Note: This is an earnings call transcript. Content may contain errors.

Image source: The Motley Fool.

Date

Monday, Oct. 27, 2025, at 5 p.m. ET

Call participants

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

Need a quote from a Motley Fool analyst? Email [email protected]

Takeaways

  • Revenue -- $1.339 billion reported in the third quarter, with updated fiscal 2025 (period ending Dec. 31, 2025) revenue guidance of $5.262 billion to $5.292 billion.
  • Operating margin -- Operating margin at 31.8% for fiscal Q3 2025; non-GAAP operating margin at 47.6%.
  • Earnings per share -- GAAP EPS was $1.05, non-GAAP EPS was $1.93.
  • Backlog -- Backlog increased to $7 billion, with the remainder attributed to broader business growth.
  • Operating cash flow -- $311 million in the third quarter, with a quarter-end cash balance of $2.753 billion and $2.5 billion in principal debt outstanding.
  • Share repurchases -- $200 million used for share repurchases during fiscal Q3 2025.
  • Q4 2025 guidance -- Non-GAAP revenue expected in the $1.405 billion to $1.435 billion range for fiscal Q4 2025, EPS between $1.17 and $1.23 for fiscal Q4 2025, and non-GAAP EPS between $1.88 and $1.94.
  • Full-year growth outlook -- Management raised the full-year forecast to approximately 14% revenue growth.
  • Hardware demand -- Hardware verification platforms achieved record results (non-GAAP) in fiscal Q3 2025, with a strong pipeline for the next six months and ongoing inventory buildup to meet anticipated orders.
  • AI integration -- SIM AI demonstrated productivity gains, including a "5x to 10x improvement in logic simulation efficiency and coverage," according to Anirudh Devgan during fiscal Q3 2025; and a "4x productivity improvement" at major customers like Samsung, also according to Anirudh Devgan during fiscal Q3 2025.
  • Geography performance -- China returned to "business as usual" following the July regulatory change, contributing materially to results in fiscal Q3 2025; design activity across geographies remains strong.
  • Strategic partnerships and M&A -- Expanded partnerships with Samsung, TSMC, and leading semiconductor companies, and closed on the ARM Artisan Foundation IP acquisition; a definitive agreement was announced last month to acquire Hexagon's TNE and MSC software businesses.
  • Recurring revenue mix -- On a rolling four-quarter basis, business mix remains approximately 80% recurring, 20% upfront revenue, mainly due to hardware and IP deliveries.
  • OpEx and margin dynamics -- Fiscal Q3 benefited from a small restructure and very healthy hardware gross margins, offset in fiscal Q4 by acquisition-related expense increases.
  • Q4 and annual outlook assumptions -- John Wall stated, "flow in the range of $1.65 billion to $1.75 billion, and we expect to use at least 50% of our annual free cash flow to repurchase shares," referring to projected operating cash flow for fiscal 2025, with guidance assuming no material change in current export regulation regimes.

Summary

Cadence Design Systems (CDNS +1.93%) reported quarterly results above prior expectations, driven by strong performance in all business lines and robust demand across all geographies. Management increased full-year revenue and EPS guidance, highlighting momentum from secular AI demand, rapid customer adoption of AI-driven EDA solutions, and an expanding backlog that reached a record $7 billion in fiscal Q3 2025. Strategic M&A activity, deepened collaborations with key ecosystem partners, and healthy recurring revenue mix underpin management’s continued outlook for double-digit growth and operating leverage into 2026.

  • Devgan stated, "The accelerating AI megatrend is fueling an unprecedented wave of design activity across industries," signaling the company’s positioning at the center of infrastructure build-out for enterprise AI and physical AI markets.
  • Wall highlighted, "bookings were strong, resulting in a backlog of $7 billion," which management characterized as a "record" and noted is weighted toward multiyear recurring arrangements, supporting durable growth.
  • In response to questions regarding China exposure, Wall confirmed, Yes, we saw broad-based strength, and China design activity remains very strong. The region returned to business as usual for us in the second half, following the lifting of export regulations for EDA in early July. Fiscal Q3 was only slightly better than we expected. We now expect China to be up year over year for fiscal 2025, with fiscal Q3 including backlog catch-up following export policy changes in July.
  • Management explained that hardware demand is being driven by the proliferation of AI, HPC, and auto-market designs, with capacity expansions underway and a "very strong pipeline for the next six months" according to John Wall.

Industry glossary

  • PPA: Power, Performance, and Area — Key semiconductor design metrics prioritized during EDA tool evaluation.
  • 3D IC: Three-Dimensional Integrated Circuit — Advanced chip packaging combining multiple dies in stacked configurations.
  • Chiplet: Modular integrated circuit components combined within a single package to enhance flexibility and scalability in advanced semiconductor designs.
  • JEDI: Cadence's "joined enterprise data and AI" platform for standardized and customer-specific AI model deployment and data management in EDA workflows.
  • SDNA: System Design and Analysis — Cadence’s business line focused on system-level simulation, PCB, package, and multi-physics analysis.
  • Upfront revenue: Portion of recognized revenue from non-recurring items such as hardware and IP deliveries, as opposed to recurring subscription or maintenance fees.
  • Agentic AI: AI systems capable of autonomous, multi-step reasoning or task execution in EDA tools, as referenced by Cadence for next-generation chip design automation.
  • AI HPC: High-Performance Computing applications and infrastructure specialized for artificial intelligence workloads, a primary target segment for Cadence IP and hardware products.

Full Conference Call Transcript

Richard Gu: Thank you, operator. I would like to welcome everyone to our third 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 operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussion. For information on factors that could cause actual results to differ, please refer to our SEC filings, including our most recent forms 10-K and 10-Q.

CFO commentary and today's earnings release, all forward-looking statements during this call are based on estimates and information available to us as of today, 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 requeue with 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 excellent results for the 2025 with strong operational and financial performance across all product categories and geographies as we continued the disciplined execution of our strategy. Bookings exceeded our expectations, with backlog growing to over $7 billion, underscoring our continued technology leadership and reaffirming Cadence Design Systems, Inc. as the trusted partner enabling customer success. Given the ongoing strength of our business, we are raising our full-year outlook to approximately 14% revenue growth and 18% EPS growth. John will provide more details on our financials shortly.

