CADENCE DESIGN SYSTEMS INC — Call Transcript 2026

Thanks everyone for joining us back after lunch. We're going to keep this lively so that nobody goes into the proverbial, as we call it in the U.S., a food coma, and make sure that we can. Sorry We can really get some good insights here from Cadence. Before I get into talking to Richard Gu, who's the VP of IR at Cadence, I'd like to read the disclaimer. Today's discussion will contain forward-looking statements, including Cadence's outlook on future business and operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussions. Everyone understand that? Good. Richard, thanks for being with us. We appreciate you. We always appreciate you coming back, and you are in such great demand for the meetings today. Let's start by, if you wouldn't mind giving us a quick overview of Cadence and what you think differentiates Cadence today from just a few years ago. I used to remember it as Cadence Design. That shows how far back I go. Thank you, Bob. Great to be here, and good afternoon, everyone. Cadence, we've been around about 30 years, and the company was founded by engineers for engineers. Okay. We play a very pivotal and foundational role in the entire semiconductor ecosystem, which is one of the most critical, most dynamic in the world. Our technology portfolio consisting of IP, EDA, and system design analysis are really essential for our customers to design the most advanced chips and electronic systems, from anywhere from the AI accelerators, to smartphones, to autonomous driving vehicles, to aerospace systems. It's fair to say any electronic system in the world always has a component of Cadence technology in it. The company has grown by leaps and bounds over the years, and we've always been a great compounder, and this year, the revenue has accelerated to 17% year-over-year growth. Our non-GAAP margin is going to push and reach 44%. In a rule of 40, if you will, we're talking about exceeding the rule of 60 this year, which is going to be a company record. I think, on your second part of the question, Bob, comparing us now versus a couple of years ago, I think a couple of things have changed. Okay. One thing is worth pointing out is obviously AI is a big inflection point, right? We, as a company, under the leadership of our CEO Anirudh Devgan's intelligent system design strategy, we're thinking about AI from really two major vectors, and we're a massive AI beneficiary. One is design for AI, because our technology, we're one of the few companies where our technology is embedded and used, and it's so essential to design all these AI chips, NVIDIA, Broadcom, and everybody, all the hyperscalers. We also talk about the AI for design. We apply AI, the reinforcement learning, the agentic AI, to our own product set to make it better. You probably heard about Jensen talking about our agentic AI product, ChipStack, providing over 40x productivity improvement for his engineering team during the most recent Computex in Taiwan. I think that's a strong validation to our product roadmap and our pole position, really, when you think about the agentic AI in our industry. I think that's one thing. The second thing is the overall environment and the customer's environment in our operating environment is getting a lot better and improved. Okay. Not only does the 10, 15-ish top AI companies are going gangbusters, really lock up in this dead heat to one-up each other in the AI race. Also, if you look at the broader set of traditional semiconductor companies, like the analog designs and mixed-signal companies, they are getting stronger and they have a big role to play in the data center with power and everything. They're also going up cycle. These are great things for us. They're both well for our business. The last point I want to mention is competitively, we're very strong. Okay. We're the strongest ever in our company history. We feel very good about where the business is right now. Yes, you sound too similar to what we talk about in our business, which is AI in the business and AI in the product, differentiating between those two and how we use them. We can get into more of that later on, but can you further highlight some of the secular trends that you think are driving this long-term growth? Tell us about maybe some of your top customers and your partners that you use in the semiconductor ecosystem that are working with you on this. Oh, sure. Yeah, our business, if you look at our top, say 60, 70 customers, which is maybe majority of our revenue, 60%-70% of our revenue, they are the Who's Whos of the world. Okay. We also work very closely with all the major foundries in the world, TSMC. We made a great announcement to collaborate with Intel on its 14A journey yesterday, so it's a big step forward. We collaborate with Samsung and everybody, and Arm also. Okay, a really just very strong, sticky ecosystem. When it comes to the secular trend driving our business, I would probably break it down into, say, volume and pricing. Okay. Volume, from a volume standpoint, there are a lot of designs to be had, right? All these major companies, they are competing to capitalize on this big AI mega trend and try to take advantage of that fantastic opportunity. Could be a lifetime opportunity for all of us. There's lots of designs to be had. Not only do all these semi companies are launching a variety of advanced silicons and chips and systems, but also, if you look at the hyperscalers and the systems companies, they are entering into the space very strong, and their demand is very robust. They're designing their own ASICs, right? We use the analogy of the four-story staircase. As companies, they go about the custom silicon, they'll move from the merchandise silicon to ASIC using a third-party vendor to go after that journey. As they mature, they go do some sort of what we call hybrid COT. It's a custom owned tooling. Towards the end, they could do COT. As they go down the stairs, what it means for us is, it's not only more designs, but also the EDA and IP content will grow steadily. It's a great business opportunity for all of us. I think the last thing I want to mention is, pricing is an important component of our business, right? Over the years, the industry has consolidated to really two major players. We are very disciplined in terms of the pricing conversations. Want to make sure we can capture the value. Overall, the company and the business is well set up to capitalize on the next wave of growth. We touched on AI earlier. Is AI disrupting Cadence? Are your customers going to use less of your tools because the agents are going to do more of the work and they're not going to need Cadence as much as they needed you today? It's a good question. The debate was fierce a couple of quarters ago. Our CEO, Anirudh, likes to use the analogy, which is I think is apt, in terms of our business is like a three-layered cake. It's not like we have a Cadence bakery or anything. Our core business is that middle layer, which is the principled software, be it EDA, IP, or system design analysis or hardware business. When you think about it's really grounded in the immutable ground truths, be it physics or mathematics, right? The relationship with customers is very deep, it's super embedded. We are completely vested and committed to their journey. The conversation is R&D to R&D multiple times a day. The business is irreplaceable in the middle layer. We are continuing to innovate on that, too. When we think about the upper layer in terms of agentic AI, we're launching a slew of super agents. The example I gave just now on the ChipStack with NVIDIA, it is just one of many products we're launching. Okay. We have three or four super agents launched in the past couple of months, and the opportunity is massive. Okay. The opportunities for us is not only as a new TAM expansion, right? We can monetize and capture that with great pricing and we can actually shift in more dollars from the labor budget, in the R&D budget, to more automation and tools. Because one of the key things you have to realize and keep in mind for is there is this big mismatch between the design demand from our customers and the engineering supply. Okay. TSMC has been talking about this 48x-50x kind of transistor growth in the next five years. Okay. If you think about complexity of those designs, in terms of the workload volume, it's going gangbusters. Okay. It is absolutely impossible for any of these companies to keep up by throwing bodies at the problems. Okay. With our products, with automation, AI, agentic AI, we have the opportunity to help bend that engineering hiring curve to help them meet their ultimate goal and objectives in the design process. I think there's some massive opportunities. We're seeing really early signs, very encouraging. The core business is doing great. Okay. I think we can be patient in terms of monetizing the top layer and making sure we can capture the full value. The opportunity is very exciting for us. Yeah. I guess everyone should remember a few things, right? You got to step down the stairs, four stories. You got the cake, the three-layer cake. There's going to be a quiz later. All of you got to remember all this, right? I'm glad you jumped right into my next question, which is really, it seems like you're benefiting on the other side of AI in terms of these new agentic AI tools. Will there be monetization and revenue impact and how should this group think about the potential timing of that? Sure. It's a great question. In terms of monetization for this agentic AI products, one of the great things is, it's a new category, right? That it's a TAM expansion by pivoting more R&D dollars from labor to automation and AI. It holds a lot of promise. We are thinking about a business model where we want to make sure it's combination of subscription plus consumption. Okay. Think of it as a car rental, okay? The base subscription model is we obviously price these AI, call it the virtual engineers. The value is commensurate to what a physical human engineer can do. It's definitely not priced like an LLM token. It's worth tens of thousands of dollars. In those car rental example, on a daily rate, you have a Siemens embedded 100 mi. If you drive more, if you drive 500 mi, the incremental 400 mi will come with, say, 4 tokens. Each is worth 100 mi per se. This is how we are thinking about it. Another key point of monetization, we definitely should not lose sight for, and we're very excited about is, as you think about these virtual engineers, as agentic AI agents, a big difference with a human being is they don't rest. They can work 24/7. They can help explore the design space a lot more far away than a human engineer could do. What it means is they're going to call a lot of the baseline underlying tools, which is the middle layer of the cake I was referring to and talking about. I think the monetization opportunity is enormous. It could come from all these different vectors. Good. A natural question is where is the limit? I think, obviously, we're still exploring, experimenting, but the early signs are very encouraging. Jensen actually mentioned onstage with Anirudh during our CadenceLIVE back in April. He mentioned he was willing to spend 50% of a human engineer's cost on the tokens. What it means for us, it's a one-third of the R&D budget, which is about, call it 33%. Just as a reference point, right now, EDA is only 11%, 12% of the R&D budget, the headroom is massive. I think obviously the most important thing for us is we want to make sure the products are strong. Then we're providing values to our customers, and that's how we can share and ultimately capture value accordingly. Good. Let's shift gears a second and go into your IP business. You touched on that earlier. Seems to be growing well, and well ahead of the market for the third year in a row. What's driving this? The IP has historically, we've deliberately under-invested in IP because I think