Good afternoon. My name is Abby. I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence second quarter 2026 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 this 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 second quarter of 2026 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. I'm very pleased to report that Cadence delivered outstanding financial results for the second quarter of 2026, with all key metrics exceeding our guidance. We exited the quarter with record backlogs that was above our expectations. We are seeing growing demand for our AI-driven solutions across our expanding customer base. The AI transformation is driving strong, broad-based performance across both design for AI and AI for design fronts. Given the growing business momentum and accelerating demand, we are raising our guidance for the year to 19% revenue growth and with higher profitability as we become more central to our customers as a strategic and trusted partner. John will provide more details on both our Q2 results and the updated financial outlook. Let me start with the overall environment. Design activity is growing as AI drives exponential design complexity and a new generation of system architectures spanning hyperscaler infrastructure and physical AI. Customers are investing aggressively in these opportunities, led by AI and HPC, and we are also seeing continued signs of improvement across the more traditional analog and consumer verticals. Chip and system design present demanding engineering challenges that require deterministic physics-based engines, proprietary silicon-correlated data, and deep design knowledge. Our three-layer cake framework uniquely brings these capabilities together with accelerated compute and data at the bottom layer, physically accurate simulation and optimization solvers in the middle layer, and AI agents and orchestration at the top layer. Agentic AI is a demand accelerator for Cadence as autonomous agents expand the design exploration space and call our underlying physically accurate engines more often, creating a durable tailwind that represents a significant long-term TAM expansion opportunity. We extended our leadership in agentic AI with AuraStack AI Super Agent, delivering up to 15x higher productivity and 2x faster time to market for PCB and advanced packaging design. Cadence is now the only provider with agentic solutions spanning the full electronic system design flow, from digital analog design and verification to advanced packaging and PCB. We see strong early traction across our AI Super Agent portfolio, with initial customer results demonstrating meaningful productivity improvement and better design outcomes. Our ChipStack AI Super Agent, enabling higher verification productivity and faster design cycles, has more than 20 customer engagements and is already deployed in production across multiple chip designs. At Computex 2026 together with NVIDIA, we introduced the industry's first fully autonomous virtual AI design engineer, extending ChipStack to even higher levels of autonomy. Early customer results include more than 40x faster RTL validation, reducing a typical five-week verification cycle to less than a day on a state-of-the-art advanced node design. In analog and custom design, ViraStack is seeing strong customer interest with more than 25 customer engagements, achieving 2x to 10x productivity improvements compared to traditional design flows. InnoStack is also building momentum as customers adopt agentic AI for advanced-node SoC design. During the quarter, Rapidus announced a collaboration to integrate the Cadence InnoStack AI Super Agent into its AI agent design solution, targeting up to a 2x faster design turnaround. We continue to deepen our strategic partnerships across the ecosystem. We expanded our collaboration with Intel through a multi-year engagement focused on enabling its 14A process, leveraging our design IP and agentic AI-based EDA to co-optimize tool flows and methodologies for next-generation HPC and mobile design. This agreement is expected to be a meaningful driver of growth over the next few years. We also deepened our collaboration with Samsung Foundry on two nanometer and 3D IC technologies, combining our AI-driven flows and design IP to enable next-generation AI, HPC, and mobile systems. Now, turning to our businesses. We are pleased that all product groups delivered double-digit year-over-year growth. Our IP business had an outstanding quarter, growing over 40% year-over-year. AI performance is increasingly constrained by data movement, memory bandwidth, and advanced packaging, and our differentiated IP portfolio continued to see strong adoption. This was reflected in the strong demand for our star IP portfolio in AI and HPC applications, including PCIe, UCIe, HBM, and LPDDR6. We also expanded engagement with leading memory, semiconductor, and aerospace customers. We secured our first-ever Tensilica DSP design win with STMicroelectronics, reinforcing our strength in automotive and audio applications. Core EDA grew 18% year-over-year, driven by growing adoption of our AI solutions. Proliferation of our digital full-flow solutions continued. We saw expanded adoption of Tempus and Certus sign-off tools on leading-edge designs with wins across hyperscalers, top semiconductor companies, and startups. We also expanded our implementation and sign-off footprint at Frontier AI companies, as well as at a marquee ASIC silicon vendor, underscoring their differentiated value in enabling the industry's most advanced designs. In analog, we had a significant competitive win with Spectre at a leading semiconductor supplier. Our FastSPICE simulator, Spectre FX, notched several production wins at leading customers. Our hardware business delivered another record quarter, driven by continuous strength in Palladium Z3 and Protium X3. Designs approach unprecedented