Cadence(CDNS) - 2024 Q4 - Earnings Call Transcript

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]