Q2 2026 Cadence Design Systems Inc Earnings Call

July 27, 2026

Speaker #1: Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence 2nd Quarter 2026 earnings conference call.

Operator: Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Q2 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star and then the number 1 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.

Operator: Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Q2 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. Thank you. I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star and then the number 1 on your telephone keypad.

Speaker #1: Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Q2 2026 earnings conference call.

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

Speaker #2: Thank you, operator. I would like to welcome everyone to our 2nd Quarter of 2026 earnings conference call. I'm joined today by Onir Devgun. President and Chief Executive Officer.

Richard Gu: Thank you, operator. I would like to welcome everyone to our Q2 2026 earnings conference call. I am joined today by Anirudh Devgan, President and Chief Executive Officer, and John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call and a copy of today's prepared remarks will be available on our website, cadence.com. Today's discussion will contain forward-looking statements, including our outlook on future business and operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussion. For information on factors that could cause actual results to differ, please refer to our SEC filings, including our most recent Forms 10-K and 10-Q, CFO Commentary, and today's earnings release. All forward-looking statements during this call are based on estimates and information available to us as of today. We disclaim any obligation to update them.

Speaker #2: And John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call and a copy of today's prepared remarks. We'll be available on our website, cadence.com.

Speaker #1: And 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 second quarter 2026 earnings conference call. I'm joined today by Anirudh Devgan, President and Chief Executive Officer.

Speaker #2: Today's discussion will contain forward-looking statements, including our outlook on future business and operating results. Due to risks and uncertainties, actual results may differ, materially from those projected or implied in today's discussion.

Speaker #2: And John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call and a copy of today's prepared remarks will be available on our website, cadence.com.

Speaker #2: 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.

Speaker #2: Today's discussion will contain forward-looking statements, including our outlook on future business and operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussion.

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

Speaker #2: 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.

Speaker #2: In addition, all financial measures discussed on this call are non-get get unless otherwise specified. The non-get measures should not be considered in isolation from, or as a substitute for, gap results.

Richard Gu: In addition, all financial measures discussed on this call are non-GAAP, unless otherwise specified. The non-GAAP measures should not be considered in isolation from or as a substitute for GAAP results. Reconciliations of GAAP to non-GAAP measures are included in today's earnings release. For the Q&A session today, we would ask that you observe a limit of 1 question only. If time permits, you can re-queue with additional questions. I will turn the call over to Anirudh.

Richard Gu: In addition, all financial measures discussed on this call are non-GAAP, unless otherwise specified. The non-GAAP measures should not be considered in isolation from or as a substitute for GAAP results. Reconciliations of GAAP to non-GAAP measures are included in today's earnings release. For the Q&A session today, we would ask that you observe a limit of one question only. If time permits, you can re-queue with additional questions. I will turn the call over to Anirudh.

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

Speaker #2: Reconciliations of gap-to-non-get measures are included in today's earnings release. For the Q&A session today, we would ask that you observe a limited one question only.

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.

Speaker #2: If time permits, you can re-queue with additional questions. Now, I'll turn the call over to Onir.

Speaker #3: Thank you, Richard. Good afternoon, everyone, and thank you for joining us today. I'm very pleased to report that Cadence delivered outstanding financial results for the 2nd Quarter of 2026.

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

Anirudh Devgan: Thank you, Richard. Good afternoon, everyone, and thank you for joining us today. I am very pleased to report that Cadence delivered outstanding financial results for the Q2 2026, with all key metrics exceeding our guidance. We exited the quarter with record backlog that was above our expectations. We are seeing growing demand for our AI-driven solutions across our expanding customer base. The AI transformation is driving strong, broad-based performance across both design for AI and AI for design fronts. Given the growing business momentum and accelerating demand, we are raising our guidance for the year to 19% revenue growth and with higher profitability as we become more central to our customers as a strategic and trusted partner. John will provide more details on both our Q2 results and the updated financial outlook. Let me start with the overall environment.

Speaker #2: If time permits, you can re-queue with additional questions. Now I'll turn the call over to Anirudh.

Speaker #3: With all key metrics exceeding our guidance. We exited the quarter with record backlog that was above our expectations. We are seeing growing demand for AI-driven solutions across our expanding customer base.

Speaker #3: The AI transformation is driving strong broad-based performance across both design for AI and AI for design fronts. Given the growing business momentum and accelerating demand, we are raising our guidance for the year to $19% revenue growth and, with higher profitability, as we become more central to our customers as a strategic and trusted partner.

Speaker #3: With all key metrics exceeding our guidance, we exited the quarter with a record backlog that was above our expectations. We are seeing growing demand for AI-driven solutions across our expanding customer base.

Speaker #3: The AI transformation is driving strong, broad-based performance across both design for AI and AI for design fronts. Given the growing business momentum and accelerating demand, we are raising our guidance for the year to 19% revenue growth, with higher profitability, as we become more central to our customers as a strategic and trusted partner.

Speaker #3: John will provide more details on both our Q2 results and the updated financial outlook. Let me start with the overall environment. Design activity is growing.

Speaker #3: As AI drives exponential design complexity, and a new generation of system architectures, spanning hyperscaler infrastructure and physical AI, customers are investing aggressively in these opportunities led by AI and HPC, and we are also seeing continued signs of improvement across the more traditional analog and consumer verticals.

Anirudh Devgan: Design activity is growing as AI drives exponential design complexity and a new generation of system architectures spanning hyperscaler infrastructure and physical AI. Customers are investing aggressively in these opportunities led by AI and HPC. We are also seeing continued signs of improvement across the more traditional analog and consumer verticals. Chip and system design present demanding engineering challenges that require deterministic physics-based engines, proprietary silicon correlated data, and deep design knowledge. Our three-layer cake framework uniquely brings these capabilities together with accelerated compute and data at the bottom layer, physically accurate simulation and optimization solvers in the middle layer, and AI agents and orchestration at the top layer. Agentic AI is a demand accelerator for Cadence as autonomous agents expand the design exploration space and call our underlying physically accurate engines more often, creating a durable tailwind that represents a significant long-term TAM expansion opportunity.

Speaker #3: John will provide more details on both our Q2 results and the updated financial outlook. Let me start with the overall environment. Design activity is growing.

Speaker #3: As AI drives exponential design complexity and a new generation of system architectures spanning hyperscale infrastructure and physical AI, customers are investing aggressively in these opportunities led by AI and HPC. We are also seeing continued signs of improvement across the more traditional analog and consumer verticals.

Speaker #3: Chip and system design present demanding engineering challenges, that require deterministic physics-based engines proprietary silicon correlated data and deep design knowledge. Our three-layer cake framework uniquely brings these capabilities together with accelerated compute and data at the bottom layer, physically accurate simulation and optimization solvers in the middle layer, and AI agents and orchestration at the top layer.

Speaker #3: Chip and system design present demanding engineering challenges that require deterministic, physics-based engines, proprietary silicon-correlated data, and deep design knowledge. Our three-layer cake framework uniquely brings these capabilities together, with accelerated compute and data at the bottom layer, physically accurate simulation and optimization solvers in the middle layer, and AI agents and orchestration at the top layer.

Speaker #3: Agentic AI is a demand-accelerator for Cadence, as autonomous agents expand the design exploration space and call our underlying physically accurate engines more often, creating a durable tailwind that represents a significant long-term DAM expansion opportunity.

Speaker #3: Agentic AI is a demand accelerator for Cadence. As autonomous agents expand the design exploration space and call our underlying physically accurate engines more often, this creates a durable tailwind that represents a significant, long-term DAM expansion opportunity.

Speaker #3: We extended our leadership in agentic AI with AuraStack AI Super Agent. Delivering up to 15x higher productivity and 2x faster time-to-market for PCB and advanced packaging design.

Anirudh Devgan: We extended our leadership in Agentic AI with AuraStack AI Super Agent, delivering up to 15x higher productivity and 2x faster time to market for PCB and advanced packaging design. Cadence is now the only provider with agentic solutions spanning the full electronic system design flow, from digital, analog design and verification to advanced packaging and PCB. We see strong early traction across our AI Super Agent portfolio, with initial customer results demonstrating meaningful productivity improvement and better design outcomes. Our ChipStack AI Super Agent, enabling higher verification productivity and faster design cycles, has more than 20 customer engagements and is already deployed in production across multiple chip designs. At COMPUTEX 2026, together with NVIDIA, we introduced the industry's first fully autonomous virtual AI design engineer, extending ChipStack to even higher levels of autonomy.

Speaker #3: Cadence is now the only provider with agentic solutions spanning the full electronic system design flow, from digital analog design and verification to advanced packaging and PCB.

Speaker #3: We extended our leadership in agentic AI with AuraStack AI Super Agent, delivering up to 15x higher productivity and 2x faster time-to-market for PCB and advanced packaging design.

Speaker #3: We see strong early traction across our AI Super Agent portfolio, with initial customer results demonstrating meaningful productivity improvement and better design outcomes. Our ChipStack AI Super Agent enabling higher verification productivity and faster design cycles has more than 20 customer engagements and is already deployed in production across multiple chip designs.

Speaker #3: Cadence is now the only provider with agentic solutions spanning the full electronic system design flow, from digital and analog design and verification to advanced packaging and PCB.

Speaker #3: We see strong early traction across our AI Super Agent portfolio, with initial customer results demonstrating meaningful productivity improvement and better design outcomes. Our chip stack AI Super Agent, enabling higher verification productivity and faster design cycles, has more than 20 customer engagements and is already deployed in production across multiple chip designs.

Speaker #3: At Computex 2026, together with NVIDIA, we introduced the industry's first fully autonomous virtual AI design engineer, extending ChipStack to even higher levels of autonomy.

Speaker #3: Early customer results include more than 40x faster RTL validation reducing a typical 5-week verification cycle to less than a day on a state-of-the-art advanced node design.

Anirudh Devgan: Early customer results include more than 40x faster RTL validation, reducing a typical five-week verification cycle to less than a day on a state-of-the-art advanced node design. In analog and custom design, VeraStack is seeing strong customer interest, with more than 25 customer engagement achieving 2x to 10x productivity improvements compared to traditional design flows. InnoStack is also building momentum as customers adopt Agentic AI for advanced-node SoC design. During the quarter, Rapidus announced a collaboration to integrate the Cadence InnoStack AI Super Agent into its AI agent design solution, targeting up to a 2x faster design turnaround. We continue to deepen our strategic partnerships across the ecosystem. We expanded our collaboration with Intel through a multi-year engagement focused on enabling its 14A process, leveraging our design IP and Agentic AI-based EDA to co-optimize tool flows and methodologies for next-generation HPC and mobile design.

Speaker #3: At Computex 2026, together with NVIDIA, we introduced the industry’s first fully autonomous virtual AI design engineer, extending chip stack to even higher levels of autonomy.

Speaker #3: In analog and custom design, we are stack is seeing strong customer interest. With more than 25 customer engagements, achieving 2x to 10x productivity improvements compared to traditional design flows.

Speaker #3: Early customer results include more than 40× faster RTL validation, reducing a typical five-week verification cycle to less than a day on a state-of-the-art advanced node design.

Speaker #3: InnoStack is also building momentum as customers adopt agentic AI for advanced node SOC design. During the quarter, rapidus announced a collaboration to integrate the Cadence InnoStack AI Super Agent into its AI agent design solution targeting up to a 2x faster design turnaround.

Speaker #3: In analog and custom design, our stack is seeing strong customer interest, with more than 25 customer engagements achieving 2x to 10x productivity improvements compared to traditional design flows.

Speaker #3: InnoStack is also building momentum as customers adopt agentic AI for advanced node SoC design. During the quarter, Rapidus announced a collaboration to integrate the Cadence InnoStack AI Super Agent into its AI agent design solution, targeting up to a 2x faster design turnaround.

Speaker #3: We continue to deepen our strategic partnerships across the ecosystem. We expanded our collaboration with Intel through a multi-year engagement focus on enabling its 14A process.

Speaker #3: Leveraging our design IP and agentic AI-based EDA to co-optimize tool flows and methodologies for next-generation HPC and mobile design. This agreement is expected to be a meaningful driver of growth over the next few years.

Speaker #3: We continue to deepen our strategic partnerships across the ecosystem. We expanded our collaboration with Intel through a multi-year engagement focused on enabling its 14A process.

Anirudh Devgan: This agreement is expected to be a meaningful driver of growth over the next few years. We also deepened our collaboration with Samsung Foundry on two nanometer and 3D IC technology, combining our AI-driven flows and design IP to enable next-generation AI, HPC, and mobile systems. Now turning to our businesses. We are pleased that all product groups delivered double-digit year-over-year growth. Our IP business had an outstanding quarter, growing over 40% year-over-year. AI performance is increasingly constrained by data movement, memory bandwidth, and advanced packaging, and our differentiated IP portfolio continued to see strong adoption. This was reflected in the strong demand for our Star IP portfolio in AI and HPC applications, including PCIe, UCIe, HBM, and LPDDR6. We also expanded engagement with leading memory, semiconductor, and aerospace customers. We secured our first-ever Tensilica DSP design win with STMicroelectronics, reinforcing our strength in automotive and audio applications.

Speaker #3: We also deepened our collaboration with Samsung Foundry on 2 nanometer and 3D IC technologies combining our AI-driven flows and design IP to enable next-generation AI HPC and mobile systems.

Speaker #3: Leveraging our design IP and agentic AI-based EDA to co-optimize tool flows and methodologies for next-generation HPC and mobile design, this agreement is expected to be a meaningful driver of growth over the next few years.

Speaker #3: Now turning to our businesses, we are pleased that all product groups delivered double-digit year-over-year growth. Our IP business had an outstanding quarter growing over 40% year-over-year, AI performance is increasingly constrained by data movement, memory bandwidth, and advanced packaging and our differentiated IP portfolio continued to see strong adoption.

Speaker #3: We also deepened our collaboration with Samsung Foundry on 2-nanometer and 3D IC technologies, combining our AI-driven flows and design IP to enable next-generation AI, HPC, and mobile systems.

Speaker #3: Now, turning to our businesses. We are pleased that all product groups delivered double-digit year-over-year growth. Our IP business had an outstanding quarter, growing over 40% year-over-year.

Speaker #3: This was reflected in the strong demand for our star IP portfolio in AI and HPC applications including PCIe UCIe HBM and LP DDR6. We also expanded engagement with leading memory semiconductor and aerospace customers.

Speaker #3: AI performance is increasingly constrained by data movement. Memory bandwidth, advanced packaging, and our differentiated IP portfolio continued to see strong adoption. This was reflected in the strong demand for our star IP portfolio in AI and HPC applications, including PCIe, UCIe, HBM, and LPDDR6.

Speaker #3: We secured our first-ever tensilica DSP design win with ST Microelectronics reinforcing our strength in automotive and audio applications. Core EDA grew 18% year-over-year driven by growing adoption of our AI solutions.

Speaker #3: We also expanded engagement with leading memory, semiconductor, and aerospace customers. We secured our first-ever Tensilica DSP design win with STMicroelectronics, reinforcing our strength in automotive and audio applications.

Anirudh Devgan: Core EDA grew 18% year-over-year, driven by growing adoption of our AI solutions. Proliferation of our digital full-flow solutions continued, and we saw expanded adoption of Tempus and Certus sign-off tools on leading-edge designs with wins across hyperscalers, top semiconductor companies, and startups. We also expanded our implementation and sign-off footprint at frontier AI companies, as well as at a marquee ASIC silicon vendor, underscoring their differentiated value in enabling the industry's most advanced design. In analog, we had a significant competitive win with Spectre at a leading semiconductor supplier, and our FastSPICE simulator, Spectre FX, notched several production wins at leading customers. Our hardware business delivered another record quarter, driven by continuous strength in Palladium Z3 and Protium X3. As designs approach unprecedented scale, hardware-assisted design and verification is becoming a strategic capacity layer for our customers' AI roadmaps.

