Q3 2025 Cadence Design Systems Inc Earnings Call

Speaker #1: 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 .

Operator: 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 Design Systems Inc. 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.

Speaker #1: Third quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Speaker #1: If you would like to ask a question during that time, simply press star and then the number one on your telephone keypad.

Speaker #1: Thank you. I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead.

Speaker #2: 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 Waugh , senior vice president and chief Financial officer .

Richard Gu: 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.

[Analyst]: Chief Executive Officer and John Wall.

Richard Gu: Senior Vice President and Chief Financial Officer. The webcast of this call and a.

Speaker #2: The webcast of this call and a copy of today's prepared remarks will be available on our website , cadence comm . Today's discussion will contain forward looking statements , including our outlook on future business and operating results due to risks and uncertainties .

[Analyst]: Copy of today's prepared remarks will be available on our website, cadence.com, today's discussion.

Richard Gu: 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.

Speaker #2: 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 Form 10-K and 10-Q.

Speaker #2: CFO commentary and today's earnings release contain all forward-looking statements. During this call, these statements are based on estimates and information available to us as of today, and we disclaim any obligation to update them.

[Analyst]: Are based on estimates and information available to us as of today, and we disclaim any obligation to update them.

Speaker #2: 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.

Richard Gu: In addition, all financial measures discussed on this call are non-GAAP unless otherwise specified.

[Analyst]: 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.

Speaker #2: Reconciliation of GAAP to non-GAAP measures are included in today's earnings release for the Q&A session. We would ask that you observe a limit of one question only.

Richard Gu: Are included in today's earnings release.

[Analyst]: For the Q&A session today.

Richard Gu: We would ask that you observe a.

[Analyst]: Limit of one question only.

Speaker #2: If time permits, you can requeue with additional questions. Now, I'll turn the call over to Andrew.

Richard Gu: If time permits, you can requeue.

[Analyst]: When with additional questions.

Richard Gu: Now I'll turn the call over to Anirudh.

Speaker #3: 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 .

Anirudh Devgan: Thank you, Richard. Good afternoon everyone, and thank you for joining us today. Cadence delivered excellent results for the third.

John Wall: Quarter of 2025 with strong operational and financial performance across all product categories and geographies. As we continued the disciplined execution of.

Speaker #3: As we continued the disciplined execution of our strategy, bookings exceeded our expectations, with backlog growing to over $7 billion. This underscores our continued technology leadership and reaffirms Cadence as the trusted partner enabling customer success.

Anirudh Devgan: Our strategy bookings exceeded our expectations.

John Wall: Backlog growing to over $7 billion.

Anirudh Devgan: 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.

Speaker #3: Given the ongoing strength of our business, we are raising our full-year outlook to approximately 14% revenue growth and 18% EPS growth.

Speaker #3: 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 sciences.

John Wall: The accelerating AI megatrend is fueling an unprecedented wave of design activity across industries.

Anirudh Devgan: Ranging from hyperscaler infrastructure to fast growing.

John Wall: Physical AI realm of autonomous driving, drones, and robotics to the emerging domain of sciences AI.

Speaker #3: 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 .

Anirudh Devgan: As AI drives exponential design complexity and.

John Wall: New system architectures, Cadence is uniquely positioned to capture this generational opportunity with a differentiated and comprehensive portfolio spanning EDA, IP.

Anirudh Devgan: 3D IC, PCB, and system analysis. The Cadence AI Portfolio embodies our strategy.

Speaker #3: The cadence of AI portfolio embodies our strategy of design for AI and AI for design, empowering customers to build out the global AI infrastructure.

John Wall: Of design for AI and AI for design, empowering customers to build out the global AI infrastructure while we infuse AI.

Speaker #3: 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 .

Anirudh Devgan: 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.

John Wall: 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.

Speaker #3: In Q3, we meaningfully expanded our partnership with Samsung through a wide-ranging proliferation of our core editors software as well as our system software across PCB, advanced packaging, and system analysis.

Anirudh Devgan: Of our core EDA software as well.

John Wall: As our system software across PCB, advanced packaging, and system analysis.

Speaker #3: 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 .

Anirudh Devgan: We also deepened our long-standing partnership with a leading semiconductor company in Q3.

John Wall: Through a broad proliferation of our core EDA, IP, and systems portfolio, and are closely collaborating on next generation agentic AI EDA solutions.

Speaker #3: We expanded our long standing partnership with TSMC to power next gen AI flows , supporting TSMC , N2 and A16 technologies . Our integrity 3D , IC solution provides comprehensive support for the latest TSMC 3D fabric die stacking configurations , and our design in ready IP , including HBM for and Lpddr six on N3 enabled .

Anirudh Devgan: We expanded our long-standing partnership with TSMC to power next-gen AI flows supporting TSMC's N2 and A16 technologies. Our Integrity 3DIC solution provides comprehensive support for.

John Wall: The latest TSMC 3D Fabric die stacking configurations and our Design and Ready IP, including HBM4 and LPDDR6 on N3P, enable.

Speaker #3: Next generation AI infrastructure at TSMC , OIP conference , Broadcom highlighted integrity 3D , IC full flow deployment success for Hyperscaler high capacity Asics .

Anirudh Devgan: Next generation AI infrastructure.

John Wall: At TSMC's OIP.

Anirudh Devgan: Conference, Broadcom highlighted Integri3D IC full flow.

John Wall: Deployment success for hyperscaler high capacity ASICs.

Speaker #3: Our IP business maintains strong momentum in Q3, driven by global accelerating IP demand and increasing customer proliferation of our expanding IP portfolio.

Anirudh Devgan: Our IP business maintained strong momentum in Q3, driven by global accelerating IP demand and increasing customer proliferation of our.

John Wall: Expanding IP portfolio. Our profitable, scalable IP strategy focused on AI, HPC, and automotive verticals positions us well for continued growth.

Speaker #3: Our profitable cable IP strategy focused on AI , HPC , and automotive verticals positions , as 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 .

Anirudh Devgan: 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.

Speaker #3: Bookings were strong and tracked ahead of our expectations. Our design IP portfolio secured several competitive wins at top AI and memory customers.

John Wall: Wins at top AI and memory customers.

Speaker #3: For instance, we won a highly competitive engagement at a marquee memory company that embraced our HBM and DDR5 IP for its new AI design.

Anirudh Devgan: For instance, we won a highly competitive.

John Wall: Engagement at a marquee memory company that embraced our HBM4 and DDR5 IP for its new AI design.

Speaker #3: The recently completed acquisition of the ARM Artisan Foundation IP further augments our design IP portfolio with standard cell libraries, memory compilers, and I/O optimized for advanced nodes at the leading foundries.

Anirudh Devgan: The recently completed acquisition of the Arm Artisan Foundation IP further augments our design.

John Wall: IP portfolio with standard cell libraries, memory.

Anirudh Devgan: Compilers and iOS optimized for advanced.

John Wall: Node at the leading foundries. Our Tensilica Audio and Vision DSPs and NEO AI Accelerator NPUs scored multiple design wins with leading customers in U.S. and Asia for mobile, automotive, and data center verticals.

Speaker #3: 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.

Speaker #3: 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 .

Anirudh Devgan: Our core EDA business delivered strong results, driven by growing adoption of our AI.

John Wall: Driven design and verification solutions in digital.

Anirudh Devgan: Cadence Cerebrus AI Studio, the industry's first agentic AI multi-block, multi-user design platform, continues to deliver unparalleled PPA and productivity benefits.

Speaker #3: Samsung US tapped out a SF2 design using cadence Cerebrus AI studio to achieve a four x productivity improvement in another instance , Samsung used cadence Certus , Tempus and Innovus to rapidly close and sign off a multibillion instance AI design on Sf4 with 22% power reduction and first pass silicon success .

John Wall: Samsung U.S. taped out a SF2 design.

Anirudh Devgan: Using Cadence Cerebrus AI Studio to achieve a 4x productivity improvement. In another instance, Samsung used Cadence SerDes, Tempus, and Innovus to rapidly close and sign off a multi-billion instance AI.

John Wall: Design on SF4 with 22% power reduction.

Anirudh Devgan: 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.

Speaker #3: Our Virtuoso, Studio, and Spectre platforms saw strong momentum, with their AI-driven features and workflows gaining rapid traction as customers leveraged the automated design, migration, and optimization capabilities.

Speaker #3: 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 .

John Wall: De facto choice for AI designs offering.

Anirudh Devgan: 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.

Speaker #3: We deepened our overall collaboration with OpenAI as they expanded their commitment to our Palladium emulation platform in Q3 . Where AI saw growing adoption as a delivered dramatic debug productivity test , bench efficiency and accelerated coverage closure , Nvidia Samsung , and Qualcomm all presented same AI success stories at Cadence Live India , highlighting 5 to 10 x improvement in verification throughput .

John Wall: Palladium emulation platform in Q3.

Anirudh Devgan: Verisium Sim AI saw growing adoption as.

John Wall: It delivered dramatic debug productivity, testbench efficiency, and accelerated coverage closure.

Anirudh Devgan: Nvidia, Samsung, and Qualcomm all presented SIM.

John Wall: AI success stories at Cadence Live India.

Anirudh Devgan: Highlighting 5x to 10x improvement in verification throughput. Our system design and analysis business achieved another solid quarter, driven by expanding set.

Speaker #3: 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.

John Wall: Of innovative solutions and growing adoption across a broadening customer base.

Speaker #3: In Q3, we significantly expanded our Cadence Reality digital twin platform library with NVIDIA DGX Superpod model and DIG 200 systems to accelerate AI data center deployment and operations.

Anirudh Devgan: 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 increase their.

