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DATE

Monday, July 28, 2025 at 5 p.m. ET

CALL PARTICIPANTS

  • President & Chief Executive Officer — Anirudh Devgan
  • Senior Vice President & Chief Financial Officer — John Wall
  • Vice President, Investor Relations — Richard Gu

For analyst commentary, contact [email protected]

RISKS

  • John Wall stated, we had to exclude a number of China bookings from our backlog by the end of fiscal Q2 2025 (period ended June 30, 2025) due to ongoing restrictions, which led to a temporarily lower backlog than would have otherwise been reported at the end of fiscal Q2 2025.
  • Recurring revenue declined to 78% of total revenue, which management attributed to paused China ratable revenue, and increased upfront business in hardware and IP.
  • Cadence(CDNS -1.26%) disclosed it will make a $141 million payment in fiscal Q3 2025 as part of the DOJ and BIS settlement regarding certain China transactions from 2015 to 2021, which totaled approximately $45 million over the six-year period.

TAKEAWAYS

  • Total Revenue— $1.275 billion for fiscal Q2 2025 (period ended June 30, 2025), up 20% year over year, attributed to broad-based growth and AI-driven demand.
  • Non-GAAP EPS— $1.65 for fiscal Q2 2025, rising 29% year over year, driven by robust design activity, customer demand, and strong execution.
  • GAAP EPS— $0.59 for fiscal Q2 2025.
  • Operating Margin— 42.8% on a non-GAAP basis and 19% on a GAAP basis for fiscal Q2 2025, demonstrating efficiency gains.
  • Cash Position— $2.823 billion in cash and $2.5 billion in principal value of debt as of fiscal Q2 2025.
  • Free Cash Flow Utilization— $175 million was used for share repurchases in fiscal Q2 2025. Cadence management projects using at least 50% of annual free cash flow on repurchases in 2025.
  • Revenue Guidance (Full Year 2025)— Updated to a range of $5.21–$5.27 billion for fiscal 2025 (period ending Dec. 31, 2025), reflecting increased expectations over the prior outlook.
  • GAAP EPS Guidance (Full Year 2025)— GAAP EPS is expected to be $3.97–$4.07 for fiscal 2025, including the impact from the settlement payment.
  • Non-GAAP EPS Guidance (Full Year 2025)— Non-GAAP EPS is expected to be in the range of $6.85–$6.95 for fiscal 2025, also reflecting underlying demand strength.
  • AI and Agentic Platform Adoption— Over 50% of advanced-node digital designs now utilize Cadence Cerebras as of fiscal Q2 2025, with Cadence Cerebras AI Studio launched and endorsed by customers such as Samsung and STMicroelectronics.
  • IP Segment Performance— Achieved more than 25% year-over-year revenue growth in fiscal Q2 2025 (non-GAAP), driven by AI and HPC demand, including major wins for HBM4 solutions, and the launch of LPDDR6 memory IP.
  • Hardware Business— Achieved record revenue (non-GAAP) for fiscal Q2 2025, attributed to strength in products like Palladium Z3 and Protium X3 platforms, and growth across AI, HPC, and automotive customers.
  • System Design and Analysis Growth— Delivered 35% year-over-year revenue growth in fiscal Q2 2025 (non-GAAP), led by customer adoption of 3D IC technology, and the Allegro X PCB platform.
  • China Revenue Mix— China constituted 9% of total revenue in fiscal Q2 2025, down from 11% in fiscal Q1 2025, offset by growth in other geographies.
  • Settlement Disclosure— DOJ and BIS investigations into prior China transactions have been settled with a $141 million payment scheduled for fiscal Q3 2025, impacting revenue for approximately $45 million in transactions from 2015 to 2021.
  • Tax Environment— The recently passed U.S. budget reconciliation legislation restored immediate R&D expensing in the U.S., reducing federal tax payments by approximately $140 million for fiscal 2025.
  • Recurring Revenue Proportion— Recurring revenue was 78% in fiscal Q2 2025, a multi-year low, which management attributes to hardware and IP outperformance, and the pause in China revenue.
  • Backlog Dynamics— Backlog was described as stronger than expected going into fiscal Q2 2025 despite China constraints, with soft bookings in China offset by growth elsewhere.
  • Guidance for Q3 2025— Revenue is expected to be between $1.305–$1.335 billion and non-GAAP EPS between $1.75–$1.81, with GAAP EPS of $1.14–$1.20 and a GAAP operating margin of 32%–33% for fiscal Q3 2025.

SUMMARY

Strategic partnerships with customers such as SK Hynix, Analog Devices, and Taiwan Semiconductor Manufacturing were deepened through expanded product proliferation and certified flows, directly supporting technology leadership in advanced-node and 3D IC design. The settlement with U.S. authorities resolves multi-year China compliance matters, producing a one-time financial impact but removing a regulatory overhang from future operations.

  • Management noted broad-based revenue and bookings growth, as well as a higher-than-expected backlog for fiscal Q2 2025, indicating improvement across all major segments and geographies despite China export noise. All financial measures discussed were non-GAAP unless otherwise specified.
  • Management noted a continued shift in revenue mix, with hardware and IP growth now outpacing core ratable software, and recurring revenue expected to remain near 80% due to strength in upfront businesses.
  • Anirudh Devgan outlined multi-cycle “AI super cycle” tailwinds, specifying that Cadence’s comprehensive platform approach enables customers to address escalating system complexity and productivity bottlenecks in both data center and physical AI deployments.
  • Management stated they are raising the financial outlook for the year to 13% revenue growth and 16% EPS growth (non-GAAP) for 2025, citing heightened customer investment and multi-year proliferation of agentic AI and system design innovations.

INDUSTRY GLOSSARY

  • Agentic AI: Artificial intelligence embedded into EDA tools as agents that autonomously optimize and perform complex semiconductor design tasks beyond single-step automation.
  • HBM4: High Bandwidth Memory, fourth generation, used in advanced AI and HPC applications for significantly increased memory bandwidth.
  • LPDDR6: Low-Power Double Data Rate 6, a next-generation memory interface standard optimized for performance and efficiency in mobile and AI devices.
  • JEDI Platform: Cadence’s Joint Enterprise Data and AI platform that centralizes workflow data management, orchestration, and integration with AI agents for EDA customers.
  • 3D IC/3.5D IC: Integrated circuit architectures utilizing multidimensional (layered or chiplet) integration to increase system performance and complexity beyond traditional planar scaling.
  • PPA: Power, Performance, and Area; key metrics for evaluating the quality and efficiency of semiconductor design implementations.
  • OBBBA: One Big Beautiful Bill Act; U.S. legislation restoring immediate expensing for R&D expenditures, impacting corporate tax obligations.