Anirudh wanted to make sure EDA is solid, is world-class. I think we are at this point. We have the most comprehensive and strongest EDA platform in the world. A couple of things have changed in IP, too. When you think about IP, I think AI definitely is a game changer. With AI, these are really disaggregated architecture. Because a lot of the AI chips is not just one SoC. It's multiple chips all connected together in a chiplet or 3D IC kind of fashion. What it comes with it, what it means for us is there are lots of high value, high growth IP, especially those connectivity IP, like the UCIe, PCIe, the SERDES, and also storage, too, the memory. The HBM, the DDRs of the world. Our strategy is we want to focus on the, we call it star IP, the high value, high growth IP. Which we are. I think a second important thing we did right is Anirudh hired this phenomenal leader from Intel, Boyd Phelps, a couple of years ago. He surrounded him with fantastic engineering leaders. I think we are always a product-first company. As long as we have the right people in place, the product's getting better, because ultimately, people's buying decisions for IP is based on the value of those and the PPA benefit. Competitively, we're very strong, in terms of a PPA benchmarking. IP is gaining ground, and now it's all very much exposed to the AI mega trend. The third growth driver for IP is you're seeing a foundry ecosystem expansion. TSMC is phenomenal, but you're seeing a lot of the other foundries, too. I think the Intel conversation and the announcement we had on 14A is a clear example. In Japan, they're building Rapidus, which is new foundry. Elon was talking about Terafab, all these things. I think as the foundry diversify further, it's more demand and more opportunities because not only do we have to help them set it up and enable the foundries and make sure the EDA tools can work seamlessly with them, just like the Intel situation. As they capture the end customers, we'll have more revenue streams on that front. IP, this is the third year in a row, we are growing way above the market. Above 23% this year. We foresee the IP will continue to have very strong growth and continue to gain share in the market. Got you. Let's talk about competition for a minute. How does Cadence view your competition? EDA has predominantly been a duopoly between you and Synopsys. Can you talk about how you differentiate yourself? Oh, sure. I think under Anirudh's leadership, I think one of the main things is we are a product R&D-centric company. If you get a product right, ultimately, you're going to win. Okay. The strongest product always wins in the market. I think that's the most important point to take away from. I think at this point, we feel very comfortable in terms of our competitor situation, where we are gaining share across the board. I think EDA, for EDA, we have the strongest platform. Analog is our market. Digital, we are very strong, and we are gaining with the Intel announcement and everything. Samsung, we're collaborating with Samsung on SF2. Okay. When it comes to verification, we have our own ASIC. Our Palladium platform is the gold standard in that market because we use our own ASIC. Okay. This is a clear differentiator. We feel very good about Core EDA. Core EDA is growing at a double-digit strongly. We touched about IP already. Okay. IP, where we're gaining, and we're much more focused and much more profitable also. SDA, for System Design and Analysis, we chose to focus on two bookends of the market because not all SDAs is all tied or exposed to the AI megatrend. Okay. There are two bookends. One is closer to the silicon, is the packaging and the 3D IC and the chiplet, okay, which we have a strong footing, because our Allegro is the market leader. Then on the physical AI front, closer to physical AI and robotics and autonomous driving and drones, we have built a strong business and platform with the most recent Hexagon acquisition which really brought us the two key platforms. One is called Adams, another is called Nastran. Okay. These are the leading software simulators for multibody robotics. Then when we combine that with the pre and post capabilities from Beta CAE, which acquired a couple of years ago, I think we have full flow for physical AI. When you think about the physical AI, it's a phenomenal opportunity for us because not only do we innovate on that core solver kind of realm, but also what it means for us is a lot of great silicon too underneath that. Okay. Because the physical AI, what it means naturally, it'll be mixed-signal, low-power, and that's really our core strength when it comes to analog and mixed-signals. So I think competitively, we feel very strong. Our profitability is great. We're talking the rule of 60, and I think continue to focus our own execution and satisfy and delight our customers. Yeah. I want to talk more about the rule of 60 in a second, but certainly in the right space now as we hear more about obviously drones with this little conflict going on in the Middle East and then robotics. Some of the robotics companies that some of us have seen, and all you have to do is go to Asia these days and there's plenty of them being built and I know that more and more in the U.S., the robotics is going to be a big focus in the future. Would seem like you're very well-positioned there. Oh, yeah, because these are massive markets, right? When you think about the AI, again, another three. Okay. We're like a three by three kind of model. For us, the infrastructure AI build-out is massive, right? It's happening right now in here, right? It's got so much more growth to be had in there with all these investment and opportunities. The next wave is emerging, too, right? The physical AI is real, and it started with the autonomous driving. We live in the Bay Area, and then you're seeing Waymo everywhere. This is phenomenal. It's like when you think about the combination of the silicon plus the world models plus the physical cars, they've done a great job in there. Plus these are multi-trillion-dollar opportunities now. Massive opportunities. We're very excited about those. Yeah. Yeah. We hear more and more about, you talked about data centers, but the data center build-outs and using robots to build the data centers. Oh, yeah. And- Yes it becomes kind of virtuous. It's absolute. Yeah. The opportunity that exists. That's a great point. I think, again, when you think about the physical AI, it's actually in the cars, right? These are data center on wheels in a way, right? Because a lot of the data which they collected has to be trained in the data center, right? It's a reinforcing kind of mechanism with the data center build-out in the physical AI world. Completely agree there's a flywheel. Yeah. Yeah, because the more places that you put a Waymo, the more data that needs to be. You can't have data from the Bay Area in Indianapolis. That doesn't really work. Yeah Knoxville, Tennessee or wherever. You need to have local data in order to really to make it function in those jurisdictions. It will be more and more important for those to have more and more of these data centers and then how they're going to be constructed and be constructed quickly using your tools. Absolutely. You've touched on it a couple times. You talked about the rule of 60. Cadence has been one of the few companies out there delivering on the rule of 60. How should we think about the long-term revenue growth and operating margins under that scenario? We are a financially disciplined and fiscally responsible company. Okay. We don't go out and guide multi years, okay? We look out one year at a time, and it's also very, very important for us to make sure we're growing in a very profitable way. Okay. I think there is a trifecta of our operating philosophies. We strive to deliver and drive double-digit growth, and it's accelerating. Clearly, you're seeing 17% as it stands right now for the year. Also, we wanted to continue to drive 50%, north of 50% incremental margin. In our core business, organic business is actually close to 60%. On top of that, we wanted to continue to spend and give back, use more than 50% of the free cash flow for share repurchases. I think those worked quite well for us for years. We don't have any intention to deviate from that philosophy. We certainly feel very good about the long-term trajectory of the business because it feels like all the long-term drivers, if you will, like the tailwinds, it all stays intact, if you look out at a very long horizon and arc in that way, yeah. Right. One of the things you mentioned earlier was your acquisition of Hexagon D&E, which I believe fits into your System Design and Analysis business. How does that increase the TAM, and what was the strategic rationale behind that acquisition? Sure. Yeah, Hexagon really is a fantastic technology, and it's a carve-out for us. What's valuable for us is, again, like I mentioned, they got two great platforms. One is called Adams. It's a multi-body simulation tool. Another is called Nastran. When you think about the physical AI challenges, part of that is just the simulation is not accurate enough. These tools could be interposed or inserted in the simulation loop to make it work, to make the simulation a lot faster and more accurate. That is a great set of tools we are acquiring. Then, like I said, also, by combining that with the BETA CAE's technology, we have a physical AI simulation full flow. With that, I think we are well-poised to capture some of the opportunities as it emerges. I think in the autonomous driving segment, robotics is coming up very strong. I think certainly, these are great business. The integration has gone quite well. We closed the deal about a quarter ago, and then our team is just heads down, focused on making sure we'll continue to capture the upsize and the opportunities. Yeah. How do you think about that TAM? Yeah. If you think about the EDA TAM, we've talked about the convergence between silicon and systems. It's fair to say that the simulation in this SDA TAM is as big as the silicon side of the equation, so it could double the TAM over time. Not to mention, now AI is another leg of growth. I remember years ago, the TAM is, what, like $10 billion, $15 billion. Now it's much higher now. Yeah, it's a great opportunity for us to continue to prosecute, I say. Yeah. Sure. We will have time for some questions in a minute or two if any of you have them, so just want to preview that for you. Are there any areas of the portfolio, Richard, that you think could benefit from more M&A, more focus on that, and what's the philosophy? You talked about how you return cash through share repurchases. Yeah How does the philosophy look between M&A and share repurchase? Sure. Our philosophy has always been organic is the first order of business. We always invest first and foremost in our own R&D capacities and capabilities. This is a very R&D-intensive business, and organically, we often say organic is delicious. That has the greatest, highest return for our shareholders. That's our core focus area. We don't do major transformative deals, and we don't have any appetite to do that. We will supplement the core organic business with some tuck-in acquisitions opportunistically if the right asset is in the market with a good price or a good talent out there, but we don't feel any need to do any major deals. I think the third order, obviously, is the share buybacks. I think we feel at this point, the portfolio is fairly complete and comprehensive, and the market is growing very nicely. I think we wanted to make sure we have the best product in place to support the growth and the innovation agenda for our customers. Focusing inward rather than outward. Yeah. Focusing on organic first and foremost, I'd say. Yeah. Good. Do we have questions? Yes, sir. Thank you very much for our audience today for your attendance. This session is now concluded. You may now leave the webinar. Thank you.