Speaker #3: Three major memory providers significantly increase their clarity and security usage as they transition to a full Cadence flow for advanced IC packaging, displacing competitive solutions.

John Wall: Clarity and security usage as they transition to a full Cadence flow for advanced IC packaging.

Anirudh Devgan: Displacing competitive solutions.

Speaker #3: Beta CE continued its momentum with multiple competitive displacements, underscoring its accuracy and performance advantages, including a significant competitive win at a large tier-one automotive company in China.

John Wall: 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.

Anirudh Devgan: Automotive company in China.

Speaker #3: 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 T&E business , including its MSC software business , to bring industry leading structural analysis and Multi-body dynamics technologies to cadence .

John Wall: In Q3, Infineon Technologies standardized its PCB design workflow.

Anirudh Devgan: On the Cadence AI-driven Allegro X platform for their future designs. Last month we signed a definitive agreement to acquire Hexagon's TNE business, including its MSC Software business, to bring industry-leading structural analysis and multibody dynamics technologies.

John Wall: To Cadence, complementing our multiphysics portfolio.

Speaker #3: Complementing our multiphysics 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 .

Anirudh Devgan: This will accelerate our expansion in SDA.

John Wall: This put us at the forefront in unlocking new opportunities across automotive, aerospace, and industrial.

Anirudh Devgan: The rapidly emerging world of physical AI. In summary, I'm pleased with our Q3.

Speaker #3: In summary , I'm pleased with our Q2 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 .

John Wall: Results and the strong momentum across our businesses.

Anirudh Devgan: The AI era offers massive market opportunities, and through the co-optimization of our.

John Wall: 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.

Speaker #3: Now I will turn it over to John to provide more details on the Q2 results and our updated 2025 outlook.

Anirudh Devgan: Q3 results and our updated 2025 outlook.

Speaker #2: Thanks, and good afternoon, everyone.

Richard Gu: 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.

Speaker #4: I'm pleased to report that Cadence delivered strong results for the third quarter of 2025, with broad-based momentum across all our businesses.

Speaker #4: We exceeded our guidance for Q3 revenue, operating margin, and EPS, and are raising the full-year outlook across these key metrics.

Speaker #4: 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.

Speaker #4: 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 personnel total revenue was 1 billion and $339 million .

John Wall: A backlog of $7 billion.

Richard Gu: 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.

Speaker #4: GAAP operating margin was 31.8% and non-GAAP operating margin was 47.6% , and 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 $2,000,000,753 million .

Speaker #4: While the principal value of debt outstanding was $2 billion and $500 million, operating cash flow was $311 million. DSO was 55 days, and we used $200 million to repurchase Cadence shares.

Speaker #4: 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.

Speaker #4: With that in mind , for Q4 , we now expect revenue in the range of 1 billion and $405 million to 1 billion and $435 million .

Richard Gu: With that in mind, for Q4, we now expect revenue in the range of $1.405 billion to $1.435 billion, GAAP operating margin in the range of 32.5% to 33.5%, non-GAAP operating margin in the range of 44.5% to 45.5%, GAAP EPS in the range of $1.17 to $1.23, and non-GAAP EPS in the range of $1.88 to $1.94. As a result, our updated outlook for 2025 is revenue in the range of $5.262 billion to $5.292 billion, GAAP operating margin in the range of 27.9% to 28.9%, non-GAAP operating margin in the range of 43.9% to 44.9%, GAAP EPS in the range of $3.80 to $3.86, non-GAAP EPS in the range of $7.02 to $7.08, operating cash flow in the range of $1.65 billion to $1.75 billion, and we expect to use at least 50% of our annual free cash flow to repurchase Cadence shares.

Speaker #4: GAAP operating margin in the range of 32.5 to 33.5% . non-GAAP operating margin in the range of 44.5 to 45.5% . GAAP EPs in the range of $1.17 to $1.23 , and non-GAAP EPs in the range of $1.88 to $1.94 .

Speaker #4: As a result, our updated outlook for 2025 is revenue in the range of $5 billion and $262 million, and $5 billion and $292 million.

Speaker #4: GAAP operating margin is in the range of 27.9% to 28.9%. Non-GAAP operating margin is in the range of 43.9% to 44.9%. GAAP EPS is in the range of $3.80 to $3.86.

Speaker #4: Non-GAAP EPS is projected to be in the range of $7.02 to $7.08. Operating cash flow is expected to be in the range of $1.65 to $1.75 billion. Additionally, we anticipate using at least 50% of our annual free cash flow to repurchase Cadence shares.

Speaker #4: As usual, we publish the 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.

Richard Gu: 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.

Speaker #4: In conclusion , I'm pleased with our Q3 results . From 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 .

[Analyst]: Results.

Richard Gu: 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.

Speaker #4: And with that, operator, we will now take questions.

Speaker #1: 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.

Operator: 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.

Speaker #1: As a courtesy to all participants, we ask that you please limit yourself to one question, and we will pause for just a moment to compile the Q&A roster.

Speaker #1: And our first question comes from the line of Vivek Arya with Bank of America Securities. Your line is open.

Speaker #5: Thanks for taking my question. Your IT business is now, I think, tracking to over 20% growth for the second year running.

John Wall: Thanks for taking my question. Your IP business is now, I think.

[Analyst]: Tracking to over 20% growth for the second year.

John Wall: Anirudh, I was just hoping you would.

Speaker #5: That was , you know , just hoping you would give us some sense for what's driving this 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 .

Anirudh Devgan: Give us some sense for what's driving.

John Wall: 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. How do we square that in the growth you are seeing? How sustainable is this growth, and what is your visibility in your IP business?

Speaker #5: And I think they were talking about a new business model. So how do we square that with the growth? You are seeing how sustainable this growth is, and what is your visibility in your IP business?

Speaker #5: Thank you .

Anirudh Devgan: Thank you.

Speaker #3: Yeah . Thanks for the question . Yeah , I'm actually quite pleased with the performance of our IP business . And you know , we don't look at , you know , any one quarter .

John Wall: Yeah, thanks Vivek for the question.

Anirudh Devgan: I'm actually quite pleased with the performance.

John Wall: Of our IP business, and you know, we don't look at, you know, any one quarter. Even if you look how we performed last year, this quarter was exceptional. Overall, how we perform this year.

Speaker #3: But even if you look at how we performed last year, and of course this quarter was exceptional, overall, looking at how we performed this year and what we see in terms of backlog and activity going into next year.

Anirudh Devgan: What we see, you know, backlog.

John Wall: Activity going into next year, overall IP business is performing quite well and 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 IT business because we also have Tensilica which is almost like software, like profitability.

Speaker #3: Overall, our IP business is performing quite well, and there are multiple reasons for it. You know, first, our IP business is different.

Speaker #3: You know, 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 the general IP business because we also have Tensilica, which is almost like software-like profitability.

Speaker #3: But a lot of the growth is coming in , you know , design , IP . And the reason for that is , you know , our IP business is focused on on AI and HPC at the most advanced nodes .

Anirudh Devgan: A lot of the growth is.

John Wall: 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.

Speaker #3: 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 .

Speaker #3: So a lot of the , you know , like Sirdies and PCIe and HBM for IPS and that part of the market is doing well , actually , across the world .

Anirudh Devgan: A lot of the, you know.

John Wall: Like SerDes and PCIe and HBM4 IPs, and that part of the market is doing well actually across the world.

Speaker #3: And then the second reason is , as you know , there is more and more foundries entering , especially at advanced nodes . And we have a long standing partnership with TSMC , but also Samsung , Intel , and now Rapidus .

Anirudh Devgan: The second reason is, as.

John Wall: You know there is 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. I think 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 our PPA is comparatively better in design IP and a lot of customers.

Speaker #3: So, there are at least four major foundries now at leading nodes. So that's, I think, a second reason for our IP business to be well positioned.

Speaker #3: And as a performance of our IP business has improved , you know , the PPA and we our PPA is comparatively better in design IP and a lot of customers want to shift over to cadence .

Anirudh Devgan: Want to shift over to Cadence. The customer demand I think is the third reason.

Speaker #3: So, the customer demand, I think, is the third reason that, as our IP business strengthened, we are seeing strength in the IP business.

John Wall: As our IP business strengthened, we are seeing strength in the IP business. I think for these three main reasons, I'm pretty, pretty optimistic about the IP business going into next year. We're not getting to next year, but just to give indication, I would be surprised if our IP business does not grow better than Cadence 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 average. Overall, I think that would make like three years trend.

Speaker #3: So I think for these three main reasons , I'm pretty pretty optimistic about the IP business and going to next year . We're not getting into next year , but just to give indication , I would be surprised if our IP business does not grow better than cadence average .

Speaker #3: You know , which it should given the profitability profile . We want that to happen . You know , if the profitability is slightly lower than EDA , then the growth should be higher than cadence average .

Speaker #3: So overall, I think that would make like three years of trend. And overall, I'm pleased by our IP performance. Yeah.

Anirudh Devgan: Overall, I'm pleased by our IP performance.

Speaker #5: Thanks .

[Analyst]: Thanks honey.

Speaker #1: And our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Your line is open.

Operator: Our next question comes from the line of Jason Salino with KeyBanc Capital Markets. Your line is open.

Speaker #6: Great . Thank you . You know , last quarter , I think you mentioned the second half having , you know , good renewal opportunity , you know , with some of your your large customers with the uptick in backlog , I imagine some of that strength was from some of these renewals .

[Analyst]: 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.

John Wall: From some of these renewals.

Speaker #6: As we think about Q4, do you still have renewals on the docket? Thank you.

[Analyst]: As we think about Q4, do you still have renewals on the docket?

