Cadence Design Systems has tightened its full-year outlook, raising the lower end of the range for earnings and revenue after a stronger-than-expected third quarter, which caused a surge in shares early Tuesday. Per-share adjusted earnings are now projected to range between $5.87 and $5.93 for 2024, reflecting an increase from previous estimates of $5.77 to $5.97.
Revenue is anticipated to be between $4.61 billion and $4.65 billion, compared to prior guidance of $4.6 billion to $4.66 billion. The consensus on Capital IQ now predicts normalized EPS of $5.92 alongside revenue of $4.63 billion. "Cadence delivered exceptional results for the third quarter of 2024, with broad-based strength across our product portfolio," stated Chief Executive Anirudh Devgan during an earnings call.
"We are on track for a strong second half." In the September quarter, adjusted EPS witnessed a rise, jumping to $1.64 from $1.26 the previous year, exceeding analyst expectations of $1.44. Revenue climbed to $1.22 billion, up from $1.02 billion, surpassing the analysts' estimate of $1.18 billion. This surge in revenue led to a 6% gain in premarket stock activity.
Revenue from products and maintenance soared to $1.1 billion from $965.8 million, while service revenue rose to $115.1 million from $57.3 million. "Our recurring revenue growth for the third quarter returned to the low teens year-over-year," noted Chief Financial Officer John Wall. System design and analysis continued to significantly outperform the market, generating annual revenue growth of 40% in the quarter, according to Devgan.
The IP sector reported revenue increases exceeding 50% year-over-year, and the company's core electronic design automation operations, which include custom, digital, and functional verification businesses, saw growth of 9%. Regionally, the Americas accounted for 50% of the overall revenue for the quarter, an increase from 43% last year.
China contributed 13% to the topline, down from 17% in the same quarter of 2023, while revenue from Europe, the Middle East, and Africa stood at 14%. At the end of the quarter, the company's backlog was recorded at $5.6 billion, while the remaining performance obligations totaled $2.9 billion. For the ongoing three-month period, Cadence expects adjusted EPS to be between $1.78 and $1.84, with revenue forecasted between $1.33 billion and $1.37 billion.
Analysts are predicting a normalized EPS of $1.83 and revenue of $1.36 billion, with Wall stating, "Our bookings pipeline looks exceptionally strong for the fourth quarter.".