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 third quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star and then the number one on your telephone keypad. Thank you. I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead. Thank you, Operator. I would like to welcome everyone to our third quarter of 2025 earnings conference call. I'm joined today by Anirudh 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. 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-K 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&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 Anirudh. Thank you, Richard. Good afternoon, everyone, and thank you for joining us today. Cadence delivered excellent results for the third quarter of 2025, with strong operational and financial performance across all product categories and geographies as we continued the disciplined execution of our strategy. Bookings exceeded our expectations, with backlog growing to over $7 billion, underscoring our continued technology leadership and reaffirming Cadence as the trusted partner enabling customer success. Given the ongoing strength of our business, we are raising our full-year outlook to approximately 14% revenue growth and 18% EPS growth. John will provide more details on our financials shortly. The accelerating AI megatrend is fueling an unprecedented wave of design activity across industries ranging from hyperscaler infrastructure to the fast-growing physical AI realm of autonomous driving, drones, and robotics, to the emerging domain of science's AI. As AI drives exponential design complexity and new system architectures, Cadence is uniquely positioned to capture this generational opportunity with a differentiated and comprehensive portfolio spanning EDA, IP, 3D-IC, PCB, and system analysis. The Cadence.AI portfolio embodies our strategy of design for AI and AI for design, empowering customers to build out the global AI infrastructure while we infuse AI into our own products to deliver breakthrough automation and productivity. With deep partnerships across AI innovators, foundries, and system leaders, and a comprehensive chip-to-systems portfolio, Cadence is driving transformative PPA and productivity gains, positioning us well for sustained growth in the AI era. In Q3, we meaningfully expanded our partnership with Samsung through a wide-ranging proliferation of our core EDA software as well as our system software across PCB, advanced packaging, and system analysis. We also deepened our long-standing partnership with a leading semiconductor company in Q3 through a broad proliferation of our core EDA, IP, and systems portfolio, and are closely collaborating on next-generation agentic AI EDA solutions. We expanded our long-standing partnership with TSMC to power next-gen AI flows supporting TSMC's N2 and A16 technologies. Our Integrity 3D-IC solution provides comprehensive support for the latest TSMC 3D fabric die stacking configurations, and our design and ready IP, including HBM4 and LPDDR6 on N3P, enable next-generation AI infrastructure. At TSMC's OIP conference, Broadcom highlighted Integrity 3D-IC full-flow deployment success for hyperscaler high-capacity ASICs. Our IP business maintains strong momentum in Q3, driven by global accelerating IP demand and increasing customer proliferation of our expanding IP portfolio. Our profitable, scalable IP strategy focused on AI, HPC, and automotive verticals positions us well for continued growth. Increasing complexity of interconnect protocols driven by AI and chiplet architectures, along with new foundry opportunities, are providing strong tailwinds to our IP business. Bookings were strong and tracked ahead of our expectations. Our design IP portfolio secured several competitive wins at top AI and memory customers. For instance, we won a highly competitive engagement at a marquee memory company that embraced our HBM4 and DDR5 IP for its new AI design. The recently completed acquisition of the Arm Artisan foundation IP further augments our design IP portfolio with standard cell libraries, memory compilers, and I/Os optimized for advanced node at the leading foundries. Our Tensilica audio and Vision DSPs and Neo AI accelerator NPUs scored multiple design wins with leading customers in the U.S. and Asia for mobile, automotive, and data center verticals. Our core EDA business delivered strong results driven by growing adoption of our AI-driven design and verification solutions. In digital, Cadence Cerebrus AI Studio, the industry's first agentic AI multi-block, multi-user design platform, continues to deliver unparalleled PPA and productivity benefits. Samsung U.S. taped out a SF2 design using Cadence Cerebrus AI Studio to achieve a 4x productivity improvement. In another instance, Samsung used Cadence Certus, Tempus, and Innovus to rapidly close and sign off a multi-billion instance AI design on SF4 with 22% power reduction and first-pass silicon success. Our Virtuoso Studio and Spectre platforms saw strong momentum with their AI-driven features and workflows gaining rapid traction as the customers leveraged the automated design migration and optimization capabilities. Our hardware verification platforms have become the de facto choice for AI designs, offering industry-leading performance, capacity, and scalability. Hardware had a record Q3 with several significant expansions, especially at AI and HPC customers. We deepened our overall collaboration with OpenAI as they expanded their commitment to our Palladium emulation platform in Q3. Verisium Sim AI saw growing adoption as it delivered dramatic debug productivity, test bench efficiency, and accelerated coverage closure. NVIDIA, Samsung, and Qualcomm all presented Sim AI success stories at Cadence Live India, highlighting 5x- 10x improvement in verification throughput. Our system design and analysis business achieved another solid quarter, driven by an expanding set of innovative solutions and growing adoption across a broadening customer base. In Q3, we significantly expanded our Cadence Reality Digital Twin Platform library with NVIDIA DGX SuperPOD model and DGX GB200 systems to accelerate