Speaker 1: Thanks everyone for joining us back after lunch. We're going to keep this lively so that nobody goes into the proverbial, as we call it in the U.S., a food coma, and make sure that we can. Thanks everyone for joining us back after lunch. thanks everyone for joining us back after lunch We're going to keep this lively so that nobody goes into the proverbial, as we call it in the U.S., a food coma, and make sure that we can. we're going to keep this lively so that nobody goes into the proverbial as we call it in the u.s a food coma and make sure that we can

Speaker 2: Sorry Sorry sorry

Speaker 1: We can really get some good insights here from Cadence. Before I get into talking to Richard Gu, who's the VP of IR at Cadence, I'd like to read the disclaimer. Today's discussion will contain forward-looking statements, including Cadence's outlook on future business and operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussions. Everyone understand that? Good. Richard, thanks for being with us. We appreciate you. We always appreciate you coming back, and you are in such great demand for the meetings today. Let's start by, if you wouldn't mind giving us a quick overview of Cadence and what you think differentiates Cadence today from just a few years ago. I used to remember it as Cadence Design. That shows how far back I go. We can really get some good insights here from Cadence. we can really get some good insights here from cadence Before I get into talking to Richard Gu, who's the VP of IR at Cadence, I'd like to read the disclaimer. before i get into talking to richard gu who's the vp of ir at cadence i'd like to read the disclaimer Today's discussion will contain forward-looking statements, including Cadence's outlook on future business and operating results. today's discussion will contain forward-looking statements including cadence's outlook on future business and operating results Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussions. due to risks and uncertainties actual results may differ materially from those projected or implied in today's discussions Everyone understand that? everyone understand that Good. good Richard, thanks for being with us. richard thanks for being with us We appreciate you. we appreciate you We always appreciate you coming back, and you are in such great demand for the meetings today. we always appreciate you coming back and you are in such great demand for the meetings today Let's start by, if you wouldn't mind giving us a quick overview of Cadence and what you think differentiates Cadence today from just a few years ago. let's start by if you wouldn't mind giving us a quick overview of cadence and what you think differentiates cadence today from just a few years ago I used to remember it as Cadence Design. i used to remember it as cadence design That shows how far back I go. that shows how far back i go

Speaker 2: Thank you, Bob. Great to be here, and good afternoon, everyone. Cadence, we've been around about 30 years, and the company was founded by engineers for engineers. Okay. We play a very pivotal and foundational role in the entire semiconductor ecosystem, which is one of the most critical, most dynamic in the world. Our technology portfolio consisting of IP, EDA, and system design analysis are really essential for our customers to design the most advanced chips and electronic systems, from anywhere from the AI accelerators, to smartphones, to autonomous driving vehicles, to aerospace systems. It's fair to say any electronic system in the world always has a component of Cadence technology in it. The company has grown by leaps and bounds over the years, and we've always been a great compounder, and this year, the revenue has accelerated to 17% year-over-year growth. Thank you, Bob. thank you bob Great to be here, and good afternoon, everyone. great to be here and good afternoon everyone Cadence, we've been around about 30 years, and the company was founded by engineers for engineers. cadence we've been around about 30 years and the company was founded by engineers for engineers Okay. okay We play a very pivotal and foundational role in the entire semiconductor ecosystem, which is one of the most critical, most dynamic in the world. we play a very pivotal and foundational role in the entire semiconductor ecosystem which is one of the most critical most dynamic in the world Our technology portfolio consisting of IP, EDA, and system design analysis are really essential for our customers to design the most advanced chips and electronic systems, from anywhere from the AI accelerators, to smartphones, to autonomous driving vehicles, to aerospace systems. our technology portfolio consisting of ip eda and system design analysis are really essential for our customers to design the most advanced chips and electronic systems from anywhere from the ai accelerators to smartphones to autonomous driving vehicles to aerospace systems It's fair to say any electronic system in the world always has a component of Cadence technology in it. it's fair to say any electronic system in the world always has a component of cadence technology in it The company has grown by leaps and bounds over the years, and we've always been a great compounder, and this year, the revenue has accelerated to 17% year-over-year growth. the company has grown by leaps and bounds over the years and we've always been a great compounder and this year the revenue has accelerated to 17% year-over-year growth Our non-GAAP margin is going to push and reach 44%. In a rule of 40, if you will, we're talking about exceeding the rule of 60 this year, which is going to be a company record. I think, on your second part of the question, Bob, comparing us now versus a couple of years ago, I think a couple of things have changed. Okay. One thing is worth pointing out is obviously AI is a big inflection point, right? We, as a company, under the leadership of our CEO Anirudh Devgan's intelligent system design strategy, we're thinking about AI from really two major vectors, and we're a massive AI beneficiary. Our non-GAAP margin is going to push and reach 44%. our non-gaap margin is going to push and reach 44% In a rule of 40, if you will, we're talking about exceeding the rule of 60 this year, which is going to be a company record. in a rule of 40 if you will we're talking about exceeding the rule of 60 this year which is going to be a company record I think, on your second part of the question, Bob, comparing us now versus a couple of years ago, I think a couple of things have changed. i think on your second part of the question bob comparing us now versus a couple of years ago i think a couple of things have changed Okay. okay One thing is worth pointing out is obviously AI is a big inflection point, right? one thing is worth pointing out is obviously ai is a big inflection point right We, as a company, under the leadership of our CEO Anirudh Devgan's intelligent system design strategy, we're thinking about AI from really two major vectors, and we're a massive AI beneficiary. we as a company under the leadership of our ceo anirudh devgan's intelligent system design strategy we're thinking about ai from really two major vectors and we're a massive ai beneficiary One is design for AI, because our technology, we're one of the few companies where our technology is embedded and used, and it's so essential to design all these AI chips, NVIDIA, Broadcom, and everybody, all the hyperscalers. We also talk about the AI for design. We apply AI, the reinforcement learning, the agentic AI, to our own product set to make it better. You probably heard about Jensen talking about our agentic AI product, ChipStack, providing over 40x productivity improvement for his engineering team during the most recent Computex in Taiwan. I think that's a strong validation to our product roadmap and our pole position, really, when you think about the agentic AI in our industry. I think that's one thing. The second thing is the overall environment and the customer's environment in our operating environment is getting a lot better and improved. Okay. One is design for AI, because our technology, we're one of the few companies where our technology is embedded and used, and it's so essential to design all these AI chips, NVIDIA, Broadcom, and everybody, all the hyperscalers. one is design for ai because our technology we're one of the few companies where our technology is embedded and used and it's so essential to design all these ai chips nvidia broadcom and everybody all the hyperscalers We also talk about the AI for design. we also talk about the ai for design We apply AI, the reinforcement learning, the agentic AI, to our own product set to make it better. we apply ai the reinforcement learning the agentic ai to our own product set to make it better You probably heard about Jensen talking about our agentic AI product, ChipStack, providing over 40x productivity improvement for his engineering team during the most recent Computex in Taiwan. you probably heard about jensen talking about our agentic ai product chipstack providing over 40x productivity improvement for his engineering team during the most recent computex in taiwan I think that's a strong validation to our product roadmap and our pole position, really, when you think about the agentic AI in our industry. i think that's a strong validation to our product roadmap and our pole position really when you think about the agentic ai in our industry I think that's one thing. i think that's one thing The second thing is the overall environment and the customer's environment in our operating environment is getting a lot better and improved. the second thing is the overall environment and the customer's environment in our operating environment is getting a lot better and improved Okay. okay Not only does the 10, 15-ish top AI companies are going gangbusters, really lock up in this dead heat to one-up each other in the AI race. Also, if you look at the broader set of traditional semiconductor companies, like the analog designs and mixed-signal companies, they are getting stronger and they have a big role to play in the data center with power and everything. They're also going up cycle. These are great things for us. They're both well for our business. The last point I want to mention is competitively, we're very strong. Okay. We're the strongest ever in our company history. We feel very good about where the business is right now. Not only does the 10, 15-ish top AI companies are going gangbusters, really lock up in this dead heat to one-up each other in the AI race. not only does the 10 15-ish top ai companies are going gangbusters really lock up in this dead heat to one-up each other in the ai race Also, if you look at the broader set of traditional semiconductor companies, like the analog designs and mixed-signal companies, they are getting stronger and they have a big role to play in the data center with power and everything. also if you look at the broader set of traditional semiconductor companies like the analog designs and mixed-signal companies they are getting stronger and they have a big role to play in the data center with power and everything They're also going up cycle. they're also going up cycle These are great things for us. these are great things for us They're both well for our business. they're both well for our business The last point I want to mention is competitively, we're very strong. the last point i want to mention is competitively we're very strong Okay. okay We're the strongest ever in our company history. we're the strongest ever in our company history We feel very good about where the business is right now. we feel very good about where the business is right now