Anirudh Devgan: Thank you.

Speaker #3: Yeah , thanks for the question . I like John comment on the timing of the renewals , but overall , I do think that , you know , our performance in Q3 is much is better than we expected .

John Wall: Yeah, thanks for the question. I'll let John comment on the timing of the renewals. Overall, I do think that, you know, our performance in Q3 is much.

Anirudh Devgan: is better than we expected. The primary reason, and this is.

Speaker #3: And the primary reason and this is true in all all geographies . But I think the primary reason is that the AI infrastructure build out , as you know , is accelerating .

John Wall: True in all geographies, but I think the primary reason 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 is AI being the third one. Most of our focus and investment.

Speaker #3: And we are essential to the design and build out of the AI infrastructure . Of course , we you know , I have said publicly there are three big phases of AI in my mind .

Speaker #3: You know, AI infrastructure being the first one, physical AI being the second one, and sciences AI being the third one.

Speaker #3: But most of our focus and investment is , of course , on the first one . And as you see in the last six months , it is accelerating .

Anirudh Devgan: Is of course on the first one.

John Wall: As you see in the last six months, it is accelerating, and also, we are privileged to work with all the Mag Sevens. Investment in internal chip design is accelerating along with, of course.

Speaker #3: And also the , you know , we are we are privileged to work with all the mag seven and also investment in internal chip design is accelerating , along with , of course , the big merchant silicon companies like like Nvidia and Broadcom and AMD .

Anirudh Devgan: The big merchant silicon companies like Nvidia.

John Wall: Broadcom and AMD. I think that is coming through in our booking activity in Q3, and so far, we see that strong demand continuing in the future.

Speaker #3: So, I think that is coming through in our booking activity in Q3. And so far, you know, we see that strong demand continuing in the future.

Speaker #3: Yeah .

Speaker #4: Yeah. Jason, I would just like to add that the mix as well is healthy across EDA, IP hardware, and SDA.

Richard Gu: Yeah, Jason, I would just like to add that the mix as well is healthy across EDA, IP, hardware, and SDA, and the core EDA and IP backlog is weighted towards multi-year recurring arrangements, and that supports durable double-digit growth.

Speaker #4: And the Kore, EDA, and IP backlog is weighted towards multi-year recurring arrangements, and that supports durable double-digit growth.

Speaker #6: Awesome . Thank you .

[Analyst]: Awesome, thank you.

Speaker #1: And our next question comes from the line of Joe Vruwink with Baird. Your line is open.

Operator: Our next question comes from the line of Joe Verwink with Baird. Your line is open.

Speaker #6: 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 , and I guess the third quarter bookings much stronger than we were expecting .

[Analyst]: 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. The third quarter bookings were 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 IT 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?

Speaker #6: And it would support future acceleration. I know it's atypical to kind of get 2026 comments, but honestly, it already did for the IT business.

Speaker #6: I'm just wondering if you can maybe start to frame expectations for next year based on what you have in hand, and it certainly seems like things are setting up well.

Speaker #6: Do you have the type of visibility at this point to maybe comment on it?

Speaker #3: Yeah, I think what I would like to say is that, you know, we always look at our business in terms of how well our products are doing.

John Wall: 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.

Speaker #3: Okay . And we report like five lines of businesses , as you know , and I would say at this point , you know , all five lines of business are performing very well .

Anirudh Devgan: We report like five lines of.

John Wall: Businesses, as you know.

Anirudh Devgan: I would say at this point.

John Wall: You know, all five lines of business.

Anirudh Devgan: Are performing very well.

Speaker #3: And you can see that in this year, I think we will grow double digits in all five lines of business. We are also performing well in all geographies.

John Wall: 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, you know, are we aligned with the, you know, leading companies, you know, are we trusted partner of the market shaping companies?

Speaker #3: So in terms of products and geographies , which is our main focus , you know , are we aligned with the , you know , leading companies ?

Speaker #3: You know , are we trusted partner of of the the market shaping companies ? So if you look at , you know , products , geographies and customer alignment , I think we are well positioned .

Anirudh Devgan: If you look at, you know.

John Wall: 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.

Speaker #3: Of course, as you know, as we enter a new year, we are always prudent in our outlook, and we will give you an update about next year.

Anirudh Devgan: We will give you an update about.

Speaker #3: You know , when we come to , you know , January , February time frame . But I think Aaron's is very well positioned .

John Wall: Next year, you know, when we come to, you know, January, February time frame, I think Cadence is very well positioned, better positioned than it has been.

Speaker #3: You know , better position than it has been . I think for the last compared to last several years . And we look forward to working with our customers in the future .

Anirudh Devgan: I think compared to the last several years.

John Wall: We look forward to working with our customers in the future.

Speaker #4: Yeah , Joe , we won't guide FY 26 today , but exiting FY 25 with probably record backlog and broad based momentum from deepening strategic and trusted partnerships across the ecosystem , positions us well for next year .

Richard Gu: Yeah, Joe, we won't guide FY26 today, but exiting FY25 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 is all underpinned by secular AI demand across chip to systems.

Speaker #4: You can expect our framework will remain disciplined . We typically aim for double digit top line ambition . You know , continued operating leverage and balanced capital allocation .

Speaker #4: And that's all underpinned by secular AI demand across chips to systems.

Speaker #6: Thank you .

Anirudh Devgan: Thank you.

Speaker #1: And our next question comes from the line of Lee Simpson with Morgan Stanley. Your line is open.

Operator: Our next question comes from the line of Lee Simpson with Morgan Stanley. Your line is open.

Speaker #7: But thanks for fitting me in . And congratulations on another great quarter . I just wanted to ask around about China . Really , the you know , it looks as though you're up about 53% year on year doing well in the mix , up to 18% .

[Analyst]: Great, thanks for fitting me in and congratulations on another great quarter. I just wanted to ask around about China.

Richard Gu: It looks as.

[Analyst]: 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 restrictions on the BIS letter last quarter, it feels like there's genuine momentum there. Can one of you talk me through what is driving this? Is it IP, is it hardware, is it core EDA? What are the vectors here? Thanks.

Speaker #7: You know, that feels more than just a sort of return of business. You know, post the restrictions on the BIS letter last quarter.

Speaker #7: It feels as though there's genuine momentum there. So, I wonder if you can talk me through what is driving this. Is it IP?

Speaker #7: Is it hardware? Is it called EDA? What are the vectors here? Thanks.

Speaker #4: Thanks for the question , Lee . Yeah , I mean , we saw broad based strength and you know , China design activity remains very strong .

Richard Gu: 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?

Speaker #4: The the region returned to business as usual for us in the second half . That , you know , with the lifting of the the export regulations that that changed for EDA .

Speaker #4: And in early July . But Q3 really was only slightly better than , than we expected . And we now expect China to be up year over year for fiscal 25 .

Speaker #4: Andrew, do you want to add anything to what's happening in China?

Speaker #3: Yeah , 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 .

John Wall: 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, but 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.

Speaker #3: You know , of course , there was disruption in Q2 for obvious reasons . You know , given , you know , the policy in Q2 .

Speaker #3: But the behavior that we are seeing is back to normal in Q3 . And , and a lot of it was driven by , you know , like us prioritizing hardware deliveries that we could not do in Q2 into Q3 .

Speaker #3: But overall design activity is strong in China across , you know , I mean , semiconductors are essential to every country in China continues to invest in semis , but overall , I would say the our strength is broad based , not particularly tied to any one geography .

Anirudh Devgan: I mean semiconductors are essential to every.

John Wall: 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.

Speaker #3: And there was some , you know , 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 like , you know , question maybe like , is there any , you know , pull in from future quarters ?

Anirudh Devgan: Is there any question?

John Wall: Pull in from future quarters? We don't see that in terms of what we see, and we see overall broad-based trend in other geographies as well.

Speaker #3: We don't see that in terms of what we see. And we see an overall broad-based trend in other geographies as well.

Speaker #7: Thanks so much .

[Analyst]: Thanks so much.

Speaker #1: And our next question comes from the line of C.T. Panigrahi with Mizuho. Your line is open.

Operator: Our next question comes from the line of CT with Mizuho. Your line is open.

Speaker #8: It's great . Congratulations on another strong execution . Anirudh , I want to ask you about on your system design , mainly that simulation analysis , that market .

John Wall: Great, Congratulations.

[Analyst]: Another strong execution.

John Wall: Anirudh, I want to ask you about.

[Analyst]: On your system design.

John Wall: Mainly that simulation analysis market. Help us understand your strategy. You made acquisition last year Beta Cie, and this year again you announced MSC Software. Help us understand how you are going to position yourself against your competitor in that market. This is definitely a growing market. I would appreciate any color on that.

Speaker #8: Help us understand your strategy . You made acquisition last year B2C and this year again you announced software . Help us understand how how you are going to , you know , position yourself against your competitor in that market .

Speaker #8: You know, this is definitely a growing market. I would appreciate any color on that.

Speaker #3: Yes . Thanks for that question . I mean , I'm pretty pleased with the overall performance of Sdna . And , you know , I mean , just to remind everybody , you know , cadence is the one started this whole thing in 2017 , 2018 .

Anirudh Devgan: Yes sir.

John Wall: 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 now. I think what the acquisition that we did this quarter is more forward looking in the sense that, like I mentioned.

Speaker #3: Now it is considered obvious that silicon and systems are going to come together. I mean, we have been talking about this for a very long time now.

Speaker #3: I think what the acquisition that we did this quarter is more forward looking in the sense that , you know , like I mentioned , these three horizon technologies , horizon one being infrastructure , AI , horizon two being physical AI , horizon three being Sciences , AI .