AI data center deployment and operations. Three major memory providers significantly increased their Clarity and security usage as they transitioned to a full Cadence flow for advanced IC packaging, displacing competitive solutions. BETA CAE continued its momentum with multiple competitive displacements, underscoring its accuracy and performance advantages, including a significant competitive win at a large Tier 1 automotive company in China. In Q3, Infineon Technologies standardized its PCB design workflow on the Cadence AI-driven Allegro X platform for their future designs. Last month, we signed a definitive agreement to acquire Hexagon's D&E business, including its MSC software business, to bring industry-leading structural analysis and multi-body dynamics technologies to Cadence. Complementing our multi-physics portfolio, this will accelerate our expansion in SDA and put us at the forefront in unlocking new opportunities across automotive, aerospace, industrial, and the rapidly emerging world of physical AI. In summary, I'm pleased with our Q3 results and the strong momentum across our businesses. The AI era offers massive market opportunities, and through the co-optimization of our entire portfolio with AI and accelerated computing, Cadence is uniquely positioned to be the trusted partner to deliver AI-centric transformational solutions across multiple industries. Now, I will turn it over to John to provide more details on the Q3 results and our updated 2025 outlook. Thanks, Anirudh, and good afternoon, everyone. I'm pleased to report that Cadence delivered strong results for the third quarter of 2025 with broad-based momentum across all our businesses. We exceeded our guidance for Q3 revenue, operating margin, and EPS, and are raising the full-year outlook across these key metrics. With the updated outlook and at the midpoint, we now expect our 2025 revenue to grow approximately 14% year -over -year, on track to achieve double-digit growth across all our product categories for the year. Third quarter bookings were strong, resulting in a backlog of $7 billion. Here are some of the financial highlights from the third quarter, starting with the P&L. Total revenue was $1.339 billion. GAAP operating margin was 31.8%, and non-GAAP operating margin was 47.6%. GAAP EPS was $1.05, with non-GAAP EPS $1.93. Next, turning to the balance sheet and cash flow, cash balance at quarter end was $2.753 billion, while the principal value of debt outstanding was $2.5 billion. Operating cash flow was $311 million. DSOs were 55 days, and we used $200 million to repurchase Cadence shares. Before I provide our updated outlook, I'd like to highlight that it contains the usual assumption that export control regulations that exist today remain substantially similar for the remainder of the year. With that in mind, for Q4, we now expect revenue in the range of $1.405 billion -$1.435 billion. GAAP operating margin in the range of 32.5% - 33.5%. Non-GAAP operating margin in the range of 44.5% - 45.5%. GAAP EPS in the range of $1.17 - $1.23, and non-GAAP EPS in the range of $1.88 - $1.94. As a result, our updated outlook for 2025 is revenue in the range of $5.262 billion - $5.292 billion. GAAP operating margin in the range of 27.9% - 28.9%. Non-GAAP operating margin in the range of 43.9% - 44.9%. GAAP EPS in the range of $3.80 - $3.86. Non-GAAP EPS in the range of $7.02 - $7.08. Operating cash flow in the range of $1.65 billion - $1.75 billion, and we expect to use at least 50% of our annual free cash flow to repurchase Cadence shares. 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 Q3 results. Strong 2025 as we continue to deepen strategic partnerships across the ecosystem. As always, I'd like to close by thanking our customers, partners, and our employees for their continued support. With that, Operator, we will now take questions. Thank you. 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. We will pause for just a moment to compile the Q&A roster. Our first question comes from the line of Vivek Arya with Bank of America Securities. Your line is open. 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 at Intel or just IP visibility in general. I think they were talking about a new business model. How do we square that with the growth you are seeing? How sustainable is this growth, and what is your visibility in your IP business? Thank you. Yeah, thanks, Vivek, for the question. I'm actually quite pleased with the performance of our IP business. We don't look at any one quarter, but even if you look at how we performed last year, of course, this quarter was exceptional, but overall, how we performed this year and what we see, backlog and activity going into next year, overall IP business is performing quite well. There are multiple reasons for it. First, our IP business is different. I think it's much more profitable, even though the profitability is less than our EDA business, but I think it's more profitable than general IP business because we also have Tensilica, which is almost like software-like profitability. A lot of the growth is coming in design IP. The reason for that is our IP business is focused on AI and HPC at the most advanced nodes. Since we got started later in the IP business, we focused it where the future is going, which is AI, HPC, and chiplet-based architecture. A lot of the SerDes and PCIe and HBM4 IPs, and that part of the market is doing well, actually, across the world. The second reason is, as you know, there are more and more foundries entering, especially at advanced nodes. We have a long-standing partnership with TSMC, but also Samsung, Intel, and now Rapidus. There are at least four major foundries now at leading nodes. That's a second reason for our IP business to be well positioned. As the performance of our IP business has improved, the PPA, and if we are, our PPA is competitively better in design IP, and a lot of customers want to shift over to Cadence. The customer demand, I think, is the third reason, as our IP business strengthened, that we are seeing strength in the IP business. For these three main reasons, I'm pretty, pretty optimistic about