scale, hardware-assisted design and verification is becoming a strategic capacity layer for our customers' AI roadmaps. These customers are designing some of the most complex chips and systems in the world. They critically depend on our scalable, high-performance hardware platforms to realize their designs. Demand remains especially strong from AI and HPC customers, including hyperscalers and leading semiconductor companies. We added 12 new logos and saw a meaningful expansion with several marquee AI customers, as well as a notable competitive win with a major AI infrastructure provider. System design and analysis revenue grew 37% year-over-year. AI system complexity increases, customers are increasingly turning to our advanced packaging and PCB solutions. Allegro X AI was adopted by several customers, driven by significant layout design time reduction. With our 3D IC technology and collaboration with TSMC's 3DFabric advanced packaging solutions, we are enabling customers to confidently design cutting-edge silicon for increasingly demanding AI workloads. In structural simulation, our BETA CAE business had several competitive displacements, while the integration of recently acquired Hexagon's D&E business is progressing well, with key deals closed with top customers. There is strong customer interest in our integrated full flow that combines our multi-physics products across the electrical, CFD, and structural domains to best address next-generation system design needs, including in the emerging field of physical AI. In summary, Q2 was a great quarter for Cadence. I'm delighted with the continuing momentum of our business. With accelerating design activity, we continue to execute strongly. Our competitive position has never been better as we lead the transformation to agentic AI in chip and system design. With that, I will turn it over to John to provide more details on our Q2 results and our updated 2026 outlook. Thanks, Anirudh. Good afternoon, everyone. Cadence delivered excellent results for the second quarter of 2026 with accelerating momentum in AI and broad-based strength across all our businesses. Robust design activity and customer demand drove 24% year-over-year revenue growth for Q2, with double-digit growth across all our product groups. With strong execution, we generated Q2 operating margin of 45.5%. Second-quarter bookings resulted in a record backlog of $8.1 billion. Here are some of the financial highlights for the second quarter, starting with the P&L. Total revenue was $1,584 million. GAAP operating margin was 28.4%. Non-GAAP operating margin was 45.5%. GAAP EPS was $1.33. Non-GAAP EPS was $2.11. Turning to the balance sheet and cash flow. Our cash balance was $1,440 million, while the principal value of debt outstanding was $2,500 million. Operating cash flow was $635 million. DSOs were 65 days. We used $200 million to repurchase Cadence shares. Before I provide our updated outlook, I'd like to highlight that it contains the useful assumption that export control regulations that exist today remain substantially similar for the remainder of the year. For our updated outlook for 2026, we now expect revenue in the range of $6,260 to 6,340 million. GAAP operating margin in the range of 27.75% to 28.75%. Non-GAAP operating margin in the range of 43.75% to 44.75%. GAAP EPS in the range of $4.76 to $4.86. Non-GAAP EPS in the range of $8.05 to $8.15. Operating cash flow of approximately $2 billion. We expect to use approximately 50% of our free cash flow to repurchase Cadence shares in 2026. For Q3, we expect revenue in the range of $1,595 to 1,625 million. GAAP operating margin in the range of 27.5% to 28.5%. Non-GAAP operating margin in the range of 43.5% to 44.5%. GAAP EPS in the range of $1.11 to $1.17. Non-GAAP EPS in the range of $2.01 to $2.07. 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 and non-GAAP reconciliations. In conclusion, I'm pleased with our strong first half results and the robust pipeline and momentum heading into the second half of the year. At the midpoint, we now expect revenue growth of 19%, operating margin of 44.25%, EPS of $8.10, and operating cash flow of $2 billion for the year. 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 would like to ask a question to please press star 1 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 Joe Quatrochi with Wells Fargo. Your line is open. Thanks for taking the question. Maybe first, wonder if you could give us any help. You talked about agentic AI as being a long-term TAM expansion opportunity. Is there any quantification that you could give us on that TAM at this point? Maybe how do we think about that as driving EDA as a% of R&D expense into maybe higher over time? Hey, Joe. Thanks for the question. Like we said before, the great thing about agentic AI is it opens up a new TAM opportunity. At the same time, it calls more of our underlying physically accurate software. Going back to the three-leg framework, it's a new opportunity at the top layer and reinforces the middle layer. I think we are pleased by the interest. The interest is amazing, actually. Almost all the big customers, almost all customers want to engage in our agent stack, and now we have four super agents. I think it's a great opportunity for us. Now, in terms of results, of course, we had great results Q2 and the year so far, and there's a lot of strength in different parts of the business. What I'm particularly proud of is the strength in the software businesses, if you look at our recurring growth. That was particularly driven by strength of add-on business. Both, we are seeing add-ons driven both basically for design for AI as our customers design more chips, and also AI for design, which is our agentic and AI portfolio. You can see that in our results. What is particularly impressive, and this is, I think, the highest raise we ever had, is that it is