0000813672-26-000047
SEC filingRevenue grew 19% YoY to $1.47B driven by software and hardware demand, with operating margin stable at 29% despite acquisition costs.
For the three months ended March 31, 2026, Cadence reported total revenue of $1,474.2 million, a 19% increase from $1,242.4 million in the same quarter of 2025. Product and maintenance revenue grew 21% to $1,348.9 million, driven by strong demand for software and hardware products as customers continued investing in complex semiconductor designs. Services revenue declined 5% to $125.3 million due to timing of project fulfillment. The gross margin remained robust, with product and maintenance costs rising 31% primarily due to higher hardware product costs and a $14.2 million increase in amortization of acquired intangibles from the recent acquisition of Hexagon's D&E business. Total operating expenses increased 15% to $808.1 million, with research and development growing 16% reflecting continued investment in talent and facilities, and general and administrative costs surging 40% due to higher professional services and stock-based compensation from acquisition activities. Despite these increases, operating margin held steady at 29% as revenue growth offset expense pressures. Interest expense rose to $31.6 million from $29.1 million due to incremental borrowings under the revolving credit facility. The provision for income taxes was $92.4 million, yielding an effective tax rate of 21.6%, down from 23.1% in the prior year, primarily due to higher stock-based compensation tax benefits and mix of earnings.
Cadence organizes its offerings into three product categories: Core EDA, Semiconductor IP, and System Design and Analysis (SD&A). During the quarter, Core EDA contributed 71% of total revenue, unchanged from the prior year, reflecting consistent demand for foundational design tools. Semiconductor IP accounted for 14%, while SD&A represented 15%. The acquisition of Hexagon's design and engineering business on February 23, 2026, expanded the SD&A portfolio and contributed to revenue and costs. Revenue growth across all categories was roughly proportional to total revenue growth, indicating balanced demand. Geographically, revenue increased in all regions, with China and Japan each growing 36% and Other Americas surging 87% from a small base. The United States remained the largest region at 41% of revenue, down from 46% as international markets outpaced domestic growth.
Management expects operating expenses to increase in the remainder of fiscal 2026 due to recent acquisitions, but believes the business model provides resilience against macroeconomic headwinds such as trade controls and tariffs. The company anticipates the impact of expanded export restrictions to be limited, though it continues to monitor developments. For fiscal 2026, the effective tax rate is expected to be approximately 26%, with quarterly variability from stock-based compensation vesting. No specific revenue or earnings guidance was provided in the MD&A section. Strategic priorities include continued investment in R&D and technical sales support, both organically and through acquisitions, aligning with the Intelligent System Design strategy. The acquisition of Hexagon's D&E business is expected to accelerate the SD&A portfolio.
The balance sheet was significantly impacted by the February 2026 acquisition of Hexagon's D&E business. Cash and cash equivalents fell sharply from $3.00B to $1.41B, partly replaced by $425M drawn on the $1.25B revolving credit facility. Total debt stood at $2.90B ($2.48B in long-term notes plus $0.43B revolver), against $6.56B in shareholders' equity. The company maintained $79.6M in available-for-sale debt securities and $59.8M in marketable equities. Deferred revenue grew to $1.02B, a $85.7M increase from year-end, while contract assets halved to $39.6M.
Contracted but unsatisfied performance obligations (RPO) totaled $8.0B as of March 31, 2026, including $0.7B of non-cancelable customer commitments with future product selection. The company expects to recognize 55% of this (excl. non-cancelable) over the next 12 months, 43% in 13-36 months, and the remainder thereafter. The RPO excludes potential future royalties. Separately, the company had operating lease liabilities of $177.2M and deferred tax liabilities of $351.5M. No material litigation provisions were recorded beyond the previously disclosed BIS/DOJ settlements.
During Q1 2026, Cadence repurchased 671,000 shares for $200.0M, leaving $1.2B under the board-authorized buyback program. No dividends were declared. The company raised $425M via the revolver to partly fund the $2.9B Hexagon acquisition (net of $154.6M cash acquired). Capital expenditures were $48.8M (3.3% of sales). Debt issuance costs of $1.3M remain on the revolver; total unamortized discounts and costs on the $2.5B senior notes were $18.8M.
Cadence operates as a single reporting segment. Revenue by category: Core EDA 71%, IP 14%, and System Design & Analysis 15%, unchanged YoY. Revenue recognition: 77% recurring (73% over time + 4% other recurring) and 23% up-front, compared to 82%/18% in Q1 2025. Regionally, the Americas contributed $656.1M (44.5%), Asia $576.7M (39.1%), and EMEA $241.4M (16.4%). China revenue grew 35.9% to $189.4M. Long-lived assets (PP&E) were $758.2M, with 63.1% in the U.S., 22.2% in Asia, and 14.7% in EMEA.
For Q1 FY2026, Cadence generated operating cash flow of $355.8 million, exceeding net income of $335.7 million, indicating solid cash conversion. However, CFO declined 27% year-over-year from $487.0 million, primarily due to adverse working capital movements, particularly a $232.6 million decrease in accounts payable and accrued liabilities. The capex intensity (capex/CFO) was 13.7%, reflecting moderate capital needs.
Free cash flow is not explicitly stated, but capex of $48.8 million was modest. The company returned $200 million to shareholders via share repurchases, which is 56% of CFO, indicating strong capital return even with lower operating cash flow. The massive investing outflow of $2.1 billion was primarily due to $2.07 billion in business combinations, partially offset by proceeds from a $425 million revolving credit facility.
Overall, cash flow quality remains reasonable despite the year-over-year decline, but the large acquisition and working capital swings warrant monitoring.