Anirudh Devgan: These three Horizon technologies, Horizon one being infrastructure AI, Horizon two being physical AI.

John Wall: Horizon three being sciences AI. That's how we are focused most of our investment in horizon one. Of course, maybe 70-80% is horizon one, about 20% horizon two, and a few percent horizon three. Horizon two of cars, drones, and robots can be very, very big market in the future.

Speaker #3: And , you know , that's how we are focused . Most of our investments in horizon one . But of course , you know , like maybe 70 , 80% is horizon one , about 20% .

Speaker #3: Horizon two and a few percent horizon three . But horizon two of cars , drones and robots can be , you know , very , very big market in the future .

Speaker #3: And what happens is AI is going to change also for horizon two , as you see , there are a lot of reports that , you know , the word is going to move from LM based AI to a word model based AI .

Anirudh Devgan: AI is going.

John Wall: To change also for Horizon 2.

Anirudh Devgan: As you see, there are a lot.

John Wall: Of reports that the world is going to move from LLM-based AI to a word model-based AI in which robots you have to.

Speaker #3: You know , in which you robots , you have to it's no longer the text data that trains the robot . It is the physical .

Anirudh Devgan: It's no longer the text data that trains the robot, it is the physical.

Speaker #3: You movement and all that . And one of the key challenges in training robots or cars is that there is not enough data that is available .

John Wall: Movement and all that.

Anirudh Devgan: One of the key challenges in.

John Wall: Training robots or cars is that there is not enough data that is available. When you train a LLM model, basically the data is available on the Internet and 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.

Speaker #3: You know , when you train LM model , basically the data is available on the internet and is well , you know , language data is available , whereas training a robot , the data is not available .

Speaker #3: Okay . So the data either has to be generated manually , you know , like they put sensors on a human and the person picks up the object , you know , that could be data , but that's a very slow form of getting data .

Anirudh Devgan: That could be data.

John Wall: That's a very slow form of getting data. The best way to generate data for a word 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 multibody dynamics becomes essential in Horizon to physical AI. Hexagon had a leading simulator for multibody dynamics along with structure simulation, which helps in all kinds of electronics and automotive.

Speaker #3: The best way to generate data for a word model is through simulation. And this is what we have talked about. Also, for a very long time.

Speaker #3: Of the three layer cake . So then the fundamental simulation of of multi-body dynamics becomes essential in horizon two , physical AI . And you know , hexagon had a leading , you know , simulator for Multi-body dynamics along with structured simulation , which helps in all kinds of electronics and automotive .

Speaker #3: So I think I'm pretty optimistic that this can position us well for the second horizon, you know, which is physical AI.

Anirudh Devgan: I think I'm pretty optimistic that.

John Wall: This can position us well for the second horizon, which is physical AI. What that will do for SDA business, the way I look at it, our SDA business, once we complete this acquisition, will have two strong pillars, and it will actually, the run rate should cross $1 billion in 2026 if the acquisition closes.

Speaker #3: And so what that will do for Sdna business , the way I look at it , our business , you know , once we complete this acquisition , we'll have two strong pillars .

Speaker #3: You know , and it will actually the run rate should cross $1 billion in 2026 . If the acquisition closes and one pillar will be driven by 3D , IC and Chiplets , you know , Allegro is in our DNA business .

Anirudh Devgan: One pillar will be driven by.

John Wall: Three die and chiplets.

Anirudh Devgan: You know, Allegro is in our SDA business.

Speaker #3: Alexo is a de facto standard for package design in the world . And so if you take Allegro , combine , you know , Sigrity and clarity and Celsius , our kind of electromagnetics and electrothermal tools .

John Wall: Allegro is a de facto standard for package design in the world. If you take Allegro, combine, you know, Sigrity 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, you know, and our partnership with TSMC, our partnership with all the leading AI players like Nvidia, positions us very well with Allegro and 3DIC. 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.

Speaker #3: That's one key area of this merger of silicon and system . And we will be very , very strong in that , you know , and our partnership with , with TSMC , our partnership with all the leading AI players like Nvidia positions us very well with Allegro and 3D IC .

Speaker #3: So that will be roughly one half of our SDNA business, because there's going to be a lot of growth in this chiplet-based architecture.

Speaker #3: And the second part will be this physical AI , you know , 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 , and then , you know , we acquired a great new CFD solver from Stanford a couple of years ago .

Anirudh Devgan: The second part will be this physical AI, you know, structural analysis.

John Wall: The combination of Beta, which was the leader in pre- and post-processing, with Hexagon.

Anirudh Devgan: Which has a lot of solvers like multibody dynamics, structural.

John Wall: We acquired a.

Anirudh Devgan: Great new Fidelity CFD suite solver from Stanford.

John Wall: 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.

Speaker #3: So, if you put all the solvers together with beta, that will be roughly half of our business. And we are really well positioned for physical AI.

Speaker #3: So, if you put it all together, the benefit of Hexagon is that it will give us true, strong pillars in DNA in the areas that are going to grow the most in the future.

[Analyst]: AI.

John Wall: 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.

Speaker #3: One is 3D , IC , and HPC , the other is physical AI and connected technologies . Yeah , great .

Speaker #8: Thanks for the color .

[Analyst]: Great, thanks for the color Anirudh.

Speaker #1: And our next question comes from the line of Jim Schneider with Goldman Sachs. Your line is open.

Operator: Our next question comes from the line of Jim Schneider with Goldman Sachs. Your line is open.

Speaker #9: Good evening. Thanks for taking my question. I was wondering if you could maybe frame for us some of the tailwinds you expect.

[Analyst]: Good evening. Thanks for taking my question.

John Wall: I was wondering if you could maybe frame for us some of the tailwinds.

[Analyst]: You expect you might see over the next couple years as a result of inclusion of AI features into your products. On the core EDA side, maybe talk.

Speaker #9: You might see, over the next couple of years, as a result of the 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 your time to market or developer productivity, and how that might translate into either revenue or adoption rates of that technology.

John Wall: About any kind of productivity metrics, you.

[Analyst]: Can you give us in terms of time to market or to developer productivity and how that might translate into either revenue or adoption rates of that technology and features? Thank you.

Speaker #9: And features. Thank you.

Speaker #3: 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 .

John Wall: Absolutely great question. 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 ecosystem, whether it's infrastructure or physical AI, and that we are very well positioned with all the leading players, all the Max 7 companies. I think your question is on the second one, which is of course applying AI to design.

Speaker #3: Okay , I think the first part is the build out of the AI . You know , ecosystem , whether it's infrastructure or physical AI , and that , you know , we are very well positioned with all the leading players , all the mag seven companies .

Speaker #3: And now I think your question is on the second one , which is of course , applying AI to design . So even this time , you know , we highlighted several examples .

Anirudh Devgan: Even this time we highlighted several examples.

Speaker #3: So we have , you know , at least five major platforms and some of the big examples are , for example , AI , you know , which is using AI to accelerate verification .

John Wall: We have at least five major.

Anirudh Devgan: Platforms and some of the big examples.

John Wall: Are for example SIM AI, which is using AI to accelerate verification. Verification is almost an exponential task in chip design. We are seeing with SIM AI 5-10x improvement in logic simulation efficiency and coverage, which is one of the most heavily used tools in verification, and even in Cadence Live. Samsung, Qualcomm, and Nvidia highlighted this.

Speaker #3: You know , verification is a almost a exponential task in chip design . And we are seeing with CMI , you know , 5 to 10 x improvement in logic simulation efficiency and coverage , which is one of the most heavily used tools in verification .

Speaker #3: And even in Cadence , you know , Samsung and Qualcomm and Nvidia highlighted this . So these are demonstrated benefits at customer sites being highlighted by the customer themselves .

Anirudh Devgan: These are demonstrated benefits at customer sites being highlighted by the customer themselves.

Speaker #3: Okay . The other area is in in physical design , you know , the back physical design with Cerebrus AI studio . Again we had Samsung code for X improvement in productivity and also 22% improvement in PPA .

John Wall: The other area is in physical design, you know, the back end physical design. With Cadence Cerebrus 2.0 AI Studio, again we had Samsung code 4X improvement in productivity and also 22% improvement in PPA.

Speaker #3: By the way , this is huge numbers because when you go from like 5 to 3 nanometer , three nanometer to two nanometer , typically a node migration , which the industry is spending like billions and billions of dollars , will give like 10 to 20% PPA improvement .

Anirudh Devgan: By the way, this is huge numbers because when you go from like 5.

John Wall: To 3 nanometer, 3 nanometer to 2 nanometer, typically a node migration, which the industry is spending like billions and billions of dollars, will give like 10 to 20% PPA improvement.

Speaker #3: And if we can get that with better optimization , with better AI , that's a huge value for our customers . So the good news is that I think the adoption of AI tools is is almost taken as a de facto , you know , all the big customers are adopting our AI tools .

Anirudh Devgan: If we can get that with.

John Wall: Better optimization, with better AI, that's a huge value for our customers. The good news is that I think 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.

Speaker #3: And I've said even before that, you know, the monetization of that takes some time. It always takes two contract cycles.

Speaker #3: And I think we should be able to do that or slightly better. So, the productivity is huge by applying AI to EDA.

Richard Gu: So.

John Wall: The productivity is huge by applying AI to EDA, and the reason I think it is.

Speaker #3: And the reason I think it is different in EDA than other things is , first of all , there are multiple reasons . One is , you know , we have done automation for 30 years .

Anirudh Devgan: Different in EDA than other things is.

John Wall: First of all, there are multiple reasons. One is, you know, we have done automation for 30 years. You know, the chip design process is highly automated.

Speaker #3: You know , the chip design process is highly automated , you know , about 80 , 90% of is already automated . So we have a lot of history of automation .

