Cadence
CDNS · NasdaqRevenue grew 22.0% but operating profit barely moved
Total costs rose 31.9% against revenue growth of 22.0%, so operating margin fell to 26.2% from 31.8% as the Hexagon deal's costs arrived first.
Q3 FY2026, the quarter to Sep 30, 2026 · 10-Q filed Oct 28, 2026
- Operating margin
- 26.2%
- Net income
- $289.7M
- Free cash flow, quarter
- $361.9M
Largest source of revenue: Product and maintenance, 91.1% of the total.
Where Cadence's money goes
- 01
Revenue grew 22.0% but operating profit barely moved
Total costs rose 31.9% against revenue growth of 22.0%, so operating margin fell to 26.2% from 31.8% as the Hexagon deal's costs arrived first.
Why it matters
Revenue was $1.63B against $1.34B a year earlier, while total costs and expenses were $1.20B against $913.4M. Income from operations was $428.7M against $425.4M. The filing names three causes for the lower margin: operating expenses from recent acquisitions, including amortization, "that exceeded incremental revenue", higher contributions to non-profit organizations, and the mix of products and services sold.1
The pressure sits in a few lines. Amortization of acquired intangibles was $33.8M against $10.2M. Research and development was 32.9% of revenue against 31.6%, and general and administrative 6.9% against 5.8%. Restructuring charges from a plan started in September were $42.2M against $27.4M, equal to 9.8% of this quarter's operating income.1
The slide is steady, not a one-quarter event. Operating margin was 32.2% in Q4 FY2025, the last quarter before the deal closed in February, then 29.3% in Q1 FY2026, 28.4% in Q2 FY2026 and 26.2% now. Quarterly revenue rose each time, from $1.44B to $1.47B, $1.58B and $1.63B.1
Below the operating line, other income turned to $10.0M from a $3.6M expense, but the tax rate on pre-tax income rose to 29.0% from 26.9%. Net income rose 0.9% to $289.7M, and diluted earnings per share stayed at $1.05.1
AnalysisAnalysis: amortization runs on a schedule set when the deal closed, and the filing attributes the higher non-profit contributions to timing, so part of the squeeze is deal accounting and calendar effects the filing itself identifies. The rest, mainly added headcount, has to be earned back through growth in the acquired business or through cost actions such as the September restructuring.
- 02
Signed backlog of $8.2B exceeds last year's revenue
Contracted backlog of $8.2B is larger than FY2025 revenue of $5.30B, and Cadence expects 58% of it, excluding non-cancelable commitments, to become revenue within a year.
Why it matters
Contracted but unsatisfied performance obligations were $8.2B at the end of September, about five times this quarter's revenue of $1.63B and more than the full FY2025 revenue of $5.30B. The figure includes non-cancelable commitments where customers choose the actual products and quantities later.1
The backlog comes from how Cadence sells. Most software is licensed for a fixed term that bundles tools, updates and support, and is recognized evenly over that term. The filing counts this, with maintenance, royalties and hardware leases, as recurring revenue: 79% of the quarter against 82% a year earlier, and 78% of the trailing twelve months against 80%.1
AnalysisAnalysis: with this much revenue contracted in advance, the quarter's flat operating income reads as a question about the cost base rather than about demand. What decides the margin from here is whether costs grow more slowly than a revenue line that is already largely booked.
The filing cautions that actual amounts and timing can differ from the estimate, "largely due to changes in actual installation and delivery dates, as well as contract renewals, modifications and terminations." Backlog measures contracts signed, not revenue already earned.1
- 03
Operating cash ran at 1.46 times net income
Operating cash flow of $423.7M was 1.46 times net income of $289.7M, so the deal's non-cash amortization weighs on reported profit more than on cash.
Why it matters
Operating cash flow was $423.7M against $310.7M a year earlier. After $61.8M of capital spending, free cash flow was $361.9M, 22.2% of revenue, above net income of $289.7M, while operating income was nearly unchanged at $428.7M.1
AnalysisAnalysis: amortization of acquired intangibles, $33.8M in operating expenses against $10.2M a year earlier, charges the income statement for assets paid for when the deal closed; it is not a cash outlay in the quarter. The filing also books amortization of acquired technology inside cost of product and maintenance. That is one reason reported profit and cash generation moved apart.
Quarterly cash flow is lumpy. Operating cash flow was $355.8M in Q1 FY2026 and $634.9M in Q2 FY2026. The filing ties it to "business levels and the payment terms set forth in our customer agreements", and says time-based licenses are generally invoiced in equal quarterly amounts, though some customers are invoiced annually or in single amounts.1
Capital spending is rising from a small base: $61.8M, 3.8% of revenue, against $33.7M, 2.5% of revenue, a year earlier.1
Sources
- 1.Cadence 10-Q for the period to 2026-09-30 (the filing), Oct 28, 2026, read Nov 2, 2026
Have a question about Cadence? Ask CXProWealth on ChatGPT.Free membership required.
Growth, profit and margin
Revenue went from $1.0B in FY2009 to $5.3B in FY2025, the operating margin from -151.5% to 28.2%, over 16 years.