Speaker #3: Proliferation of our digital full flow solutions continued and we saw expanded adoption of Tempus and Certus sign-off tools on leading edge designs. With wins across hyperscalers top semiconductor companies and startups.

Speaker #3: Core EDA grew 18% year-over-year, driven by growing adoption of our AI solutions. Proliferation of our digital full flow solutions continued, and we saw expanded adoption of Tempus and Certus sign-off tools on leading-edge designs.

Speaker #3: We also expanded our implementation and sign-off footprint at frontier AI companies as well as at a marquee ASIC silicon vendor. Underscoring their differentiated value in enabling the industry's most advanced design.

Speaker #3: With wins across hyperscalers, top semiconductor companies, and startups, we also expanded our implementation and sign-off footprint at frontier AI companies as well as at a marquee ASIC silicon vendor.

Speaker #3: In analog, we had a significant competitive win with Spectre at a leading semiconductor supplier. And our fast price simulators Spectre FX notched several production wins at leading customers.

Speaker #3: Our hardware business delivered another record quarter driven by continued strength in Palladium Z3 and Proteum X3. At designs approach unprecedented scale hardware assisted design and verification is becoming a strategic capacity layer for our customers AI roadmap.

Speaker #3: Underscoring their differentiated value in enabling the industry's most advanced design. In analog, we had a significant competitive win with Spectre at a leading semiconductor supplier, and our fast SPICE simulator, Spectre FX, notched several production wins at leading customers.

Speaker #3: Our hardware business delivered another record quarter, driven by continued strength in Palladium Z3 and Protium X3. As designs approach unprecedented scale, hardware-assisted design and verification is becoming a strategic capacity layer for our customers' AI roadmap.

Speaker #3: These customers are designing some of the most complex chips and systems in the world. And they critically depend on our scalable high-performance hardware platforms to realize their design.

Anirudh Devgan: These customers are designing some of the most complex chips and systems in the world, and they critically depend on our scalable, high-performance hardware platforms to realize their design. Demand remains especially strong from AI and HPC customers, including hyperscalers and leading semiconductor companies. We added 12 new logos and saw a meaningful expansion with several marquee AI customers, as well as a notable competitive win with a major AI infrastructure provider. System Design and Analysis revenue grew 37% year-over-year. As AI system complexity increases, customers are increasingly turning to our advanced packaging and PCB solutions. Allegro X AI was adopted by several customers, driven by significant layout design time reduction. With our 3D IC technology and collaboration with TSMC's 3DFabric advanced packaging solutions, we are enabling customers to confidently design cutting-edge silicon for increasingly demanding AI workloads. In structural simulation, our BETA CAE business had several competitive displacements.

Speaker #3: Demand remains especially strong from AI and HPC customers. Including hyperscalers and leading semiconductor companies. We added 12 lead no-goes and saw meaningful expansion with several marquee AI customers.

Speaker #3: These customers are designing some of the most complex chips and systems in the world, and they critically depend on our scalable, high-performance hardware platforms to realize their designs.

Speaker #3: As well as a notable competitive win with a major AI infrastructure provider. System design and analysis revenue grew 37% year-over-year. As AI system complexity increases, customers are increasingly turning to our advanced packaging and PCB solutions.

Speaker #3: Demand remains especially strong from AI and HPC customers, including hyperscalers and leading semiconductor companies. We added 12 new logos and saw meaningful expansion with several marquee AI customers.

Speaker #3: Allegro XAI was adopted by several customers driven by significant layout design time reduction. With our 3D IC technology and collaboration with TSMC's 3D fabric advanced packaging solutions we are enabling customers to confidently design cutting edge silicon for increasingly demanding AI workloads.

Speaker #3: Allegro X AI was adopted by several customers, driven by significant layout design time reduction. With our 3D IC technology and collaboration with TSMC's 3DFabric advanced packaging solutions, we are enabling customers to confidently design cutting-edge silicon for increasingly demanding AI workloads.

Speaker #3: In structural simulation, our Beta CAE business had several competitive displacements. While the integration of recently acquired Hexagon's DNE business is progressing well. With key deals closed with top customers.

Anirudh Devgan: While the integration of recently acquired Hexagon DNE business is progressing well, with key deals closed with top customers. There is strong customer interest in our integrated full flow that combines our multi-physics products across the electrical, CFD, and structural domain to best address next generation system design needs, including in the emerging field of Physical AI. In summary, Q2 was a great quarter for Cadence, and I'm delighted with the continuing momentum of our business. With accelerating design activity, we continue to execute strongly, and our competitive position has never been better as we lead the transformation to Agentic AI in chip and system design. With that, I will turn it over to John to provide more details on our Q2 results and our updated 2026 outlook.

Speaker #3: There is strong customer interest in our integrated full flow. That combines our multi-physics products across the electrical, PFD, and structural domains to best address next-generation system design needs including in the emerging field of physical AI.

Speaker #3: In structural simulation, our Beta CAE business had several competitive displacements, while the integration of the recently acquired Hexagon's DNE business is progressing well, with key deals closed with top customers.

Speaker #3: In summary, Q2 was a great quarter for Cadence. And I'm delighted with the continued momentum of our business. With the accelerating design activity, we continue to execute strongly.

Speaker #3: There is strong customer interest in our integrated full flow that combines our multi-physics products across the electrical, PFD, and structural domains to best address next-generation system design needs, including in the emerging field of physical AI.

Speaker #3: And our competitive position has never been better as we lead the transformation to agentic AI in chip and system design. With that, I will turn it over to John to provide more details on our Q2 results and our updated 2026 outlook.

Speaker #3: In summary, Q2 was a great quarter for Cadence, and I'm delighted with the continued momentum of our business. With accelerating design activity, we continue to execute strongly.

Speaker #1: Thanks, Aaron. And good afternoon, everyone. Cadence delivered excellent results for the second quarter of 2026 with accelerating momentum in AI and broad-based strength across all our businesses.

John Wall: Thanks, Anirudh, and good afternoon, everyone. Cadence delivered excellent results for the second quarter of 2026, with accelerating momentum in AI and broad-based strength across all our businesses. Robust design activity and customer demand drove 24% year-over-year revenue growth for Q2, with double-digit growth across all our product groups. With strong execution, we generated Q2 operating margin of 45.5%. Second quarter bookings resulted in a record backlog of $8.1 billion. Here are some of the financial highlights for the second quarter, starting with the P&L. Total revenue was $1.584 billion. GAAP operating margin was 28.4%. Non-GAAP operating margin was 45.5%. GAAP EPS was $1.33, and non-GAAP EPS was $2.11. Next, turning to the balance sheet and cash flow. Our cash balance was $1.44 billion, while the principal value of debt outstanding was $2.5 billion. Operating cash flow was $635 million.

Speaker #1: Robust design activity and customer demand drove 24% year-over-year revenue growth for Q2. With double-digit growth across all our product groups. With strong execution, we generated Q2 operating margin of 45.5%.

Speaker #2: Thanks, Anirudh. And good afternoon, everyone. Cadence delivered excellent results for the second quarter of 2026, with accelerating momentum in AI and broad-based strength across all our businesses.

Speaker #1: And second quarter bookings resulted in a record backlog of 8.1 billion dollars. Here are some of the financial highlights from the second quarter starting with the P&L.

Speaker #2: Robust design activity and customer demand drove 24% year-over-year revenue growth for Q2, with double-digit growth across all our product groups. With strong execution, we generated Q2 operating margin of 45.5%.

Speaker #1: Total revenue was 1 billion and 584 million dollars. Gap operating margin was 28.4%. Non-gap operating margin was 45.5%. Gap EPS was 1 dollar and 33 cents.

Speaker #2: And second-quarter bookings resulted in a record backlog of $8.1 billion. Here are some of the financial highlights from the second quarter, starting with the P&L.

Speaker #1: And non-gap EPS was 2 dollars and 11 cents. Next, turning to the balance sheet and cash flow, our cash balance was 1 billion and 440 million dollars.

Speaker #2: Total revenue was 1 billion and 584 million dollars. Gap operating margin was 28.4%. Non-gap operating margin was 45.5%. Gap EPS was 1 dollar and 33 cents.

Speaker #1: While the principal value of debt outstanding was 2 billion and 500 million dollars. Operating cash flow was 635 million dollars. DSOs were 65 days and we used 200 million dollars to repurchase Cadence shares.

Speaker #2: And non-gap EPS was 2 dollars and 11 cents. Next, turning to the balance sheet and cash flow, our cash balance was 1 billion and 440 million dollars.

John Wall: DSO were 65 days. We used $200 million to repurchase Cadence shares. Before I provide our updated outlook, I would like to highlight that it contains the useful assumption that export control regulations that exist today remain substantially similar for the remainder of the year. For our updated outlook for 2026, we now expect revenue in the range of $6 billion and 260 million to $6 billion and 340 million. GAAP operating margin in the range of 27.75% to 28.75%. Non-GAAP operating margin in the range of 43.75% to 44.75%. GAAP EPS in the range of $4.76 to $4.86. Non-GAAP EPS in the range of $8.05 to $8.15. Operating cash flow of approximately $2 billion. We expect to use approximately 50% of our free cash flow to repurchase Cadence shares in 2026.

Speaker #1: Before I provide our updated outlook, I'd like to highlight that it contains the useful assumption that export control regulations that exist today remain substantially similar for the remainder of the year.

Speaker #2: While the principal value of debt outstanding was 2 billion and 500 million dollars. Operating cash flow was 635 million dollars. DSOs were 65 days and we used 200 million dollars to repurchase CADENCE shares.

Speaker #1: For our updated outlook for 2026, we now expect revenue in the range of 6 billion and 260 million dollars. To 6 billion and 340 million dollars.

Speaker #2: Before I provide our updated outlook, I'd like to highlight that it contains the useful assumption that export control regulations that exist today will remain substantially similar for the remainder of the year.

Speaker #1: Gap operating margin in the range of 27.75 to 28.75%. Non-gap operating margin in the range of 43.75 to 44.75%. Gap EPS in the range of 4 dollars and 76 cents.

Speaker #2: For our updated outlook for 2026, we now expect revenue in the range of 6 billion and 260 million dollars. To 6 billion and 340 million dollars.

Speaker #1: To 4 dollars and 86 cents. Non-gap EPS in the range of 8 dollars and 5 cents. To 8 dollars and 15 cents. Operating cash flow of approximately 2 billion dollars.

Speaker #2: Gap operating margin in the range of 27.75 to 28.75%. Non-gap operating margin in the range of 43.75 to 44.75%. Gap EPS in the range of 4 dollars and 76 cents to 4 dollars and 86 cents.

Speaker #1: And we expect to use approximately 50% of our free cash flow to repurchase Cadence shares in 2026. For Q3, we expect revenue in the range of 1 billion and 595 million dollars.

Speaker #2: Non-gap EPS in the range of 8 dollars and 5 cents to 8 dollars and 15 cents. Operating cash flow of approximately 2 billion dollars and we expect to use approximately 50% of our free cash flow to repurchase CADENCE shares in 2026.

John Wall: For Q3, we expect revenue in the range of $1 billion and 595 million to $1 billion and 625 million. GAAP operating margin in the range of 27.5% to 28.5%. Non-GAAP operating margin in the range of 43.5% to 44.5%. GAAP EPS in the range of $1.11 to $1.17. Non-GAAP EPS in the range of $2.01 to $2.07. As usual, we published a CFO Commentary document on our investor relations website, which includes our outlook for additional items, as well as further analysis and GAAP and non-GAAP reconciliations. In conclusion, I am pleased with our strong H1 results and the robust pipeline and momentum heading into the H2 of the year. At the midpoint, we now expect revenue growth of 19%, operating margin of 44.25%, EPS of $8.10, and operating cash flow of $2 billion for the year.

Speaker #1: To 1 billion and 625 million dollars. Gap operating margin in the range of 27.5 to 28.5%. Non-gap operating margin in the range of 43.5 to 44.5%.

Speaker #2: For Q3, we expect revenue in the range of 1 billion and 595 million dollars to 1 billion and 625 million dollars. Gap operating margin in the range of 27.5 to 28.5%.

Speaker #1: Gap EPS in the range of 1 dollar and 11 cents. To 1 dollar and 17 cents. And non-gap EPS in the range of 2 dollars and 1 cent.

Speaker #1: To 2 dollars and 7 cents. And 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 gap to non-gap reconciliations.

Speaker #2: Non-gap operating margin in the range of 43.5 to 44.5%. Gap EPS in the range of 1 dollar and 11 cents to 1 dollar and 17 cents.

Speaker #1: In conclusion, I'm pleased with our strong first half results and the robust pipeline and momentum heading into the second half of the year. At the midpoint, we now expect revenue growth of 19%.

Speaker #2: And non-gap EPS in the range of 2 dollars and 1 cent to 2 dollars and 7 cents. And 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 gap to non-gap reconciliations.

Speaker #1: Operating margin of 44.25%. EPS of 8 dollars and 10 cents. And operating cash flow of 2 billion dollars for the year. As always, I'd like to close by thanking our customers, partners, and our employees for their continued support.

Speaker #2: In conclusion, I'm pleased with our strong first half results and the robust pipeline and momentum heading into the second half of the year. At the midpoint, we now expect revenue growth of 19%.

John Wall: As always, I would like to close by thanking our customers, partners, and our employees for their continued support. With that, operator, we will now take questions.

Speaker #1: And with that, operator, we will now take questions.

Speaker #2: Thank you. And at this time, I would like to remind everyone who would like to ask a question to please press star and then the number one on your telephone keypad.

Speaker #2: Operating margin of 44.25%. EPS of 8 dollars and 10 cents. And operating cash flow of 2 billion dollars for the year. As always, I'd like to close by thanking our customers, partners, and our employees for their continued support.

Operator: Thank you. At this time, I would like to remind everyone who would like 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 Joe Quatrochi with Wells Fargo. Your line is open.

Speaker #2: 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 #2: And with that, operator, we will now take questions.

Speaker #2: And our first question comes from the line of Joe Kuchaki with Wells Fargo. Your line is open.

Speaker #1: Thank you. At this time, I would like to remind everyone who would like to ask a question to please press star, then the number one, on your telephone keypad.

Speaker #3: Yeah. Thanks for taking the question. Maybe first just one other if you could give us any help. You talked about agentic AI as being a long-term TAM expansion opportunity.

Speaker #1: 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.

Joe Quatrochi: Yeah, thanks for taking the question. Maybe first, just wonder if you could give us any help. You talked about Agentic AI as being a long-term TAM expansion opportunity. Is there any quantification that you could give us on that TAM at this point? Maybe how do we think about that as driving EDA as a % of R&D expense to maybe higher over time?

Speaker #3: Is there any quantification that you could give us on that TAM at this point? And maybe how do we think about that as driving EDA as a percent of R&D expense to maybe higher over time?

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

Speaker #3: Yeah, thanks for taking the question. Maybe first, just one other—if you could give us any help. You talked about agentic AI as being a long-term TAM expansion opportunity.

Speaker #4: Yeah. Hey, Joe. Thanks for the question. So like we've said before, I mean, the great thing about agentic AI is it opens up a new TAM opportunity.

Anirudh Devgan: Yeah. Hey, Joe. Thanks for the question. Like we said before, the great thing about Agentic AI is it opens up a new TAM opportunity. At the same time, it calls more of our underlying physically accurate software. Going back to the three-leg framework, it's a new opportunity at the top layer and reinforces the middle layer. I think we are pleased by the interest. The interest is amazing, actually. Almost all the big customers, almost all customers want to engage in our agent stack, and now we have four super agents. I think it's a great opportunity for us. Now, in terms of results, of course, we had great results Q2 and the year so far, and there's a lot of strength in different parts of the business.

Speaker #3: Is there any quantification that you could give us on that TAM at this point? And maybe, how should we think about that as driving EDA as a percent of R&D expense to maybe move higher over time?

