Shares of Cadence Design Systems (CDNS +0.84%) declined 4% on Tuesday, following the electronics design specialist's release on the prior afternoon of its fourth-quarter 2023 report.
This drop is likely mainly attributable to first-quarter 2024 guidance coming in lighter than Wall Street had expected for both revenue and adjusted earnings. Shares might have also gotten a headwind from the broader market, as all the major indexes were down due to the government's release of the consumer price index (CPI) for January, which showed that inflation was hotter than economists had projected.
On the positive side, the company's fourth-quarter results beat Wall Street's consensus estimates for both the top and bottom lines.
Cadence Design Systems' key quarterly numbers
| Metric | Q4 2022 | Q4 2023 | Change |
|---|---|---|---|
| Revenue | $899.9 million | $1.07 billion | 19% |
| GAAP operating income | $211.1 million | $336.5 million | 59% |
| GAAP net income | $240.4 million | $323.9 million | 35% |
| Adjusted net income | $261.8 million | $376.2 million | 44% |
| GAAP earnings per share (EPS) | $0.88 | $1.19 | 35% |
| Adjusted EPS | $0.96 | $1.38 | 44% |
Data source: Cadence Design Systems. GAAP = generally accepted accounting principles.
Wall Street was looking for Q4 adjusted EPS of $1.33 on revenue of $1.06 billion. So, the company modestly beat both of these expectations. Moreover, its top line landed near the high end of its guidance of $1.039 billion to $1.079 billion, and its bottom line exceeded its outlook of $1.30 to $1.36.
For full-year 2023, Cadence Design generated cash of $1.35 billion from running its operations, up 9% from 2022. It ended the year with cash and cash equivalents of $1.01 billion -- up 14% year over year -- and long-term debt of $299.8 million.
NASDAQ: CDNS
Key Data Points
What happened with Cadence Design in the quarter?
- Recurring revenue accounted for 87% of total revenue, CFO John Wall said in his commentary.
- Revenue mix by product category was 22% custom integrated circuit (IC) design and simulation, 29% digital IC design and sign-off, 24% functional verification (including emulation and prototyping hardware), 13% intellectual property (IP), and 12% system design and analysis. All categories were within 1 percentage point of their result in the year-ago period.
- The company introduced VoltusInsightAI, a generative artificial intelligence (AI) product for power analysis. In 2023, its expanding AI offerings led to an almost tenfold year-over-year increase in the number of customers using its generative AI solutions.
- Year-end backlog was a record $6.0 billion, up from $5.8 billion at the end of 2022, which was up considerably from $4.4 billion at the end of 2021, according to Wall's commentary.
What the CEO had to say
Here's what CEO Anirudh Devgan had to say in the earnings release:
Cadence delivered exceptional results for 2023, propelled by our innovative solutions and the successful execution of our Intelligent System Design strategy. I'm thrilled about the opportunities ahead of us, particularly in AI and 3D-IC [three-dimensional integrated circuit]. And I look forward to continuing to drive our broad-based business momentum through our technology leadership.
3D-IC is a "die-stacking technology used in semiconductor packaging that offers new levels of efficiency, power, performance, and form-factor advantages to the semiconductor industry," according to Cadence.
Guidance
| Period/Metric | Guidance | Change Implied By Guidance |
|---|---|---|
| Q1 2024 revenue | $990 million to $1.01 billion | (3%) to (1%) |
| Q1 2024 adjusted EPS | $1.10 to $1.14 | (15%) to (12%) |
| Full-year 2024 revenue | $4.55 billion to $4.61 billion | 11% to 13% |
| Full-year 2024 adjusted EPS | $5.87 to $5.97 | 14% to 16% |
Data source: Cadence Design Systems.
Q1 2024: Going into the release, Wall Street was modeling for Q1 revenue and adjusted EPS of $1.08 billion and $1.37, respectively. So, Cadence's outlook missed both estimates.
Full-year 2024: Going into the release, Wall Street was modeling for full-year revenue and adjusted EPS of $4.59 billion and $5.88, respectively. So, the company's top-line guidance, at the midpoint ($4.58 billion), was just a bit lighter than analysts had been anticipating, while its bottom-line outlook, at the midpoint ($5.92), surpassed the consensus estimate.
Long-term growth prospects remain robust
In short, Cadence turned in a good quarter. While its Q1 guidance is somewhat disappointing, long-term investors shouldn't put much weight on results over just one or two quarters. Quarterly results can fluctuate for all kinds of temporary reasons. The focus should be on results over longer periods, such as annual ones.
Cadence Design's long-term growth prospects remain robust, thanks to what CEO Devgan calls "generational trends." These include the same growth markets that have been driving many semiconductor stocks higher: artificial intelligence, high-performance computing (HPC), and autonomous driving.
