CDNS Cadence Design Systems 10-Q 2026-09-30 section summaries

Cadence Design Systems (CDNS) — Q3 and first nine months of 2026

Performance and revenue mix

Q3 2026 revenue increased 22.0% to $1.63331B from $1.33884B. Product and maintenance revenue was $1.487B from $1.208B, while services revenue was $146.0M from $131.1M. For the first nine months, revenue increased 21.7% to $4.69198B from $3.85665B: product and maintenance was $4.267B from $3.489B, and services was $425.1M from $367.6M.

The product mix shifted modestly toward IP and System Design and Analysis (SD&A): Q3 and 9M revenue mix was Core EDA 69% (71% in both 2025 periods), IP 15% (14%), and SD&A 16% (15%). Recurring revenue declined to 79% from 82% in Q3 and to 78% from 81% for 9M; up-front revenue increased correspondingly. Cadence says hardware and IP delivery timing particularly affects quarterly mix. No customer represented at least 10% of revenue.

Geographically, Asia was the fastest-growing major region for 9M, rising 30.5% to $1.914090B from $1.467128B, led by China ($680.715M from $505.113M) and Other Asia ($928.853M from $721.458M). Q3 Asia revenue grew to $674.652M from $574.166M, though China growth was more modest. Americas revenue was $709.725M from $575.121M in Q3 and $2.044231B from $1.804037B for 9M; EMEA was $248.934M from $189.551M in Q3 and $733.661M from $585.480M for 9M. The U.S. remained the largest individual geography.

Earnings, costs and capital allocation

Q3 operating income was $428.7M versus $425.4M and net income was $289.747M versus $287.122M; diluted EPS was $1.05 in both periods. For 9M, operating income rose to $1.310B from $1.029B, net income to $992.483M from $720.752M, and diluted EPS to $3.61 from $2.64. Prior-year 9M results included a $128.5M contingent-liability loss that did not recur. Q3 R&D expense rose to $537.5M from $423.0M; 9M R&D was $1.577B from $1.304B.

Operating cash flow was $1.414B for 9M, versus $1.175B; capital expenditures were $163.3M versus $100.8M. Cash used in investing was $2.246B, principally including $2.143B of net cash paid for business combinations. Cadence repurchased $800.025M of stock in 9M versus $725.025M. Shares outstanding increased from 271.799M at December 31, 2025 to 274.379M at September 30, 2026, with 3.224M shares issued in the Hexagon transaction; Q3 shares moved from 275.393M to 274.379M. The board approved an additional $2.5B repurchase authorization in October, after $601.6M remained at quarter-end.

Stock-based compensation increased to $144.763M from $116.073M in Q3 and $429.836M from $342.011M for 9M, led by R&D. Unrecognized compensation expense was $857.4M, expected to be recognized over a weighted-average two years. Restructuring charges were $42.159M versus $27.394M in Q3 and $41.802M versus $27.332M for 9M; the September plan primarily involved headcount reductions.

Acquisition, balance sheet and funding

The February 2026 Hexagon Smart Solutions design and engineering acquisition expanded SD&A. Purchase-price allocation reported consideration of $3.124B, including $2.2B cash and 3.2M Cadence shares valued at $902.2M; the filing describes consideration net of acquired cash as approximately $3.0B. Preliminary allocation included $2.170B goodwill and $1.248B definite-lived intangibles. Goodwill is not expected to be U.S. tax-deductible, and purchase accounting remains preliminary.

At September 30, 2026, total assets were $12.225B versus $10.153B at year-end, and stockholders’ equity was $6.875B versus $5.474B. Goodwill was $4.927B versus $2.749B. Acquired intangible assets, net, were $1.792B versus $718.2M, comprising existing technology $947.624M, agreements and relationships $802.709M, and tradenames, trademarks and patents $41.673M. Tangible common equity, after subtracting goodwill and acquired intangibles from equity, was approximately $156.3M, down from approximately $2.007B. Estimated remaining acquired-intangible amortization was $1.792006B, including $294.327M in 2027; Q3 amortization was $79.870M versus $25.984M, and 9M was $210.741M versus $75.103M.

Cash fell to $1.452B from $3.001B. Debt included $2.500B principal of senior notes ($2.483242B carrying value) and $150.0M outstanding on a $1.25B revolver. The $500M 2027 Notes were classified as current; note coupons range from 4.20% to 4.70%. Cadence reported compliance with its revolver covenants. Interest expense was $97.1M versus $87.1M for 9M, and cash interest paid was $120.0M versus $111.7M.

