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CADENCE DESIGN SYSTEMS INC (CDNS)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 came in strong: revenue $1.356B, GAAP EPS $1.24, non-GAAP EPS $1.88, with record year-end backlog $6.8B and cRPO $3.4B; Cadence exceeded Q4 and full-year revenue and EPS outlooks and posted 42.5% FY non-GAAP operating margin .
  • Management introduced FY 2025 guidance calling for $5.14–$5.22B revenue, non-GAAP operating margin 43.25–44.25%, and non-GAAP EPS $6.65–$6.75, and Q1 2025 non-GAAP EPS $1.46–$1.52; non-GAAP tax rate to remain ~16.5% .
  • Operational momentum broad-based: System Design & Analysis grew >40% in 2024; IP grew 28% YoY in Q4; Core EDA grew 15% YoY in Q4; hardware had the best quarter ever, aided by Palladium Z3 and Protium X3 upgrades .
  • Key catalysts: record bookings/backlog, accelerating AI adoption across EDA/SDA/IP, strong hardware upgrade cycle, prudent China outlook embedded in FY25 guide (flat YoY), and planned repurchases (~50% of FCF in 2025) .

What Went Well and What Went Wrong

What Went Well

  • Broad beats vs Q4 guidance: revenue $1.356B vs $1.325–$1.365B; non-GAAP EPS $1.88 vs $1.78–$1.84; GAAP EPS $1.24 vs $1.09–$1.15; non-GAAP OM 46.0% vs 45.2–46.2% .
  • Record demand and backlog: “Fourth quarter bookings were exceptionally strong…record backlog of $6.8 billion and record cRPO of $3.4 billion” .
  • AI momentum and product leadership: “Cadence Cerebrus…more than 750 tapeouts to date and over 300 in Q4 alone,” with strong uptake across Verisium SimAI and Allegro X AI; foundry partnerships expanded across TSMC, Samsung, Intel, Rapidus .

What Went Wrong

  • China remained a headwind in 2024, with year-over-year decline; FY25 guide prudently assumes China revenue flat given visibility challenges .
  • Gross margin compression in Q4: GAAP 83.8% and non-GAAP 85.5%, below Q3 levels (GAAP 86.6%, non-GAAP 88.6%), reflecting higher mix of upfront/system revenue and integration costs .
  • Special charges and integration costs modestly impacted Q4 non-GAAP adjustments (legal liabilities and executive severance; acquisition/integration costs) .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenue ($USD Billions)$1.069 $1.061 $1.215 $1.356
GAAP Diluted EPS ($)$1.19 $0.84 $0.87 $1.24
Non-GAAP Diluted EPS ($)$1.38 $1.28 $1.64 $1.88
GAAP Operating Margin (%)31.5% 28% 28.8% 33.7%
Non-GAAP Operating Margin (%)42.9% 40% 44.8% 46.0%

Segment/Product Mix (% of revenue)

Product CategoryQ4 2023Q3 2024Q4 2024
Core EDA75% 70% 68%
IP13% 14% 13%
System Design & Analysis12% 16% 19%

Geography Mix (% of revenue)

GeographyQ4 2023Q3 2024Q4 2024
Americas44% 50% 49%
China15% 13% 13%
Other Asia19% 17% 17%
EMEA16% 14% 15%
Japan6% 6% 6%

Additional KPIs

KPIQ3 2024Q4 2024
Backlog ($B)$5.6 $6.8
cRPO ($B)$2.9 $3.4
Operating Cash Flow ($M)$410 $441
Free Cash Flow ($M)$383 $404
DSO (days)44 48
Cash & Equivalents ($M)$2,786 $2,644
Debt (principal, $M)$2,850 $2,500