Speaker 1: Yes, you sound too similar to what we talk about in our business, which is AI in the business and AI in the product, differentiating between those two and how we use them. We can get into more of that later on, but can you further highlight some of the secular trends that you think are driving this long-term growth? Tell us about maybe some of your top customers and your partners that you use in the semiconductor ecosystem that are working with you on this. Yes, you sound too similar to what we talk about in our business, which is AI in the business and AI in the product, differentiating between those two and how we use them. yes you sound too similar to what we talk about in our business which is ai in the business and ai in the product differentiating between those two and how we use them We can get into more of that later on, but can you further highlight some of the secular trends that you think are driving this long-term growth? we can get into more of that later on but can you further highlight some of the secular trends that you think are driving this long-term growth Tell us about maybe some of your top customers and your partners that you use in the semiconductor ecosystem that are working with you on this. tell us about maybe some of your top customers and your partners that you use in the semiconductor ecosystem that are working with you on this

Speaker 2: Oh, sure. Yeah, our business, if you look at our top, say 60, 70 customers, which is maybe majority of our revenue, 60%-70% of our revenue, they are the Who's Whos of the world. Okay. We also work very closely with all the major foundries in the world, TSMC. We made a great announcement to collaborate with Intel on its 14A journey yesterday, so it's a big step forward. We collaborate with Samsung and everybody, and Arm also. Okay, a really just very strong, sticky ecosystem. When it comes to the secular trend driving our business, I would probably break it down into, say, volume and pricing. Okay. Volume, from a volume standpoint, there are a lot of designs to be had, right? Oh, sure. oh sure Yeah, our business, if you look at our top, say 60, 70 customers, which is maybe majority of our revenue, 60%-70% of our revenue, they are the Who's Whos of the world. yeah our business if you look at our top say 60 70 customers which is maybe majority of our revenue 60%-70% of our revenue they are the who's whos of the world Okay. okay We also work very closely with all the major foundries in the world, TSMC. we also work very closely with all the major foundries in the world tsmc We made a great announcement to collaborate with Intel on its 14A journey yesterday, so it's a big step forward. we made a great announcement to collaborate with intel on its 14a journey yesterday so it's a big step forward We collaborate with Samsung and everybody, and Arm also. we collaborate with samsung and everybody and arm also Okay, a really just very strong, sticky ecosystem. okay a really just very strong sticky ecosystem When it comes to the secular trend driving our business, I would probably break it down into, say, volume and pricing. when it comes to the secular trend driving our business i would probably break it down into say volume and pricing Okay. okay Volume, from a volume standpoint, there are a lot of designs to be had, right? volume from a volume standpoint there are a lot of designs to be had right All these major companies, they are competing to capitalize on this big AI mega trend and try to take advantage of that fantastic opportunity. Could be a lifetime opportunity for all of us. There's lots of designs to be had. Not only do all these semi companies are launching a variety of advanced silicons and chips and systems, but also, if you look at the hyperscalers and the systems companies, they are entering into the space very strong, and their demand is very robust. They're designing their own ASICs, right? We use the analogy of the four-story staircase. As companies, they go about the custom silicon, they'll move from the merchandise silicon to ASIC using a third-party vendor to go after that journey. As they mature, they go do some sort of what we call hybrid COT. It's a custom owned tooling. All these major companies, they are competing to capitalize on this big AI mega trend and try to take advantage of that fantastic opportunity. all these major companies they are competing to capitalize on this big ai mega trend and try to take advantage of that fantastic opportunity Could be a lifetime opportunity for all of us. could be a lifetime opportunity for all of us There's lots of designs to be had. there's lots of designs to be had Not only do all these semi companies are launching a variety of advanced silicons and chips and systems, but also, if you look at the hyperscalers and the systems companies, they are entering into the space very strong, and their demand is very robust. not only do all these semi companies are launching a variety of advanced silicons and chips and systems but also if you look at the hyperscalers and the systems companies they are entering into the space very strong and their demand is very robust They're designing their own ASICs, right? they're designing their own asics right We use the analogy of the four-story staircase. we use the analogy of the four-story staircase As companies, they go about the custom silicon, they'll move from the merchandise silicon to ASIC using a third-party vendor to go after that journey. as companies they go about the custom silicon they'll move from the merchandise silicon to asic using a third-party vendor to go after that journey As they mature, they go do some sort of what we call hybrid COT. as they mature they go do some sort of what we call hybrid cot It's a custom owned tooling. it's a custom owned tooling Towards the end, they could do COT. As they go down the stairs, what it means for us is, it's not only more designs, but also the EDA and IP content will grow steadily. It's a great business opportunity for all of us. I think the last thing I want to mention is, pricing is an important component of our business, right? Over the years, the industry has consolidated to really two major players. We are very disciplined in terms of the pricing conversations. Want to make sure we can capture the value. Overall, the company and the business is well set up to capitalize on the next wave of growth. Towards the end, they could do COT. towards the end they could do cot As they go down the stairs, what it means for us is, it's not only more designs, but also the EDA and IP content will grow steadily. as they go down the stairs what it means for us is it's not only more designs but also the eda and ip content will grow steadily It's a great business opportunity for all of us. it's a great business opportunity for all of us I think the last thing I want to mention is, pricing is an important component of our business, right? i think the last thing i want to mention is pricing is an important component of our business right Over the years, the industry has consolidated to really two major players. over the years the industry has consolidated to really two major players We are very disciplined in terms of the pricing conversations. we are very disciplined in terms of the pricing conversations Want to make sure we can capture the value. want to make sure we can capture the value Overall, the company and the business is well set up to capitalize on the next wave of growth. overall the company and the business is well set up to capitalize on the next wave of growth

Speaker 1: We touched on AI earlier. Is AI disrupting Cadence? Are your customers going to use less of your tools because the agents are going to do more of the work and they're not going to need Cadence as much as they needed you today? We touched on AI earlier. we touched on ai earlier Is AI disrupting Cadence? is ai disrupting cadence Are your customers going to use less of your tools because the agents are going to do more of the work and they're not going to need Cadence as much as they needed you today? are your customers going to use less of your tools because the agents are going to do more of the work and they're not going to need cadence as much as they needed you today

Speaker 2: It's a good question. The debate was fierce a couple of quarters ago. Our CEO, Anirudh, likes to use the analogy, which is I think is apt, in terms of our business is like a three-layered cake. It's not like we have a Cadence bakery or anything. Our core business is that middle layer, which is the principled software, be it EDA, IP, or system design analysis or hardware business. When you think about it's really grounded in the immutable ground truths, be it physics or mathematics, right? The relationship with customers is very deep, it's super embedded. We are completely vested and committed to their journey. The conversation is R&D to R&D multiple times a day. The business is irreplaceable in the middle layer. We are continuing to innovate on that, too. It's a good question. it's a good question The debate was fierce a couple of quarters ago. the debate was fierce a couple of quarters ago Our CEO, Anirudh, likes to use the analogy, which is I think is apt, in terms of our business is like a three-layered cake. our ceo anirudh likes to use the analogy which is i think is apt in terms of our business is like a three-layered cake It's not like we have a Cadence bakery or anything. it's not like we have a cadence bakery or anything Our core business is that middle layer, which is the principled software, be it EDA, IP, or system design analysis or hardware business. our core business is that middle layer which is the principled software be it eda ip or system design analysis or hardware business When you think about it's really grounded in the immutable ground truths, be it physics or mathematics, right? when you think about it's really grounded in the immutable ground truths be it physics or mathematics right The relationship with customers is very deep, it's super embedded. the relationship with customers is very deep it's super embedded We are completely vested and committed to their journey. we are completely vested and committed to their journey The conversation is R&D to R&D multiple times a day. the conversation is r&d to r&d multiple times a day The business is irreplaceable in the middle layer. the business is irreplaceable in the middle layer We are continuing to innovate on that, too. we are continuing to innovate on that too When we think about the upper layer in terms of agentic AI, we're launching a slew of super agents. The example I gave just now on the ChipStack with NVIDIA, it is just one of many products we're launching. Okay. We have three or four super agents launched in the past couple of months, and the opportunity is massive. Okay. The opportunities for us is not only as a new TAM expansion, right? We can monetize and capture that with great pricing and we can actually shift in more dollars from the labor budget, in the R&D budget, to more automation and tools. Because one of the key things you have to realize and keep in mind for is there is this big mismatch between the design demand from our customers and the engineering supply. Okay. When we think about the upper layer in terms of agentic AI, we're launching a slew of super agents. when we think about the upper layer in terms of agentic ai we're launching a slew of super agents The example I gave just now on the ChipStack with NVIDIA, it is just one of many products we're launching. the example i gave just now on the chipstack with nvidia it is just one of many products we're launching Okay. okay We have three or four super agents launched in the past couple of months, and the opportunity is massive. we have three or four super agents launched in the past couple of months and the opportunity is massive Okay. okay The opportunities for us is not only as a new TAM expansion, right? the opportunities for us is not only as a new tam expansion right We can monetize and capture that with great pricing and we can actually shift in more dollars from the labor budget, in the R&D budget, to more automation and tools. we can monetize and capture that with great pricing and we can actually shift in more dollars from the labor budget in the r&d budget to more automation and tools Because one of the key things you have to realize and keep in mind for is there is this big mismatch between the design demand from our customers and the engineering supply. because one of the key things you have to realize and keep in mind for is there is this big mismatch between the design demand from our customers and the engineering supply Okay. okay TSMC has been talking about this 48x-50x kind of transistor growth in the next five years. Okay. If you think about complexity of those designs, in terms of the workload volume, it's going gangbusters. Okay. It is absolutely impossible for any of these companies to keep up by throwing bodies at the problems. Okay. With our products, with automation, AI, agentic AI, we have the opportunity to help bend that engineering hiring curve to help them meet their ultimate goal and objectives in the design process. I think there's some massive opportunities. We're seeing really early signs, very encouraging. The core business is doing great. Okay. I think we can be patient in terms of monetizing the top layer and making sure we can capture the full value. The opportunity is very exciting for us. Yeah. TSMC has been talking about this 48 x- 50x kind of transistor growth in the next five years. tsmc has been talking about this 48 x- 50x kind of transistor growth in the next five years Okay. okay If you think about complexity of those designs, in terms of the workload volume, it's going gangbusters. if you think about complexity of those designs in terms of the workload volume it's going gangbusters Okay. okay It is absolutely impossible for any of these companies to keep up by throwing bodies at the problems. it is absolutely impossible for any of these companies to keep up by throwing bodies at the problems Okay. okay With our products, with automation, AI, agentic AI, we have the opportunity to help bend that engineering hiring curve to help them meet their ultimate goal and objectives in the design process. with our products with automation ai agentic ai we have the opportunity to help bend that engineering hiring curve to help them meet their ultimate goal and objectives in the design process I think there's some massive opportunities. i think there's some massive opportunities We're seeing really early signs, very encouraging. we're seeing really early signs very encouraging The core business is doing great. the core business is doing great Okay. okay I think we can be patient in terms of monetizing the top layer and making sure we can capture the full value. i think we can be patient in terms of monetizing the top layer and making sure we can capture the full value The opportunity is very exciting for us. the opportunity is very exciting for us Yeah. yeah

