Earnings call transcript: Cadence Design Q2 2025 beats estimates, stock up

Cadence Design Systems (CDNS) reported a strong performance for Q2 2025, surpassing market expectations with an earnings per share (EPS) of $1.65, compared to the forecasted $1.57. The company also exceeded revenue predictions, reporting $1.28 billion against the anticipated $1.26 billion. Following the announcement, Cadence’s stock rose by 0.47% in after-hours trading, closing at $333.88. According to InvestingPro data, the stock is currently trading near its 52-week high of $335.16, though analysis suggests it may be overvalued at current levels. The company raised its full-year revenue and EPS guidance, reflecting a positive outlook on its growth trajectory.

Key Takeaways

• EPS of $1.65 beat expectations by 5.1%.
• Revenue of $1.28 billion exceeded forecasts by 1.59%.
• Stock price increased by 0.47% in after-hours trading.
• Full-year revenue guidance raised to $5.21-$5.27 billion.
• Continued growth driven by AI and system design innovations.

Company Performance

Cadence Design Systems demonstrated robust growth in Q2 2025, with a 20% year-over-year increase in revenue and a 29% rise in non-GAAP EPS. InvestingPro analysis reveals impressive gross profit margins of 85.86% and an overall financial health score rated as "GREAT," underlining the company’s operational efficiency. The company’s performance was bolstered by strong demand in AI infrastructure, high-performance computing (HPC), and the automotive sector. Cadence’s strategic focus on AI-driven design solutions and its expansion into emerging markets contributed significantly to its success.

Financial Highlights

• Revenue: $1.28 billion, up 20% year-over-year.
• Earnings per share: $1.65, up 29% year-over-year.
• Cash balance: $2.82 billion.
• Operating cash flow: $378 million.
• Debt principal value: $2.5 billion.

Earnings vs. Forecast

Cadence’s Q2 2025 results surpassed analyst expectations, with an EPS surprise of 5.1% and a revenue surprise of 1.59%. This marks a continuation of the company’s trend of outperforming market forecasts, driven by its innovative product offerings and expansion into new markets.

Market Reaction

Following the earnings announcement, Cadence’s stock rose by 0.47% to $333.88 in after-hours trading. This movement reflects investor confidence in the company’s ability to sustain its growth momentum. The stock is nearing its 52-week high of $335.16, indicating strong market sentiment. InvestingPro data shows impressive returns of 29% over the past year and 11.5% over the last six months, with 15+ additional ProTips available for subscribers seeking deeper insights into CDNS’s performance metrics.

Outlook & Guidance

Cadence has raised its full-year revenue guidance to a range of $5.21-$5.27 billion, representing a 13% growth. The company also increased its non-GAAP EPS guidance to $6.85-$6.95. This optimistic outlook is supported by expectations of higher backlogs and continued investment in AI-driven design solutions.

Executive Commentary

CEO Anirudh Devgan emphasized the opportunities presented by the AI-driven era, stating, "The AI driven era presents tremendous opportunity." He also highlighted the company’s focus on innovation with, "We are pushing on both dimensions of Moore’s Law and heterogeneous integration." CFO John Wall added, "Our goal is always to deliver measurable ROI through productivity gains."

Risks and Challenges

• Potential impact of China revenue restrictions.
• Increasing complexity in chip design.
• Market saturation in core EDA tools.
• Macroeconomic pressures affecting global demand.
• Supply chain disruptions impacting production timelines.

Q&A

During the earnings call, analysts raised questions about the potential impact of China revenue restrictions and the company’s strategy for adopting Agentic AI. Cadence highlighted its growth potential in the IP and system design markets, addressing concerns about its ability to maintain competitive advantage amidst growing design complexity. For investors seeking comprehensive analysis, a detailed Pro Research Report covering CDNS’s competitive position, financial health, and growth prospects is available exclusively through InvestingPro, along with advanced valuation metrics and peer comparison tools.

Full transcript - Cadence Design Systems Inc (CDNS) Q2 2025:

Conference Operator: Ladies and gentlemen, good afternoon. My name is Abby, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Cadence Second Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

Thank you. And I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead.

Richard Gu, Vice President of Investor Relations, Cadence: Thank you, operator. I’d like to welcome everyone to our second quarter of twenty twenty five earnings conference call. I’m joined today by Anir Devgan, President and Chief Executive Officer and John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call and a copy of today’s prepared remarks will be available on our website cadence.com. Today’s discussion will contain forward looking statements, including our outlook on future business and operating results, as well as the impact of our DOJ and BIS settlements.

Due to risks and uncertainties, actual results may differ materially from those projected or implied in today’s discussion. For information on factors that could cause actual results to differ, please refer to our SEC filings, including our most recent Forms 10 ks and 10 Q, CFO Commentary and today’s earnings release. All forward looking statements during this call are based on estimates and information available to us as of today and we disclaim any obligation to update them. In addition, all financial measures discussed on this call are non GAAP unless otherwise specified. The non GAAP measures should not be considered in isolation from or as a substitute for GAAP results.

Reconciliations of GAAP to non GAAP measures are included in today’s earnings release. For the Q and A session today, we would ask that you observe a limit of one question only. If time permits, you can re queue with additional questions. Now I’ll turn the call over to Anirud.

Anirudh Devgan, President and Chief Executive Officer, Cadence: Thank you, Richard. Good afternoon, everyone, and thank you for joining us today. Cadence delivered exceptional financial results for the second quarter of twenty twenty five, exceeding our Q2 revenue and EPS guidance, driven by ongoing broad based strength across our AI driven product portfolio. Bookings were stronger than expected, highlighting the strategic relevance of our AI driven portfolio and the depth of our customer relationships. Demand for our technologies continues to grow, driven by customers embracing our products at scale and we are raising our financial outlook for the year to 13% revenue growth and 16% EPS growth for 2025.

John will provide more details on both our Q2 results and the updated outlook. We continue executing to our intelligent system design strategy initiated in 2018, which remains a clear differentiator in a rapidly evolving landscape. Our early investment delivering to our vision of unified EDA, IP, three d IC, PCB, and system analysis are paying off. These capabilities are enabling us to lead through the accelerating waves of the AI super cycle. From AI infrastructure build out to physical AI in autonomous systems to the emerging frontier of sciences AI.

Customer r and d investments remain robust, particularly as AI drive exponential design complexity such as in advanced node design and complex system architectures. And this is translating into broad based demand across our portfolio. Embedding agentic AI into our design platforms across core EDA, system design, and system simulation workflows enables the evolution from a traditional tool based flows to autonomous goal driven agents. Our Cadence AI portfolio powered by multiple autonomous silicon agents and built on our unified JEDI platform with NVIDIA accelerated compute is delivering optimized design and massive efficiency gains for our customers. At Cadence Live twenty twenty five, we introduced the new Millennium m 2,000 AI supercomputer featuring NVIDIA Blackwell, delivering AI accelerated simulation at unprecedented speed and scale across engineering and science workloads.