Contracts and risks

Contracted but unsatisfied performance obligations were $8.2B, including $0.9B of non-cancelable commitments with product selections or quantities to be determined later. Excluding those commitments, Cadence expected to recognize 58% over the next 12 months and 40% over months 13–36. Deferred revenue increased to $1.150533B from $934.432M; contract assets declined to $42.523M from $67.764M.

Risks include economic and geopolitical uncertainty, foreign exchange, inflation and energy costs, tariffs, supply constraints, and changing trade controls. Export restrictions affecting advanced-node IC production in China remain uncertain; a suspension of expanded BIS restrictions was in place through November 9, 2026, but had not been formally extended as of the filing.

Cadence Design Systems (CDNS) — Q3 and nine months ended September 30, 2026

Revenue and business mix

Q3 2026 revenue increased 22% to $1.6333B from $1.3388B; 9M revenue rose 22% to $4.6920B from $3.8566B. Growth was led by product and maintenance, reflecting customers’ continued investment in increasingly complex designs and growth across software, hardware, and IP offerings.

Recurring revenue represented 79% of Q3 revenue versus 82% a year earlier and 78% of 9M revenue versus 81%. The trailing-12-month share was 78% at September 30, 2026, versus 80% a year earlier. Management attributed the mix shift to more up-front revenue, particularly from the timing of hardware, IP, and certain SD&A software deliveries, and expects the annual recurring/up-front mix to remain relatively consistent. Q3 revenue mix was Core EDA 69% (71% prior year), Semiconductor IP 15% (14%), and System Design and Analysis (SD&A) 16% (15%).

Software growth contributed across all regions in 9M; hardware deliveries supported growth in the U.S., China, Japan, and EMEA, while IP deliveries supported China, Japan, Other Asia, and EMEA. No customer represented 10% or more of revenue in either comparison period.

Costs, investment, and operating performance

Cost of product and maintenance rose 47% in Q3 to $173.9M from $118.7M, and 34% in 9M to $502.4M from $374.7M. Acquired-intangible amortization increased to $46.1M from $15.8M in Q3 and $122.4M from $46.7M in 9M, primarily reflecting the design and engineering (D&E) acquisition. Other product and maintenance costs were $127.8M from $102.9M in Q3 and $380.0M from $328.0M in 9M; higher hardware costs accounted for $18.5M and $37.0M of the respective increases, with employee-related costs adding $4.2M and $8.5M. Hardware carries higher costs as a share of revenue than software and IP, and hardware mix and obsolete-inventory charges can affect margins. Cost of services was $61.8M from $63.5M in Q3 and $187.1M from $158.8M in 9M.

Operating expenses increased 29% in Q3 to $893.0M from $693.6M and 21% in 9M to $2.5621B from $2.1103B:

Increases primarily reflected the D&E acquisition, added headcount, and investment in R&D and technical sales; R&D also included higher stock-based compensation and infrastructure costs. G&A included additional nonprofit contributions of $25.4M in Q3 and $25.1M in 9M. Q3 operating margin declined to 26% from 32%, as acquired-company costs and amortization, contributions, and product/service mix outweighed revenue growth. The 9M margin increased to 28% from 27%, partly because the prior-year period included a contingent-liability loss. A restructuring plan began in September 2026; the timing and amount of benefits are uncertain, and further restructuring may be needed.

Cadence completed its acquisition of Hexagon Smart Solutions’ design and engineering business on February 23, 2026, expanding SD&A and building on its 2024 BETA CAE acquisition. Assumed Hexagon contracts were primarily classified as SD&A product and maintenance revenue.

Financing, liquidity, and capital allocation

Interest expense increased to $30.4M from $29.0M in Q3 and $97.1M from $87.1M in 9M, mainly due to revolving-credit-facility borrowings. Income-tax provision was $118.6M from $105.7M in Q3 and $354.2M from $308.3M in 9M; effective tax rates were 29.0% versus 26.9% and 26.3% versus 30.0%, respectively. Management expects an approximately 27% FY2026 effective tax rate.

Cash and cash equivalents fell to $1.4520B at September 30, 2026, from $3.0013B at year-end 2025; net working capital declined to $887.4M from $3.0344B, reflecting lower cash and the 2027 Notes’ current classification. About 85% of cash was held by foreign subsidiaries. 9M operating cash flow increased to $1.4144B from $1.1753B, attributed to improved results and timing of receipts and disbursements. Investing cash outflow was $2.2456B from $371.7M, primarily due to business-combination payments; financing cash outflow was $706.6M from $735.1M. Cadence expects cash and operating and financing cash flows to cover operations, investment, acquisitions, 2027 Notes payments, and repurchases for at least the next 12 months.

