Semiconductor design software provider Cadence Design Systems (NASDAQ:CDNS) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 20.2% year on year to $1.28 billion. The company’s full-year revenue guidance of $5.24 billion at the midpoint came in 0.8% above analysts’ estimates. Its non-GAAP profit of $1.65 per share was 5.9% above analysts’ consensus estimates.
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Cadence (CDNS) Q2 CY2025 Highlights:
- Revenue: $1.28 billion vs analyst estimates of $1.25 billion (20.2% year-on-year growth, 1.8% beat)
- Adjusted EPS: $1.65 vs analyst estimates of $1.56 (5.9% beat)
- The company slightly lifted its revenue guidance for the full year to $5.24 billion at the midpoint from $5.19 billion
- Management raised its full-year Adjusted EPS guidance to $6.90 at the midpoint, a 1.8% increase
- Operating Margin: 19%, down from 27.7% in the same quarter last year
- Free Cash Flow Margin: 26.1%, down from 37.3% in the previous quarter
- Market Capitalization: $90.7 billion
“Cadence delivered an exceptional Q2, with 20% year-over-year revenue growth and stronger than expected bookings. This highlighted the strategic relevance of our AI-driven portfolio and the depth of our customer relationships,” said Anirudh Devgan, president and chief executive officer.
Company Overview
With the name chosen to reflect the idea of a repeating pattern or rhythm in electronic design, Cadence Design Systems (NASDAQ:CDNS) offers a software-as-a-service platform for semiconductor engineering and design.
Revenue Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last three years, Cadence grew its sales at a 15.7% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds. Luckily, there are other things to like about Cadence.
This quarter, Cadence reported robust year-on-year revenue growth of 20.2%, and its $1.28 billion of revenue topped Wall Street estimates by 1.8%.
Looking ahead, sell-side analysts expect revenue to grow 7.9% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and indicates its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
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Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Cadence is extremely efficient at acquiring new customers, and its CAC payback period checked in at 6.1 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.
Key Takeaways from Cadence’s Q2 Results
This was a classic 'beat and raise' quarter. Specifically, it was great to see Cadence beat on revenue and EPS. It was also a major positive that the company slightly raised i’s full-year revenue and EPS guidance above analysts’ expectations. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 7.7% to $359.48 immediately following the results.
Cadence had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.