This tightly co optimized hardware, software, full system stack delivers up to 80 x higher performance and up to 20 x lower power versus traditional CPU based systems. Multiple customers provided endorsements including Ascendant, MediaTek, and Treeline Biosciences. In q two, we further our long standing partnership with ADI through a broad proliferation of our core EDA software, including AI driven Cadence Cerebras and Vericium solutions, as well as system software across PCB, advanced packaging, and system analysis. Also in q two, we deepened our partnership with SK Hynix through a broad expansion of our EDS software, system software, and design IP solutions. And a major semiconductor company meaningfully expanded its relationship with Cadence in q two

: through a broad proliferation of our EDA, IP, and SDA portfolio.

Anirudh Devgan, President and Chief Executive Officer, Cadence: We furthered our long standing collaboration with TSMC to accelerate time to silicon for customer designs using three d IC and advanced node technologies, such as TSMC’s a 16 and n two p through certified design flows, silicon proven IP, and ongoing technology collaboration. We continued the strong momentum in our IP business, delivering more than 25% year over year growth in Q2, driven by product strength and a broadening silicon solutions portfolio. AI and HPC use cases spearheaded the strong demand for our IP offering with advanced technologies such as h b m four and two twenty four gig SerDes, notching key wins for scale up and scale out in the AI infrastructure space. We built on our strategic collaboration with the emerging advanced foundry as they awarded us a large deal in q two for our leading h b m four solution. We introduced the industry’s first LPDDR6 memory IP, offering up to 50% higher performance to meet the growing memory and capacity needs of AI LLMs and agentic AI workloads.

At Cadence Live twenty twenty five, we launched the Cadence Tensilica NeuroEdge one thirty AI coprocessor to accelerate physical AI applications. And in q two, a market shaping wireless technology company selected Tensilica HiFi five s as the standardized audio solution for its music and voice platform. Our core EDA revenue grew 16% year over year in q two. Further proliferation of our digital full flow at the most advanced nodes continued. And more than 50% of advanced nodes design using our implementation solutions are now using Cadence Cerebras.

In q two, we launched Cadence Cerbras AI Studio, the industry’s first agentic AI multi block and multi user SOC design platform. This technology delivering up to 20% PPA improvement while accelerating chip delivery time by five to 10 x was endorsed by Samsung and SD Microelectronics at launch.

: And

Anirudh Devgan, President and Chief Executive Officer, Cadence: Renesas successfully used our Pegasus physical verification solution to sign off an advanced node SoC after it demonstrated a significant throughput advantage. Our industry leading Palladium z three and Protium x three platforms accelerated their momentum delivering outstanding results with q two being the best revenue quarter ever for our hardware systems. Demand for hardware was strong and broad based, driven by AI, HPC, and automotive customers. Our verification software suite that includes Vericium, Accellium, and Jasper and leverages big data and AI to optimize verification workloads, saw continued expansion with 27 new logos in q two. Building upon thirty years of industry leadership, we launched the Virtuoso Studio ’25 dot one release, offering broad support for RF, photonics, mixed signal, and advanced heterogeneous design.

Our leading Spectre x circuit simulator closed several deals with strong growth, while our fast paced Spectre FX platform has now been adopted by the top three memory companies. Our system design and analysis business delivered another standout quarter with 35% year over year revenue growth. On the packaging front, there was strong customer uptake of our three d IC technology. And top foundries and semi customers embraced our AI driven advanced substrate router, which provides tremendous productivity benefit. Our AI driven Allegro X PCB design platform saw continued proliferation as multiple aerospace and defense, hyperscale, and EV customers took advantage of the platform’s meaningful productivity and next generation capability.

Our Clarity and Celsius solvers saw significant expansion at a major hyperscaler, and Clarity secured a key win at a marquee AI company, while our reality data center digital twin drove strong growth at a top hyperscaler. Beta CAE technology integration with our CFD, thermal, and electromagnetic products were released as beta CAE solutions continue to score key competitive wins, particularly in the automotive segment. Finally, I’m pleased to share that we have entered into a settlement with the US Department of Justice and the US Department of Commerce’s Bureau of Industry and Security. That resolved the previously disclosed investigations into certain transaction with customers in China that occurred between 2015 and 2021. The settlement represents a mutually acceptable path forward for all parties and we believe are in the best interest of our customers, partners, and shareholders.

I want to emphasize that Cadence is deeply committed to the highest standards of compliance, and we have significantly enhanced our compliance processes over the last few years and continue to implement improvement measures to proactively address evolving trade restrictions. We remain focused on delivering for our customers and shareholders and executing the clear strategy we have laid out to drive innovation and enhanced value creation. In summary, I’m delighted with our q two results and the continued momentum across our broad and innovative portfolio. The AI driven era presents tremendous opportunity and the co optimization of our comprehensive EDA and SDA portfolio with accelerated computing and GenAI uniquely positions us to deliver breakthrough solutions across a wide range of markets. Now, I will turn it over to John to provide more details on the Q2 results and our updated 2025 outlook.

John Wall, Senior Vice President and Chief Financial Officer, Cadence: Thanks, Enarud, and good afternoon, everyone. I’m pleased to report that Cadence delivered excellent results for the 2025 with broad based momentum across all of our businesses. Strength in other regions more than offset the impact of the export restrictions on China outlined in the BIS letter dated May 23, which was later rescinded. Robust design activity and customer demand coupled with our strong execution drove 20% revenue growth and 29% non GAAP EPS growth year over year for Q2. Here are some of the financial highlights from the second quarter starting with the P and L.

Total revenue was $1,275,000,000 GAAP operating margin was 19 and non GAAP operating margin was 42.8% and GAAP EPS was $0.59 with non GAAP EPS $1.65 Next, turning to the balance sheet and cash flow. Cash balance at quarter end was $2,823,000,000 while the principal value of debt outstanding was $2,500,000,000 Operating cash flow was $378,000,000 DSOs were fifty one days and we used $175,000,000 to repurchase Cadence shares. Before I provide our updated outlook, I’d like to share what’s embedded. As Anru had mentioned, I’m pleased that we’ve reached a settlement with the DOJ and BIS resolving previously disclosed investigations into certain China sales from 2015 to 2021, totaling approximately $45,000,000 over the six year period. As part of the agreements, we’ll make a payment of approximately $141,000,000 in our third fiscal quarter.