Speaker #4: At the same time, it calls more of our underlying physically accurate software so going back to the three-leg framework. So it's a new opportunity at the top layer and reinforces the middle layer.

Speaker #4: Yeah, hey Joe, thanks for the question. So, like we've said before, I mean, the great thing about agentic AI is it opens up a new TAM opportunity.

Speaker #4: And I think we are pleased by the interest. I mean, the interest is amazing, actually. Almost all the big customers almost all customers want to engage in our agent stack.

Speaker #4: At the same time, it calls more of our underlying physically accurate software. So going back to the three-leg framework, it's a new opportunity at the top layer and reinforces the middle layer.

Speaker #4: And now we have four super agents. So I think it's a great opportunity for us. Now, in terms of results, what I'm of course, we had great results Q2 and the year so far.

Speaker #4: And I think we are pleased by the interest. I mean, the interest is amazing, actually. Almost all the big customers—almost all customers—want to engage in our agent stack.

Speaker #4: And there's a lot of strength in different parts of the business. But what I particularly proud of is the strength in the software businesses, if you look at our recurring growth.

Speaker #4: And now we have four super agents, so I think it's a great opportunity for us. Now, in terms of results, of course we had great results in Q2 and so far this year.

Anirudh Devgan: What I'm particularly proud of is the strength in the software businesses, if you look at our recurring growth. That was particularly driven by strength of add-on business. Both, we are seeing add-ons driven both basically for design for AI as our customers design more chips, and also AI for design, which is our Agentic and AI portfolio. You can see that in our results. What is particularly impressive, and this is I think the highest raise we ever had, is that it is broad based, including software and AI contributing to that growth. We'll see how things progress for rest of the year.

Speaker #4: And that was particularly driven by a strength of add-on business. And so both we are seeing add-ons driven both basically for design for AI as our customers design more chips.

Speaker #4: And there's a lot of strength in different parts of the business. But what I'm particularly proud of is the strength in the software businesses, if you look at our recurring growth.

Speaker #4: And also AI for design, which is our agentic and AI portfolio. And you can see that in our results. So what is particularly impressive and this is, I think, the highest raise we ever had is that it is broad-based including software and AI contributing to that growth.

Speaker #4: And that was particularly driven by the strength of add-on business. We are seeing add-ons driven basically for design for AI, as our customers design more chips.

Speaker #4: So we'll see how things progress for the rest of the year.

Speaker #5: Yeah. Joe, I'll just add that if I could just add the customer engagement as I already said continues to accelerate. We're seeing increased evaluations and pilots and early deployments.

Speaker #4: And also AI for design, which is our agentic and AI portfolio. And you can see that in our results. So, what is particularly impressive—and this is, I think, the highest raise we ever had—is that it is broad-based, including software and AI contributing to that growth.

John Wall: Yeah. Joe, I'll just add that. The customer engagement, as Anirudh said, continues to accelerate. We're seeing increased evaluations in pilots and early deployments, and we continue to expect monetization through both new workflow products as well as increased usage of underlying engines. Just to be clear, we're still not assuming a sudden step function in our guidance. The opportunity is continuing to develop well, though.

Speaker #5: And we continue to expect monetization through both to do workflow products as well as increased usage of underlying engines. But just to be clear, we're still not assuming a sudden step function in our guidance.

Speaker #4: So, we'll see how things progress for the rest of the year.

Speaker #5: The opportunity is continuing to develop well though.

Speaker #5: Yeah, Joe, I'll just add that, if I could just add, the customer engagement has continued to accelerate. We're seeing increased evaluations and pilots, and early deployments.

Speaker #2: And our next question comes from the line of Joe Varrink with Baird. Your line is open.

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

Speaker #5: And we continue to expect monetization through both the To-Do workflow products as well as increased usage of underlying engines. But just to be clear, we're still not assuming a sudden step function in our guidance.

Speaker #6: Great. Thanks. Staying on this topic, I wanted to ask about open source models designing chips and maybe if I just take Timmy at face value, it seems like an agent sought out EDA tools and then orchestrated the flow when tasked with chip design.

Joe Vruwink: Great, thanks. Staying on this topic, I wanted to ask about open source models designing chips. Maybe if I just take Kimi at face value, it seems like an agent sought out EDA tools and then orchestrated the flow when tasked with chip design. I guess my question is the implication for Cadence from all of this. Two things come to mind. One, if customers now have agents capable of accessing your EDA tools, does that drive higher usage and more net consumption ultimately? Two, where do you think the differentiation lies with a customer buying the Cadence mental models for orchestration versus customers maybe deciding to build on their own?

Speaker #5: The opportunity is continuing to develop well, though.

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

Speaker #6: So I guess my question is the implication for cadence from all of this and two things come to mind. One, if customers now have agents capable of accessing your EDA tools, does that drive higher usage and more net consumption ultimately?

Speaker #6: Great, thanks. Staying on this topic, I wanted to ask about open source models designing chips, and maybe—if I just take Kimmy at face value—it seems like an agent sought out EDA tools and then orchestrated the flow when tasked with chip design.

Speaker #6: And then two, where do you think the differentiation lies with a customer buying the cadence mental models for orchestration versus customers maybe deciding to build on their own?

Speaker #6: So, I guess my question is the implication for Cadence from all of this, and two things come to mind. One, if customers now have agents capable of accessing your EDA tools, does that drive higher usage and more net consumption ultimately?

Speaker #4: Yeah. Thanks for the question. I mean, like I said before, I said this for years now, like four or five years that the real AI orchestration and monetization will happen through this three-layer cake.

Anirudh Devgan: Thanks for the question. I've said this for years now, like four or five years, that the real AI orchestration and monetization will happen through this three-layer cake. To remind everybody, the top layer is AI agents and orchestration. The middle layer is our traditional physically accurate tools, ground truth, and the bottom layer is compute and data. The recent news just confirms that framework. This will happen in all markets. The value of AI will go more and more vertical than horizontal, and I've said this for a long time. Even in chip design, the value is in the agentic framework and all the mental model, all the knowledge graph, then calling the physically accurate tools on a rich set of hardware.

Speaker #6: And then two, where do you think the differentiation lies with a customer buying the Cadence mental models for orchestration versus customers maybe deciding to build on their own?

Speaker #4: Just to remind everybody, the top layer is AI agents and orchestration. The middle layer is these our traditional physically accurate tools, ground truth. And bottom layer is compute and data.

Speaker #4: Yeah, thanks for the question. I mean, like I said before—I’ve said this for years now, like four or five years—that the real AI orchestration and monetization will happen through this three-layer cake.

Speaker #4: So the recent news is just confirms that framework. And by the way, this will happen in all markets. The value of AI will go more and more vertical than horizontal.

Speaker #4: Just to remind everybody, the top layer is AI agents and orchestration. The middle layer is our traditional, physically accurate tools—ground truth. And the bottom layer is compute and data.

Speaker #4: And I've said this for a long time. So even in chip design, the value is in the agentic framework and all the mental model, all the knowledge graph.

Speaker #4: Then calling the physically accurate tools on a rich set of hardware. And this latest news, in case of Kimi doing that, I mean, I think.

Speaker #4: So the recent news just confirms that framework. And by the way, this will happen in all markets. The value of AI will go more and more vertical than horizontal.

Anirudh Devgan: This latest news, in case of Kimi doing that, they said a chip, but I think it's a small block, which is about technology, which is like 20 years old on frequency that is 20, 30 times slower than current frequency. Even to design a small block at such an old node, they needed EDA tools to do that. This is going to happen again and again. There have been open source EDA tools for a while, I don't know, for decades, and they're used in some university or specialized settings. To really do real designs, people use Cadence to do that. The differentiation will be in all three. We want to differentiate in all three parts of the cake. Our knowledge graph and our mental model and how we do the reinforcement loops at the agents is really differentiated.

Speaker #4: The I mean, they said a chip, but I think it's a small block. Which is about technology which is like 20 years old on frequency that is 20, 30 times slower than current frequency.

Speaker #4: And I've said this for a long time. So, even in chip design, the value is in the agentic framework and all the mental models, all the knowledge graphs.

Speaker #4: Then calling the physically accurate tools on a rich set of hardware. And this latest news, in the case of Kimmy doing that—I mean, I think they said "a chip," but I think it's a small block.

Speaker #4: So even to design a small block at such an old node, they needed kind of EDA tools to do that. So this is going to happen again and again.

Speaker #4: And there is there have been open source EDA tools for a while. I don't know, for decades. And they're used in some university or specialized settings.

Speaker #4: This is about technology that is roughly 20 years old, on frequencies that are 20 to 30 times slower than current frequencies. So even to design a small block at such an old node, they needed EDA tools to do that.

Speaker #4: But to really do real designs, people use cadence to do that. Now, the differentiation will be in all three. We want to differentiate in all three parts of the cake.

Speaker #4: So this is going to happen again and again. And there have been open source EDA tools for a while—I don't know, for decades.

Speaker #4: So our knowledge graph and our mental model and how we do the reinforcement loops at the agents is really differentiated. How we call then the middle layer, through deep API access and the strength of our middle traditional tools is differentiated.

Speaker #4: And they're used in some university or specialized settings. But to really do real designs, people use Cadence to do that. Now, the differentiation will be in all three.

Anirudh Devgan: How we call then the middle layer, through deep API access and the strength of our middle traditional tools is differentiated. Even in the bottom layer, as you know, we have Palladium, we have Millennium, we have special hardware to do that. Our differentiation will be in all three, all three together, we are more differentiated than we have ever been. I'm very proud of our differentiation of the mode we have. The fact that these three layers will reinforce each other. Now, customers may always have their own agents, just like they have their own flows right now. To really do mission critical tasks, they increasingly depend on Cadence as you're seeing that in our engagements.

Speaker #4: And then even in the bottom layer, as you know, we have Palladium, we have Millennium, we have special hardware to do that. So our differentiation will be in all three.

Speaker #4: We want to differentiate in all three parts of the cake. So, our knowledge graph, our mental model, and how we do the reinforcement loops at the agents is really differentiated.

Speaker #4: And then all three together we are more differentiated than we have ever been. So I'm very proud of our differentiation of the mode we have.

Speaker #4: We call that the middle layer, and through deep API access and the strength of our traditional middle tools, we are differentiated. Even in the bottom layer, as you know, we have Palladium, we have Millennium, and we have special hardware to do that.

Speaker #4: And then the fact that these three layers with reinforce each other. Now, the customers may always have their own agents just like they have their own flows right now.

Speaker #4: So our differentiation will be in all three. And then, all three together, we are more differentiated than we have ever been. So, I'm very proud of our differentiation and the model we have.

Speaker #4: But to really do mission critical tasks, they increasingly depend on cadence as you're seeing that in our engagements.

Speaker #5: Yeah. And Joe, Andrew's always said that agentic AI actually increases demand because agents invoke EDA tools continuously while exploring more design alternatives. And Kimi was a really good example of that.

Speaker #4: And then the fact that these three layers will reinforce each other. Now, the customers may always have their own agents, just like they have their own flows right now.

John Wall: Yeah. Joe Andrews always says that agentic AI actually increases demand because agents invoke EDA tools continuously while exploring more design alternatives, and Kimi was a really good example of that.

Speaker #4: But to really do mission-critical tasks, they increasingly depend on Cadence, as you're seeing that in our engagements.

Speaker #2: And our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open.

Operator: Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open.

Speaker #6: Thanks for taking my question. I. The IP business has accelerated to over 40% growth. I'm curious, what's driving this? How much is organic versus inorganic?

Speaker #5: Yeah, and so Anirudh's always said that, like, agentic AI actually increases demand because agents invoke EDA tools continuously while exploring more design alternatives. And Kimmy was a really good example of that.

Vivek Arya: Thanks for taking my question. Anirudh, the IP business has accelerated to over 40% growth. I'm curious, what's driving this? How much is organic versus inorganic, and what is the sustainable growth rate for IP? If we zoom out, I just wanted to clarify with John what the contribution is now with Hexagon and the EPS dilution. Thank you.

Speaker #6: And what is kind of the sustainable growth rate for IP? And then if we zoom out, I just wanted to clarify with John what the contribution is now with Hexagon and the EPS dilution.

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

Speaker #6: Thank you.

Speaker #7: Thanks for taking my question. I know the IP business has accelerated to over 40% growth. I'm curious, what's driving this? How much is organic versus inorganic?

Speaker #4: Yeah. John, you want to start on that? Yeah.

Speaker #5: Yeah. Sure. Sure. Just in terms of Hexagon contribution, I mean, Hexagon is delivering as we originally expected. And it continues to contribute to SE&A growth.

Anirudh Devgan: Yeah. John, you want to start on that? Yeah.

John Wall: Yeah, sure. Just in terms of Hexagon contribution, Hexagon is delivering as we originally expected, and it continues to contribute to SDA growth, the strength in our SDA numbers is much broader. We're seeing momentum in 3D IC, in advanced packaging, in PCB, multi-physics, and Physical AI. The integration of Hexagon D&E is progressing well, and we see a significant opportunity to strengthen both the technology portfolio and go to market over time. Yeah. Also, I guess on the IP side, IP had an outstanding quarter driven by AI, HPC, advanced node activity, memory bandwidth, chiplets, and advanced packaging. There were strong customer engagements and meaningful wins. IP revenue can be timing dependent from quarter to quarter. We're pleased with the momentum, but I wouldn't annualize any one quarter. Our competitive position continues strengthening across interface IP, memory IP, and foundation IP.

Speaker #7: And what is kind of the sustainable growth rate for IP? And then if we zoom out, I just wanted to clarify with John what the contribution is now with Hexagon and the EPF dilution.

Speaker #5: But the strength in our SE&A numbers is much broader. We're seeing momentum in 3DIC in advanced packaging, in PCB. Multiphysics and physical AI. And the integration of Hexagon DAD is progressing well.

Speaker #7: Thank you.

Speaker #4: Yeah, John, you want to start on that? Yeah.

Speaker #5: And we see a significant opportunity to strengthen both the technology portfolio and go-to-market over time. But yeah, also, I guess on the IP side, IP had an outstanding quarter driven by AI, HPC, advanced node activity, memory bandwidth, chiplets, and advanced packaging.

Speaker #5: Yeah, sure, sure. Just in terms of Hexagon contribution, I mean, Hexagon is delivering as we originally expected, and it continues to contribute to FDA growth.

Speaker #5: But the strength in our FDA numbers is much broader. We're seeing momentum in 3DIC, advanced packaging, and PCB, as well as in multiphysics and physical AI. The integration of Hexagon DAD is progressing well.

Speaker #5: There were strong customer engagements and meaningful wins. But IP revenue could be timing dependent from quarter to quarter. We're pleased with the momentum, but I would annualize any one quarter.

Speaker #5: And we see a significant opportunity to strengthen both the technology portfolio and go-to-market over time. Yeah, also, I guess on the IP side, IP had an outstanding quarter driven by AI, HPC, advanced node activity, memory bandwidth, chiplets, and advanced packaging.

Speaker #5: Our competitive position continues strengthening across interface IP, memory IP, and foundation IP. And Intel, as Andrew called out, it represents another example of customers choosing broader, strategic engagement with us.

John Wall: Intel, as Andrew called out, it represents another example of customers choosing broader strategic engagement with us. Andrew, would you like to add?

Speaker #5: So Andrew, would you like to add?

Speaker #5: There were strong customer engagements and meaningful wins. But IP revenue can be timing-dependent from quarter to quarter. We're pleased with the momentum, but I wouldn't annualize any one quarter.

Speaker #4: Yeah. Absolutely. Yeah. Thanks. So Vivek, I'm very pleased with the IP performance and SDA performance. I mean, before I get into specific IP, the good thing is I mean, these things are growing.