Anirudh Devgan: You know, about 80% to 90% of it is already automated.

John Wall: We have a lot of history of automation, and then AI is the next 10x that automation that can happen. I mean, we have probably improved chip design 100x in the last 20 years.

Speaker #3: AI is the next ten x. That automation that can happen. I mean, we have probably improved chip design 100x in the last 20 years.

Speaker #3: And AI can give the next ten x . And the other thing that is different in chip design versus other industries , I believe , is because the workload is exponential .

Anirudh Devgan: AI can give the next 10x.

John Wall: 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 five, 10 times bigger.

Speaker #3: You know, the chips in five years from now will be like five to ten times bigger. The complexity will be 20 to 30 times more.

Anirudh Devgan: The complexity will be 20, 30 times.

Speaker #3: Given software and chip . So AI productivity is needed just to keep up . So our workload is exponential , is very different than a workload , is not exponential .

John Wall: More given software and chiplets. AI productivity is needed just to keep up. Our workload is exponential, is very different than a workload is not exponential. The customers are expecting us to deliver more productivity and are accepting of.

Speaker #3: So the customers are expecting us to deliver more productivity and are accepting of deploying that in their designs.

Anirudh Devgan: Deploying that in their designs.

Speaker #9: Thank you .

[Analyst]: Thank you.

Speaker #1: And our next question comes from the line of Harlan Sur with JP Morgan. Your line is open.

Operator: Our next question comes from the line of Harlan Sur with J.P. Morgan. Your line is open.

Speaker #10: Good afternoon, guys. Great job on the quarterly execution, as always, on the third-generation upgrade cycle on your emulation and prototyping platforms.

[Analyst]: Good afternoon, guys. Great job on the quarterly execution as always. On the third generation upgrade cycle on your emulation and prototyping platforms, you're about five quarters into the upgrade cycle, drove record revenues in Q3. If I rewind back to your second generation launch, 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 Proteum and Palladium systems, I assume you're already booking into next year. What's the demand curve look like, and do you anticipate continued momentum and growth in 2026 for the hardware platform?

Speaker #10: You're about five quarters into the upgrade cycle . Drove record revenues in Q3 . If I rewind back to your second generation launch , right , the team drove three years of record revenues post-launch .

Speaker #10: You still have the same drivers in place, right? Design software complexity is increasing exponentially. The cadence of new chip program introductions is accelerating, adding new customers like OpenAI.

Speaker #10: As you mentioned on the call today, with the proliferation of all of these challenges into new markets like automotive and software-defined vehicles, given the lead times for your Proteome and Palladium systems, I assume you're already booking into next year.

Speaker #10: What does the demand curve look like? And do you anticipate continued momentum and growth in 2026 for the hardware platform?

Speaker #3: Yeah , Harlan , as always , you're always very perceptive in the overall trends in the market . Yes , hardware is doing phenomenally well .

Anirudh Devgan: Yeah, Harlan, as always, you're always very.

John Wall: 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?

Speaker #3: And I expect the trend to continue . So will 26 be better than 25 ? That's what you know , we would think .

Anirudh Devgan: That's what we would think now.

Speaker #3: Now, how much better? You know we are always prudent in that because, you know, hardware, you don't have like a full year visibility like we would have in the software business.

John Wall: How much better? We are always prudent in that because hardware, you don't have a full year visibility like we would have in the software business. When we go into any given year, we only have a six month visibility. We are always prudent in a hardware guide, and if the business comes in as expected, just like this year, we can improve our guide for the rest of the year. That's more on the guiding discipline, which we want to de-risk our guide for our investors. 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.

Speaker #3: So when we go into any given year , you know , we only have a six month visibility . So we are always prudent in a hardware guide .

Speaker #3: And then , you know , if the if the business comes in as expected and just like this year , we can , you know , improve our guide for the rest of the year .

Speaker #3: But that's on the , you know , that's more on the , you know , guiding discipline which we want to be we want to de-risk our guide for our investors .

Speaker #3: Now in terms of fundamental technology trends and market trends , I mean , this is this is a great set of for hardware because first of all , we are the only company that builds our own systems .

Speaker #3: You know , we build our own chips at TSMC that are full radical chips . You know , you should see these things .

Anirudh Devgan: You know, we build our own chips at TSMC.

John Wall: They're full radical chips.

Anirudh Devgan: You know, you should see these things. You know, these racks have 144 liquid.

Speaker #3: You know , these racks have 144 liquid cooled chips connected by InfiniBand and Optical . And the customers will connect like 16 racks together .

John Wall: 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 is more AI design, but as we go from 3 nanometer to 2 nanometer to 1.4 to 1, which will take the next 7 to 10 years, the size of the chips only increases. There is more and more demand for hardware. Overall, competitively and market trend wise.

Speaker #3: I mean, that can emulate like 1 trillion transistor designs. I mean, there is no other platform that can compete with that.

Speaker #3: And also the demand for hardware is increasing , not just because of their more AI designs , but as the , you know , as we go from three nanometer to two nanometer to 1.4 to 1 , which will take , you know , next seven , ten years , the size of the chips , only increases .

Speaker #3: And so there is more and more demand for hardware . So overall , competitively and market trend wise , I think we are well positioned in hardware .

Anirudh Devgan: I think we are well positioned in hardware.

Speaker #3: But of course , for any given year , we are prudent in the guide . John , I don't know if you want to add .

John Wall: Of course, for any given year.

Anirudh Devgan: We are prudent in the guide. John, I don't know if you want to add.

Speaker #4: Yes . Yeah , yeah . Harlan , what I'd add there is demand remains very strong , particularly across AI , HPC and auto markets .

Richard Gu: Yes, Harlan. What I'd add there is 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 gross 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.

Speaker #4: We've seen scaling. We've been scaling manufacturing capacity and trying to improve lead times. We've also had hardware gross margins become more healthy.

Speaker #4: We remain focused on throughput to meet the elevated need from AI designs . And if you look at our financials , this this quarter , you'll see that we've been building inventory to try and meet the demand in this reflected in the pipeline for the next six months .

Speaker #10: Insightful. Thank you very much.

[Analyst]: Insightful. Thank you very much. Thanks.

Speaker #4: Thanks .

Speaker #1: And our next question comes from the line of Jay Freshour with Griffin Securities. Your line is open.

Operator: Our next question comes from the line of Jay Fleeshauer with Griffin Securities. Your line is open.

Speaker #11: Thank you. I know 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.

Richard Gu: Thank you.

[Analyst]: Anu, 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 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.

Speaker #11: Would it be fair to presume that combined GPU and CPU work would necessarily lift up demand and capacity requirements for multiple types of EDA tools?

Speaker #11: Also, it probably is hardware as well. So, there would be a general uplift as a result of that combined work. But at the same time, would it also necessitate an increase in your investments?

John Wall: At the same time, would it?

[Analyst]: Also necessitate your increasing your investments, for example, in AES, as you did when you had that breakthrough with Intel several years ago?

Speaker #11: For example, in AES, as you did when you had that breakthrough with Intel several years ago?

Speaker #3: 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 .

John Wall: 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.

Speaker #3: That the CPU GPUs need to work together because , you know , EDA is a very well optimized workload and , you know , it is computational software .

Anirudh Devgan: Need to work together because you know.

John Wall: EDA is a very well-optimized workload.

Anirudh Devgan: It is computational software.

Speaker #3: You know , mathematical software , which is very similar to AI . And , you know , what happened in the history of EDA is that , of course , there are a lot of SIMD tasks , you know , like which can be done in GPU kind of machine .

John Wall: You know, mathematical software, which is very similar to AI.

Anirudh Devgan: You know what happened in the.

John Wall: History of EDA is that of course there are a lot of SIMD tasks, you know, 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, and we also wanted CPU and GPU to be close to each other. Actually, to Nvidia's credit and Jensen's credit of Grace Hopper and then Grace Blackwell, I mean they are one of.

Speaker #3: But there are also a lot of conditional tasks that need to be done on a CPU kind of machine. So we always wanted both CPU and GPU, and we also wanted the CPU and GPU to be close to each other.

Speaker #3: And 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 , you know , to to kind of watch this trend .

Anirudh Devgan: The first people to track, to kind.

John Wall: Watch this trend.

Speaker #3: And now , you know , if you look at all the major designs from other companies , too , there is a combination of CPU and GPU together , and that's the reason for last several years .

Anirudh Devgan: If you look at all.

John Wall: The major designs from other companies too, there is a combination of CPU and GPU together. That's the reason for 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, you know, system analysis workload which are more GPU friendly, but also EDA workload, you know, which are critical for accelerating EDA and 3DIC to CPU GPU combination.

Speaker #3: We are already working on porting our workload to CPU plus GPU, and a perfect example was when we announced Millennium earlier in the year.

Speaker #3: So we are moving not just , you know , system analysis workload , which are more GPU friendly , but also EDA workload .

Speaker #3: You know , which are critical for accelerating EDA and 3D IC to CPU , GPU combination . So what I would like to say is I'm actually very pleased to see that the whole industry now , you know , is going towards this combination of CPU plus GPU .

Anirudh Devgan: What I would like to say.

John Wall: I'm actually very pleased to see that the whole industry now, you know, is going toward this combination of CPU plus GPU. Whether you look at Apple's chips or AMD chips, and of course Nvidia, amazing platform.

Speaker #3: Whether you look at Apple's chips or , AMD chips and of course , Nvidia . Amazing platform . And this partnership with Nvidia and Intel is good for us in terms of gives us a new kind of x86 GPU .

Anirudh Devgan: This partnership with Nvidia and Intel.

