Stock Story -
Semiconductor design software provider Cadence Design Systems (NASDAQ:CDNS) beat analysts' expectations in Q2 CY2024, with revenue up 8.6% year on year to $1.06 billion. On the other hand, next quarter's revenue guidance of $1.18 billion was less impressive, coming in 1.5% below analysts' estimates. It made a non-GAAP profit of $1.28 per share, improving from its profit of $1.22 per share in the same quarter last year.
Is now the time to buy Cadence? Find out by reading the original article on StockStory, it's free.
Cadence (CDNS) Q2 CY2024 Highlights:
- Revenue: $1.06 billion vs analyst estimates of $1.04 billion (1.7% beat)
- EPS (non-GAAP): $1.28 vs analyst estimates of $1.23 (4.3% beat)
- Revenue Guidance for Q3 CY2024 is $1.18 billion at the midpoint, below analyst estimates of $1.20 billion
- The company lifted its revenue guidance for the full year from $4.59 billion to $4.63 billion at the midpoint, a 0.9% increase
- Gross Margin (GAAP): 86.9%, down from 90.1% in the same quarter last year
- Free Cash Flow of $126.8 million, down 37.7% from the previous quarter
- Billings: $1.07 billion at quarter end, up 13.9% year on year
- Backlog: $6.0 billion
- Current Remaining Performance Obligations ("cRPO"): $3.1 billion
- Market Capitalization: $76.75 billion
With the name chosen to reflect the idea of a repeating pattern or rhythm in electronic design, Cadence Design Systems (NASDAQ:CDNS) offers a software-as-a-service platform for semiconductor engineering and design.
Design SoftwareThe demand for rich, interactive 2D, 3D, VR and AR experiences is growing, and while the ubiquitous metaverse might still be more of a buzzword than a real thing, what is real is the demand for the tools to create these experiences, whether they are games, 3D tours or interactive movies.
Sales GrowthAs you can see below, Cadence's revenue growth has been unremarkable over the last three years, growing from $728.3 million in Q2 2021 to $1.06 billion this quarter.
Cadence's quarterly revenue was only up 8.6% year on year, which might disappoint some shareholders. However, its revenue increased $51.58 million quarter on quarter, a strong improvement from the $59.52 million decrease in Q1 CY2024. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Cadence is expecting revenue to grow 15.3% year on year to $1.18 billion, improving on the 13.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 20.9% over the next 12 months before the earnings results announcement.
Cash Is King
If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Cadence has shown robust cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that enable it to invest in new products and services rather than sales and marketing. The company's free cash flow margin averaged 22.7% over the last year, quite impressive for a software business.
Cadence's free cash flow clocked in at $126.8 million in Q2, equivalent to a 12% margin. The company's cash profitability regressed as it was 28.4 percentage points lower than in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, leading to optical swings. Long-term trends are more important.
Over the next year, analysts predict Cadence's cash conversion will improve. Their consensus estimates imply its free cash flow margin of 22.7% for the last 12 months will increase to 30.4%, giving it more money to invest.
Key Takeaways from Cadence's Q2 Results It was good to see Cadence beat analysts' revenue, billings, and EPS expectations this quarter. On the other hand, its revenue guidance for next quarter missed analysts' expectations. Overall, this was a bad quarter for Cadence. The stock traded down 1.1% to $284.14 immediately after reporting.
