Cadence (NASDAQ:CDNS) Posts Better-Than-Expected Sales In Q3 But Quarterly Guidance Underwhelms
Stock Story
Published Oct 24, 2023 10:19AM ET
Updated Oct 24, 2023 10:31AM ET
Cadence (NASDAQ:CDNS) Posts Better-Than-Expected Sales In Q3 But Quarterly Guidance Underwhelms
Semiconductor design software provider Cadence Design Systems (NASDAQ:CDNS) reported Q3 FY2023 results topping analysts' expectations, with revenue up 13.4% year on year to $1.02 billion. Revenue guidance for the full year also exceeded analysts' estimates but next quarter's guidance of $1.06 billion was less impressive, coming in 1.22% below expectations. Turning to EPS, Cadence made a GAAP profit of $0.93 per share, improving from its profit of $0.68 per share in the same quarter last year.
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Cadence (CDNS) Q3 FY2023 Highlights:
- Revenue: $1.02 billion vs analyst estimates of $1 billion (1.82% beat)
- EPS (non-GAAP): $1.26 vs analyst estimates of $1.22 (3.56% beat)
- Revenue Guidance for Q4 2023 is $1.06 billion at the midpoint, below analyst estimates of $1.07 billion
- Free Cash Flow of $373.9 million, similar to the previous quarter
- Gross Margin (GAAP): 89.3%, down from 90.3% in the same quarter last year
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 mediocre over the last two years, growing from $750.9 million in Q3 FY2021 to $1.02 billion this quarter.
This quarter, Cadence's quarterly revenue was once again up 13.4% year on year. On top of that, its revenue increased $46.5 million quarter on quarter, a strong improvement from the $45.1 million decrease in Q2 2023. This is a sign of acceleration of growth and very nice to see indeed.
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Next quarter's guidance suggests that Cadence is expecting revenue to grow 17.7% year on year to $1.06 billion, in line with the 16.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 12.7% over the next 12 months before the earnings results announcement.
Cash Is KingIf you've followed StockStory for a while, you know that 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's free cash flow came in at $373.9 million in Q3, up 37% year on year.
Cadence has generated $1.24 billion in free cash flow over the last 12 months, an eye-popping 31.4% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.
Key Takeaways from Cadence's Q3 Results With a market capitalization of $65.2 billion, a $962 million cash balance, and positive free cash flow over the last 12 months, we're confident that Cadence has the resources needed to pursue a high-growth business strategy.
It was encouraging to see Cadence narrowly top analysts' revenue expectations this quarter. Its growth was driven by continued momentum in AI, high-performance computing, and autonomous driving. Those generational themes are driving many design activities, leading to increased demand for Cadence's products. With this comes high expectations, however, and its revenue guidance for next quarter underwhelmed. Overall, this was a mediocre quarter for Cadence. The stock is flat after reporting and currently trades at $238.41 per share.
The author has no position in any of the stocks mentioned in this report.
Written By: Stock Story
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