Full Conference Call Transcript

Richard Gu: Thank you, operator. I would like to welcome everyone to our second quarter of 2025 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, as well as the impact of our DOJ and BIS settlements. 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, and we disclaim any obligation to update them. 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 additional questions. Now I will turn the call over to Anirudh.

Anirudh Devgan: Thank you, Richard. Good afternoon, everyone, and thank you for joining us today. Cadence Design Systems, Inc. delivered exceptional financial results for the second quarter of 2025, exceeding our Q2 revenue and EPS guidance, driven by ongoing broad-based strength across our AI-driven product portfolio. Bookings were stronger than expected, highlighting the strategic relevance of our AI-driven portfolio and the depth of our customer relationships. Demand for our technologies continues to grow, driven by customers embracing our products at scale, and we are raising our financial outlook for the year to 13% revenue growth and 16% EPS growth for 2025. John will provide more details on both our Q2 results and the updated outlook.

We continue executing to our intelligent system design strategy initiated in 2018, which remains a clear differentiator in a rapidly evolving landscape. Our early investment delivering to our vision of unified EDA, IP, 3D IC, PCB, and system analysis are paying off. These capabilities are enabling us to lead through the accelerating waves of the AI super cycle, from AI infrastructure build-out to physical AI in autonomous systems, to the emerging frontier of sciences AI. Customer R&D investments remain robust, particularly as AI drives exponential design complexity, such as in advanced node design and complex system architectures. And this is translating into broad-based demand across our portfolio.

Embedding agentic AI into our design platforms across core EDA, system design, and system simulation workflows enables the evolution from traditional tool-based flows to autonomous goal-driven agents. Our Cadence AI portfolio, powered by multiple autonomous silicon agents and built on our unified JEDI platform with NVIDIA accelerated compute, is delivering optimized design and massive efficiency gains for our customers. At Cadence Live 2025, we introduced the new Millennium M2000 AI supercomputer, featuring NVIDIA Blackwell, delivering AI-accelerated simulation at unprecedented speed and scale across engineering and science workloads. Its tightly co-optimized hardware, software, full system stack delivers up to 80x higher performance and up to 20x lower power versus traditional CPU-based systems.

Multiple customers provided endorsements, including Ascendant, MediaTek, and Treeline Biosciences. In Q2, we furthered our long-standing partnership with ADI through a broad proliferation of our core EDA software, including AI-driven Cadence Cerebras and Vericium solutions, as well as system software across PCB, advanced packaging, and system analysis. Also in Q2, we deepened our partnership with SK Hynix through a broad expansion of our EDA software, system software, and design IP solutions. And a major semiconductor company meaningfully expanded its relationship with Cadence in Q2 through a broad proliferation of our EDA, IP, and SDA portfolio.

We furthered our long-standing collaboration with TSMC to accelerate time to silicon for customer designs using 3D IC and advanced node technologies, such as TSMC's A16 and N2P, through certified design flows, silicon-proven IP, and ongoing technology collaboration. We continued the strong momentum in our IP business, driven by product strength delivering more than 25% year-over-year growth in Q2 and a broadening silicon solutions portfolio. AI and HPC use cases spearheaded the strong demand for our IP offerings, with advanced technology such as HBM4 and 224G SerDes, matching key wins for scale-up and scale-out in the AI infrastructure space.

We built on our strategic collaboration with the emerging advanced foundry, as they awarded us a large deal in Q2 for our leading HBM4 solution. We introduced the industry's first LPDDR6 memory IP, offering up to 50% higher performance to meet the growing memory and capacity needs of AI LLMs and agentic AI workloads. At Cadence Live 2025, we launched the Cadence Tensilica NeuroEdge 130 AI coprocessor to accelerate physical AI applications. And in Q2, a market-shaping wireless technology company selected Tensilica HiFi 5S as the standardized audio solution for its music and voice platforms. Our core EDA revenue further proliferation grew 16% year-over-year in Q2.

Of our digital full flow at the most advanced nodes continued, and more than 50% of advanced nodes designs using our implementation solutions are now using Cadence Cerebras. In Q2, we launched Cadence Cerebras AI Studio, the industry's first agentic AI multi-block and multi-user SoC design platform. This technology delivering up to 20% PPA improvement while accelerating chip delivery time by 5 to 10x was endorsed by Samsung and ST Microelectronics at launch.

And Renesas successfully used our Pegasus physical verification solution to sign off an advanced node SoC after it demonstrated a significant throughput advantage. Our industry-leading Palladium Z3 and Protium X3 platforms accelerated their momentum, delivering outstanding results, with Q2 being the best revenue quarter ever for our hardware systems. Demand for hardware was strong and broad-based, driven by AI, HPC, and automotive customers. Our verification software suite that includes Vericium, Exalium, and Jasper, and leverages big data and AI to optimize verification workloads saw continued expansion with 27 new logos in Q2. Building upon thirty years of industry leadership, we launched the Virtuoso Studio 25.1 release, offering broad support for RF photonics, mixed signal, and advanced heterogeneous design.

Our leading SpectreX circuit simulator closed several deals with strong growth, while our fast-paced Spectre FX platform has now been adopted by the top three memory companies. Our system design and analysis business delivered another standout quarter with 35% year-over-year revenue growth. On the packaging front, there was strong customer uptake of our 3D IC technology, and top foundries and semi customers embraced our AI-driven advanced substrate router, which provides tremendous productivity benefit. Our AI-driven Allegro X PCB design platform saw continued proliferation as multiple aerospace and defense, hyperscale, and EV customers took advantage of the platform's meaningful productivity and next-generation capabilities.

Our Clarity and Celsius solvers saw significant expansion at a major hyperscaler, and Clarity secured a key win at a marquee AI company, while our Reality data center digital twin drove strong growth at a top hyperscaler. Beta CAE technology integration with our CFD thermal and electromagnetics products were released, as Beta CAE solutions continued to score key competitive wins, particularly in the automotive segment. Finally, I am pleased to share that we have entered into a settlement with the US Department of Justice and the US Department of Commerce's Bureau of Industry and Security that resolved the previously disclosed investigations into certain transactions with customers in China that occurred between 2015 and 2021.