Please see our Form eight ks, which includes additional details regarding the terms of the agreements. On 07/04/2025, the One Big Beautiful Bill Act was enacted in The United States. This act includes the restoration of favorable tax treatment for certain business provisions, including the immediate expensing of United States research and development expenditures. We expect it to decrease Cadence’s United States federal tax payments for the remainder of fiscal twenty twenty five by approximately $140,000,000 Our updated outlook includes the timing of the settlement penalty, the cash tax benefit of the OBBBA and the usual assumption that export control regulations that exist today remain substantially similar for the remainder of the year. Our updated outlook for 2025 is revenue in the range of 5,210,000,000.00 to $5,270,000,000 GAAP operating margin in the range of 28.5% to 29.5%, non GAAP operating margin in the range of 43.5% to 44.5% GAAP EPS in the range of $3.97 to $4.07 non GAAP EPS in the range of $6.85 to $6.95 operating cash flow in the range of 1.65 to $1,750,000,000 and we expect to use at least 50% of our annual free cash flow to repurchase Cadence shares.

With that in mind, for Q3, we expect revenue in the range of $1,305,000,000 to $1,335,000,000 GAAP operating margin in the range of 32% to 33%, non GAAP operating margin in the range of 45% to 46%, GAAP EPS in the range of $1.14 to $1.2 and non GAAP EPS in the range of $1.75 to $1.81 As usual, we published a CFO commentary document on our Investor Relations website, which includes our outlook for additional items as well as further analysis and GAAP to non GAAP reconciliations. In conclusion, I’m pleased with our strong first half results and the robust pipeline for the second half of the year. At the midpoint, we now expect revenue growth of 13% and non GAAP operating margin of 44% for the year. I’d like to close by thanking our customers, partners and our employees for their continued support. And with that operator, we will now take questions.

Conference Operator: Thank you. And at this time, I would like to remind everyone who wants to ask a question to please press star and then the number one on your telephone keypad. As a courtesy to all participants, we ask that you please limit yourself to one question. And our first question comes from the line of Joseph Verwink with Baird. Your line is open.

Joseph Verwink, Analyst, Baird: Great. Thank you for taking my question. I wanted to ask a question on physical AI. It seems like over the past quarter or so, many of your key development partners have had more to say around what they’re doing with devices or even small language models maybe as a means to enabling physical AI. Is this factoring into the booking strength you’ve seen recently?

And is it maybe leading to more spend or or different spend with Cadence just in terms of the tools that this is going to need versus what the initial build out of AI infrastructure has meant?

Anirudh Devgan, President and Chief Executive Officer, Cadence: Yeah, Joe. This is a great question. And first of all, I’m very pleased by our results and our performance and the demands of demand of our products, which is which is broad based. And also, I think there is first of all, I believe there is overall optimism in the benefits of AI in our customers, you know, both from, you know, what they can you know, their own product and also how they can use AI internally. So therefore, they are investing more in their innovation and given the critical nature of our products investing more in cadence.

Now it has several aspects to it. And and, you know, I have been a big fan of physical AI for a long time because one unique advantage we have in Cadence is the privilege to work with all the top companies in the world. And we believe that, of course, AI infrastructure is huge, but physical AI has a potential of being even bigger and then followed that with science of AI. That’s why we have laid this three phase evolution of AI. And now, you know, if you look in the in the marketplace also with autonomous cars or robots and drones, it is becoming much more, you know, public.

And, you know, our advantage is even though some of these things come out later, you know, the customers start investing in r and d before they come out in public, you know. So so but I I think physically, I will will play a very role for our products because the the the silicon required, first of all, and physical AI will affect the whole three layers of the of that AI cake that I’ve talked about. So first of all, the silicon is different in in in the car or in the robot or in the edge devices is different than data center silicon. I mean, it’s still AI driven, but it’s more power optimized, runs on lower battery as you know. So the silicon is different.

The simulation and design is different. And of course, AI model themselves are different. They’re more word model than LLMs. But all these physical AIs still need to be trained, you know. Even if the inference, like, for autonomous car runs on the car, the actual AI model is trained on the data center.

So the beautiful thing of physical AI is not only it creates new opportunities for us, it also emphasizes the importance of AI infrastructure in the data centers. So it is helping both sides of that equation. And so we are benefiting from that, you know. And we are, as you know, working with all the main AI data center players, you know, as they design chips and systems. So so the impact is both on the data center side and the edge side.

But this is still a evolving market. I think physical AI is still in the early innings. You know, there’s still like three to five years of more development to go. So but overall, I think what I would like to say is that the customer environment is I feel personally is better than it was six months ago.

Joseph Verwink, Analyst, Baird: That’s great. Thank you.

Conference Operator: And our next question comes from the line of Gian Marco Conte Your line is open.

Gian Marco Conte, Analyst: Yes. Hi, there. Thank you for taking my questions. I mean, congrats on another amazing quarter. Simply what led to Cadence increasing the growth outlook even though you could not recognize one month of China revenue?

I guess like the curiosity of whether there was a single stack of renewals across EDA or was this across all fronts? And maybe you can give us more comment on backlog in the development for the year. Thank you.

John Wall, Senior Vice President and Chief Financial Officer, Cadence: Yes, Jenny, great question. I mean, yes, it’s been an interesting quarter. I mean China was ended up being nine percent of our revenue in Q2. That’s down from 11% in Q1. But we’ve seen strong demand across all geographies.

And strength in other regions more than offsets any near term softness related to China during Q2. We’ve spoken in the past about how well diversified our customer base is and we’re increasingly seeing growth and we’re seeing the growth in bookings from AI, HPC and system design workloads globally. But we’re very, very pleased with the way backlog ended up Q2. The end It is stronger than we expected going into the quarter despite all of the restrictions. But and yes, we’re very, very pleased with where we are halfway through the year.

Anrud, anything to add?

Anirudh Devgan, President and Chief Executive Officer, Cadence: No, John. That’s right. I mean, overall that I would like to say the demand is broad based. You know, you can see it in all the results of all the three main lines of business. I mean, hardware is doing phenomenally well.

You know, we had a record quarter ever, you know, in terms of revenue. And we have a clear lead in hardware and and also we are essential to all the major AI chips being designed using a palladium and our EDS software. And then, you know, all these agentic AI tools like, you know, Cerberus AI studio. I mean, that’s a phenomenal new product. And then Vericium, Allegro X.

So so I think both the software and hardware business is doing well in core EDA. And then IP had a great quarter. I mean, there’s lot of reasons behind that. One is the AI infrastructure build out, but also, you know, there are at least four major companies doing advanced node foundries now, you know, with with TSMC, you know, our long standing partner. Samsung, even today, there’s a big announcement from Samsung Foundry, you know, Intel with eighteen a, fourteen a, and Rapidus in Japan, you know.