broad-based, including software and AI contributing to that growth. We'll see how things progress for rest of the year. Joe, if I could just add, the customer engagement, as Anirudh said, continues to accelerate. We're seeing increased evaluations in pilots and early deployments, and we continue to expect monetization through both the new workflow products as well as increased usage of underlying engines. Just to be clear, we're still not assuming a sudden step function in our guidance. The opportunity is continuing to develop well, though. Our next question comes from the line of Joe Vruwink with Baird. Your line is open. Great. Thanks. Staying on this topic, I wanted to ask about open source models designing chips, maybe if I just take Kimi at face value, it seems like an agent sought out EDA tools and then orchestrated the flow when tasked with chip design. I guess my question is, the implication for Cadence from all of this, two things come to mind. One, if customers now have agents capable of accessing your EDA tools, does that drive higher usage and more net consumption ultimately? Then two, where do you think the differentiation lies with a customer buying the Cadence mental models for orchestration versus customers maybe deciding to build on their own? Yeah, thanks for the question. Like I said before, I've said this for years now, like four or five years, that the real AI orchestration and monetization will happen through this three-layer cake. Just to remind everybody, the top layer is AI agents and orchestration, the middle layer is our traditional physically accurate tools, ground truth, and bottom layer is compute and data. The recent news just confirms that framework. This will happen in all markets. The value of AI will go more and more vertical than horizontal, and I've said this for a long time. Even in chip design, the value is in the agentic framework and all the mental model, all the knowledge graphs, then calling the physically accurate tools on a rich set of hardware. This latest news, in case of Kimi doing that, they said a chip, but I think it's a small block, which is about technology, which is 20 years old on frequency, that is 20, 30 times slower than current frequency. Even to design a small bug at such an old node, they needed EDA tools to do that. This is going to happen again and again. There have been open source EDA tools for a while, I don't know, for decades, and they're used in some university or specialized settings. To really do real designs, people use Cadence to do that. The differentiation will be in all three. We want to differentiate in all three parts of the cake. Our knowledge graph and our mental model and how we do the reinforcement loops at the agents is really differentiated. How we call then the middle layer, through deep API access and the strength of our middle traditional tools is differentiated. Even in the bottom layer, as you know, we have Palladium, we have Millennium, we have special hardware to do that. Our differentiation will be in all three, and then all three together, we are more differentiated than we have ever been. I'm very proud of our differentiation of the mode we have, and then the fact that these three layers will reinforce each other. The customers may always have their own agents, just like they have their own flows right now. To really do mission-critical tasks, they increasingly depend on Cadence as you're seeing that in our engagements. Yeah. Joe, Anirudh always says that agentic AI actually increases demand because agents invoke EDA tools continuously while exploring more design alternatives, and Kimi was a really good example of that. Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open. Thanks for taking my question. I know the IP business has accelerated to over 40% growth. I'm curious, what's driving this? How much is organic versus inorganic, and what is the sustainable growth rate for IP? If we zoom out, I just wanted to clarify with John what the contribution is now with Hexagon and the EPS dilution. Thank you. John, you want to start on that? Sure. Just in terms of Hexagon contribution, Hexagon is delivering as we originally expected, and it continues to contribute to SDA growth, the strength in our SDA numbers is much broader. We're seeing momentum in 3D IC, in advanced packaging, in PCB, multi-physics, and physical AI. The integration of Hexagon D&E is progressing well, and we see a significant opportunity to strengthen both the technology portfolio and go to market over time. Also, I guess on the IP side, IP had an outstanding quarter driven by AI, HPC, advanced node activity, memory bandwidth, chiplets, and advanced packaging. There were strong customer engagements and meaningful wins, IP revenue can be timing dependent from quarter to quarter. We're pleased with the momentum, I wouldn't annualize any one quarter. Our competitive position continues strengthening across interface IP, memory IP, and foundation IP. As Intel, as Anirudh called out, it represents another example of customers choosing broader strategic engagement with us. Anirudh, would you like to add? Absolutely. Thanks, John. Vivek, very pleased with the IP performance and SDA performance. Before I get into specific IP, the good thing is these things are growing. Of course, IP is growing very well. SDA is growing very well. Also they have enough scale now. EDA, we are always, I believe, the leading EDA provider, with analog, digital, verification, packaging, 3D IC. Roughly speaking, both IP and SDA are approaching a billion-dollar run rate. At this point, gives a lot of strength in our portfolio to engage with our customers. Now, IP particularly, I've mentioned this before, I think there are three big mega trends. One is, of course, our IP is much better than before. The quality of our IP, the PPA, power, performance in the area for TSMC and the leading nodes is