The settlement represents a mutually acceptable path forward for all parties, and we believe it is in the best interest of our customers, partners, and shareholders. I want to emphasize that Cadence Design Systems, Inc. is deeply committed to the highest standards of compliance, and we have significantly enhanced our compliance processes over the last few years and continue to implement improvement measures to proactively address evolving trade restrictions. We remain focused on delivering for our customers and shareholders and executing the clear strategy we have laid out to drive innovation and enhanced value creation.

In summary, I am delighted with our Q2 results and the continued momentum across our broad and innovative portfolio. The AI-driven era presents tremendous opportunity, and the co-optimization of our comprehensive EDA and SDA portfolio with accelerated computing and GenAI uniquely positions us to deliver breakthrough solutions across a wide range of markets. Now I will turn it over to John to provide more details on the Q2 results and our updated 2025 outlook.

John Wall: Thanks, Anirudh. Good afternoon, everyone. I am pleased to report that Cadence Design Systems, Inc. delivered excellent results for 2025 with broad-based momentum across all of our businesses. Strength in other regions more than offset the impact of the export restrictions on China outlined in the BIS letter, dated May 23, which was later rescinded. Robust design activity and customer demand, coupled with our strong execution, drove 20% revenue growth and 29% non-GAAP EPS growth year-over-year for Q2. Here are some of the financial highlights from the second quarter, starting with the P&L. Total revenue was $1.275 billion. GAAP operating margin was 19%, and non-GAAP operating margin was 42.8%. GAAP EPS was 59¢, with non-GAAP EPS $1.65.

Next, turning to the balance sheet and cash flow. Cash balance at quarter-end was $2.823 billion, while the principal value of debt outstanding was $2.5 billion. Operating cash flow was $378 million. DSOs were fifty-one days, and we used $175 million to repurchase Cadence shares. Before I provide our updated outlook, I would like to share what is embedded. As Anirudh mentioned, I am pleased that we have reached a settlement with the DOJ and BIS, resolving previously disclosed investigations into certain China sales from 2015 to 2021, totaling approximately $45 million over the six-year period. As part of the agreements, we will make a payment of $141 million in our third fiscal quarter.

Please see our Form 8-Ks, which includes additional details regarding the terms of the agreements. On July 4, 2025, the One Big Beautiful Bill Act was enacted in The United States. This act includes the restoration of favorable tax treatment for certain business provisions, including the immediate expensing of United States research and development expenditures. We expect it to decrease Cadence's United States federal tax payments for the remainder of fiscal 2025 by approximately $140 million. Our updated outlook includes the timing of the settlement penalty, the cash tax benefit of the OBBBA, and the usual assumption that export control regulations that exist today remain substantially similar for the remainder of the year.

Our updated outlook for 2025 is revenue in the range of $5.21 to $5.27 billion. GAAP operating margin in the range of 28.5 to 29.5%, non-GAAP operating margin in the range of 43.5 to 44.5%. GAAP EPS in the range of $3.97 to $4.07. Non-GAAP EPS in the range of $6.85 to $6.95. Operating cash flow in the range of $1.65 to $1.75 billion. And we expect to use at least 50% of our annual free cash flow to repurchase Cadence shares. With that in mind, for Q3, we expect revenue in the range of $1.305 billion to $1.335 billion.

GAAP operating margin in the range of 32 to 33%, non-GAAP operating margin in the range of 45 to 46%, GAAP EPS in the range of $1.14 to $1.20, and non-GAAP EPS in the range of $1.75 to $1.81. As usual, we published a CFO commentary document on the investor relations website, which includes our outlook for additional items, as well as further analysis and GAAP to non-GAAP reconciliations. In conclusion, I am pleased with our strong first-half results and the robust pipeline for the second half of the year. At the midpoint, we now expect revenue growth of 13% and non-GAAP operating margin of 44% for the year.

I would like to close by thanking our customers, partners, and our employees for their continued support. And with that, operator, we will now take questions.

Operator: Thank you. And at this time, I would like to remind everyone who wants to ask a question to please press star and then the number one on your telephone keypad. As a courtesy to all participants, we ask that you please limit yourself to one question, and we will pause for a moment to compile the Q&A roster. And our first question comes from the line of Joe Vruwink with Baird. Your line is open.

Joe Vruwink: Hi, great. Thank you for taking my question. I wanted to ask a question on physical AI. It seems like over the past quarter or so, many of your key development partners have had more to say around what they are doing with edge devices or even small language models, maybe as a means to enabling physical AI. Is this factoring into the booking strength you have seen recently? And is it maybe leading to more spend or different spend with Cadence Design Systems, Inc. just in terms of the tools that this is going to need versus what the initial build-out of AI infrastructure has meant?

Anirudh Devgan: Yeah, Joe. This is a great question. And overall, I am very pleased by our results and our performance. And the demand for our products, which is broad-based. Also, I think there is, first of all, I believe there is overall optimism in the benefits of AI for our customers. You know? Both from, you know, what they can, you know, their own product, and also how they can use AI internally. So, therefore, they are investing more in their innovation and given the critical nature of our products, more in Cadence Design Systems, Inc. Now it has several aspects to it.

And, you know, I have been a big fan of physical AI for a long time because one unique advantage we have in Cadence Design Systems, Inc. is the privilege to work with all the top companies in the world. And we believe that, of course, AI infrastructure is huge, but physical AI has a potential of being even bigger, followed by sciences AI. That is why we have laid this three-phase evolution of AI. And now, you know, if you look in the marketplace also with autonomous cars or robots and drones, it is becoming much more, you know, public.

And, you know, our advantage is even though some of these things come out later, you know, the customer starts investing in R&D before they come out in public. You know? So but I think physical AI will play a very key role for our products because the silicon required, first of all, and physical AI will affect the whole three layers of that AI cake that I have talked about. So first of all, the silicon is different. In the car or in the robot or in the edge devices, it is different than data center silicon. I mean, it is still AI-driven, but it is more power optimized, runs on lower battery as you know.

So the silicon is different. The simulation and design are different. Of course, AI models themselves are different. They are more word models than LLMs. But all these physical AIs still need to be trained, you know? Even if the inference, like, for autonomous cars runs on the car, the actual AI model is trained on the data center. The beautiful thing about physical AI is not only it creates new opportunities for us, it also emphasizes the importance of AI infrastructure in the data centers. So it is helping both sides of that equation, and so we are benefiting from that. You know?

And we are, as you know, working with all the main AI data center players, you know, as they design chips and systems. So the impact is both on the data center side and the edge side. But there is still an evolving market. I think physical AI is still in the early innings. You know, there is still, like, three to five years of more development to go. So but overall, I think what I would like to say is that the customer environment is, I feel, personally, is better than it was six months ago.

