CADENCE DESIGN SYSTEMS INC Q3 FY2024 earnings call

• Generational trends such as hyperscale computing, autonomous driving, and 5G, accelerated by the AI super cycle, fuel strong design activity across multiple verticals.
• Cadence.ai portfolio sales nearly tripled over the last year, partnering with NVIDIA for AI innovation.
• Deepened partnerships with Arm and TSMC; introduced industry-first autorouter for 3D-IC.
• Allegro X ramping strongly, transition to OrCAD X accelerating, and Cadence on Cloud seeing strong traction.
• Strength in aerospace and defense vertical, with hardware accurate digital twins used by Northrop Grumman.
• Substantial growth at marquee hyperscalers, and multiphysics portfolio growing strongly.

System Design and Analysis (SDA): Q3 revenue growth over 40% year-over-year. IP: Q3 revenue growth over 50% year-over-year. Core EDA: Q3 revenue growth 9% year-over-year. PCB: Allegro X drove over 40% of PCB sales this year, with transition to OrCAD X accelerating as 1/3 of OrCAD customers converted in Q3. Cadence on Cloud: Over 400 customers, tens of thousands of online users, orders doubled over the past year.

• 2024 revenue is expected to be in the range of $4.61 billion to $4.65 billion, with GAAP operating margin in the range of 29% to 30%, non-GAAP operating margin in the range of 42% to 43%, GAAP EPS in the range of $3.70 to $3.76, and non-GAAP EPS in the range of $5.87 to $5.93.
• For Q4 2024, revenue is expected to be in the range of $1.325 billion to $1.365 billion, with GAAP operating margin in the range of 33.2% to 34.2%, non-GAAP operating margin in the range of 45.2% to 46.2%, GAAP EPS in the range of $1.09 to $1.15, and non-GAAP EPS in the range of $1.78 to $1.84.

• Export control regulations could cause actual results to differ materially from projections.
• China demand environment uncertainties, with China revenue expected lower this year than last, but Q2 and Q3 showing recovery.

Q: Joe Vruwink asked about China and 2025 opportunity.

A: Anirudh Devgan noted increased commitments to semiconductor build-out in various countries and improved partnerships with Samsung and Intel.

Q: Jason Celino inquired about China demand and revenue.

A: John Wall mentioned China revenue was lower this year but has been recovering with strong design activity, and Q2 and Q3 were stronger than previous quarters.

Q: Charles Shi asked about Intel/Samsung and acquisitions.

A: Anirudh Devgan discussed partnerships with Intel and Samsung, and stated Cadence focuses on products and has a strategy of organic growth with small tuck-in M&A.

Q: Jay Vleeschhouwer asked about AI verticalization and go-to-market.

A: Anirudh Devgan talked about phases of AI (infrastructure, physical, sciences AI) and improving go-to-market with direct, indirect, and e-commerce channels.

Q: Vivek Arya asked about core EDA growth and 2025 outlook.

A: John Wall explained core EDA and system design and analysis segments, with system design and analysis growing strongly.