the IP business. Going to next year, we're not getting to next year, but just to give an indication, I would be surprised if our IP business does not grow better than Cadence's average, which it should, given the profitability profile. We want that to happen. If the profitability is slightly lower than EDA, then the growth should be higher than Cadence's average. Overall, I think that would make like three years strength. Overall, I'm pleased by our IP performance. Excellent. Our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Your line is open. Great, thank you. Last quarter, I think you mentioned the second half having good renewal opportunity with some of your large customers. With the uptick in backlog, I imagine some of that strength was from some of these renewals. As we think about Q4, do you still have renewals on the docket? Thank you. Yeah, thanks for the question. I'll let John comment on the timing of the renewals. Overall, I do think that our performance in Q3 is much better than we expected. The primary reason, and this is true in all geographies, is that the AI infrastructure build-out, as you know, is accelerating. We are essential to the design and build-out of the AI infrastructure. Of course, I have said publicly there are three big phases of AI in my mind: AI infrastructure being the first one, physical AI being the second one, and science's AI being the third one. Most of our focus and investment is on the first one. As you see in the last six months, it is accelerating. We are privileged to work with all the Mag Sevens. Investment in internal chip design is accelerating, along with the big merchant silicon companies like NVIDIA, Broadcom, and AMD. I think that is coming through in our booking activity in Q3. So far, we see that strong demand continuing in the future. Jason, I would just like to add that the mix is as healthy across EDA, IP, hardware, and SDA. The core EDA and IP backlog is weighted towards multi-year recurring arrangements, and that supports durable double-digit growth. Awesome. Thank you. Our next question comes from the line of Joe Vruwink with Baird. Your line is open. Hi. Great. Thank you very much. I guess I'm struck by the number of times the word acceleration has already been used on the call so far. I guess the third quarter bookings, much stronger than we were expecting, and it would support a future acceleration. I know it's atypical to kind of get 2026 comments, but Anirudh already did for the IP business. I'm just wondering if you can maybe start to frame expectations for next year based on what you have in hand. It certainly seems like things are setting up well. Do you have the type of visibility at this point to maybe comment on it? Yeah, I think what I would like to say is that we always look at our business in terms of how well our products are doing. We report like five lines of business, as you know. I would say at this point all five lines of business are performing very well. You can see that in this year, I think we will grow double digits in all five lines of business. We are performing well in all geographies. In terms of products and geographies, which is our main focus, are we aligned with the leading companies? Are we a trusted partner of the market-shaping companies? If you look at products, geographies, and customer alignment, I think we are well positioned. Of course, as you know, as we enter a new year, we are always prudent in our outlook. We will give you an update about next year when we come to January, February timeframe. I think Cadence is very well positioned, better positioned than it has been, I think, compared to the last several years. We look forward to working with our customers in the future. Yeah, Joe, we won't guide FY 2026 today, but exiting FY 2025 with probably record backlog and broad-based momentum from deepening strategic and trusted partnerships across the ecosystem positions us well for next year. You can expect our framework will remain disciplined. We typically aim for double-digit top-line ambition, continued operating leverage, and balanced capital allocation. That's all underpinned by secular AI demand across chip-to-systems. Thank you. Our next question comes from the line of Lee Simpson with Morgan Stanley. Your line is open. Great. Thanks for fitting me in, and congratulations on another great quarter. I just wanted to ask around about China, really. 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 sort of return of business post the restrictions on the BIS letter last quarter. It feels as though there's genuine momentum there. I wonder if you can talk me through what is driving this. Is it IP? Is it hardware? Is it core EDA? What are the vectors here? Thanks. Thanks for the question, Lee. Yeah, I mean, we saw broad-based strength, and China design activity remains very strong. The region returned to business as usual for us in the second half with the lifting of the export regulations that changed for EDA in early July. Q3 really was only slightly better than we expected. We now expect China to be up year -over -year for fiscal 2025. Anirudh, do you want to add anything to what's happening in China? Yeah, Lee, that's a good question on China. I mean, overall, I would say the behavior in China, from what I can tell, is back to normal. Of course, there was disruption in Q2 for obvious reasons, given the policy in Q2. The behavior that we are seeing is back to normal in Q3, and a lot of it was driven by us prioritizing hardware deliveries that we could not do in Q2 into Q3. Overall, design activity is strong in China across, I mean, semiconductors are essential to every country, and China continues to invest in semis. Overall, I would say our strength is broad-based, not particularly tied to any one geography. There was some makeup from Q2 to Q3. Now, it's difficult to predict the future, but what I see, I don't see any unusual activity in China. The question may be, is there any pull-in from future quarters? We don't see that in terms of what we see, and we see overall broad-based strength in other geographies as well. Thanks so much. Our next question comes from the