I just came back from Japan with this big opening of Rapidus. So there are at least four advanced node foundries that all require IP. So I think that’s also driving strength in IP. And then system continues to do well because of our focus on on, you know, three d IC which is the the fastest growing part of the system market. And and, you know, beta is is providing us a good kind of integration with rest of the flow and new products like Millennium.

So if I look at all the three main, you know, areas, I think I feel we are very well positioned. And the market itself seems to be improving with the AI super cycle.

: Got it. Thank you.

Conference Operator: And our next question comes from the line of Vivek Arya with Bank of America. Your line is open.

Vivek Arya, Analyst, Bank of America: Thank you for taking my question. Just a near and longer term China impact question. So on the near term, how much of a headwind was China in Q2? I know John you mentioned they went from 11 to 9%, but what was kind of the expectation? Then if we zoom out for all of 2025, I think in the past you had said China sales were expected to be flat year on year.

Is that still the right approach because that would still imply quite a bit of a lift in the back half? And then Anil, if we look longer term, what is the right China exposure for Cadence? Does it naturally just come down over time? Or will it probably stay at this 9%, 10%, 11 kind of range over the longer term? Thank you.

John Wall, Senior Vice President and Chief Financial Officer, Cadence: Vivek, look I’ll start because I understand your question. I mean, would view our outlook for China to be optimistic, but prudent. I mean our guidance reflects what we believe to be a prudent and well calibrated view of the second half of the year. The export control environment is dynamic. And while we’ve incorporated current regulatory framework as of today into our assumptions, we always add some prudence to account for potential variability whether that’s geopolitical or operational.

But we’re very, very pleased with how China is doing. It’s I know last quarter we told you that we were expecting it to be flat. It’s hard to see how China won’t increase a little bit over last year. But we’ve been prudent with our guide.

Anirudh Devgan, President and Chief Executive Officer, Cadence: And Vivek, long term, I mean China, you know, will of course, is going to invest in in chip design and system design just like all geographies. But I think the the percentage of revenue should be similar or maybe you know, maybe a little down, but because not because China won’t do well, but I think the rest of the world is doing phenomenally well. Right? All the investment you’re seeing in US and then Japan, Korea, I mean, so so isn’t not not to say in particular about China, but I think the rest of the and which we saw in q two also, there is significant investment. So given that context, it’s difficult to predict exactly what China will do, but it’s good to see that, you know, China is doing well, but the rest of the world is doing even better.

Jay Fleeschhouwer, Analyst, Griffin Securities: Thank you.

Conference Operator: And our next question comes from the line of Harlan Sur with JPMorgan. Your line is open.

: Good afternoon and great job on the quarterly execution. If I look at many of the AIXPU, a six, and merchant chip design programs that are in design right now, many of them are looking to transition from two and a half d to three and a half d advanced packaging architectures, which includes chip stacking. Right? And many of these programs, they’re gonna start taping out second half of this year. And in some cases, your customers are integrating up to, like, 10 chips in a single package.

Right? This is a very complex undertaking, integration, floor planning. On top of that, you got signal integrity, thermal power challenges. Wondering how much is this contributing to the bookings and revenue strength as more of your customers are adopting your Integrity three d IC or your Allegro X advanced packaging platforms to tackle these challenges of three and a half d packaging? And then how much is advanced packaging roughly contributing to your overall revenues?

Anirudh Devgan, President and Chief Executive Officer, Cadence: Yeah. Harlan, that’s a great question and and a great observation, of course. I mean, whole industry, in HPC and AI is moving to this chiplet based architectures. And also, I think it’s not just limited to to the data center. Even, you know, if you look at the latest auto designs and all they all all the other markets will, I think, over time, move to this new packaging architecture.

And we are you know, Cadence is uniquely and very well positioned. I mean, I think we have talked even earlier. Allegro is the platform of choice for package design. Yep. And three d IC is another way of talking about package design.

And then at the same time, we have Virtuoso, which is analog, Innovus, which is digital, and then all the system analysis tools like Clarity and and Voltas and Celsius for so so so and that is all incorporated into into Integrity. And then we closely worked with the TSMC. You know, the TSMC had done a fabulous job, by the way, in three d IC. And we have worked closely with TSMC over the last several years, you know, to develop this three d IC flow that is used by most of their main customers. And then now, you know, RapidOS and Samsung and Intel, we’re working with all the other foundries to develop this kind of three d IC flow because it will be critical for all the other foundries.

And, you know, we don’t explicitly call out Allegro in our SD and A business, but it is a significant part of that business. But also Yep. It pulls in, you know, the other things. You know, it’s not just Allegro by itself, but it naturally pulls in analysis tools, you know, and clarity and and all those things. And even the base tools like like Virtuoso and Innovus.

But it is a platform of choice for all the major companies as they implement this new three d IC or now three and a half d IC technologies.

John Wall, Senior Vice President and Chief Financial Officer, Cadence: Thanks, Sanil.

Anirudh Devgan, President and Chief Executive Officer, Cadence: You know, this is only in the beginning. I think any even in TSMC, OIP, they showed roadmap that this is only going to increase. I mean, this is the orthogonal access to I mean, you know, this is orthogonal access to Moore’s Law. So Moore’s Law, first of We are always worried about, you know, this is natural questions from investors or employees sometimes, you know, how long will the Moore’s law continue?

So first of all, Moore’s law, anyway, is gonna go to at least one Right? So we are at three, you know, two, one point four one. Okay. That’s ten years. And I visited, you know, some of our research partners like iMac and they’re planning, you know, Moore’s Law to go till 2042 with new transistor structures.

But at least for next ten years, I see Moore’s Law being strong. But then this three d IC and heterogeneous integration provides the orthogonal levels of integration. And if you look at TSMC and other road maps, you know, right, they have very aggressive road maps to be able to put more and more chips, like you said, in a package. So we are pushing on both of these dimensions. You know, Moore’s Law, we wanna make sure we we are aligned with all the latest technologies and customers, and then this three d IC and heterogeneous integration.

: Great. Thank you, Anwar.

Conference Operator: Our next question comes from the line of Lee Simpson with Morgan Stanley. Your line is open.

Lee Simpson, Analyst, Morgan Stanley: Great. Thanks and well done on another great quarter. I think it falls to me to maybe ask about the AgenTic systems. Know again this is second quarter you brought it up. It does look as though developments moving ahead.

And I think if the comments are to be interpreted right, you are seeing some early sales, what assumes in sort of pilot line development. But I’m trying to I’m still trying to put this into perspective. What if we take a step back, do we need a new business model or a different go to market strategy to get full value here? And more generally, how will you monetize this added value that an agentic system will bring to the customer? Just any thoughts around that and maybe timing as well because it does look as though this is relying on still early stage reasoning models.

Thanks.

