Cadence's Q3 Earnings & Revenues Top Estimates, Surge Y/Y, Stock Jumps

Core Insights - Cadence Design Systems (CDNS) reported strong third-quarter 2024 results, with non-GAAP earnings per share (EPS) of $1.64, exceeding estimates by 13.9% and showing a year-over-year increase of 30.2 [1][6] - Revenues reached $1.215 billion, surpassing estimates by 2.7% and increasing 18.8% year over year, driven by broad-based strength across the portfolio [2][6] Financial Performance - The company ended the quarter with a backlog of $5.6 billion and current remaining performance obligations of $2.9 billion [2] - Management tightened its revenue outlook for 2024 to a range of $4.61-$4.65 billion, indicating a growth of 13.1% from the previous year [6] - Non-GAAP EPS for 2024 is projected between $5.87 and $5.93, reflecting a rise of 14.2% from the prior year [7] - The non-GAAP operating margin for 2024 is forecasted to be between 42% and 43% [8] Segment Performance - Product & Maintenance revenues, which constitute 90.5% of total revenues, rose 13.9% year over year to $1.1 billion, while Services revenues increased 101.8% to $115 million [11] - The System Design & Analysis business saw a 40% year-over-year revenue increase, benefiting from AI-driven design optimization platforms [13] - The IP business experienced a 50% year-over-year revenue growth due to rising demand for solutions in AI and HPC [15] Market Trends - Design activity remains robust, particularly in datacenter and automotive sectors, driven by trends such as hyperscale computing, 5G, and autonomous driving [3] - Customers are significantly increasing R&D budgets in AI-driven automation, positively impacting the Cadence.AI portfolio, which saw sales nearly triple year over year [5] Cash Flow and Shareholder Returns - Operating cash flow for the quarter was $410 million, with free cash flow at $383 million, and the company repurchased shares worth $150 million [18] - CDNS plans to utilize 50% of its free cash flow for share repurchases in 2024 [8] Stock Performance - The stock rose 5.7% in pre-market trading, with an 8.2% increase over the past year compared to the sub-industry's growth of 34.9% [9]