Anirudh Devgan: Yeah, absolutely. Yeah, thanks, John. Vivek, yeah, very pleased with the IP performance and SDA performance. Before I get into specific IP, the good thing is these things are growing. Of course, IP is growing very well. SDA is growing very well. Also, they have enough scale now. EDA, we are always, I believe, the leading EDA provider, with analog, digital, verification, packaging, 3D IC. Roughly speaking, both IP and SDA are approaching a billion-dollar run rate. Okay. At this point, gives a lot of strength in our portfolio to engage with our customers. Now, IP particularly, I've mentioned this before, I think there are three big mega trends. One is, of course, our IP is much better than before. The quality of our IP, the PPA, power, performance in the area for TSMC and the leading nodes is better.

Speaker #5: Our competitive position continues strengthening across interface IP, memory IP, and foundation IP. And Intel, as Andrew called out, represents another example of customers choosing broader strategic engagement with us.

Speaker #4: Of course, IP is growing very well. SDN is growing very well. But also, they have enough scale now. So EDA, we're always I believe the leading EDA provider, with analog, digital, verification, packaging, 3DIC.

Speaker #5: So, Andrew, would you like to add?

Speaker #4: Yeah, absolutely. Yeah, thanks. So, Vivek, I'm very pleased with the IP performance and SDA performance. I mean, before I get into specific IP, the good thing is, I mean, these things are growing.

Speaker #4: But both our roughly speaking, both IP and SDNA are approaching like a billion dollar run rate. Okay. So at this point, gives a lot of strength in our portfolio to engage with our customers.

Speaker #4: Of course, IP is growing very well. SDN is growing very well. But also, they have enough scale now. So, EDA—we're always, I believe, the leading EDA provider with analog, digital, and verification.

Speaker #4: Now, IP particularly, and I mentioned this before, as you know, I think there are three big mega trends. One is, of course, our IP is much better.

Speaker #4: Packaging, 3DIC. But both are, roughly speaking, both IP and SDNA are approaching a $1 billion run rate. Okay, so at this point, it gives a lot of strength in our portfolio to engage with our customers.

Speaker #4: Than before. The quality of our IP, the PPA, power performance in area. For like TSMC and the leading nodes is better. So we are getting a lot of competitive wins in IP that two years ago we would not participate in.

Speaker #4: Now, IP particularly—and I've mentioned this before, as you know—I think there are three big megatrends. One is, of course, our IP is much better.

Anirudh Devgan: We are getting a lot of competitive wins in IP that two years ago we would not participate in. That's one thing. Second reason is our IP strategy is more focused. Has always been focused and will continue to be focused to leading nodes, to Star IP, to AI and HPC segments. I've talked about these five key IPs, which interface IP, memory IP, and then we have expanded to foundation and other, but this especially chip-to-chip IP, memory IP, interface IPs are super critical, and they are growing well. Okay. The third thing is there are more and more foundries. We talked about Intel. I'm very proud of this new partnership with Intel, and it's, of course, much broader than IP, but IP is a part of it. Our engagement with Samsung, we mentioned last quarter, and Rapidus.

Speaker #4: So that's one thing. Second reason is our IP strategy is more focused. It has always been focused. And will continue to be focused. To leading nodes, to star IP, to AI and HPC segments.

Speaker #4: ...than before. The quality of our IP—the PPA: power, performance, and area—for TSMC and the leading nodes is better. So we are getting a lot of competitive wins in IP that, two years ago, we would not have participated in.

Speaker #4: So I've talked about this five key IPs. Which interface IP, memory IP. And then we have expanded to foundation and other. But this especially chip to chip IP, memory.

Speaker #4: So, that's one thing. The second reason is our IP strategy is more focused. It has always been focused and will continue to be focused on leading nodes, on star IP, and on AI and HPC segments.

Speaker #4: Interface IPs are super critical. And they are growing well. Okay. And then the third thing is there are more and more foundries. We talked about Intel.

Speaker #4: So I've talked about these five key IPs—interface IP, memory IP. And then we have expanded to foundation and other. But especially, chip-to-chip IP, memory IP, and interface IPs are super critical.

Speaker #4: I'm very proud of this new partnership with Intel and is, of course, much broader than IP. But IP is a part of it. And then our engagement with Samsung, we mentioned last quarter, and Rapidus.

Speaker #4: So the foundry ecosystem is much more diverse. Than before. So I think these three reasons our IP business is doing phenomenal. And also, most of it is just to clarify, is organic growth.

Speaker #4: And they are growing well. Okay. And then the third thing is, there are more and more foundries. We talked about Intel—I'm very proud of this new partnership with Intel, and it is of course much broader than just IP.

Anirudh Devgan: The foundry ecosystem is much more diverse than before. I think these three reasons our IP business is doing phenomenal, and also most of it is, just to clarify, is organic growth. This great growth we posted, most of it is organic growth. Now, how does it proceed in the future? We'll see, but all the signs are positive at this time.

Speaker #4: I mean, this great growth we posted most of it is organic growth. Now, how does it proceed in the future? We'll see. But all the signs are positive at this time.

Speaker #4: But IP is a part of it. And then our engagement with Samsung, which we mentioned last quarter, and Rapidus. So the foundry ecosystem is much more diverse.

Speaker #2: And our next question comes from the line of CP Panagrahi with Mizuho. Your line is open.

Speaker #4: Than before. So, I think these three reasons are why our IP business is doing phenomenal. And also, most of it, just to clarify, is organic growth.

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

Speaker #6: Thanks for taking my question. Apology for the background noise. I'm at DAC conference. And I can tell you the key theme here is the agentic AI.

Speaker #4: I mean, this great growth we posted—most of it is organic growth. Now, how does it proceed in the future? We'll see. But all the signs are positive at this time.

Siti Panigrahi: Thanks for taking my question. Apologies for the background noise. Anirudh, I'm at DAC conference, and I can tell you the key theme here is agentic AI, which kind of validate what you said. My key question is, you talked about some of this agent, super agent ChipStack, VeraStack, that your customer's been using. Wondering, what kind of feedback you are getting and the cost saving and the value that you bring to the customer. I know, John, earlier you talked about monetization, which might take contract renewal or cycle time. As you see the usage, are you seeing any kind of accelerating adoption where the timeline can be compressed?

Speaker #6: Which kind of validate what you said. So my key question is, you talked about some of this agent super agent chips that your customers have been using.

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

Speaker #6: So wondering what kind of feedback you are getting in the cost saving and the value that you bring to the customer. And then I know John earlier you talked about monetization, which might take contract renewal or cycle time.

Speaker #7: Thanks for taking my question. Apologies for the background noise—I'm at the DAC conference. I can tell you the key theme here is agentic AI.

Speaker #7: Which kind of validates what you said. So my key question is, you talked about some of these agent or super agent chips that your customers have been using.

Speaker #6: But as you see the usage, are you seeing any kind of accelerating adoption where the timeline can become pressed?

Speaker #7: So, I'm wondering what kind of feedback you are getting on the cost savings and the value that you bring to the customer. And then I know, John, earlier you talked about monetization, which might take contract renewal or cycle time.

Speaker #4: Yeah. I see the demand is great, like I mentioned. For these agents. And we have I mean, the exciting thing is that the use cases are I mean, we have publicly talked about so many of them.

Anirudh Devgan: Yeah. I see, the demand is great, like I mentioned, for these agents. The exciting thing is that the use cases are, we have publicly talked about so many of them and 2X to 10X to, in some cases, 40X improvement. This is only the ones that we can publicly talk about. This is a very small subset of our engagement. The amount of use cases and the benefit is real, okay? The interest is definitely real in terms of number of engagements and how many customers want to engage with us. Our strength of our portfolio with the three-layer cake is very well differentiated. So I'm very pleased. We are maybe six months into our launch of these products. We launched them in Q1, but we're working, I would say, roughly six months with our customers. We'll see how it progresses.

Speaker #4: And like 2X to 10X to in some cases 40X improvements. And this is only the ones that we can publicly talk about. This is a very small subset of our engagement.

Speaker #7: But as you see the usage, are you seeing any kind of accelerating adoption where the timeline can be compressed?

Speaker #4: Yeah, I see the demand is great, like I mentioned, for these agents. And we have—I mean, the exciting thing is that the use cases are—I mean, we have publicly talked about so many of them.

Speaker #4: So the amount of use cases and the benefit is real. Okay. And the interest is definitely real in terms of number of engagements and how many customers want to engage with us.

Speaker #4: And, like, 2x to 10x to, in some cases, 40x improvements. And these are only the ones that we can publicly talk about. This is a very small subset of our engagements.

Speaker #4: And our strength of our portfolio with the three-layer cake is very well differentiated. So I'm very pleased. I mean, this is like we are maybe six months into our launch of these products.

Speaker #4: So the amount of use cases and the benefit is real. Okay. And the interest is definitely real in terms of the number of engagements and how many customers want to engage with us.

Speaker #4: We launched them in Q1, but we're working, I would say, roughly six months with our customers. And we'll see how it progresses. But like I said, the early add-on business is encouraging.

Speaker #4: But we have to still in the early days. So we'll see how it goes. But so far, the demand is tremendous. Yeah.

Anirudh Devgan: Like I said, the early add-on business is encouraging, but we have to still in the early days, so we'll see how it goes. So far, the demand is tremendous. Yeah.

Speaker #5: Yeah. CD, I think we view this as a demand accelerator. The customers are not trying to do any less design work. They're trying to keep up with design complexity, which is accelerating faster than engineering headcount can scale.

Speaker #4: We launched them in Q1, but we're working, I would say, roughly six months with our customers. And we'll see how it progresses. But, like I said, the early add-on business is encouraging.

John Wall: Yeah, Siddhi, I think we view this as a demand accelerator. The customers are not trying to do any less design work. They're trying to keep up with design complexity, which is accelerating faster than engineering headcount can scale. We've always said that. Agents expand the design exploration space and call the underlying Cadence engines more often. That creates opportunities for new agentic workflow products and increased use of our core tools.

Speaker #5: We've always said that. And agents expand the design expiration space and call the underlying case engines more often. That creates opportunities for new agentic workflow products.

Speaker #4: But we are still in the early days, so we'll see how it goes. But so far, the demand is tremendous. Yeah.

Speaker #5: Yeah, CD, I think we view this as a demand accelerator. The customers are not trying to do any less design work. They're trying to keep up with design complexity, which is accelerating faster than engineering headcount can scale.

Speaker #5: And increased use of our core tools.

Speaker #2: 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 James Schneider with Goldman Sachs. Your line is open.

Speaker #7: Good evening. Thanks for taking my question. Continuing on the agentic AI theme, could you maybe talk a little bit about some of the add-on engagements you're seeing for those tools?

Speaker #5: We've always said that, and agents expand the design exploration space and call the underlying Cadence engines more often. That creates opportunities for new agentic workflow products.

James Schneider: Good evening. Thanks for taking my question. Continuing on the agentic AI theme, could you maybe talk a little bit about some of the add-on engagements you're seeing for those tools and to what extent you're seeing them across more than the sort of 20 to 25 customers you've already noted? Maybe if you could quantify the impact of those add-ons in terms of either the guidance raise or what it could mean for core EDA software revenue in the next year, that would be great. Thank you.

Jim Schneider: Good evening. Thanks for taking my question. Continuing on the agentic AI theme, could you maybe talk a little bit about some of the add-on engagements you're seeing for those tools and to what extent you're seeing them across more than the sort of 20 to 25 customers you've already noted? Maybe if you could quantify the impact of those add-ons in terms of either the guidance raise or what it could mean for core EDA software revenue in the next year, that would be great. Thank you.

Speaker #7: And to what extent you're seeing them across more than the sort of 20 to 25 customers you've already noted? And maybe if you could quantify the impact of those add-ons in terms of either the guidance arrays or what it could mean for core EDA software revenue in the next year, that would be great.

Speaker #5: And increased use of our core tools.

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

Speaker #6: Good evening. Thanks for taking my question. Continuing on the agentic AI theme, could you maybe talk a little bit about some of the add-on engagements you're seeing for those tools?

Speaker #6: And to what extent you're seeing them across more than the sort of 20 to 25 customers you've already noted? And maybe, if you could quantify the impact of those add-ons in terms of either the guidance ranges or what it could mean for core EDA software revenue in the next year, that would be great.

Speaker #7: Thank you.

Speaker #4: Yeah. I think like you know us, right, we are very careful about projecting future next year numbers. But I think to step back, to step back a little bit, I think the three things that I'm super excited about is one is that overall environment is much better.

Anirudh Devgan: Yeah, I think, like you know us, right, we are very careful about projecting future next year numbers. I think to step back a little bit, I think the three things that I'm super excited about is, one is that overall environment is much better. This also helps us a lot. Not just the AI companies, the hyperscalers, the commitment to silicon is much higher than 12 months ago, and you can see that, you're following all the hyperscalers. The amount of designs and the number of designs each hyperscaler is doing is impressive. The AI semi companies are growing immensely. The analog and memory and the consumer semi companies are also doing well now. Overall environment is much better than 1 year ago, which of course helps us, right? That's number 1.

Speaker #6: Thank you.

Speaker #4: I mean, this also helps us a lot. I mean, not just the AI companies the hyperscalers are I mean, the commitment to silicon is much higher than like 12 months ago.

Speaker #4: Yeah, I think, like you know us, right, we are very careful about projecting future, next year numbers. But I think, to step back a little bit, I think the three things that I'm super excited about are: one is that the overall environment is much better.

Speaker #4: And you can see that you're following all the hyperscalers. So the amount of designs and the number of designs each hyperscaler is doing is impressive.

Speaker #4: And then the AI semi-companies are growing immensely. And then like the analog and memory and the consumer semi-companies are also doing well now. So overall environment is much better than one year ago, which of course helps us, right?

Speaker #4: I mean, this also helps us a lot. I mean, not just the AI companies—the hyperscalers are, I mean, the commitment to silicon is much higher than, like, 12 months ago.

Speaker #4: And you can see that you're following all the hyperscalers, so the amount of designs and the number of designs each hyperscaler is doing is impressive.

Speaker #4: So that's number one. Number two, I think I just want to emphasize our competitive position. I feel has never been better. So we are taking a lot of share in different customers.

Speaker #4: And then the AI semi companies are growing immensely, and the analog and memory and consumer semi companies are also doing well now.

Anirudh Devgan: Number 2, I think I just want to emphasize our comparative position, I feel, has never been better. We are taking a lot of share in different customers, getting to much, much deeper engagement, whether it's agentic AI or hardware or IP, and you can see that in the numbers. Okay. The third part is this new TAM expansion opportunity, which is agentic, which we are clearly super excited about. We're still in the early stages. If you combine those three things, I think that is what is leading to such good results and such good guidance. Just to remind you, this is the highest we have raised annual revenue in a single quarter. Okay. To about 19% revenue growth with improved profitability.

Speaker #4: Getting to much, much deeper engagement. Whether it's agentic AI or hardware or IP. And you can see that in the numbers. And then the third part is this new TAM expansion opportunity which.

Speaker #4: So overall, the environment is much better than one year ago, which of course helps us, right? So that's number one. Number two, I think I just want to emphasize our competitive position.

Speaker #4: Agentic. Which we are clearly super excited about. We're still in the early stages. So if you combine those three things, I think that is what is leading to such good results.

Speaker #4: I feel has never been better. So we are taking a lot of share in different customers, getting to much, much deeper engagement, whether it's agentic AI, or hardware, or IP.

Speaker #4: And such good guidance. Just to remind you, this is the highest we have raised annual revenue in a single quarter. Okay. And to about 19% revenue growth with improved profitability.

Speaker #4: And you can see that in the numbers. Then, the third part is this new TAM expansion opportunity, which is agentic, and which we are clearly super excited about.

Speaker #4: So I think I would like to say that some of the benefit is already there of the agentic. And other next year and year after.

Speaker #4: We're still in the early stages. So, if you combine those three things, I think that is what is leading to such good results—and such good guidance.