John Wall: Is good for us in terms of gives us a new kind of x86 plus GPU. We have a long standing 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.

Speaker #3: And also we have a long standing partnership with Nvidia . And then as Intel does , more work with Nvidia is also good for our overall discussions with Intel , which I think are proceeding well .

Speaker #3: And I think Intel has to invest in both, you know, in its ecosystem for foundry and also its own products. And I think LeBron knows that.

Anirudh Devgan: Both in its ecosystem for foundry and.

John Wall: Also its own products. I think Li Bu knows that, and it's good to see the investment on both sides.

Speaker #3: And it's good to see the investment on both sides.

Speaker #11: All right . Just 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 that this customer activity would necessarily increase the consumption of EDA .

Richard Gu: Just to be clear, aside from the.

[Analyst]: 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.

Speaker #3: The customer activity should . I mean , I think first of all , if the EDA tools get better because of , you know , CPU , GPU , system being optimized , typically the customers will adopt , you know , we're always looking at ways to improve our our tools .

Anirudh Devgan: The customer activity should, I mean, I.

John Wall: Think first of all of the EDA.

Anirudh Devgan: Tools get better because of, you know.

John Wall: CPU GPU system being optimized, typically the customers will adopt, you know, we are always looking at ways to improve our tools, and this gives another vehicle to improve the performance of our tools. That's good for all customers. I think in this particular partnership there are specific design activity that needs to be done, you know, without getting into too much detail, you know, Envy Lake based IP. We are working with.

Speaker #3: And this gives another vehicle to improve the performance of our tools, so that's good for all customers. And then, I think in this particular partnership, there are specific design activities that need to be done.

Speaker #3: You know , without getting into too much detail , you know , NVLink based IP . And so yeah , 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 .

Anirudh Devgan: The particular companies on design to make.

John Wall: This design happened just like we would work with any of the leading designs. There is a specific customer activity connected to Nvidia and Intel, and in general there is customer benefit if our tools are optimized better on this platform. Thank you, Anirudh.

Speaker #3: So yeah , there is a specific customer activity connected to Nvidia and Intel . And in general there is customer benefit . If our tools are optimized better on this platform .

Speaker #3: Yeah .

Speaker #11: Okay. Thank you, Anirudh.

Speaker #1: And our next question comes from the line of Gianmarco Conti with Deutsche Bank. Your line is open.

Operator: Our next question comes from the line of Gianmarco Conti with Deutsche Bank. Your line is open.

Speaker #12: Yeah . Hi there . Thank you for taking my questions again . Congrats on another great quarter . Maybe just going back towards China , especially given the amazing course that you guys have had .

[Analyst]: Yeah. Hi there. Thank you for taking my questions. Again, congrats on another great quarter. Maybe just going back towards China, especially given the amazing quarter you guys have had. Of course, part of it was recouped from Q2, but how should we think about a sustainable growth rate in the region beyond what was repeat last quarter and potentially if you could give some color on if there's any real risk from yet another ban in the region. Obviously, there was some news flow going on and I think investors 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.

Speaker #12: Of course , part of it was recouped from Q2 , but how should we think about a sustainable growth rate in the region beyond what was Ru2+ quarter and potentially , if you could give some color on on if there's any real risk from yet another ban in the region , obviously there was some news flow going on .

Speaker #12: And I think I think investors will want to be a bit wary about like what was real in terms of potential risk to EDA or what is sort of like a broader macro level impact .

Speaker #12: Any commentary ? That would be great . Thank you .

Speaker #3: Yeah , I think China , like I said , the design activity seems back to normal to me . And 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 , I mean , they were expecting very tough kind of macro environment , geopolitical environment , which turned out to be true in 25 .

Anirudh Devgan: Yeah, I think China, like I said.

John Wall: 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 2025. We were very prudent in our guide of China in the beginning of the year, which turned out to be correct. 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 is very difficult to predict.

Speaker #3: So 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 , you know , how much it grows will depend .

Speaker #3: You know, we’ll have a better idea. It’s very difficult to predict. You know, we’ll have a better idea at the end of the year.

Anirudh Devgan: You know we'll have a better idea end of the year.

Speaker #3: But I do expect China to grow this year, and then it's good to see. I mean, it's very difficult to predict the geopolitical environment.

John Wall: I do expect China to grow this year, and it's good to see, I mean 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 is a lot of discussion between the two presidents and two big economies.

Speaker #3: And I definitely don't want to do that. But it's good to see that there are a lot of discussions between the two.

Speaker #3: Kind of presidents and the big economies . So any any stability there and certainty is good for our business . So we we look forward to that .

Anirudh Devgan: Any stability there and certainty is.

John Wall: Good for our business.

Anirudh Devgan: We look forward to that.

Speaker #3: But I do expect design activity strong . And if there is no , you know , unforeseen development and the environment is stable , it should help our business .

John Wall: I do expect that design activity is strong, and if there is no unforeseen development and the environment is stable, it should help our business.

Speaker #3: And I just want to remind you that our strength in Q3 is helped by performance in China . But it's very broad based , given , you know , like all the reasons we mentioned of the build out of the AI infrastructure , the emerging design of physical AI , you know , the overall AI megatrend .

Anirudh Devgan: I just want to remind you.

John Wall: Our strength in Q3 is held 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.

Speaker #3: So we are pleased. We are not indexed to any particular country, but it's good to see that the environment is improving in China.

Speaker #4: Yeah . And I'd like to remind you that our Q4 and full year outlook assumes today's export regime remains substantially similar . And we always incorporate prudence for regulatory variability .

[Analyst]: Yeah.

Richard Gu: Gianni, I'd like to remind you that our Q4 and full year outlook assumes today's export regime remains substantially similar, and we always incorporate prudence for regulatory variability. 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.

Speaker #4: And we'll continue to comply rigorously with while supporting customers globally . And as Andrew says , we're seeing strength right across all businesses and across all geographies .

Speaker #12: Great . Thank you .

Anirudh Devgan: Great, thank you.

Speaker #1: And our next question comes from the line of Joe Quatrochi with Wells Fargo. Your line is open.

Operator: Our next question comes from the line of Joe Quatrocchi with Wells Fargo. Your line is open.

Speaker #6: Yeah .

Speaker #13: Thanks for taking the question . I was wondering if you could just maybe help us understand , like the opex dynamics , I think three key is a bit better than expected , but for Q is a bit worse than expected .

[Analyst]: Yeah, thanks for taking the question. I was wondering if you could just maybe help us understand the OpEx dynamics. I think Q3 is a bit better than expected, but Q4 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.

Speaker #13: Is that related to just the Artisan deal? Timing of closing that, or just any sort of help? That would be helpful?

Speaker #4: Sure . Yeah . But yeah , I mean , it's really just the timing of of some hardware delivery shifting between Q3 and Q4 .

Richard Gu: 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. 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 renewal set up for Q4.

Speaker #4: But overall , the year is slightly ahead of of what we were expecting . And we're pleased by by the broad based execution , strong demand across all product categories .

Speaker #4: Kore Eda software is performing very well. Hardware continues to be strong. We're continuing to make progress in STA, and we've continued IP momentum and healthy renewals set up for Q4.

Speaker #13: Thanks. I guess maybe.

Speaker #3: Just .

Speaker #13: The OpEx .

[Analyst]: The opex.

Speaker #4: Sorry. Can you repeat the.

Richard Gu: Sorry, can you repeat what the question was?

Speaker #13: The question was on the OPEX side, like the OPEX timing?

[Analyst]: On the OpEx side, like the OpEx timing.

Speaker #4: Oh , yes . So so on the on the opex side , we did a small restructure , but that benefited Q3 . The hardware gross margins were very healthy in Q3 , and then it's offset a little in Q4 by some new expenses .

Richard Gu: Yes, on the OpEx side we did a small restructure that benefited Q3. The hardware gross margins were very healthy in Q3, and then it's offset a little in Q4 by some new expenses we're picking up from new acquisitions.

Speaker #4: We're picking up from new acquisitions.

Speaker #13: Perfect . Thank you .

[Analyst]: Perfect, thank you.

Speaker #4: Thanks .

Richard Gu: Thanks.

Speaker #1: And our next question comes from the line of Charles XI with Needham. Your line is open.

Operator: Our next question comes from the line of Charles Shih with Needham. Your line is open.

Speaker #13: Hey, thanks for taking my call.

[Analyst]: Thanks for taking my question. Anirudh, congrats on the nice results. And John, similarly, here the question. I look at the growth rate for the overall company for the last three years. It has been maintaining around that 40% ish plus 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. 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 transitioning to the V3X3. I'm looking at the upfront revenue as to inform me about your hardware growth. This year, both things are kind of turned out much more positive. Your upfront revenue probably going to grow somewhere closer to 50%. China looks like it at least is going to grow above the corporate average.

Speaker #10: Question .

Speaker #13: I'm Anirudh Devgan . Congrats on the on the nice results . And John , similarly here . the question I look at the growth rate for the overall company for the last three years , it has been maintaining around about 40% ish plus minus range .

Speaker #13: Truly remarkable looks . Feels like you didn't really skip a beat at all , but but when I look under the hood , there are lots of moving parts , right ?

Speaker #13: 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 hardware transition into the V3 .

Speaker #13: X3 . I mean , I'm looking at the upfront revenue as to inform me about your hardware growth , but this year , both both both things are kind of turned up much more positive .

Speaker #13: Like your upfront revenue is probably going to grow somewhere closer to 50%. China looks like at least it's going to grow above the corporate average.

Speaker #13: So wonder when we look at 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 21 and 24 .

