Latest quarter
Cadence reported Q2 FY2026 revenue of $1.6 billion, up 24.2% from Q2 FY2025. Revenue, as the consensus counts it, was $1.6 billion, compared with consensus revenue of $1.6 billion; the company exceeded the consensus by 0.52%. Adjusted EPS, as the consensus counts it, was $2.11 against consensus adjusted EPS of $2.05, exceeding the consensus by 2.93%.
The company reported diluted EPS of $1.33, compared with $0.59 a year earlier. Gross margin was 84.9%, versus 85.6% in Q2 FY2025, while operating margin was 28.4%, versus 19.0%. Free cash flow was $575.3 million, compared with $333.5 million a year earlier.
The 10-Q attributes product and maintenance revenue growth to software, hardware and IP offerings, reflecting existing customers’ investment in complex product designs. On the call, John Wall said Core EDA revenue grew 18%, Semiconductor IP revenue grew 40%, and System Design and Analysis revenue grew 37%; Cadence ended the quarter with $8.1 billion of backlog. Revenue was within Cadence’s Q2 guidance range, while GAAP operating margin was below its guided range.
| Q2 FY2026 | Q2 FY2025 | Change | |
|---|---|---|---|
| Revenue | $1.6 billion | $1.3 billion | 24.2% |
| Diluted EPS | $1.33 | $0.59 | 125.4% |
| Gross margin | 84.9% | 85.6% | −0.7 percentage points |
| Operating margin | 28.4% | 19.0% | 9.5 percentage points |
| Free cash flow | $575.3 million | $333.5 million | 72.5% |
| Against the consensus | Reported | Consensus | Result |
|---|---|---|---|
| Adjusted EPS | $2.11 | $2.05 | Beat by 2.93% |
| Revenue | $1.6 billion | $1.6 billion | Beat by 0.52% |
Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.
| Against its own guidance | For | Guided | Reported | Result |
|---|---|---|---|---|
| Operating margin, GAAP | Q2 FY2026 | 28.5%–29.5% | 28.4% | Below the guide |
| Revenue | Q2 FY2026 | $1.6 billion–$1.6 billion | $1.6 billion | Within the guide |
What management said on the call
Anirudh Devgan said demand was rising for AI-driven solutions as customers address more complex chip and system designs. He said agentic AI expands the range of design alternatives that customers can explore and increases calls on Cadence’s underlying software engines. Devgan said Cadence had early customer engagements and deployments for its AI super-agent portfolio, while characterizing the products as still in their early stages.
Wall said customer evaluations, pilots and early deployments were increasing. He said Cadence expects monetization through new workflow products and greater use of its underlying engines, but said the FY2026 outlook does not assume a sudden step change in AI monetization. When analysts asked about the outlook’s drivers, Wall said the increase reflected broad-based execution across Core EDA, IP, hardware and System Design and Analysis, rather than a single customer or product.
On segment performance, Wall said the Hexagon Design and Engineering business was contributing to System Design and Analysis growth and that its integration was progressing. He said IP revenue can vary with deal timing and told investors not to annualize a single quarter’s IP result. Devgan said Cadence had expanded its Intel relationship through a multiyear engagement involving design IP and agentic-AI-based EDA, and he described customer demand across AI, high-performance computing, analog, memory and consumer semiconductor activity.
The 10-Q says operating expenses increased with continued investment in research and development and technical sales support, including headcount from acquisitions. The filing also says Cadence expects operating expenses to increase during the remainder of FY2026 compared with FY2025 because of recent acquisitions. Devgan said Cadence was careful about projecting next-year figures and did not provide next-year guidance on the call.
Guidance
Cadence raised its FY2026 revenue-growth outlook to 19.0%, from its previous outlook of 17.0%. The company’s updated outlook assumes that export-control regulations remain substantially similar for the remainder of FY2026.
| Metric | For | Guide | Previous guide | Change |
|---|---|---|---|---|
| Tax rate, non-GAAP | FY2026 | Cadence expects to use its current normalized non-GAAP tax rate through fiscal 2026. | — | — |
| EPS, non-GAAP | FY2026 | $8.05–$8.15 | — | — |
| EPS, GAAP | FY2026 | $4.76–$4.86 | — | — |
| Operating margin, non-GAAP | FY2026 | 43.8%–44.8% | — | New |
| Operating margin, GAAP | FY2026 | 27.8%–28.8% | — | New |
| Revenue | FY2026 | $6.3 billion–$6.3 billion | — | New |
| Operating cash flow | FY2026 | $2.0 billion | — | New |
| Revenue growth, Growth | FY2026 | 19.0% | — | New |
| EPS, GAAP | Q3 2026 | $1.11–$1.17 | Q2 FY2026: $1.07–$1.13 | Raised |
| EPS, non-GAAP | Q3 2026 | $2.01–$2.07 | Q2 FY2026: $2.02–$2.08 | Held |
| Revenue | Q3 2026 | $1.6 billion–$1.6 billion | Q2 FY2026: $1.6 billion–$1.6 billion; reported $1.6 billion | Raised |
| EPS, GAAP | FY2026 | $4.76–$4.86 | — | New |
| EPS, non-GAAP | FY2026 | $8.05–$8.15 | — | New |
| Revenue growth | FY2026 | 17.0% | — | New |