The accelerating AI megatrend is fueling an unprecedented wave of design activity across industries, ranging from hyperscaler infrastructure to fast-growing physical AI realm autonomous driving, drones, and robotics, to the emerging domain of science and AI. As AI drives exponential design complexity and new system architectures, Cadence Design Systems, Inc. is uniquely positioned to capture this generational opportunity with a differentiated and comprehensive portfolio spanning EDA IP, 3D IC, PCB, and system analysis. The cadence.ai portfolio embodies our strategy of design for AI and AI for design, empowering customers to build out the global AI infrastructure while we infuse AI into our own products to deliver breakthrough automation and productivity.

With deep partnerships across AI innovators, foundries, system leaders, and a comprehensive chip-to-systems portfolio, Cadence Design Systems, Inc. is driving transformative PPA and productivity gains, positioning us well for sustained growth in the AI era. In Q3, we meaningfully expanded our partnership with Samsung through a wide-ranging proliferation of our core EDA software, as well as our system software across PCB, advanced packaging, and system analysis. We also deepened our long-standing partnership with a leading semiconductor company in Q3 through a broad proliferation of our core EDA IP and systems portfolio and are closely collaborating on next-generation AgenTeq AI EDA solutions. We expanded our long-standing partnership with TSMC to power next-gen AI flows supporting TSMC's N2 and A16 technologies.

Our Integrity 3D IC solution provides comprehensive support for the latest TSMC 3D fabric die stacking configurations. And our design and ready IP, including HBM4 and LPDDR6, on N3P enable next-generation AI infrastructure. At TSMC's OIP conference, Broadcom highlighted Integrity 3D IC full flow deployment success for hyperscaler, high-capacity ASICs. Our IP business maintained strong momentum in Q3, driven by global accelerating IP demand and increasing customer proliferation of our expanding IP portfolio. Our profitable scalable IP strategy focused on AI HPC and automotive verticals positions us well for continued growth. Increasing complexity of interconnect protocols driven by AI and chiplet architectures, along with new foundry opportunities, are providing strong tailwinds to our IP business.

Bookings were strong and tracked ahead of our expectations. Our design IP portfolio secured several competitive wins at top AI and memory customers. For instance, we won a highly competitive engagement at a marquee memory company that embraced our HBM4 and DDR5 IP for its new AI design. The recently completed acquisition of the ARM Artisan Foundation IP further augments our design IP portfolio with standard cell libraries, memory compilers, and IOs optimized for advanced node at the leading foundries. Our Tensilica audio and vision DS and Neo AI accelerator, NPUs, scored multiple design wins with leading customers in the US and Asia for mobile, automotive, and data center verticals.

Our core EDA business delivered strong results, driven by growing adoption of our AI-driven design and verification solutions. In digital, Cadence Cerberus AI Studio, the industry's first agentic AI, multi-blog, multi-user design platform, continues to deliver unparalleled PPA productivity benefits. Samsung US taped out an SF2 design using Cadence Cerberus AI Studio to achieve a 4x productivity improvement. In another instance, Samsung used Cadence SerDes Tempus and Innovus to rapidly close and sign off a multi-billion instance AI design on SF4 with 22% power reduction and first-pass silicon success. Our Virtuoso Studio and Spectre platforms saw strong momentum, with their AI-driven features and workflows gaining rapid traction as the customers leverage the automated design migration and optimization capabilities.

Our hardware verification platforms have become the de facto choice for AI designs, offering industry-leading performance, capacity, and scalability. Hardware had a record Q3 with several significant expansions, especially at AI and HPC customers. We deepened our overall collaboration with OpenAI as they expanded their commitment to our Palladium emulation platform. Vericium SIM AI in Q3 saw growing adoption as it delivered dramatic debug productivity, test bench efficiency, and accelerated coverage closure. NVIDIA, Samsung, and Qualcomm all presented semi success stories at Cadence Live India, highlighting 5x to 10x improvement in verification throughput. Our system design and analysis business achieved another solid quarter, driven by an expanding set of innovative solutions and growing adoption across a broadening customer base.

In Q3, we significantly expanded our Cadence Reality digital twin platform library with NVIDIA DGX SuperPOD model and DGX GB 200 systems to accelerate AI data center deployment and operations. Three major memory providers significantly increased their Clarity and Security usage as they transitioned to a full Cadence Design Systems, Inc. flow for advanced IC packaging, displacing competitive solutions.

Richard Gu: Beta CAE continued its momentum with multiple competitive displacements, underscoring its accuracy and performance advantages, including a significant competitive win at a large Tier 1 automotive company in China.

Anirudh Devgan: In Q3, Infineon Technologies standardized its PCB design workflow on the Cadence AI-driven Allegro X platform for their future designs. Last month, we signed a definitive agreement to acquire Hexagon's TNE business, including its MSC software business, to bring industry-leading structural analysis and multi-body dynamics technologies to Cadence Design Systems, Inc. Complementing our multi-physics portfolio, this will accelerate our expansion in SDA and put us at the forefront in unlocking new opportunities across automotive, aerospace, industrial, and the rapidly emerging world of physical AI. In summary, I am pleased with our Q2 results and the strong momentum across our businesses.

The AI era offers massive market opportunities, and through the co-optimization of our entire portfolio with AI and accelerated computing, Cadence Design Systems, Inc. is uniquely positioned to be the trusted partner to deliver AI-centric transformational solutions across multiple industries. 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 strong results for the 2025 with broad-based momentum across all our businesses. We exceeded our guidance for Q3 revenue, operating margin, and EPS and are raising the full-year outlook across these key metrics. 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. Third-quarter bookings were strong, resulting in a backlog of $7 billion. Here are some of the financial highlights from the third quarter, starting with the P&L.