line of Siti Panigrahi with Mizuho. Your line is open. It's great. Congratulations on another strong execution. Anirudh, I want to ask you about your system design, mainly that simulation analysis, that 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 are going to, you know, position yourself against your competitor in that market. You know, this is definitely a growing market. I would appreciate any color on that. Yes, Siti, thanks for that question. I'm pretty pleased with the overall performance of SDA. Just to remind everybody, Cadence is the one that started this whole thing in 2017, 2018. Now it is considered obvious that silicon and systems are going to come together. We have been talking about this for a very long time. I think what the acquisition that we did this quarter is more forward-looking in the sense that, like I mentioned, these three Horizon technologies, Horizon 1 being infrastructure AI, Horizon 2 being physical AI, Horizon 3 being sciences AI. That's how we are focused. Most of our investments are in Horizon 1, but of course, maybe 70% - 80% is Horizon 1, about 20% Horizon 2, and a few percent Horizon 3. Horizon 2 of cars, drones, and robots can be a very, very big market in the future. What happens is AI is going to change also for Horizon 2. As you see, there are a lot of reports that the world is going to move from LLM-based AI to a world-model-based AI, in which robots, you have to, it's no longer the text data that trains the robot. It is the physical movement and all that. One of the key challenges in training robots or cars is that there is not enough data that is available. When you train an LLM model, basically, the data is available on the internet, and as well, language data is available. Whereas training a robot, the data is not available. The data either has to be generated manually, like they put sensors on a human and the person picks up the object. That could be data, but that's a very slow form of getting data. The best way to generate data for a world model is through simulation. This is what we have talked about also for a very long time of the three-layer cake. The fundamental simulation of multi-body dynamics becomes essential in Horizon 2 physical AI. Hexagon had a leading simulator for multi-body dynamics, along with structured simulation, which helps in all kinds of electronics and automotive. I'm pretty optimistic that this can position us well for the second horizon, which is physical AI. What that will do for our SDA business, the way I look at it, our SDA business, once we complete this acquisition, we'll have two strong pillars, and it will actually, the run rate should cross $1 billion in 2026 if the acquisition closes. One pillar will be driven by 3D-IC and chiplets. Allegro is in our SDA business. Allegro is a de facto standard for package design in the world. If you take Allegro, combine security and Clarity and Celsius, our kind of electromagnetics and electrothermal tools, that's one key area of this merger of silicon and system. We will be very, very strong in that, and our partnership with TSMC, our partnership with all the leading AI players like NVIDIA positions us very well with Allegro and 3D-IC. That will be roughly one half of our SDA business because there's going to be a lot of growth in this chiplet-based architecture. The second part will be this physical AI, structural analysis, and the combination of BETA, which was the leader in pre-post processing, with Hexagon, which has a lot of solvers like multi-body dynamics, structural. We acquired a great new CFD solver from Stanford a couple of years ago. If you put all the solvers together with BETA, that will be roughly half of our SDA business and really well positioned for the physical AI. If you put it all together, the benefit of Hexagon is that it will give us two strong pillars in SDA in the areas that are going to grow the most in the future. One is 3D-IC and HPC, the other is physical AI and connected technologies. Great. Thanks for the color, Anirudh. Our next question comes from the line of Jim Schneider with Goldman Sachs. Your line is open. 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 kind of productivity metrics you can give us in terms of, you know, time to market or developer productivity and how that might translate into either revenue or adoption rates of that technology and features. Thank you. No, absolutely. Great question. You know, as we have said before, there are two parts to our AI strategy, which is we call design for AI and then AI for design. I think the first part is the build-out of the AI, you know, ecosystem, whether it's infrastructure or physical AI. We are very well positioned with all the leading players, all the Mag 7 companies. I think your question is on the second one, which is, of course, applying AI to design. Even this time, we highlighted several examples. We have at least five major platforms. Some of the big examples are, for example, SimAI, which is using AI to accelerate verification. Verification is almost an exponential task in chip design. We are seeing with SimAI, 5x - 10x improvement in logic simulation efficiency and coverage, which is one of the most heavily used tools in verification. Even in Cadence Live, Samsung and Qualcomm and NVIDIA highlighted this. These are demonstrated benefits at customer sites being highlighted by the customer themselves. The other area is in physical design, the backend physical design with Cerebrus AI Studio. Again, we had Samsung quote 4x improvement in productivity and also 22% improvement in PPA. By the way, these are huge numbers because when you go from 5 nm to 3 nm, 3 nm to 2 nm, typically a node migration, which the industry is spending billions and billions of dollars, will give 10% - 20% PPA improvement. If we can get that with better optimization, with better AI, that's a huge value for our customers. The good news is that the adoption of AI tools is almost taken as a de facto. All the big customers are adopting our AI tools. I've said even before that the monetization of that takes some time. It always takes two contract cycles. I think we should be able