Cadence Design at Deutsche Bank’s Conference: AI and Strategic Growth

On Wednesday, 27 August 2025, Cadence Design Systems (NASDAQ:CDNS) participated in Deutsche Bank’s 2025 Technology Conference, where CFO John Wall shared insights into the company’s strategic direction. Key topics included the adoption of AI tools, the impact of industry mergers, and future growth strategies. While Cadence is poised for record-breaking backlogs, challenges such as production capacity constraints were acknowledged.

Key Takeaways

• Cadence anticipates a record backlog exceeding $6.8 billion by year-end.
• The company is focusing on AI-driven tools and solutions to enhance customer productivity.
• Cadence’s M&A strategy involves strategic "tuck-in" acquisitions to open new revenue streams.
• The Synopsys-ANSYS merger is viewed as a potential opportunity for Cadence.
• Cadence is ready to support Intel’s advanced node foundry business with cutting-edge IP and tools.

Financial Results

• Cadence reported an outstanding Q2 performance.
• The company ended last year with a backlog of $6.8 billion and expects to surpass this by the end of 2025.
• Approximately 80% of revenue is ratable, with a significant portion on a subscription basis.
• Despite production capacity challenges, the Z2 hardware continues to sell alongside the newer Z3.

Operational Updates

• Strong renewal and add-on activity from customers are evident across all business lines.
• The launch of Cerberus AI Studio is significantly reducing time-to-market and enhancing PPA benefits.
• Cadence is managing production capacity for its Palladium Z3 and Z2 systems, facing lead times of up to 20 weeks.
• The company is focused on retaining AI talent and leveraging its engineering base for innovation.

Future Outlook

• Cadence is confident in achieving a new record backlog, driven by strong customer renewals.
• The company is prepared to assist Intel with advanced node technologies, enhancing its competitive edge.
• Strategic acquisitions will focus on aligning with customer needs and expanding revenue streams.

Q&A Highlights

• Increased adoption of AI tools is leading to significant license growth for Cadence.
• Cadence sees potential upside from changes in Intel’s EDA spending patterns.
• The company expects to integrate innovative AI tools from startups to enhance its offerings.

In conclusion, Cadence Design Systems is strategically positioned for growth, leveraging AI advancements and strategic acquisitions. For a deeper dive into the conference discussions, please refer to the full transcript below.

Full transcript - Deutsche Bank’s 2025 Technology Conference:

Jenny, Interviewer: I think we’re live. Welcome back everyone. I hope you enjoyed lunch. Just before NVIDIA earnings, which is great because it wouldn’t be as interesting everyone being on their phones. Well, today we have the pleasure of having John Wall, CFO of Cadence Design Systems and Richard Gu, Investor Head of Restorations.

And yes, so before we start, I am to read a quick safe harbor. Today’s discussion will contain forward looking statements, including Cadence’s outlook on future business and operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied in today’s discussion. Great. Now that we got that out of the way, perhaps let’s begin with setting the tone for the EDA landscape.

And I’d love to hear what are you seeing in the market right now that is exciting Cadence the most as an opportunity to expand more of this portfolio in, especially given you have such a close relationship with your core customers like NVIDIA and the likes. It will be great to hear more about that.

John Wall, CFO, Cadence Design Systems: Great. Thanks, Jenny, and thanks for having us here as well. Really appreciate it. I guess the most exciting thing at the minute has to be like AI super cycle, right? I mean our customers are pushing the boundaries of design and chip design.

And we see them like pushing those boundaries with things like three d IC and the full system simulation, advanced packaging, but it’s not really all about one company either in terms of one partner. We benefit from having close partnerships with leading customers like NVIDIA, but also like Intel, Samsung, TSMC and a whole host of we’re privileged to have the customer base we have. And I think it’s the breadth having access to the breadth of those customers and partnerships and the position we are at a time when there’s just huge opportunities right across the landscape, whether it’s semi companies, hyperscalers or system companies, I think that’s probably the most exciting thing about where Cadence sits right now.

Jenny, Interviewer: Yes, that’s fair. That’s a pretty diversified landscape you have there across all. That’s really good. Well, given that we’re talking about AI and the AI super cycle, I think it’s good to spend a few words on perhaps the cadence.ai portfolio, which seems to be expanding both in scope and in customer base. Would love to hear a few words on when do you expect firstly to see this materially contributing to revenues?

