Cadence Design Systems Inc Q3 2025 Earnings Call Transcript

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

Question: Vivek Arya - Bofa Merrill Lynch Asset Holdings Inc - Analyst : So thanks for taking my question. Your IP business is now, I think, tracking to over 20% growth for the second year. Anirudh, I was just hoping you would give us some sense for what's driving this growth? Because your competitor expressed a lot of concerns about their IP business, whether it is in China or Intel or just IP visibility in general, and I think they were talking about a new business model. So how do we square that and the growth you are seeing? How sustainable is this growth? And what is your visibility in your IP business? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 27, 2025 / 9:00PM, CDNS.OQ - Q3 2025 Cadence Design Systems Inc Earnings Call

Question: Vivek Arya - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Excellent.

Question: Lee Simpson - Morgan Stanley - Analyst : Great. Thanks for fitting me in and congratulations on another great quarter. I just wanted to ask around about China, really. The -- it looks as though you're up about 53% year on year doing well in the mix up to 18%. That feels more than just a return of business post the restrictions on the BIS letter last quarter, it feels though there's genuine momentum there. So I wonder if you can talk me through what is driving this? Is it IP? Is it hardware? Is it full EDA? What are the vectors here? Thanks.

Question: Lee Simpson - Morgan Stanley - Analyst : Thanks so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 27, 2025 / 9:00PM, CDNS.OQ - Q3 2025 Cadence Design Systems Inc Earnings Call

Question: Siti Panigrahi - Mizuho Securities USA LLC - Analyst : Great. Congratulations on the strong execution. Anirudh, I want to ask you about on your system design, mainly that simulation analysis market. Help us understand your strategy. You made acquisition last year, BETA CAE and this year again you've announced MSC software. Help us understand how you're going to position yourself against your competitor in that market. This is definitely a growing market. I would appreciate any color on that.

Question: Siti Panigrahi - Mizuho Securities USA LLC - Analyst : Great. Thanks for the color, Anirudh.

Question: James Schneider, Ph.D. - Goldman Sachs Group Inc - Analyst : Good evening. Thanks for taking my question. I was wondering if you could maybe frame for us some of the tailwinds you expect you might see over the next couple of years as a result of inclusion of AI features into your products on the core EDA side. Maybe talk about any productivity metrics you can give us in terms of time to market or developer productivity and how that might translate into either revenue or adoption rates of that technology and features. Thank you.

Question: James Schneider, Ph.D. - Goldman Sachs Group Inc - Analyst : Thank you.

Question: Harlan Sur - JPMorgan Chase & Co - Analyst : Good afternoon, guys. Great job on the quarterly execution, as always. On the third-generation upgrade cycle on your emulation and prototyping platforms, you're about five quarters into the upgrade cycle to record revenues in Q3. If I rewind back to your second-generation launch, right, the team drove three years of record revenues post launch. You still have the same drivers in place, right, design, software complexity increasing exponentially, the cadence of new chip, program introductions, accelerating addition of new customers like OpenAI, as you mentioned on the call today, and proliferation of all of these challenges into new markets like automotive and software-defined vehicle. Given the lead times for your Protium and Palladium systems, I assume you're already booking into next year. What's the demand curve look like? And do you anticipate continued momentum in growth in 2026 for the hardware platform?

Question: Harlan Sur - JPMorgan Chase & Co - Analyst : Insightful. Thank you very much.

Question: Jay Vleeschhouwer - Griffin Securities Inc - Analyst : Thank you. I know you gave several examples of customer activity, customer engagements, and so forth. And I would like to ask you about the recent announcement of the joint work that NVIDIA and Intel are going to be doing. Would it be fair to presume that combined GPU and CPU work would necessarily lift up demand and capacity requirements for multiple types of EDA tools? Also IP, probably hardware as well. So there would be a general uplift as a result of that combined work, but at the same time, would it also necessitate your increasing your investments, for example, in AEs as you did when you had that breakthrough with Intel several years ago.

Question: Jay Vleeschhouwer - Griffin Securities Inc - Analyst : Just to be clear, aside from the porting that you have to do internally for your own tools, you are presuming that of demand that this customer activity would necessarily increase the consumption of EDA.

Question: Jay Vleeschhouwer - Griffin Securities Inc - Analyst : Okay, thank you, Anirudh.