Joe Vruwink: That is great. Thank you.

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

Gianmarco Conti: Yes. Hi, there. Thank you for taking my question. I mean, firstly, congrats on another amazing quarter. Simply what led to Cadence Design Systems, Inc. increasing the growth outlook even though you could not recognize one month China revenue? Guess, like, the curiosity of whether there was a single stack of renewals across CDA or was this across all fronts? And maybe you can give us more comment on backlog and the development for the year. Thank you.

John Wall: Yeah, Gianmarco. Great question. I mean, yeah, it has been an interesting quarter. I mean, China ended up being 9% of our revenue in Q2. That is down from 11% in Q1, but we have seen strong demand across all geographies. And strength in other regions more than offsets any near-term softness related to China during Q2. We have spoken in the past about how well-diversified our customer base is, and we are increasingly seeing growth, and we are seeing the growth in bookings from AI, HPC, and system design workloads globally. But we are very, very pleased with the way backlog ended up at the end of Q2.

It is stronger than we expected going into the quarter despite all of the restrictions. But, yeah, we are very, very pleased with where we are halfway through the year. Anirudh, anything to add?

Anirudh Devgan: No, John. That is right. I mean, overall, I would like to say the demand is broad-based. You know, you can see it in all the results of all the three main lines of business. I mean, hardware is doing phenomenally well. You know, we had a record quarter ever, you know, in terms of revenue. And we have a clear lead in hardware, and also, we are essential to all the major AI chips being designed using Palladium and our EDA software. And then, you know, all these agentic AI tools, like, you know, Cerebras AI Studio. I mean, that is a phenomenal new product. And then, Allegro X.

So I think both the software and hardware business is doing well in core EDA. And then IP had a great quarter. I mean, there are a lot of reasons behind that. One is the AI infrastructure build-out. But also, you know, there are at least four major companies doing advanced node foundries now. You know, with TSMC and our long-standing partner. Samsung, even today, there is a big announcement from Samsung Foundry. You know, Intel with 18A, 14A, and Rapidus in Japan. You know? I just came back from Japan with this big opening of Rapidus. So there are at least four advanced node foundries that all require IP. So I think that is also driving strength in IP.

And then the system continues to do well because of our focus on, you know, 3D IC, which is the fastest-growing part of the system market. And, you know, beta is providing us a good kind of integration with the rest of the flow, new products like Millennium. So if I look at all the three main, you know, areas, I think I feel we are very well positioned, and the market itself seems to be improving. The AI super cycle.

Gianmarco Conti: Got it. Thank you.

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

Vivek Arya: Thank you for taking my question. Just a near and longer China impact question. So on the near term, how much of a headwind was China in Q2? I know, John, you mentioned they went from 11 to 9%, but what was kind of the expectation? Then if we zoom out for all of 2025, I think in the past, you had said China sales were expected to be flat year on year. Is that still the right approach because that would still imply quite a bit of a lift in the back half? And then, Anirudh, if we look longer term, what is the right China exposure for Cadence Design Systems, Inc.?

Does it naturally just come down over time, or, you know, will it probably stay at this, you know, nine, 10, 11% kind of range over the longer term?

John Wall: Yeah, Vivek, look. I will start. Because I understand your question. I mean, I would view our outlook for China to be optimistic but prudent. I mean, our guidance reflects what we believe to be a prudent and well-calibrated view of the second half of the year. The export control environment is dynamic, and while we have incorporated the current regulatory framework as of today into our assumptions, we always add some prudence to account for potential variability, whether that is geopolitical or operational. But we are very, very pleased with how China is doing. I know last quarter, we told you that we were expecting it to be flat.

It is hard to see how China will not increase a little bit over last year, but we have been prudent with our guide.

Anirudh Devgan: And Vivek, long term, I mean, China will, of course, invest in chip design and system design, just like all geographies. But I think the percentage of revenue should be similar or maybe, you know, maybe a little down. But because not because China will not do well, but I think the rest of the world is doing phenomenally well. Right? All the investment you are seeing in the US, and then Japan, Korea. I mean, so it is not to say in particular about China, but I think the rest of the world, which we saw in Q2, there is significant investment. So given that context, it is difficult to predict exactly what China will do.

But it is good to see that, you know, China is doing well, but the rest of the world is doing even better. Thank you.

Operator: And our next question comes from the line of Harlan Sur with JPMorgan. Your line is open.

Harlan Sur: Good afternoon, and great job on the quarterly execution. You know, if I look at many of the AI XPU, ASICs, and merchant chip design programs that are in design right now, many of them are looking to transition from 2.5D to 3.5D advanced packaging architectures, which includes chip stacking. Right? And many of these programs are going to start taping out 10 chips in a single package. Right? This is a very complex undertaking, integration, floor planning on top of that. You got signal integrity, thermal power challenges.

Wondering how much is this contributing to the bookings and revenue strength as more of your customers are adopting your Integrity 3D IC or your Allegro X advanced packaging platforms to tackle these challenges of 3.5D packaging. And then how much is advanced packaging roughly contributing to your overall revenues?

Anirudh Devgan: Yeah, Harlan, that is a great question. And a great observation, of course. I mean, the whole industry, in HPC, and AI is moving to this chiplet-based architectures. And, also, I think it is not just limited to the data center. Even, you know, if you look at the latest auto designs and all, they all, all the other markets will, I think, over time, move to this new packaging architecture. And we are, you know, Cadence Design Systems, Inc. is uniquely and very well positioned. I mean, I think we have talked even earlier. Allegro is the tool of choice for package design. Yep. And 3D IC is another way of talking about package design.

And then at the same time, we have Virtuoso, which is analog, Innovus, which is digital, and then all the system analysis tools like Clarity and Voltus and Celsius for, so, and that is all incorporated into Integrity. And then we closely worked with TSMC, you know, TSMC has done a fabulous job, by the way, in 3D IC. And we have worked closely with TSMC over the last several years, you know, to develop this 3D IC flow that is used by most of their main customers.

And then now, you know, Rapidus and Samsung and Intel, we are working with all the other foundries to develop this kind of 3D IC flow because it will be critical for all the other foundries. You know, we do not explicitly call out Allegro in our SDNA business. But it is a significant part of that business. But, also, it pulls in, you know, the other things. You know, it is not just Allegro by itself. But it naturally boosts an analysis tool, you know, and clarity and all those things, and even the base tools, like, like, Virtuoso and Innovus.