- Revenue$5.3B
- Operating income$1.5B
- Operating margin28.2%
- Period
- Q3 FY2026
- Revenue
- $1.6B
- Operating income
- $428.7M
- Operating margin
- 26.2%
- Net income
- $289.7M
- Free cash flow
- $361.9M
Does the profit turn into cash?
Q3 FY2026: free cash flow of $361.9M against net income of $289.7M in the quarter.
- Operating cash flow$1.7B
- Capital expenditure$141.9M
- Free cash flow$1.6B
- Net income$1.1B
Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.
Financial data and sources
How the revenue mix has shifted
Each breakdown the filing reports, as shares of revenue, for every period it restates.
Condensed Consolidated Income Statements. The filing restates this breakdown for 1 period.
Click a member to isolate it across the years shown.
The figures
Margins, cash and growth for the period, each with what it was computed from.
Not reported, or not derivable
- gross margin: the company reports expenses by nature: no cost of revenue or gross profit line exists
Where revenue comes from
Every breakdown the filing reports for the period, with each item's share.
Revenue streams
| Product and maintenance | $1.5B | 91.1% |
| Service | $146.0M | 8.9% |
Geographic markets
| Americas | $709.7M | 43.5% |
| Asia | $674.7M | 41.3% |
| Other Asia | $312.4M | 19.1% |
| Emea | $248.9M | 15.2% |
| Other Americas | $35.6M | 2.2% |
These items do not sum to total revenue; the filing states them beside it. Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax, as reported in the 10-Q filed 2026-10-28
What it costs
The cost lines beneath operating income, each as a share of revenue, then the operating result.
Costs are reported by nature: what they are (food, labor, occupancy, personnel, marketing), not what they were for, so there is no cost-of-revenue line and no gross profit.
| Cost line | Q3 FY2026 | Of revenue | Source |
|---|---|---|---|
| Total costs and expenses | $1.2B | 73.8% | Source10-Q, us-gaap:CostsAndExpenses, as reported in the 10-Q filed 2026-10-28 |
| Income from operations | $428.7M | 26.2% | Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-10-28 |
Operating figures the company states
From the text of the filing rather than its statements, each with the sentence that states it.
View source
Contracted but unsatisfied performance obligations were $ 8.2 billion as of September 30, 2026, which included $ 0.9 billion of non-cancelable commitments from customers where actual product selection and quantities of specific products or services are to be determined by customers at a later date.
View source
Recurring revenue 79 % 82 % 78 % 81 %
View source
Recurring revenue 78 % 79 % 79 % 80 % 80 %
View source
As of September 30, 2026, Cadence expected to recognize 58 % of the contracted but unsatisfied performance obligations, excluding non-cancelable commitments, as revenue over the next 12 months, 40 % over the next 13 to 36 months and the remainder thereafter.
The statements, as filed
The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.
Income statement22 lines, as presented in the 10-Q
Cash flow statement3 lines, as presented in the 10-Q
Year to date, as a quarterly filing reports it.
| Line | Q3 FY2026 | A year earlier | Change | Source |
|---|---|---|---|---|
| Cash flows from operating activities: | ||||
| Net income | $289.7M | $287.1M | +0.9% | Source10-Q, us-gaap:NetIncomeLoss, as reported in the 10-Q filed 2026-10-28 |
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||
| Stock-based compensation | $144.8M | $116.1M | +25% | Source10-Q, us-gaap:ShareBasedCompensation, as reported in the 10-Q filed 2026-10-28 |
| Statement of Cash Flows | ||||
| Cash and cash equivalents at end of period | $1.45B | $2.75B | -47% | Source10-Q, us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents, as reported in the 10-Q filed 2026-10-28 |
Balance sheet26 lines, as presented in the 10-Q
About this data
- Source
- Cadence 10-Q, accession 0000813672-26-000121, filed Oct 28, 2026, read on Nov 2, 2026.
- History
- From the SEC's XBRL company facts, the value from the latest filing that stated each period.
- Reading
- Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
- Version
- methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02
What holds Cadence's model up, and what could bend it
Competitive edge
A large engineering bill on a cheap-to-deliver product
Research and development took 32.9% of revenue while cost of product and maintenance was 11.7% of product revenue, still leaving a 26.2% operating margin.
The detail
Research and development was $537.5M this quarter, more than marketing and sales at $242.5M and cost of product and maintenance at $173.9M. That cost, against product and maintenance revenue of $1.49B, includes hardware components and amortization of acquired technology, so software on its own costs even less to deliver.1
The model has scaled over time: revenue grew from $2.14B in FY2018 to $5.30B in FY2025 while operating margin rose from 18.5% to 28.2%. The high point was 30.6% in FY2023, the year before the BETA CAE acquisition in FY2024.1
AnalysisAnalysis: chips get harder to design with each process generation, and the filing says customers rely on these tools to manage that complexity "without proportional cost increases." A tool written once serves every additional licensee, so the engineering bill is spread across a growing base of users.
