Cadence Design Systems, Inc. reports 69.4% Net Income growth in 2018 and 10.0% Revenue growth
02/19/2019 • About Cadence Design Systems, Inc. (
$CDNS) • By InTwits
Cadence Design Systems, Inc. reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Cadence Design Systems, Inc. spends a lot for Stock Based Compensation (SBC): average SBC/Revenue for FY2014-FY2018 is 6.4%. Average EBITDA Margin for the same period was 22.3%. In FY2018 SBC/Revenue was even higher: 7.8%
- Cadence Design Systems, Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.8%. At the same time it's a lot of higher than industry average of 3.1%.
- CAPEX is quite volatile: $127m in 2018, $111m in 2017, $50m in 2016, $46m in 2015, $38m in 2014
- In the last 5 years the company invested considerably less than D&A: $258m vs. $588m. In FY2018 this situation was still the same: CAPEX was 62 while D&A was 119
- The company has highly profitable business model: ROIC is 22.9%
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue jumped on 10.0%. Revenue growth showed acceleration in FY18Q4 - it increased 13.6% YoY. During FY2014-FY2018 Revenue growth bottomed in FY2016 at 6.7% and was accelerating since that time. Revenue growth happened at the same time with EBITDA margin expansion. EBITDA Margin increased slightly on 1.5 pp from 22.6% to 24.1% in FY2018.
Gross Margin showed almost no change in FY2018. Gross Margin followed a growing trend at 0.59 pp per annum in FY2014-FY2018. SG&A as a % of Revenue decreased slightly on 1.7 pp from 28.5% to 26.8% in FY2018. SG&A as a % of Revenue stuck to a declining trend at -1.3 pp per annum in the last 5 years. Stock Based Compensation (SBC) as a % of Revenue increased slightly on 1.2 pp from 6.7% to 7.8% in FY2018. SBC as a % of Revenue stuck to a growing trend at 0.64 pp per annum in the last 5 years.
Net Income margin increased on 5.7 pp from 10.5% to 16.2% in FY2018. The efficient tax rate was 8.1% in FY2018 while the average for the last five years was 15.5%.
Investments (CAPEX, working capital and M&A)
In FY2018 the company had CAPEX/Revenue of 2.9%. Cadence Design Systems, Inc. showed almost no change in CAPEX/Revenue from FY2015 to FY2018. It's average CAPEX/Revenue for the last three years was 2.9%. During the last 5 years CAPEX as a % of Revenue topped in FY2017 at 3.0%.
Accounts receivable as a % of Revenue increased on 4.1 pp from 9.8% to 13.9% in FY2018. Inventories as a % of Revenue showed almost no change at 1.3% in FY2018.
Return on investment
The company operates at high and attractive ROIC (22.9%) and ROE (30.4%). ROIC increased on 2.4 pp from 20.5% to 22.9% in FY2018. ROE increased on 6.8 pp from 23.6% to 30.4% in FY2018. ROIC stuck to a growing trend at 2.8 pp per annum in the last 5 years. ROE stuck to a growing trend at 4.0 pp per annum in FY2014-FY2018.
Leverage (Debt)
Debt level is -0.2x Net Debt / EBITDA and 0.9x Debt / EBITDA. Debt dropped on 38.9% while cash dropped on 22.5%.
Cadence Design Systems, Inc. has good short term financial stability: Interest coverage ratio (ICR) is 17.1x. Cadence Design Systems, Inc. has no short term refinancing risk: cash is higher than short term debt (533.3%).
Average interest expence charged on company's debt was 5.2% in FY2018.
Valuation and dividends
The company's trades at EV/EBITDA 31.2x and P/E 46.8x.
Management team
Lip-Bu Tan is a the company's CEO. Lip-Bu Tan is a founder and has spent 10 years with the company. CEO total compensation was
$7,556,368 in FY2018 which included
$725,000 salary. Cadence Design Systems, Inc.'s CFO is John M Wall. John M Wall has 1 year tenure at the company.
1.6% of the company is owned by insiders. Insider ownership didn't change in 2018.
At the end of financial year the company had 7,500 employees. The number of employees increased on 4.2%. Average revenue per employee in FY2018 was
$285,070 and it increased on 5.6%.
