $1.0 billion in 4.700% Senior Notes due 2034[171]. - The company may incur substantial additional debt to finance working capital, capital expenditures, investments, or acquisitions, which could intensify risks related to its level of debt[171]. - A breach of covenants under the debt agreements could result in an event of default, allowing creditors to accelerate related debt[175]. - The company’s ability to make scheduled payments on its debt obligations depends on its financial condition and operating performance, which are subject to various external factors[177]. - The company’s variable rate indebtedness exposes it to interest rate risk, with each quarter point change in interest rate potentially resulting in a $4.4 million change in annual interest expense[182]. - The company’s debt agreements impose significant operating and financial restrictions, potentially limiting its ability to engage in beneficial actions[174]. - The company’s credit ratings could affect its future borrowing costs and access to capital, with potential downgrades impacting financing terms[183].

Core Insights - Cadence Design Systems (CDNS) reported fourth-quarter 2024 non-GAAP earnings per share (EPS) of $1.88, exceeding the Zacks Consensus Estimate by 3.3% and reflecting a year-over-year increase of 36.2% [1] - Revenues for the quarter reached $1.356 billion, surpassing the Zacks Consensus Estimate by 0.6% and showing a year-over-year growth of 26.9% [2] - The company highlighted a new phase in the AI super cycle, emphasizing the demand for Generative AI, Agentic AI, and Physical AI, which is driving semiconductor innovation [3] Financial Performance - CDNS ended the quarter with a backlog of $6.8 billion and current remaining performance obligations of $3.4 billion [2] - Management's outlook for 2025 estimates revenues between $5.14 billion and $5.22 billion, a 13.5% increase from the $4.64 billion reported in 2024 [5] - Non-GAAP EPS for 2025 is projected to be between $6.65 and $6.75, reflecting a 15.9% increase from the $5.97 reported in 2024 [6] Revenue Breakdown - Product & Maintenance revenues, which constitute 91.4% of total revenues, amounted to $1.239 billion, a year-over-year increase of 26.2% [7] - Services revenues, making up 8.6% of total revenues, reached $117 million, up 34.5% year over year [7] - Geographically, the Americas contributed 49%, China 13%, Other Asia 17%, Europe, the Middle East and Africa 15%, and Japan 6% to total revenues [9] Business Segment Performance - The System Design & Analysis business saw a revenue increase of 40% in 2024, driven by AI-driven design-optimization platforms and the acquisition of BETA CAE [10] - The core EDA business experienced a 15% year-over-year revenue growth, supported by demand for new hardware systems and digital full-flow solutions [11] - The IP business reported a 28% year-over-year revenue increase, benefiting from rising demand in AI, HPC, and chiplet use cases [12] Margin and Cash Flow - Total non-GAAP costs and expenses rose 20.2% year over year to $733 million, while non-GAAP gross margin contracted by 620 basis points to 85.5% [13] - Non-GAAP operating margin expanded by 310 basis points year over year to 46% [13] - Operating cash flow for the quarter was $441 million, with free cash flow at $404 million [15] Future Outlook - For the first quarter of 2025, revenues are estimated to be between $1.23 billion and $1.25 billion, compared to $1.01 billion in the year-ago quarter [17] - Non-GAAP EPS for the first quarter is anticipated to be between $1.46 and $1.52, up from $1.17 in the prior-year quarter [17] - Non-GAAP operating margin is projected to be between 40% and 41% for the first quarter [18]

Group 1 - The analyst downgraded Cadence Design Systems, Inc. (NASDAQ: CDNS) to "Sell" in December 2024, and since then, the stock price has underperformed [1] - Potential export restrictions to China were highlighted as a key risk in previous analyses of Cadence [1] - The analyst emphasizes a fundamental, bottom-up, long-term investment style, focusing on companies with strong growth potential and reasonable valuations [1] Group 2 - The analyst targets a 15% annual return in their portfolio, typically constructing it with 15-20 stocks to ensure diversification and risk management [1] - The investment strategy includes macro-driven sector weights and disciplined trading and valuations as key factors [1]

Shares of Cadence Design Systems Inc CDNS were trading lower on Wednesday, despite the company reporting upbeat fourth-quarter results.The results came in amid an exciting earnings season. Here are some key analyst takeaways.Piper Sandler On Cadence Design SystemsAnalyst Clarke Jeffries reaffirmed an Overweight rating, while raising the price target from $318 to $328.Cadence Design Systems reported fourth-quarter revenues at $1.356 billion, representing 27% year-on-year growth and beating the midpoint of gu ...