better. We are getting a lot of competitive wins in IP that two years ago we would not participate in. That's one thing. Second reason is our IP strategy is more focused. Our IP strategy has always been focused and will continue to be focused to leading nodes, to star IP, to AI and HPC segments. I've talked about these five key IPs, which interface IP, memory IP. We have expanded to foundation and other, but this especially chip-to-chip IP, memory IP, interface IPs are super critical and they are growing well. Okay. The third thing is there are more and more foundries. We talked about Intel. I'm very proud of this new partnership with Intel, and it's, of course, much broader than IP, but IP is a part of it. Our engagement with Samsung, we mentioned last quarter and Rapidus. The foundry ecosystem is much more diverse than before. I think these three reasons, our IP business is doing phenomenal. Most of it is, just to clarify, is organic growth. This great growth we posted, most of it is organic growth. Now, how does it proceed in the future? We'll see, but all the signs are positive at this time. Our next question comes from the line of Siti Panigrahi with Mizuho. Your line is open. Thanks for taking my question. Apologies for the background noise. Anirudh, I'm at DAC conference, and I can tell you the key theme here is agentic AI, which kind of validate what you said. My key question is, you talked about some of this agent, super agent, ChipStack, ViraStack that your customer's been using. Wondering, what kind of feedback you are getting and the cost saving and the value that you bring to the customer. I know, John, earlier you talked about monetization, which might take contract renewal or cycle time. As you see the usage, are you seeing any kind of accelerating adoption where the timeline can be compressed? Siti, the demand is great, like I mentioned, for these agents. The exciting thing is that the use cases are, we have publicly talked about so many of them and 2x to 10x to, in some cases, 40x improvement. This is only the ones that we can publicly talk about. This is a very small subset of our engagement. The amount of use cases and the benefit is real, okay? The interest is definitely real in terms of number of engagements and how many customers want to engage with us. Our strength of our portfolio with the three-layer cake is very well differentiated. I'm very pleased. We are maybe six months into our launch of these products. We launched them in Q1, but we're working, I would say, roughly six months with our customers. We'll see how it progresses. Like I said, the early add-on business is encouraging, but we have to still in the early days, so we'll see how it goes. So far, the demand is tremendous. Siti, I think we view this as a demand accelerator. The customers are not trying to do any less design work. They're trying to keep up with design complexity, which is accelerating faster than engineering headcount can scale. We've always said that. As agents expand the design exploration space and call the underlying Cadence engines more often, that creates opportunities for new agentic workflow products and increased use of our core tools. Our next question comes from the line of Jim Schneider with Goldman Sachs. Your line is open. Good evening. Thanks for taking my question. Continuing on the agentic AI theme, could you maybe talk a little bit about some of the add-on engagements you're seeing for those tools and to what extent you're seeing them across more than the sort of 20 to 25 customers you've already noted? If you could quantify the impact of those add-ons in terms of either the guidance arrays or what it could mean for core EDA software revenue in the next year, that'd be great. Thank you. I think, as right, we are very careful about projecting future, next year numbers. I think to step back a little bit, I think the three things that I'm super excited about is, one is that the overall environment is much better. This also helps us a lot. Not just the AI companies, the hyperscalers, the commitment to silicon is much higher than 12 months ago, and you can see that, you're following all the hyperscalers. The amount of designs and the number of designs each hyperscaler is doing is impressive. The AI semi companies are growing immensely. The analog and memory and the consumer semi companies are also doing well now. Overall environment is much better than one year ago, which of course helps us, right? That's number one. Number two, I think I just want to emphasize our competitive position, I feel, has never been better. We are taking a lot of share in different customers, getting to much deeper engagement, whether it's agentic AI or hardware or IP, and you can see that in the numbers. Okay. The third part is this new TAM expansion opportunity, which is agentic, which we are clearly super excited about. We're still in the early stages. If you combine those three things, I think that is what is leading to such good results and such good guidance. Just to remind you, this is the highest we have raised annual revenue in a single quarter. Okay. To about 19% revenue growth with improved profitability. I think I would like to say that some of the benefit is already there of this agentic and other, next year and year after, as we are prudent as ever, we'll see how things progress. Jim, I know we get a lot of questions about agentic AI, I think it's important to highlight that the raise that we just did for Q2 for the rest of the year reflects broad-based strength across the business rather than any single customer or product. We saw strong Q2 execution across core EDA, IP, hardware, and SDA. Of course, is all benefiting from continued strength in AI-driven demand as well. The strength is broad-based across all businesses and across all regions. Our next question comes from the line of Harlan Sur with JP Morgan. Your line