And secondly, whether you’re seeing continuous demand beyond the top five customer base, because I think it was well understood by the market that at the beginning when Cerebras was launched, was sort of like penetrated at the beginning among the top five customers, right, and because it’s like obviously used for the most advanced and leading edge nodes and those types of designs. So it would be good to hear like where is

John Wall, CFO, Cadence Design Systems: it positioned now? Yes, great question. But and certainly that’s how we began, but I think we’re well beyond the top five customers now. I think there’s broad proliferation across most of our customer base. It’s still probably early days for monetization, because we’ve largely a ratable revenue model.

I mean 80% of the revenue is ratable. The vast majority of that is daily revenue on a subscription basis. And as we proliferate into these accounts, it tends to create an uplift, but then it kind of flows through over time. But I mean it’s exciting to see the adoption across the board. Typically, takes us a couple of contract cycles to fully proliferate.

And the first contract cycle, there’s a lot of preparation of the technology and use for the technology. But what we’re seeing now kind of we’re halfway through that kind of two contract cycles that we’re starting to renew accounts or renew baseline contracts that had AI in them last time. But and we’re seeing increased adoption, increased usage and the license count is starting to increase significantly on some of those contracts. And like I say, what we’re seeing across the board, as they adopt more AI tools that not only are they achieving productivity benefits in their own design cycle, but faster time to market and faster time to market results in earlier revenue recognition for what it is that they’re trying to release. So there’s immense value being extracted from the use of those tools by our customers.

And I think we’re at a point in the cycle now where they’re willing to share some of that value with us and we’re seeing that

Jenny, Interviewer: through increased license adoption. Yes, because that’s a good point, because I do remember that for every license of Cerebus, there was sort of like an increase like a natural increase in Innovus, right? And so like a scaling effect, like if you buy more of those Cerrebus licenses, then you have to buy more of the legacy licenses. So that’s kind of what’s driving right now in that growth bucket. Absolutely, yes.

John Wall, CFO, Cadence Design Systems: Yes, I mean one of the beautiful things about Cadence, I mean we’re very diversified. We have multiple lines of business, but we did analysis a long time ago just to understand the profitability profile of all the businesses. And Cadence started as an analog franchise really. Mean Virtuoso team there has been tremendous for us for decades. And when you look at Cadence, of course, it’s no surprise that the most profitable business at Cadence is our software business.

But in software, you could bifurcate our software business into two groups, software tools where one license needs one driver, like a Virtuoso license, this is one engineer uses one license of Virtuoso. If you had a 100 person analog design house, they’re probably buying 100 licenses of Virtuoso from us. They won’t buy 110 until they hire 10 more engineers. But same with Innovus typically, but on the digital side, but what we had with Cerebras is that one engineer controlling a Cerebras cockpit has the ability to use 10 licenses of Innovus. So not only are you selling Cerebras as an AI tool, but it’s pulling through an extra nine licenses of Innovus.

And I think you’ve seen that happen as well in terms of the whole how the stack works. Do want to talk about

Richard Gu, Investor Head of Restorations: Sure. Yes, John. So we have this fantastic platform called Cadence AI, on which there are like five flagship products with Cerberus being the tip of the spear. And we actually recently launched Cerberus AI Studio, which is truly a game changer. It’s the industry’s first multi user and multi block agent generic AI products.

What it does is it’s allowing one engineer to parallel run multiple kind of designs concurrently, dramatically enhancing the sort of like the time market. You can reduce the time to market by 5x to 10x by doing that. And in the meantime, it increases the improves the PPA benefit by 10% to 20%. So I think we talked about customers like SD Micro and Samsung using the technology and really benefiting and harvesting the tremendous improvement. So I think we’re in the knee deep in that process of launching various Genetic AI products to help our customers on their AI journey.

Jenny, Interviewer: Pretty impressive. Yes. So I guess like beyond cadence.ai, I think the word AgenTik has been thrown out in the air more than Crypto and 21. I’m just curious to hear what you think about whether you see a real path for agents redefining the actual design workflow, I. E.