[Analyst]: I wonder, when we look at, think about next year, do you think both hardware and China can maintain a current momentum, maybe especially on hardware? Based on the observation of the V2X2 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 D2X2 cycle, it kind of decelerated a little bit. My question is, this time can it be a little bit different in terms of a hardware growth rate going forward? Could any fear from your customers regarding hardware transition to, let's say, Z4X4 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.

Speaker #13: When you go into like a a third year ish , the growth rate in the Z2 to cycle , it kind of decelerates a little bit .

Speaker #13: So my question is , is this time can be a little bit different in terms of hardware growth rate going forward . And could any fear of your from your customers regarding hardware transition to , let's say Z4 , x4 in the maybe the next 1 to 2 years , causing some of the deceleration of hardware revenue ?

Speaker #13: 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.

Speaker #13: Thank you .

Speaker #4: Thanks for the question, Charles. We're trying to unpack it. So I think I wouldn't focus too much on any one quarter or even any one half in terms of results.

Richard Gu: 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, and 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.

Speaker #4: If you recall , last year , the shape of the revenue curve was was kind of back end loaded and 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 to the early July .

Speaker #4: But but generally , when you're talking about hardware demand is very , very strong . But and we're seeing a secular trend in hardware demand for many years now because the growth in complexity continues unabated .

Speaker #4: But 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 in the next couple of quarters .

Speaker #4: But so so we're seeing lots of lots of momentum , and 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 .

Richard Gu: We're seeing lots of momentum, and 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.

Speaker #4: So we just finished with 7 billion of backlog at the end of Q3 , which is a new record for us . You know , given renewal timing in Q4 and the visibility we have , we'd expect to end 25 at a at a fresh high .

Speaker #4: And with that mix being so healthy across all of the different businesses, I think it bodes well for next year.

Speaker #13: So maybe a quick follow up on your perspective . The current hardware z3 , x3 enough to support 1 trillion transistors , but with AI really moving forward , moving really fast , do you foresee , like when you have when you probably need to like do another hardware refresh and is there any light you can shed on this ?

[Analyst]: Maybe a quick follow up from your perspective. The current hardware v3 x3 is enough to support 1 trillion transistors. With the AI really moving forward, moving really fast, do you foresee when you probably need to do another hardware refresh? Is there any lighting you can share on this? Thank you.

Speaker #13: Thank you .

Speaker #3: Yeah . Hi , Charles . Yeah , I'm very confident in hardware position . You know , we talked about palladium . We're the only company that designs our own chips .

Richard Gu: Yeah.

John Wall: Hi, Charles. Yeah, I'm very confident in a hardware position. You know, we talked about Palladium. We're the only company that designs our own chips.

Speaker #3: And also protium with FPGA systems . And that's also doing well with the Dynamic Duo . And like John said , you know , we see good demand .

Anirudh Devgan: Proteum with FPGA systems and.

John Wall: That's also doing well with the dynamic deal.

Anirudh Devgan: As John said, you know, we see good demand.

Speaker #3: Now , I just want to remind you that , you know , when we guide , we always are prudent , given hardware is not as predictable as software , but it has almost become even though we reported kind of upfront revenue .

[Analyst]: Now.

John Wall: I just want to remind you that, you know, when we guide, we always are prudent given hardware is not as predictable as software. It is almost even though we reported kind of front revenue. What has happened is that all these big customers are almost buying every year.

Speaker #3: But what has happened is that all these big customers are almost buying every year . It's not that they're buying , you know , so the buying behavior is different than 4 or 5 years ago because they're doing so much design that all the really big customers , it as always , almost become like a annual kind of subscription , even though financially it is reported , of course , as upfront .

Anirudh Devgan: It's not that they're buying. You know, the buying behavior is different than.

John Wall: Four or five years ago, because they're doing so much design that 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. Right now I don't see any reason that it won't.

Speaker #3: So , so now will the hardware trend continue ? I mean right now I don't see any reason that it won't . And so I think 26 will be stronger than 25 .

Anirudh Devgan: I think 2026 will be stronger than 2025.

Speaker #3: How much stronger ? Will have a better idea now in terms of our next generation ? We are always investing in R&D . You know , we have a huge investment in R&D , as you know , 35% of our revenue is invested in R&D .

John Wall: How much stronger? We'll have a better idea now in terms of our next generation. We are always investing in R&D. You know, 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. 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.

Speaker #3: And, but if you look at the expense side, almost 65% of our expense is invested in R&D, and about 25% is invested in application engineering.

Speaker #3: So, more than 90% of our investment in headcount is in engineering, you know, customer support, and R&D. And that's true for hardware.

Speaker #3: So we are, you know, we don't want to get into all the details, but you can assume we are well on our way to designing the next generation of hardware systems.

Speaker #3: And they will come in time . You know , one thing good thing is about our current systems already support 1 trillion transistor designs , and that is supposed to happen by 2030 .

Speaker #3: But before 2030, we will have a next generation of hardware which will support it for the next, you know, five years.

John Wall: 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 and the demand itself. I think because, Harlem, you know all this area well, I mean AI, the chips are only getting bigger. Also, what's happening is, even with Blackwell, it's not just one chip now. 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, like Grace and Blackwell together, or if you have chiplet architectures. The demand for hardware may move faster than just Moore's Law or technology scaling because of this 3D IC. We will see that we are well positioned, we'll see how it progresses. Systemically, there is no issue in demand for hardware in our competitive position.

Speaker #3: So I think I'm pretty confident in our hardware roadmap and the demand itself . I think because , you know , Harlem , you know , all the this area .

Speaker #3: Well , I mean , AI the chips are only getting bigger and also what's happening is like even with like Blackwell , it's not just one chip .

Speaker #3: Now I have multiple chips, and then they graze together. So the customers are also not emulating just one chip, which is growing to every node.

Speaker #3: They're emulating systems of chips . You know , like graze and Blackwell together . Or if you have chip architectures . So the the of hardware may move faster than just Moore's law or technology scaling because of this 3D IC .

Speaker #3: But again , we will see that we are well positioned . We'll see how it progresses . But systemically , there is no issue in demand for hardware .

Speaker #3: And our competitive position...

Speaker #4: There is a lot in your question . I think you referred to upfront recurring revenues . Well , I mean , we continue to frame 25 around 8020 , recurring to upfront on a rolling four quarter basis .

Richard Gu: Charles, there was a lot in your question. I think you referred to upfront recurring revenues. 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.

Speaker #4: And I think, as you mentioned in your question, the variability quarter to quarter is driven mainly by strong upfront businesses like hardware and IP.

Speaker #4: And the timing of China revenue earlier in the year . But but with Kore eda growing so well , we're comfortable that 80 over 20 is probably the right kind of mix of business that for the foreseeable future .

Speaker #13: Thanks for the insights . Are .

[Analyst]: Thanks for the insights.

Speaker #1: And our next question comes from the line of Gary Mobley with Loup Capital. Your line is open.

Operator: Our next question comes from the line of Gary Mobley with Loop Capital. Your line is open.

Speaker #14: Hi , guys . Thanks so much for squeezing me in . And let me extend my congratulations . I really just had a clarification or a question to get to a clarification .

[Analyst]: 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 2, your China backlog was not in your June quarter ending backlog, but I presume now that it is. Given that $600 million revenue or $600 million delta in your backlog, how much of that was a function of the inclusion of China backlog versus the prior quarter?

Speaker #14: So, if I recall correctly, given the timing of the export control repeal, which I believe was July 2nd, your China backlog was not in your June quarter ending backlog.

Speaker #14: But I presume now that it is so, given that $600 million revenue or $600 million delta in your backlog, how much of that was a function of the inclusion of China backlog versus the prior quarter?

Speaker #3: Yeah . Hi . Let me take a crack at it . And then I think you're right . Our backlog grew from 6.4 to to 7 billion .

John Wall: Yeah, let me take a crack at it. 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, and the rest is growth strength across our business.

Speaker #3: So there's a growth of 600 million. So I think about, I would say, about 25% of that, about 150 million, is catch-up from Q2 to Q3.

Speaker #3: And the rest of the growth is growth. Strength across our business. Yeah.

Richard Gu: Yeah, that's right. That's exactly right.

Speaker #4: That's right. That's exactly right.

Speaker #14: Appreciate it. Still good numbers. Thank you.

[Analyst]: Appreciate it. Still good numbers. Thank you.

Speaker #15: Yeah .

Speaker #1: And our next question comes from the line of Clark Jeffries with Piper Sandler. Your line is open.

Operator: Our next question comes from the line of Clark Jeffries with Piper Sandler. Your line is open.

Speaker #6: Thank you for taking the question. 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.

[Analyst]: Thank you for taking the question. Anirudh, 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?

Speaker #6: I wanted to follow up with just how the wallet opportunity is changing with those . I projects . Specifically , do you see any potential for growing pains or lower profitability to serve the industry as they make more customer customer bespoke technologies with with Chiplet or custom memory designs incorporated into those AI , AI and HPC designs has cadence changed its investment plan or selling motion to serve that more custom nature required by the industry ?

Speaker #6: Or is that even needed at all? Thank you.

Richard Gu: Thank you.

Speaker #3: Yeah , great question . I mean , this is a big trend , right ? Design of custom silicon . I mean , we have talked about it for years .

John Wall: Yeah, great question. I mean this is a big trend, right? Design of custom silicon. I mean we've talked about it for years, you know, system companies doing silicon. As you know, about 45% of our business is coming from.

Speaker #3: You know, system companies are doing silicon. And you know, as you know, about 45% of our business is coming from system companies.

Anirudh Devgan: System companies and 55% is coming from semi companies.

Speaker #3: And 55 is coming from semi companies. And so, with this, especially with AI, there is an acceleration of custom silicon.