Total revenue was $1.339 billion, GAAP operating margin was 31.8%, and non-GAAP operating margin 47.6%. GAAP EPS was $1.05 with non-GAAP EPS $1.93. Next, turning to the balance sheet and cash flow. Cash balance at quarter-end was $2.753 billion, while the principal value of debt outstanding was $2.5 billion. Operating cash flow was $311 million. DSOs were fifty-five days, and we used $200 million to repurchase Cadence Design Systems, Inc. shares. Before I provide our updated outlook, I would like to highlight that it contains the usual assumption that export control regulations that exist today remain substantially similar for the remainder of the year.

With that in mind, for Q4, we now expect revenue 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.

As a result, our updated outlook for 2025 is revenue in the range of $5.262 billion to $5.292 billion, GAAP operating margin in the range of 27.9% to 28.9%, non-GAAP operating margin in the range of 43.9% to 44.9%, GAAP EPS in the range of $3.80 to $3.86, non-GAAP EPS in the range of $7.02 to $7.08, operating cash flow in the range of $1.65 billion to $1.75 billion, and we expect to use at least 50% of our annual free cash flow to repurchase Cadence Design Systems, Inc. shares. As usual, we published a CFO commentary document on our Investor Relations website, which includes our outlook for additional items as well as further analysis and GAAP to non-GAAP reconciliations.

In conclusion, I am pleased with our Q3 results and strong 2025 as we continue to deepen strategic partnerships across the ecosystem. As always, 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. 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 our first question comes from the line of Vivek Arya with Bank of America Securities.

Vivek Arya: Thanks for taking my question. Your IP business is now, I think, tracking to over 20% growth for the second year. I mean, that was, you know, just hoping you would give us some sense for what's driving this growth because your competitor expressed a lot of concerns about their IP business, whether it's in China or at Intel or just IP visibility in general. And I think they were talking about a new business model. So how do we square that in the growth you are seeing? How sustainable is this growth? And what is your visibility in your IP business? Thank you.

Anirudh Devgan: Yeah. Thanks, Vivek, for the question. Yeah. I am actually quite pleased with the performance of our IP business. And, you know, we do not look at any one quarter. But even if you look at how we performed last year, of course, this quarter was exceptional. But overall, how we performed this year, and what we see, you know, backlog and activity going into next year, overall IP business is performing quite well. And there are multiple reasons for it. You know, first, our IP business is different.

You know, I think it is much more profitable even though the profitability is less than our EDA business, but I think it is more profitable than general IP business because we also have Tensilica, which is almost like software-like profitability. But a lot of the growth is coming in, you know, design IP. And the reason for that is, you know, our IP business is focused on AI and HPC, at the most advanced nodes. Since we got started later in the IP business, we focused it where the future is going, which is AI, HPC, and chiplet-based architecture.

So a lot of the, you know, like, SerDes and PCIe and HBM4 IPs, and that part of the market is doing well actually across the world. And then the second reason is, as you know, there are more and more foundries entering, especially at advanced nodes. And we have a long-standing partnership with TSMC but also Samsung, Intel, and now Rapidus. So there are at least four major foundries now leading nodes. So that is, I think, the second reason for our IP business to be well-positioned. As the performance of our IP business has improved, you know, the PPA and we are, you know, our PPA is comparatively better in design IP.

And a lot of customers want to shift over to Cadence Design Systems, Inc. So the customer demand, I think, is the third reason as our IP business strengthened that we are seeing strength in the IP business. So I think for these three main reasons, I am pretty optimistic about the IP business. And going to next year, we are not getting to next year, but just to give an indication, I would be surprised if our IP business does not grow better than Cadence Design Systems, Inc. average. You know, which it should, given the profitability profile. We want that to happen. You know.

If the profitability is slightly lower than EDA, the growth should be higher than Cadence Design Systems, Inc. average. So overall, I think that would make, like, three years trend. And overall, I am pleased by our IP performance.

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

Jason Celino: Great. Thank you. You know, last quarter, I think you mentioned the second half having, you know, good renewal opportunity. Know, with some of your large customers. With the uptick in backlog, I imagine some of that strength was from some of these renewals. But as we think about Q4, do you still have renewals on the docket? Thank you.

Anirudh Devgan: Yeah. Thanks for the question. I will let John comment on the timing of the renewal. But overall, I do think that, you know, our performance in Q3 is much better than we expected. And the primary reason, and this is true in all geographies, but I think the primary reason is that the AI infrastructure build-out, as you know, is accelerating. Okay. And we are essential to the design and build-out of the AI infrastructure. Of course, we, you know, I have said publicly there are three big phases of AI in my mind, you know. AI infrastructure being the first one, physical AI being the second one, and science of AI being the third one.

But most of our focus and investment is, of course, on the first one, and as you see in the last six months, it is accelerating. And also, we are privileged to work with all the max sevens and also investment in internal chip design is accelerating, along with, of course, the big, you know, merchant silicon companies like Nvidia and Broadcom and AMD. So I think that is coming through in our booking activity in Q3. And so far, you know, we see that strong demand continuing in the future. Yeah.

John Wall: Jason, I would just like to add that the mix as well as healthy across EDA IP, hardware, and SDA. And the core EDA and IP backlog is weighted towards multiyear recurring arrangements, and that supports durable double-digit growth.

Jason Celino: Awesome. Thank you. And our next question comes from the line of Joe Vruwink with Baird. Your line is open.

Joe Vruwink: Hi. Great. Thank you very much. I guess I am struck by the number of times the word acceleration has already been used on the call so far, and I guess the third-quarter bookings much stronger than we were expecting. It would support a future acceleration. I know it is atypical to kind of get 2026 comments, but Hunter had already disbursed the IP business. I am just wondering if you can maybe start to frame expectations for next year based on what you have in hand, and it certainly seems like things are setting up well. Do you have the type of visibility at this point to maybe comment on?

Anirudh Devgan: Yeah. I think what I would like to say is that, you know, we always look at our business in terms of how well our products are doing. Okay. And we report, like, five lines of businesses, as you know. And I would say at this point, you know, all five lines of business are performing very well. And you can see that in this year, I think we will grow double digits in all five lines of business. And also, we are performing well in all geographies.

