Cadence Design Systems, Inc.
CDNS · Nasdaq
Next quarter
Expected to report Oct 26, 2026 — estimated from last year’s reporting date.
Consensus is $1.60 EPS for Sep 2026 across 7 estimates, ranging $1.58 to $1.62.
CDNS Jun 2026
- 2.47%
- +1.80%
- $1.62
- $1.58
- —
- —
Highlights
- Revenue growth: Q2 revenue was $1.584 billion, up 24% year over year and 7% sequentially, with product and maintenance revenue up 22% to $1.431 billion and services up 47% to $153.8 million.
- Backlog: Contracted but unsatisfied performance obligations reached a record approximately $8.1 billion, including $0.9 billion of non-cancelable customer commitments; 58% of the backlog excluding those commitments is expected to convert within 12 months.
- Raised outlook: Cadence lifted its FY2026 revenue outlook to $6.260-$6.340 billion, implying 18%-20% growth, and raised non-GAAP EPS guidance to $8.05-$8.15 from $7.85-$7.95.
- Profitability: GAAP operating income was $450.3 million, or a 28.4% margin, versus $241.8 million and 19.0% a year ago; non-GAAP operating margin was 45.5%, up from 42.8%.
- EPS comparison: The supplied consensus comparison shows EPS of $1.58 versus an expected $1.62, a 2.47% miss; Cadence's filing reports GAAP diluted EPS of $1.33 and non-GAAP diluted EPS of $2.11.
- Hexagon acquisition: The February acquisition of Hexagon's design and engineering business contributed to growth but also added integration costs and amortization; Cadence paid $2.9 billion, including $2.2 billion in cash and $902.2 million in stock consideration.
- Cash generation: Operating cash flow was $635 million and free cash flow was $582 million in Q2; first-half operating cash flow reached $990.7 million, up from $864.6 million a year ago.
- Geographic mix: China revenue rose 96% year over year to $236.2 million and represented 15% of revenue, partly reflecting the prior-year impact of temporary export-license requirements; the United States contributed 42% of Q2 revenue.
- Capital allocation: Cadence repurchased $200 million of stock in Q2 and expects to repurchase approximately $200 million in Q3; $1.0 billion remained under the authorization at quarter-end.
Analysis
Cadence's second quarter was principally a strong demand and backlog print, although the supplied headline EPS comparison was modestly below expectations: EPS of $1.58 versus consensus of $1.62, a 2.47% miss. The company's reported operating metrics were stronger. Revenue of $1.584 billion increased 24% from $1.275 billion a year ago and 7% from $1.474 billion in Q1. GAAP operating income rose to $450.3 million from $241.8 million year over year and $431.3 million sequentially, while GAAP net income increased to $367.1 million from $160.1 million a year ago and $335.7 million in Q1. The filing reports GAAP diluted EPS of $1.33 and non-GAAP EPS of $2.11, compared with $0.59 and $1.65, respectively, in the year-ago quarter.
The defining forward-looking element was record backlog of approximately $8.1 billion and a raised FY2026 outlook. Cadence now expects revenue of $6.260-$6.340 billion and non-GAAP EPS of $8.05-$8.15, versus prior ranges of $6.125-$6.225 billion and $7.85-$7.95. The Hexagon design and engineering acquisition broadened System Design and Analysis but increased amortization and integration spending. Meanwhile, cash generation remained substantial, with $635 million of quarterly operating cash flow and $582 million of free cash flow.
Growth and backlog
Cadence's core demand indicators accelerated in Q2. Revenue grew 24% year over year to $1.584 billion, with product and maintenance revenue up 22% to $1.431 billion and services revenue up 47% to $153.8 million. The company ended June with approximately $8.1 billion of contracted but unsatisfied performance obligations, up from $7.8 billion at the end of fiscal 2025 and $6.8 billion at the end of fiscal 2024. Of the backlog excluding $0.9 billion of non-cancelable commitments, Cadence expects to recognize 58% over the next 12 months and 40% over the following 13-36 months.