to do that or slightly better. The productivity is huge by applying AI to EDA. The reason I think it is different in EDA than other things is, first of all, there are multiple reasons. One is, we have done automation for 30 years. The chip design process is highly automated. About 80% - 90% of it is already automated. We have a lot of history of automation. AI is the next 10x that automation can happen. I mean, we have probably improved chip design 100x in the last 20 years. AI can give the next 10x. The other thing that is different in chip design versus other industries, I believe, is because the workload is exponential. The chips in five years from now will be like 5x-1 0 x bigger. The complexity will be 20x- 30x more given software and chiplet. AI productivity is needed just to keep up. Our workload is exponential. It's very different than a workload that is not exponential. The customers are expecting us to deliver more productivity and are accepting of deploying that in their designs. Thank you. Our next question comes from the line of Harlan Sur with JP Morgan. Your line is open. 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. Your 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? Do you anticipate continued momentum and growth in 2026 for the hardware platform? Yeah, Harlan, as always, you're always very perceptive in the overall trends in the market. Yes, hardware is doing phenomenally well, and I expect the trend to continue. Will 2026 be better than 2025? That's what, you know, we would think. Now, how much better, you know, we are always prudent in that because, you know, hardware, we don't have like a full year visibility like we would have in the software business. When we go into any given year, you know, we only have a six-month visibility. We are always prudent in a hardware guide. If the business comes in as expected, just like this year, we can, you know, improve our guide for the rest of the year. That's more on the guiding discipline, which we want to be, we want to de-risk our guide for our investors. Now, in terms of fundamental technology trends and market trends, this is a great setup for hardware because, first of all, we are the only company that builds our own systems. We build our own chips at TSMC. They're full radical chips. You should see these things. These racks have 144 liquid-cooled chips connected by InfiniBand and optical, and the customers will connect like 16 racks together. That can emulate like 1 trillion transistor designs. There is no other platform that can compete with that. Also, the demand for hardware is increasing, not just because there are more AI designs, but as we go from 3 nm to 2 nm to 1.4 nm to 1 nm, which will take, you know, next 7- 10 years, the size of the chips only increases. There is more and more demand for hardware. Overall, competitively and market trend-wise, I think we are well positioned in hardware. Of course, for any given year, we are prudent in the guide. John, I don't know if you want to add. Yes, Harlan, what I'd add there is the demand remains very strong, particularly across AI, HPC, and auto markets. We've seen scaling, we've been scaling manufacturing capacity and trying to improve lead times. We've also had hardware growth margins become more healthy. We remain focused on throughput to meet the elevated need from AI designs. If you look at our financials this quarter, you'll see that we've been building inventory to try and meet the demand that's reflected in the pipeline for the next six months. Insightful. Thank you very much. Thanks. Our next question comes from the line of Jay Vleeschhouwer with Griffin Securities. Your line is open. Thank you. Anirudh, you gave several examples of customer activity, customer engagements, and so forth. 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 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. There would be a general uplift as a result of that combined work. At the same time, would it also necessitate increasing your investments, for example, in AEs, as you did when you had that breakthrough with Intel several years ago? Yeah, hey, Jay, that's a good observation in terms of CPU, GPU together. By the way, I've said this for almost 15- 20 years, that the CPU, GPU need to work together because, you know, EDA is a very well-optimized workload. It is computational software, mathematical software, which is very similar to AI. What happened in the history of EDA is that, of course, there are a lot of SIMD tasks, like which can be done in a GPU kind of machine, but there are also a lot of conditional tasks which need to be done on a CPU kind of machine. We always wanted both CPU and GPU. We also wanted CPU and GPU to be close to each other. Actually, to NVIDIA's credit and, you know, Jensen 's credit of, you know, Grace Hopper and then Grace Blackwell, I mean, they are one of the first people to track, to kind of watch this trend. Now, if you look at all the major designs from other companies too, there is a combination of CPU and GPU together. That's the reason for the last several years, we are already working on porting our workload to CPU plus GPU. A perfect example was when we announced Millennium earlier in the year. We are moving not just system analysis workload, which are more GPU friendly, but also EDA workload, which are critical for accelerating EDA and 3D-IC to CPU-GPU combination. What I would like to say is I'm actually very pleased to see that the whole industry now is going toward this combination of CPU plus GPU, whether you look at Apple's chips or AMD chips, and of course, NVIDIA's amazing platform. This partnership with NVIDIA and Intel is good for us in terms of giving us a new kind of x86 plus GPU. We have a longstanding partnership with NVIDIA. As Intel does more work with NVIDIA, it's also good for our overall discussions with Intel, which I think are proceeding well. I think Intel has to invest both in its ecosystem for foundry and also its own products. I think Lip-Bu knows that, and it's good to see the investment on both sides. All right. I mean, just to be clear, aside from the porting that you have to do