Providing an opportunity like a customer such as, I don’t know, NVIDIA, Broadcom, Qualcomm, whoever, to actually cut a single step process, which is synthesis of placement routes or if this is like fictitious in a way or something that would happen maybe ten years down the line. You hear synopsis saying about that, touting the word agenetics. I’m curious to hear your thoughts about it. You sound skeptical, Jenny. I

John Wall, CFO, Cadence Design Systems: don’t know. So AgenTx AI is real. But I mean our JEDI platform is an AgenTx AI platform. And that’s allowing our customers to use Agenetic AI for things like, I guess, verification, test optimization, I guess, and optimization loops and test generation that they’ll use it for things like that. I mean the synthesis and full place and route that might be a longer way off of course, right?

Jenny, Interviewer: Yes.

John Wall, CFO, Cadence Design Systems: But there are some benefits that customers are getting and they’re real benefits, they’re real productivity benefits and it’s allowing them to cut design costs and get more done faster. And would you agree?

Richard Gu, Investor Head of Restorations: Yes, yes, absolutely agree. I think in the back end, we have a lot of obviously agents for implementation, for verification, and but there are lots of opportunities in the front end too in terms of the how do leverage the large language models to translate the C language to RTL code and the test bench, things like that. So our engineering team are hard at work trying to make sure we capture fully that opportunity to help our customers on the journey.

John Wall, CFO, Cadence Design Systems: Yes, there is a long runway here. I mean, it’s still only early days, but I think the benefits that we’ve seen even in the short term are real. That’s fair.

Jenny, Interviewer: That’s fair. So maybe just like talking about system designs, given the recent closing of I don’t I have to ask this question, but it’s major news, right? So given the recent closing of ANSYS and ANSYS merger, I think it will be helpful for investors to understand whether user chatter around an expected material increase of pricing or their licenses could ultimately benefit Cadence and that there would be at least initial opportunities for exploration of alternatives? And secondly, maybe even a natural pull from any integrationsupport issues. I guess where I’m heading at is given the incredible demand we’re seeing in anything simulation these days, is this feel a net negative or benefit for Cadence?

John Wall, CFO, Cadence Design Systems: Can’t look, I don’t see it being a negative for us. I think it’s neutral to positive. The well, I got to give kudos to Synopsys. I mean they’re a great competitor. You can’t have the Yankees without the Red Sox, right?

Exactly. And the competition between the two companies drives us both to be better, but I don’t think Cadence would be as good as it is today or Synopsys would be as good as it is today without the competition we have between each other. But I do think in the last kind of five, six years, we have made significant advances. And I think the boost that they’ll get from adding ANSYS will make them more competitive again against us. Look, I do see that there is huge benefits that you get from putting everything together, I mean chip design, verification, packaging board right through to system analysis, if you can do all of that in one platform, that adds a lot of value to customers.

So I can see how they are likely to deliver more value as a combined offering, but and maybe that results in higher prices. But whenever there is a change like this in the market, it’s always a catalyst for customers and incumbents or customers to review the current incumbent against what other alternatives are out there and I can see that being positive for us over the longer term, but yes, I don’t see any downside really.

Jenny, Interviewer: I kind of agree. I think there’s also like an element of customers are really dying to see that shift left of simulation prior to everything else because I think Digital Twin have never seen I mean, hasn’t seen innovation in so long. So for them to be able to have that concurrently when they design their systems is like it’s such a clear obvious, hence why there was excitement around this deal for particularly on the meth side of synopsis. So yes, it’d be interesting to see where the market, the CFD, MFA market will be heading about ten years from now. Yes.

But yes, okay, cool. So shifting maybe a little bit into financials, Jon, given you delivered an outstanding Q2 print like fantastic and surprising quite a few of us, especially in China. Could you share some color on how should we be thinking about backlog development for both ’twenty five and ’twenty six? And particularly, I’m not pressing this point, any detail on upcoming renewals that allows us to shape our model better? Yes, sure, okay.

We know Q3 is a big like renewing quarter. Let me unpack it a little bit.

John Wall, CFO, Cadence Design Systems: So in terms of backlog, we finished last year with record backlog of 6,800,000,000 Now we’ve eaten some of that backlog in the first half of the year where I think we closed at $6,400,000,000 at the half. We’re seeing a strong booking environment in second half confident that we’ll finish this year with new record backlog, so it will be above the 6.8%. That’s based on strong renewal activity, but also strong add on activity from customers. But I think we’re seeing strength, broad based strength right across the board in all lines of businesses at Cadence. That Cadence, we’re privileged that we have five businesses under the umbrella of Cadence.