So in terms of products and geographies, which is our main focus, you know, are we aligned with the, you know, leading companies, you know, are we trusted partner of the market-shaping companies. So if you look at products, geographies, and customer alignment, I think we are well-positioned. Of course, as you know, as we enter a new year, we are always prudent in our outlook. And we will give you an update about next year, you know, when we come to, you know, January, February time frame. I think Cadence Design Systems, Inc. is very well-positioned, you know, better positioned than it has been, I think, for the last compared to the last several years.

And then we look forward to working with our customers in the future.

John Wall: Yeah. Joe, we will not guide FY '26 today, but exiting FY '25 with probably record backlog and broad-based momentum from deepening strategic and trusted partnerships across the ecosystem positions us well for next year. You can expect our framework will remain disciplined. We typically aim for double-digit top-line ambition, continued operating leverage, and balanced capital allocation. And that is all underpinned by secular AI demand across chip-to-systems.

Joe Vruwink: Thank you.

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

Lee Simpson: Great. Thanks for fitting me in and congratulations on another great quarter. I just wanted to ask around about China really. It looks as though you are up about 53% year on year. Doing well in the mix up to 18%. That feels more than just a sort of return of business post the restrictions on the BIS letter last quarter. It feels so there is genuine momentum there. So I wonder if you can talk me through what is driving this? Is it IP? Is it hardware? Is it core EDA? What are the vectors here? Thanks.

John Wall: Thanks for the question, Lee. Yes, I mean, we saw broad-based strength, and China design activity remains very strong. The region returned to business as usual for us in the second half, but with the lifting of the export regulations that changed for EDA in early July. But Q3 really was only slightly better than we expected. We now expect China to be up year over year for fiscal 2025. Anirudh, do you want to add anything to what is happening in China?

Anirudh Devgan: Yeah. Lee, that is a good question on China. I mean, overall, I would say the behavior in China, from what I can tell, is back to normal. You know, of course, there was disruption in Q2 for obvious reasons, you know, given, you know, the policy in Q2. But the behavior that we are seeing is back to normal in Q3. And a lot of it was driven by, you know, like, us prioritizing hardware deliveries that we could not do in Q2 into Q3. But overall design activity is strong in China across, you know, semiconductor are essentials to every country, and China continues to invest in semi.

But overall, I would say the broad strength is broad-based, not particularly tied to any one geography. And there was some, you know, makeup from Q2 to Q3. Now it is difficult to predict the future, but what I see, I do not see any unusual activity in China. Like, you know, the question maybe, is there any, you know, pull-in from future quarters? We do not see that in terms of what we see, and we see overall broad-based trend in other geographies as well.

John Wall: Thanks so much.

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

Siti Panigrahi: Great. Congratulations on another strong execution. Anirudh, I want to ask you about your system design, mainly that simulation analysis, that market. Help us understand your strategy. You made an acquisition last year, Beta CAE, and this year again, you have announced MSC software. Help us understand how you are going to, you know, position yourself against your competitors in that market. You know, this is definitely a growing market. I would appreciate any color on that.

Anirudh Devgan: Yes, Siti. Thanks for that question. I mean, I am pretty pleased with the overall performance of SDNA. You know, I mean, just to remind everybody, you know, Cadence Design Systems, Inc. is the one that started this whole thing in 2017, 2018. Now it is considered obvious that silicon and systems are going to come together. I mean, we have been talking about this for a very long time. Now I think what the acquisition that we did this quarter is more forward-looking in the sense that, you know, like I mentioned, these three horizon technologies, horizon one being infrastructure AI, horizon two being physical AI, horizon three being science AI. You know, that is how we are focused.

Most of our investment in horizon one, but, of course, like, maybe 70, 80% is horizon one, about 20% horizon two, and a few percent horizon three. But horizon two of cars, drones, and robots, can be, you know, a very, very big market in the future. What happens is AI is going to change also for Horizon two. As you see, there are a lot of reports that the world is going to move from LLM-based AI to a world model-based AI. In which, you know, robots you have to, it is no longer the text data that trains the robot. It is the physical, you know, movement and all that.

And one of the key challenges in training robots or cars is that there is not enough data that is available. Know, when you train an LLM model, basically the data is available on the Internet and is well, you know, language data is available. Whereas training a robot, the data is not available. Okay. So the data either has to be generated manually, you know, like, put sensors on a human and the person picks up the object, you know, that could be data. But that is a very slow form of getting data. The best way to generate data for a world model is through simulation.

And this is what we have talked about for also for a very long time of the three-layer cake. So then the fundamental simulation of multi-body dynamics becomes essential in horizon two physical AI. You know, Hexagon had a leading, you know, simulator for multi-body dynamics. Along with structure simulation, you know, which helps in all kinds of electronics and automotive. So I think I am pretty optimistic that this can position us well for the second horizon, you know, which is physical AI. And so what that will do for SDNA business, the way I look at it, our SDNA business, know, once we complete this acquisition, we will have two strong pillars. You know.

And it will actually the run rate should cross a billion dollars in 2026 if the acquisition closes. And one pillar will be driven by 3D IC and chiplets. You know, Allegro is in our SDNA business. Allegro is a de facto standard for package design in the world. And so if you take Allegro combined, you know, security and clarity and Celsius, our kind of electromagnetic and electrothermal tools. That is one key area of this merger of silicon and system. We will be very, very strong in that, you know, and our partnership with TSMC, our partnership with all the leading AI players like Nvidia positions us very well with Allegro and 3D IC.

So that will be roughly one half of our SDNA business. Because there is going to be a lot of growth in this chiplet-based architecture. And the second part will be this physical AI, you know, structural analysis. And the combination of Beta, which was the leader in pre-post processing with Hexagon, which has a lot of solvers, like multi-body dynamic structural. And then, you know, we acquired a great new CFD solver from Stanford a couple of years ago. So if you put all the solvers together with Beta, that will be roughly half of our SDNA business. And really well-positioned for the physical AI.

So if you put it all together, the benefit of Hexagon is that it will give us two strong pillars in SDNA, in the areas that are going to grow the most in the future. One is 3D IC and HPC. The other is physical AI and connected technologies.

Siti Panigrahi: Great. Thanks for the color, Anirudh.