Speaker 1: I guess everyone should remember a few things, right? You got to step down the stairs, four stories. You got the cake, the three-layer cake. There's going to be a quiz later. All of you got to remember all this, right? I'm glad you jumped right into my next question, which is really, it seems like you're benefiting on the other side of AI in terms of these new agentic AI tools. Will there be monetization and revenue impact and how should this group think about the potential timing of that? I guess everyone should remember a few things, right? i guess everyone should remember a few things right You got to step down the stairs, four stories. you got to step down the stairs four stories You got the cake, the three-layer cake. you got the cake the three-layer cake There's going to be a quiz later. there's going to be a quiz later All of you got to remember all this, right? all of you got to remember all this right I'm glad you jumped right into my next question, which is really, it seems like you're benefiting on the other side of AI in terms of these new agentic AI tools. i'm glad you jumped right into my next question which is really it seems like you're benefiting on the other side of ai in terms of these new agentic ai tools Will there be monetization and revenue impact and how should this group think about the potential timing of that? will there be monetization and revenue impact and how should this group think about the potential timing of that

Speaker 2: Sure. It's a great question. In terms of monetization for this agentic AI products, one of the great things is, it's a new category, right? That it's a TAM expansion by pivoting more R&D dollars from labor to automation and AI. It holds a lot of promise. We are thinking about a business model where we want to make sure it's combination of subscription plus consumption. Okay. Think of it as a car rental, okay? The base subscription model is we obviously price these AI, call it the virtual engineers. The value is commensurate to what a physical human engineer can do. It's definitely not priced like an LLM token. It's worth tens of thousands of dollars. In those car rental example, on a daily rate, you have a Siemens embedded 100 mi. Sure. sure It's a great question. it's a great question In terms of monetization for this agentic AI products, one of the great things is, it's a new category, right? in terms of monetization for this agentic ai products one of the great things is it's a new category right That it's a TAM expansion by pivoting more R&D dollars from labor to automation and AI. that it's a tam expansion by pivoting more r&d dollars from labor to automation and ai It holds a lot of promise. it holds a lot of promise We are thinking about a business model where we want to make sure it's combination of subscription plus consumption. we are thinking about a business model where we want to make sure it's combination of subscription plus consumption Okay. okay Think of it as a car rental, okay? The base subscription model is we obviously price these AI, call it the virtual engineers. think of it as a car rental okay? the base subscription model is we obviously price these ai call it the virtual engineers The value is commensurate to what a physical human engineer can do. the value is commensurate to what a physical human engineer can do It's definitely not priced like an LLM token. it's definitely not priced like an llm token It's worth tens of thousands of dollars. it's worth tens of thousands of dollars In those car rental example, on a daily rate, you have a Siemens embedded 100 mi. in those car rental example on a daily rate you have a siemens embedded 100 mi If you drive more, if you drive 500 mi, the incremental 400 mi will come with, say, 4 tokens. Each is worth 100 mi per se. This is how we are thinking about it. Another key point of monetization, we definitely should not lose sight for, and we're very excited about is, as you think about these virtual engineers, as agentic AI agents, a big difference with a human being is they don't rest. They can work 24/7. They can help explore the design space a lot more far away than a human engineer could do. What it means is they're going to call a lot of the baseline underlying tools, which is the middle layer of the cake I was referring to and talking about. I think the monetization opportunity is enormous. It could come from all these different vectors. If you drive more, if you drive 500 mi, the incremental 400 mi will come with, say, 4 tokens. if you drive more if you drive 500 mi the incremental 400 mi will come with say 4 tokens Each is worth 100 mi per se. each is worth 100 mi per se This is how we are thinking about it. this is how we are thinking about it Another key point of monetization, we definitely should not lose sight for, and we're very excited about is, as you think about these virtual engineers, as agentic AI agents, a big difference with a human being is they don't rest. another key point of monetization we definitely should not lose sight for and we're very excited about is as you think about these virtual engineers as agentic ai agents a big difference with a human being is they don't rest They can work 24/7. they can work 24/7 They can help explore the design space a lot more far away than a human engineer could do. they can help explore the design space a lot more far away than a human engineer could do What it means is they're going to call a lot of the baseline underlying tools, which is the middle layer of the cake I was referring to and talking about. what it means is they're going to call a lot of the baseline underlying tools which is the middle layer of the cake i was referring to and talking about I think the monetization opportunity is enormous. i think the monetization opportunity is enormous It could come from all these different vectors. it could come from all these different vectors Good. A natural question is where is the limit? I think, obviously, we're still exploring, experimenting, but the early signs are very encouraging. Jensen actually mentioned onstage with Anirudh during our CadenceLIVE back in April. He mentioned he was willing to spend 50% of a human engineer's cost on the tokens. What it means for us, it's a one-third of the R&D budget, which is about, call it 33%. Just as a reference point, right now, EDA is only 11%, 12% of the R&D budget, the headroom is massive. I think obviously the most important thing for us is we want to make sure the products are strong. Then we're providing values to our customers, and that's how we can share and ultimately capture value accordingly. Good. good A natural question is where is the limit? a natural question is where is the limit I think, obviously, we're still exploring, experimenting, but the early signs are very encouraging. i think obviously we're still exploring experimenting but the early signs are very encouraging Jensen actually mentioned onstage with Anirudh during our CadenceLIVE back in April. jensen actually mentioned onstage with anirudh during our cadencelive back in april He mentioned he was willing to spend 50% of a human engineer's cost on the tokens. he mentioned he was willing to spend 50% of a human engineer's cost on the tokens What it means for us, it's a one-third of the R&D budget, which is about, call it 33%. what it means for us it's a one-third of the r&d budget which is about call it 33% Just as a reference point, right now, EDA is only 11%, 12% of the R&D budget, the headroom is massive. just as a reference point right now eda is only 11% 12% of the r&d budget the headroom is massive I think obviously the most important thing for us is we want to make sure the products are strong. i think obviously the most important thing for us is we want to make sure the products are strong Then we're providing values to our customers, and that's how we can share and ultimately capture value accordingly. then we're providing values to our customers and that's how we can share and ultimately capture value accordingly

Speaker 1: Good. Let's shift gears a second and go into your IP business. You touched on that earlier. Seems to be growing well, and well ahead of the market for the third year in a row. What's driving this? Good. good Let's shift gears a second and go into your IP business. let's shift gears a second and go into your ip business You touched on that earlier. you touched on that earlier Seems to be growing well, and well ahead of the market for the third year in a row. seems to be growing well and well ahead of the market for the third year in a row What's driving this? what's driving this