Anirudh Devgan, President and Chief Executive Officer, Cadence: Yeah. Lee, that’s a good question. So, I mean, as you know, we we we package them separate from our base tools. So, of course, base tools are phenomenal, but then we have these agentic workflows on top of our base tools. And customers are embracing both our base tools and agentic AI flow.

I mean, two great examples. I mean, one of them we I mentioned briefly is in the back end, you know. Cerberus Cerberus by itself, like like I mentioned, is more than 50% of our designs are already using Cerrebus, which let’s call it classical AI. But now with Cerrebus AI Studio, it’s a whole workflow. So it’s more it’s a agentic AI solution.

Instead of just doing block implementation, it does floor planning, it does timing closure. So what typically designer could do, like, you know, three to 5,000,000 instance design, they could do, like, 30 to 50,000,000 instance. So it’s it’s a massive productivity and PPA benefit as as the AI does more of the manual work that was manual in the past. So that tool itself had lot of early adopters, like we mentioned on the call, Samsung and SD and others. And then there is on the other side, which is verification and RTL writing.

You know, this whole notion of LLMs generating and reasoning element generating code is a big thing, not just in software development, like CC plus plus, but also, you know, chip design and RTL. So those two areas are very, very positive. One is in the front end with RTL generation and verification, and the other is in the back end and, you know, PPA optimization. And and that those are different tools than our traditional tool set, and we we engage with customers in that. And our philosophy always is because we have a long history of innovation and automation in EDA, our philosophy is to deliver value to customers.

Their workload is going up anyway and align with the top customers and usually they will, you know, reward us for that. And that’s our history over the last ten years. And so we are focused on innovation and productivity. And we have all kinds of business models to monetize that in any way and we’ll see how that progresses over time.

Lee Simpson, Analyst, Morgan Stanley: Great. That’s a very full answer. Thank you.

Conference Operator: And our next question comes from the line of Jim Schneider with Goldman Sachs. Your line is open.

Richard Gu, Vice President of Investor Relations, Cadence0: Good afternoon. Thanks for taking my question. I was wondering if you maybe could talk a little bit more about the core EDA results, strong in the quarter with a lot of growth. Can you maybe cite some of the drivers of the strength in the quarter be it new customers or cerebris pricing benefits or anything else that was one time nature? And maybe give us a sense about how you expect the cadence of the core EDA revenue to trend in the back half of the year?

Thank you.

Anirudh Devgan, President and Chief Executive Officer, Cadence: EDA core EDA is doing phenomenally well. I mean, just to remind I mean, I think most of our investors know this already, but just to remind that we have the broadest portfolio in core EDA. You know, we have digital, which we are leading position in, especially in the TSMC ecosystem, Virtuoso, which is the fact of standard in analog mixed signal. Verification, we have all the verification software tools and Palladium and Protium in hardware. So Cadence has the most comprehensive EDF portfolio on the market.

And and as, you know, AI you know, as AI adoption happens, you know, it’s both the core product portfolio plus the AI driven agents that we we talked about, and we saw signs of that in in q two. And then some of the key customer wins we highlighted is, of course, SK Hynix. They’re doing phenomenally well as you know with the with the AI and HPM. You know, ADI which is long term cadence partner. And then overall strength in hardware which was very broad based than in IP and in end systems which is outside of EDA.

So overall, I think, you know, I’m I’m pleased with that. Of course, as you know, we never focus on, you know, one individual quarter. They could be quarter by quarter variation. But overall, I think EDA is doing well and I expect it to grow going forward.

John Wall, Senior Vice President and Chief Financial Officer, Cadence: And Jim, we’re getting proliferation at marquee customers and we’re seeing the second half looks particularly strong in the software side as well as hardware on the in core EDA.

Gian Marco Conte, Analyst: And

Conference Operator: our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Your line is open.

Richard Gu, Vice President of Investor Relations, Cadence1: Thanks for taking my question. Know, John, if I if I think I heard you correctly, I think you said that China would be up a little bit this year versus flat previously. You know, this is on top of, I I assume, you know, the China restrictions that were temporary. So this in itself seems important. I don’t know if you’ll you’re able to indulge us a little bit, but what do you think China growth could have been if those restrictions, you know, never happened?

Like, if we never had those six weeks? Thanks.

John Wall, Senior Vice President and Chief Financial Officer, Cadence: Yeah. Yeah. Jason, I mean, great question. Very, very difficult to to kind of figure out what revenue would have been in that kind of parallel universe where that never happened. The the one thing I take comfort from though is that, you know, the the restrictions came and they went.

But so I think the focus on the year and when I look at the year that previously we thought the year would be flat for China with the strength that we’ve seen across the board, across all businesses and across all geographies, it’s really hard to see China remaining flat year over year now. But I think it will be slightly up. But of course, we’re normally very prudent with our guide and thought it was appropriate to remain prudent with the outlook for the year. So we’ve been cautious but optimistic with that outlook.

Richard Gu, Vice President of Investor Relations, Cadence1: Okay, great. Sounds good. Thank you.

Conference Operator: And our next question comes from the line of Gary Mobley with Loop Capital. Your line is open.

Richard Gu, Vice President of Investor Relations, Cadence2: Hi, guys. Thanks for taking my question. John, when we entered the year, I think your expectation, correct me if I’m wrong, was the year with a strong period renewal period in the second half. And clearly, your bookings in the first half of the year have exceeded your expectation by, I assume, several $100,000,000. And so my questions are two part.

I want to confirm that the June ending backlog excludes China. And with the strength in the first half that you’ve seen, what does that tell you about the potential for the second half bookings and exiting the year with perhaps record levels of backlog?

John Wall, Senior Vice President and Chief Financial Officer, Cadence: Yes, Gary. Mean, very astute question. Yes, we to confirm we had to exclude a number of China bookings from our backlog by the end of Q2. We had to reserve for those because at the end of Q2 the restrictions were still in place for us. So the closing backlog at the end of Q2 reflects a lower level of backlog than it would have been had those China restrictions been rescinded prior to June 30.

But then in terms of the outlook for the year, yes, I’m pretty confident we’re going to end up the year with a higher backlog than we started the year. So I’m very comfortable that we’ll end up with a book to bill of one. Second half bookings, the renewal cycle is strong in Q3 and Q4. I think both Q3 and Q4 will have bookings that exceed our revenue in those quarters. But and like I say, we expect that the end of the year, we’ll have a new higher and record level of backlog than we had last year.

Richard Gu, Vice President of Investor Relations, Cadence: Thanks, John.

Conference Operator: And our next question comes from the line of Jay Fleeschhouwer with Griffin Securities. Your line is open.

