Release Date: July 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cadence Design Systems Inc (CDNS, Financial) delivered strong financial results for Q2 2024, exceeding expectations on all key metrics.
- Bookings were stronger than expected, leading to a healthy backlog and underscoring robust demand for their innovative technologies.
- The company updated its revenue guidance for the year to over 13% year-over-year growth.
- Cadence.AI portfolio saw orders more than tripling over the last year, indicating strong market adoption.
- The company expanded its collaboration with several leading foundry partners, including Samsung and TSMC, enhancing its technological capabilities.
Negative Points
- China revenue remains light, with contributions expected to be less than 15% of overall revenue for the year.
- The company faces challenges in building inventory quickly enough to meet the strong demand for its new hardware systems.
- There is a significant one-time investment in raw materials for hardware systems, impacting operating cash flow.
- The acquisition of BETA CAE is expected to be dilutive to non-GAAP EPS by $0.12 for the year.
- The company remains cautious about the timing and delivery of upfront revenue, particularly from its new hardware systems.
Q & A Highlights
Q: With the semiconductor industry growing rapidly, especially driven by AI, how does Cadence plan to capture a larger share of this growth?
A: Anirudh Devgan, CEO: We are pleased with our performance, expecting over 13% revenue growth and a 42.5% operating margin. Our customers, both system and semiconductor companies, continue to spend on R&D, which is a long-term investment. The AI supercycle is broadening beyond data centers to automotive and consumer devices, creating more opportunities for our design software.
Q: Can you provide an update on the revenue outlook for China?
A: John Wall, CFO: We expect China to contribute 13% of overall revenue to hit the midpoint of our guidance. While regional revenue is hard to predict, we have assumed lower China revenue for the year but remain optimistic about its improvement.
Q: What gives you confidence in the implied Q4 ramp-up to 29% growth at the midpoint of guidance?
A: John Wall, CFO: The shape of the revenue curve for the year includes more upfront revenue in the second half, particularly from IP and hardware. We have higher revenue in Q4 versus Q3 due to the timing of shipments and strong demand for our new hardware systems.
Q: How does the acceleration of product roadmaps by top customers like NVIDIA and AMD impact Cadence?
A: Anirudh Devgan, CEO: We see more design activity and customization, especially in AI spreading to other verticals like automotive and consumer devices. This trend benefits our comprehensive EDA and SDA portfolio, positioning us well for future growth.
Q: How does the delivery of third-generation systems translate to additional software consumption in the recurring revenue portfolio?
A: Anirudh Devgan, CEO: The stronger our hardware products get, the more they help our software verification products like Xcelium and Jasper. Customers look for integrated solutions, and the trend in hardware should positively impact our overall portfolio strength.
Q: What has driven the need for a significant raw material purchase for hardware systems?
A: John Wall, CFO: Demand for our new hardware systems is strong, and we are pre-purchasing multi-years of inventory to meet this demand. This is a one-time investment that will benefit us over multiple years.
Q: How is Cadence's AI portfolio performing, and what impact does it have on future revenue?
A: Anirudh Devgan, CEO: Our AI portfolio is gaining traction, with orders tripling year-over-year. AI is becoming essential in design processes, and we are including our AI products in new contracts, which should positively impact future revenue.
Q: What is the impact of the BETA CAE acquisition on Cadence's financials?
A: John Wall, CFO: BETA CAE is expected to contribute $40 million in revenue and $0.12 dilution to non-GAAP EPS for 2024. It completes our system analysis portfolio and strengthens our position in automotive, with operational accretion expected next year.
Q: How is the adoption of AI/ML tools affecting Cadence's services revenue?
A: Anirudh Devgan, CEO: The number of AI/ML use cases is increasing, and customers are using these tools throughout the design process. This trend is maturing workflows and expanding to various design areas, positively impacting our services revenue.
Q: What is the outlook for Cadence's bookings and backlog for the second half of the year?
A: John Wall, CFO: We are pleased with strong bookings in the first half and expect continued demand for our hardware systems. While we don't guide bookings, we aim for a book-to-bill ratio greater than 1, indicating strong future growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