is open. Good afternoon. Thanks for taking my question. Anirudh, as the volume of AI inferencing compute workloads surpassed training workloads in the second half of last year, we know that inferencing is much more memory-intensive, right? We've seen this diversification of different types of memory architectures emerging to address inferencing. In addition to HBM DRAM, we've seen development of SRAM-based offload architectures. We've seen CXL-based conventional DRAM offload, even using enterprise SSD or flash-based memory, right? Given all of the focus on these memory architectures and memory controller architectures, is this translating into some tailwinds for your custom Virtuoso family of EDA tool solutions or tailwinds for your CXL-based or memory compiler IP portfolios, or both? Yes, Harlan, that's a great point. Like John mentioned, the strength is broad-based, and definitely the analog group, which is part of EDA, is also seeing very strong momentum. All of these, whether it's memory or analog, is all done, and Virtuoso is the leading platform for analog and mixed-signal and custom design in the industry. I'm very pleased to see, overall environment plus, this special, there's all this innovation that is driven by inferencing, helping all our businesses, analog, digital, and verification. What is exciting to me in this, you know this anyway, with this inferencing is that there is much more varied architectures you mentioned, and also much more varied customers. All the big customers believe at this point that, of course, they will use standard products from semiconductor companies, from the really big semiconductor companies like NVIDIA, who are doing great, but also believe that they will have their own custom silicon. On top of that, different versions of that custom silicon for memory access and also networking, right? There's a lot of activity in networking as well. I would say, over the last six months, I see a lot more activity in startups. Startups were kind of dormant. In the last six months, there are some very high-profile startups that are starting, not just in AI, but in networking and even CPU, right? I think the overall environment is good, and it is affecting all our businesses. Analog for sure, verification with hardware, IP business, digital implementation, 3D IC is a big thing where we have leadership. That's what leading to this broad-based trend. The conviction of the hyperscalers to do their own silicon and try, like you pointed out, different architectures, and that's bound to happen. If there's one bottleneck, the customers come up with different memory architectures to solve that bottleneck or different networking architecture. I expect this to continue. As the market gets bigger, you know that. As the AI infrastructure market gets bigger, there will be more and more innovation to optimize each part of that market. All that innovation will require Cadence products to make that happen. The next question comes from the line of Charles Shi with Needham & Company. Your line is open. Hi, good afternoon. Hi, Anirudh. I can ask about AI for 100 ways, but I think the most important question top of many people's mind right now, or I should say the scenario, a very extreme scenario that people fear about the most, is where you actually prompt, I don't know when we could get that, but a prompt on a very, very powerful LLM in the future with your chip design requirement, then that LLM can autonomously generate GDS II codes that gets sent to foundry directly for tape-out without running them through any of the commercial EDA tools. This is one of the scenarios some people were envisioning. We strongly disagree, do you think this so-called end-to-end LLM-based chip design is a real possibility at all? Or since you mentioned a three-layer cake. Thanks. Yeah, Charles, like I said before, I've said this for years. The way this improvement will happen, and of course, there will be a lot of improvements with AI, will be through this three-layer cake. We will have agents like we have super agents. Our tools are central, will continue to be central to that. We'll run on varied set of hardware. I don't see that changing. Some people may get worried about it from time to time. The ground truth will prevail. Okay. This three-layer framework will prevail. If you talk about commoditization, I think what is likely to happen is not the EDA tools get commoditized. What is likely to happen is at the agentic layer, there'll be a lot of choices for LLMs. If you look at what is really happening right now in the marketplace, is that the customers are demanding choice in their LLMs. Which is, give me the example of that, GLM-5.2 and Nemotron, of course, great release by NVIDIA, all the commercial models. What the customers are asking me is, "Can the agent be more intelligent in choosing the right model for the right task given the rapid progress in the LLMs?" I think that's most likely to happen. The three-layer framework criticality of our tools will be here to stay. Yeah. Our next question comes from the line of Lee Simpson with Morgan Stanley. Your line is open. Great. Thanks for squeezing me in. I think most of my questions have been asked. Maybe I'll ask a generic sort of competitive one. It does look as though Cadence has expanded DTCO collaborations now with Intel, building out its Samsung roadmap. You've also deepened relationships with TSMC. Your positioning in stacked die and multi-chip designs is pretty much equal or better relative to peers you'd say now. Its exposure to digital design and IP interface maybe differs from Synopsys. I guess the question here is really, where are you seeing the most competitive pressure from some of your peers, in contested accounts, in the context of some of the other agentic AI push at your rivals, are you winning or losing share in that digital implementation and verification at