And typically, there’s always one that’s dragging their feet a little bit. We just at this moment in time, it just feels like everything is delivering right across all geographies and across all businesses. So that bodes well and is very, very positive for backlog for the remainder of this year and heading into next year. Also, I know there’s a lot of focus on in some businesses, a lot of focus on the timing of renewals with specific customers, but we’re blessed to have such a broad diversity of large customers that’s I mean you really can’t design an electronic product without using cadence. So we have such a diversified group of customers that we’re not dependent on any one renewal in any one quarter.

I think we have strong renewal activity over the next or right through the remainder of 2025 and into 2026. So even though this was I mean 6,800,000.0

Jenny, Interviewer: was a record backlog and so we should see that be higher by the end of the year. And you’re setting up yourself for a pretty tough comp next year. How should we think about it, particularly because there was a big hardware push this year, obviously, from the jet free generation of emulators and prototypers. And so you close out that air pocket quite impressively. So how should the investors think about your setup into ’twenty six when you have a tougher stance on well, tougher comp on hardware?

And although you might have a record backlog by the end of the year, you’re still facing that hardware and IP and simulation

John Wall, CFO, Cadence Design Systems: strong backdrop. Totally understand the question. It’s the I guess the nature of printing record after record after record is you give yourself tough comps. Exactly. Now I think one thing that you should make sure you’re aware of for this year is that I mean last year you mentioned the air pocket.

We launched our new hardware system, Z3, Palladium Z3, our new emulation system in at the March, April and it kind of created an air pocket for us where pipeline opportunities for our older Z2 system, people kind of waited six or eight weeks because they wanted to see what Z3 looked like and how long it would take to get access to Z3. Many of them still follow through and bought Z2 because they could access that quicker.

Jenny, Interviewer: But

John Wall, CFO, Cadence Design Systems: as a result, this year we had easier comps Q2 over Q2 than we will have in the second half of the year, because second half of the year some of the hardware activity that got sucked out of Q2 just kind of got caught up in Q3 and Q4. So second half of last year was very strong and we are lapping those in the second half of this year, still very confident though that we’ll beat those comps. The revenue from our hardware business is really throttled by our production capacity and we keep raising our production capacity to meet demand. It’s hard to keep up with demand, but because the growth in complexity and design shows no signs of slowing down, but our verification group when they’re pitching to us for budgets they’ll often say that look, we know everyone’s chasing Moore’s Law and that’s tough when they all need investments, but if complexity is growing by X, complexity in verification is growing by two to the power of X because they’re trying to deal with all the variables that you might have in a verification situation. So when they’re trying to emulate all of that, there is no slowdown in that emulation.

So the pace of innovation has to keep up and the customers’ requirements. That’s why the nobody wants to miss their silicon first time around. No. But so you have to spend money on verification. There’s huge demand for it.

Nothing is getting less complex. But and we’ve proven I mean our Palladium Z3 is our showcase product. It’s cadence on cadence. It’s our own custom chip designed using Cadence IP and Cadence tools. There is a wide mode around it.

We think we have the two best emulation systems on the planet right now. The second best is Z3 and Z2. So that’s a strong position to be in. And bookings are quite volatile. I mean you can bookings in Q4 will be a lot higher than bookings in Q1, but it’s just that way every year.

People kind of use up the end of their budget for this year. They’re probably spending some of their budget like they have visibility into their budget for next year. A lot of that gets signed and committed in Q4. I think Q1 is kind of drive by comparison, but but we manage that volatility at backlog and in the booking side. But from a revenue perspective, revenue is based on the amount we can produce an issue from time to time that and that’s that we keep increasing our production capacity.

We don’t want to increase it too much that because we like the price points that we’re at, we like the availability, the scarcity works for us. And we try to manage lead time somewhere between eight weeks and well ideally not as high as twenty six weeks. We did it went as high as twenty eight weeks before and we had to really ramp up production to get that back. But somewhere between eight weeks and twenty weeks is probably the sweet spot and it’s kind of pushing towards twenty weeks right now. So we’re ramping up production for the in the second half of this year to help us deal with that.