John Wall: With this, especially with AI, there is acceleration of custom silicon. I think one different from six months ago or one year ago to now is when I look at these big, you know, system companies, they are.

Speaker #3: And I think one different from six months ago or one year ago to now is when I look at these big , you know system companies they are they are more and more committed to custom silicon and and of course we have great partnerships with Nvidia .

Anirudh Devgan: They are more and more committed to custom silicon.

John Wall: Of course, we have great partnership with Nvidia, and Nvidia is going to do phenomenally well, but so will, you know, custom silicon. 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, you look at all these big customers, they're projecting AI compute demand to grow like 2x every year for the next several years. I think there is growth for.

Speaker #3: And Nvidia is going to do phenomenally well . But so will , you custom silicon . And we can see from Broadcom results and and we also work very closely with Broadcom .

Speaker #3: And the customers themselves. So, there are opportunities because the demand is so high in terms of looking at all these big customers.

Speaker #3: They're projecting AI compute demand to grow like 2x every year for the next several years. So, I think there is growth for everyone.

Anirudh Devgan: Everyone involved in that.

Speaker #3: You know involved in that . And and the benefit of doing custom silicon , at least for the inference part , can be so high .

John Wall: The benefit of doing custom silicon.

Anirudh Devgan: At least for the inference part, can.

John Wall: 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.

Speaker #3: You know , that they are willing to invest in EDA and chip design . So I think the the financial and the and the customization benefit for our customers , and these are of course , the biggest companies in the world is significant .

Speaker #3: Doing custom silicon, you can look at all the big ones like Google and Meta, and all the others like Microsoft, Amazon, and Tesla.

Speaker #3: So I think the the there is going to be acceleration of that . And as they do more internal design , of course they need to invest in EDA and IP and hardware .

Anirudh Devgan: I think there is going to.

John Wall: The 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 on our pricing, so our profitability is similar. The benefit to our system companies is high as they do their own chips.

Speaker #3: So I think the trend is healthy . There . You know , profitability questions are similar . You know , we want to have discipline on our pricing .

Speaker #3: So our profitability is similar, but the benefit to our system companies is high as they do their own chips. Yeah.

Speaker #6: You're much .

[Analyst]: Thank you very much.

Speaker #1: And our next question comes from the line of Rubin Roy with Stifel. Your line is open.

Operator: Our next question comes from the line of Ruben Roy with Stifel. Your line is open.

Speaker #16: Thank you . And I had a quick question . I hope on a comment you made during your prepared remarks about collaborating with a customer on Next Generation AI solutions .

[Analyst]: 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, and 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. You know, how you're thinking about agentic AI overall relative to, you know, specific, it almost sounds like custom solutions, you know, by customer versus, you know, a broader agentic AI solution set that Cadence might offer to the broader ecosystem.

Speaker #16: I'm wondering , is that something that you're seeing across a wide swath of your end customers , and if so , just wondering if you could walk through maybe some implications of that , whether it's how , you know , some of those collaborative efforts on that type of solution might be monetized longer term .

Speaker #16: And you know how you're thinking about agentic AI overall relative to , you know , specific it almost sounds like custom solutions , you know , by customer versus , you know , a broader agentic AI solution set the cadence might offer to the broader ecosystem .

Speaker #16: Thank you .

Anirudh Devgan: Thank you.

Speaker #3: Yeah , it's a great question . We could talk for a while on this one . And and you know , we are , you know , privileged to have deep partnership with several companies on AI .

John Wall: Yeah, that's a great question. We could talk for a while on this one.

Richard Gu: And.

John Wall: We are privileged to have deep.

Anirudh Devgan: Partnership with several companies on AI, not just the design of.

Speaker #3: I mean , not just the design of AI , but AI for design . You know , in our solutions and , and especially on AI , because this is a new emerging area , we have like five major AI platforms .

John Wall: 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. What is unique about agentic AI is, of course, all the gen AI 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. 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.

Speaker #3: But what is unique about AI is , of course , all the gen AI stuff . And and if you look at even one of the biggest applications of AI , you know , is , is kind of vibe coding or , or , you know , software development .

Speaker #3: Well , 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 .

Speaker #3: But one part of workflow , which is not automated , is the customer still have to write RTL , you know , RTL is like a is like a language , you know , transfer language that describes the chip .

Anirudh Devgan: You know, RTL is like a language.

John Wall: Registered transfer language that describes the chip. This happens in the very beginning part of the chip design process.

Speaker #3: And this happens in the very beginning part of the chip design process , so that process is still manual , but the algorithms that is helping vibe coding or , you know , C++ coding for general software development , kind of these agentic methods can also help for RTL development .

Anirudh Devgan: That process is still manual.

John Wall: The algorithm that is helping wipe coding, or, you know, C coding for general software development, kind of these agenting methods.

Anirudh Devgan: Can also help for RTL development.

Speaker #3: Okay . And it can provide a lot of benefit to this . 10% of the workflow . That is not automated . So therefore we have massive investment in Agentic AI , which you will see as we announce more products going forward .

John Wall: Okay. It can provide a lot of benefit to this 10% of the workflow that is not automated.

Anirudh Devgan: Therefore, we have a massive investment.

John Wall: 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 Jedi. I've talked about Jedi before. Jedi is joint enterprise data and AI platform.

Speaker #3: And we already have several partnerships in there , and we are highlighting one of them . And the way we are going to market there is , you know , this is longer is through Jedi .

Speaker #3: I have talked about Jedi before. So, Jedi is the joint enterprise data and AI platform. It does have some standardized components.

Anirudh Devgan: It does have some standardized components. You know, the database is standard, all.

Speaker #3: You know , the the database standard , all the models are available AI models has interfaced to all our AI tools . So part of Jedi is is standard across all customers .

John Wall: The models are available. AI models have interface to all our AI tools.

Anirudh Devgan: Part of Jedi is.

John Wall: is standard across all customers. We work with foundries and all to kind of train our models.

Speaker #3: And we work with foundries and all to kind of train our models. Now, part of it could be customer-specific, okay.

Anirudh Devgan: Now, part of it could be customer specific. Okay.

Speaker #3: And in that case , the data is held at the customer site . And that's where we architected Jedi from the very beginning to be both on prem and cloud based .

John Wall: In that case, the data is held at the customer side. That's where we architected JEDI from the very beginning to be both on.

Anirudh Devgan: PREM and cloud-based, because sometimes the customers want it cloud.

Speaker #3: Because sometimes the customers wanted cloud based . But sometimes they want data to be localized . They want it on prem . So that's why for years we have invested in this kind of unique platform .

John Wall: 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, Jedi, 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.

Speaker #3: Jedi allows us not just to build unique solutions like RTL development and verification, plan development, but also to deploy it either in a general way or more specialized to a particular big customer.

Anirudh Devgan: Specialized to a particular big customer.

Speaker #3: But but I'm pretty optimistic in Hao , AI can automate , you know , the remaining kind of part that was manual . And 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 .

John Wall: I'm pretty optimistic in how agentic AI can automate the remaining kind of part that was manual and 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.

Speaker #3: Yeah .

[Analyst]: Yeah, it's very helpful.

Speaker #16: That's very helpful. Thank you. Honored.

Anirudh Devgan: Thank you, Anirudh.

Speaker #1: And our final question comes from the line of Joshua Tilton with Wolfe Research. Your line is open.

Operator: Our final question comes from the line of Joshua Tilton with Wolfe Research. Your line is open.

Speaker #17: 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 .

[Analyst]: Thank you so much, guys, for sneaking me in here, and congrats on a very strong quarter.

John Wall: Given the time, I'm just going to actually ask a pretty direct clarification question.

Speaker #17: John , I think it's pretty much for you in the event that you do see some , you know , 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 , for some , if any , potential negativity in the region ?

[Analyst]: John, I think it's pretty much for you.

Anirudh Devgan: In the event that you do see.

[Analyst]: Some impacts in the China region, given.

John Wall: The ongoing tariff negotiations this coming quarter.

Anirudh Devgan: Do you feel, or can you help?

[Analyst]: us understand how you kind of handicapped the updated guidance for some, if any, potential negativity in the region?

Speaker #4: Hi , Josh . I mean , that's a great question . I'd love to be able to tell the future the I mean , as always , we incorporate prudence for for all kinds of regulatory variability and you know , we base our guidance assuming that today's export regime remains substantially similar going forward through the end of the through the end of 2025 .

Richard Gu: 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, and 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.

Speaker #4: But it's very , very hard to predict what what's going to happen . But by all reports that we've heard that we believe that geopolitical tensions are lower than than people expect .

Speaker #17: Helpful. Thank you guys again for sneaking me in. And congrats again on a good quarter.

[Analyst]: Helpful.

John Wall: Thank you guys again for sneaking me in.

[Analyst]: Congrats again on a good quarter.

Speaker #4: No worries. Thank you.

Richard Gu: No worries. Thank you.

Speaker #1: And I will now turn the call back to Anirudh Devgan for closing remarks.

Operator: I will now turn the call back to Anirudh Devgan for closing remarks.

Speaker #3: 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 on our innovation roadmap and working hard to delight our customers and partners.

Anirudh Devgan: Thank you all for joining us this afternoon.

John Wall: It's an exciting time for Cadence Design Systems Inc.

Anirudh Devgan: 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.

Speaker #3: On behalf of our Board of Directors, we thank our customers, partners, and investors for their continued trust and confidence in Cadence.

Speaker #1: And 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 .

Operator: Ladies and gentlemen, thank you for participating in today's Cadence Design Systems Inc. third quarter 2025 earnings conference call. This concludes today's call and you may now disconnect.

[Analyst]: Sam.

John Wall: SA.