But it is a platform of choice for all the major companies as they implement this new 3D IC or now 3.5D IC technologies.

Harlan Sur: Yep. Thanks, Anirudh.

Anirudh Devgan: And this, you know, this is only in the beginning. I think any even with TSMC, OIP, they showed a roadmap that this is only going to increase. I mean, it is an orthogonal axis to Moore's law. So Moore's law, first of all, okay. We are always worried about, you know, there are natural questions from investors or employees sometimes. You know? How long will Moore's Law continue? First of all, Moore's law, anyway, is going to go to at least one nanometer. Right? So we are at three, you know, two, 1.41. Okay. That is ten years.

And I visited, you know, some of our research partners like IMEC, and they are planning, you know, to go till 2042 with new transistor structures. But at least for the next ten years, I see Moore's Law being strong. But then this 3D IC and heterogeneous integration provides the orthogonal levels of integration. And if you look at TSMC and other roadmaps, you know, right, they have very aggressive roadmaps to be able to put more and more chips, like you said, in a package. So we are pushing on both of these dimensions.

You know, Moore's law, we want to make sure we are aligned with all the latest technologies and customers, and then this 3D IC and heterogeneous integration.

Harlan Sur: Great. Thank you, Anirudh.

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

Lee Simpson: Great. Thanks, and well done in another great quarter. I think it is forward to me to maybe ask about the AgenTx systems. You know, again, this is the second quarter. You brought it up. It does look as though development is moving ahead. And I think if, you know, if the comments are to be interpreted right, you are seeing some early sales, one assumes, in sort of pilot line development. But I am trying to, I am still trying to put this into perspective. What if we take a step back, do we need a new business model or a different go-to-market strategy to get full value here?

And more generally, you know, how will you monetize this added value that an agentic system will bring to the customer? Just any thoughts around that and maybe timing as well because it does look as though this is relying on still early-stage reasoning models. Thanks.

Anirudh Devgan: Yeah, Lee. That is a good question. So, I mean, as you know, we package them separate from our base tools. So, of course, base tools are phenomenal, but then we have these agentic workflows on top of our base tools. And customers are embracing both our base tools and the agentic AI flow. I mean, two great examples, one of them we mentioned briefly is in the back end, you know, Cerebras. Cerebras by itself, like I mentioned, is more than 50% of our designs are already using Cerebras, which let's call it classical AI. But now with Cerebras AI Studio, it is a whole workflow. So it is more, it is an agentic AI solution.

Instead of just doing block implementation, it does floor planning. It does timing closure. So what typically a designer could do, like, you know, three to five million instance design, they could do, like, 30 to 50 million. So it is a massive productivity and PPA benefit. As the AI does more of the manual work that was manual in the past. So that tool itself had a lot of early adopters. Like we mentioned on the call, Samsung, NXT, and others. And then there is on the other side, which is verification and RTL writing.

You know, this whole notion of LLMs generating reasoning element generating code is a big thing, not just in software development, like C++ but also, you know, chip design and RTL. So those two areas are very, very positive. One is in the front end, with RTL generation and verification, and the other is in the back end and, you know, PPA optimization. And those are different tools than our traditional toolset. And we engage with customers on that. And our philosophy always is because we have a long history of innovation and automation in EDA, our goal is to deliver value to customers. Their workload is going up anyway. And align with the top customers.

And usually, they will, you know, reward us for that. And that is our history over the last ten years. And so we are focused on innovation and productivity, and we have all kinds of business models to monetize that in any way. And we will see how that progresses over time.

Lee Simpson: Great. That is a very full answer. Thank you.

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

Jim Schneider: Good afternoon. Thanks for taking my question. I was wondering if you could talk a little bit more about the core EDA results, very strong in the quarter, with a lot of growth. Can you maybe cite some of the drivers of the strength in the quarter, be it new customers or Cerebras pricing benefits, or anything else that was one-time in nature? And maybe give us a sense of how you expect the cadence of the core EDA revenue to trend in the back half of the year? Thank you.

Anirudh Devgan: Yeah. Core EDA is doing phenomenally well. I mean, just to remind, I think most of our investors know this already, but just to remind that we have the broadest portfolio in core EDA. You know, we have digital, which we are leading position in, especially in the TSMC ecosystem. Which is de facto standard in analog mixed signal. Verification, we have all the verification software tools, and Palladium and Protium in hardware. So Cadence Design Systems, Inc. has the most comprehensive EDA portfolio on the market.

And as, you know, AI, you know, as AI adoption happens, you know, it is both the core product portfolio plus AI-driven agents that we talked about, and we saw signs of that in Q2. And then some of the key customer wins we highlighted are, of course, SK Hynix. They are doing phenomenally well, as you know, with the AI and HBM. You know, ADI, which is a long-term Cadence Design Systems, Inc. partner, and then overall strength in hardware, which was very broad-based. Then in IP and in end systems, which is outside of EDA. So, overall, I think, you know, I am pleased with that.

Of course, as you know, we never focus on, you know, one individual quarter. There could be quarter-by-quarter variation. But overall, I think EDA is doing well, and I expect it to grow going forward.

John Wall: Yeah. And, Jim, we are getting proliferation at marquee customers, and we are seeing the second half looks particularly strong on the software side as well as hardware in core EDA.

Operator: And our next question comes from the line of Jason Celino with KeyBanc Capital Markets.

Jason Celino: Hey, thanks for taking my question. You know, John, if I think I heard you correctly, I think you said that China would be up a little bit this year versus flat previously. You know, this is on top of, I assume, you know, the China restrictions that were temporary. So this in itself seems important. Do not know if you will be able to indulge us a little bit, but what do you think China growth could have been if those restrictions, you know, never happened? Like, if we never had those six weeks. Thanks.

John Wall: Yeah. Yeah. Jason, I mean, great question. Very, very difficult to kind of figure out what revenue would have been in a kind of parallel universe where that never happened. The one thing I take comfort from, though, is that, you know, the restrictions came and they went. But so I tend to focus on the year. And when I look at the year that, you know, previously, we thought the year would be flat for China, with the strength that we have seen across the board, across all businesses, and across all geographies. It is really hard to see China remaining flat year over year now. But I think it will be slightly up.

But, of course, you know, we are normally very prudent with our guide, and I thought it was appropriate to remain prudent with the outlook for the year. So we have been cautious but optimistic with that outlook.

Jason Celino: Okay. Great. Sounds good. Thank you.