Jenny, Interviewer: That’s good. I think you had mentioned that if someone wants to buy an emulator today from you guys, you won’t have

John Wall, CFO, Cadence Design Systems: it ready by the end of the year, we have systems, right? So we systems, but there’s such a backlog of orders, like if someone has an immediate requirement. And often, the desire for a new emulation system is probably triggered by an upcoming project. If you have a project starting in November or December, you’re probably looking for an emulation system now. And right now, it’s tough to get that get in the queue.

Like if I just put you in the normal queue for that, you might not get it by the time you need it. We will have to work with you and see if there is a way that we

Jenny, Interviewer: can So meet the maybe shifting a little bit topics and speaking about renewals, mean, I think everyone has a few key topics on the top of their minds and I believe Intel is one of them. I know we should be cautious of any direct customer mentions, but I was hoping you could share a few words on how do you view their upcoming Synopsys renewal And how do you think about your internal IP development for ’eighteen and 14A? Because I think the market is mixed about this. Some are thinking there is a clear in to steel market share given the obvious relationship with Lip Bu, whilst others investors are a bit more skeptical and receptive about the shift as a sudden replacement would be seen as radical. So I think there’s a sort of like mix between, oh, you clearly have an in and there is more upside than downside versus maybe there is upside only in the incremental portion of spend of Intel.

So I would love to hear

John Wall, CFO, Cadence Design Systems: your thoughts about that. Okay. I mean, is clearly an opportunity for us. I’d prefer to be more indexed to Intel, but it just so happens that we’re probably more indexed to the likes of the TSMC than we are to an Intel or a Samsung. They tend to spend more with our competitor than us.

I do think that creates more opportunity than downside for us as things change there. We have IP and tools that are all silicon ready for three nanometer, two nanometer and beyond signed off with these foundries. So we’re in a position to help them as much as they want to help. And I think the biggest opportunity there right now, I mean, basically, if anyone is going to turn around Intel, it’s probably Lip Bu. Lip Bu, I’ve seen him at close quarters.

He’s an exceptional person, one of the greatest capital allocators I’ve ever seen. But and I think you’ll realize that Intel could I mean, what they’re spending on EDA is probably 9x more on people in EDA than tools. And I think that ratio of people to tools probably needs to change. If you’re going to make changes there, you need to spend more on tools, which might end up being that there’s more upside on the tool side for both ourselves and Synopsys even though Synopsys is very highly indexed there, but they could probably do more with less people.

Jenny, Interviewer: That’s interesting. Yes, that’s fair. So about but on the IP side particularly, how indexed are you on the most advanced nodes for the foundry business? I’m sorry? For the foundry business of Intel, so like 18A and 14A, are you continuously updating your IP for those nodes?

John Wall, CFO, Cadence Design Systems: Absolutely, And like I said, we’re ready to help as much as they need us and we’re still again proven in at all these nodes. Okay.

Jenny, Interviewer: Well, maybe going back to China, I guess this is how I think I used to buy it. The elephant in the room is what do you think about the region in terms of it being a sustained stream of business or whether this will slowly die out and its customers shift to local vendors. The way I’m thinking about it is that China will still stay a part of Cadence and customers in the region that cannot access The U. S. Technologies or being pressured not to will likely move their operations in other APAC regions, but that China for the time being will likely be a bit more volatile with revenue growth potentially being flat to declining as a baseline.

Am I thinking about this the right way?

John Wall, CFO, Cadence Design Systems: I think if there’s volatility at a regional level, I don’t think you’ll see as much volatility at the top level. So our regional revenue is based on consumption, based on where licenses are used. If there’s any trend, what we’re seeing is that, let’s say, maybe five, ten years ago, you might have done a software arrangement with a customer in China and 100% of their engineers were based in China and the licenses were being used in China. These days, that’s happening less at the bigger customers that they might still have a large R and D group in China, but they probably have multiple R and D groups around the world, but and the licenses are being used in different countries. Now what that does to our geographical mix of revenue is it means if the previous deal if you had 100 licenses all being used in China and then on the new deal, maybe it’s 150 licenses, but 110 are being used in China, the China will grow by 10% from 100 to 110, but then you’ll have growth of 40 licenses in other parts of the world, but it’s a consumption, it’s based on consumption.

