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    CDNS
    Earnings call· Mar 2025(Q1 FY25)

    CADENCE DESIGN SYSTEMS INC CDNS

    Apr 28, 2025 Source

    Executive summary

    Cadence Q1 FY25 — Strong AI-driven Growth and Raised Outlook

    Cadence delivered strong Q1 FY25 results, exceeding guidance across all metrics, driven by robust customer demand for AI-driven technologies and its intelligent system design strategy. The company raised its full-year outlook, citing resilience from its ratable software model and strong Q1 exit backlog, despite maintaining a prudent flat revenue assumption for China. Strategic partnerships and product innovation, particularly in AI and 3D-IC, continue to expand market opportunities.

    Highlights

    5

    • Exceeded guidance on all key financial metrics, achieving 23% year-over-year revenue growth.

    • Non-GAAP EPS increased by 34% year-over-year.

    • IP business grew 40% year-over-year in Q1, driven by AI, chiplet architectures, and foundry ecosystem.

    • Core EDA revenue grew 16% year-over-year in Q1, with nearly 50 new Cerebrus AI logos.

    • System Design and Analysis business delivered over 50% year-over-year revenue growth.

    Concerns

    2

    • Continued assumption of flat China revenue for the full year 2025 due to prudence in the macro environment.

    • Hardware revenue limited by production capacity, as demand continues to outstrip supply.

    Guidance & targets

    13
    CategoryTargetConfidence
    Revenue
    $5.15B to $5.23B
    high materiality
    High
    GAAP Operating Margin
    30.25% to 31.25%
    medium materiality
    High
    Non-GAAP Operating Margin
    43.25% to 44.25%
    high materiality
    High
    GAAP EPS
    $4.21 to $4.31
    medium materiality
    High
    Non-GAAP EPS
    $6.73 to $6.83
    high materiality
    High
    Operating Cash Flow
    $1.6B to $1.7B
    medium materiality
    High
    Share Repurchase
    at least 50% of annual free cash flow
    medium materiality
    High
    Revenue
    $1.250B to $1.270B
    high materiality
    High
    GAAP Operating Margin
    27.5% to 28.5%
    medium materiality
    High
    Non-GAAP Operating Margin
    41.5% to 42.5%
    high materiality
    High
    GAAP EPS
    $0.89 to $0.95
    medium materiality
    High
    Non-GAAP EPS
    $1.55 to $1.61
    high materiality
    High
    China Revenue Growth
    flat
    medium materiality
    Medium

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    IP Business
    Benefiting from strong market opportunities offered by AI, chiplet-based architectures and the foundry ecosystem build-out.
    		—40%——
    Core EDA
    Driven by further proliferation of digital full flow at the most advanced nodes.
    		—16%——
    System Design and Analysis
    AI-driven optimization solutions integrated with physics-based simulation platforms delivering superior results.
    		—50%+——
    China
    Year-over-year growth acceleration in Q1, but full-year guidance prudently assumes flat revenue.
    		—13%——

    Operational metrics

    14
    Non-GAAP Operating Margin
    41.7%
    Q1 FY25

    Achieved for Q1.

    Cash balance
    $2.778B
    Q1 FY25

    Cash balance at quarter end.

    Principal value of debt outstanding
    $2.5B
    Q1 FY25

    Debt outstanding at quarter end.

    DSOs
    44
    Q1 FY25

    Days sales outstanding at quarter end.

    Share repurchases
    $350M
    Q1 FY25

    Amount used to repurchase Cadence shares in Q1.

    Cadence Cerebrus AI solution new logos
    nearly 50
    Q1 FY25

    New logos for the AI solution in Q1.

    Conformal AI ECO patches size reduction
    83%
    Q1 FY25

    Reduction in ECO patches size using new Cadence Conformal AI ECO flows.

    Conformal AI ECO run time reduction
    nearly half
    Q1 FY25

    Reduction in run time using new Cadence Conformal AI ECO flows.

    Conformal AI low power run time and memory improvement
    100x
    Q1 FY25

    Improvement through deployment of Conformal AI low power.

    Smart ECO technologies automotive functional ECO run times improvement
    more than 50%
    Q1 FY25

    Improvement in run times while improving quality.

    Data center power improvement
    10%
    Q1 FY25

    Improvement in power observed by applying Cadence Reality Digital Twin to own data centers.

    R&D investment as % of revenue
    35% to 40%
    Ongoing

    Massive investment in R&D.

    Bookings
    really solidstronger than expected
    Q1 FY25

    Bookings were stronger than expected in Q1.

    Recurring revenue bookings
    strongerthan expected
    Q1 FY25

    Stronger recurring revenue bookings contributed to tracking ahead of forecast.

    Industry KPIs

    4
    MetricValueDetails
    Revenue growth$1.242BUSD
    Customer account countnearly 50logos
    Operating FCF margin rule of 4041.7%%
    Ai product adoption monetizationover 1,000tape-outs

    Product announcements

    8
    ProductTypeDetails
    Full-stack agentic AI solutionroadmap
    AI factory digital twins (NVIDIA Omniverse blueprint)milestone
    Cadence Cerebrus AI solutionupdate
    Cadence Conformal AI ECO flowslaunch
    Cadence Conformal AI low powerlaunch
    Cadence Reality data center productupdate
    Allegro X' Omniverse integrationmilestone
    AI-driven substrate routerupdate

    Deals & partnerships

    9
    NVIDIAExpanded partnership on Grace Blackwell architecture, full-stack agentic AI solution, and Omniverse blueprint adoption.

    Expanded partnership on their latest Grace Blackwell architecture, collaborating on a full-stack agentic AI solution and adopting Omniverse blueprint for AI factory digital twins.