Anirudh Devgan: I think I would like to say that some of the benefit is already there of this agentic and other next year and year after. You know us, we are prudent as ever, and we'll see how things progress.

Speaker #4: I mean, you know us. We are prudent as ever. And we'll see how things progress.

Speaker #4: Just to remind you, this is the highest we have raised annual revenue in a single quarter, okay? And about 19% revenue growth with improved profitability.

Speaker #5: Yeah. Jay, I think just I don't want to get a lot of questions about agentic AI. But I think it's important to highlight that the raise that we just did for Q2, for the rest of the year, reflects broad-based strengths across the business rather than any single customer or product.

John Wall: Yeah. Jim, I think, I know we get a lot of questions about agentic AI, but I think it's important to highlight that the raise that we just did for Q2 for the rest of the year reflects broad-based strength across the business rather than any single customer or product. We saw strong Q2 execution across core EDA, IP, hardware, and SDA. That, of course, is all benefiting from continued strength in AI-driven demand as well. The strength is broad-based across all businesses and across all regions.

Speaker #4: So I think I would like to say that some of the benefit is already there from the agentic. And other benefits will come next year and the year after.

Speaker #5: We saw strong Q2 execution across core EDA, IP, hardware, and STNA. Now that, of course, is all benefiting from continued strength and AI-driven demand as well.

Speaker #4: I mean, you know, as we are prudent as ever, we'll see how things progress.

Speaker #5: Yeah, I think just— I don't want to get a lot of questions about agentic AI. But I think it's important to highlight that the raise that we just did for Q2 for the rest of the year reflects broad-based strength across the business rather than any single customer or product.

Speaker #5: But the strength is broad-based across. All businesses and across all regions.

Speaker #2: And our next question comes from the line of Harlan Sir 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 #6: Good afternoon. Thanks for taking my question. Anirudh, as the volume of AI inferencing compute workload surpassed training workloads in the second half of last year.

Speaker #5: We saw strong Q2 execution across core EDA, IP, hardware, and STNA. That, of course, is all benefiting from continued strength in AI-driven demand as well.

Harlan Sur: Good afternoon. Thanks for taking my question. Anirudh, as the volume of AI inferencing compute workloads surpassed training workloads in H2 of last year, we know that inferencing is much more memory-intensive, right? We've seen this diversification of different types of memory architectures emerging to address inferencing. In addition to HBM DRAM, we've seen development of SRAM-based offload architectures. We've seen CXL-based conventional DRAM offload, and even using enterprise SSD or flash-based memory, right? Given all of the focus on these memory architectures and memory controller architectures, is this translating into some tailwinds for your custom Virtuoso family of EDA tool solutions, or tailwinds for your CXL-based or memory compiler IP portfolios, or both?

Speaker #5: But the strength is broad-based across all businesses and across all regions.

Speaker #6: And we know that inferencing is much more memory-intensive, right? So we've seen this diversification of different types of memory architectures emerging to address inferencing.

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

Speaker #6: In addition to HBM DRAM, we've seen development of SRAM-based offload architectures. We've seen CXL-based conventional DRAM offload. And even using enterprise SSD or flash-based memory, right?

Speaker #7: Good afternoon. Thanks for taking my question. Anirudh, as the volume of AI inferencing compute workload surpassed training workloads in the second half of last year—

Speaker #6: So given all of the focus on these memory architectures and memory controller architectures, is this translating into some tailwinds for your custom virtual OSO family of EDA tool solutions or tailwinds for your CXL-based or memory compiler IP portfolios or both?

Speaker #7: And we know that inferencing is much more memory-intensive, right? So we've seen this diversification of different types of memory architectures emerging to address inferencing.

Speaker #7: In addition to HBM DRAM, we've seen development of SRAM-based offload architectures. We've seen CXL-based conventional DRAM offload, and even using enterprise SSD or flash-based memory, right?

Speaker #4: Yes, Harlan. That's a great point. So yeah, like John mentioned, the strength is broad-based. And definitely the analog group, which is part of EDA, is also being very strong momentum.

Speaker #7: So, given all of the focus on these memory architectures and memory controller architectures, is this translating into some tailwinds for your custom Virtuoso family of EDA tool solutions, or tailwinds for your CXL-based or memory compiler IP portfolios, or both?

Anirudh Devgan: Yes, Harlan, that's a great point. Yeah, like John mentioned, the strength is broad-based, and definitely the analog group, which is part of EDA, is also seeing very strong momentum. Because all of these, whether it's memory or analog, is all done in Virtuoso, is the leading platform for analog and mixed signal and custom design in the industry. I'm very pleased to see overall environment plus this special, this all this innovation that is driven by inferencing, helping both, all our businesses, analog, digital, and verification. What is exciting to me in this, you know this anyway, but with this inferencing is that there is much more varied architectures you mentioned, and also much more varied customers.

Speaker #4: Because all of these as memory or analog is all done in virtual. So is the leading platform for analog and mixed signal and custom design in the industry.

Speaker #4: Yes, Harlan, that's a great point. So, yeah, like John mentioned, the strength is broad-based. And definitely, the analog group, which is part of EDA, is also seeing very strong momentum.

Speaker #4: So I'm very pleased to see overall environment plus this special all this innovation that is driven by inferencing helping both all our businesses. Analog, digital, and verification.

Speaker #4: Because all of these, as memory or analog, is all done in virtual. So it is the leading platform for analog and mixed signal and custom design in the industry.

Speaker #4: But what is exciting to me in this I mean. Anyway, with this inferencing is that there is much more varied architectures. You mentioned. And also much more varied customers.

Speaker #4: So, I'm very pleased to see the overall environment, plus this special—all this innovation that is driven by inferencing—helping both all our businesses: analog, digital, and verification.

Speaker #4: So all the big customers believe at this point that of course they will use standard products from semiconductor companies, from the really big semiconductor companies like NVIDIA who are doing great.

Anirudh Devgan: All the big customers believe at this point that, of course, they will use standard products from semiconductor companies, from the really big semiconductor companies like NVIDIA, who are doing great, but also believe that they will have their own custom silicon. On top of that, different versions of that custom silicon for memory access and also networking, right? There's a lot of activity in networking as well. I would say over the last 6 months, I see a lot more activity in startups. Startups were kind of dormant, but in the last 6 months, there are some very high-profile startups that are starting, not just in AI, but in networking and even CPU, right? I think the overall environment is good, and it is affecting all our businesses. Analog, for sure, verification with hardware, IP business, digital implementation.

Speaker #4: But also believe that they will have their own custom silicon and then on top of that, different versions of that custom silicon for memory access.

Speaker #4: But what is exciting to me in this—I mean, you know this anyway with this inferencing—is that there are much more varied architectures, as you mentioned.

Speaker #4: And also much more varied customers. So, all the big customers believe at this point that, of course, they will use standard products from semiconductor companies, from the really big semiconductor companies like Nvidia, who are doing great.

Speaker #4: And also networking, right? There's a lot of activity in networking as well. And then I would say like over the last six months, I see a lot more activity in startups.

Speaker #4: Startups were kind of dormant. But in the last six months, there are like some very high-profile startups that are starting not just in AI, but in networking and even CPU, right?

Speaker #4: But I also believe that they will have their own custom silicon, and then, on top of that, different versions of that custom silicon for memory access.

Speaker #4: So I think the overall environment is good. And it is affecting all our businesses. Analog for sure, verification with hardware, IP business, digital implementation.

Speaker #4: And also networking, right? There’s a lot of activity in networking as well. And then I would say, over the last six months, I see a lot more activity in startups.

Speaker #4: 3D IC is a big thing where we have leadership. So that's what leading to this broad-based trend. But the conviction of the hyperscalers to do their own silicon and try like you pointed out, different architectures and that's bound to happen.

Speaker #4: Startups were kind of dormant, but in the last six months, there have been some very high-profile startups emerging, not just in AI, but also in networking and even CPU, right?

Anirudh Devgan: 3D IC is a big thing where we have leadership. That's what leading to this broad-based trend. The conviction of the hyperscalers to do their own silicon and try, like you pointed out, different architectures, and that's bound to happen. If there's one bottleneck, the customers come up with different memory architectures to solve that bottleneck or different networking architecture. I expect this to continue. As the market gets bigger, you know that. As the AI infrastructure market gets bigger, there will be more and more innovation to optimize each part of that market. All that innovation will require Cadence products to make that happen.

Speaker #4: So I think the overall environment is good, and it is affecting all our businesses—analog for sure. Verification with hardware, IP business, digital implementation—3D IC is a big thing where we have leadership.

Speaker #4: I mean, if there is one bottleneck, the customers come up with different memory architectures to solve that bottleneck. Or different networking architecture. So I expect this to continue.

Speaker #4: I mean, this is as the market gets bigger, you know that. As the AI infrastructure market gets bigger, there will be more and more innovation to optimize each part of that market.

Speaker #4: So that's what's leading to this broad-based trend. But the conviction of the hyperscalers to do their own silicon and try, like you pointed out, different architectures—that's bound to happen.

Speaker #4: And all that innovation will require cadence products to make that happen.

Speaker #4: I mean, if there is one bottleneck, the customers come up with different memory architectures to solve that bottleneck, or different networking architectures. So I expect this to continue.

Speaker #2: And the next question comes from the line of Charles Xie with Medium and Company. Your line is open.

Operator: Next question comes from the line of Charles Shi with Needham & Company. Your line is open.

Speaker #7: Hi. Good afternoon. Hi. Anirudh. I can ask about AI for 100 ways. But I think the most important question top of many people's mind right now or I should say the scenario, a very extreme scenario that people fear about the most.

Speaker #4: I mean, as the market gets bigger—you know that—as the AI infrastructure market gets bigger, there will be more and more innovation to optimize each part of that market.

Charles Shi: Hi, good afternoon. Hi, Anirudh. I can ask about AI for 100 ways, I think the most important question top of many people's minds right now, or I should say the scenario, a very extreme scenario that people fear about the most, is where you actually prompt, I don't know when we could get that, a prompt on a very, very powerful LLM in the future with your chip design requirements, then that LLM can autonomously generate GDS II codes that, I guess, send to foundry directly for tape-out without running them through any of the commercial EDA tools. This is one of the scenarios some people were envisioning. We strongly disagree, do you think this end-to-end, so-called end-to-end LLM-based chip design is a real possibility after all, at all? Or since you mentioned that three-layer cake. Thanks.

Speaker #4: And all that innovation will require Cadence products to make that happen.

Speaker #1: And the next question comes from the line of Charles Xie with Needham & Company. Your line is open.

Speaker #7: Is where you actually prompt I don't know when we could get that. But a prompt on a very, very powerful LLM in the future with your chip design requirement, then that LLM can autonomously generate GDS2 codes that get sent to foundry directly for PayPal.

Speaker #6: Hi, good afternoon. Hi. Anirudh, I can ask about AI in 100 ways. But I think the most important question on many people's minds right now—or I should say, the scenario, a very extreme scenario—that people fear about the most.

Speaker #7: Without running them through any of the commercial EDA tools. So this is one of the scenarios some people were envisioning. We strongly disagree. But do you think this end-to-end so-called end-to-end LLM-based chip design is a real possibility after all?

Speaker #6: It's where you actually prompt—I don't know when we could get that—but you prompt a very, very powerful LLM in the future with your chip design requirements, and then that LLM can autonomously generate GDS2 code that gets sent to the foundry directly for tape-out.

Speaker #7: At all? Or since you mentioned a three-layer case? Thanks.

Speaker #4: Yeah, Charles. I mean, like I said before I mean, before I said this for years. The way this improvement will happen and of course the there will be a lot of improvements with AI.

Speaker #6: Without running them through any of the commercial EDA tools. So this is one of the scenarios some people were envisioning. We strongly disagree. But do you think this so-called end-to-end, LLM-based chip design is a real possibility after all?

Anirudh Devgan: Yeah, Charles, like I said before, I've said this for years. The way this improvement will happen, and of course there will be a lot of improvements with AI, will be through this three-layer cake. We will have agents like we have super agents. Our tools are central, will continue to be central to that, and of course, we will run on varied set of hardware. I don't see that changing. Of course, some people may get worried about it from time to time, but the ground truth will prevail. Okay? This three-layer framework will prevail. If you talk about commoditization, I think what is likely to happen is not the EDA tools get commoditized. What is likely to happen is at the agentic layer, there will be a lot of choices for LLMs.

Speaker #4: Will be through this three-layer cake. So we will have agents like we have super agents. Our tools are central. We'll continue to be central to that.

Speaker #6: At all, or since you mentioned a three-layer case? Thanks.

Speaker #4: And of course we'll run on varied set of hardware. I don't see that changing. Of course some people may get worried about it from time to time.

Speaker #4: Yeah, Charles. I mean, like I said before—I mean, I’ve said this for years—the way this improvement will happen, and of course, there will be a lot of improvement with AI.

Speaker #4: But the ground truth will prevail. Okay. This three-layer framework will prevail. And what if you talk about commoditization? I mean, I think what is likely to happen is not the EDA tools get commoditized.

Speaker #4: We'll be through this three-layer cake. So we'll have agents, like we have super agents. Our tools are central—we'll continue to be central to that.

Speaker #4: And, of course, we'll run on a varied set of hardware. I don't see that changing. Of course, some people may get worried about it from time to time.

Speaker #4: What is likely to happen is at the agentic layer, there will be a lot of choices for LLMs. So if you look at what is really happening right now in the marketplace, is that the customers are demanding choice in their LLMs.

Speaker #4: But the ground truth will prevail. Okay, this three-layer framework will prevail. And when you talk about commoditization, I think what is likely to happen is not that the EDA tools get commoditized.

Anirudh Devgan: If you look at what is really happening right now in the marketplace, is that the customers are demanding choice in their LLMs. Which is Kimi is example of that, and GLM-5.2 and Nemotron, of course, great release by NVIDIA, and then all the commercial models. What the customers are asking me is, can the agent be more intelligent in choosing the right model for the right task, given the rapid progress in the LLM? I think that's most likely to happen. The three-layer framework criticality of our tools will be here to stay. Yeah.

Speaker #4: And so which is give me the example of that. And GLM 5.2 and Nematron, of course, great release by NVIDIA. And all the. A commodity models.

Speaker #4: What is likely to happen is, at the agentic layer, there will be a lot of choices for LLMs. If you look at what is really happening right now in the marketplace, customers are demanding choice in their LLMs.

Speaker #4: So what the customers are asking me is like, can the agent be more intelligent in choosing the right model for the right task? Given the rapid progress in the LLMs.

Speaker #4: I think that's most likely to happen. But the three-layer framework criticality of our tools will be here to stay.

Speaker #4: And so—give me the example of that. And GLM 5.2 and Nemotron, of course, were recently released by Nvidia, and then all the commercial models.

Speaker #2: And our next question comes from the line of Lee Simpson with Morgan Stanley. Your line is open.

Speaker #4: What the customers are asking me is, can the agent be more intelligent in choosing the right model for the right task?

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

Speaker #6: Great. Thanks for squeezing me in. I mean, I think most of my questions have been asked. But maybe I'll ask a generic sort of competitive one.

Speaker #4: Given the rapid progress in LLMs, I think that's most likely to happen. But the three-layer framework and the criticality of our tools will be here to stay.

Lee Simpson: Great. Thanks for squeezing me in. I think most of my questions have been asked, but maybe I will ask a generic sort of competitive one. It does look as though Cadence has expanded DTCO collaborations now with Intel building out its Samsung roadmap, and you've also deepened relationships with TSMC. Your positioning in stacked die and multi-chip designs is pretty much equal or better relative to peers, you would say now. Its exposure to digital design and IP interface maybe differs from Synopsys. I guess the question here is really, where are you seeing the most competitive pressure from some of your peers in contested accounts? In the context of some of the other agentic AI push at your rivals, are you winning or losing share in that digital implementation and verification at the leading edge? Thanks.