Jay Fleeschhouwer, Analyst, Griffin Securities: You. Anu, you spoke earlier in answer to an earlier question in your prepared remarks about AgenTik AI. And I’d like to ask about the broader implications and requirements from that. One of the terms that’s come up this year more broadly in software, not just in EDA, having to do with AgenTic is orchestration. And in your world, specifically, if we think about what you’re providing with AgenTic AI or AI generally, it’s fundamentally, I think, a form of simulation.

And, therefore, the requirements for that would also seem to be new forms of process or data management and traceability, which is a critical function in simulation, if our thesis is right about what they’re really doing. So beyond just introducing these agents and and aids, how are you thinking about the broader portfolio and capabilities that you need to provide, customers, particularly since you referred to their workflows? Thank you.

Anirudh Devgan, President and Chief Executive Officer, Cadence: Yeah, Jay. That’s a great point. So, yes, you’re absolutely right. I mean, we want to make more of a workflow automation just like I mentioned with Cerebras AI Studio. So it’s not doing a point function.

It is doing multiple functions in in the together with reasoning. And the critical need is, you know, apart from the, you know, LLMs and all, there’s critical need for for, like, a data structure or database to to store all these actions. So what I’m pretty pleased about is the response of our customer to to JEDI. You know, we talked about JEDI being our joint enterprise data and AI platform, and it has both the data storage to because we need to capture not just one tool or one point in time, you know, multiple tools and multiple flows, like, just like a human would do. So JEDI has become a very essential part of our AI deployment to customers, and it’s a very flexible system, you know, because some of our customers, some really big customers want JEDI to be on prem because their data is very, sensitive.

Some customers are okay with, you know, JEDI being on the cloud, you know, okay to use cloud LLMs or or cloud data management. And then some customers want a hybrid, you know, on prem and cloud solution. So JEDI uniquely positions us to make that kind of invisible to the user. So but JEDI is critical along with the AI agents to deliver this solution to our customers. And we are able to do much more, and we’ll do much more of a full workflow solution along with JEDI and then the agents on top, whether it’s Vericium or Cerebras or Allegro X.

Jay Fleeschhouwer, Analyst, Griffin Securities: Got it. Thanks, Anurag.

Conference Operator: And our next question comes from the line of Joe Cotracki with Wells Fargo. Your line is open.

Richard Gu, Vice President of Investor Relations, Cadence3: Yes. Thanks for taking the question. Just a follow-up on another question on the China impact. I mean, I guess, can you help us understand what would have RPO been had the restrictions, not been in place exiting the quarter and it had been rescinded prior to exiting the quarter? Just that difference so we know what RPO, I guess, technically really is now?

And then just to clarify, on the full year guide increase, is that all driven by the upside from China? Or is it other regions as well?

John Wall, Senior Vice President and Chief Financial Officer, Cadence: Yes, Joe, just the second part of that question first. I mean, the increase is because of the strength we’re seeing across the boards and across all geographies. I mean, we were doing our updating our guide. The guide we gave you at the end of last quarter was without any China restrictions. And at the time we were updating the guide, we obviously knew that those restrictions have been rescinded.

So it is an apples to apples view when you compare the guides now against this time last quarter. We’ve taken the year up by €50,000,000 and we’ve taken up EPS by about €0.12 And that’s on the back of very strong bookings activity and performance that’s we’re seeing right across the globe. In relation to the backlog impact of China, when we held up revenue for China, any of those orders in which revenue was paused as a result of the China restrictions as of the end of Q2, we had to back out the booking from the backlog at that time. But I think if you look on a year over year basis, the right way to look at it is that we will end up the year with a higher and record level of backlog. The book to bill will be greater than one for the year, which indicates a very strong bookings half for us in the second half of this year.

But that’s mainly due to strength across all regions, across all geographies and we have a high level of renewal activity that just naturally falls into Q3 and Q4 because we have a number of expiring contracts in those quarters.

Richard Gu, Vice President of Investor Relations, Cadence0: Thank you.

Conference Operator: And our next question comes from the line of Charles Hsu with Needham. Your line is open.

: Taking Thank my question. Maybe this is for John. Hey, John. I think you reported the recurring revenue as a percentage in Q2 was 78%. This is probably a multiyear low.

And wonder what’s the expectation for the full year, the recurring revenue percentage, and what is the long term normalized level? May maybe this is a related question, if I may. I believe your hardware is mostly manufactured in The US, and presumably, there should be no direct tariff impact. But was there any customer behavior related pull ins that was seen in Q2 and possibly also in Q3? Thank you.

John Wall, Senior Vice President and Chief Financial Officer, Cadence: Yes, Charles, great questions. On the hardware side of the business, mean the hardware demand continues to amaze us really. I mean the tremendous products that we have there. But and the team is continuously trying to improve our production capability and manufacturing capabilities to produce those hardware systems as quickly as possible to try and keep up with that demand. We make hardware systems in North America for the North American market and outside North Of America for international market.

So we think our tariff exposure is quite limited. The yes, just generally on the strength in hardware in Q2 combined with us having to pause a lot of ratable revenue in China during Q2 caused the recurring revenue percentage to dip to about 78% for the quarter. But if you look typically, we look at that as a kind of a rolling annual number. We’d expect it to be about eighty-twenty, 80% recurring and 20% upfront. And that’s been growing.

I mean in the past that was probably 70 what was it eighty fivefifteen and now it’s gone more towards eightytwenty. But that’s really the result of the strength in demand for our upfront businesses, which mainly come out of IP and hardware.

: Thank you. Appreciate that. And

Conference Operator: our next question comes from the line of Ruben Roy with Stifel. Your line is open.

Richard Gu, Vice President of Investor Relations, Cadence4: Thank you for letting me ask a question. Anirudh, wanted to touch back on IP. I know IP historically has been a little bit lumpy, volatile, whatever the word you want to use. But you’ve had quite a bit of strength recently. IP was up, I think, 30% last year, 40% last quarter, another 25% this quarter.

You talked about your broadening portfolio. But it sounds like a lot of this is going into AI and HPC. And obviously, faster design cycles in those markets, etcetera, in recent years. I’m wondering if you could talk about your longer term perspective on IP growth. Is this sort of sustainable at potentially higher rates than you’ve thought about historically for that segment?

Thank you.

Anirudh Devgan, President and Chief Executive Officer, Cadence: Yes. That’s a great question. And, you know, in general, like, I think I am much more optimistic in IP than I was, let’s say, two, three years ago. And I mean, there are multiple reasons for that. One is, you know, we are investing more in IP now because we feel, first of all, that our EDA position is very, very strong.

You know, for years, we invested in EDA and we continue to do that. But at this point, we feel we are we are in a strong position in EDA. We are in a growing position in SDNA given, you know, three d IC and, you know, strength of Allegro and AI. And IP, historically, we didn’t invest as much and but things have changed. One is because of this, you know, like a previous question, you know, this emergence of chiplet based architectures, I think, provides more opportunities for IP.