internally for your own tools, you are presuming that in terms of demand, this customer activity would necessarily increase the consumption of EDA. The customer activity should, I mean, I think first of all, if the EDA tools get better because of, you know, CPU-GPU systems being optimized, typically the customers will adopt, you know, we are always looking at ways to improve our tools. This gives another vehicle to improve the performance of our tools. That's good for all customers. In this particular partnership, there are specific design activities that need to be done, you know, without getting into too much detail, you know, NVLink-based IP. We are working with the particular companies on design to make this design happen, just like we would work with any of the leading designs. There is a specific customer activity connected to NVIDIA and Intel. In general, there is customer benefit if our tools are optimized better on this platform. Okay. Got it. Thank you, Anirudh. Our next question comes from the line of Gianmarco Conti with Deutsche Bank. Your line is open. 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. How should we think about a sustainable growth rate in the region beyond what was recouped last quarter? 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. I think investors will want to be a bit wary about what was real in terms of potential risk to EDA or what is sort of like a broader macro level impact. Any commentary? That would be great. Thank you. Yeah, I think China, like I said, the design activity seems back to normal to me. I think we mentioned, of course, when we started the year, we were very prudent because I said before, when I went to China last year, they were expecting a very tough kind of macro environment, geopolitical environment, which turned out to be true in 2023. We were very prudent in our guide of China in the beginning of the year, which turned out to be correct. Now, I think at this point, like John also mentioned last time and this time, we expect China to grow. How much it grows will depend. We'll have a better idea. It's very difficult to predict. We'll have a better idea at the end of the year. I do expect China to grow this year. It's good to see, it's very difficult to predict the geopolitical environment, and I definitely don't want to do that. It's good to see that there are a lot of discussions between the two presidents and two big economies. Any stability there and certainty is good for our business. We look forward to that. I do expect that design activity is strong. If there is no unforeseen development and the environment is stable, it should help our business. I just want to remind you that our strength in Q3 is helped by performance in China, but it's very broad-based, given all the reasons we mentioned of the build-out of the AI infrastructure, the emerging design of physical AI, the overall AI megatrend. We are pleased. We are not indexed to any particular country, but it's good to see that the environment is improving in China. Yeah. Gian, I'd like to remind you that our Q4 and full-year outlook assumes today's export regime remains substantially similar. We always incorporate prudence for regulatory variability, and we'll continue to comply rigorously with, while supporting customers globally. As Anirudh says, we're seeing strength right across all businesses and across all geographies. Great. Thank you. Our next question comes from the line of Joe Quatrochi with Wells Fargo. Your line is open. Yeah, thanks for taking the question. I was wondering if you could just maybe help us understand like the OpEx dynamics. I think 3Q is 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 sort of help there would be helpful? Sure. Yeah. I mean, it's really just the timing of some hardware delivery shifting between Q3 and Q4. Overall, the year is slightly ahead of what we were expecting, and we're pleased by the broad-based execution and strong demand across all product categories. Core EDA software is performing very well. Hardware continues to be strong. We're continuing to make progress in SDA, and we've continued IP momentum and healthy renewals set up for Q4. I guess maybe the OpEx. Sorry, can you repeat that? The question was on the OpEx side, like the OpEx timing. Yes. On the OpEx side, we did a small restructure that benefited Q3. The hardware gross margins were very healthy in Q3. It's offset a little in Q4 by some new expenses we're picking up from new acquisitions. Perfect. Thank you. Thanks. Our next question comes from the line of Charles Shi with Needham. Your line is open. Thanks for taking my question. Anirudh, congrats on the nice results. And John, similarly here. The question, I looked at the gross rate for the overall company for the last three years. It has been maintaining around that 40%-ish plus minus range. Truly remarkable. Looks, feels like you didn't really skip a beat at all. 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 kind of decelerating. I think that was largely due to your hardware transition into the Z3-X3. I'm looking at the upfront revenue as to inform me about your hardware growth. This year, both things turned out much more net positive. 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. I wonder, when we think about next year, do you think both hardware and China can maintain the current momentum? Maybe especially on hardware. Based on the observation of the Z2-X2 cycle, I believe that was somewhere in between 2021 and 2024. When you go into like a third year-ish, the growth rate in the Z2-X2 cycle, it kind of decelerated a little bit. My question is, is this time going to be a little bit different in terms of the hardware growth rate going forward? Could any fear from your customers regarding hardware transition to, let's say, Z4- X4 in maybe the next one to two years cause some of the deceleration of hardware revenue? I know this is a long question, but I think that this is the most important when we think about the Cadence outperformance going into next year. Thank you. Thanks for the question, Charles. We're trying to unpack it. I think I wouldn't focus too much