Speaker #6: It does look as though cadence has expanded. DTCO collaboration is now with Intel. Building out its Samsung roadmap. And you've also deepened relationships with TSMC.

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

Speaker #6: So your positioning in stack die and multi-chip designs is pretty much equal or better relative to peers you'd say now. So it's exposure to digital design and IP interface.

Speaker #7: Great, thanks for squeezing me in. I think most of my questions have already been asked, but maybe I'll ask a generic sort of competitive one.

Speaker #6: Maybe differs from Synopsys. So I guess the question here is really, where are you seeing the most competitive pressure from some of your peers in contested accounts?

Speaker #7: It does look as though Cadence has expanded DTCO collaborations, now with Intel, building out its Samsung roadmap. And you've also deepened relationships with TSMC.

Speaker #6: And is there in the context of some of the other agentic AI push at your rivals? Are you winning or losing share in that digital implementation and verification at the leading edge?

Speaker #7: So your positioning in stacked die and multi-chip designs is pretty much equal to or better than your peers, you'd say, now. So it's exposure to digital design and IP interface maybe differs from Synopsys.

Speaker #6: Thanks.

Speaker #7: So I guess the question here is really, where are you seeing the most competitive pressure from some of your peers in contested accounts? And in the context of some of the other agentic AI push at your rivals, are you winning or losing share in that digital implementation and verification at the leading edge?

Speaker #4: Yeah. Thanks for the question, Lee. So first thing, I just want to say that I'm very proud of this new Intel collaboration. Because Intel is a company we tried to work closer for a very long time.

Anirudh Devgan: Yeah. Thanks for the question, Lee. First thing, I just want to say that I'm very proud of this new Intel collaboration, because Intel is a company we tried to work closer for a very long time. This is not a 1 or 2-year-old problem. This is like a 10 or 20-year-old problem. Okay? Finally, we have a great collaboration with Intel, with Lip-Bu and his new team. I think we are working on it for a while now, but it's good to announce it in Q2. It's a pretty broad-based collaboration, of course, starting with what we had announced a month or 2 ago, 14A and DTCO, our agentic EDA solutions, our IP portfolio, which is much stronger. I think it goes beyond that. You'll see that we are engaging Intel in all parts of Intel with all parts of our product portfolio.

Speaker #4: I mean, this is not a one or two-year-old problem. This is like a 10 or 20-year-old problem. Okay. So but finally, we have a great collaboration with Intel.

Speaker #7: Thanks.

Speaker #4: Yeah, thanks for the question, Lee. So, first thing, I just want to say that I'm very proud of this new Intel collaboration, because Intel is a company we've tried to work closer with for a very long time.

Speaker #4: With Libu and his new team. And I think we are working on it for a while now. But it's good to announce it in Q2.

Speaker #4: And it's a pretty broad-based collaboration. Of course, starting with what we had announced a month or two ago, 14A and DTCO, our agentic EDA solutions, our IP portfolio, which is much stronger.

Speaker #4: I mean, this is not a one- or two-year-old problem. This is like a ten- or twenty-year-old problem. Okay, but finally, we have a great collaboration with Intel.

Speaker #4: With Libu and his new team, I think we have been working on it for a while now. But it's good to announce it in Q2.

Speaker #4: But I think it goes beyond that. And you'll see that we are engaging Intel in all parts of Intel with all parts of our product portfolio.

Speaker #4: So I'm really pleased to see our position improving at Intel and our collaboration being just like it is at all the other leading companies.

Speaker #4: And it's a pretty broad-based collaboration. Of course, starting with what we had announced a month or two ago—14A and DTCO, our agentic EDA solutions, our IP portfolio, which is much stronger—but I think it goes beyond that.

Anirudh Devgan: I'm really pleased to see our position improving at Intel and our collaboration being just like it is in all the other leading companies. Same thing happened with Samsung over the last 6 to 12 months. In terms of what we were weak at before, a few years ago was we were doing great with the TSMC ecosystem. We have a great partnership with TSMC. I've said for a while we were weak at Intel and Samsung, and that definitely has changed. There's still more to go, but at least the trajectory has definitely changed in my opinion. That especially applies to digital and verification businesses. Even in digital, we are always very, very strong in implementation, place and route. Now, as we had mentioned in my prepared remarks, also strong in sign-off.

Speaker #4: And same thing happened with Samsung over the last 6 to 12 months. So in terms of what we were weak at before, a few years ago was we were doing great with the TSMC ecosystem.

Speaker #4: And you'll see that we are engaging Intel in all parts of Intel, with all parts of our product portfolio. So I'm really pleased to see our position improving at Intel, and our collaboration being just like it is with all the other leading companies.

Speaker #4: We have a great partnership with TSMC. But I've said for a while, we were weak at Intel and Samsung. And that definitely has changed.

Speaker #4: And there's still more to go. But at least the trajectory has definitely changed in my opinion. And then and especially and that's especially applies to digital and verification.

Speaker #4: And the same thing happened with Samsung over the last 6 to 12 months. So, in terms of what we were weak at before, a few years ago, was we were doing great with the TSMC ecosystem.

Speaker #4: Businesses. And even in digital, we're always very, very strong in implementation, place and route. But now, as we had mentioned in my prepared remarks, also strong in sign-off.

Speaker #4: We have a great partnership with TSMC. But I've said for a while we were weak at Intel and Samsung. That definitely has changed, and there's still more to go.

Speaker #4: So the depth of our digital engagement is also improving. At all customers. So overall, I'm pretty pleased with our position. And we just always believe in simple things, right?

Speaker #4: But at least the trajectory has definitely changed in my opinion. And then and especially and that's especially applies to digital and verification. Businesses. And even in digital we were always very, very strong in implementation, place and route.

Anirudh Devgan: The depth of our digital engagement is also improving at all customers. Overall, I'm pretty pleased with our position, and we just always believe in simple things, right? Team, technology, and customers. We have the best team, I believe, develop the best products, listen to these demanding customers, and that's how we stay ahead. We're not looking at who else is doing that, but are we really satisfying the demanding workload of our customers? I believe right now we are in a great position.

Speaker #4: Team, technology, and customers. We have the best team, I believe. Develop the best products. And listen to these demanding customers. And that's how we stay ahead.

Speaker #4: But now, as we had mentioned in my prepared remarks, sign-off is also strong. The depth of our digital engagement is improving across all customers.

Speaker #4: We're not looking at who is doing who else is doing that. But are we really satisfying the demanding workload of our customers? And I believe right now, we are in a great position.

Speaker #4: So overall, I'm pretty pleased with our position. We just always believe in simple things, right? Team, technology, and customers. We have the best team, I believe.

Speaker #2: And our next question comes from the line of Jason Salino with KeyBank Capital Markets. Your line is open.

Speaker #4: Develop the best products and listen to these demanding customers, and that's how we stay ahead. We're not looking at what anyone else is doing.

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

Speaker #6: Great. Thank you. Great to hear another record hardware quarter. I know John, you kind of mentioned this as always as a pipeline business. And you kind of wait to the middle of the year to get better visibility.

Speaker #4: But are we really satisfying the demanding workload of our customers? I believe that right now we are in a great position.

Jason Celino: Great. Thank you. Great to hear another record hardware quarter. I know, John, you kind of mentioned this always as a pipeline business, and you kind of wait to the middle of the year to get better visibility for H2. Maybe can you speak to the type of demand activity you are seeing for hardware? I did notice that inventory ticked up nicely in Q2, both on a year-over-year and a quarter-over-quarter basis. Thanks.

Speaker #6: For the second half. But maybe can you speak to the type of demand activity you are seeing for hardware? I did notice that inventory picked up nicely in the second quarter, both on a year-over-year and a quarter-over-quarter basis.

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

Speaker #7: Great, thank you. Great to hear another record hardware quarter. I know, John, you kind of mentioned this is always a pipeline business, and you kind of wait until the middle of the year to get better visibility.

Speaker #6: Thanks.

Speaker #5: Yeah. Great question, Jason. Yeah. We continue to see strong hardware demand. Particularly from AI and HPC customers. Hardware-assisted verification is becoming a strategic capacity layer for customers.

John Wall: Yeah, great question, Jason. Yeah, we continue to see strong hardware demand, particularly from AI and HPC customers. Hardware-assisted verification is becoming a strategic capacity layer for customers designing the most complex chips and systems. There could be quarterly timing effects, but demand remains solid. We continue to expect 2026 to be another record hardware year. I would profile hardware is that it still remains supply constrained by customer demand rather than demand constrained. We're building the systems as quickly as we can to deliver against the backlog. Yes, part of the increase to the year was due to hardware strengths, but we are seeing strength right across the board.

Speaker #5: Designing the most complex chips and systems. There could be quarterly timing effects. But demand remains solid. And we continue to expect 2026 to be another record hardware year.

Speaker #7: For the second half, maybe can you speak to the type of demand activity you are seeing for hardware? I did notice that inventory picked up nicely in the second quarter, both on a year-over-year and a quarter-over-quarter basis.

Speaker #5: And I would profile hardwares that it still remains supply. Constraints by customer demand rather than demand constraint. And we're building the systems as quickly as we can to deliver against the backlog.

Speaker #7: Thanks.

Speaker #8: Yeah, great question, Jason. We continue to see strong hardware demand, particularly from AI and HPC customers. Hardware-assisted verification is becoming a strategic capacity layer for customers.

Speaker #8: We are designing the most complex chips and systems. There could be quarterly timing effects, but demand remains solid. We continue to expect 2026 to be another record hardware year.

Speaker #5: And yes, part of the increase was to the year was due to hardware strengths. But we are seeing strength right across the board.

Speaker #8: And I would profile hardware that still remains supply-constrained by customer demand rather than demand-constrained, and we're building the systems as quickly as we can to deliver against the backlog.

Speaker #2: 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 #4: Yeah. Thank you for squeezing me in as well. So yeah. Amazing performance on IP. Maybe if you could share a few more words on Intel win.

Speaker #8: And yes, part of the increase for the year was due to hardware strengths. But we are seeing strength right across the board.

Gianmarco Conti: Yeah. Thank you for squeezing me in as well. Yeah, amazing performance on IP. Maybe if you could share a few more words on Intel win, exactly what does that entail, what parts of the portfolio was that displacement? How big is roughly the contract meant to draw down over how much time, is this in guides? Just kind of like the layout on the details, if you could share any of that, please. Thank you.

Speaker #4: Exactly what does that entail? What parts of the portfolio does that displacement? How big is roughly the contract meant to draw down? Over how much time?

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

Speaker #4: And is this in guise? Just kind of like the layout on the details. If you could share any of that, please. Thank you. Sure.

Speaker #4: Yeah, thank you for squeezing me in as well. So, yeah, amazing performance on IP. Maybe if you could share a few more words on the Intel win.

Speaker #4: I can comment a little bit more. I mean, but this is a multi-year arrangement. And of course, some of the benefit is this year.

Anirudh Devgan: Sure. I can comment a little bit more. This is a multi-year arrangement. Of course, some of the benefit is this year, but most of it is to come. Okay. We will also invest more in Intel and Intel customers, which is to be expected. In terms of IP, it's much broader than IP because it includes EDA and DTCO. In terms of IP, we have a pretty good portfolio. We will make that available on Intel process. Now, this doesn't include as Intel Foundry gets more customers, they're buying IP from us. This is just our arrangement with Intel right now. As you know, we are always conservative in those projections.

Speaker #4: Exactly what does that entail? What parts of the portfolio does that displace? How big is the contract roughly meant to draw down, and over how much time?

Speaker #4: But most of it is to come. Okay. And then we will also invest more, right, in Intel. And Intel customers, which is to be expected.

Speaker #4: And is this in GUI? Just kind of like the layout on the details, if you could share any of that, please. Thank you.

Speaker #4: But in terms of IP, I mean, it's much broader than IP. Because it includes EDA and DTCO. But in terms of IP, we have a pretty good portfolio.

Speaker #7: Sure, I can comment a little bit more. I mean, this is a multi-year arrangement, and of course some of the benefit is this year.

Speaker #4: So we will make that available on Intel process. Now, this doesn't include as Intel foundry gets more customers there buying IP from us. This is just our arrangement with Intel right now.

Speaker #7: But most of it is to come. Okay. And then we will also invest more, right, in Intel—and Intel customers, which is to be expected.

Speaker #4: As you know, we are always conservative in those projections. But still, I mean, Intel foundries is, as you know, talking to a lot of customers.

Speaker #7: But in terms of IP, I mean, it's much broader than IP because it includes EDA and DTCO. But in terms of IP, we have a pretty good portfolio.

Speaker #4: So it's a possibility those customers will acquire these IPs and any differentiated tools that come out from this DTCO. So we will see how it goes.

Anirudh Devgan: Intel Foundry is, as you know, talking to a lot of customers, so it's the possibility those customers will acquire these IPs and any differentiated tools that come out from this DTCO. We will see how it goes. IP strength is, of course, Intel is a part of it, but it's much more broad-based. Even our overall strength, I think I want to highlight and John already mentioned, is not coming from one particular thing. There are four or five things that are driving this raised outlook. Intel is one of them for sure. IP is one of them. Hardware is a key focus, but hardware, if you look at our recurring growth is very good, right? Hardware is important growth, but so is EDA and agentic solution and 3D IC and SDA.

Speaker #7: So we will make that available on Intel process. Now, this doesn't include—as Intel Foundry gets more customers, they're buying IP from us. This is just our arrangement with Intel right now.

Speaker #4: But IP strength is, of course, Intel is a part of it. But it's much more broad-based. And even our overall strength, I think I want to highlight.

Speaker #7: As you know, we are always conservative in those projections. But still, I mean, Intel Foundries is, as you know, talking to a lot of customers.

Speaker #4: And John already mentioned, is not coming from one particular thing. So I mean, there are four or five things that are driving this raised outlook.

Speaker #7: So it's a possibility those customers will acquire these IPs and any differentiated tools that come out from this DTCO. So, we will see how it goes.

Speaker #4: So Intel is one of them for sure. IP is one of them. Hardware is a key focus. But hardware if you look at our recurring growth is very good, right?

Speaker #7: But IP strength is, of course, Intel is a part of it, but it's much more broad-based. And even our overall strength, I think I want to highlight—and John already mentioned—is not coming from one particular thing.

Speaker #4: So hardware is important growth. But so is EDA and agentic solutions and 3D IC and SDNA. So I feel right now, there are like four or five engines that are driving our growth.

Speaker #7: So, I mean, there are four or five things that are driving this raised outlook. Intel is one of them for sure. IP is one of them.

Speaker #4: But we are definitely very proud of the Intel agreement and the new partnership.

Anirudh Devgan: I feel right now there are four or five engines that are driving our growth, but we are definitely very proud of the Intel agreement and the new partnership.

Speaker #5: And Gianmarco, I know your question is primarily around revenue and things like that. But I want to highlight that there is some kind of expense in the second half as well.

Speaker #7: Hardware is a key focus, but hardware—and if you look at our recurring growth—is very good, right? So hardware is important for growth, but so is EDA and agentic solutions, and 3D-ISP and SDNA.

John Wall: Yeah. Gianmarco, I know your question is primarily around revenue and things like that, but I want to highlight that there is some kind of expense in the H2 as well because we're investing around these opportunities like Intel, as well as trying to integrate Hexagon's D&E business, because we're very focused on improving margins for next year. You'll notice that the H2 is kind of slightly lower margins than the H1, but that's a reflection of us making targeted investments. These are deliberate investments, and not a deterioration in the underlying model by any means. Our organic incremental margins remain very attractive, and we expect acquisition profitability and profitability ranking to continue to improve as we go into 2027.

Speaker #5: Because we're investing around these opportunities like Intel. As well as trying to integrate Hexagon's D&E business. Because we're very focused on improving margins for next year.

