Prepared remarks
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Cadence Design Systems, Inc. Q3 2026 Earnings Call Prepared Remarks © 2026 Cadence Design Systems, Inc. 1 October 26, 2026 Richard Gu, Vice President, Investor Relations Forward-Looking Statements and Non-GAAP Measures The following discussion contains forward-looking statements, including our outlook on future business and operating results. Actual results may differ materially from expectations expressed or implied in the forward- looking statements due to risks, uncertainties and other factors, many of which are outside our control. All forward-looking statements in this discussion are made only as of October 26, 2026, and are based on estimates and information available to us at that time, and we do not intend, and disclaim any obligation, to update them. For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include our most recent reports on Form 10-K and Form 10- Q, the cautionary comments regarding forward- looking statements in the earnings release issued on October 26, 2026, as well as our future filings. In addition, all financial measures discussed on this call are non -GAAP unless otherwise specified. The non-GAAP measures, which should not be considered in isolation from, or as a substitute for, GAAP results. Reconciliations of non- GAAP measures with their most directly comparable GAAP results are available in the quarterly earnings section of the investor relations portion of our website. A copy of the earnings release for the third quarter of fiscal 2026, related financial tables and CFO Commentary which was included in our Form 8-K filing on October 26, 2026, can also be found in the investor relations portion of our website.
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Cadence Design Systems, Inc. Q3 2026 Earnings Call Prepared Remarks © 2026 Cadence Design Systems, Inc. 2 October 26, 2026 Anirudh Devgan, President and Chief Executive Officer Thank you, Richard. Good afternoon everyone and thank you for joining us today. I am pleased to report that Cadence delivered another outstanding quarter, with all key metrics coming in well above our guidance. Backlog reached a record of $8.2 billion, reflecting strong bookings driven by growing customer demand. Given our strong busi ness momentum, expanding technology leadership, and compelling AI growth opportunities, we are raising our revenue outlook for the year to 21% growth, and our EPS outlook by $0.30 to $8.40. John will provide more details on both our Q3 results and the updated financial outlook. Agentic AI represents a transformational market opportunity, and Cadence is exceptionally well positioned to capitalize on it. Our differentiated three- layer framework is anchored by our physically accurate simulation and optimization engines in the critical middle layer, tightly integrated with AI agents and orchestration at the top, and accelerated compute and proprietary data at the base. Agentic AI continues to evolve at a remarkable pace. With our AI Super Agents gaining strong traction, we’re now addressing the long- standing customer demand for domain- specialized models. We believe the future of Agentic AI based design is increasingly do main-specialized models, combined with intelligent model routing for performance, and reinforcement learning loops with underlying tools for recursive self-improvement. Today, I am excited to introduce Maestro, a portfolio of domain-specialized AI models purpose- built for chip and system design. By controlling all three layers – our AI Super Agents, Maestro models and proven EDA and SDA tools, we are uniquely positioned t o deliver optimal performance, efficiency and throughput results for our customers. Initial results are very compelling, demonstrating up to 30% higher quality and up to 5X greater token efficiency versus general-purpose foundation models. Moreover, the Maestro models can be further post- trained on a customer’s proprietary data to deliver even better outcomes. Our model router chooses among our models and other leading frontier and open-weight models as needed for
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Cadence Design Systems, Inc. Q3 2026 Earnings Call Prepared Remarks © 2026 Cadence Design Systems, Inc. 3 October 26, 2026 optimal results. Customers can opt to deploy Maestro models in the cloud or in their on- prem environment. Maestro is gaining strong early customer traction, with several deployments underway. Momentum of our AI Super Agents continues to accelerate, with compelling early results and more than 100 active customer engagements. We added a new agent to ChipStack for RTL generation and early PPA optimization that created RTL delivering an average of 24 % area and 18% power reduction versus pure foundation model generated code. Importantly, this demonstrates the power of combining our AI Super Agents with AI models and our underlying EDA engines, to achieve outcomes that foundation models alone cannot deliver . Honda is using the RTL Generation Agent and AI powered automation to improve productivity from specification to RTL development. In Q3, MediaTek deployed ChipStack into its production digital verification flow, achieving 50 to 70% improvement in verification coverage, and 