Question: Gianmarco Conti - Deutsche Bank AG - Analyst : Yeah. Hi, there. Thank you for taking my questions. Again, congrats on another great quarter. Maybe just going back towards China, especially given the amazing quarter you guys have had, of course, part of it was recouped from Q2. But how should we think about a sustainable growth rate in the region beyond what was released last quarter. And potentially, if you could give some color on if there's any real risk from yet another ban in the region. Obviously, there was some news flow going on, and I think investors want to be a bit wary about like what was real in terms of potential risk to EDA or what is like a broader macro level impact. Any commentary, that would be great. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 27, 2025 / 9:00PM, CDNS.OQ - Q3 2025 Cadence Design Systems Inc Earnings Call

Question: Gianmarco Conti - Deutsche Bank AG - Analyst : Great. Thank you.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Yeah. Thanks for taking the question. I was wondering if you could just maybe help us understand like the OpEx dynamics. I think 3Q was a bit better than expected, but 4Q is a bit worse than expected. Is that related to just the Artisan deal timing of closing that? Or just any help there would be helpful.

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : I guess maybe the OpEx --

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : The question was on the OpEx side, like the OpEx timing?

Question: Joe Quatrochi - Wells Fargo Securities LLC - Analyst : Perfect. Thank you.

Question: Charles Shi - Needham & Company LLC - Analyst : Hey, guys. Thanks for taking my question. Anirudh, congrats on the nice results and John, similarly here. The question, I look at the legal growth rate for the overall company for the last three years, it has been maintaining around that 40%-ish plus/minus range. Truly remarkable. Feels like you didn't really step up a bit at all. But when I look under the hood, there are lots of moving parts, right, like let's compare last year versus this year. Last year, China was bad. Hardware was decelerating, I think that was largely due to hardware transition into the [Z3, X3]. I mean, I'm looking at the upfront revenue as to inform you about your hardware growth. But this year, both things have turned out much more network positive, like your upfront revenue is probably going to grow somewhere closer to 50%. China looks like at least it's going to grow above the corporate average. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 27, 2025 / 9:00PM, CDNS.OQ - Q3 2025 Cadence Design Systems Inc Earnings Call So wonder when we look at -- think about next year, do you think both halfway and China can maintain the current momentum, maybe especially on software based on the observation of the Z2, X2 cycle, I believe that was somewhere in between '21 and '24. When you go into like a third tier-ish, the growth rate -- in the Z2, X2 cycle, it decelerated a little bit. So my question is, is this time can be a little bit different in terms of the hardware growth rate going forward? And could any fear of your -- from your customers regarding hardware transition to, let's say, Z4, X4 in the maybe the next one to two years, causing some of the deceleration of compare revenue? I know this is a long question, but I think that this is the most important one when we think about the Cadence outperformance going into next year. Thank you.

Question: Charles Shi - Needham & Company LLC - Analyst : So maybe a quick follow-up, so Anirudh, from your perspective, the current hardware Z3, X3 enough to support 1 trillion transistors, but with the AI really like moving really fast, do you foresee like when you have -- when you probably need to like do another halfway refresh? And is there any light you can shed on this? Thank you.

Question: Charles Shi - Needham & Company LLC - Analyst : Thanks for the insight.

Question: Gary Mobley - Loop Capital Markets LLC - Analyst : Hi, guys. Thanks so much for squeezing me in, and let me extend my congratulations. I really just had a clarification or a question to get to a clarification. So if I recall correctly, given the timing of the export control repeal, which I believe is July 2, your China backlog was not in your June quarter ending backlog. But I presume now that it is. So given that $600 million revenue -- or $600 million delta in your backlog, how much of that was a function of the inclusion of China backlog versus the prior quarter?

Question: Gary Mobley - Loop Capital Markets LLC - Analyst : Appreciate it. So good numbers. Thank you.

Question: Clarke Jeffries - Piper Jaffray Inc - Analyst : Thank you for taking the question. Anirudh, I appreciate the comments on the mechanics of the strength in the IP business and specifically, the demand for design IP you're seeing for AI projects. I wanted to follow up with just how the wallet opportunity is changing with those AI projects. Specifically, do you see any potential for growing pains or lower profitability to serve the industry as they make more customer bespoke technologies with chiplet or custom memory designs incorporated into those AI and HPC designed has cadence changed its investment plan or selling motion to serve that more custom nature required by the industry? Or is that even needed at all? Thank you.

Question: Clarke Jeffries - Piper Jaffray Inc - Analyst : Yeah. Thanks very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 27, 2025 / 9:00PM, CDNS.OQ - Q3 2025 Cadence Design Systems Inc Earnings Call