Speaker #7: So, I feel right now there are like four or five engines that are driving our growth, but we are definitely very proud of the Intel agreement and the new partnership.

Speaker #5: So you'll notice that the second half has kind of slightly lower margins than the first half. But that's a reflection of our of us making targeted investments these are deliberate investments and not a deterioration in the underlying model by any means.

Speaker #8: Gianmarco, I know your question is primarily around revenue and things like that, but I want to highlight that there is some increase in expense in the second half as well, because we're investing around these opportunities like Intel.

Speaker #5: It's organic incremental our organic incremental margins remain very attractive. And we expect kind of acquisition profitability or profitability of IP to continue to improve.

Speaker #8: As well as trying to integrate Hexagon's D&E business because we're very focused on improving margins for next year. So you'll notice that the second half has slightly lower margins than the first half.

Speaker #5: As we go into 2027.

Speaker #8: But that's a reflection of us making targeted investments. These are deliberate investments and not a deterioration in the underlying model by any means.

Speaker #2: And our next question comes from the line of Ruben Roy with Stiefel. Your line is open.

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

Speaker #4: Thanks, John. I think you just answered my question. So let me just make sure I understand that. margin near 43%. And expenses R&D expenses up probably 19% year over year based on implied guidance for the full year versus around 10% growth last year.

Speaker #8: It's organic incremental or organic incremental margins remain very attractive and we expect kind of acquisition profitability, y, profitability IP to continue to improve. As we go into 2027.

Ruben Roy: Thanks, John. I think you just answered my question. Let me just make sure I understand that. Yeah, I was looking at the implied operating margin near 43% and R&D expenses up probably 19% year over year based on implied guidance for the full year versus around 10% growth last year. Of course, Hexagon accounts for a part of that. I guess, how much of this is the core business? I guess I was thinking through agentic AI and go to market. Is that sort of hiring you're already committed to? Is that driving some of the expense increase? How do you expect that to roll into 2027? Thank you.

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

Speaker #4: Of course, Hexagon accounts for a part of that. But I guess how much of this is sort of the core business? And I guess I was thinking through agentic AI and go-to-market.

Speaker #4: Thanks, John. I think you just answered my question. So let me just make sure I understand that. I was looking at the implied operating margin near 43%, and R&D expenses up probably 19% year over year based on implied guidance for the full year, versus around 10% growth last year.

Speaker #4: Is that sort of hiring you're already committed to? Is that driving some of the expense increase? And how do you expect that to roll into 2027?

Speaker #4: Thank you.

Speaker #3: Yeah. It's not just hiring. But it's investment in systems and everything fits there. We're trying to invest heavily in making sure we do a full and proper integration of Hexagon's design and engineering business.

Speaker #4: Of course, Hexagon accounts for a part of that, but I guess, how much of this is sort of the core business? And I was thinking through agentic AI and go-to-market.

John Wall: Yeah. It's not just hiring, but it's investment in systems and everything. We're trying to invest heavily in making sure we do a full and proper integration of Hexagon's Design & Engineering business, as well as some of the other businesses, the smaller businesses that we've pulled into systems design and analysis. We're very focused on that in the H2 of this year. I think I highlighted it last year that we had, I think, $20 to 25 million set aside specifically for investments in the H2 of the year. Now, there's always some prudence in our expense expectations. Ruben, I always want to give the team enough scope to be able to invest and capture the increased profitability opportunities that they can get.

Speaker #3: As well as some of the other businesses, the smaller businesses that we've pulled into systems design analysis. But we're very focused on that in the second half of this year.

Speaker #4: Is that sort of hiring you're already committed to? Is that driving some of the expense increase? And how do you expect that to roll into 2027?

Speaker #3: I think I highlighted it last year that we had, I think, 20 to 25 million set aside specifically for investments in the second half of the year.

Speaker #4: Thank you.

Speaker #8: Yeah, it's not just hiring, but it's investment in systems and everything. We're trying to invest heavily in making sure we do a full and proper integration of Hexagon's design and engineering business, as well as some of the other smaller businesses that we've pulled into system design to allow us to—

Speaker #3: Now, there's always some improvements in our expense expectations. And Ruben, I always want to give the team enough scope to be able to invest and capture the increased profitability, opportunities that they can get.

Speaker #3: But our focus. Really on in the second half of this year to grab those opportunities and set ourselves up so that we have better operating margins next year.

Speaker #8: But we're very focused on that in the second half of this year. I think I highlighted it last year that we had, I think, $20 to $25 million set aside specifically for investments in the second half of the year.

John Wall: Our focus is really on, in the H2 this year, to grab those opportunities and set ourselves up so that we have better operating margins next year.

Speaker #8: Now, there's always some proven scenario expense expectations, and Ruben and I always want to give the team enough scope to be able to invest and capture the increased profitability opportunities that they can get.

Speaker #2: And our next question comes from the line of Kelsey Chia with Citi. Your line is open.

Speaker #6: Hi. Hi, I'm Newark. So regarding Intel, is the engagement around 14A more likely an incremental driver to the sort of 2025% growth that the team has been delivering for the IP business?

Operator: Our next question comes from the line of Kelsey Chia with Citi. Your line is open.

Speaker #8: But our focus is really on, in the second half of this year, grabbing those opportunities and setting ourselves up so that we have better operating margins next year.

Kelsey Chia: Hello. Hi, Anirudh. Regarding Intel, is the engagement around 14A more likely an incremental driver to the sort of 20% to 25% growth that the team has been delivering for the IP business? Will it be a meaningful driver to our EDA business in the coming quarters? How long should we think about that trajectory as layering into our EDA business?

Speaker #6: And also, will it be a meaningful driver to EDA business in the coming quarters? Or how long should we think about that to. Considering into EDA business?

Speaker #1: And our next question comes from the line of Kelsey Chia with Citi. Your line is open.

Speaker #5: Hello, hi Anirudh. So regarding Intel, is the engagement around 14A more likely an incremental driver to the sort of 20–25% growth that the team has been delivering for the IP business?

Speaker #4: Yeah. I mean, just to make sure I understand the question. I think the Intel business that we announced is all incremental to our business, 100%.

Anirudh Devgan: Yeah. I mean, just to make sure I understand the question. I think the Intel business that we announced is all incremental to our business, 100%. Because we already had existing Intel agreements, this one is a new agreement on top of that, and it's a multi-year agreement with multiple parts of that business. What I'm also, and I think Lip-Bu has said that publicly also, I mean, we announced 14A, but I think Intel, to be successful in the foundry business, has to do more than 14A. We are already talking to them, other future roadmap of Intel Foundry. Of course, there is different parts of Intel, as you know, the product groups and they're investing in their server business and their client business.

Speaker #5: And also, will it be a meaningful driver to the EDA business in the coming quarters, or how long should we think about that trajectory as they're going into the EDA business?

Speaker #4: So because we already had existing Intel agreements. So this one is a new agreement on top of that. And it's a multi-year agreement with multiple parts of that business.

Speaker #4: And then what I'm also and I think Libu has said that publicly also. I mean, we announced 14A. But I think Intel, to be successful in the foundry business, has to do more than 14A.

Speaker #7: Yeah, I mean, just to make sure I understand the question—I think the Intel business that we announced is all incremental to our business, 100%.

Speaker #4: So we are already talking to other future roadmap of Intel foundry. And then, of course, there is different parts of Intel as you know, the product groups and they're investing in their server business and their client business.

Speaker #7: So, because we already had existing Intel agreements, this one is a new agreement on top of that. And it's a multi-year agreement with multiple parts of that business.

Speaker #4: So again, we are proud to be working with Intel closely. And just like we work with other big customers. So I think it's more a normalization of our relationship with Intel.

Speaker #7: And then what I'm also—and I think Libu has said that publicly also—I mean, we announced 14A, but I think Intel, to be successful in the foundry business, has to do more than 14A.

Anirudh Devgan: Again, we are proud to be working with Intel closely, and just like we work with other big customers. I think it's more a normalization of our relationship with Intel, like we work with all the other household names you know. I'm very proud of this development.

Speaker #4: Like we work with all the other household names. So I'm very proud of this development.

Speaker #7: So, we're already talking to others about the future roadmap of Intel Foundry. And then, of course, there are different parts of Intel, as you know—the product groups—and they're investing in their server business and their client business.

Speaker #2: And our next question comes from the line of Jay Fleeshour with Griffin Securities. Your line is open.

Speaker #7: So, again, we are proud to be working closely with Intel, just like we work with other big customers. So, I think it's more a normalization of our relationship with Intel, like we work with all the other household names.

Speaker #7: Thank you. Good evening. On a route, I'd like to ask you about the practical implications of or requirements for implementing AI and agents and all that you've spoken of this evening.

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

Jay Vleeschhouwer: Thank you. Good evening. Anirudh, I would like to ask you about the practical implications of, or requirements for, implementing AI and agents and all that you have spoken of this evening. That is to say, when you think about the pre-sale and post-sale support, and customer support that you have to provide, how would that compare to, let us say, what you used to have to do for classical EDA? Is there something quantitatively or qualitatively or technically different now that you need to do that you have not had to do before? What I have in mind, for example, is that over the last few months, there has been a very clear uptrend in your AE openings, the classic leading indicator for customer adoption. You have also said that GenAI is on quote, a critical path for agentic adoption. Maybe you could talk about that as well.

Speaker #7: So, I'm very proud of this development.

Speaker #7: That is to say, when you think about the presale and post-sale support and customer support that you have to provide, how would that compare to, let's say, what you used to have to do for classical EDA?

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

Speaker #9: Thank you. Good evening. Anirudh, I'd like to ask you about the practical implications of, or requirements for, implementing AI and agents and all that you've spoken of this evening.

Speaker #7: Is there something quantitatively or qualitatively or technically different now that you need to do that you hadn't had to do before? And what I have in mind, for example, is that over the last few months, there's been a very clear uptrend in your AE openings.

Speaker #9: That is to say, when you think about the presale and post-sale support, and customer support that you have to provide, how would that compare to, let's say, what you used to have to do for classical EDA?

Speaker #7: The classic leading indicator for customer adoption you've also said that Jet AI is, on quote, "the critical path for agentic adoption." So maybe you could talk about that as well.

Speaker #9: Is there something quantitatively, qualitatively, or technically different now that you need to do that you hadn't had to do before? What I have in mind, for example, is that over the last few months, there's been a very clear uptrend in your AE openings—a classic leading indicator for customer adoption.

Speaker #4: Yeah. Thanks, Jay, for that question. That's a great question. I mean, in general, of course, we are growing. So we will invest, right? Both in R&D and application engineering.

Anirudh Devgan: Thanks, Jay, for that question. That is a great question. In general, of course, we are growing, so we will invest, right, both in R&D and application engineering. Agentic AI, it does not require some massive step increase in investment. I just want to be clear about that. It is more of our traditional business because we are, of course, very asset light, right? We are not building compute farms. All this is done by our customers. Okay? Just to be clear. Now, of course, some of the skills are different, but our team anyway is expert in computation software, as you know, and they can pick up agentic AI. Some hiring we will do. It is more of a business as usual, I will say.

Speaker #4: Agentic AI, it does not require some massive step increase in investment. That's want to be clear about that. It is more of our traditional business.

Speaker #9: You've also said that Jet AI is on, quote, "the critical path for agentic adoption." So maybe you could talk about that as well.

Speaker #4: Because we are, of course, very, very asset light, right? We don't we're not building compute farms. All this is done by our customers. Okay.

Speaker #7: Yeah, thanks, Jay, for that question. That's a great question. I mean, in general, of course, we are growing, so we will invest, right? Both in R&D and application engineering.

Speaker #4: Just to be clear. Now, of course, some of the skills are different. But our team, anyway, is expert in computational software as you know.

Speaker #7: Agentic AI has not required some massive step increase in investment—I just want to be clear about that. It is more in line with our traditional business, because we are, of course, very, very asset-light, right?

Speaker #4: And they can pick up agentic AI. Some hiring we will do. So it's more of a business as usual, I will say. And also, we can make AI there are.

Speaker #7: We're not building compute farms. All this is done by our customers—okay, just to be clear. Now, of course, some of the skills are different.

Speaker #4: Indication that we have not. We are applying a lot of AI internally, okay, to make things even more efficient. So for example, AEs, yes, we are hiring AEs.

Anirudh Devgan: Also we can make AI, there are implications that we are applying a lot of AI internally, okay, to make things even more efficient. For example, AEs, yes, we are hiring AEs, but AI can dramatically reduce AI workload and make them much more productive. More of the AEs can participate in pre-sales activities rather than post-sales support, right? Same thing in R&D. Of course, we are deploying AI for software development, and of course AI are deploying our agent stack and all our agents for IP development to make them more efficient. This is what John was saying earlier, we will see how that progresses. I think AI has the opportunity to even reduce our cost in some cases. You should not model in some massive investment. I think the investment we talked about is more for SDA, right?

Speaker #7: But our team, anyway, is expert in computational software, as you know, and they can pick up agentic AI. Some hiring we will do, so it's more of a business as usual, I will say.

Speaker #4: But AI can dramatically reduce AI workload and make them much more productive. So then more of the AEs can participate in presales activity rather than post-sales support, right?

Speaker #7: And also, with AI, there are implications that we have not— we are applying a lot of AI internally, okay, to make things even more efficient.

Speaker #4: And same thing in R&D. Of course, we are deploying AI for software development. And of course, AI deploying our agent stack and all our agents for IP development to make them more efficient.

Speaker #7: So for example, AEs—yes, we are hiring AEs—but AI can dramatically reduce AE workload and make them much more productive. So then more of the AEs can participate in presales activity rather than post-sales support, right?

Speaker #4: So this is what John was saying earlier. So we'll see how that progresses. I think AI has an opportunity to even reduce our cost in some cases.

Speaker #4: But we are not you should not model in some massive investment. I think the investment we talked about is more for SDNA, right? For the integration.

Speaker #7: And same thing in R&D. Of course, we are deploying AI for software development, and of course, AI is deploying our agent stack and all our agents for IP development to make them more efficient.

Speaker #4: And you've always talked about, Jay, that how we need to have a full flow. And I feel that finally we have a full flow in SDNA.

Speaker #7: So this is what John was saying earlier, so we'll see how that progresses. I think AI has the opportunity to even reduce our costs in some cases.

Speaker #4: So investing in that. Investing in Intel, but the agentic AI will go through our regular sales motion and regular AI and R&D support. Yeah.

Anirudh Devgan: For the integration, you always talked about, Jay, that how we need to have a full flow, I feel that finally we have a full flow in SDA. Investing in that, investing in Intel. The agentic AI will go through our regular sales motion and regular AI and R&D support. Yeah.

Speaker #7: But we're not—you should not model in some massive investment. I think the investment we talked about is more for SDNA, right, for the integration.

Speaker #2: And our next question comes from the line of Joshua Tilton with Wolf Research. Your line is open.

Speaker #7: And you've always talked about, Jay, how we need to have a full flow. And I feel that finally we have a full flow in SDNA.

Speaker #8: Hey, guys. Thanks for sneaking me in. Maybe just one clarification and one thematic question for Anirudh. On the clarification side, could you just maybe unpack for us what's driving the strength in other recurring revenue?

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

Speaker #7: So, investing in that, investing in Intel, but the agentic AI will go through a regular sales motion and regular AI and R&D support.

Joshua Tilton: Hey, guys. Thanks for sneaking me in. Maybe just one clarification and one thematic question for Anirudh. On the clarification side, could you just maybe unpack for us what's driving the strength in other recurring revenue? That kind of stood out to us this quarter, and any commentary there would be helpful. Maybe on the thematic side, Anirudh, unless I misheard you, in your prepared remarks in the beginning, you talked about becoming more of a strategic partner for your customers. The question's for you, John, feel free to jump in here. Maybe help us as financial analysts understand what that means from a business perspective. Are you growing wallet share? Are you able to charge more? How are you, as a company, capturing value financially because you are now becoming more of a strategic partner to your customers? If that makes sense. Thanks.