Financial and operational results
FY ended 12/29/2018
Cadence Design Systems, Inc. ($CDNS) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 1,581 | 1,702 | 1,816 | 1,943 | 2,138 | 10.0% |
| Gross Profit | 1,357 | 1,464 | 1,560 | 1,706 | 1,879 | 10.2% |
| SG&A | 513 | 512 | 520 | 553 | 573 | 3.6% |
| EBITDA | 322 | 404 | 364 | 439 | 515 | 17.2% |
| EBIT | 207 | 285 | 245 | 324 | 396 | 22.3% |
| Interest expence | 34 | 28 | 24 | 26 | 23 | -9.8% |
| Tax | 22 | 15 | 34 | 111 | 31 | -72.4% |
| Net Income | 159 | 252 | 203 | 204 | 346 | 69.4% |
| Stock Based Compensation | 84 | 92 | 109 | 130 | 168 | 29.0% |
Balance Sheet
|
|---|
| Cash | 932 | 617 | 465 | 688 | 533 | -22.5% |
| Accounts Receivable | 122 | 165 | 157 | 190 | 297 | 56.0% |
| Inventory | 56 | 57 | 39 | 33 | 28 | -15.2% |
| Short Term Debt | 342 | 0 | 50 | 85 | 100 | 17.6% |
| Long Term Debt | 349 | 343 | 643 | 644 | 345 | -46.4% |
Cash flow
|
|---|
| Capex | 40 | 45 | 54 | 58 | 62 | 6.2% |
| Acquisitions | 167 | | 42 | 143 | | |
Ratios
|
|---|
| Revenue growth | 8.3% | 7.7% | 6.7% | 7.0% | 10.0% | |
| EBITDA growth | 12.2% | 25.2% | -9.7% | 20.6% | 17.2% | |
|
|---|
| Gross Margin | 85.8% | 86.0% | 85.9% | 87.8% | 87.9% | 0.1% |
| EBITDA Margin | 20.4% | 23.7% | 20.1% | 22.6% | 24.1% | 1.5% |
| EBIT Margin | 13.1% | 16.8% | 13.5% | 16.7% | 18.5% | 1.9% |
| SG&A, % of revenue | 32.5% | 30.1% | 28.6% | 28.5% | 26.8% | -1.7% |
| SBC, % of revenue | 5.3% | 5.4% | 6.0% | 6.7% | 7.8% | 1.2% |
| Net Income Margin | 10.1% | 14.8% | 11.2% | 10.5% | 16.2% | 5.7% |
| CAPEX, % of revenue | 2.5% | 2.6% | 3.0% | 3.0% | 2.9% | -0.1% |
|
|---|
| ROIC | 11.8% | 15.2% | 15.5% | 20.5% | 22.9% | 2.4% |
| ROE | 12.8% | 18.6% | 19.2% | 23.6% | 30.4% | 6.8% |
| Net Debt/EBITDA | -0.7x | -0.7x | 0.6x | 0.1x | -0.2x | -0.3x |
| Interest expence / Average debt | 4.9% | 5.5% | 4.6% | 3.6% | 5.2% | 1.6% |
People
|
|---|
| Insider ownership | 1.6% | 1.6% | 1.6% | 1.6% | 1.6% | 0.0% |
| Employees | 6,100 | 6,664 | 7,094 | 7,200 | 7,500 | 4.2% |
| Revenue/Employee, th. $ | 259 | 255 | 256 | 270 | 285 | 5.6% |
Cadence Design Systems, Inc. ($CDNS) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 517 | 518 | 532 | 570 | | 8.5% | 8.2% | 9.7% | 13.6% |
| EBITDA | 115 | 123 | 133 | 143 | | 6.2% | 9.7% | 22.7% | 30.1% |
| Net Income | 73 | 75 | 99 | 98 | | 6.8% | 8.7% | 22.4% | |
Balance Sheet
|
|---|
| Cash | 747 | 820 | 545 | 533 | | 37.3% | 24.9% | -19.7% | -22.5% |
| Short Term Debt | 345 | 300 | 0 | 100 | | 589.7% | | | 17.6% |
| Long Term Debt | 345 | 345 | 345 | 345 | | -46.4% | -46.4% | -46.4% | -46.4% |
Ratios
|
|---|
| Gross Margin | 87.8% | 88.6% | 88.6% | 86.6% | | 0.7% | 1.3% | -0.1% | -1.3% |
| EBITDA Margin | 22.3% | 23.7% | 25.0% | 25.2% | | -0.5% | 0.3% | 2.7% | 3.2% |
| Net Income Margin | 14.1% | 14.5% | 18.7% | 17.3% | | -0.2% | 0.1% | 1.9% | 20.2% |
Peers in Application Software
Below we provide Cadence Design Systems, Inc. benchmarking against other companies in Application Software industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| nFusz Inc ($FUSZ) | | | | | 433.3% |
| CloudCommerce Inc ($CLWD) | | -38.1% | 247.6% | 40.9% | 301.1% |