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

James Schneider: Good evening. Thanks for taking my question. I was wondering if you could maybe frame for us some of the tailwinds you expect you might see over the next couple of years as a result of the inclusion of AI features into your products on the core EDA side. Maybe talk about any kind of productivity metrics you can give us in terms of time to market or developer productivity and how that might translate into either revenue or adoption rates of that technology and features? Thank you.

Anirudh Devgan: No. Absolutely. Great question. You know, as we have said before, there are two parts to our AI strategy, which is we call design for AI and then AI for design. Okay? I think the first part is the build-out of the AI ecosystem, whether it is infrastructure or physical AI. And that, you know, we are very well-positioned with all the leading players. All the max seven companies and now I think your question is on the second one, which is, of course, applying AI to design. So even this time, you know, we highlighted several.

So we have, you know, at least five major platforms and some of the big examples are, for example, SIM AI, which is using AI to accelerate verification. It is an almost exponential task in chip design. And we are seeing with SIM AI, you know, 5 to 10x improvement in logic simulation efficiency and coverage, which is one of the mostly heavily used tools in verification. Even in Cadence Live, you know, Samsung and Qualcomm and Nvidia highlighted this. So these are demonstrated benefits at customer site being highlighted by the customer themselves. Okay. The other area is in physical design. You know, the back-end physical design with Cerebras AI Studio.

Again, we had Samsung code 4x improvement in productivity. And also 22% improvement in PPA. The way, this is huge numbers. Because when you go from, like, five to three nanometer to two nanometer, typically, a node migration, which the industry is spending like, you know, billions and billions of dollars, will give, like, 10 to 20% PPA improvement. And if we can get that with better optimization, with better AI, that is a huge value for our customers. So the good news is that I think the adoption of AI tools is almost taken as a de facto. You know, all the big customers are adopting our AI tools.

And I have said even before that, you know, the monetization of that takes some time. It always takes two contract cycles. I think we should be able to do that or slightly better. So but the productivity is huge by applying AI to EDA. And the reason I think it is different in EDA than other things is first of all, there are multiple reasons. One is, you know, we have done automation for thirty years. You know, the chip design process is highly automated. You know, about 80, 90% of it is already automated. So we have a lot of history of automation, and then AI is the next 10x that automation that can happen.

I mean, we have probably improved chip design 100x in the last twenty years, and AI can give the next 10x. The other thing that is different in chip design versus other industries, I believe, is because the workload is exponential. You know, the chips in five years from now will be like five, 10 times bigger, complexity will be 20, 30 times more given software and chiplet. So AI productivity is needed just to keep up. So our workload is exponential. It is very different than a workload is not. So the customers are expecting us to deliver more productivity and are accepting of deploying that in their designs.

James Schneider: Thank you. And our next question comes from the line of Harlan Sur with JPMorgan. Your line is open.

Harlan Sur: Good afternoon, guys. Great job on the quarterly execution as always. On the third-generation upgrade cycle on your emulation and prototyping platforms, you are about five quarters into the upgrade cycle. So record revenues in Q3. If I rewind back to your second-generation launch, right, the team drove three years of record revenues post-launch. You still have the same drivers in place. Right?

Design, software complexity increasing exponentially, the cadence of new chip program introductions, accelerating addition of new customers like OpenAI, as you mentioned on the call today, and proliferation of all of these challenges into new markets like automotive and software-defined vehicle, given the lead times for your Proteon and Palladium systems, I assume you are already booking into next year. What is the demand curve look like? And do you anticipate continued momentum and growth in 2026 for the hardware platform?

Anirudh Devgan: Yeah. Harlan, as always, you are always very perceptive in the overall trends in the market. Yes. Hardware is doing phenomenally well. And I expect the trend to continue. So will '26 be better than '25? That is what, you know, we would think. Now how much better? You know, we are always prudent in that because, you know, hardware, you do not have like, if full-year visibility like we would have in the software business. So when we go into any given year, you know, we only have a six-month visibility. So we are always prudent in a hardware guide.

And then, you know, if the business comes in as expected, just like this year, we can, you know, improve our guide for the rest of the year. That is on the, you know, that is more on the, you know, guiding discipline, which we want to be, we want to derisk our guide for investors. Now in terms of fundamental technology trends and market trends, I mean, is this, this is a great setup for hardware because, first of all, we are the only company that builds our own systems. We build our own chips at TSMC. There are full radical chips. You know, you should see these things, you know.

These racks have 144 liquid cool chips connected by InfiniBand and optical, and the customers will connect, 16 racks together, even that can emulate like 1 trillion transistor designs. I mean, there is no other platform that can compete with that. And also the demand for hardware is increasing not just because of their more AI designs, but as the, you know, as we go from three nanometer to two nanometer to 1.4 to one, will take, you know, next seven, ten years. The size of the chips only increases. And so there is more and more demand for hardware. So overall, competitively and market trend-wise, I think we are well-positioned in hardware.

But of course, for any given year, we are prudent in the guide. John, I do not know if you want to add.

John Wall: Yes. Yeah. Yeah. I got it, Harlan. What I would add there is demand remains very strong, particularly across AI, HPC, and auto markets. We have been scaling manufacturing capacity and trying to improve lead time. We have also had hardware gross margins become more healthy. We remain focused on throughput to meet the elevated need from AI designs. And if you look at our financials this quarter, you will see that we have been building inventory to try and meet the demand in this reflected in the pipeline for the next six months.

Harlan Sur: Insightful. Thank you very much.

John Wall: Thanks.

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 gave several examples of customer activity, customer engagements, and so forth. And I would like to ask you about the recent announcement of the joint work that NVIDIA and Intel are going to be doing. Would it be fair to presume that combined GPU and CPU work would necessarily lift up demand and capacity requirements for multiple types of EDA tools, also IP, probably hardware as well. So there would be a general uplift as a result of that combined work. But at the same time, would it also necessitate your increase in your investments, for example, in AEs, as you did when you had that breakthrough with Intel several years ago.