Guidance Changes

MetricPeriodPrevious GuidanceCurrent/ActualChange
Revenue ($B)Q4 2024$1.325–$1.365 $1.356 Beat guidance
GAAP EPS ($)Q4 2024$1.09–$1.15 $1.24 Beat guidance
Non-GAAP EPS ($)Q4 2024$1.78–$1.84 $1.88 Beat guidance
Non-GAAP Operating Margin (%)Q4 202445.2–46.2 46.0 Top end/in range
Revenue ($B)FY 2024$4.61–$4.65 $4.641 Met
Non-GAAP EPS ($)FY 2024$5.87–$5.93 $5.97 Beat
Revenue ($B)FY 2025N/A$5.14–$5.22 New
Non-GAAP Operating Margin (%)FY 2025N/A43.25–44.25 New
Non-GAAP EPS ($)FY 2025N/A$6.65–$6.75 New
Non-GAAP Tax Rate (%)FY 2025N/A16.5 Maintained
Non-GAAP EPS ($)Q1 2025N/A$1.46–$1.52 New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
AI adoption in EDA/SDA/IPOrders for Cadence.AI tripled; Cerebrus/Verisium/Allegro X uptake; foundry co-optimizations (TSMC/Samsung/Intel) >300 Cerebrus tapeouts in Q4; widened NVIDIA/Qualcomm/Marvell engagements; LLM-based design agents on JedAI Strengthening
Hardware upgrade cycle (Palladium Z3/Protium X3)Strong demand; inventory pre-purchases; lead times; bookings visibility ~2 quarters “Best quarter ever” for hardware; strong Q4 bookings/backlog into 1H25 Accelerating
IP momentum25–59% YoY growth in Q2/Q3; large milestones in 2H +28% YoY in Q4; broader portfolio incl. HBM/DDR/PCIe/UCIe; Secure-IC acquisition announced Strengthening
System Design & Analysis20% YoY in Q2; >40% YoY in Q3; BETA CAE rounding out multiphysics >40% growth in 2024; Millennium wins in A&D/energy; strong A&D/auto traction Strengthening
China outlookHeadwind; recovery sequentially in 2024; prudent full-year assumptions FY25 guide assumes flat China; visibility limited; hardware pull-through could aid software later Cautious but improving sequentially
Revenue mix (recurring vs upfront)FY mix 80–85% recurring; more upfront in 2H from hardware/IP FY25 mix ~80% recurring; upfront grew in Q4 (hardware/IP) Upfront share elevated
Foundry/ecosystemCertifications across TSMC N3/N2P; Samsung SF2; Intel 18A EMIB; Rapidus Expanded engagements incl. Rapidus 2nm enablement and IP for backside power node Broadening
OpEx cadence and margin profileRaised FY24 non-GAAP EPS midpoint to $5.90; integration costs/stock comp noted Merit cycle shifted to January; margins to improve each quarter in 2025 Improving quarterly profile

Management Commentary

  • “Cadence delivered exceptional results in the fourth quarter…record bookings and record backlog. Cadence is very well positioned to benefit from the various phases of AI…” — Anirudh Devgan, CEO .
  • “Fourth quarter bookings were exceptionally strong, and we ended the year with a record backlog of $6.8 billion and a record cRPO of $3.4 billion.” — John Wall, CFO .
  • “Cadence Cerebrus…continued to deliver transformative PPA benefits…more than 750 tapeouts to date and over 300 in Q4 alone.” — CEO prepared remarks .
  • “Our hardware family delivered yet another record year…Q4 being the best quarter ever.” — Press release business highlights .

Q&A Highlights

  • Backlog strength vs 2025 prudence: Management reconciled record backlog with cautious FY25 guide, noting stronger renewal weighting in 2H25 and backlog duration at the high end (~2.6 years) .
  • China: FY25 assumption is flat given limited visibility; sequential improvements through 2024 and strong design activity, especially in auto; hardware pull-through historically aids software .
  • Recurring vs upfront mix: Upfront share elevated by hardware/IP; recurring expected ~80% in FY25; recurring growth constrained by China mix .
  • OpEx/margin cadence: Merit cycle moved to January; margins expected to improve each quarter in 2025 (Q2>Q1, Q3>Q2, Q4>Q3) .
  • Hardware visibility: Pipeline visibility ~two quarters; very strong Q4 bookings, ample backlog for 1H25; more clarity on 2H25 in mid-year .

Estimates Context

  • S&P Global consensus for Q4 2024, Q1 2025, FY 2025 could not be retrieved due to request limits; comparisons to Wall Street consensus are unavailable at this time. Values retrieved from S&P Global were unavailable due to API request limits.
  • Company guidance and actuals indicate beats vs internal guidance; estimate revisions may skew upward for non-GAAP EPS given FY24 beat and FY25 margin framework .

Key Takeaways for Investors

  • Q4 and FY24 delivered clean beats vs guidance with record backlog/cRPO—setup is constructive despite prudent China assumptions in FY25 .
  • Hardware upgrade cycle is a multi-year driver; Q4 was the best hardware quarter ever, supporting elevated upfront revenue and future verification software pull-through .
  • System Design & Analysis (>40% growth) and IP (+28% in Q4) are scaling as second engines alongside core EDA, diversifying growth and supporting margins .
  • FY25 guide (11–12% revenue growth, 43.25–44.25% non-GAAP OM, non-GAAP EPS $6.65–$6.75) plus merit-cycle shift should yield sequential margin expansion through the year .
  • China prudence embedded; sequential recovery in 2024 and strong design activity, with potential hardware-led pull-through to software in 2H25—watch for updates mid-year .
  • Capital returns: FY25 plan to repurchase ~50% of FCF; balance sheet supports flexibility (cash $2.644B, debt principal $2.5B at YE) .
  • Near-term trading lens: Expect focus on hardware shipments/backlog conversion in 1H25, AI product proliferation, and any signs of China/auto momentum; mid-year could be a catalyst with renewed visibility into 2H25 .

Appendix: Additional Relevant Q4 2024 Press Releases

  • Secure-IC acquisition to augment embedded security IP portfolio (Jan 21, 2025) .
  • MediaTek adopts AI-driven Virtuoso Studio/Spectre X for 2nm; up to 6x performance boost on GPUs (Jan 22, 2025) .
  • Collaboration with Rapidus on leading-edge 2nm semiconductor enablement and memory interface IP (Dec 11, 2024) .