Speaker #8: That kind of stood out to us this quarter. And any commentary there would be helpful. And then maybe on the thematic side, Anirudh, unless I misheard you in your prepared remarks in the beginning, you talked about becoming more of a strategic partner for your customers.

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

Speaker #10: Hey guys, thanks for sneaking me in. Maybe just one clarification and one thematic question for Anirudh. On the clarification, could you just unpack for us what's driving the strength in other recurring revenue?

Speaker #8: The question for you, but John, feel free to jump in here. Maybe help us as financial analysts understand what that means from a business perspective.

Speaker #10: That kind of stood out to us this quarter, and any commentary there would be helpful. And then maybe on the thematic side, Anirudh, unless I misheard you in your prepared remarks in the beginning, you talked about becoming more of a strategic partner for your customers.

Speaker #8: Are you growing wallet share? Are you taking more are you able to charge more? How are you as a company capturing value financially because you are now becoming more of a strategic partner to your customers?

Speaker #10: That's a question for you, but John, feel free to jump in here. Maybe you can help us, as financial analysts, understand what that means from a business perspective.

Speaker #8: If that makes sense. Thanks.

Speaker #9: Shall I start? Anirudh,

Speaker #7: with just so Josh, I'll take the recurring revenue question. I mean, recurring revenue grew about 24% year over year in Q2. And that was driven primarily by strong core EDA growth.

Speaker #10: Are you growing wallet share? Are you taking more—are you able to charge more? How are you as a company capturing value financially, because you are now becoming more of a strategic partner to your customers?

John Wall: Shall I start, Anirudh? Josh, I'll take the recurring revenue question. Recurring revenue grew about 24% year over year in Q2, that was driven primarily by strong core EDA growth, some AI-driven demand, there's share gains and healthy renewals, and expansions through add-on business. Within that, probably Hexagon contributed roughly 4 points. Even adjusting for that, recurring revenue is high teens to 20% on a normalized pro forma basis, which we view as a very strong result. We would continue to expect the full year mix to be roughly 80% recurring and 20% upfront. On the agentic AI stuff, that's essentially like when you look at the way we sell that, first of all, customers continue purchasing our underlying EDA software. What they do is they purchase teams, agent licenses that orchestrate engineering workflows. Generally, our economics scale with customer adoption.

Speaker #7: Some AI-driven demand. There's share gains and healthy renewals and expansions through add-on business. Within that, probably Hexagon contributed roughly 4 points. But even adjusting for that, recurring revenue is high teams to 20% on a normalized performer basis, which we view as a very strong result.

Speaker #10: If that makes sense. Thanks.

Speaker #3: Shall I start, Anirudh? Just so, Josh, I'll take the recurring revenue question. I mean, recurring revenue grew about 24% year over year in Q2.

Speaker #7: And we also we would continue to expect the full-year mix to be roughly 80% recurring and 20% upfront. On the agentic AI stuff, that's essentially when you look at the way we sell that, your first thought customers continue purchasing our underlying EDA software.

Speaker #3: And that was driven primarily by strong core EDA growth, some AI-driven demand or share gains, and healthy renewals and expansions through add-ons. Within that, probably Hexagon contributed roughly four points.

Speaker #3: But even adjusting for that, recurring revenue is high teens to 20% on a normalized pro forma basis, which we view as a very strong result.

Speaker #7: And then what they do is they purchase teams agent licenses and orchestrate engineering workflows. But so generally, our economic scale with customer adoptions Anirudh, would you like to add to address the rest of Josh's question?

Speaker #3: And we also would continue to expect the full-year mix to be roughly 80% recurring and 20% upfront. On the agentic AI stuff, that's essentially—when you look at the way we sell that, your first-thought customers continue purchasing our underlying EDA software.

Speaker #4: Yeah. I think, Josh, what we are saying is that I mean, we were always strategic towards semiconductor customers, right? Of course, we are part of engineering.

John Wall: Anirudh, would you like to add to address the rest of Josh's question?

Anirudh Devgan: Yeah. I think, Josh, what we are saying is that, we were always strategic to our semiconductor customers, right? Of course, we are part of engineering. We are part of R&D, right? We are not like other kinds of enterprise kind of software. This is engineering software. We are central to them making their products and their revenue. I think what has happened lately over the last, let's say, one year is even in semi companies, our engagement is at a much higher level in the company because EDA and chip design and Agentic AI opportunities are very meaningful to our customers. As there is more demanding roadmap, as Moore's Law is kind of slowing down, this is well known, not producing enough improvement. The improvement has to come with design efficiency, better optimization, better use of AI agents, and also the middle layer, right? The PPA provided by.

Speaker #4: We're part of R&D, right? I mean, we are not other kinds of soft enterprise kind of software. This is engineering software. So we are central to them making their products and their revenue.

Speaker #3: And then what they do is they purchase teams, agent licenses, and orchestrate engineering workflows. So generally, our economic scale with customer adoptions—would you like to add to address the rest of Josh's question?

Speaker #4: I think what has happened lately over the last, let's say, one year is even in semi companies, our engagement is. There's a much higher level in the company because EDA and chip design and agentic AI opportunities are very meaningful to our customers.

Speaker #7: Yeah, I think, Josh, what we are saying is that, I mean, we have always been strategic to our semiconductor customers, right? Of course, we are part of engineering.

Speaker #7: We are part of R&D, right? I mean, we are not like other kinds of enterprise software. This is engineering software. So we are central to them making their products and their revenue.

Speaker #4: As there's more demanding roadmap. As Moore's Law is kind of slowing down, this is well not producing enough improvement. So the improvement has to come with design efficiency, better optimization.

Speaker #7: I think what has happened lately, over the last, let's say, one year, is that even in semiconductor companies, our engagement is at a much higher level in the company because EDA and chip design and agentic AI opportunities are very meaningful to our customers.

Speaker #4: Better use of AI agents and also the middle layer, right? The PPA provided by and we do this with the foundries and with the customers and DTCO is part of it for better optimization of power and performance area.

Speaker #7: As there's a more demanding roadmap as Moore's Law is kind of slowing down—this is well-known—not producing enough improvement. So, the improvement has to come with design efficiency and better optimization.

Speaker #4: Then what's possible if Moore's Law was delivering was really moving fast. Right now, it has slowed down. So that's on the semi side. And on the system side, I think the realization that semiconductor is essential has happened now in the last 6 to 12 months or so.

Anirudh Devgan: We do this with the foundries and with the customers, and DTCO is part of it, for better optimization of power and performance area than was possible if Moore's Law was really moving fast. Right now it has slowed down. That is on the semi side. On the system side, I think the realization that semiconductor is essential has happened now in the last six to 12 months or so. All the Magnificent Seven companies, all the big, really household names, silicon is a critical part of their roadmap. Therefore, Cadence engagement is super critical at these customers. The way to monetize that is we provide more value to them, and then we can get more value for us, as you see in our results. Yeah.

Speaker #7: Better use of AI agents, and also the middle layer, right? The PPA provided by—and we do this with the foundries and with the customers, and DTCO is part of it for better optimization of power, performance, and area.

Speaker #4: So all the Mag 7 companies, all the big really household names, silicon is a critical part of their roadmap. So therefore, cadence engagement is super critical at these customers.

Speaker #7: What's possible if Moore's Law was really moving fast has changed. Right now, it has slowed down. So that's on the semiconductor side. On the system side, I think the realization that semiconductors are essential has really happened in the last 6 to 12 months or so.

Speaker #4: And the way to monetize that is we provide more value to them. And then we can get more value for us, as you see in our results.

Speaker #4: Yeah.

Speaker #2: And our final question comes from the line of Gary Mobley with Stonex. Your line is open.

Speaker #7: So, all the Mag 7 companies—all the big, really household names—silicon is a critical part of their roadmap. So, therefore, Cadence engagement is super critical at these customers.

Speaker #6: Thanks for sneaking me in. This may be a question more for John. One thing that stands out is what appears to be about a 55% increase in your bookings in the first half of the year versus the same period last year.

Operator: Our final question comes from the line of Gary Mobley with StoneX. Your line is open.

Speaker #7: And the way to monetize that is we provide more value to them, and then we can get more value for us, as you see in our results.

Gary Mobley: Thanks for sneaking me in. This may be a question more for John. One thing that stands out is what appears to be about a 55% increase in your bookings in H1 of the year versus the same period last year. I assume you're going to build on what is normally a seasonally strong H2 of the year, and I thought this was a low renewal period for some more substantial customers. Maybe if you can speak to what's driving that booking strength. Is it a reflection of the strength of the chip cycle? Is it the strength of the function of the strong chip design activity, or is it a function of some of the AI tools driving increasing usage of more copies of classic EDA tools?

Speaker #6: And I assume you're going to build on what is normally a seasonally strong second half of the year. And I thought this was a low renewal period for some more substantial customers.

Speaker #1: And our final question comes from the line of Gary Mobley with StoneX. Your line is open.

Speaker #11: Thanks for sneaking me in. This may be a question more for John. One thing that stands out is what appears to be about a 55% increase in your bookings in the first half of the year versus the same period last year.

Speaker #6: Maybe you can speak to what's driving that booking strength. Is it a a reflection of the strength of the chip cycle? Is it the strength of the function of the strong chip design activity?

Speaker #6: Or is it a function of some of the AI tools driving increasing usage of more copies of classic EDA tools?

Speaker #11: And I assume you're going to build on what is normally a seasonally strong second half of the year. And I thought this was a low renewal period for some more substantial customers.

Speaker #7: Sure, Gary. I mean, that's a great question. I think Anirudh spoke to it a little bit there. To Josh's question, but I mean, we've been we always say it's strategy first, right?

Speaker #11: Maybe you can speak to what's driving that booking strength. Is it a reflection of the strength of the chip cycle? Is it a function of the strong chip design activity?

John Wall: Sure, Gary. It's a great question. I think Anirudh spoke to it a little bit there to Josh's question. We always say it's strategy first, right? We've been continuing to execute against our intelligent system design strategy. Anirudh's mapped that out for us for the last decade or so. What we're seeing is that all the underlying structural demand drivers continue to strengthen. The semiconductor complexity, AI infrastructure investment, engineering productivity, Physical AI, Agentic workflows, all of those trends seem to still be in their early stages, and I think that's feeding into really solid bookings for us. This year is probably one of the low years when you look at the three-year cycle on renewals. This year is probably one of the lower of the three years. We're seeing very good strength in add-on opportunities, as Anirudh mentioned earlier in the call.

Speaker #7: I mean, we've been continuing to execute against our intelligence system design strategy. Anirudh mapped that out for us for the last decade or so.

Speaker #11: Or is it a function of some of the AI tools driving increased usage of more copies of classic EDA tools?

Speaker #7: But and what we're seeing is that all the underlying structural demand drivers continue to strengthen. The semiconductor complexity, AI infrastructure investment, engineering productivity, physical AI, agentic workflows, all of those trends seem to still be in their early stages.

Speaker #10: Sure, Gary. I mean, it's a great question. I think Anirudh spoke to it a little bit there. To Josh's question, well, we always say it's strategy first, right?

Speaker #7: And I think that's feeding into really solid bookings for us. And this year is a probably one of the low years when you look at the kind of a three-year cycle on renewals.

Speaker #10: I mean, we've continued to execute against our intelligence system design strategy. Anirudh mapped that out for us over the last decade or so.

Speaker #10: What we're seeing is that all the underlying structural demand drivers continue to strengthen. The semiconductor complexity, AI infrastructure investment, engineering productivity, physical AI, agentic workflows— all of those trends seem to still be in their early stages.

Speaker #7: This year is kind of probably one of the lower of the three years. But we're seeing very, very good strength in add-on opportunities as Anirudh mentioned earlier in the call.

Speaker #7: Very, very pleased with progress and how things are going. Anirudh, anything to add?

Speaker #10: And I think that's feeding into really solid bookings for us. And this year is probably one of the low years when you look at the kind of three-year cycle on renewals.

Speaker #4: No, John, that's a great summary. I mean, like John said, Gary, that yeah, this year is the low bookings year. And also, normally, first half, we draw down on our backlog.

John Wall: I'm very pleased with progress and how things are going. Anirudh, anything to add?

Speaker #10: This year is probably one of the lower of the three years, but we're seeing very, very good strength in add-on opportunities, as Anirudh mentioned earlier in the call.

Anirudh Devgan: No, John, that's a great summary. Like John said, Gary, that this year is a low bookings year, and also normally H1, we draw down on our backlog. This year has been good growth. We'll see how that progresses, but we are very pleased. Like John mentioned, the environment is good. I'd also like to point out that I feel the three big reasons are, like John was also saying, the environment is great, both the new AI comers, the traditional AI, and the regular companies. Our products and competitive position is fabulous. Then this new TAM opportunity with Agentic AI. If you combine all these three things, the H1 has been great. It sets up nicely for rest of the year, and we'll see how things progress.

Speaker #4: But this year has been good growth. So we'll see how that progresses. But we are very pleased and like John mentioned, the environment is good.

Speaker #10: Very, very pleased with progress and how things are going. Anirudh, anything to add?

Speaker #4: And I would just like to point out that I feel the three big reasons are like John was also saying, the environment is great.

Speaker #7: No, John, that's a great summary. I mean, like John said, Gary, this year is the low bookings year. And also, normally in the first half, we draw down on our backlog.

Speaker #4: Both the AI, new AI comers, the traditional AI, and the regular companies. Our products and comparative position is fabulous. And then this new TAM opportunity with agentic AI.

Speaker #7: But this year has shown good growth, so we'll see how that progresses. But we are very pleased, and like John mentioned, the environment is good.

Speaker #4: So if you combine all these three things, I mean, the first half is has been great. It sets up nicely for the rest of the year.

Speaker #7: And I would just like to point out that I feel the three big reasons are, like John was also saying, the environment, AI comers, the traditional AI, and the regular companies.

Speaker #4: And then we'll see how things progress, right?

Speaker #2: And I would now like to turn the call back over to Mr. Anirudh Devgan for closing remarks.

Speaker #4: Yeah. Thank you all for joining us this afternoon. It's exciting time for cadence as we enter the second half of 2026 with AI-driven product leadership and strong business momentum.

Speaker #7: Our products and comparative position are fabulous. And then there's this new TAM opportunity with agentic AI. So, if you combine all these three things, I mean, the first half has been great.

Operator: I would now like to turn the call back over to Mr. Anirudh Devgan for closing remarks.

Anirudh Devgan: Yeah. Thank you all for joining us this afternoon. It's an exciting time for Cadence as we enter H2 2026 with AI-driven product leadership and strong business momentum. On behalf of our employees and our board of directors, we thank our customers, partners, and investors for their continued trust and confidence in Cadence.

Speaker #7: It sets up nicely for the rest of the year. And then we'll see how things progress, right?

Speaker #4: On behalf of our employees and our board of directors, we thank our customers, partners, and investors for their continued trust and confidence in Cadence.

Speaker #1: And I would now like to turn the call back over to Mr. Anirudh Devgan for closing remarks.

Speaker #7: Yeah, thank you all for joining us this afternoon. It's an exciting time for Cadence as we enter the second half of 2026 with AI-driven product leadership and strong business momentum.

Speaker #2: And ladies and gentlemen, thank you for participating in today's Cadence second quarter 2026 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 Q2 2026 earnings conference call. This concludes today's call, and you may now disconnect.

Speaker #7: On behalf of our employees and our Board of Directors, we thank our customers, partners, and investors for their continued trust and confidence in Cadence.

Speaker #1: And ladies and gentlemen, thank you for participating in today's Cadence second quarter 2026 earnings conference call. This concludes today's call, and you may now disconnect.

Q2 2026 Cadence Design Systems Inc Earnings Call

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