Anirudh Devgan: Hi, Jay. That is a good observation in terms of CPU, GPU together. By the way, I have said this for almost fifteen, twenty years. That the CPU GPU need to work together because, you know, EDA is a very well-optimized workload. And, you know, it is computational software, you know, mathematical software. Which is very similar to AI. You know, what happened in the history of EDA is that, of course, there are a lot of SIMD tasks, you know, like, which can be done in a GPU kind of machine, but there are also a lot of conditional tasks which need to be done on a CPU kind of machine.

So we always wanted both CPU and GPU, and we also wanted CPU and GPU to be close to each other. And actually, to NVIDIA's credit and, you know, Jensen's credit of, you know, Grace Hopper and then Grace Blackwell. I mean, they are one of the first people to track, you know, to kind of watch this trend. And now, you know, if you look at all the major designs, other companies too, there is a combination of CPU and GPU together. And that is the reason for the last several years, we are already working on our workload to CPU plus GPU. And a perfect example was when we announced Millennium earlier in the year.

So we are moving not just, you know, system analysis workload, which are more GPU friendly, but also EDA workload, you know, which are critical for accelerating EDA and 3D IC to CPU GPU combination. So what I would like to say is I am actually very pleased to see that the whole industry now is going toward this combination of CPU plus GPU, whether you look at Apple's chips or, you know, AMD chips, of course, NVIDIA, amazing platform. This partnership with NVIDIA and Intel is good for us in terms of gives us a new kind of x86 plus GPU.

And also, we have a long-standing partnership with NVIDIA as Intel does more work with NVIDIA, it is also good for our overall discussions with Intel, which I think are proceeding well. I think Intel has to invest both, you know, in its ecosystem for foundry and also its own products. And I think Labool knows that and has good to see the investment on both sides.

Jay Vleeschhouwer: But just to be clear, aside from the porting that you have to do internally for your own tools, you are presuming that in terms of demand that this customer activity would necessarily increase the consumption of EDA.

Anirudh Devgan: The customer activity should, I mean, I think, first of all, if the EDA tools get better because of, you know, CPU GPU system being optimized, typically, the customers will adopt. We are always looking at ways to improve our tools, and this gives another vehicle to improve the performance of our tools. So that is good for all customers. And then I think in this particular partnership, there are specific design activities that need to be done.

You know, without getting into too much detail, you know, and we link based IP and the so, yeah, we are working with the particular companies on design to make this design happen just like we would work with any of the leading designs. So, yeah, there is a specific customer activity connected to NVIDIA and Intel. And in general, there is customer benefit if our tools are optimized better on this platform. Yeah.

Jay Vleeschhouwer: Got it. Thank you, Anirudh. And our next question comes from the line of Gianmarco Paolo Conti with Deutsche Bank.

Gianmarco Paolo Conti: Yes. Hi, there. Thank you for taking my questions again. Congrats on another great quarter. Maybe just going back towards China. Especially given the amazing quarter you guys have had, of course, some of it was recouped from Q2. But how should we think about a sustainable growth rate in the region beyond what was recouped last quarter? And potentially, if you could give some color on if there is any real risk from yet another ban in the region.

Obviously, there was some news flow going on, and I think investors will want to be a bit wary about, like, what was real in terms of potential risk to EDA or what is sort of like the broader macro level impact? Any commentary, that would be great. Thank you.

Anirudh Devgan: Yeah. I think China, like I said, the design activity seems back to normal to me. And I think we mentioned, of course, when we started the year, we were very prudent. Very because I said before, when I went to China last year, I mean, they were expecting a tough kind of macro environment, geopolitical environment, which turned out to be in '25. So we were very prudent in our guide of China in the beginning of the year. Turned out to be correct. Now I think at this point, like John also mentioned last time and this time, we expect China to grow, you know. How much it grows will depend, you know.

We will have a better idea. It is very difficult to predict. You know. We will have a better idea at the end of the year. But I do expect China to grow this year. And then it is good to see, I mean, it is very difficult to predict the geopolitical environment, and I definitely do not want to do that. But it is good to see that there are a lot of discussions between the two kind of presidents and two big economies. So any stability there, certainty is good for our business. So we look forward to that. But I do expect that design activity is strong.

And if there is no, you know, unforeseen development and the environment is stable, it should help our business. I just want to remind you that our strength in Q3 is helped by performance in China, but it is very broad-based. Given, you know, like, all the reasons we mentioned of the build-out of the AI infrastructure, the emerging design of physical AI, you know, the overall AI megatrend. So we are pleased. So we are not indexed to any particular country. But it is good to see that the environment is improving in China.

John Wall: Yes. And Gianmarco, I would like to remind you that our Q4 and full-year outlook assumes today's export regime remains substantially similar. And we always incorporate prudence for regulatory variability. And we will continue to comply rigorously while supporting customers globally. And as Anirudh says, we are seeing strength right across all businesses and across all geographies.

Gianmarco Paolo Conti: Great. Thank you.

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

Joseph Michael Quatrochi: Yes. Thanks for taking the question. I was wondering if you could just maybe help us understand the OpEx dynamics. I think 3Q is a bit better than expected, but 4Q is a bit worse than expected. Is that related to just the Artisan deal timing of closing that or just any sort of help there would be helpful?

John Wall: Sure. Yeah. But yeah. I mean, it is really just the timing of some hardware delivery shifting between Q3 and Q4. But overall, the year is slightly ahead of what we were expecting, and we are pleased by the broad-based execution, strong demand across all of the product categories. Core EDA software is performing very well. Hardware continues to be strong. We are continuing to make progress in SDA, and we have continued momentum and healthy renewals set up for Q4.

Joseph Michael Quatrochi: Guess maybe the OpEx.

John Wall: Sorry. Can you repeat the question? The question was on the OpEx side.

Joseph Michael Quatrochi: Like, the OpEx timing.

John Wall: Oh, yes. So on the OpEx side, we did a small restructure that benefited Q3. The hardware gross margins were very healthy in Q3. And then it is offset a little in Q4 by some new expenses we are picking up from new acquisitions.

Operator: Perfect. Thank you.

John Wall: Thanks.