Financial Data and Key Metrics Changes - Cadence reported a revenue growth of 13.5% for the year, with a total revenue of $4.641 billion for 2024 and $1.356 billion for Q4 [6][27] - The non-GAAP operating margin was 42.5% for the year and 46% for Q4, while the GAAP operating margin was 29.1% for the year and 33.7% for Q4 [7][27] - GAAP EPS was $3.85 for the year and $1.24 for Q4, while non-GAAP EPS was $5.97 for the year and $1.88 for Q4 [27][28] - The cash balance at year-end was $2.644 billion, with $2.500 billion in outstanding debt [28] Business Line Data and Key Metrics Changes - The System Design & Analysis business achieved over 40% growth in 2024 [15] - The IP business grew 28% year-over-year in Q4, driven by strong demand for AI HPC protocols [18] - The core EDA business, which includes digital, custom analog, and verification portfolios, grew 15% year-over-year in Q4 [21] Market Data and Key Metrics Changes - The company exited 2024 with a record backlog of $6.8 billion and a record current Remaining Performance Obligations (cRPO) of $3.4 billion [8][27] - The growth outside of China was in the high teens, while China revenue declined by over $100 million from 2023 to 2024 [39][40] Company Strategy and Development Direction - Cadence is focusing on AI-driven chip-to-systems portfolio, with significant investments in AI integration across products [8][10] - The company is expanding partnerships with major players like NVIDIA, Qualcomm, and TSMC to enhance its AI capabilities and product offerings [10][14] - The strategy includes exploring new markets such as life sciences with the OpenEye drug discovery software [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong backlog and pipeline, but noted a cautious outlook for China due to macroeconomic uncertainties [41][42] - The guidance for 2025 anticipates revenue in the range of $5.14 billion to $5.22 billion, with a non-GAAP EPS outlook of $6.65 to $6.75 [30][31] - Management highlighted the importance of balancing revenue growth with profitability, aiming for a combined metric exceeding 55% [109] Other Important Information - The company announced plans to acquire Secure-IC to enhance its IP portfolio [20] - Cadence was recognized as one of the World's Best Workplaces in 2024, ranking number 9 [130] Q&A Session All Questions and Answers Question: Can you help reconcile the confidence in the backlog with the guidance for 2025? - Management acknowledged the strong backlog but indicated that the first half of 2025 might see some backlog burn, with expectations for a stronger second half [38] Question: Was there any change in the RPO balance from export restrictions in China? - Management confirmed no material impact on RPO from China but noted the challenges in predicting future performance in the region [49] Question: Why is recurring revenue growth decelerating despite strong market conditions? - Management attributed the deceleration to the decline in China and emphasized that the mix of revenue is shifting towards more upfront revenue growth [56][57] Question: Is chiplet design strength limited to China? - Management clarified that chiplet design is a global trend, not confined to any specific region, and is gaining traction across various verticals [68] Question: What is the long-term outlook for core EDA growth? - Management aims for double-digit growth in core EDA but acknowledged recent challenges, particularly from China, impacting overall growth [76][77]

For the quarter ended December 2024, Cadence Design Systems (CDNS) reported revenue of $1.36 billion, up 26.9% over the same period last year. EPS came in at $1.88, compared to $1.38 in the year-ago quarter.The reported revenue represents a surprise of +0.60% over the Zacks Consensus Estimate of $1.35 billion. With the consensus EPS estimate being $1.82, the EPS surprise was +3.30%.While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and how they compare to Wal ...

Cadence Design Systems (CDNS) came out with quarterly earnings of $1.88 per share, beating the Zacks Consensus Estimate of $1.82 per share. This compares to earnings of $1.38 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 3.30%. A quarter ago, it was expected that this maker of hardware and software products for validating chip designs would post earnings of $1.44 per share when it actually produced earnings of $1.64, deliver ...

Core Insights - Cadence Design Systems reported strong fourth-quarter results for 2024, surpassing revenue and earnings expectations, but provided cautious guidance for 2025 [1][2][10] Financial Performance - Adjusted earnings per share (EPS) for Q4 2024 were $1.88, exceeding the forecast of $1.82, while revenue reached $1.36 billion, slightly above the expected $1.35 billion [2][3] - Year-over-year growth was notable, with adjusted EPS increasing by 36% from $1.38 in Q4 2023 and revenue rising by 27% from $1.07 billion [3][6] - The adjusted operating margin improved to 46% from 42.9% the previous year, and the GAAP operating margin increased to 33.7% from 31.5% [3][7] Business Overview - Cadence operates in the electronic system design sector, focusing on software solutions for integrated circuits and systems on a chip, with a strategy centered on Intelligent System Design [4] - The company serves various industries, including automotive, aerospace, and healthcare, emphasizing technological innovation and a recurring revenue model [4][5] Market Dynamics - The demand for Cadence's products is driven by complex design needs and the necessity for efficient electronic solutions, supported by a diverse customer base and significant investment in R&D [5] - The electronic design automation (EDA) and intellectual property (IP) segments showed strong performance, with the IP business growing by 28% year-over-year [6] Strategic Developments - Cadence's backlog reached a record $6.8 billion, indicating a robust revenue outlook [7] - The company is forming strategic partnerships with industry leaders like Nvidia and Arm Holdings, enhancing its capabilities in AI and system design [9] Geographic Insights - Revenue distribution favored the Americas, while challenges in China were noted due to geopolitical tensions and regulatory issues [8] Future Outlook - For fiscal year 2025, management projects revenue between $5.14 billion and $5.22 billion, with non-GAAP EPS expected between $6.65 and $6.75, slightly below analyst estimates [10][11] - Continued expansion into high-growth markets like AI and advancements in key technologies are expected to support Cadence's growth trajectory [11]