Speaker 2: The IP has historically, we've deliberately under-invested in IP because I think Anirudh wanted to make sure EDA is solid, is world-class. I think we are at this point. We have the most comprehensive and strongest EDA platform in the world. A couple of things have changed in IP, too. When you think about IP, I think AI definitely is a game changer. With AI, these are really disaggregated architecture. Because a lot of the AI chips is not just one SoC. It's multiple chips all connected together in a chiplet or 3D IC kind of fashion. What it comes with it, what it means for us is there are lots of high value, high growth IP, especially those connectivity IP, like the UCIe, PCIe, the SERDES, and also storage, too, the memory. The HBM, the DDRs of the world. The IP has historically, we've deliberately under-invested in IP because I think Anirudh wanted to make sure EDA is solid, is world-class. the ip has historically we've deliberately under-invested in ip because i think anirudh wanted to make sure eda is solid is world-class I think we are at this point. i think we are at this point We have the most comprehensive and strongest EDA platform in the world. we have the most comprehensive and strongest eda platform in the world A couple of things have changed in IP, too. a couple of things have changed in ip too When you think about IP, I think AI definitely is a game changer. when you think about ip i think ai definitely is a game changer With AI, these are really disaggregated architecture. with ai these are really disaggregated architecture Because a lot of the AI chips is not just one SoC. because a lot of the ai chips is not just one soc It's multiple chips all connected together in a chiplet or 3D IC kind of fashion. it's multiple chips all connected together in a chiplet or 3d ic kind of fashion What it comes with it, what it means for us is there are lots of high value, high growth IP, especially those connectivity IP, like the UCIe, PCIe, the SERDES, and also storage, too, the memory. what it comes with it what it means for us is there are lots of high value high growth ip especially those connectivity ip like the ucie pcie the serdes and also storage too the memory The HBM, the DDRs of the world. the hbm the ddrs of the world Our strategy is we want to focus on the, we call it star IP, the high value, high growth IP. Which we are. I think a second important thing we did right is Anirudh hired this phenomenal leader from Intel, Boyd Phelps, a couple of years ago. He surrounded him with fantastic engineering leaders. I think we are always a product-first company. As long as we have the right people in place, the product's getting better, because ultimately, people's buying decisions for IP is based on the value of those and the PPA benefit. Competitively, we're very strong, in terms of a PPA benchmarking. IP is gaining ground, and now it's all very much exposed to the AI mega trend. The third growth driver for IP is you're seeing a foundry ecosystem expansion. Our strategy is we want to focus on the, we call it star IP, the high value, high growth IP. our strategy is we want to focus on the we call it star ip the high value high growth ip Which we are. which we are I think a second important thing we did right is Anirudh hired this phenomenal leader from Intel, Boyd Phelps, a couple of years ago. i think a second important thing we did right is anirudh hired this phenomenal leader from intel boyd phelps a couple of years ago He surrounded him with fantastic engineering leaders. he surrounded him with fantastic engineering leaders I think we are always a product-first company. i think we are always a product-first company As long as we have the right people in place, the product's getting better, because ultimately, people's buying decisions for IP is based on the value of those and the PPA benefit. as long as we have the right people in place the product's getting better because ultimately people's buying decisions for ip is based on the value of those and the ppa benefit Competitively, we're very strong, in terms of a PPA benchmarking. competitively we're very strong in terms of a ppa benchmarking IP is gaining ground, and now it's all very much exposed to the AI mega trend. ip is gaining ground and now it's all very much exposed to the ai mega trend The third growth driver for IP is you're seeing a foundry ecosystem expansion. the third growth driver for ip is you're seeing a foundry ecosystem expansion TSMC is phenomenal, but you're seeing a lot of the other foundries, too. I think the Intel conversation and the announcement we had on 14A is a clear example. In Japan, they're building Rapidus, which is new foundry. Elon was talking about Terafab, all these things. I think as the foundry diversify further, it's more demand and more opportunities because not only do we have to help them set it up and enable the foundries and make sure the EDA tools can work seamlessly with them, just like the Intel situation. As they capture the end customers, we'll have more revenue streams on that front. IP, this is the third year in a row, we are growing way above the market. Above 23% this year. We foresee the IP will continue to have very strong growth and continue to gain share in the market. TSMC is phenomenal, but you're seeing a lot of the other foundries, too. tsmc is phenomenal but you're seeing a lot of the other foundries too I think the Intel conversation and the announcement we had on 14A is a clear example. i think the intel conversation and the announcement we had on 14a is a clear example In Japan, they're building Rapidus, which is new foundry. in japan they're building rapidus which is new foundry Elon was talking about Terafab, all these things. elon was talking about terafab all these things I think as the foundry diversify further, it's more demand and more opportunities because not only do we have to help them set it up and enable the foundries and make sure the EDA tools can work seamlessly with them, just like the Intel situation. i think as the foundry diversify further it's more demand and more opportunities because not only do we have to help them set it up and enable the foundries and make sure the eda tools can work seamlessly with them just like the intel situation As they capture the end customers, we'll have more revenue streams on that front. as they capture the end customers we'll have more revenue streams on that front IP, this is the third year in a row, we are growing way above the market. ip this is the third year in a row we are growing way above the market Above 23% this year. above 23% this year We foresee the IP will continue to have very strong growth and continue to gain share in the market. we foresee the ip will continue to have very strong growth and continue to gain share in the market

Speaker 1: Got you. Let's talk about competition for a minute. How does Cadence view your competition? EDA has predominantly been a duopoly between you and Synopsys. Can you talk about how you differentiate yourself? Got you. got you Let's talk about competition for a minute. let's talk about competition for a minute How does Cadence view your competition? how does cadence view your competition EDA has predominantly been a duopoly between you and Synopsys. eda has predominantly been a duopoly between you and synopsys Can you talk about how you differentiate yourself? can you talk about how you differentiate yourself

Speaker 2: Oh, sure. I think under Anirudh's leadership, I think one of the main things is we are a product R&D-centric company. If you get a product right, ultimately, you're going to win. Okay. The strongest product always wins in the market. I think that's the most important point to take away from. I think at this point, we feel very comfortable in terms of our competitor situation, where we are gaining share across the board. I think EDA, for EDA, we have the strongest platform. Analog is our market. Digital, we are very strong, and we are gaining with the Intel announcement and everything. Samsung, we're collaborating with Samsung on SF2. Okay. When it comes to verification, we have our own ASIC. Our Palladium platform is the gold standard in that market because we use our own ASIC. Okay. This is a clear differentiator. Oh, sure. oh sure I think under Anirudh's leadership, I think one of the main things is we are a product R&D-centric company. i think under anirudh's leadership i think one of the main things is we are a product r&d-centric company If you get a product right, ultimately, you're going to win. if you get a product right ultimately you're going to win Okay. okay The strongest product always wins in the market. the strongest product always wins in the market I think that's the most important point to take away from. i think that's the most important point to take away from I think at this point, we feel very comfortable in terms of our competitor situation, where we are gaining share across the board. i think at this point we feel very comfortable in terms of our competitor situation where we are gaining share across the board I think EDA, for EDA, we have the strongest platform. i think eda for eda we have the strongest platform Analog is our market. analog is our market Digital, we are very strong, and we are gaining with the Intel announcement and everything. digital we are very strong and we are gaining with the intel announcement and everything Samsung, we're collaborating with Samsung on SF2. samsung we're collaborating with samsung on sf2 Okay. okay When it comes to verification, we have our own ASIC. when it comes to verification we have our own asic Our Palladium platform is the gold standard in that market because we use our own ASIC. our palladium platform is the gold standard in that market because we use our own asic Okay. okay This is a clear differentiator. this is a clear differentiator We feel very good about Core EDA. Core EDA is growing at a double-digit strongly. We touched about IP already. Okay. IP, where we're gaining, and we're much more focused and much more profitable also. SDA, for System Design and Analysis, we chose to focus on two bookends of the market because not all SDAs is all tied or exposed to the AI megatrend. Okay. There are two bookends. One is closer to the silicon, is the packaging and the 3D IC and the chiplet, okay, which we have a strong footing, because our Allegro is the market leader. Then on the physical AI front, closer to physical AI and robotics and autonomous driving and drones, we have built a strong business and platform with the most recent Hexagon acquisition which really brought us the two key platforms. We feel very good about Core EDA. we feel very good about core eda Core EDA is growing at a double-digit strongly. core eda is growing at a double-digit strongly We touched about IP already. we touched about ip already Okay. okay IP, where we're gaining, and we're much more focused and much more profitable also. ip where we're gaining and we're much more focused and much more profitable also SDA, for System Design and Analysis, we chose to focus on two bookends of the market because not all SDAs is all tied or exposed to the AI megatrend. sda for system design and analysis we chose to focus on two bookends of the market because not all sdas is all tied or exposed to the ai megatrend Okay. okay There are two bookends. there are two bookends One is closer to the silicon, is the packaging and the 3D IC and the chiplet, okay, which we have a strong footing, because our Allegro is the market leader. one is closer to the silicon is the packaging and the 3d ic and the chiplet okay which we have a strong footing because our allegro is the market leader Then on the physical AI front, closer to physical AI and robotics and autonomous driving and drones, we have built a strong business and platform with the most recent Hexagon acquisition which really brought us the two key platforms. then on the physical ai front closer to physical ai and robotics and autonomous driving and drones we have built a strong business and platform with the most recent hexagon acquisition which really brought us the two key platforms One is called Adams, another is called Nastran. Okay. These are the leading software simulators for multibody robotics. Then when we combine that with the pre and post capabilities from Beta CAE, which acquired a couple of years ago, I think we have full flow for physical AI. When you think about the physical AI, it's a phenomenal opportunity for us because not only do we innovate on that core solver kind of realm, but also what it means for us is a lot of great silicon too underneath that. Okay. Because the physical AI, what it means naturally, it'll be mixed-signal, low-power, and that's really our core strength when it comes to analog and mixed-signals. So I think competitively, we feel very strong. Our profitability is great. We're talking the rule of 60, and I think continue to focus our own execution and satisfy and delight our customers. One is called Adams, another is called Nastran. one is called adams another is called nastran Okay. okay These are the leading software simulators for multibody robotics. these are the leading software simulators for multibody robotics Then when we combine that with the pre and post capabilities from Beta CAE, which acquired a couple of years ago, I think we have full flow for physical AI. then when we combine that with the pre and post capabilities from beta cae which acquired a couple of years ago i think we have full flow for physical ai When you think about the physical AI, it's a phenomenal opportunity for us because not only do we innovate on that core solver kind of realm, but also what it means for us is a lot of great silicon too underneath that. when you think about the physical ai it's a phenomenal opportunity for us because not only do we innovate on that core solver kind of realm but also what it means for us is a lot of great silicon too underneath that Okay. okay Because the physical AI, what it means naturally, it'll be mixed-signal, low-power, and that's really our core strength when it comes to analog and mixed-signals. because the physical ai what it means naturally it'll be mixed-signal low-power and that's really our core strength when it comes to analog and mixed-signals So I think competitively, we feel very strong. so i think competitively we feel very strong Our profitability is great. our profitability is great We're talking the rule of 60, and I think continue to focus our own execution and satisfy and delight our customers. we're talking the rule of 60 and i think continue to focus our own execution and satisfy and delight our customers