1.4 to 2X reduction in engineering effort, with deployment now scaling across design teams. In analog and custom design, ViraStack saw a 4X increase in customer engagements with deployments in various production designs at multiple customers. The combination of agentic workflows, embedded skills, and our Virtuoso platform is unlocking significant new productivity opportunities in a traditionally difficult to automate domain. We are seeing strong customer interest in InnoStack, our digital AI Super Agent, as customers push to improve PPA, accelerate design closure and boost productivity. In Q3, the Renesas MCU team successfully deployed InnoStack across a wide range of engineer ing tasks, achieving a 34X productivity improvement, with plans to expand its use to layout automation. Also, in Q3, Samsung Foundry successfully used InnoStack to dramatically improve engineering efficiency and accelerate PPA exploration, reshaping its approach to technology
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Cadence Design Systems, Inc. Q3 2026 Earnings Call Prepared Remarks © 2026 Cadence Design Systems, Inc. 4 October 26, 2026 migration and DTCO optimization. Socionext is deploying InnoStack in its production design environment and expects its combination with our advanced physical design tools to deliver up to 5X overall productivity gains while maintaining design quality. In PCB and 3D -IC design, the early response to our AuraStack AI Super Agent has been overwhelmingly positive. Nokia is deploying AuraStack on our Millennium Supercomputer to advance electronic system design at scale. By unifying agentic AI, our physics -based solvers and accelerated compute in a secure, on- prem platform, Nokia is achieving a 5x acceleration in key design and analysis workflows. Moving on to our businesses, we’re delighted that all product groups delivered outs tanding results, with year-over-year revenue growth of 20% in core EDA, 24% in IP and 30% in SDA. Accelerating design activity continues to drive strong demand for our core EDA, SDA, and IP products. At the same time, we are seeing amazing customer momentum for our Agentic AI portfolio, which is also fueling increased demand for our underlying tools. We’re pleased that recurring revenue sustained its strong momentum, growing 18% year-over-year. I’m particularly proud of the significant, wide- ranging agreements we’ve signed with top customers. We furthered our long- standing partnership with a global marquee systems customer through a significant wide- ranging expansion of our core EDA, hardware and SDA solutions. In Q3, Cadence and a top telco deepened their long- term strategic partnership with a broad expansion across our AI offerings, EDA software, hardware and SDA solutions, establishing Cadence as their primary design partner. Core EDA revenue growth was driven by broad-based strength across the portfolio. Our digital and signoff business continued to expand, achieving 16 new full flow wins during the quarter. As Agentic flows increasingly require full vertical workflows, there’s growing demand for our synthesis and signoff solutions. Our signoff products saw growing adoption. And our verification
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Cadence Design Systems, Inc. Q3 2026 Earnings Call Prepared Remarks © 2026 Cadence Design Systems, Inc. 5 October 26, 2026 software products had strong growth in big digital and memory designs with increas ing usage at major hyperscaler and memory companies. As AI and HPC designs continue to grow in scale and complexity, hardware-assisted verification has become an increasingly strategic capability for our customers. This is driving sustained, unprecedented dem and for our Palladium and Protium emulation platforms, which delivered yet another record quarter. We added several new logos and saw meaningful expansions with marquee customers across a wide range of verticals. Our hardware cloud offering showed strong growth, with a leading semiconductor company adopting more hardware cloud services to accelerate new product development. In analog / custom, Spectre FX continues to gain momentum, highlighted by a major competitive displacement at a marquee infrastructure silicon provider, with multiple new 2nm projects adopting our platform. Our IP business delivered another outstanding quarter, driven by deepening engagements with leading hyperscalers and semi customers. We continue to benefit from strong AI driven tailwinds, fueling accelerating AI infrastructure investments, growing adoption of custom silicon, and increasing demand for high-performance IP. Along with the transition to advanced nodes and chiplet -based architectures, these AI driven trends are creating a strong pull for our differentiated Star IP portfolio across interface, memory and foundation IP. We are well positioned for sustained growth as we continue to deliver superior power, performance and area across our expanding advanced-node IP portfolio. A leading space technology company selected our IP portfolio for their custom chip program, paving the way for a broader services and silicon engagement. Tensilica delivered a record revenue quarter, and we announced a joint development with Analog Devices across next - generation audio applications.