The company had $150.0M outstanding on its $1.25B unsecured revolver, which matures in 2029 and permits a potential lender-approved $500.0M capacity increase. Senior Notes total $2.5B of principal: $500.0M due 2027, $1.0B due 2029, and $1.0B due 2034; the 2027 Notes were classified as current. On October 23, 2026, the board authorized an additional $2.5B of repurchases; this was authorization, not reported repurchases. $601.6M remained under the existing authorization at September 30. No material changes were reported in other liquidity requirements described in the prior annual report.

Risks and outlook

Customer demand depends on continued investment in complex semiconductor and electronic-system design, while delivery timing for hardware and IP can shift revenue mix and recognition. Trade controls involving China remain uncertain: the BIS rule extending restrictions to entities at least 50%-owned by listed parties was suspended through November 9, 2026, but had not been formally extended as of the report date. Tariffs and retaliatory measures also remain in flux; the Supreme Court struck down IEEPA tariffs in February 2026, while tariffs under other authorities and possible new measures remain. Cadence cited potential direct effects on hardware and imported-component costs and indirect effects through customers and the broader economy. Foreign exchange, inflation, energy costs, supply constraints, and interest rates are additional exposures; conflicts, including in the Middle East, had not materially affected results to date.

Market Risk

Foreign currency

Cadence’s operations, revenue and expenses span multiple currencies, exposing reported results and product competitiveness to exchange-rate movements. When products are priced in U.S. dollars, a weaker local currency can make them less competitive. For revenue and expenses denominated in local currencies, respectively, a weaker dollar can benefit revenue and a stronger dollar can benefit expenses. Expense movements are not generally offset by corresponding revenue movements on existing contracts.

At September 30, 2026, foreign-currency forwards had $985.7 million of notional principal and a $(7.3) million estimated fair value, compared with $3.3 billion of aggregate principal and a $(26.0) million fair value at December 31, 2025. The largest September notionals were euros ($263.8 million), yen ($150.3 million), renminbi ($146.8 million), pounds ($129.4 million) and shekels ($84.0 million). All contracts mature before or during November 2026; forwards generally mature within 90 days.

The forwards hedge estimated existing asset, liability and other commitment exposures. They are not designated as accounting hedges, so fair-value gains and losses are recognized in other income (expense), net, ahead of the related cash flows. Their effectiveness depends on accurately estimating and matching exposures, and they may not substantially offset currency effects.

A hypothetical 10% U.S.-dollar depreciation would reduce forward-contract fair value by $6.3 million at September 30, 2026, compared with $213.1 million at December 31, 2025; a 10% appreciation would increase fair value by $10.0 million, compared with $219.4 million, respectively. The much larger December sensitivities primarily reflected euro-denominated purchase consideration for Hexagon’s design and engineering business, acquired in February 2026.

Interest rates and investments

Interest-rate exposure arises mainly from cash, cash equivalents, debt investments and variable-rate Credit Facility borrowings; U.S. rates are most significant to interest income and expense. Debt securities had a fair value of $80.7 million at September 30, 2026, versus $71.0 million at December 31, 2025. A 100-basis-point rate increase would reduce their fair value by $3.6 million and $2.8 million, respectively.

Credit Facility borrowings were $150.0 million at September 30, 2026. If the facility were fully drawn and Cadence exercised its right to increase capacity, each 25-basis-point rate change would change annual interest expense by $4.4 million.

Cadence also holds marketable and non-marketable equity investments, primarily through a strategic investment program in companies with potentially important technologies; this section provides no portfolio amounts or quantified equity-price sensitivity.

Controls and Procedures

As of September 30, 2026, management, including the CEO and CFO, concluded that disclosure controls and procedures were effective in providing reasonable assurance that required information is recorded, processed, summarized, reported on time, and communicated to support timely disclosure decisions. No changes during the fiscal quarter ended September 30, 2026 materially affected, or were reasonably likely to materially affect, internal control over financial reporting.

The company cautioned that controls provide reasonable, not absolute, assurance and may not prevent or detect every error or instance of fraud because of inherent limitations and resource constraints.

Updated risk factors

Cadence updated three risk factors: macroeconomic and geopolitical uncertainty; trade controls and other regulation; and cybersecurity. The section reports no operating or balance-sheet metrics.

