Cadence Design Systems Inc at Deutsche Bank Technology Conference Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Gianmarco Conti - Deutsche Bank - Analyst : <_ALACRA_META_ABSTRACT>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.

Question: Gianmarco Conti - Deutsche Bank - Analyst : Yeah, that's fair. 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 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 at the beginning, when Cerebrus was launched, it was sort of like penetrated at the beginning among the top five customers, right, because it's like obviously used for the most advanced and leading edge nodes and those type of designs. So it would be good to hear like where is it positioned now?

Question: Gianmarco Conti - Deutsche Bank - Analyst : Yeah, because that's a good point because I do remember that for every license of Cerebrus, there was sort of like an increase -- like a natural increase in Innovus, right? And so it's like a scaling effect. Like if you buy more of those Cerebrus 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?

Question: Gianmarco Conti - Deutsche Bank - Analyst : Pretty impressive. Yeah. So I guess like beyond Cadence.ai, I think the word agentic has been thrown out in the air more than Krypton 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 maybe a Broadcom, Qualcomm whoever, to actually cut a single step process, which is synthesis of place and route? Or if this is like fictitious in a way or something that would happen maybe 10 years down the line. You hear Synopsys saying about that -- touting the word agentic. I'm curious to hear your thoughts about that.

Question: Gianmarco Conti - Deutsche Bank - Analyst : I don't know.

Question: Gianmarco Conti - Deutsche Bank - Analyst : That's fair. So maybe just like talking about system designs. Given the recent closing of -- I know I have to ask the question, but major news, right? So given the recent closing of Ansys Synopsys 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. In that there would be at least initial opportunities for exploration of alternatives. And secondly, maybe even a natural pull from any integration support issues. I guess what I'm heading at is, given the incredible demand we're seeing in anything simulation these days, is this deal net negative or benefit for Cadence?

Question: Gianmarco Conti - Deutsche Bank - Analyst : Exactly.

Question: Gianmarco Conti - Deutsche Bank - Analyst : I kind of agree. I think there's also like an element of customers who 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 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 embedded side of Synopsys. So it'd be interesting to see where the market, the CFD MFA market will be heading in about 10 years from now. But yes, okay, cool. So shifting maybe a little bit into financials, John, 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 '25 and '26. And particularly, and I'm pressing on this point, any detail on upcoming renewals that allows us to shape our model better.

Question: Gianmarco Conti - Deutsche Bank - Analyst : Okay. We know Q3 is a big new -- renewing quarter.

Question: Gianmarco Conti - Deutsche Bank - Analyst : But so even though this was -- I mean $6.8 billion 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 third generation of emulators and prototypes. And so you close out the air pocket quite impressively. So how should the investors think about your set us into '26 when you have a tougher stance on well, tougher comp on hardware and -- and although you might have a record backlog by the end of the year, you're still facing that hardware and IP and simulation, strong backdrop.

Question: Gianmarco Conti - Deutsche Bank - Analyst : Exactly.

Question: Gianmarco Conti - Deutsche Bank - Analyst : I think you had mentioned that if someone wants to buy an emulator today from you guys, you don't have it ready by the end of the year.

Question: Gianmarco Conti - Deutsche Bank - Analyst : So maybe shifting a little bit topics and speaking about renewals. I mean I think everyone has a few key topics on the top of their mind. And I believe Intel is one of them. I know we should be cautious of any direct customer management. 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 18 and 14A because I think the market is a mix about this. Some are thinking there is a clear in the steel market share given the obvious relationship with Lip-Bu, other investors are a bit more skeptical and receptive about the shift as a sudden replacement will be seen as radical. So I think there's a sort of like a mix between, oh, you clearly have an in and there's more upside than downside. -- versus -- or maybe there is upside only in the incremental portion of spend of Intel. So I'd love to hear your thoughts about that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 27, 2025 / 7:30PM, CDNS.OQ - Cadence Design Systems Inc at Deutsche Bank Technology Conference

Question: Gianmarco Conti - Deutsche Bank - Analyst : That's interesting. Yes. That's fair. So about -- but on the IP side, particularly, how index are you on the most advanced nodes for the foundry business? I'm sorry, for the foundry business of Intel, so like 18A, 14A, are you continuously updating your IP for those nodes?

Question: Gianmarco Conti - Deutsche Bank - Analyst : Okay. Well, maybe going back to China. I guess, this is how I think at least about 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 US 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 thinking about this the right way?

Question: Gianmarco Conti - Deutsche Bank - Analyst : Yeah. I mean I was at DXC this year and I was talking to a few of the folks at Imperion. 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 not an issue in terms of the geopolitical tensions, 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, so potentially Mentor Graphics. Are you seeing any competition heat up from the result of these tensions? Or -- because as far as I see, which was 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.

Question: Gianmarco Conti - Deutsche Bank - Analyst : Definitely high. I think even the big guys, like if you think about Google, if there -- that's like a deep chip product that -- it's like a point tool solution effectively an EDA, but it's like an implementation point tool solution, it's is not really -- I mean, yes, it can help. There was like some studies about some research scientists using it and saying it's truly academic, but right now not fully replacing single implementation point tool EDA, that Cadence office.

Question: Gianmarco Conti - Deutsche Bank - Analyst : No, exactly.

Question: Gianmarco Conti - Deutsche Bank - Analyst : To solve that problem. Yes. Well, now a final one on AI. It will be helpful to also frame the landscape in terms of startups coming to play in the space. There are fair few impressive ones at DAC this year. I'm curious to hear your thoughts on their claims of trying to reshape EDA landscape and whether you see these as like, again, to my point, single-point tools, threats but not real competition given to the end-to-end engine that Cadence provides or whether you'll start to see some real speed. I'm curious to see both if it's a threat or if it's sort of good for you guys for even M&A.

Question: Gianmarco Conti - Deutsche Bank - Analyst : That does make sense. Because when you're doing these kind of acquisitions, it's more like talent wise acquisition, right.

Question: Gianmarco Conti - Deutsche Bank - Analyst : Like you're buying the company because there maybe 10, 15 of those engineers are very hard -- they're working very hard on a single

Question: Gianmarco Conti - Deutsche Bank - Analyst : 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, software development and hardware engineering, it's even more of a niche. So I guess the question 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.

Question: Gianmarco Conti - Deutsche Bank - Analyst : That makes sense. I guess I think we have one last time for maybe one to two questions, especially both because the NVIDIA earnings. 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'd rather -- you mentioned you'd 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 BETA CAE, which was sort of like a needed one, right, because you're now competing against Ansys, they're 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. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 27, 2025 / 7:30PM, CDNS.OQ - Cadence Design Systems Inc at Deutsche Bank Technology Conference I guess the question would be within the M&A landscape, what -- like what is your vision for the next two to three years? Like are you still going to be doing small bolt-ons. And if you're doing these small bolt-ons, do you see them being more in IP stimulation or a combination of both. I don't see it to be an EDA, but maybe I'm wrong.

Question: Gianmarco Conti - Deutsche Bank - Analyst : Exactly.

Question: Gianmarco Conti - Deutsche Bank - Analyst : Amazing. John, thank you so much, Richard, too.