0000813672-25-000113
SEC filingRevenue grew 20% YoY to $1.28B in Q2 2025, with operating margin contracting to 19% due to a loss from a contingent liability.
For the three months ended June 30, 2025, total revenue grew 20% year-over-year to $1,275.4 million, driven by 22% growth in product and maintenance revenue and 5% growth in services revenue. Operating margin declined sharply from 28% to 19%, primarily due to a recognized loss from a contingent liability. Gross margin decreased to 85.6% from 86.9%, reflecting higher hardware product costs. The recurring revenue mix fell to 78% from 88% as up-front revenue increased to 22%, driven by strong hardware and IP sales.
By product category, Core EDA remained the largest segment, contributing 71% of total revenue (down from 73% a year ago). Semiconductor IP held steady at 13%, while System Design and Analysis grew to 16% from 14%, benefiting from the BETA CAE acquisition. Geographically, the United States grew 17% to $591.2 million, while China declined 6% due to temporary export license restrictions imposed by BIS from May 23 to July 2, 2025. Other regions showed strong growth: Other Americas +234%, EMEA +31%, Japan +35%, and Other Asia +20%.
Management expects the percentage of up-front revenue to continue increasing in 2025, driven by higher sales of hardware and IP products. The fiscal 2025 effective tax rate is expected to be approximately 28%. The recent enactment of the One Big Beautiful Bill Act is expected to reduce remaining fiscal 2025 cash tax payments by roughly $140 million. Additionally, settlement payments of $140.6 million related to BIS and DOJ matters are due in Q3 2025. No specific revenue or earnings guidance was provided, but the company remains focused on investing in R&D and technical sales support through hiring and acquisitions.
Cadence ended Q2 2025 with $2.82 billion in cash and cash equivalents, up from $2.64 billion at year-end 2024. Total debt remained essentially flat at $2.48 billion (carrying value), consisting of three senior note issuances: $500M 4.200% notes due 2027, $1.0B 4.300% notes due 2029, and $1.0B 4.700% notes due 2034. The company had no outstanding borrowings under its $1.25 billion revolving credit facility. Shareholders' equity increased to $5.01 billion from $4.67 billion, driven by net income and other comprehensive income, partially offset by $525 million in treasury stock repurchases.
The Notes reveal $6.4 billion in remaining performance obligations as of June 30, 2025, which includes $0.5 billion of non-cancelable customer commitments where product selection is yet to be determined. Cadence expects to recognize 53% of this backlog (excluding the non-cancelable portion) as revenue within 12 months, 43% over the next 13–36 months, and the remainder thereafter. Separately, the company recorded a $140.6 million liability for the settlement of export control violations with BIS and DOJ, with payment due in Q3 2025. No other material purchase commitments were disclosed.
Cadence does not pay dividends. During the six months ended June 30, 2025, the company repurchased 1.97 million shares for $525 million. In May 2025, the Board authorized an additional $1.5 billion for share repurchases, leaving $1.8 billion remaining. No new debt was issued or repaid during the period. Capital expenditures totaled $67.1 million, representing 2.7% of sales. The company’s debt structure remained unchanged.
Cadence operates as a single operating segment. Revenue by product category for the six months ended June 30, 2025: Core EDA 71%, Semiconductor IP 13%, System Design & Analysis 16%. Geographically, the Americas contributed 48.8% of revenue ($1.23B), Asia 29.3% ($739M), EMEA 15.7% ($396M), and Japan 6.1% ($154M). China revenue was $260 million, down sequentially due to temporary export license restrictions that were later rescinded. Long-lived assets were concentrated in the U.S. ($431 million) and other Asia ($104 million).
Operating cash flow (CFO) of $864.6M significantly exceeded net income of $433.6M, reflecting healthy cash conversion. The main driver was a large positive swing in working capital, particularly accounts payable and accrued liabilities (+$115.6M) and deferred revenue (+$21.8M), while receivables declined only modestly. Depreciation and amortization of $106.6M and stock-based compensation of $225.9M added back. Capex of $67.1M was lower than the prior year's $78.8M, and total investing outflows dropped to $197.4M (from $757.9M) due to reduced acquisition activity. Financing activities consumed $541.0M through $525.0M in share repurchases and $94.3M in tax withholding on vesting stock, partially offset by $78.3M in stock issuance. The company ended with $2.82B in cash, up $178.7M from the start of the period. Anomalies include a gain on divestitures of $36.7M and a large cash outflow for acquisitions in the prior period.