the leading edge? Thanks. Thanks for the question, Lee. First thing, I just want to say that I'm very proud of this new Intel collaboration because Intel is a company we tried to work closer for a very long time. This is not a one or two-year-old problem. This is like a 10 or 20-year-old problem. Okay. Finally, we have a great collaboration with Intel, with Lip-Bu and his new team, and I think we are working on it for a while now, but it's good to announce it in Q2. It's a pretty broad-based collaboration. Of course, starting with what we had announced a month or two ago, 14A and DTCO, our agentic EDA solutions, our IP portfolio, which is much stronger. I think it goes beyond that. You'll see that we are engaging Intel in all parts of Intel with all parts of our product portfolio. I'm really pleased to see our position improving at Intel and our collaboration being just like it is in all the other leading companies. Same thing happened with Samsung over the last six to 12 months. In terms of what we were weak at before, a few years ago was we were doing great with the TSMC ecosystem. We have a great partnership with TSMC. I've said for a while we were weak at Intel and Samsung, and that definitely has changed. There's still more to go, but at least the trajectory has definitely changed in my opinion. That specially applies to digital and verification businesses. Even in digital, we are always very, very strong in implementation, place and route. Now, as we had mentioned in my prepared remarks, also strong in sign-off. The depth of our digital engagement is also improving at all customers. Overall, I'm pretty pleased with our position, and we just always believe in simple things, right? Team, technology, and customers. We have the best team, I believe, develop the best products, and listen to these demanding customers, and that's how we stay ahead. We're not looking at who else is doing that, but are we really satisfying the demanding workload of our customers? I believe right now we are in a great position. Our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Your line is open. Great. Thank you. Great to hear another record hardware quarter. I know, John, you mentioned this is always as a pipeline business, and you wait to the middle of the year to get better visibility for the second half. Maybe can you speak to the type of demand activity you are seeing for hardware? I did notice that inventory ticked up nicely in the second quarter, both on a year-over-year and a quarter-over-quarter basis. Thanks. Yeah, great question, Jason. Yeah. We continue to see strong hardware demand, particularly from AI and HPC customers. Hardware-assisted verification is becoming a strategic capacity layer for customers designing the most complex chips and systems. There could be quarterly timing effects, demand remains solid, and we continue to expect 2026 to be another record hardware year. I would profile hardware as that it still remains supply-constrained by customer demand rather than demand-constrained. We're building the systems as quickly as we can to deliver against the backlog. Yes, part of the increase through the year was due to hardware strengths, but we are seeing strengths right across the board. Our next question comes from the line of Gianmarco Conti with Deutsche Bank. Your line is open. Yeah. Thank you for squeezing me in as well. Yeah, amazing performance on IP. Maybe if you could share a few more words on Intel win, exactly what does that entail? What parts of the portfolio? Was that displacement? How big is roughly the contract meant to draw down over how much time? Is this in guides? Just the layout on the details, if you could share any of that, please. Thank you. Sure. I can comment a little bit more. This is a multi-year arrangement, and of course, some of the benefit is this year, but most of it is to come. We will also invest more in Intel and Intel customers, which is to be expected. In terms of IP, it's much broader than IP because it includes EDA and DTCO. In terms of IP, we have a pretty good portfolio. We will make that available on Intel process. This doesn't include as Intel Foundry gets more customers, they're buying IP from us. This is just our arrangement with Intel right now. As you know, we are always conservative in those projections. Intel Foundry is, as you know, talking to a lot of customers, it's a possibility those customers will acquire these IPs and any differentiated tools that come out from this DTCO. We will see how it goes. IP strength is, of course, Intel is a part of it, but it's much more broad-based. Even our overall strength, I think I want to highlight and John already mentioned, is not coming from one particular thing. There are four or five things that are driving this raised outlook. Intel is one of them for sure. IP is one of them. Hardware is a key focus, but hardware, and if you look at our recurring growth is very good, right? Hardware is important growth, but so is EDA and agentic solutions and 3D IC and SDA. I feel right now there are four or five engines that are driving our growth, but we are definitely very proud of the Intel agreement and the new partnership. Gianmarco, I know your question is primarily around revenue and things like that, but I want to highlight that there is some kind of expense in the second half as well, because we're investing around these opportunities like Intel, as well as trying to integrate Hexagon's D&E business, because we're very focused on improving margins for next year. You'll notice that the second half is slightly lower margins than the first half, but that's a reflection of us making targeted investments. These are deliberate investments, and not a deterioration in the underlying model by any means. Our organic incremental margins remain very attractive and We expect acquisition profitability and profitability of IP to continue to