Emergence of multiple advanced node foundries, you know, there are at least four major ones now, provides more opportunities for IP. And our portfolio has also improved with some good m and a, you know, like we got HPM four from Rambus and there’s several others over the last few years. So I feel now we are we are cross, like, a critical mass for IP to be a good business for us. And you’re seeing that last year, the one year doesn’t make a trend. I think we are seeing that this year.

And so but I do expect in longer term that IP can grow faster than cadence average, which is which is what we like to see in this. And now it will have slightly lower margin than EDA, but of course it can grow faster. So a rule of 40, you know, that’s a good area that and we continue to invest in that. And especially with the AI driven IPs, new foundries, this onshoring, I think it’s a good business for us and good growth for next several years I expect.

Richard Gu, Vice President of Investor Relations, Cadence5: Thank you.

Conference Operator: And our next question comes from the line of Clark Jeffries with Piper Sandler. Your line is open.

Richard Gu, Vice President of Investor Relations, Cadence6: Hello. Thank you for taking the question. Just a clarification on the tax benefits. I heard 140,000,000 for the remainder of the year. Just to clarify, is that for two quarters and that the annualized benefit might be close to double that?

And then just from a philosophy perspective, does this change around R and D expensing sort of change your appetite for incremental investment or near term windfall but normalized over time and no change to appetite? Thank you.

John Wall, Senior Vice President and Chief Financial Officer, Cadence: Hi, Clarke. Yes, I mean, no change at all to our approach and our strategy and our R and D investment. I mean, love investing in R and D. Think we do that quite well. But in relation to the tax consequences of the OBBBA thingy, but the primary change in fiscal twenty twenty five relates to the immediate expensing of domestic R and D.

The cash tax impact of that, we get benefit of about CHF $140,000,000 before the end of this year. But there’s a smaller portion of an impact to the GAAP P and L. Now from a non GAAP perspective, we use an effective tax rate of 16.5% that normalizes everything. So the impact of the OBBBA doesn’t change our non GAAP rate. For this year, it’s still at 16.5%.

But the one time difference on cash taxes for the year is about €140,000,000 Now you’ll see the benefit of that in Q4, but it’s already incorporated into our annual guide.

Anirudh Devgan, President and Chief Executive Officer, Cadence: Thank you.

Conference Operator: And our next question comes from Joshua Tilton with Wolfe Research. Your line is open.

Richard Gu, Vice President of Investor Relations, Cadence5: Hey, guys. Thanks for, sneaking me in, and congrats on a great quarter, and a nice raise for the full year outlook. Most of my questions have been answered already, so maybe more of like a medium term thought question. When you look at the guide for the full year, it still kind of implies that the recurring revenue side of the business is going to see muted growth. Now I know some of this is because, you know, there was a little bit of a hold this quarter because of China.

But how do we think, you know, long term, the trajectory of recurring revenue growth from here, and your confidence in the durability of total growth as maybe you roll off the hardware cycle or you start to see slower growth on the upfront side? Thanks.

John Wall, Senior Vice President and Chief Financial Officer, Cadence: Great question. Yes, I think what we’ve seen over the last few years is we’ve seen a drift towards kind of a lower level of recurring revenue, higher level of upfront revenue. But that’s mainly been as a result of IP and hardware and SD and A to a certain extent growing faster than the average cadence business. But I think I mean right now it’s we’re at eightytwenty, we’re not guiding anything. We’re at eightytwenty for this year that we continue to expect that that’s split that we’re not guiding for next year yet, but I actually think that the core EDA software is doing so well that there’s quite a good chance that eightytwenty remains for quite some time that because we’re seeing some we’re seeing good growth there.

Like we’re seeing a lot of growth right across the whole portfolio of the Cadence business and then across all geographies right now. So we’re very, very pleased with the way that’s working out. And really the change in recurring revenue is just a slight change in how customers consume our technology and our solutions and it’s how we provide them. And we’re just delighted with the continuous adoption from those customers.

Richard Gu, Vice President of Investor Relations, Cadence6: Love to hear it.

Richard Gu, Vice President of Investor Relations, Cadence5: Thanks for sneaking me in, Appreciate it.

Gian Marco Conte, Analyst: Thanks.

Conference Operator: And our next question comes from Naso Nain with Berenberg. Your line is open.

Gian Marco Conte, Analyst: Hi. Thank you for taking a question from me. And also congrats on the quarter and the good race in the full year guide. A question on AgenTiC AI, please. I was wondering if you could maybe share your thoughts on what do you think will be the toughest adoption barriers?

Because, you know, from from my point of view, at least, the agent AI product that you guys have, unlike, you know, the broader software AI that we’ve seen, ROI, you know, shouldn’t really be a sticky point here. So I was wondering, you know, what would be the the the sticking point here? Would it be the the operational challenges, I e, customers adopting or implementing your agentic workflows in their established workflows today, or is it more of a human element here where, unfamiliar with the technology or people are somewhat worried that, you know, their jobs may be at risk from adopting your AI solutions? Thank you.

Anirudh Devgan, President and Chief Executive Officer, Cadence: Yes. Very insightful quest I think one thing I would like to emphasize that there is a difference in chip design and system design versus general software, you know, what I’ve seen, you know, versus like because this is engineering software versus kind of IT or enterprise software. And our history in EDA, I mean, there are there’s few things that are different. First of all, engineering software or EDA, we have already provided over years a massive level of automation. Now it was not because of AI, it was used in in the past was because of, you know, classical methods.

So our our users and customers are already used to lot of automation. If I look at, like, twenty years ago to now, I think the EDA productivity productivity by EDA has gone up by, like, 100 x, You know, like, things like, you know, what used to take, like, 500 people, five years to design, will now take, like, 50 people, like, one year to design or something like that. So or, like, half a year to design. So so so our users are already used to lot of automation, which may not be the case in, like, classical kind of software. The second thing is that our workload our workload of our customers is going up exponentially because of Moore’s Law and three d IC.

This is a very different environment than, you know, if the workload is constant in some industry that is not evolving. In chip design, you know, like, in by 2030, the chips will be you know, right now, they’re 100 to 200,000,000,000 transistors. It’s it’s it’s expected the chips will be 1,000,000,000,000 transistors by 2030. Then you add all the software, you add the new architectures. So the workload will go up by thirty forty x in the next five years.

Okay. There’s not even enough talent or headcount to hire to meet that requirement of 30 x. So this is not a industry in which the workload is going to be fixed. Okay. And then the worry of the people is if you use AI, you know, your job will will be affected here.