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

Charles Shi: Hey, thanks for taking my question. Anirudh, congrats on the nice results. And as John, similarly here. The question looks at the growth rate of the overall company for the last few years, it has been maintaining around that 40% ish plus-minus range. Truly remarkable. Looks feels like you did not really skip a bit at all, but when I look under the hood, there are lots of moving parts. Right? Like, let us compare last year versus this year. Last year, China was bad. Hardware was kind of decelerating. I think that was partially due to your hardware transitioning to the V3X3. I mean, I am looking at the upfront revenue as to inform me about your hardware growth.

But this year, both things are kind of turned out much more net positive, like, your upfront revenue probably going to grow somewhere closer to 50%. China looks like it at least it is going to grow above the corporate average. So wonder when we look at, think about next year, do you think both and China can maintain a current momentum? Maybe especially on hardware, based on the observation of the V2X2 cycle, I believe that was somewhere in between 2021 and 2024. When you go into, like, a second or third year ish, the growth rate in the V2X2 cycle, it kind of decelerated a little bit.

So my question is, is this time can be a little bit different in terms of the hardware growth rate going forward? And could any fear of your from your customers regarding hardware transition to, let us say, Z4X4 in the maybe, the next one to two years, causing some of the deceleration of hardware revenue? I know this is a long question, but I think that this is the most important one. We think about the Cadence Design Systems, Inc. outperformance going into next year?

John Wall: Thanks for the question, Charles. We are trying to unpack it. So I think I would not focus too much on any one quarter or even any one half in terms of results. If you recall last year, the shape of the revenue curve was kind of back-end loaded. And Q3 over Q3 comps can be a bit skewed, particularly as well with China. Given that we had that temporary restriction in China from May to the early July. But generally, when you are talking about hardware demand is very, very strong. But and we are seeing a secular trend in hardware demand for many years now. Because the growth in complexity continues unabated.

But we are seeing a very strong pipeline for the next six months. And we are ramping up on inventory for some large orders that we have to fill in the next couple of quarters. But so we are seeing lots of momentum, and we expect to mean, typically, if I go back, I think the last five, six years, and it is typical of Cadence Design Systems, Inc. Q4 bookings would exceed Q4 revenue. So we just finished with $7 billion of backlog at the end of Q3, which is a new record for us. Given renewal timing in Q4 and the visibility we have, we would expect to end '25 at a fresh high.

And with that mix being so healthy across all of the different businesses, I think it bodes well for next year.

Charles Shi: So maybe a quick follow-up. So Anirudh, with a technical perspective, the current hardware, the E3X3. Enough to support 1 trillion transistors but with the AI really, like, moving really fast. Do you foresee, like, when you have when you probably need to like, do another hardware refresh? And is there any light you can shed on this?

Anirudh Devgan: Yeah. Hi, Charles. Yeah. I am very confident in a hardware position. You know, we talked about Palladium. You know, we are the only company that designs our own chips. And also, Protium with FPGA systems, and that is also doing well with the dynamic deal. And like John said, you know, we do see good demand. Now I just want to remind you that, you know, when we guide, we always are prudent given hardware is not as predictable as software. But there is almost though we reported kind of upfront revenue, but what has happened is that all these big customers are almost buying every year.

It is not that they are buying, you know, so the buying behavior is different than four, five years ago. They are doing so much design. They are all the really big customers. It has all always almost become like an annual kind of subscription even though financially it is reported, of course, as upfront. So now will the hardware trend continue? I mean, right now, I do not see any reason that it will not. And so I think '26 will be stronger than '25. How much stronger? We will have a better idea. Now in terms of our next generation, we are always investing in R&D. Know, we have a huge investment in R&D as you know.

35% of our revenue is invested in R&D. And but if you look at the expense side, almost 65% of our expenses invest in R&D and about 25% is invested in application engineering. So more than 90% of our investment and headcount is in engineering, you know, customer support and R&D. And that is true for hardware. So we are, you know, we do not want to go into all the details, but you can assume we are well on our way designing the next generation of hardware systems. And they will come in time. You know, one thing good thing is about our current systems already support 1 trillion transistor design. And that is supposed to happen by 2030.

But before 2030, we will have a next generation of hardware which will support it for the next, you know, five years. So I think I am pretty confident in our hardware roadmap. And the demand itself, I think because, you know, Harlan, you know all this area well. I mean, AI, the chips are only getting bigger. And also what is happening is, like, even with the, like, Blackwell, it is not just one chip now. It has multiple chips and then grays together. So the customers are also not emulating just one chip, which is growing x every node. They are emulating systems of chips.

You know, like, Grace and Blackwell together or if you have chiplet by architectures. So the demands of hardware may move faster than just Moore's Law or technology scaling. Because of this 3D IC. But again, we will see that. We are well-positioned. We will see how it progresses. But systemically, there is no issue in demand for hardware in our competitive position.

John Wall: Charles, there was a lot in your question. I think you referred to upfront recurring revenue as well. I mean, we continue to frame 25% around eighty-twenty recurring to upfront on a rolling four-quarter basis. And I think as you mentioned in your question, the variability quarter to quarter is driven mainly by strong upfront businesses like hardware and IP and the timing of China ratable revenue earlier in the year. But with core EDA growing so well, we are comfortable that eighty-twenty is probably the right kind of mix of business for the foreseeable future.

Charles Shi: Thanks for the insights.

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

Gary Mobley: Hi, guys. Thanks so much for squeezing me in and let me extend my congratulations. I really just had a clarification or question to get to a clarification. So if I recall correctly, given the timing of the export control repeal, which we believe is July 2. Your China backlog was not in your June ending backlog. But I presume now that it is. So given that $600 million revenue or $600 million delta in your backlog, how much of that was a function of the inclusion of China backlog versus the prior quarter.

Anirudh Devgan: Yeah. Hi. Let me take a crack at it and then I think yeah. You are right. Our backlog grew from $6.4 billion to $7 billion. There is a growth of $600 million. So I think about, I would say, about 25% of that. About $150 million is catch up from Q2 to Q3, and the rest growth is growth strength across our business.

John Wall: Yeah. That is right. No. That is exactly right.

Gary Mobley: Appreciate it. Still good numbers. Thank you.