Macroeconomic and geopolitical uncertainty

Inflation, interest rates, political instability, conflicts, protectionism, and weaker corporate spending could reduce customers’ chip-design activity and R&D budgets, lowering bookings and demand for Cadence products and services. Customer bankruptcies or consolidation, financial-market disruption, and problems involving hardware suppliers or delivery could also impair growth and future revenue.

Cadence identifies U.S.–China tensions and Taiwan’s role in the technology supply chain as significant exposures. Disruptions or tariffs could reduce demand, cancel orders, interrupt supply, increase costs, and weaken competitiveness. Cadence and its suppliers, vendors, and customers have business ties to China and other countries affected by restrictions; China represents a substantial, unspecified percentage of Cadence revenue.

Trade controls, regulation, and export-compliance obligations

U.S. and foreign export/import rules, sanctions, tariffs, and licensing requirements can delay or prevent sales, shipments, technology transfers, or customer deployments. They may increase costs or push customers toward competitors, foreign alternatives, open-source products, or in-house solutions.

A temporary U.S. license requirement imposed May 23, 2025, for EDA software and technology involving parties in China or Chinese military end users was rescinded effective July 2, 2025. Customer access was restored, but the restrictions negatively affected China revenue. Further restrictions remain possible amid U.S.–China negotiations. China’s goal of global semiconductor leadership by 2030 may also strengthen local competition.

The scope and duration of controls remain uncertain. A BIS interim rule issued September 29, 2025, extended certain restrictions to entities at least 50% owned by listed or sanctioned parties; BIS suspended the rule for one year through November 9, 2026. An extension of a U.S.–China trade arrangement through January 10, 2027, was expected to extend the suspension, but BIS had not formally done so as of the report. Retaliatory measures—including tariffs, Chinese export controls on critical minerals, and China’s unreliable-entity list—could affect demand, costs, and supply chains. Restrictions could also constrain customers’ products or prevent employees of certain nationalities from working without licenses. Cadence notes increased credit risk on receivables from Entity List customers, including amounts connected with anti-piracy enforcement and litigation settlements.

Cadence’s July 27, 2025 settlement with BIS and DOJ concerned violations during 2015–2021 involving $45.3 million of products and services sold by a subsidiary to a customer in China, and subsequent technology transfer to a third party in China, without required authorization. Cadence agreed to plead guilty to one DOJ conspiracy count and entered a three-year probationary agreement requiring enhanced compliance programs, reporting, certifications, risk assessments, and cooperation. Its BIS agreement requires two annual internal compliance audits. Cadence paid aggregate net penalties and forfeitures of $140.6 million in the three months ended September 30, 2025. Compliance with the BIS agreement is a condition of continued export privileges. Further violations could lead to additional proceedings, penalties, denial of export privileges, or U.S. government-contract debarment, as well as reputational harm and management distraction. Obligations may extend to acquired businesses and potential purchasers, complicating acquisitions or a sale; the settlements could also prompt inquiries by authorities, including in China.

Cybersecurity

Cadence relies on its own and third-party IT systems, including cloud services, and holds personal, proprietary, and customer information. It faces evolving threats from state-backed actors, hackers, and insiders, including phishing, ransomware, denial-of-service attacks, software vulnerabilities, human error, and increasingly sophisticated AI-enabled attacks and zero-day exploits. Geopolitical tensions may increase the frequency and sophistication of attacks, which could be difficult to detect or remediate.

Cadence reported that a threat actor obtained a limited amount of information from certain IT systems, including test files, configuration settings, and source-code files that were not material to the business. The company notified law enforcement, believes the incident was contained, and reported no operational disruption or impact to customer environments.

Broader exposure includes reliance on third-party cloud and other providers, vulnerabilities in internally developed, procured, or open-source technology, and the time required to bring acquired companies’ security practices up to Cadence’s standards. A breach could compromise Cadence’s or customers’ systems, cloud environments, confidential information, or financial assets; disrupt services; and result in business interruption, customer losses, reputational damage, regulatory action, litigation, fines, or significant remediation costs. Insurance may not cover losses or remain available on reasonable terms, and an incident could materially adversely affect Cadence’s financial condition and results.

During the fiscal quarter ended September 30, 2026, Chin-Chi Teng, Senior Vice President and General Manager of Cadence’s Digital and Signoff Group, adopted a Rule 10b5-1 trading plan on August 20, 2026, to sell up to 14,000 shares of Cadence common stock. The plan expires February 28, 2027. Teng’s prior plan, adopted February 20, 2026, expired by its terms on August 31, 2026; sales under the new plan cannot begin until all trades under the prior plan are completed.

This section reports no financial results or other business developments.