One flow from chip design to the whole system
Cadence sells chip design tools, silicon IP and system simulation as one integrated flow, and buys its way into adjacent domains such as Hexagon's design business.
The detail
The filing describes three "tightly integrated product categories": Core EDA for designing and verifying chips, Semiconductor IP that customers build into their chips, and System Design and Analysis for complete electronic systems, from printed circuit boards to complex system assemblies. Some licenses let customers remix among software products inside the contract.1
The Hexagon design and engineering business, bought in February, extends System Design and Analysis and builds on the BETA CAE acquisition in FY2024. Product and maintenance revenue, where most of the acquired contracts are booked, grew 23.2% to $1.49B, 91.1% of revenue.1
AnalysisAnalysis: a customer that licenses several parts of the flow, and can shift usage among them inside one contract, has more reason to renew the whole package than to replace a single tool. Each acquired domain also gives the sales force something new to offer engineering teams it already serves.
No dominant customer, and three regions of scale
No single customer reached a tenth of revenue, and the Americas, Asia and EMEA brought 43.5%, 41.3% and 15.2% of the quarter's sales.
The detail
The filing states that no single customer accounted for a tenth or more of revenue in either year, nor of receivables. The Americas brought $709.7M, 43.5% of revenue, Asia $674.7M, 41.3%, and EMEA $248.9M, 15.2%.1
AnalysisAnalysis: spread across many chipmakers and system companies, demand depends more on how many complex designs the industry starts than on any one buyer's budget. The exposure moves from losing a customer to industry-wide design cycles and trade policy.
What to watch
China sales hang on export policy, not just demand
A US rule extending export limits to companies owned half or more by listed entities is suspended, and a brief license requirement on EDA software hurt China revenue last year.
The detail
In the filing's account, the US required licenses for EDA software exports to China for several weeks last year, then rescinded the requirement; the episode "negatively impacted our revenue in China." A separate rule extending export restrictions to companies owned half or more by listed entities is suspended. The US and China announced an extension of their arrangements, but the filing notes the suspension has not yet been formally extended.1
Asia, which includes China, was $674.7M, 41.3% of revenue. The filing also warns that restrictions push customers toward "a growing class of foreign competitors and open source alternatives" or toward building their own tools, and cites China's stated policy to lead all segments of the semiconductor industry.1
AnalysisAnalysis: this risk does not show in the quarter's totals. It turns on policy decisions rather than customer demand, so when it arrives it tends to arrive suddenly.
Export-control probation reaches into future acquisitions
Cadence is on probation under a guilty plea over past sales in China, and its compliance obligations extend to every business it acquires, the core of its expansion strategy.
The detail
Cadence pleaded guilty to one count of conspiracy to commit export control violations over sales to a customer in China, and is on a three-year probation with compliance programs, reporting, certification and audits. The filing says a breach could bring "denial of export privileges", and that compliance with the settlement with the Commerce Department's export bureau is "a condition to our continued ability to export products."1
The obligations "will generally apply to any new business entities we acquire, which could limit our ability to acquire new businesses that may be strategically important to us," and continued acquisitions "could increase our risk of a violation."1
AnalysisAnalysis: the strategy the filing describes relies on buying adjacent design domains. Every acquired team must be brought inside an export-compliance regime that is now supervised, which adds time and cost to each integration.
Integration costs and inherited security gaps
Restructuring of $42.2M and amortization of $33.8M already weigh on margin, and the filing warns acquired companies often bring weaker security that takes time to align.
The detail
Restructuring charges were $42.2M against $27.4M, from a plan started in September, and the filing cautions that restructuring plans "may not achieve the benefits anticipated on the timetable or at the level contemplated." Amortization of acquired intangibles was $33.8M against $10.2M.1
The filing warns: "we have acquired and continue to acquire companies with less sophisticated security measures, and it takes time to align their security practices." Earlier this year a threat actor took a limited amount of test, configuration and source code files, which the company describes as not material, with no operational disruption.1
The deal also drew on the balance sheet: cash and cash equivalents fell during the nine months, the revolving credit facility was drawn, and the notes due next year moved into current liabilities. After the quarter, the board approved an additional share repurchase authorization.1
Sources
- 1.Cadence 10-Q for the period to 2026-09-30 (the filing), Oct 28, 2026, read Nov 2, 2026
Cadence, further in
Member research, then your own questions on ChatGPT.
What could change the outlook
What Cadence's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
- What has to go right for the margin to recover
Which costs from the Hexagon deal are fixed, which can shrink, and how fast the acquired business must grow before operating margin returns toward its pre-deal level.
Loading…
Have a question about Cadence?
Explore its profit drivers, competitive edge, risks, or your own investment and business questions with CXProWealth on ChatGPT.
- How fast would Hexagon's design business need to grow for Cadence's operating margin to return to its pre-deal level?
- What could make Cadence's $8.2B backlog turn into revenue more slowly than the 58% it expects within a year?
- Why did Cadence's operating cash flow exceed net income this quarter, and how much of the gap is acquisition amortization?
Business Lens describes Cadence from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.