You know, you need AI to to cope up with the 30 x. So I believe that the customers and this is talking to all all the big CEO customer CEOs, they will invest in r and d. Okay? But they will entertain in head count, but they don’t want to invest 30 times the head count. Okay?

The I think the head count in our customers r and d would go up maybe by two three x, but the remaining gap of 10 x in productivity has to be made up with more automation. And they are willing to invest in in a genetic AI and more compute to balance that because there’s not even that many engineers you can hire. So the the two things which are very different in EDA and and SDA versus general software. One, our customers are used to more and more automation over the last thirty years. And second, the workload is going up so much that they have no other choice but to use automation and AI.

So I think that’s why the the the the the real test for us will not, in my opinion, be whether the customers are willing, I think the customers are willing, is the productivity of our solutions. So what I’ve seen with our customers is if the product work, if they give better PPA, if they’re faster, our customers will always adopt that. And because they have more and work to do. And that’s what we focus on, like, Cerebras, AI Studio, does it give 20% better PPA or does Vericium give five ten x benefit? And this is the history of our customers and because these are the the best and the biggest and the brightest companies in the world.

Right? We are all max seven are our customers. All the top 50 companies in the world. So we deliver value. I’ve always seen they will adopt it because the workload that they’re doing is increasing a lot.

John Wall, Senior Vice President and Chief Financial Officer, Cadence: So, Anurag, the the AI tools create more demand for our core ADA tools as well. Right? But we always said it would take a couple of contract cycles. And we’re always very mindful of the balance between delivering cutting edge innovation and ensuring our solutions remain accessible and valuable and useful to customers of all sizes. I mean the increasing design complexity, particularly with AI and advanced nodes naturally creates demand for more sophisticated tools and IP.

But our goal is always to deliver measurable ROI through productivity gains, faster time to market and the improved PPA, the outcomes that customers can get from using our core EDA. So we do think core EDA has growth in there and could well could well benefit from that over the next few years.

Gian Marco Conte, Analyst: That makes a lot of sense. Thank you very much. Thank you for the thoughtful answers.

Conference Operator: And our next question comes from the line of Sipi Panigrahi with Mizuho. Your line is open.

Richard Gu, Vice President of Investor Relations, Cadence7: Great. Thanks for taking my question. Yeah. Most of my questions have been answered, but just want to follow-up to one of your comment on that strong bookings. How how do you characterize, the demand for your traditional semi customer versus systems like hyperscaler, that segment?

And, do you see, any, any kind of positive sign on the traditional semi customer?

Anirudh Devgan, President and Chief Executive Officer, Cadence: Yeah. That’s a very important question. I mean, first of all, the system companies are doing more more more than before as you would expect, you know, not just the classical data center, but hyper skills which are but also, you know, like physical AI, like cars and and then on the semi side, of course, some customers are doing phenomenally well. Right? Like Nvidia and, you know, some of like Broadcom.

So I think your question is more traditional semi. So I do think I mean, of course, you know, this recovery in traditional semi has been projected for a long time. But I do think there is some recovery now. I mean, at least in the memory market, there seems to be in the mixed signal. And we highlighted, for example, ADI that’s doing phenomenally well and we had a a very good well, ADI is a long term partner with of Cadence, but we had a very good expansion in q two.

So I think there are some signs that the traditional semi are also doing, but it’s still early and we’ll we’ll we’ll wait and see. But for us, you know, we are as you know, we are very diversified both geographically and customer wise. So it’s important but not critical for us. So we are patient. So the recovery will happen in traditional semi.

Maybe some of it is starting. And to the extent it happens, you know, we we’ll be ready for it. So but we’re not critically dependent on a particular customer set recovering at a particular time. Yeah.

: Thank you.

Conference Operator: And our last question comes from the line of Blair Abernathy with Rosenblatt. Your line is open.

Richard Gu, Vice President of Investor Relations, Cadence8: Thanks for squeezing me in guys and a great quarter. Aniru, just want to ask you again about the system design analysis, the traditional simulation, multi physics simulation. You’re outgrowing the market pretty substantially even if we back out a couple extra months from data CAE, you’re still mid to high 20s, it looks like organic growth. What’s driving that organic growth? Is it is Millennium helping with that?

And I’m just wondering, as you look at that market, which is sort of a 10% kind of growth market, how long do you think you can sustain that that significant growth?

Anirudh Devgan, President and Chief Executive Officer, Cadence: Yeah. Good question. I mean, like like I mentioned, the the growth is driven by multiple things. I mean, three d IC and the strength in Allegro that pulls in other products is a key factor. You know, it’s not just Allegro or three d IC by itself, but all the analysis tools.

Because I think most of the disruption in the system space is either very, very close to the chip, you know, like with three d IC or it is very, very far like like data center simulation. And we have great partnership and products in, you know, cadence reality which is full data center simulation. And then, you know, very close to the chip, which is Allegro and and three d IC and Integrity. So those markets, I think, should be growing faster in the overall system market because that’s where the disruptions are happening and that’s where we are focused on. And then beta is helping to pull in some of the other, you know, be because we you know, one of the key channel challenges in the system side is to build out the channel.

And even though not only beta provided great products, it also helped us on the channel side. K. So that’s the second reason. And then I’m super optimistic about Millennium, you know, and we kinda spearheading this kind of revolution, you know. I I can talk about it for a long time, you know.

The CPU plus GPU integration with partnership with with Jensen and NVIDIA and, you know, AI together. But I think it’s still in very early innings. So Millennium is still in very, very early innings. I mean, we have a lot of pipeline and demand, but we still has to play out. So but overall, I think we we’ll see, but we are pleased with our positioning in system especially because we are positioned in the the more exciting part of the system market, I believe.

John Wall, Senior Vice President and Chief Financial Officer, Cadence: I’d encourage you to keep focused on the kind of year the annual kind of outlook for the company because quarter over quarter numbers can look a bit odd sometimes. You called out in your question beta is included in our Q2 numbers this year, but wasn’t there last year. Yes.

Richard Gu, Vice President of Investor Relations, Cadence8: That’s great. That’s great. Thanks very much guys.

Conference Operator: And I would now like to turn the call back over to Anwar Devgan for closing remarks.

Anirudh Devgan, President and Chief Executive Officer, Cadence: Thank you all for joining us this afternoon. It’s an exciting time for Cadence with strong business momentum and growing opportunities with semiconductor and system customers. With a world class employee base, we continue delivering to our innovation roadmap and working hard to delight our customers and partners. On behalf of our Board of Directors, we thank our customers, partners and investors for their continued trust and confidence in Cadence.

Conference Operator: And ladies and gentlemen, thank you for participating in today’s Cadence second quarter twenty twenty five earnings conference call. This concludes today’s call and you may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.