AI interpretation based on checked source excerpts. Issuer assertions and evidence limitations remain explicit.
Policy quality-scores-2: six equally weighted categories. The overall score requires full coverage. Missing inputs are not zero. Qualitative grades are sourced interpretations, not probabilities. 3/6 · 18/10/2026
Moat63
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
structural advantage · 3/4 · Design-specific IP, multiyear software access, updates, customer training and some non-cancelable commitments jointly support meaningful switching friction. Existing-customer investment provides operating corroboration. Relative migration costs and competitor superiority remain unquantified.
durability · 2/4 · Multiyear contracts and persistent recurring demand provide demonstrated continuity. Durability beyond renewal cycles is mixed because technology must evolve and stronger competing vendors have emerged; exceptional long-term protection is not established.
customer dependency · 3/4 · Existing customers continued investing, short-term arrangements are typically renewed, and some customers make non-cancelable commitments. These support strong repeat demand and workflow dependence indirectly, without establishing a retention percentage or exclusive reliance.
erosion resilience · 2/4 · Customer investment and a stable recurring-revenue profile demonstrate continuing demand despite challenges. Export restrictions have caused actual harm, while stronger vendors and competing AI remain prospective erosion risks rather than demonstrated displacement.
Pricing power—
Insufficient evidence for every rubric criterion; no category score is inferred.
realized pricing · — · Reported revenue growth reflects customer investment across software, hardware and IP but does not separate prices from volume or mix. No observed pricing outcome can be established.
retention · 3/4 · Existing-customer investment, typically renewed short-term software arrangements and multiyear commitments demonstrate repeat demand. Assessment is indirect; recurring-revenue percentages are not renewal rates, and valuation retention assumptions are excluded as realized evidence.
margin resilience · 2/4 · Half-year operating margin increased from 24% to 29%, but the improvement primarily reflects the prior-year settlement charge. Acquisitions generated expenses exceeding incremental revenue. Results support mixed resilience without establishing price-led margin protection.
contractual freedom · 2/4 · Some fixed-dollar, non-cancelable commitments protect contracted spending. Multiyear access and updates, customer remix rights and public-sector termination rights constrain flexibility. These are mixed contractual protections; unilateral repricing authority is not disclosed.
Predictability99
Five consecutive annual periods. Equal weights: nondeclining revenue frequency; revenue-growth volatility (5–40pp); positive FCF frequency; FCF-margin volatility (3–20pp). Stability indicator, not a growth forecast.
- Nondeclining revenue years (%)
- 100.00
- Revenue growth volatility (pp)
- 2.24
- Positive FCF years (%)
- 100.00
- FCF margin volatility (pp)
- 3.43
Financial strength—
Missing required inputs: debtFcfGrade, netDebtEbitGrade. Equal-weight grades: debt/FCF (1–8x), net debt/earnings before interest and tax (0–5x), interest service (1–12x), current ratio (0.75–2x). Earnings use reported operating income, or reported pretax profit plus reported interest expense when operating income is unavailable. Interest service uses earnings/interest expense; if unavailable, it uses reported operating cash flow/cash interest paid, without relabeling cash paid as accrued expense. Nonpositive cash flow/earnings score 0 for their service component; reported zero interest with a positive numerator scores 100. Net cash scores 100 for net leverage. Missing disclosures remain unavailable. General nonfinancial-company rubric, not a credit rating; exceptional and nonoperating gains are not normalized out. IFRS finance-cost and cash-flow classifications retain their reported scope.
- interestCoverageGrade
- 100.00
- currentRatioGrade
- 100.00
- Interest coverage (x)
- 12.80
- Current ratio (x)
- 2.86
Capital allocation—
Missing required inputs: operatingReturn. Three-year equal-weight indicators: pretax return on average invested capital (0–25%; equity + debt − cash, each year and its prior year), share-count growth (0–5%, lower better), share-based cost/revenue (2–20%, lower better), consolidated FCF/net income (0–1x). Return uses reported operating income or, if unavailable, EBIT calculated from reported pretax profit plus reported interest expense; exceptional/nonoperating gains are not normalized out. Share-based cost uses the reported cash-flow add-back or, if absent, separately reported recognized compensation expense; the latter never becomes an FCF adjustment. Nonpositive net income scores 0 for cash conversion; absent income/FCF stays unavailable. Nonpositive invested capital has no defined return and remains unavailable. Does not establish acquisition quality or buyback timing.
- 3-year average dilution (%)
- 0.02
- 3-year average SBC / revenue (%)
- 8.33
- cashConversionGrade
- 100.00
Management56
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
capital discipline · 2/4 · Actual repurchases and improved operating cash flow show capital deployment and cash generation. Rising stock compensation, increased borrowing costs, acquisition expense drag and paid settlement penalties offset those positives. Acquisition returns and net dilution outcomes are not sufficiently established for a strong grade.
incentive alignment · 2/4 · Actual grants include operating-income PSUs, relative-return PSUs and long-term equity awards. Hedging restrictions and demonstrated director ownership compliance support alignment. Large award values and rising stock compensation complicate the assessment; executive ownership and realized long-term award outcomes are missing.
execution · 3/4 · GAAP operating income increased from $779 million in 2021 to $1.492 billion in 2025, alongside 2025 revenue growth, existing-customer investment and reported hardware customer additions. These demonstrate strong operating execution, although acquisition expense drag and the export-control settlement prevent an exceptional assessment. Customer achievements are issuer-reported.
governance · 2/4 · An independent chair, predominantly independent board, independent committees and substantial shareholder rights provide meaningful formal safeguards. The export-control plea agreement and $140.6 million of paid penalties demonstrate a material historical compliance failure, making the overall record mixed.
Evidence
Cadence’s time-based license arrangements grant customers the right to access and use all of the licensed products at the outset of an arrangement and updates are generally made available throughout the entire term of the arrangement, which is generally two to three years.
Revenue recognition: time-based license duration · Filed 19/02/2026
Cadence’s updates provide continued access to evolving technology as customers’ designs migrate to more advanced nodes and as its customers’ technological requirements evolve.
Revenue recognition: updates and evolving customer designs · Filed 19/02/2026
Some customers enter into non-cancelable commitments, whereby the customer commits to a fixed dollar amount over a specified period of time that can be used to purchase from a list of products or services.
Business: non-cancelable customer commitments · Filed 19/02/2026
We generally license our design IP under nonexclusive license agreements that provide usage rights for specific designs.
Business: design-specific, nonexclusive IP licensing · Filed 19/02/2026
Our education services offerings can be customized and include training programs that are delivered online, through an app, or in a classroom setting.
Technical support and maintenance: customer training · Filed 19/02/2026
2024 (In millions, except percentages) