Q3 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +19% | Strong customer demand for software and IP offerings contributed to higher revenue, supported by continued adoption of AI-driven tools. Compared to the prior year, there was also an uptick in hardware sales, which helped drive overall revenue growth. |
Operating Income (EBIT) | +19% | Revenue expansion and effective cost management helped sustain profitability. Higher gross margins from software/IP solutions offset increased operating expenses, resulting in an EBIT growth rate mirroring the rise in total revenue. |
Net Income | -6% | Despite higher revenue, increased expenses for R&D, acquisitions, and integration diminished net income relative to the prior year. Stock-based compensation expense and amortization of acquired intangibles also contributed to the decline in net income. |
Diluted EPS | -6% | Similar to net income, escalating costs such as stock-based compensation and acquisition-related expenses reduced diluted EPS compared to the previous year. The incremental revenue gains did not fully offset these higher expenditures, leading to a year-over-year EPS decline. |
U.S. Revenue | +38% | Surging demand for hardware, IP, and software solutions drove U.S. revenue significantly above the previous year. This growth accelerated as more customers invested in next-generation design capabilities and advanced technology roadmaps. |
EMEA Revenue | +10% | The region benefited from broad-based software adoption and continued investment in AI-driven design programs. Compared to the prior year, stable recurring revenue streams and a modest uplift in new deals contributed to the overall increase. |
Japan Revenue | +17% | Increased uptake of software offerings and ongoing adoption of emulation and prototyping hardware fueled revenue growth. Customers also continued upgrading design flows from the previous period, maintaining momentum into this year. |
Other Asia Revenue | +7% | Sustained software and IP demand led to moderate revenue growth. Although hardware revenue slowed relative to the prior year’s strong installations, continued expansion in consumer electronics and mobile device sectors supported steady gains in this region. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q3 2024 | $1.165B - $1.195B | no current guidance | no current guidance |
GAAP Operating Margin | Q3 2024 | 27.7% - 29.3% | no current guidance | no current guidance |
Non-GAAP Operating Margin | Q3 2024 | 40.7% - 42.3% | no current guidance | no current guidance |
GAAP EPS | Q3 2024 | $0.83 - $0.93 | no current guidance | no current guidance |
Non-GAAP EPS | Q3 2024 | $1.39 - $1.49 | no current guidance | no current guidance |
Revenue | Q4 2024 | no prior guidance | $1.325B - $1.365B | no prior guidance |
GAAP Operating Margin | Q4 2024 | no prior guidance | 33.2% - 34.2% | no prior guidance |
Non-GAAP Operating Margin | Q4 2024 | no prior guidance | 45.2% - 46.2% | no prior guidance |
GAAP EPS | Q4 2024 | no prior guidance | $1.09 - $1.15 | no prior guidance |
Non-GAAP EPS | Q4 2024 | no prior guidance | $1.78 - $1.84 | no prior guidance |
Revenue | FY 2024 | $4.6B - $4.66B | $4.61B - $4.65B | no change |
GAAP Operating Margin | FY 2024 | 29.7% - 31.3% | 29% - 30% | lowered |
Non-GAAP Operating Margin | FY 2024 | 41.7% - 43.3% | 42% - 43% | no change |
GAAP EPS | FY 2024 | $3.82 - $4.02 | $3.70 - $3.76 | lowered |
Non-GAAP EPS | FY 2024 | $5.77 - $5.97 | $5.87 - $5.93 | raised |
Operating Cash Flow | FY 2024 | $1B - $1.2B | $1B - $1.2B | no change |
Share Repurchases | FY 2024 | ~50% of annual FCF | ~50% of annual FCF | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q3 2024 | $1.165B–$1.195B | $1.2155B | Beat |
GAAP Operating Margin | Q3 2024 | 27.7%–29.3% | 28.8% | Met |
GAAP EPS | Q3 2024 | $0.83–$0.93 | $0.87 | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
AI adoption | Consistently a major growth driver, with adoption expanding across digital, analog, and verification; triple-digit order growth in Q2; strong momentum since Q4 2023. | All top customers engaged with AI platforms; up to 20% PPA gains; broad adoption in verification, PCB, and system analysis. | Steady and accelerating demand and sentiment remain bullish. |
Slowing EDA growth | Discussed cautious growth in Q2 and Q1; less explicit in Q4 2023, but overall EDA growth was described as steady. Some segments tempered by macro and China constraints. | Core EDA growth below 10% noted but viewed as returning to normal; confident in double-digit CAGR on a 3-year basis. | Neutral to slightly cautious but offset by other growing segments. |
China revenue risk | Lowered forecasts in Q2 and Q1, with flat-to-down revenue expectations; Q4 2023 saw elevated China contribution but derisked for 2024. | Dip in 2024 but recovery expected in 2025 based on historical patterns; progress in automotive and AI despite macro/regulatory uncertainties. | Cautiously optimistic amid geopolitical risks, gradual improvement anticipated. |
Revenue lumpiness / back-end loaded | More back-end loaded shape in both Q2 and Q1. Q4 2023 also noted different revenue seasonality with increased upfront revenue forecasted in later quarters. | Q3 viewed as more “normal,” but Q4 is expected to have unusual upfront revenue due to a large pipeline and hardware orders. | Persistent lumpiness driven by hardware and IP deliveries, continues into year-end. |
Strong bookings pipeline | Robust orders in Q2 and Q1, citing healthy backlog (around $6B); Q4 2023 also reported record backlog with broad-based strength. | Described as the biggest Q4 pipeline ever, broad-based demand across all segments, particularly hardware. | Consistently strong with a large pipeline fueling optimism for near-term growth. |
Z3 and X3 expansions | Q2 highlighted ramping production and long lead times; Q1 launch showed major capacity gains and strong early adoption; no mention in Q4 2023. | Very strong demand; inventory purchases locked in via multiyear supplier contract in the low to mid $100M range. | Ongoing expansion to meet high OEM and AI chip design needs. |
Millennium platform | No mention in Q2 2024; Q1 saw a leading automaker adopt Millennium for high-fidelity simulation; Q4 2023 emphasized it as a revolutionary CFD platform. | Praised for 5x–10x acceleration in CPU-GPU simulations; early automotive partner (Honda) cited. | Growing traction in automotive and aerospace, recognized as disruptive in CFD/system design. |
IP business growth at advanced nodes and 3D IC | Q2 revealed 25% growth in IP, strong at HBM/PCIe; Q1 and Q4 also underscored advanced packaging and 3D-IC traction. | Focus on 3 nm and 5 nm IP leadership; rising chiplet/3D-IC design demand in HPC and laptops. | Strong upward trajectory propelled by heterogeneous integration trends. |
Beta CAE acquisition | Closed in Q2, expected to be operationally accretive in 2025; a “small tuck-in” broadening structural analysis offerings; no mention in Q4 2023. | Exceeding expectations, especially in automotive; integrated into SD&A portfolio with significant pull-through. | Positive reception as part of SD&A strategy, boosting automotive presence. |
System Design & Analysis (SD&A) expansion | Q2 and Q1 noted 20%+ growth in SD&A, anchored by multiphysics expansions (e.g., BETA CAE); Q4 2023 saw 22% growth, with major offerings like Millennium and advanced packaging. | Over 40% year-over-year growth and robust pipeline, aided by Beta CAE and strong performance in automotive, aerospace. | Continued high growth with broadened offerings and integrated approach driving demand. |
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China Revenue Outlook
Q: How did China revenue perform this quarter?
A: China revenue improved this quarter, with Q3 stronger than Q2, which was stronger than Q1. Although we expect China revenue to be lower this year than last—which has only happened three times in the past 25 years—design activity is recovering with strong momentum. -
Hardware Demand and Backlog
Q: Can you discuss the strength of the hardware demand and backlog?
A: We are seeing very robust demand across all our businesses, with an exceptionally strong pipeline for Q4—the biggest we've ever seen for a fourth quarter. Demand is broad-based, not just hardware-driven, and we're ramping up production to meet it. -
AI Strategy and Cadence.AI Uptake
Q: Is there growing interest in Cadence.AI suites?
A: Yes, our Cadence.AI portfolio is used by all our top customers, delivering 5% to 20% improvement in PPA and significant productivity gains. The value lies in achieving better results, not just productivity, which can drive monetization. -
Opportunities with Intel and Samsung
Q: Could challenges at Intel and Samsung be a net positive for Cadence?
A: Historically, we've been strong with TSMC, but we're strengthening our relationships with Intel and Samsung. When companies face challenges, it's often an opportunity for us, and we're seeing that change, especially last year and this year. -
IP Business Growth
Q: How is the IP business performing, and what do you expect going forward?
A: Our IP business showed 59% growth this quarter. We believe we're finally in a very good position in IP, with a strong portfolio, and expect good growth in Q4 and beyond. -
Margin Outlook and Revenue Expectations
Q: Should investors expect smoother revenue and margin growth in 2025?
A: Q3 feels like a more normal quarter for Cadence. While we're not providing a specific outlook for 2025 yet, we believe the revenue lumpiness experienced earlier was atypical, and we aim for double-digit revenue growth. As growth comes through, it positively impacts our operating margin. -
System Design and Analysis Growth
Q: How is the System Design and Analysis business performing?
A: With the BETA acquisition, our portfolio is fairly complete, and we're seeing strong momentum in SD&A, particularly in automotive and aerospace markets. Our go-to-market strategy includes direct sales, an indirect channel with over 100 partners, and e-commerce with tens of thousands of users on OnCloud. -
Inventory Levels and Supply Constraints
Q: Is demand exceeding supply for your hardware systems?
A: Demand is very strong, but the increase in inventories is due to a multiyear contract with a key supplier, amounting to purchases around $100 million for hardware inventory over the next three years. We're ramping up production to meet the robust demand. -
Bookings Pipeline and Q4 Outlook
Q: Can you provide more color on the Q4 bookings pipeline?
A: We have an exceptionally strong pipeline for Q4—the biggest we've ever seen. It's broad-based across all businesses, reflecting strong design activity everywhere. -
Go-to-Market Strategy
Q: How are you enhancing your go-to-market strategy for SD&A?
A: We're focusing on three channels: direct sales to top customers, an indirect channel with over 100 partners, and e-commerce and cloud offerings through OnCloud, which has tens of thousands of users. This strategy improves cross-selling and lead generation.