CDNS · Q1 2026 Earnings

Neutral

Cadence Design Systems

Reported April 27, 2026

30-second summary

SENTIMENT: Constructive Revenue grew 22% YoY to $1.474B in Q1, beating the high end of the prior guide by $14M, and management raised the FY26 revenue midpoint by $225M to $6.175B (~17% growth). The FY26 non-GAAP EPS guide moved to $7.85–$7.95, a $0.20 cut at the midpoint — but John Wall explicitly decomposed this on the call: organic EPS was raised $0.08, with Hexagon adding ~$0.28 of dilution (operating impact plus lost interest income from the cash portion of the deal consideration). FY26 GAAP operating margin moved down 425bps to 27.5–28.5% and non-GAAP operating margin down 125bps to 43.5–44.5%, attributable to Hexagon integration timing per management. Backlog rose to a record $8.0B, agentic AI monetization was articulated in detail for the first time, and recurring revenue mix dropped to 77% from 79% in Q4.

Headline numbers

EPS

Q1 FY2026

$1.96

Revenue

Q1 FY2026

$1.47B

+22.0% YoY

Gross margin

Q1 FY2026

85.4%

Free cash flow

Q1 FY2026

$0.31B

Operating margin

Q1 FY2026

29.3%

Key financials

Q1 FY2026

Metric	Q1 FY2026	YoY	Q4 FY2025	QoQ
Revenue	$1.47B	+22.0%	$1.44B	+2.4%
EPS	$1.96	—	$1.99	-1.5%
Gross margin	85.4%	—	86.9%	-150bps
Operating margin	29.3%	—	32.2%	-290bps
Free cash flow	$0.31B	—	$0.51B	-40.0%

Guidance

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Revenue	Q1 FY2026	$1.420 billion - $1.460 billion	$1.474 billion	+$0.014 billion above high end of guide	Beat
Non-GAAP EPS	Q1 FY2026	$1.89 - $1.95	$1.96	+$0.01 above high end of guide	Beat
GAAP EPS	Q1 FY2026	$1.16 - $1.22	$1.23	+$0.01 above high end of guide	Beat
GAAP Operating Margin	Q1 FY2026	30% - 31%	29.3%	-0.7pts below low end of guide	Beat
Non-GAAP Operating Margin	Q1 FY2026	44% - 45%	44.7%	+0.7pts above high end of guide	Beat

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Revenue	FY2026	$5.9 billion - $6.0 billion	$6.125 billion - $6.225 billion	+$0.125-0.225 billion (~+2.1-3.8% increase at midpoints)	Raised
Non-GAAP EPS	FY2026	$8.05 - $8.15	$7.85 - $7.95	-$0.20-0.20 (~-2.5% reduction at midpoints)	Lowered
GAAP EPS	FY2026	$4.95 - $5.05	$4.39 - $4.49	-$0.56-0.56 (~-11% reduction at midpoints)	Lowered
GAAP Operating Margin	FY2026	31.75% - 32.75%	27.5% - 28.5%	-4.25-4.25pts (~-13% reduction at midpoints)	Lowered
Non-GAAP Operating Margin	FY2026	44.75% - 45.75%	43.5% - 44.5%	-1.25-1.25pts (~-2.8% reduction at midpoints)	Lowered
Operating Cash Flow	FY2026	~$2.0 billion	$1.875 billion - $1.975 billion	-	Lowered

Platform metrics

Q1 FY2026

Segment	Q1 FY2026
Backlog	$8.0B
Recurring Revenue	77%
DSO (Days Sales Outstanding)	67
Headcount	15,110
Revenue from Beginning Backlog	66%

Profitability

Q1 FY2026

Segment	Q1 FY2026
Non-GAAP Operating Margin	44.7%
Rule of 40 Metric	~61%
Operating Cash Flow	$356M

Management tone

Narrative arc: AI experiments → AI as primary driver → AI as generational opportunity → AI as productivity engine → Agentic AI as a separate product category with explicit pricing architecture.

Agentic AI graduated from "productivity proof" to "new product category with subscription-plus-consumption pricing" — the first concrete monetization disclosure. This quarter, in response to Goldman's Jim Schneider, Anirudh and John articulated the architecture clearly: new agentic tools priced on subscription-plus-consumption (replacing previously manual customer work), agents run 10–100x more design variations than humans driving base tool consumption, overall pricing environment has improved, and organic incremental margins are closer to 60% than 50%. The "shift from labor to automation is irreversible" framing is the most assertive monetization statement Cadence has made.

