Cadence raises 2025 outlook to 14% revenue growth and 18% EPS growth amid AI-driven demand and record $7B backlog

Earnings Call Insights: Cadence Design Systems (CDNS) Q3 2025

MANAGEMENT VIEW

* Anirudh Devgan, CEO, President & Director, highlighted strong operational and financial performance, stating, "Cadence delivered excellent results for the third quarter of 2025, with strong operational and financial performance across all product categories and geographies as we continued the disciplined execution of our strategy." Bookings exceeded expectations, with backlog growing to over $7 billion. Devgan announced, "Given the ongoing strength of our business, we are raising our full year outlook to approximately 14% revenue growth and 18% EPS growth."
* Devgan emphasized the accelerating impact of AI, noting Cadence's position: "The accelerating AI megatrend is fueling an unprecedented wave of design activity... Cadence is uniquely positioned to capture this generational opportunity with a differentiated and comprehensive portfolio spanning EDA, IP, 3D-IC, PCB and system analysis." Partnerships were expanded with Samsung, TSMC, and a leading semiconductor company, and the acquisition of the Arm Artisan Foundation IP and a definitive agreement to acquire Hexagon's D&E business were completed.
* John Wall, Senior VP & CFO, stated, "We exceeded our guidance for Q3 revenue, operating margin and EPS and are raising the full year outlook across these key metrics." Wall added, "With the updated outlook and at the midpoint, we now expect our 2025 revenue to grow approximately 14% year-over-year on track to achieve double-digit growth across all our product categories for the year."

OUTLOOK

* For Q4, revenue is expected in the range of $1.405 billion to $1.435 billion, GAAP operating margin in the range of 32.5% to 33.5%, non-GAAP operating margin in the range of 44.5% to 45.5%, GAAP EPS in the range of $1.17 to $1.23, and non-GAAP EPS in the range of $1.88 to $1.94.
* The updated full-year 2025 outlook projects revenue in the range of $5.262 billion to $5.292 billion, GAAP operating margin 27.9% to 28.9%, non-GAAP operating margin 43.9% to 44.9%, GAAP EPS $3.80 to $3.86, non-GAAP EPS $7.02 to $7.08, and operating cash flow $1.65 billion to $1.75 billion. Wall reiterated, "We expect to use at least 50% of our annual free cash flow to repurchase Cadence shares."
* Management emphasized that guidance assumes export control regulations remain "substantially similar" for the remainder of the year.

FINANCIAL RESULTS

* Total revenue for Q3 was $1.339 billion. GAAP operating margin was 31.8%, non-GAAP operating margin 47.6%. GAAP EPS was $1.05, non-GAAP EPS $1.93.
* Cash balance at quarter end was $2.753 billion, principal value of debt $2.5 billion, and operating cash flow $311 million. Cadence repurchased $200 million in shares during the quarter.
* Bookings were strong, resulting in a backlog of $7 billion. Wall noted, "Third quarter bookings were strong, resulting in a backlog of $7 billion."

Q&A

* Vivek Arya, BofA Securities: Questioned sustainability of IP business growth. Devgan responded that growth is driven by focus on AI and HPC IP, advanced node foundries, and customer demand: "For these 3 main reasons, I'm pretty optimistic about the IP business... I would be surprised if our IP business does not grow better than Cadence average."
* Jason Celino, KeyBanc: Asked about Q4 renewals. Devgan attributed Q3 strength to accelerating AI infrastructure build-out and noted strong demand continuing. Wall added, "The mix as well is healthy across EDA, IP, hardware and SDA."
* Lee Simpson, Morgan Stanley: Inquired about China growth. Wall stated, "China design activity remains very strong. The region returned to business as usual for us in the second half that with the lifting of the export regulations that changed for EDA in early July."
* Siti Panigrahi, Mizuho: Asked about system design and simulation analysis strategy. Devgan described SD&A as having two strong pillars post-acquisition: 3D-IC/HPC and physical AI, with expectations to surpass $1 billion run rate in 2026 if the acquisition closes.
* Additional analysts raised questions about AI integration, hardware demand, regional risks, OpEx dynamics, and custom silicon strategies.

SENTIMENT ANALYSIS

* Analysts were largely positive, focusing on sustainability of growth in IP and hardware, China recovery, and strategic expansions. Questions reflected a mix of optimism and caution, particularly regarding regional risks and long-term visibility.
* Management maintained a confident tone in prepared remarks, using phrases like "I'm pleased with our Q3 results" and "Cadence is uniquely positioned." During Q&A, management was direct, repeatedly describing business momentum as "broad-based" and emphasizing prudence in guidance. Wall often reiterated, "We always incorporate prudence for regulatory variability."
* Compared to the previous quarter, the current discussion was more positive on backlog, China normalization, and the outlook for IP and hardware. Analysts in the previous quarter were more focused on China headwinds and recurring revenue trends, while management then was more cautious regarding the macro environment.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for revenue and EPS growth was raised from 13% and 16% in Q2 to 14% and 18% in Q3. The Q3 backlog reached a record $7 billion, compared to $6.4 billion at the end of Q2.
* Management tone shifted from cautious optimism in Q2—due to export restrictions and China headwinds—to confident positivity in Q3, citing normalization in China and strong momentum across all product categories.
* Analysts' focus evolved from the impact of China restrictions and recurring revenue splits last quarter to questions about sustainability of IP growth, hardware demand, and the strategic impact of acquisitions and AI.
* Strategic focus expanded with new acquisitions (Arm Artisan Foundation IP and Hexagon’s D&E business) and deeper partnerships with leading foundries and AI companies.

RISKS AND CONCERNS

* Management cited export control regulations and geopolitical variability as ongoing risks, with Wall stating, "Our Q4 and full year outlook assumes today's export regime remains substantially similar."
* Several analysts questioned the sustainability of growth in China and hardware, as well as potential impacts from new regional tariffs or bans. Management consistently emphasized prudent guidance and ongoing compliance.
* New acquisition integration and associated OpEx timing were discussed, with Wall attributing Q3 OpEx benefits to a small restructure and noting new expenses in Q4 from acquisitions.

FINAL TAKEAWAY

Cadence reported strong Q3 2025 results, driven by robust AI demand, record backlog, and broad-based growth across product categories and geographies. Management raised full-year revenue and EPS growth targets and highlighted expanded customer partnerships, product innovations, and recent acquisitions as key drivers positioning the company for continued momentum into 2026. The normalization of China operations and sustained hardware demand further support an optimistic outlook, while management remains attentive to regulatory risks and prudent in forward guidance.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/cdns/earnings/transcripts]

MORE ON CADENCE DESIGN SYSTEMS

* Cadence Design Systems, Inc. (CDNS) Q3 2025 Earnings Call Transcript [https://seekingalpha.com/article/4833805-cadence-design-systems-inc-cdns-q3-2025-earnings-call-transcript]
* Cadence Design Systems: Picks, Shovels, And More For Modern Tech [https://seekingalpha.com/article/4824707-cadence-design-systems-picks-shovels-more-modern-tech]
* Cadence Design Systems: Valuation Leaves Little Room For Error [https://seekingalpha.com/article/4823308-cadence-valuation-leaves-little-room-for-error]
* Cadence Design Systems increases full-year outlook [https://seekingalpha.com/news/4508912-cadence-design-systems-increases-full-year-outlook]
* Cadence Design Systems Non-GAAP EPS of $1.93 beats by $0.14, revenue of $1.34B beats by $20M [https://seekingalpha.com/news/4508950-cadence-design-systems-non-gaap-eps-of-1_93-beats-by-0_14-revenue-of-1_34b-beats-by-20m]