Cadence Delivers Strong Q4 FY2023 Results with Record Revenue, but Stock Drops on Soft Revenue Guidance
Cadence Design Systems (NASDAQ:CDNS) has reported its Q4 FY2023 results, meeting analysts’ expectations with a strong revenue increase of 18.8% year on year, reaching $1.07 billion. However, despite this positive performance, the company’s stock price dropped as the revenue guidance for the next quarter fell short of analysts’ estimates at $1 billion, reflecting an 8.5% decrease.
In terms of profitability, Cadence achieved a non-GAAP profit of $1.38 per share for Q4, up from $0.96 per share in the same quarter of the previous year. This marks a significant improvement in the company’s financial performance.
Cadence’s free cash flow for the quarter amounted to $238.4 million, showing a solid year-on-year increase of 5.1%. Over the past 12 months, the company has generated $1.25 billion in free cash flow, which accounts for 30.7% of its revenue. Despite these positive figures, the company’s stock price has experienced a decline of 5.2% and is currently trading at $291 per share.
Over the course of the last two years, Cadence has seen only modest revenue growth, with figures increasing from $773 million in Q4 FY2021 to $1.07 billion in the latest quarter. However, the company has managed to maintain a consistent quarter-on-quarter growth trajectory.
Looking ahead to the next quarter, Cadence expects a year-on-year decline in revenue of 2.1%, amounting to $1 billion. This indicates a deceleration from the 13.3% decrease observed in the same quarter of the previous year. Moreover, the company’s management has forecasted a revenue of $4.58 billion for the financial year 2024, representing a 12% growth year on year.
While Cadence’s gross margin demonstrated slight improvement and exceeded revenue and EPS estimates for the quarter, its year-end backlog of $6 billion did not meet the expectations of Wall Street, which projected a backlog of $6.4 billion. The guidance for full-year 2024, both in terms of revenue and EPS, aligns with expectations. However, the forecast for the next quarter was considered weak. This mixed performance has contributed to the decline in Cadence’s stock price following the announcement of the results.
Analyst comment
Positive news: Cadence Design Systems reported a strong revenue increase of 18.8% YoY, reaching $1.07 billion, and achieved a non-GAAP profit improvement. The company also demonstrated solid free cash flow growth.
Negative news: Despite positive performance, the stock price dropped due to revenue guidance falling short of estimates and a decline in stock price. Year-end backlog also did not meet expectations.
Market prediction: The market may react negatively to the weaker revenue guidance for the next quarter, resulting in a further decline in Cadence’s stock price. However, the overall positive financial performance and growth forecast for the full year may provide some support to the stock in the long term.