The competitive moat narrative shifted from product breadth to talent and R&D scale — the defensive language hardened. This quarter Anirudh anchored the moat to people: "15,000 employees with 10,000 in R&D... over 1,000 employees have PhDs from top universities." This is the first time Cadence has led the defensive answer with headcount and PhD density rather than product architecture. The shift signals management views the AI-tool-startup threat as real enough that scale-of-research must be communicated explicitly.

The macro framing inverted — chip shortages are now characterized as accretive to Cadence rather than as a risk. Responding to BofA's Vivek Arya, Anirudh said shortages drive multiple design starts at different foundries/nodes and that there is no customer pushback on new productivity tools. Supply constraints are now positioned as a tailwind because they force design proliferation across foundries and nodes, expanding Cadence's TAM. It's a confident posture, consistent with the 22% YoY revenue acceleration.

SDA strategic framing tightened around physical AI and 3DIC, and the $1B run rate is now in hand with Hexagon closed. Anirudh framed SDA as roughly $1B run rate post-Hexagon and laid out three execution levers: full flow integration of CFD/structural/multibody, solver acceleration via GPU and AI surrogate models (order-of-magnitude potential), and GTM strengthening from Hexagon.

Guidance posture: confident on organic trajectory, transparent on Hexagon mechanics. Q1 was characterized by John as "one of the strongest raises we have had" at this point in the year on an organic basis (+$0.08 EPS, +$225M revenue ex-Hexagon implied trajectory). The FY EPS net cut and margin compression are explicitly attributed to Hexagon integration timing and financing structure, with a roadmap to 2027 accretion.

Recurring themes management leaned on this quarter:

Forward-looking guidance and projectionsRisk disclosure and materialityNon-GAAP financial reportingSEC compliance and transparency

Risks management surfaced:

Risks and uncertainties affecting future business resultsPotential material differences between projections and actual results

Q&A highlights

Charles Shee · Needham

Is AI's ability to write software a threat to the defensibility of EDA base tool businesses, given concerns about AI writing better tools and the emergence of EDA startups?

Anirudh expressed confidence in Cadence's competitive advantage due to its 15,000-person workforce with 10,000 in R&D and 1,000+ PhDs. He emphasized that the real opportunity is in agentic AI applied to chip design, which creates new product categories (RTL generation, verification planning) priced on subscription plus consumption models, while also driving increased consumption of base tools.

Cadence has 15,000 employees with 10,000 in R&DOver 1,000 employees have PhDs from top universitiesAgentic AI creates new product categories previously done manually by customersNew products priced as subscription plus consumption model

Vivek Arya · Bank of America Securities

How do chip shortages and customers' increased pricing power affect their engagement with Cadence and impact growth trajectories?

Anirudh described a healthy semiconductor environment where shortages drive more design activity (customers designing across multiple foundries/nodes) and increased R&D spending. Customers are willing to invest in productivity gains from agentic solutions. Value capture opportunity increases as Cadence delivers more automation value.

Healthy environment across hyperscalers, memory companies, and analog-mixed signal companiesShortages drive multiple design starts at different foundries/nodesStrong customer willingness to engage with new agentic solutionsNo customer pushback on new productivity tools

Jim Schneider · Goldman Sachs

How are agentic solutions priced relative to base tools, and how will Cadence capture overall revenue value through increased consumption of base tools driven by agentic AI?

Anirudh explained the dual monetization model: (1) new agentic tools priced as subscription plus consumption (replacing manual work customers previously did), and (2) increased base tool consumption as agents run 10-100x more design variations than humans. John added that pricing has improved and any shift from customer labor spend to automation is likely irreversible and will accelerate.

New agentic tools priced on subscription plus consumption modelAgents run 10-100x more design variations than manual engineeringOverall pricing environment has improvedShift from labor to automation is irreversible and will accelerate

Anirudh (management) · Cadence

What is the timing for next-generation Palladium and Proteus hardware platforms (Z4/Z5), and how is Cadence using agentic AI internally to accelerate development?

Anirudh stated Cadence is designing Z4 and Z5, but current Z3 systems can handle 1 trillion transistor designs (vs. current largest 100-200B transistor designs industry-wide). Z3 will be supported until 2030 target for 1 trillion transistor systems. Cadence uses its own tools internally across hardware and software teams to improve productivity without significantly increasing headcount.