Speaker 1: Yeah. I want to talk more about the rule of 60 in a second, but certainly in the right space now as we hear more about obviously drones with this little conflict going on in the Middle East and then robotics. Some of the robotics companies that some of us have seen, and all you have to do is go to Asia these days and there's plenty of them being built and I know that more and more in the U.S., the robotics is going to be a big focus in the future. Would seem like you're very well-positioned there. Yeah. yeah I want to talk more about the rule of 60 in a second, but certainly in the right space now as we hear more about obviously drones with this little conflict going on in the Middle East and then robotics. i want to talk more about the rule of 60 in a second but certainly in the right space now as we hear more about obviously drones with this little conflict going on in the middle east and then robotics Some of the robotics companies that some of us have seen, and all you have to do is go to Asia these days and there's plenty of them being built and I know that more and more in the U.S., the robotics is going to be a big focus in the future. some of the robotics companies that some of us have seen and all you have to do is go to asia these days and there's plenty of them being built and i know that more and more in the u.s the robotics is going to be a big focus in the future Would seem like you're very well-positioned there. would seem like you're very well-positioned there

Speaker 2: Oh, yeah, because these are massive markets, right? When you think about the AI, again, another three. Okay. We're like a three by three kind of model. For us, the infrastructure AI build-out is massive, right? It's happening right now in here, right? It's got so much more growth to be had in there with all these investment and opportunities. The next wave is emerging, too, right? The physical AI is real, and it started with the autonomous driving. We live in the Bay Area, and then you're seeing Waymo everywhere. This is phenomenal. It's like when you think about the combination of the silicon plus the world models plus the physical cars, they've done a great job in there. Plus these are multi-trillion-dollar opportunities now. Massive opportunities. We're very excited about those. Yeah. Oh, yeah, because these are massive markets, right? oh yeah because these are massive markets right When you think about the AI, again, another three. when you think about the ai again another three Okay. okay We're like a three by three kind of model. we're like a three by three kind of model For us, the infrastructure AI build-out is massive, right? for us the infrastructure ai build-out is massive right It's happening right now in here, right? it's happening right now in here right It's got so much more growth to be had in there with all these investment and opportunities. it's got so much more growth to be had in there with all these investment and opportunities The next wave is emerging, too, right? the next wave is emerging too right The physical AI is real, and it started with the autonomous driving. the physical ai is real and it started with the autonomous driving We live in the Bay Area, and then you're seeing Waymo everywhere. we live in the bay area and then you're seeing waymo everywhere This is phenomenal. this is phenomenal It's like when you think about the combination of the silicon plus the world models plus the physical cars, they've done a great job in there. it's like when you think about the combination of the silicon plus the world models plus the physical cars they've done a great job in there Plus these are multi-trillion-dollar opportunities now. plus these are multi-trillion-dollar opportunities now Massive opportunities. massive opportunities We're very excited about those. we're very excited about those Yeah. yeah

Speaker 1: Yeah. We hear more and more about, you talked about data centers, but the data center build-outs and using robots to build the data centers. Yeah. yeah We hear more and more about, you talked about data centers, but the data center build-outs and using robots to build the data centers. we hear more and more about you talked about data centers but the data center build-outs and using robots to build the data centers

Speaker 2: Oh, yeah. Oh, yeah. oh yeah

Speaker 1: And- And- and-

Speaker 2: Yes Yes yes

Speaker 1: it becomes kind of virtuous. it becomes kind of virtuous. it becomes kind of virtuous

Speaker 2: It's absolute. Yeah. It's absolute. it's absolute Yeah. yeah

Speaker 1: The opportunity that exists. The opportunity that exists. the opportunity that exists

Speaker 2: That's a great point. I think, again, when you think about the physical AI, it's actually in the cars, right? These are data center on wheels in a way, right? Because a lot of the data which they collected has to be trained in the data center, right? It's a reinforcing kind of mechanism with the data center build-out in the physical AI world. Completely agree there's a flywheel. Yeah. That's a great point. that's a great point I think, again, when you think about the physical AI, it's actually in the cars, right? i think again when you think about the physical ai it's actually in the cars right These are data center on wheels in a way, right? these are data center on wheels in a way right Because a lot of the data which they collected has to be trained in the data center, right? because a lot of the data which they collected has to be trained in the data center right It's a reinforcing kind of mechanism with the data center build-out in the physical AI world. it's a reinforcing kind of mechanism with the data center build-out in the physical ai world Completely agree there's a flywheel. completely agree there's a flywheel Yeah. yeah

Speaker 1: Yeah, because the more places that you put a Waymo, the more data that needs to be. You can't have data from the Bay Area in Indianapolis. That doesn't really work. Yeah, because the more places that you put a Waymo, the more data that needs to be. yeah because the more places that you put a waymo the more data that needs to be You can't have data from the Bay Area in Indianapolis. you can't have data from the bay area in indianapolis That doesn't really work. that doesn't really work

Speaker 2: Yeah Yeah yeah

Speaker 1: Knoxville, Tennessee or wherever. You need to have local data in order to really to make it function in those jurisdictions. It will be more and more important for those to have more and more of these data centers and then how they're going to be constructed and be constructed quickly using your tools. Knoxville, Tennessee or wherever. knoxville tennessee or wherever You need to have local data in order to really to make it function in those jurisdictions. you need to have local data in order to really to make it function in those jurisdictions It will be more and more important for those to have more and more of these data centers and then how they're going to be constructed and be constructed quickly using your tools. it will be more and more important for those to have more and more of these data centers and then how they're going to be constructed and be constructed quickly using your tools

Speaker 2: Absolutely. Absolutely. absolutely

Speaker 1: You've touched on it a couple times. You talked about the rule of 60. Cadence has been one of the few companies out there delivering on the rule of 60. How should we think about the long-term revenue growth and operating margins under that scenario? You've touched on it a couple times. you've touched on it a couple times You talked about the rule of 60. you talked about the rule of 60 Cadence has been one of the few companies out there delivering on the rule of 60. cadence has been one of the few companies out there delivering on the rule of 60 How should we think about the long-term revenue growth and operating margins under that scenario? how should we think about the long-term revenue growth and operating margins under that scenario

Speaker 2: We are a financially disciplined and fiscally responsible company. Okay. We don't go out and guide multi years, okay? We look out one year at a time, and it's also very, very important for us to make sure we're growing in a very profitable way. Okay. I think there is a trifecta of our operating philosophies. We strive to deliver and drive double-digit growth, and it's accelerating. Clearly, you're seeing 17% as it stands right now for the year. Also, we wanted to continue to drive 50%, north of 50% incremental margin. In our core business, organic business is actually close to 60%. On top of that, we wanted to continue to spend and give back, use more than 50% of the free cash flow for share repurchases. I think those worked quite well for us for years. We are a financially disciplined and fiscally responsible company. we are a financially disciplined and fiscally responsible company Okay. okay We don't go out and guide multi years, okay? we don't go out and guide multi years okay We look out one year at a time, and it's also very, very important for us to make sure we're growing in a very profitable way. we look out one year at a time and it's also very very important for us to make sure we're growing in a very profitable way Okay. okay I think there is a trifecta of our operating philosophies. i think there is a trifecta of our operating philosophies We strive to deliver and drive double-digit growth, and it's accelerating. we strive to deliver and drive double-digit growth and it's accelerating Clearly, you're seeing 17% as it stands right now for the year. clearly you're seeing 17% as it stands right now for the year Also, we wanted to continue to drive 50%, north of 50% incremental margin. also we wanted to continue to drive 50% north of 50% incremental margin In our core business, organic business is actually close to 60%. in our core business organic business is actually close to 60% On top of that, we wanted to continue to spend and give back, use more than 50% of the free cash flow for share repurchases. on top of that we wanted to continue to spend and give back use more than 50% of the free cash flow for share repurchases I think those worked quite well for us for years. i think those worked quite well for us for years We don't have any intention to deviate from that philosophy. We certainly feel very good about the long-term trajectory of the business because it feels like all the long-term drivers, if you will, like the tailwinds, it all stays intact, if you look out at a very long horizon and arc in that way, yeah. We don't have any intention to deviate from that philosophy. we don't have any intention to deviate from that philosophy We certainly feel very good about the long-term trajectory of the business because it feels like all the long-term drivers, if you will, like the tailwinds, it all stays intact, if you look out at a very long horizon and arc in that way, yeah. we certainly feel very good about the long-term trajectory of the business because it feels like all the long-term drivers if you will like the tailwinds it all stays intact if you look out at a very long horizon and arc in that way yeah

