What happened

Shares of Cadence Design Systems (NASDAQ:CDNS) surged on Tuesday after the provider of design solutions for integrated circuits and electronic devices handily beat analyst estimates when it reported its third-quarter results. Both revenue and profit soared, sending the stock up about 15.1% by 3:15 p.m. EDT.

So what

Cadence reported third-quarter revenue of $532.5 million, up 9.7% year over year and about $16 million above the average analyst estimate. Product and maintenance revenue rose 9.7% to $495.0 million, while services revenue also jumped 9.7% to $37.5 million.

A rising stock chart.

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Non-GAAP earnings per share came in at $0.49, up from $0.35 in the prior-year period and $0.08 higher than analysts were expecting. Earnings were driven higher by revenue growth and a significantly lower tax rate.

Cadence CEO Lip-Bu Tan commented on the quarter: 

Broad-based strength across our product lines enabled Cadence to achieve outstanding operating results for the third quarter. We also continued to innovate and launch new products, including the industry's first silicon-proven, 7-nanometer long-reach 112G SerDes IP and the Tensilica DNA 100 Processor IP targeted at deep neural-network applications.

Now what

Cadence expects fourth-quarter revenue between $545 million and $555 million, along with non-GAAP EPS between $0.46 and $0.48. For the full year, revenue is expected between $2.113 billion and $2.123 billion, and non-GAAP EPS is expected between $1.80 and $1.82.

"We expect strong demand and cash flow to continue into the fourth quarter, and as a result we are raising our outlook for fiscal 2018 and increasing stock repurchases to $75 million for the fourth quarter," said CFO John Wall.

Shares of Cadence have been volatile this year, down slightly prior to the third-quarter report. The stock is now up for the year, although a lofty valuation may make further gains unlikely. The stock now trades for 26 times the midpoint of the company's full-year non-GAAP earnings guidance, and 40 times GAAP earnings guidance.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.