Cadence Design Systems Inc at Wells Fargo TMT Summit Transcript

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

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. You started this year thinking total revenue grow somewhere like 12%. Now your latest guide is about 14%. Can you just talk about like what's been the biggest upside driver as you think about like relative to the beginning of the year, what's been the biggest surprise that's been positive?

Question: Joseph Quatrochi - Wells Fargo - Analyst : Yeah. Yes. You think about -- you talked about, I think, last quarter, exiting the year with record backlog. And looking into '26, can you kind of help us understand -- you touched on it a little bit, but like what is driving that record backlog? Where are you seeing like the area like the strongest orders from customers? And like what are those things that they're really focused on just trying to accelerate the road maps?

Question: Joseph Quatrochi - Wells Fargo - Analyst : And like when you think about '26 and relative to prior years in guiding and I say you're going to wait until February I'll try to speak up. I think like, I guess, as you think about '26 and you think about visibility, right? And this year, you've seen really strong demand from our systems and hardware refresh cycle. How does that -- how do you think about like your visibility in '26 relative to prior years in that dynamic?

Question: Joseph Quatrochi - Wells Fargo - Analyst : Right. So I guess most of you have that layer on top of our customers to the software. So I guess like you think about AI as kind of broadening your customer base? Or is this additional spend by existing customers? It sounds like maybe a little bit of both, but...

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. Maybe I think in the past couple of quarters, I think what's been interesting to me is you've highlighted particularly like strength from foundries. Can you kind of maybe expand on like what is driving that? Is it the foundry itself? Is it the foundry's customers? Like just kind of help us understand that dynamic.

Question: Joseph Quatrochi - Wells Fargo - Analyst : That's helpful. Maybe spend a second like on non-AI semis, right? Like we've seen -- obviously, it's gone through kind of a pretty difficult cycle. Maybe things are kind of bottoming out, starting to maybe bounce a little bit off the bottom. Have you seen like a change in like their EDA -- whether it be like discussions or just kind of their planning in terms of if the market is kind of their market or their financials have kind of found some stability? Like how does that translate into kind of thinking about EDA spend?

Question: Joseph Quatrochi - Wells Fargo - Analyst : Yeah. Do you think that accelerates into next year?

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. That's helpful. Maybe back on AI, you guys have kind of been explicit in saying we're not ready to kind of quantify things in terms of the benefit of AI, what we think it could drive for EDA. Like are we getting closer to that? Or how -- where should we kind of think about where we're at in that?

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. That's helpful. Maybe switch gears a little bit. The hardware cycle has been a really strong year, record year again. I think you talked about last quarter thinking that you could see further growth next year. What inning do you think we're in, in that refresh cycle? Like how do we think about like that relative to prior cycles?

Question: Joseph Quatrochi - Wells Fargo - Analyst : I think you guys try to make some investments like in the supply chain to ramp up that. Like where are we at in terms of.

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. No, that's helpful. So I mean, when you think about, I guess, like you're talking about six months visibility in cargo. I mean, it sounds like -- I mean, it's a bit -- maybe a bit more than that right now.

Question: Joseph Quatrochi - Wells Fargo - Analyst : Sure. How about refresh work in terms of customers kind of do a trade-in thing? Or do they actually keep some of those like Z2s and things like for that.

Question: Joseph Quatrochi - Wells Fargo - Analyst : That's interesting. Maybe shift gears a little bit to SD&A. In September, you guys announced the acquisition of the Hexagon Design and Engineering business. Maybe can you talk about just where this business fits in the Cadence portfolio, what you're most excited about?

Question: Joseph Quatrochi - Wells Fargo - Analyst : Their customer base, I think you talked about like just in the press release and last quarter, I think that there's not a lot of overlap or it sounds like there's a lot of new incremental potential customers there as well.

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. You kind of touched on that a little bit, but can you walk us through like the integration process? Like just how do we think about like the model implications? I think the deal is supposed to close like first quarter-ish next year. What does that kind of look like in like time lines and things of what you normally would do like in closing an acquisition of that size?

Question: Joseph Quatrochi - Wells Fargo - Analyst : So I mean in terms of like cost, there's probably not a lot of costs you can really take out or -- there's a lot. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 18, 2025 / 4:45PM, CDNS.OQ - Cadence Design Systems Inc at Wells Fargo TMT Summit

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. So that would come with it, I guess.

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. Okay. That's helpful. So I mean, I guess like net-net, we think about like -- you're not obviously not guiding, but like you think about like the leverage or incremental margin structure for '26, maybe looks a little bit more like '24.

Question: Joseph Quatrochi - Wells Fargo - Analyst : Hit the ground running.

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. That's helpful. You've grown like the SD&A business like organically as well as inorganically. I mean you -- when this acquisition closes, you look at like just kind of the portfolio you have, like are there still holes that you need to fill? Or do you feel like you've got like the right kind of portfolio for where the market is at today?

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. Maybe shift gears a little bit to design IP. It's been an area of more focus for you guys over the last few years. Can you just kind of talk about like that journey some and just kind of where you've come from and where you're still going?

Question: Joseph Quatrochi - Wells Fargo - Analyst : So where do you draw that line of like the 28-nanometer? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 18, 2025 / 4:45PM, CDNS.OQ - Cadence Design Systems Inc at Wells Fargo TMT Summit

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. I mean do you think like a piece of that is just also just the -- we talked about earlier, the increased complexity and just...

Question: Joseph Quatrochi - Wells Fargo - Analyst : I guess, like as you think about that portfolio, right, I mean, you guys have maybe started adding some more things like in foundational IP, you feel like that is -- you have a good portfolio there. I mean it sounds like you're kind of going with customers on that journey in terms of progression nodes and technology. But like how do you feel about like just the foundational library that you have today?

Question: Joseph Quatrochi - Wells Fargo - Analyst : That's perfect. And like can you remind us -- I mean, obviously, your closest peers had some issues with their IP business in terms of -- they talked about some maybe more idiosyncratic issues, but also like go-to-market or changing the way that maybe there's some pricing mechanisms and things. Like can you remind us kind of like how you go to market with that and those different pricing mechanisms that are involved in the IP business? Yes.

Question: Joseph Quatrochi - Wells Fargo - Analyst : Customized. Yes, it's kind of customer.

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. Can you remind us just last question around Design IP, like the profitability profile of the -- I mean you talked about being very focused on like maintaining margins and they're fitting in your framework. But can you remind us kind of like where does the profitability of that business sit relative to kind of the corporate average?

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. That's perfect. We just got a little bit of time left. A quick kind of have to ask about China, right? I think it's been a wild year for business in China. But maybe talk about just kind of the demand trajectory that you're seeing. Have things been back to normal? Are you seeing the customers kind of still being a little bit apprehensive in terms of potential further restrictions or restrictions going back in place?

Question: Joseph Quatrochi - Wells Fargo - Analyst : Leading technology.

Question: Joseph Quatrochi - Wells Fargo - Analyst : Okay. Perfect. I think we're out of time. Thanks for joining. Thanks for having us. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 18, 2025 / 4:45PM, CDNS.OQ - Cadence Design Systems Inc at Wells Fargo TMT Summit