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

Clarke Jeffries: Thank you for taking the question. Anirudh, I appreciate the comments on the mechanics of the strength in the IP business and specifically the demand for design IP you are seeing for AI projects? I wanted to follow-up with just how the wallet opportunity is changing with those AI projects. Specifically, do you see any potential for growing pains or lower profitability to serve the industry as they make more customer bespoke technologies with chiplet or custom memory designs incorporated into those AI and HPC designs? Has Cadence Design Systems, Inc. changed its investment plan or selling motion to serve that more custom nature required by the industry, or is that even needed at all? Thank you.

Anirudh Devgan: Yeah. Great question. I mean, this is a big trend. Right? Design of custom silicon. I mean, we have talked about it for years, you know, system companies doing silicon and, you know, as you know, about 45% of our business is coming from system companies and fifty-five is coming from semi companies. And so with this, especially with AI, there is acceleration of custom silicon. And I think one different from six months ago or one year ago to now is when I look at these big, you know, system companies, they are more and more committed to custom silicon. And, of course, we have a great partnership with NVIDIA, and NVIDIA is doing phenomenally well.

But so will, you know, custom silicon, and we can see from Broadcom results and we also work very closely with Broadcom and the customers themselves. So and there are opportunities because the demand is so high in terms of if you look at all these big customers, they are projecting AI compute demand to grow like 2x every year for the next several years. So I think there is growth for everyone, you know, involved in that. And the benefit of doing custom silicon, at least for the inference part, can be so high, you know, that they are willing to invest in EDA internal chip design. So I think the financial and the customization benefit for our customers.

And these are, of course, the biggest companies in the world, is significant doing custom silicon. You can look at all the big ones like Google and Meta and all the others like Microsoft, Amazon, Tesla. So I think there is going to be an acceleration of that. And as they do more internal design, of course, they need to invest in EDA and IP and hardware. So I think the trend is healthy there. You know, profitability questions are similar. You know, we want to have discipline on our pricing. So our profitability is similar, but the benefit to our system companies is high as they do their own chips. Yeah.

Clarke Jeffries: Thank you very much.

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

Ruben Roy: Thank you. Anirudh, I had a quick question, I hope, on a comment you made during your prepared remarks about collaborating with a customer on next-generation AgenTeq AI solutions. I am wondering, is that something that you are seeing across a wide swath of your end customers? And if so, just wondering if you could walk through maybe some implications of that, whether it is how some of those collaborative efforts on that type of solution might be monetized longer term and how you are thinking about agentic.ai overall.

Relative to, you know, specific almost sounds like custom solutions, you know, by customer versus, you know, a broader agentic AI solution set that Cadence Design Systems, Inc. might offer to the broader ecosystem? Thank you.

Anirudh Devgan: Yeah. It is a great question. We could talk for a while on this one. And, you know, we are, you know, privileged to have a deep partnership with several companies on AI. I mean, not just the design of AI, but AI for design, you know, in our solutions. And especially on AgenTeq AI. Because this is a new emerging area. We have, like, five major AI platforms. What is unique about agentic AI is, of course, all the gen AI stuff. And if you look at even the biggest applications of AI, you know, is kind of wide coding or, you know, software development. Well, if you look at it, part of the chip design is also coding.

You know, we have automated, like I mentioned earlier, 90% of the workflow for chip design. But one part of the workflow which is not automated, the customer still has to write RTL. You know, RTL is like a language, you know, register transfer language that describes the chip. And this happens in the very beginning part of the chip design process. So that process is still manual. But the algorithm that is helping wipe coding or, you know, C++ coding for general software development, kind of these agenting methods can also help for RTL development. Okay? And it can provide a lot of benefit to this 10% flow that is not automated.

So therefore, we have massive investment in agentic AI, which you will see as we announce more products going forward. And we already have several partnerships in there, and we are highlighting one of them. The way we are going to market there is, you know, this is longer is through JEDI. I have talked about JEDI before. So JEDI is joined into data and AI platform. So it does have some standardized components. You know, the database is standard, all the models are available, AI models have an interface to all our AI tools. So part of JEDI is standard across all customers, and we work with foundries and all to kind of train our models.

Now part of it could be customer-specific. Okay? And in that case, the data is held at the customer side. And that is where we architect JEDI from the very beginning to be both on-prem and cloud-based. Because sometimes the customers wanted cloud-based, but sometimes if they want data to be localized, they want it on-prem. So that is why for years we have invested in this kind of unique platform, JEDI. That allows us not just to build unique solutions like RTL development and verification plan development, but also deploy either in a general way or more specialized to a particular big customer.

But I am pretty optimistic in how AgenTeq AI can automate the remaining kind of part that was manual and again focus our customers to do higher-level tasks and remove some of the mundane tasks of RTL coding, verification plan generation, things like that. Yeah.

Ruben Roy: Very helpful. Thank you, Anirudh.

Operator: And our final question comes from the line of Joshua Tilton with Wolfe Research. Your line is open.

Joshua Tilton: Thank you so much, guys, for sneaking me in here and congrats on a very strong quarter. Given the time, I am just going to actually ask a pretty direct clarification question. John, I think it is pretty much for you. In the event that you do see some impacts in the China region, given the ongoing tariff negotiations this coming quarter. Do you feel or can you help us understand how you kind of handicap the updated guidance for some, if any, potential negativity in the region?

John Wall: Josh. I mean, that is a great question. I would love to be able to tell the future. I mean, as always, we incorporate prudence for all kinds of regulatory variability. And we base our guidance assuming that today's export regime remains substantially similar going forward through the 2025. But it is very, very hard to predict what is going to happen. But by all reports that we have heard, we believe that geopolitical tensions are lower than people expect.

Joshua Tilton: Helpful. Thank you guys again for sneaking me in. Congrats again on a good quarter.

John Wall: No worries. Thank you.

Operator: And I will now turn the call back to Anirudh Devgan 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: And ladies and gentlemen, thank you for participating in today's Cadence Design Systems, Inc. Third Quarter 2025 Earnings Conference Call. This concludes today's call, and you may now disconnect.