on any one quarter or even any one half in terms of results. If you recall last year, the shape of the revenue curve was kind of back-end loaded. Q3 over Q3 comps can be a bit skewed, particularly as well with China, given that we had that temporary restriction in China from May to early July. Generally, when you're talking about hardware, demand is very, very strong. We're seeing a secular trend in hardware demand for many years now because the growth in complexity continues unabated. We're seeing a very strong pipeline for the next six months and we're ramping up on inventory for some large orders that we have to fill in the next couple of quarters. We're seeing lots of momentum. We expect to, I mean, typically, if I go back, I think the last five, six years, and it's typical of Cadence, Q4 bookings would exceed Q4 revenue. We just finished with $7 billion of backlog at the end of Q3, which is a new record for us. Given renewal timing in Q4 and the visibility we have, we'd expect to end 2025 at a fresh high. With that mix being so healthy across all of the different businesses, I think it bodes well for next year. Maybe a quick follow-up. Anirudh, from your perspective, the current hardware Z3-X3 is not to support 1 trillion transistors, but with the AI really like moving really fast. Do you foresee when you probably need to do another hardware refresh? Is there any light you can shed on this? Thank you. Yeah, hi, Charles. I'm very confident in the hardware position. We talked about Palladium. We're the only company that designs our own chips, and also Protium with FPGA systems. That's also doing well with the dynamic deal. Like John said, we do see good demand. I just want to remind you that when we guide, we always are prudent given hardware is not as predictable as software. It has almost become, even though we reported kind of upfront revenue, what has happened is that all these big customers are almost buying every year. It's not that they're buying, you know. The buying behavior is different than four or five years ago because they're doing so much design. All the really big customers, it has almost become like an annual kind of subscription, even though financially it is reported, of course, as upfront. Now, will the hardware trend continue? Right now, I don't see any reason that it won't. I think 2026 will be stronger than 2025. How much stronger, we'll have a better idea. In terms of our next generation, we are always investing in R&D. We have a huge investment in R&D. As you know, 35% of our revenue is invested in R&D. If you look at our expense side, almost 65% of our expense is invested in R&D, and about 25% is invested in application engineering. More than 90% of our investment and headcount is in engineering, customer support, and R&D. That's true for hardware. We don't want to get into all the details, but you can assume we are well on our way designing the next generation of hardware systems, and they will come in time. One good thing is our current systems already support 1 trillion transistor designs, and that is supposed to happen by 2030. Before 2030, we will have a next generation of hardware, which will support it for the next five years. I think I'm pretty confident in our hardware roadmap. The demand itself, I think, because, you know, Harlan, you know all this area well. AI, the chips are only getting bigger. Also, what's happening is even with the Blackwell, it's not just one chip now. They have multiple chips and then Grace together. The customers are also not emulating just one chip, which is growing 2x every node. They're emulating systems of chips, you know, like Grace and Blackwell together, or if you have chiplet-based architectures. The demands of hardware may move faster than just more SLA or technology scaling because of this 3D-IC. Again, we will see that we are well positioned. We'll see how it progresses. Systematically, there is no issue in demand for hardware in our competitive position. Charles, there was a lot in your question. I think you referred to upfront recurring revenue as well. We continue to frame 2025 around 80/20 recurring to upfront on a rolling four-quarter basis. I think, as you mentioned in your question, the variability quarter to quarter is driven mainly by strong upfront businesses like hardware and IP and the timing of China ratable revenue earlier in the year. With core EDA growing so well, we're comfortable that 80/20 is probably the right kind of mix of business for the foreseeable future. Thanks for the insights. Our next question comes from the line of Gary Mobley with Loop Capital. Your line is open. Hi, guys. Thanks so much for squeezing me in. Let me extend my congratulations. I really just had a clarification or a question to get to a clarification. If I recall correctly, given the timing of the export control repeal, which I believe is July 2nd, your China backlog was not in your June quarter ending backlog, but I presume now that it is. Given, you know, 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? Yeah, hi. Let me take a crack at it and then John. I think you're right. Our backlog grew from $6.4 billion to $7 billion, so there's a growth of $600 million. I would say about 25% of that, about $150 million, is catch-up from Q2 to Q3. The rest is growth strength across our business. Yeah, John. That's right. Yeah, that's exactly right. Appreciate it. Still good numbers. Thank you. Our next question comes from the line of Clarke Jeffries with Piper Sandler. Your line is open. 