    RapidusWide-ranging commitment to Cadence's core EDA software portfolio.

    Rapidus made a wide-ranging commitment to Cadence's core EDA software portfolio across digital, custom analog, and verification solutions, following prior collaboration on 2-nanometer IP development.

    SocionextBroad expansion of EDA software, particularly AI-driven digital solutions and system software.

    Deepened partnership through a broad expansion of Cadence's EDA software, particularly AI-driven digital solutions, along with system software.

    Marquee HyperscalerBroad proliferation of digital and verification software.

    Furthered partnership through a broad proliferation of Cadence's digital and verification software, particularly AI-driven Cadence Cerebrus and Verisium solutions.

    Intel FoundryJoined Intel Foundry Accelerator Design Services Alliance.

    Expanded collaboration by officially joining the Intel Foundry Accelerator Design Services Alliance, helping Intel Foundry customers with innovation.

    Global Marquee System CompanyMajor expansion for AI, HPC design IP.

    Secured a major expansion for Cadence's AI, HPC design IP.

    Major FoundryCommitment to memory and interface IP.

    Deepened partnership through their commitment to Cadence's memory and interface IP.

    Secure-ICAcquisition to build out design IP portfolio.

    Following the pending acquisition of Secure-IC last quarter, Cadence continues to build out its design IP portfolio.

    ARMAcquisition of Artisan foundation IP business.

    Entered into a definite agreement to acquire ARM's Artisan foundation IP business to broaden IP portfolio and fill gaps.

    Risks & headwinds

    4
    Macroeconomic uncertaintyongoing

    not quantified

    Mitigation: Customers continue investing in next-generation designs; resilient ratable software business model, strong Q1 exit backlog, and predominantly recurring revenue mix provide visibility.

    Export control regulations and tariffsFY25

    not quantified

    Mitigation: Assumption that existing regulations remain substantially similar; diversified supply chain for hardware (multiple manufacturing lines in U.S. and outside U.S.) provides resilience.

    China revenue growthFY25

    assumed flat for FY25

    Mitigation: Prudent assumption in the current macro environment, despite strong design activity in Q1.

    Hardware production capacityongoing

    demand outstrips ability to supply

    Mitigation: Agile supply chain capability lessens direct impact of tariffs; produce for U.S. market in U.S. and international market outside U.S.

    What to watch in Q2 FY25

    5

    China Revenue Growth

    FY25
    Current+13% YoY in Q1 FY25
    TargetFlat YoY for FY25

    Why it matters

    China is a significant market, and management's prudent flat guidance despite Q1 growth suggests potential for either upside or continued caution.

    I'm pleased with the performance of the China business and the start of the year, but we're still prudent assuming China flat for the whole year.

    Q&A highlights

    7

    Given the year-over-year growth acceleration in China business (13% in Q1) and domestic AI/automotive chip programs, is this a potential tailwind, and are you more optimistic on China's growth profile for the year?

    Anirudh noted strong design activity in China for AI and physical AI systems (autos, robots). John confirmed that despite this, the full-year guidance prudently assumes flat China revenue, maintaining a cautious view.

    “I'm pleased with the performance of the China business and the start of the year, but we're still prudent assuming China flat for the whole year.”

    asked by Harlan Sur · answered by Anirudh Devgan

    2 min read6 chapters

    Detailed Narrative

    01

    AI Megatrend and Strategic Partnerships

    Cadence is actively leveraging the AI megatrend, expanding its partnership with NVIDIA on the Grace Blackwell architecture. This collaboration includes developing a full-stack agentic AI solution using the new Llama Nemotron Reasoning Model. Furthermore, Cadence is an early adopter of NVIDIA Omniverse blueprint for AI factory digital twins, aiming to advance data center design and operational efficiency.

    02

    Ecosystem Expansion and Foundry Engagement

    The company deepened relationships with key ecosystem partners, securing a wide-ranging commitment from Rapidus for its core EDA software portfolio across digital, custom analog, and verification solutions. Cadence also expanded its collaboration with Intel Foundry by officially joining the Intel Foundry Accelerator Design Services Alliance, aiming to support Intel Foundry customers with advanced innovation.

    03

    Product Innovation in Core EDA

    The core EDA business demonstrated strong proliferation of its digital full flow at advanced nodes. The Cadence Cerebrus AI solution continued its momentum with nearly 50 new logos in Q1 and surpassed 1,000 tape-outs to date. New Conformal AI ECO flows, for example, enabled MediaTek to achieve 83% smaller ECO patches in nearly half the run time, while Conformal AI low power improved run time and memory by 100x.

    04

    Hardware and System Design Strength

    Demand for Cadence's market-leading Palladium Z3 and Protium X3 hardware platforms was broad-based, particularly driven by AI, HPC, and hyperscaler customers. The System Design and Analysis business delivered over 50% year-over-year revenue growth in Q1, with the digital twin Reality data center product gaining momentum and signing multiple deals with large hyperscaler and cloud service providers.

    05

    IP Business Momentum and Strategic Acquisitions

    The IP business grew 40% year-over-year in Q1, benefiting from strong market opportunities in AI, chiplet-based architectures, and the foundry ecosystem build-out. To further broaden its portfolio, Cadence entered into a definite agreement to acquire ARM's Artisan foundation IP business, following the pending acquisition of Secure-IC, addressing increasing customer demand and the rich foundry ecosystem.

    06

    China Business Outlook and Macro Resilience

    Despite seeing year-over-year growth acceleration in its China business to 13% in Q1, management maintains a prudent assumption of flat revenue for the region for the full year 2025. The company emphasizes its resilience in the dynamic macro environment due to its ratable software business model, strong Q1 exit backlog, and diversified product and geographic presence.

    AI-generated summary of the company’s earnings call. Not investment advice.