- Recurring revenue: Recurring revenue represented 78% of Q2 revenue, unchanged year over year, while up-front revenue represented 22%.
- Product mix: Core EDA accounted for 68% of revenue, Semiconductor IP for 15% and System Design and Analysis for 17%; SD&A increased from 15% in Q1.
- Raised targets: FY2026 revenue guidance increased to $6.260-$6.340 billion from $6.125-$6.225 billion, while non-GAAP EPS guidance increased to $8.05-$8.15 from $7.85-$7.95.
Margins and earnings
Profitability improved substantially against the unusually weak year-ago comparison, which included a $128.5 million contingent-liability charge related to the DOJ and BIS settlement. Q2 GAAP operating income was $450.3 million, up from $241.8 million a year ago and $431.3 million in Q1; the GAAP operating margin was 28.4%, compared with 19.0% a year ago and 29.3% in Q1. Non-GAAP operating income was approximately $721 million, implying a 45.5% margin versus 42.8% a year ago and 44.7% in Q1.
- GAAP earnings: Net income was $367.1 million, or $1.33 diluted EPS, versus $160.1 million and $0.59 a year ago and $335.7 million and $1.23 in Q1.
- Adjusted earnings: Non-GAAP EPS was $2.11, up from $1.65 a year ago and $1.96 in Q1.
- Cost pressure: GAAP amortization of acquired intangibles rose to $79.9 million from $23.7 million a year ago, while operating expenses increased 21% to $860.8 million as Cadence invested in research, development, sales and acquired headcount.
Hexagon acquisition
The quarter reflects the first full period with Cadence's acquisition of Hexagon Smart Solutions' design and engineering business, completed February 23 for aggregate consideration of $3.1 billion, or $2.9 billion net of cash acquired. The transaction included $2.2 billion of cash and 3.2 million Cadence shares valued at $902.2 million. It expands the SD&A portfolio and builds on Cadence's earlier BETA CAE acquisition, but the earnings contribution is accompanied by substantial purchase-accounting charges.
- Purchase accounting: Cadence recorded $2.147 billion of goodwill and $1.248 billion of acquired definite-lived intangibles from the Hexagon transaction.
- Amortization: Acquired-intangible amortization was $79.9 million in Q2, versus $23.7 million a year earlier; estimated remaining 2026 amortization for definite-lived intangibles is $158.1 million.
- Integration: Acquisition and integration-related costs were $41 million in Q2, while the filing says operating expenses and headcount will continue to rise as recent acquisitions are integrated.
Cash and capital allocation
Cash conversion was a material strength of the quarter. Operating cash flow reached $635 million and free cash flow $582 million, compared with $378 million and $334 million a year ago. For the first six months, operating cash flow was $990.7 million, up $126.1 million year over year, before $2.1 billion of cash used for acquisitions.
- Balance sheet: Cash and equivalents were $1.440 billion at June 30, down from $3.001 billion at December 31 after the Hexagon acquisition; principal debt was $2.5 billion.
- Repurchases: Cadence repurchased $200 million, or 580,000 shares, in Q2; $1.0 billion of authorization remained, and management expects another approximately $200 million of repurchases in Q3.
- Liquidity: The company had no outstanding revolver borrowings at quarter-end and said cash flows and financing resources should cover operating needs, acquisitions and repurchases.
Geographic demand
Growth was broad but particularly pronounced in China and the rest of Asia. China revenue nearly doubled to $236.2 million, representing 15% of Q2 revenue versus 9% a year ago. Cadence attributed part of the comparison to temporary export-license requirements in the prior-year period that constrained software deliveries. The filing also cited growth in software and IP demand across major regions, alongside increased hardware deliveries in China, other Asia and EMEA.
- United States: Revenue increased 11% to $656.1 million, but the U.S. share of total revenue declined to 42% from 46% a year ago.
- Asia: China, Japan and other Asia together represented 42% of Q2 revenue, versus 35% a year ago.
- Trade exposure: Cadence said current expanded trade controls have had a limited impact so far, but it continues to monitor export rules, tariffs and geopolitical conditions affecting China and the broader technology supply chain.