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

Gary Mobley: Hi, guys. Thanks for taking my question. John, when we entered the year, I think your expectation, correct me if I am wrong, was the year with a strong period renewal period in the second half. And, clearly, your bookings in the first half of the year have exceeded your expectation by, I assume, several hundred million dollars. And so my questions are two-part. I want to confirm that the June ending backlog excludes China. And, you know, with the strength in the first half that you have seen, what does that tell you about the potential for the second half bookings and exiting the year with perhaps record levels of backlog?

John Wall: Yeah, Gary. I mean, very astute question. Yeah. To confirm, we had to exclude a number of China bookings from our backlog by the end of Q2. We had to reserve for those because at the end of Q2, the restrictions were still in place for us. So the closing backlog at the end of Q2 reflects a lower level of backlog than it would have been had those China restrictions been rescinded prior to June 30. But and then in terms of the outlook for the year, yeah, I am pretty confident we are going to end up the year with a higher backlog than we started the year.

So I am very comfortable that we will end up with a book-to-bill of one second half bookings. The renewal cycle is strong in Q3 and Q4. I think both Q3 and Q4 will have bookings that exceed our revenue in those quarters. But and like I say, we should expect that the end of the year, we will have a new higher and record level of backlog than we had last year.

Gary Mobley: Thanks, John.

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

Jay Vleeschhouwer: Thank you. Anirudh, you spoke earlier in answer to an earlier question in your prepared remarks about agentic AI. And I would like to ask about the broader implications and requirements from that. One of the terms that has come up this year more broadly in software, not just in EDA, having to do with agentic and orchestration. And in your world specifically, if we think about what you are providing with agentic AI or AI generally, it is fundamentally, I think, a form of simulation. And therefore, the requirements for that would also seem to be new forms of process or data management and traceability, which is a critical function in simulation.

If our thesis is right about what they are really doing. So beyond just introducing these agents and aids, how are you thinking about the broader portfolio and capabilities that you need to provide customers, particularly since you referred to their workflows? Thank you.

Anirudh Devgan: Yeah, Jay. That is a great point. So yes, you are absolutely right. I mean, we want to make more of a work automation just like I mentioned with Cerebras AI Studio. So it is not doing a point function. It is doing multiple functions together with reasoning. And the critical need is, apart from the, you know, LLMs and all, there is a critical need for a data structure or database to store all these actions. So what I am pretty pleased about is the response of our customer to JEDI. You know, we talked about JEDI being our joint enterprise data and AI platform.

And it has both the data storage because we need to capture not just one tool or one point in time, you know, multiple tools and multiple flows, just like a human would do. So JEDI has become a very essential part of our AI deployment to customers. It is a very flexible system. You know, because some of our customers, some really big customers, want JEDI to be on-prem because their data is very, very sensitive. Some customers are okay with, you know, JEDI being on the cloud. You know, okay to use cloud LLMs or cloud data management. And then some customers want a hybrid, you know, on-prem and cloud solution.

So JEDI uniquely positions us to make that kind of invisible to the user. But JEDI is critical along with the AI agents to deliver this solution to our customers. And we are able to do much more, and we will do much more of a full workflow solution along with JEDI and then the agents on top, whether it is Vericium or Cerebras or Allegro X.

Jay Vleeschhouwer: Got it. Thanks, Anirudh.

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

Joe Quatrochi: Yeah. Thanks for taking the question. Just to follow-up on another question on the China impact. I mean, guess, can you help us understand what would have RPO been had the restrictions not been in place exiting the quarter and it had been rescinded prior to exiting the quarter? Just that difference so we know what RPO, I guess, technically really is now. And then just to clarify, on the full-year guide increase, is that all driven by the upside from China, or is it other regions as well?

John Wall: Yeah. Joe, just take the second part of that question first. I mean, the increase is because of the strength we are seeing across the board and across all geographies. I mean, when we were doing our updating our guide, the guide we gave you at the end of last quarter was without any China restrictions. And at the time, we were updating the guide we obviously knew that those restrictions have been rescinded. So it is an apples-to-apples view when you compare the guides now against this time last quarter. We have taken the year up by $50 million. And we have taken up EPS by about 12¢.

And that is on the back of very strong bookings activity and performance that we are seeing right across the globe. In relation to the backlog impact of China, when we held up revenue for China, any of those orders in which revenue was paused as a result of the China restrictions as of the end of Q2, we had to back out the booking from the backlog at that time. But I think if you look on a year-over-year basis, the right way to look at it is that we will end up the year with a higher and record level of backlog.

The book-to-bill will be greater than one for the year, which indicates a very strong bookings half for us in the second half of this year. But that is mainly due to strength across all regions, across all geographies. And we have a high level of renewal activity that just falls into Q3 and Q4 because we have a number of expiring contracts in those quarters.

Joe Quatrochi: Thank you.

Operator: And our next question comes from the line of Charles Shi with Needham. Your line is open.

Charles Shi: Thank you for taking my question. Maybe this is for John. Hey, John. I think you reported the recurring revenue as a percentage in Q2 of 78%. This is probably a multiyear low, and I wonder what is the expectation for the full year. The recurring revenue percentage, and what is the long-term normalized level? Maybe this is a related question, if I may. I believe your hardware is mostly manufactured in The US, and presumably, there should be no direct tariff impact. But was there any customer behavior-related pull-ins that were seen in Q2 and possibly also in Q3? Thank you.

John Wall: Yeah, Charles. Great questions. But on the hardware side of the business, I mean, the hardware demand continues to amaze us, really. I mean, the tremendous products that we have there. But, and the team is continuously trying to improve our production capability and manufacturing capability to produce those hardware systems as quickly as possible to try and keep up with that demand. We make hardware systems in North America for the North American market and out of North America for the international market. So we think our tariff exposure is quite limited.

The, yeah, just generally, on the strength in hardware in Q2 combined with us having to pause a lot of ratable revenue in China during Q2 caused the recurring revenue percentage to dip to about 78% for the quarter. But if you look typically, we look at that as a kind of a rolling annual number. We would expect it to be about 80/20, 80% recurring and 20% upfront. And that has been growing. I mean, in the past, that was probably 85/15, and now it has gone more towards 80/20. But that is really the result of the strength in our demand for our upfront businesses, which mainly come out of IP and hardware.

Charles Shi: Thank you. Appreciate that.

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

Ruben Roy: Yes. Thank you for letting me ask a question. Anirudh, I wanted to touch back on IP. I know IP historically has been a little bit lumpy, volatile, whatever the word you want to use. But you have had quite a bit of strength recently. IP was up, I think, 30% last year, 40% last quarter, another 25% this quarter. You talked about your broadening portfolio, but it sounds like a lot of this is going into AI and HPC. And, you know, obviously, faster design cycles in those markets, etcetera, in recent years. I am wondering if you could talk about your longer-term perspective on IP growth.