Financial Performance - Revenue growth of 13.5% year-over-year, with total revenue reaching $4.641 billion for FY 2024[6] - GAAP EPS for FY 2024 was $3.85, while Non-GAAP EPS was $5.97[6] - FY 2025 revenue guidance is projected between $5.14 billion and $5.22 billion, reflecting a year-over-year growth of 11% to 12%[7] - Operating cash flow for FY 2024 was $1.261 billion, with expectations of $1.6 billion to $1.7 billion for FY 2025[7] - Recurring revenue accounted for 82.6% of total revenue in FY 2024, projected to be around 80% in FY 2025[13] - The GAAP operating income for 2024 is projected to be $1,351 million, an increase from $1,251 million in 2023, representing a growth of 8%[48] - Non-GAAP operating income for 2024 is expected to reach $1,974 million, up from $1,717 million in 2023, reflecting a growth of 15%[48] - The diluted net income per share on a non-GAAP basis for FY 2025 is projected to be between $6.65 - $6.75[67] Margins and Expenses - Non-GAAP operating margin of 42.5% and GAAP operating margin of 29.1% for FY 2024[6] - The company plans to maintain a GAAP operating margin of 30.25% to 31.25% for FY 2025[13] - Non-GAAP gross margin decreased to 85.5% in Q4 2024 from 91.7% in Q4 2023[23] - Total GAAP costs and expenses rose to $899 million in Q4 2024, compared to $732 million in Q4 2023[24] - Non-GAAP total costs and expenses for Q4 2024 were $733 million, compared to $671 million in Q3 2024, indicating a sequential increase of 9.2%[43] - The GAAP gross margin as a percentage of total revenue for Q4 2024 was 83.8%, down from 86.6% in Q3 2024[51] - Non-GAAP gross margin as a percentage of total revenue for Q4 2024 was 85.5%, compared to 88.6% in Q3 2024, indicating a decline of 3.5%[51] - Stock-based compensation expense for Q4 2024 was $107 million, slightly down from $109 million in Q3 2024[43] Cash Flow and Capital Expenditures - Approximately 50% of free cash flow is expected to be used for share repurchases in FY 2025[7] - Free cash flow reached $404 million in Q4 2024, up from $238 million in Q4 2023[29] - The total capital expenditures for FY 2025 are estimated to be around $150 million[13] Revenue Composition - Recurring revenue accounted for 83% of total revenue in Q4 2024, while up-front revenue was 17%[17] - The Americas contributed 49% to total revenue in Q4 2024, showing a significant increase from 44% in Q4 2023[18] - Core EDA revenue represented 68% of total revenue in Q4 2024, down from 75% in Q4 2023[19] Debt and Headcount - Total debt (principal value) was $2.5 billion in Q4 2024, reflecting an increase from $650 million in Q4 2023[31] - The headcount increased to 12,705 in Q4 2024, up from 11,226 in Q4 2023[33] Strategic Initiatives - Cadence anticipates continued investment in AI and operational efficiency to drive future growth despite competitive pressures[36] - The company plans to focus on strategic acquisitions and technology integration to enhance its market position[36] - Cadence's management emphasizes the importance of maintaining strong cash flow and liquidity to support ongoing business operations and strategic initiatives[36] Future Projections - GAAP operating margin for Q4 2023 was 31.5%, with a projected range of 27% - 28% for Q1 2025[56] - Non-GAAP operating margin for Q4 2024 is expected to be 46.0%, compared to 42.9% in Q4 2023[56] - Diluted net income per share on a GAAP basis for Q4 2023 was $1.19, with an estimated range of $0.93 - $0.99 for Q1 2025[62] - Non-GAAP diluted net income per share for Q4 2024 is projected to be $1.88, compared to $1.38 in Q4 2023[62] - GAAP total other income and expense for FY 2023 was $31 million, expected to increase to $45 million in FY 2024[72] - The company anticipates a non-GAAP total other income and expense of $(16) million for FY 2024[72]