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Cadence Design Systems, Inc. Q3 2026 Earnings Call Prepared Remarks © 2026 Cadence Design Systems, Inc. 6 October 26, 2026 Our System Design and Analysis business delivered another strong quarter, driven by growing adoption of our integrated solutions and proliferation of our expanded electronics and physical systems intelligence portfolio. Allegro momentum continued, including a competitive displacement at a leading EV customer, that chose Cadence’s integrated PCB design and multi-physics analysis platform as its primary solution. Our Millennium platform had strong adoption, driven by deployment of our GPU - accelerated electronic and mechanical system suite, along with our Reality Digital Twin solution. During the quarter, Switch, a leader in sustainable, high-density AI infrastructure, selected our Millennium and Reality Digital Twin solutions to advance the design and simulation of its next- generation AI Factories. The MSC business is an integral part of our physical AI strategy and its integration is progressing well. MSC Adams, our industry -leading multibody dynamics solution, helped secure a competitive displacement at a leading power company, along with adoption of other MSC products. In summary, Cadence delivered an exceptional Q3 and I’m delighted with the accelerating momentum of our business. We are executing extremely well in a vibrant AI market, have our strongest competitive position ever, and are extending our leadership in AI. Our highly recurring and ratable business model, combined with growing customer R&D investments, is positioning us very well for continued strength in this dynamic AI environment. With that, I will turn it over to John to provide more details on our Q3 results and our updated 2026 outlook.
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Cadence Design Systems, Inc. Q3 2026 Earnings Call Prepared Remarks © 2026 Cadence Design Systems, Inc. 7 October 26, 2026 John Wall, Senior Vice President and Chief Financial Officer Thanks, Anirudh, and good afternoon, everyone. Cadence delivered strong third-quarter results, driven by robust demand across our businesses and growing momentum from AI driven designs. Growth is accelerating and broadening. Q3 revenue grew 22% year-over-year, with strong double-digit growth across all product groups. We exceeded our guidance on every key financial metric, and ended the quarter with record backlog of $8.2 billion. Here are some of the financial highlights from the second quarter starting with the P&L: • Total revenue was $1.633 billion • GAAP operating margin was 26.2% • Non-GAAP operating margin was 44.1% • GAAP EPS was $1.05 • Non-GAAP EPS was $2.11 Next, turning to the balance sheet and cash flow: • Our cash balance was $1.452 billion, while the principal value of debt outstanding was $2.65 billion • Operating cash flow was $424 million • DSOs were 66 days, and • We used $400 million to repurchase Cadence shares during the quarter, reflecting our confidence in the business and our commitment to returning capital to shareholders Underscoring that commitment, our board has authorized an additional $2.5 billion for our share repurchase program
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Cadence Design Systems, Inc. Q3 2026 Earnings Call Prepared Remarks © 2026 Cadence Design Systems, Inc. 8 October 26, 2026 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. For our updated outlook for 2026, we now expect: • Revenue in the range of $6.387 billion to $6.417 billion, • GAAP operating margin in the range of 28.2% to 29.2%, • Non-GAAP operating margin in the range of 44.2% to 45.2%, • GAAP EPS in the range of $4.84 to $4.90, • Non-GAAP EPS in the range of $8.37 to $8.43, • Operating cash flow of ~$2.0 billion, and • We expect to use more than 50% of our free cash flow to repurchase Cadence shares in 2026. For Q4, we expect: • Revenue in the range of $1.695 billion to $1.725 billion, • GAAP operating margin in the range of 30% to 31%, • Non-GAAP operating margin in the range of 44% to 45%, • GAAP EPS in the range of $1.23 to $1.29, and • Non-GAAP EPS in the range of $2.19 to $2.25, and As usual, we’ve 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.
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Cadence Design Systems, Inc. Q3 2026 Earnings Call Prepared Remarks © 2026 Cadence Design Systems, Inc. 9 October 26, 2026 Overall, I’m pleased with our Q3 results, especially our recurring revenue growth of 18% year- over-year. At the midpoint of our updated 2026 outlook, we now expect revenue growth of 21%, operating margin of 44.7%, and EPS of $8.40. As always, I’d like to close by thanking our customers, partners, and our employees for their continued support. And with that, operator, we will now take questions. Q&A Session • Anirudh Devgan, President and Chief Executive Officer • John Wall, Senior Vice President and Chief Financial Officer Prepared Closing Remarks of Anirudh Devgan, President and Chief Executive Officer Thank you all for joining us this afternoon. • It is an exciting time for Cadence as we finish our Q3 with AI -driven product leadership and strong business momentum • The Wall Street Journal ranked Cadence’s board #2 among S&P 500 companies in its 2026 “Best Boards” list • And 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.