Is this sort of sustainable at potentially higher rates than you have thought about historically for that segment? Thank you.

Anirudh Devgan: Yes. That is a great question, and, you know, in general, like, I think I am much more optimistic in IP than I was, let's say, two, three years ago. I mean, there are multiple reasons for that. One is, you know, we are investing more in IP now because we feel, first of all, that our EDA position is very, very strong. You know, for years, we invested in EDA, and we continue to do that. At this point, we feel we are in a strong position in EDA. We are in a growing position in SDNA, given, you know, 3D IC and, you know, strength of Allegro and AI.

IP, historically, we did not invest as much, but things have changed. One is because of this, you know, like a previous question, you know, this emergence of chiplet-based architectures. I think it provides more opportunities for IP. Emergence of multiple advanced node foundries, you know, there are at least four major ones now. Provides more opportunities for IP. And our portfolio has also improved with some good M&A. You know, like, we got HBM4 from Rambus and there are several others over the last few years. So I feel now we are across, like, a critical mass for IP to be a good business for us.

And you are seeing that last year one year does not make a trend. I think we are seeing that this year. And so but I do think in the longer term that IP can grow faster than Cadence Design Systems, Inc. average. Which is what we like to see in this, and now it will have slightly lower margin than EDA, but, of course, it can grow faster. So at a rule of 40, you know, that is a good area that we continue to invest in that. Especially with the AI-driven IPs, new foundries, you know, this onshoring. I think it is a good business for us and good growth for the next several years, I expect.

Ruben Roy: Thank you.

Operator: And our next question comes from the line of Clarke Jeffries with Piper Sandler. Your line is open.

Clarke Jeffries: Hello. Thank you for taking the question. Just a clarification on the tax benefits. I heard $140 million for the remainder of the year. Just to clarify, is that for two quarters and that annualized benefit might be close to double that? And then just from a philosophy perspective, does this change around R&D expensing sort of change your appetite for incremental investment? Or is it a near-term windfall but normalized over time and no change to appetite? Thank you.

John Wall: Hi, Clarke. Yeah. I mean, no change at all to our approach and our strategy and our R&D investment. I mean, we love investing in R&D. We think we do that quite well. But in relation to the tax consequences of the OBBBA thingy, the primary change in fiscal 2025 relates to the immediate expensing of domestic R&D. The cash tax impact of that, we get a benefit of about $140 million before the end of this year. But there is a smaller portion of that of an impact to the GAAP P&L. Now from a non-GAAP perspective, we use an effective tax rate of 16.5%. That normalizes everything.

So the impact of the OBBBA does not change our non-GAAP rate. For this year, it is still at 16.5%. But the one-time difference on cash tax for the year is about $140 million. Now you will see the benefit of that in Q4. But it is already incorporated into our annual guide.

Operator: And our next question comes from Josh Tilton with Wolfe Research. Your line is open.

Josh Tilton: Hey, guys. Thanks for sneaking me in, and congrats on a great quarter and a nice raise to the full-year outlook. Most of my questions have been answered already, so maybe more of a medium-term thought question. You look at the guide for the full year, it still kind of implies that the recurring revenue side of the business is going to see muted growth. Now I know some of this is because there was a little bit of a hold this quarter because of China.

But how do we think, you know, long-term, the trajectory of recurring revenue growth from here, and your confidence in the durability of, you know, total growth is maybe you roll off the hardware cycle or you start to see slower growth on the upfront side? Thanks.

John Wall: No. Great question. Yeah. I think what we have seen over the last few years is we have seen a drift towards kind of a lower level of recurring revenue, higher level of upfront revenue. But that is mainly been as a result of, you know, IP and hardware and SDNA to a certain extent growing faster than the average Cadence Design Systems, Inc. business. But, I think, well, I mean, right now, we are at 80/20. We are not guiding anything.

We are at 80/20 for this year that, we continue to expect that split that, we are not guiding for next year yet, but I actually think that CoreEDA software is doing so well that there is quite a good chance that 80/20 remains for quite some time. Because we are seeing some, we are seeing good growth there. Like, we are seeing a lot of growth right across the whole portfolio of the Cadence Design Systems, Inc. business and then across all geographies right now. So we are very, very pleased with the way that is working out.

And, really, the change in recurring revenue is just a slight change in how customers consume our technology and our solutions, and it is how we provide them. And we are just delighted with the continuous adoption from those customers.

Josh Tilton: Love to hear. Thanks for sneaking me in, guys. Appreciate it.

Operator: And our next question comes from Naso Nying with Berenberg. Your line is open.

Naso Nying: Hi. Thank you for taking a question from me, and, also, congrats on the quarter and the good raise and the full-year guide. A question on agentic AI, please. I was wondering if you could maybe share your thoughts on what do you think will be the toughest adoption barriers because, you know, from my point of view, at least, the agentic AI of that you guys have, unlike, you know, the broader software AI that we have seen ROI, you know, should not really be a sticky point here. So I was wondering, you know, what would be the sticking point here?

Would it be the operational challenges, i.e., customers adopting or implementing your agentic workflows in their established workflows today, or is it more of a human element here where unfamiliarity with the technology or people are somewhat worried that, you know, their jobs may be at risk from adopting your AI solutions? Thank you.

Anirudh Devgan: Yes. Very insightful question. I think one thing I would like to emphasize is that there is a difference in chip design and system design versus general software. You know? What I have seen, you know, versus, like, because this is engineering software versus kind of IT or enterprise software. And our history in EDA, I mean, there are a few things that are different. First of all, engineering software or EDA, we have already provided over the years a massive level of automation. Now it was not because of AI. It was used in the past because of, you know, classical methods. So our users and customers are already used to a lot of automation.

If I look at, like, twenty years ago to now, I think the EDA productivity by EDA has gone up by, like, 100x. You know? Like, things like, you know, what we used to take like, 500 people five years to design will now take, like, 50 people, like, one year to design, something like that. So or, like, half a year to design. So our users are already used to a lot of automation, which may not be the case in, like, classical kind of software. The second thing is that our workload or workload of our customers is going up exponentially because of Moore's Law and 3D IC.