It’s very hard for us to predict that, but we’re much more confident in the top level revenue line and the growth that we can generate there than the actual geographical mix of that revenue. That’s fair. Yes.

Jenny, Interviewer: I mean I was at DAC this year and I was talking to a few of the folks at Empyrean and it was surprising to me to hear that they’re actually not doing the full flow end to end EDA software, which means that even so say as a baseline case, China is is not an issue in terms of the geopolitical tensions, so that China becomes like it was two, three years ago. It’s still there is virtually no end to end competition in China, right, for you guys. Like the people there are still over indexed to either Cadence or Synopsys or potentially Mentor Graphics. Are you seeing any competition heat up from the result of these tensions or because as far as I see it, which was in only in June, they’re not doing physical verification, not doing functional verification, not doing placement route. It’s not you’re not catering the full needs of a chip designer, so?

John Wall, CFO, Cadence Design Systems: No, I mean if we’re seeing competition, we’re seeing competition for headcount in China, in terms of talent for China. But in terms of competition for like bookings opportunities, revenue opportunities with customers, it’s not so much. I mean it’s taken decades for us to build relationships and close trusted partnerships with our largest customers and to build out these full flows and the sign offs with all the foundries for those flows, it’s very hard for anyone to replicate that in a short space of time. That will take decades. But I just think it’s hard for anybody starting off to catch up with cadence and synopsis at this point, not impossible, but we’re talking a decade long journey.

Jenny, Interviewer: Yes. Barry, it’s Andrew, definitely high. Think even the big guys like if you think about Google with their deep there’s like a deep chip product that it’s like a point tool solution effectively in EDA, but it’s like an implementation point tool solution. It’s not really I mean, yes, it can help. There was like some studies about some researchers some research scientists using it and saying it’s truly academic, but it’s not fully replacing even the single implementation point to

John Wall, CFO, Cadence Design Systems: what ADA that Cadence offers. That’s right. Well, we don’t see those customers sitting down and having meetings trying to figure out how to them. No, exactly. I mean they’re basically trying to figure out how to leverage our technology to solve other problems.

To solve their problems, yes.

Jenny, Interviewer: Well, now a final one on AI. It will be helpful to also frame the AI landscape in terms of startups coming to play in the space. There are a fair few impressive ones at DAC this year. I’m curious to hear your thoughts on their claims of trying to reshape media landscape and whether you see these as like, again, my point, single point tools, threats, but not real competition given to the end to end engine that Cadence provides or whether you’re starting to see some real speeds? I’m curious to see both if it’s a threat or if it’s sort of good for you guys for even M and A.

John Wall, CFO, Cadence Design Systems: Yes. So not a threat for the same reasons, because like I say, it takes trusted partnerships and the full flow take decades to produce. But we love the fact that there’s innovation in EDA again, and AI is generating a lot of that. We see the startups as well. There’s been a dearth of startups in EDA for the longest time.

And that’s probably because of the size of ourselves and synopsis is really, really difficult to compete. But now that we’re seeing some innovation coming through, think that’s really, really positive that we might see some really good clever point tools. And like you say, it’s an opportunity for us to pick off the best of them. But I think the best of them will end up as part of the flow at a company

Jenny, Interviewer: like a Cadence or Arsenaultis. That does make sense because when you’re doing these kind of acquisitions, it’s more like talent wise acquisitions, right? Yes. Like you’re buying the company because there’s maybe ten, fifteen of those engineers that are very hard they’re working very hard on a single niche tool, a niche solution, which you might be able to leverage in your bigger end to end solution?

John Wall, CFO, Cadence Design Systems: Absolutely. I mean, generally, the character of Cadence is, I mean, the company has over 13 people now, more than 90% of the company have engineering qualification. That’s an incredible engineering base The core nature and DNA of the company is that it’s a company created by engineers for engineers. And they’re always trying to solve their peers’ problems for them. We’re always trying to help everybody do their jobs better.

And the nature of those engineers is they always prefer to make rather than buy. So even if an acquisition is out there and there’s an acquisition opportunity, just because an opportunity doesn’t mean we’ll go after something like that. Typically, we look for is will it further our strategy, will it accelerate our timeline in terms of the strategy that we’re trying to implement, Does it bring new technology and new talents to Cadence that we don’t already have? And the most important question is, is it at a price point that makes sense for us? And often the answer to that is no, and we’d rather invest in our own team and our own people or hire some people to go after those opportunities.