Speaker 1: Right. One of the things you mentioned earlier was your acquisition of Hexagon D&E, which I believe fits into your System Design and Analysis business. How does that increase the TAM, and what was the strategic rationale behind that acquisition? Right. right One of the things you mentioned earlier was your acquisition of Hexagon D&E, which I believe fits into your System Design and Analysis business. one of the things you mentioned earlier was your acquisition of hexagon d&e which i believe fits into your system design and analysis business How does that increase the TAM, and what was the strategic rationale behind that acquisition? how does that increase the tam and what was the strategic rationale behind that acquisition

Speaker 2: Sure. Yeah, Hexagon really is a fantastic technology, and it's a carve-out for us. What's valuable for us is, again, like I mentioned, they got two great platforms. One is called Adams. It's a multi-body simulation tool. Another is called Nastran. When you think about the physical AI challenges, part of that is just the simulation is not accurate enough. These tools could be interposed or inserted in the simulation loop to make it work, to make the simulation a lot faster and more accurate. That is a great set of tools we are acquiring. Then, like I said, also, by combining that with the BETA CAE's technology, we have a physical AI simulation full flow. With that, I think we are well-poised to capture some of the opportunities as it emerges. Sure. sure Yeah, Hexagon really is a fantastic technology, and it's a carve-out for us. yeah hexagon really is a fantastic technology and it's a carve-out for us What's valuable for us is, again, like I mentioned, they got two great platforms. what's valuable for us is again like i mentioned they got two great platforms One is called Adams. one is called adams It's a multi-body simulation tool. it's a multi-body simulation tool Another is called Nastran. another is called nastran When you think about the physical AI challenges, part of that is just the simulation is not accurate enough. when you think about the physical ai challenges part of that is just the simulation is not accurate enough These tools could be interposed or inserted in the simulation loop to make it work, to make the simulation a lot faster and more accurate. these tools could be interposed or inserted in the simulation loop to make it work to make the simulation a lot faster and more accurate That is a great set of tools we are acquiring. that is a great set of tools we are acquiring Then, like I said, also, by combining that with the BETA CAE's technology, we have a physical AI simulation full flow. then like i said also by combining that with the beta cae's technology we have a physical ai simulation full flow With that, I think we are well-poised to capture some of the opportunities as it emerges. with that i think we are well-poised to capture some of the opportunities as it emerges I think in the autonomous driving segment, robotics is coming up very strong. I think certainly, these are great business. The integration has gone quite well. We closed the deal about a quarter ago, and then our team is just heads down, focused on making sure we'll continue to capture the upsize and the opportunities. Yeah. I think in the autonomous driving segment, robotics is coming up very strong. i think in the autonomous driving segment robotics is coming up very strong I think certainly, these are great business. i think certainly these are great business The integration has gone quite well. the integration has gone quite well We closed the deal about a quarter ago, and then our team is just heads down, focused on making sure we'll continue to capture the upsize and the opportunities. we closed the deal about a quarter ago and then our team is just heads down focused on making sure we'll continue to capture the upsize and the opportunities Yeah. yeah

Speaker 1: How do you think about that TAM? How do you think about that TAM? how do you think about that tam

Speaker 2: Yeah. If you think about the EDA TAM, we've talked about the convergence between silicon and systems. It's fair to say that the simulation in this SDA TAM is as big as the silicon side of the equation, so it could double the TAM over time. Not to mention, now AI is another leg of growth. I remember years ago, the TAM is, what, like $10 billion, $15 billion. Now it's much higher now. Yeah, it's a great opportunity for us to continue to prosecute, I say. Yeah. Yeah. yeah If you think about the EDA TAM, we've talked about the convergence between silicon and systems. if you think about the eda tam we've talked about the convergence between silicon and systems It's fair to say that the simulation in this SDA TAM is as big as the silicon side of the equation, so it could double the TAM over time. it's fair to say that the simulation in this sda tam is as big as the silicon side of the equation so it could double the tam over time Not to mention, now AI is another leg of growth. not to mention now ai is another leg of growth I remember years ago, the TAM is, what, like $10 billion, $15 billion. i remember years ago the tam is what like $10 billion, $15 billion Now it's much higher now. now it's much higher now Yeah, it's a great opportunity for us to continue to prosecute, I say. yeah it's a great opportunity for us to continue to prosecute i say Yeah. yeah

Speaker 1: Sure. We will have time for some questions in a minute or two if any of you have them, so just want to preview that for you. Are there any areas of the portfolio, Richard, that you think could benefit from more M&A, more focus on that, and what's the philosophy? You talked about how you return cash through share repurchases. Sure. sure We will have time for some questions in a minute or two if any of you have them, so just want to preview that for you. we will have time for some questions in a minute or two if any of you have them so just want to preview that for you Are there any areas of the portfolio, Richard, that you think could benefit from more M&A, more focus on that, and what's the philosophy? are there any areas of the portfolio richard that you think could benefit from more m&a more focus on that and what's the philosophy You talked about how you return cash through share repurchases. you talked about how you return cash through share repurchases

Speaker 2: Yeah Yeah yeah

Speaker 1: How does the philosophy look between M&A and share repurchase? How does the philosophy look between M&A and share repurchase? how does the philosophy look between m&a and share repurchase

Speaker 2: Sure. Our philosophy has always been organic is the first order of business. We always invest first and foremost in our own R&D capacities and capabilities. This is a very R&D-intensive business, and organically, we often say organic is delicious. That has the greatest, highest return for our shareholders. That's our core focus area. We don't do major transformative deals, and we don't have any appetite to do that. We will supplement the core organic business with some tuck-in acquisitions opportunistically if the right asset is in the market with a good price or a good talent out there, but we don't feel any need to do any major deals. I think the third order, obviously, is the share buybacks. I think we feel at this point, the portfolio is fairly complete and comprehensive, and the market is growing very nicely. Sure. sure Our philosophy has always been organic is the first order of business. our philosophy has always been organic is the first order of business We always invest first and foremost in our own R&D capacities and capabilities. we always invest first and foremost in our own r&d capacities and capabilities This is a very R&D-intensive business, and organically, we often say organic is delicious. this is a very r&d-intensive business and organically we often say organic is delicious That has the greatest, highest return for our shareholders. that has the greatest highest return for our shareholders That's our core focus area. that's our core focus area We don't do major transformative deals, and we don't have any appetite to do that. we don't do major transformative deals and we don't have any appetite to do that We will supplement the core organic business with some tuck-in acquisitions opportunistically if the right asset is in the market with a good price or a good talent out there, but we don't feel any need to do any major deals. we will supplement the core organic business with some tuck-in acquisitions opportunistically if the right asset is in the market with a good price or a good talent out there but we don't feel any need to do any major deals I think the third order, obviously, is the share buybacks. i think the third order obviously is the share buybacks I think we feel at this point, the portfolio is fairly complete and comprehensive, and the market is growing very nicely. i think we feel at this point the portfolio is fairly complete and comprehensive and the market is growing very nicely I think we wanted to make sure we have the best product in place to support the growth and the innovation agenda for our customers. I think we wanted to make sure we have the best product in place to support the growth and the innovation agenda for our customers. i think we wanted to make sure we have the best product in place to support the growth and the innovation agenda for our customers

Speaker 1: Focusing inward rather than outward. Focusing inward rather than outward. focusing inward rather than outward

Speaker 2: Yeah. Focusing on organic first and foremost, I'd say. Yeah. Yeah. yeah Focusing on organic first and foremost, I'd say. focusing on organic first and foremost i'd say Yeah. yeah

Speaker 1: Good. Do we have questions? Yes, sir. Thank you very much for our audience today for your attendance. This session is now concluded. You may now leave the webinar. Thank you. Good. good Do we have questions? do we have questions Yes, sir. yes sir Thank you very much for our audience today for your attendance. thank you very much for our audience today for your attendance This session is now concluded. this session is now concluded You may now leave the webinar. you may now leave the webinar Thank you. thank you