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 designs, 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. Yeah, great question. I mean, this is a big trend, right? Design of custom silicon. I mean, we have talked about it for years, you know, system companies doing silicon. As you know, about 45% of our business is coming from system companies and 55% is coming from semicompanies. With this, especially with AI, there is acceleration of custom silicon. I think one difference from six months ago or one year ago to now is when I look at these big, you know, system companies, they are more and more committed to custom silicon. Of course, we have great partnership with NVIDIA, and NVIDIA is going to do phenomenally well. Custom silicon will also do well. We can see from Broadcom results, and we also work very closely with Broadcom and the customers themselves. There are opportunities because the demand is so high in terms of if you look at all these big customers, they're projecting AI compute demand to grow like 2x every year for next several years. I think there is growth for everyone involved in that. The benefit of doing custom silicon, at least for the inference part, can be so high that they are willing to invest in EDA and internal chip design. I think the financial and the customization benefit for our customers, and these are, of course, the biggest companies in the world, is significant doing custom silicon. You can look at all the big ones like Google and Meta and all the others like Microsoft, Amazon, Tesla. I think there's going to be acceleration of that. As they do more internal design, of course, they need to invest in EDA and IP and hardware. I think the trend is healthy there. Profitability questions are similar. We want to have discipline in our pricing. Our profitability is similar, but the benefit to our system companies is high as they do their own chips. Yeah. Thank you very much. Our next question comes from the line of Ruben Roy with Stifel. Your line is open. Thank you. Anirudh, I had a quick question, I hope, on a comment you made during your prepared remarks about collaborating with a customer on next-generation agentic AI solutions. I'm wondering, is that something that you're seeing across a wide swath of your end customers? If so, just wondering if you could walk through maybe some implications of that, whether it's how some of those collaborative efforts on that type of solution might be monetized longer term and how you're thinking about agentic AI overall relative to, you know, specific, it almost sounds like custom solutions by customer versus a broader agentic AI solution set that Cadence might offer to the broader ecosystem. Thank you. Yeah, that's a great question. We could talk for a while on this one. You know, we are privileged to have a deep partnership with several companies on AI. I mean, not just the design of AI, but AI for design in our solutions, and especially on agentic AI because this is a new emerging area. We have like five major AI platforms, but what is unique about agentic AI is, of course, all the GenAI stuff. If you look at even one of the biggest applications of AI, it is kind of wipe coding or software development. If you look at it, part of the chip design is also coding. You know, we have automated, like I mentioned earlier, 90% of the workflow for chip design. One part of workflow which is not automated is the customers still have to write RTL. RTL is like a language, register transfer language that describes the chip. And this happens in the very beginning part of the chip design process. That process is still manual. The algorithm that is helping, like coding or, you know, C++ coding for general software development, kind of these agentic methods, can also help for RTL development. It can provide a lot of benefit to this 10% of the workflow that is not automated. Therefore, we have a massive investment in agentic AI, which you will see as we announce more products going forward. We already have several partnerships in there, and we are highlighting one of them. The way we are going to market there is, you know, this is longer, is through JedAI. I've talked about JedAI before. JedAI is Joint Enterprise Data and AI platform. It does have some standardized components. The database is standard, all the models are available, AI models have interface to all our AI tools. Part of JedAI is standard across all customers, and we work with foundries and all to kind of train our models. Part of it could be customer specific. In that case, the data is held at the customer site. That's where we architect JedAI from the very beginning to be both on-prem and cloud-based. Sometimes the customers want it cloud-based, but sometimes if they want data to be localized, they want it on-prem. That's why for years we have invested in this kind of unique platform, JedAI, that allows us not just to build unique solutions like RTL development and verification plan development, but also deploy it either in a general way or more specialized to a particular big customer. I'm pretty optimistic in how agentic AI can automate, you know, the remaining kind of part that was manual. Again, focus our customers to do higher level tasks and remove some of the mundane tasks of RTL coding, verification plan generation, things like that. Yeah. It's very helpful. Thank you, Anirudh. Our final question comes from the line of Joshua Tilton with Wolfe Research. Your line is open. Thank you so much, guys, for sneaking me in here, and congrats on a very strong quarter. Given the time, I'm just going to actually ask a pretty direct clarification question. John, I think it's pretty much for you. In the event that you do see some impacts in the China region, given the ongoing tariff negotiations this coming quarter, do you feel or can you help us understand how you kind of handicap the updated guidance for some, if any, potential negativity in the region? Hi, Josh. That's a great question. I'd love to be able to tell the future. As always, we incorporate prudence for all kinds of regulatory variability. We base our guidance assuming that today's export regime remains substantially similar going forward through the end of 2025. It's very, very hard to predict what's going to happen. By all reports that we've heard, we believe that geopolitical tensions are lower than people expect. Helpful. Thank you guys again for sneaking me in, and congrats again on a good quarter. No worries. Thank you. I will now turn the call back to Anirudh Devgan for closing remarks. 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. Ladies and gentlemen, thank you for participating in today's Cadence third quarter 2025 earnings conference call. This concludes today's call, and you may now disconnect.