And just the nature of cadences, we’re long term in nature. We always say we’re farmers, not hunters, but we would rather plant now and grow over time than do an acquisition.

Jenny, Interviewer: That makes sense. And I guess like on this point, it’s interesting because we’re living in this year and even in 2024 where the AI talent war is huge, right? So we know that on the one hand, electrical engineers, so people that go into becoming a verification engineer, that’s already a limited supply of those people. But the people who are doing AI, soft development and hardware engineering, it’s even more of a niche. So I guess the question would be, how are you retaining your AI talent?

And especially given the big shift and the big push that you’re doing with cadence.ai, which requires knowledge of both of those things?

John Wall, CFO, Cadence Design Systems: Yes. I mean, great question again. The in terms of AI talent, I do think people that are interested in that field are naturally attracted to a place like Cadence because you get the opportunity to work on that. I’m not sure AI is the greatest name for what it is. That probably confuses a lot of people.

I mean applied statistics might be a better name for it in terms of more a clearer description of what it actually is. But and engineers at Katz, I mean for years and years, like when Anruud was looking at our simulation capability and the power of our matrix multipliers that when started doing that exercise, we realized that maybe 30% of Cadence’s revenue was from simulation activity and that and just having that like the capability, the knowledge, the opportunity at Cadence, I do think it tends to attract talent, but and then we can always engage with our customers, many of our customers that we compete with for that talent that also rely on us for tools. So there’s opportunities for them to outsource some of their AI needs to us as well if the talent is tough to come by. That makes sense.

Jenny, Interviewer: I guess I think we have one last time for maybe one to two questions, especially both because there’s NVIDIA earnings coming No one cares about NVIDIA. It’s just the biggest company in the world. So I guess I’d like to conclude with asking about, to your point acquisitions and you rather you mentioned you rather be a farmer than a hunter and that’s been the case for Cadence, right? If you look at it over time, you’ve done very few acquisitions and the ones that you’ve done are quite small. I mean the largest one was B2CAE, which was sort of like a needed one, right, because you’re now competing against ANSYS.

Doing structure analysis. You ought to compete also in that space and you have the customer and the customer base to do some cross selling. I guess the question would be within the M and A landscape, what is your vision for the next two to three years? Are you still going to be doing some small bolt ons? And if you’re doing these small bolt ons, do you see them being more in IP simulation or a combination of both?

I don’t see it to be an EDA, but maybe I’m wrong.

John Wall, CFO, Cadence Design Systems: Right. Well, there’s not a lot in EDA to buy. Exactly. But ultimately, it’s customer driven. We’re not opportunistic.

Just because something is available for sale doesn’t mean that we’re interested, but we’ll basically take our lead from customers, and we’re always focused on solving customers’ problems. But and then when we look at like M and A opportunities, we prepare to make rather than buy. So the nature of the M and A we’ve done have been what we describe as tuck ins internally. Mean, I don’t think we spent more than one or 2% of our market cap at any point in time on an acquisition, but naturally as you’re getting bigger, maybe we’re doing slightly bigger dollar value acquisitions, but it’s just based on the size of the company. But it’s really tuck in opportunities that and the type of thing on the system design analysis side, there is great opportunity.

We’re very focused on driving profitable and sustainable revenue growth and we’re focused on that bottom line, making sure earnings is growing. We like to cannibalize our own share count by buying it back. But when we’re looking at those opportunities, often we’re looking at areas to where with limited investment, it opens up new revenue streams for us. So if we have a lot of simulation talent and capability internally within Cadence as a core competence and then we can make a small acquisition, small tuck in acquisition that gives us some domain expertise, it’s a pretty low stakes bet, but your very limited investment and opening up a new opportunity, beta was a great example where they had capability that we never had that, but not only did they did it create opportunities for us with beta and being able to work with them more closely, but it created a whole bunch of pull through opportunity for the rest of our System Design and Analysis portfolio products. That’s been very, very successful so far.

Jenny, Interviewer: Amazing. John, thank you so much, Richard too. Thanks, Geoff. My pleasure.

John Wall, CFO, Cadence Design Systems: Thank you. Thanks, everybody.

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