| Seven Stars Cloud Group, Inc. ($SSC) | | 134.7% | 663.8% | 310.3% | 161.7% |
| Aurora Mobile Limited ($JG) | | | | 304.9% | 150.8% |
| Intelligent Systems Corporation ($INS) | | 14.2% | 71.0% | 12.2% | 119.0% |
| |
|---|
| Median (151 companies) | -43.3% | 14.0% | 14.3% | 15.7% | 15.2% |
|---|
| Cadence Design Systems, Inc. ($CDNS) | | 7.7% | 6.7% | 7.0% | 10.0% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Skkynet Cloud Systems Inc ($SKKY) | 99.7% | 97.4% | 98.0% | 97.6% | 96.5% |
| hopTo Inc ($HPTO) | 91.8% | 87.8% | 95.9% | 98.2% | 95.4% |
| Aware, Inc. ($AWRE) | 75.4% | 87.2% | 90.3% | 94.6% | 92.3% |
| Alteryx, Inc. ($AYX) | 77.5% | 80.5% | 81.3% | 83.4% | 91.0% |
| Aspen Technology, Inc. ($AZPN) | 86.5% | 88.7% | 89.7% | 90.2% | 89.9% |
| |
|---|
| Median (150 companies) | 62.8% | 61.7% | 63.8% | 64.4% | 65.7% |
|---|
| Cadence Design Systems, Inc. ($CDNS) | 85.8% | 86.0% | 85.9% | 87.8% | 87.9% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Aspen Technology, Inc. ($AZPN) | 34.5% | 42.2% | 46.0% | 45.2% | 43.3% |
| ANSYS, Inc. ($ANSS) | 45.9% | 45.8% | 45.1% | 41.9% | 41.4% |
| Paycom Software, Inc. ($PAYC) | 15.1% | 19.5% | 35.1% | 34.4% | 35.9% |
| j2 Global, Inc. ($JCOM) | 41.6% | 40.6% | 41.7% | 36.5% | 35.7% |
| Adobe Inc. ($ADBE) | 17.5% | 25.9% | 31.2% | 34.2% | 35.3% |
| |
|---|
| Median (152 companies) | -10.3% | -10.7% | -5.3% | -4.2% | -3.3% |
|---|
| Cadence Design Systems, Inc. ($CDNS) | 20.4% | 23.7% | 20.1% | 22.6% | 24.1% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| TimefireVR Inc ($TFVR) | 0.0% | 350.5% | 4.3% | | 1,021.9% |
| MGT Capital Investments Inc ($MGTI) | 0.0% | 36.5% | 221.4% | 129.8% | 344.5% |
| Integrated Ventures Inc ($INTV) | | | | | 199.9% |
| ShotSpotter, Inc. ($SSTI) | | 18.3% | 28.9% | 27.1% | 24.3% |
| Ellie Mae, Inc. ($ELLI) | 12.3% | 20.6% | 16.7% | 21.1% | 19.4% |
| |
|---|
| Median (153 companies) | 2.8% | 2.7% | 2.9% | 2.3% | 2.4% |
|---|
| Cadence Design Systems, Inc. ($CDNS) | 2.5% | 2.6% | 3.0% | 3.0% | 2.9% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InsPro Technologies Corp ($ITCC) | -558.9% | | | | 127.4% |
| Manhattan Associates, Inc. ($MANH) | 64.8% | 78.7% | 99.3% | 102.5% | 80.9% |
| Intuit Inc. ($INTU) | 34.2% | 23.7% | 52.1% | 72.6% | 66.8% |
| Aspen Technology, Inc. ($AZPN) | 133.4% | | | | 58.1% |
| Paycom Software, Inc. ($PAYC) | 16.7% | 30.5% | 75.4% | 51.1% | 47.5% |
| |
|---|
| Median (179 companies) | -14.4% | -13.1% | -9.8% | -11.8% | -10.4% |
|---|
| Cadence Design Systems, Inc. ($CDNS) | 11.8% | 15.2% | 15.5% | 20.5% | 22.9% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Upland Software, Inc. ($UPLD) | | | 16.4x | 115.6x | 16.7x |
| Nuance Communications, Inc. ($NUAN) | 7.9x | 5.7x | 5.3x | 7.1x | 15.2x |
| Asure Software Inc ($ASUR) | 3.4x | 4.5x | 3.6x | 9.5x | 14.5x |
| SS&C Technologies Holdings, Inc. ($SSNC) | 1.7x | 7.3x | 4.6x | 3.1x | 8.5x |
| Avaya Holdings Corp. ($AVYA) | | | | | 7.4x |
| |
|---|
| Median (69 companies) | -1.4x | -1.0x | -0.9x | -0.9x | -0.7x |
|---|
| Cadence Design Systems, Inc. ($CDNS) | -0.7x | -0.7x | 0.6x | 0.1x | -0.2x |
