Semiconductor design software provider Cadence Design Systems (NASDAQ: CDNS) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 23.1% year on year to $1.24 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $5.19 billion at the midpoint. Its GAAP profit of $1 per share was 1.9% above analysts’ consensus estimates.
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Cadence (CDNS) Q1 CY2025 Highlights:
- Revenue: $1.24 billion vs analyst estimates of $1.24 billion (23.1% year-on-year growth, in line)
- EPS (GAAP): $1 vs analyst estimates of $0.98 (1.9% beat)
- The company slightly lifted its revenue guidance for the full year to $5.19 billion at the midpoint from $5.18 billion
- Operating Margin: 29.1%, up from 24.8% in the same quarter last year
- Free Cash Flow Margin: 37.3%, up from 29.8% in the previous quarter
- Market Capitalization: $79.45 billion
“Cadence delivered excellent results for the first quarter of 2025 with robust ongoing customer demand for our innovative technologies driving 23% revenue growth and 34% non-GAAP EPS growth year-over-year,” 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.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, Cadence grew its sales at a 15.6% 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’s year-on-year revenue growth of 23.1% was excellent, and its $1.24 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 9% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and implies its products and services will see some demand headwinds. 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 3.7 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 Q1 Results
This was an unexciting quarter that seemed to not be good enough to convince the market. Revenue was just in line and EPS beat by a small amount. The stock traded down 1.8% to $280.52 immediately following the results.
Big picture, is Cadence a buy here and now? 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.