improve as we go into 2027. Our next question comes from the line of Ruben Roy with Stifel. Your line is open. Thanks, John. I think you just answered my question. Let me just make sure I understand that. Yeah, I was looking at the implied operating margin near 43% and R&D expenses up probably 19% year-over-year based on implied guidance for the full year versus around 10% growth last year. Of course, Hexagon accounts for a part of that. I guess, how much of this is sort of the core business, and I guess I was thinking through agentic AI and go to market is that sort of hiring you're already committed to. Is that driving some of the expense increase, and how do you expect that to roll into 2027? Thank you. Yeah, it's not just hiring, but it's investment in systems and everything. We're trying to invest heavily in making sure we do a full and proper integration of Hexagon's design and engineering business, as well as some of the other businesses, the smaller businesses that we've pulled into systems design analysis. We're very focused on that in the second half of this year. I think I highlighted it last year that we had, I think, $20 to 25 million set aside specifically for investments in the second half of the year. Now, there's always some prudence in our expense expectations. Ruben, I always want to give the team enough scope to be able to invest and capture the increased profitability opportunities that they could get. Our focus is really on, in the second half of this year, to grab those opportunities and set ourselves up so that we have better operating margins next year. Our next question comes from the line of Kelsey Chia with Citigroup. Your line is open. Hello. Hi, Anirudh. Regarding Intel, is the engagement around 14A more likely an incremental driver to the sort of 20% to 25% growth that the team has been delivering for the IP business? Also, will it be a meaningful driver to our EDA business in the coming quarters or how long should we think about that trajectory as they're into EDA business? I mean, just to make sure I understand the question. I think the Intel business that we announced is all incremental to our business, 100%. We already had existing Intel agreement, this one is a new agreement on top of that, and it's a multi-year agreement with multiple parts of that business. What I'm also, and I think Lip-Bu has said that publicly also, I mean, we announced 14A, I think Intel to be successful in the foundry business has to do more than 14A. We are already talking to them other future roadmap of Intel Foundry. Of course, there is different parts of Intel, as you know, the product groups and they're investing in their server business and their client business. Again, we are proud to be working with Intel closely, just like we work with other big customers. I think it's more a normalization of our relationship with Intel, like we work with all the other household names. I'm very proud of this development. Our next question comes from the line of Jay Vleeschhouwer with Griffin Securities. Your line is open. Thank you. Good evening. Anirudh, I'd like to ask you about the practical implications of, or requirements for, implementing AI and agents and all that you've spoken of this evening. That is to say, when you think about the pre-sale and post-sale support, and customer support that you have to provide, how would that compare to, let's say, what you used to have to do for classical EDA? Is there something quantitatively or qualitatively or technically different now that you need to do that you hadn't had to do before? What I have in mind, for example, is that over the last few months, there's been a very clear uptrend in your AE openings. It's a classic leading indicator for customer adoption. You've also said that GenAI is on quote, "the critical path for agentic adoption." Maybe you could talk about that as well. Yeah. Thanks, Jay, for that question. That's a great question. I mean, in general, of course, we are growing, we will invest, right, both in R&D and application engineering. Agentic AI, it does not require some massive step increase in investment. I just want to be clear about that. It is more of our traditional business because we are, of course, very asset light, right? We're not building compute farms. All this is done by our customers. Okay? Just to be clear. Now, of course, some of the skills are different, our team anyway is expert in computation software as you know, they can pick up agentic AI. Some hiring we will do. It's more of a business as usual, I will say. Also we can make AI, there are implications that we are applying a lot of AI internally, okay, to make things even more efficient. For example, AEs, yes, we are hiring AEs, AI can dramatically reduce AI workload and make them much more productive. More of the AEs can participate in pre-sales activity rather than post-sales support, right? Same thing in R&D. Of course, we are deploying AI for software development, and of course, AI deploying our agent stack and all our agents for IP development to make them more efficient. This is what John was saying earlier, so we'll see how that progresses. I think AI has the opportunity to even reduce our cost in some cases. You should not model in some massive investment. I think the investment we talked about is more for SDA, for the integration. You always talked about, Jay, that how we need to have a full flow, and I feel that finally we have a full flow in SDA, so investing in that, investing in Intel. The agentic AI will go through our regular sales motion and regular AI and R&D support. Yeah. Our next question comes from the line of Joshua Tilton with Wolfe Research. Your line is open. Hey, guys. Thanks for sneaking me in. Maybe just one clarification and one thematic question for Anirudh. On the clarification side, could you just maybe unpack for us what's driving the strength in