Z3 can design 1 trillion transistor systemsLargest current systems are 100-200 billion transistorsIndustry expected to reach 1 trillion transistors by 2030Z4 guaranteed before 2030

Jay Fleashour · Griffin Securities

With $5B invested in acquisitions over 5-6 years, what are Cadence's principal technical and go-to-market objectives for System Design & Analysis integration, particularly vs. Synopsys-Ansys integration?

Anirudh outlined three core focus areas: (1) full flow solution integration of CFD, structural, multibody dynamics through agentic AI workflows, (2) solver performance improvements (GPU acceleration, AI surrogate models) with potential for order-of-magnitude gains, (3) strengthened go-to-market team from Hexagon acquisition and reseller integration. SDA business will be ~$1B run rate focused on 3DIC and physical AI.

SDA business targeted at ~$1B run rateThree focus areas: full flow integration, solver acceleration, go-to-market strengtheningPotential for order-of-magnitude solver performance improvementsGPU acceleration and AI surrogate model deployment planned

Answers to last quarter's watch list

FY26 operating cash flow trajectory — Q1 OCF came in at $356M, well below the ~$500M run rate that would put the FY trajectory on pace for ~$2.0B. Management cut the FY26 OCF guide from ~$2.0B to $1.875–$1.975B (-$75M midpoint, ~3.8%).

Resolved negatively

China sustained mix at 12% — China printed $192M (13% of mix), above both the $160M structural floor and the $140M deterioration threshold, and up modestly from Q4's ~$173M.

Resolved positively

SDA breakthrough above $250M — SDA came in at ~$221M (derived). The $1B FY26 SDA run rate is now in hand with Hexagon closed, with management explicitly framing post-deal SDA as roughly $1B. Status: Resolved positively via Hexagon close

Agentic AI explicit revenue disclosure — management did not disclose attach rates or virtual-engineer/token revenue contribution in dollars, but delivered the most explicit pricing architecture disclosure to date (subscription plus consumption, 10–100x design variation expansion, 60% incremental margins). Quantitative revenue contribution remains undisclosed.

Continue monitoring

Q1 non-GAAP operating margin landing zone — Q1 landed at 44.7%, near the high end of the 44–45% guide. The FY26 non-GAAP operating margin guide was simultaneously cut by 125bps (44.75–45.75% → 43.5–44.5%) due to Hexagon integration. Organic margin trajectory remains intact; FY trajectory absorbs Hexagon dilution. Status: Resolved (Hexagon-driven, not organic deterioration)

What to watch into next quarter

Hexagon integration trajectory and 2027 accretion path — management committed to a BETA-like trajectory (dilutive in year one, accretive in year two). Watch whether Q2 management quantifies progress on Hexagon margin improvement and whether 2027 accretion guidance firms up.

SDA full-flow integration progress — with Hexagon closed and SDA at ~$1B run rate, watch for tangible signals on CFD/structural/multibody full-flow integration and solver acceleration milestones (the order-of-magnitude solver performance opportunity Anirudh flagged).

Backlog deceleration — Q1 added only +$200M to backlog vs. +$800M in Q4 and +$600M in Q3. Watch whether Q2 backlog add returns to a $400M+ range or whether bookings momentum continues to flatten. Sub-$200M Q2 add would mark two consecutive quarters of decelerating bookings.

Recurring revenue mix below 77% — recurring revenue dropped from 79% in Q4 to 77% in Q1. Watch whether Q2 holds at or above 77% or drifts toward 75%, which would signal a structural mix shift toward hardware/upfront revenue.

Organic EPS walk vs. Hexagon dilution — FY26 non-GAAP EPS was net cut $0.20 (organic +$0.08, Hexagon -$0.28). Watch whether Q2 EPS comes in at the high end of $2.02–$2.08 (signaling organic momentum continues to outpace the +$0.08 raise) or low end (signaling either organic moderation or worse-than-expected Hexagon drag).

Sources

Cadence Design Systems CFO Commentary, Q1 2026 — https://www.sec.gov/Archives/edgar/data/813672/000081367226000044/cfocommentary04272026ex9902.htm
Cadence Design Systems Q1 2026 earnings call Q&A (transcript excerpts provided in extraction)

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