So this is a very different environment than, you know, if the workload is constant in some industry that is not evolving. In chip design, you know, like by 2030, the chips will be, you know, right now, there are 100 to 200 billion transistors. It is expected the chips will be a trillion transistors by 2030. Then you add all the software. You add the new architectures. So the workload will go up by 30, 40x in the next five years. Okay? There is not even enough talent or headcount to hire to meet that requirement of 30x. So this is not an industry in which the workload is going to be fixed. Okay?

And then the worry of people is if you do use AI, you know, your job will be affected here. You know, you need AI to cope up with the 30x. So I believe that the customers, and this is talking to all the big customer CEOs, they will invest in R&D. Okay? But they will invest in headcount. But they do not want to invest 30 times the headcount. Okay? I think the headcount in our R&D will go up maybe by 2, 3x, but the remaining gap of 10x in productivity has to be made up with more automation.

And they are willing to invest in agentic AI and more compute to balance that because there are not even that many engineers you can hire. So the two things which are very different in EDA and SDA versus general software, one, our customers are used to more and more automation over the last thirty years. And second, the workload is going up so much that they have no other choice but to use automation in AI. So I think that is why the real test for us will not, in my opinion, be the customers are willing. I think the customers are willing. It is the productivity of our solution.

So what I have seen with our customers is if the product works, if they give better PPA, if they are faster, our customers will always adopt that. And because they have more work to do. And that is what we focus on, like Cerebras AI Studio, does it give 20% better PPA, or does Vericium give 5, 10x benefit? And this is the history of our customers. And because these are the best and the biggest and the brightest companies in the world. Right? All max seven are our customers, all the top 50 companies in the world.

So we deliver value, I have always seen they will adopt it because the workload that they are doing is increasing a lot.

John Wall: So, and the AI tools create more demand for our core EDA tools as well. Right? We always said it would take a couple of contract cycles. And we are always very mindful of the balance between delivering cutting-edge innovation and ensuring our solutions remain accessible and valuable and useful to customers of all sizes when the increasing design complexity, particularly with AI and advanced nodes, naturally creates demand for more sophisticated tools and IP. But our goal is always to deliver ROI through productivity gains, faster time to market, and the improved PPA, the outcomes that customers can get from using our core EDA.

So we do think core EDA has growth in there and could well benefit from that over the next few years.

Naso Nying: That makes a lot of sense. Thank you very much. Thank you for the thoughtful answers.

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

Siti Panigrahi: Great. Thanks for taking my question. Yeah. Most of my questions have been answered, but just want to follow-up on one of your comments on that strong bookings. How do you characterize the demand for your traditional semi customer versus systems like hyperscaler, that segment? And do you see any kind of positive sign on the traditional semi customer?

Anirudh Devgan: Yeah. That is a very important question. I mean, first of all, the system companies are doing more and more than before, as you would expect. You know, not just the classical data center, but hyperscalers which are, but also, you know, like, physical AI, like cars. And then on the semi side, of course, some customers are doing phenomenally well. Right? Like, and, you know, some of, like, Broadcom. I think your question is more traditional semi. So I do think, I mean, of course, you know, this recovery in traditional semi has been projected for a long time. But I do think there is some recovery now.

I mean, at least in the memory market, there seems to be in the mixed signal. And we highlighted, for example, ADI that is doing phenomenally well, and we had a very good, well, ADI is a long-term partner with Cadence Design Systems, Inc., but we had a very good expansion in Q2. So I think there are some signs that traditional semi are also doing, but it is still early, and we will wait and see. For us, you know, we are, as you know, we are very diversified, both geographically and customer-wise. So it is important but not critical for us, so we are patient. So the recovery will happen in traditional semi.

Maybe some of it is starting. And to the extent it happens, you know, we will be ready for it. So but we are not critically dependent on a particular customer set recovering at a particular time.

Siti Panigrahi: Thank you.

Operator: And our last question comes from the line of Blair Abernethy with Rosenblatt. Your line is open.

Blair Abernethy: Thanks for squeezing me in, guys, and a great quarter. Anirudh, just want to ask you again about the system design analysis. The traditional simulation, the multiphysics simulation. You are outgrowing the market pretty substantially even if we back out a couple of extra months from Beta CAE. You are still, you know, mid to high twenties, it looks like organic growth. What is driving that organic growth? Is Millennium helping with that? And I am just wondering, as you look at that market, which is sort of a 10% kind of growth market, how long do you think you can sustain that significant growth?

Anirudh Devgan: Yeah. Good question. I mean, like I mentioned, the growth is by multiple things. I mean, 3D IC and the strength in Allegro, the pulls in other products is a key factor. It is not just Allegro or 3D IC by itself, but all the analysis tools. Because I think most of the disruption in the system space is either very, very close to the chip, you know, like, with 3D IC, or it is very, very far, like, data center simulation. And we have great partnership and products in, you know, Cadence Reality, which is full data center simulation. And then, you know, very close to the chip, which is Allegro and 3D IC and Integrity.

So those markets, I think, should be growing faster in the overall because that is where the disruptions are happening, and that is where we are focused on. And then Beta is helping to pull in some of the other, you know, because one of the key challenges in the system side is to build out the channel. And even though not only Beta provided great products, it also helped us on the channel side. Okay? So that is the second reason. Then I am super optimistic about Millennium, you know, and we are kind of spearheading this kind of revolution. You know? I can talk about it for a long time. You know?

The CPU plus GPU integration with partnership with Jensen and NVIDIA and, you know, AI together. But I think it is still in the very early innings. So Millennium is still in very, very early innings. I mean, we have a lot of pipeline and demand, but it still has to play out. So but overall, I think we will see, but we are pleased with our positioning in systems, especially because we are positioned in the more exciting part of the system market, I believe.

John Wall: Yeah. Just to finish, I would encourage you to keep focused on the kind of year, the annual kind of outlook for the company because quarter over quarter, numbers can look a bit odd sometimes. As you called out in your Beta is included in our Q2 numbers this year, but was not there last year.

Blair Abernethy: Yep. That is great. That is great. Thanks very much, guys.

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

Anirudh Devgan: Thank you all for joining us this afternoon. It is an exciting time for Cadence Design Systems, Inc. with strong business momentum and growing opportunities with semiconductor and system customers. With a world-class employee base, we continue delivering to our innovation roadmap and working hard to delight our customers and partners. On behalf of our board of directors, we thank our customers, partners, and investors for their continued trust and confidence in Cadence Design Systems, Inc.

Operator: Ladies and gentlemen, thank you for participating in today's Cadence Design Systems, Inc. second quarter 2025 Earnings Conference Call. This concludes today's call, and you may now disconnect.