other recurring revenue? That stood out to us this quarter, and any commentary there would be helpful. Maybe on the thematic side, Anirudh, unless I misheard you, in your prepared remarks in the beginning, you talked about becoming more of a strategic partner for your customers. The question's for you, but John, feel free to jump in here. Maybe help us as financial analysts understand what that means from a business perspective. Are you growing wallet share? Are you able to charge more? How are you, as a company, capturing value financially because you are now becoming more of a strategic partner to your customers? If that makes sense. Thanks. Shall I start, Anirudh? Josh, I'll take the recurring revenue question. Recurring revenue grew about 24% year-over-year in Q2, that was driven primarily by strong core EDA growth. Some AI-driven demand, there's share gains and healthy renewals, and expansions through add-on business. Within that, probably Hexagon contributed roughly four points. Even adjusting for that, recurring revenue is high teens to 20% on a normalized pro forma basis, which we view as a very strong result. We would continue to expect the full-year mix to be roughly 80% recurring and 20% upfront. On the agentic AI stuff, essentially, when you look at the way we sell that, first of all, customers continue purchasing our underlying EDA software. What they do is they purchase Cadence agent licenses that orchestrate engineering workflows. Generally, our economics scale with customer adoptions. Anirudh, would you like to add to address the rest of Josh's question? Josh, what we are saying is that we were always strategic to our semiconductor customers, right? Of course, we are part of engineering. We're part of R&D, right? We are not like other enterprise kind of software. This is engineering software, we are central to them making their products and their revenue. What has happened lately over the last, let's say, one year is even in semi companies, our engagement is at a much higher level in the company because EDA and chip design and agentic AI opportunities are very meaningful to our customers. As there's more demanding roadmap, as Moore's law is kind of slowing down. This is well known, not producing enough improvement. The improvement has to come with design efficiency, better optimization, better use of AI agents, and also the middle layer, right? The PPA provided by. We do this with the foundries and with the customers, DTCO is part of it, for better optimization of power and performance area than was possible if Moore's law was really moving fast. Right now, it has slowed down. That's on the semi side. On the system side, the realization that semiconductor is essential has happened now in the last 6 to 12 months or so. All the Magnificent 7 companies, all the big, really household names, silicon is a critical part of their roadmap. Cadence engagement is super critical at these customers. The way to monetize that is we provide more value to them, we can get more value for us, as you see in our results. Our final question comes from the line of Gary Mobley with StoneX. Your line is open. Thanks for sneaking me in. This may be a question more for John. One thing that stands out is what appears to be about a 55% increase in your bookings in the first half of the year versus the same period last year. I assume you're going to build on what is normally a seasonally strong second half of the year, and I thought this was a low renewal period for some more substantial customers. Maybe if you can speak to what's driving that booking strength. Is it a reflection of the strength of the chip cycle? Is the strength a function of the strong chip design activity, or is it a function of some of the AI tools driving increasing usage of more copies of classic EDA tools? Sure, Gary. That's a great question. I think Anirudh spoke to it a little bit there to Josh's question. We always say it's strategy first, right? We've been continuing to execute against our intelligent system design strategy. Anirudh's mapped that out for us for the last decade or so. What we're seeing is that all the underlying structural demand drivers continue to strengthen. The semiconductor complexity, AI infrastructure investment, engineering productivity, physical AI, agentic workflows, all of those trends seem to still be in their early stages, and I think that's feeding into really solid bookings for us. This year is probably one of the low years when you look at the three-year cycle on renewals. This year is probably one of the lower of the three years. We're seeing very good strength in add-on opportunities, as Anirudh mentioned earlier in the call. I'm very pleased with progress and how things are going. Anirudh, anything to add? John, that's a great summary. John said, Gary, that this year is the low bookings year, also normally first half, we draw down on our backlog. This year has been good growth. We'll see how that progresses, but we are very pleased. John mentioned, the environment is good. I'd just like to point out that I feel the three big reasons are, John was also saying, the environment is great, both the new AI comers, the traditional AI, and the regular companies. Our products and competitive position is fabulous. This new TAM opportunity with agentic AI. If you combine all these three things, the first half has been great. It sets up nicely for rest of the year, we'll see how things progress. I would now like to turn the call back over to Mr. Anirudh Devgan for closing remarks. Thank you all for joining us this afternoon. It's an exciting time for Cadence as we enter the second half of 2026 with AI-driven product leadership and strong business momentum. On behalf of our employees and 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 second quarter 2026 earnings conference call. This concludes today's call. You may now disconnect.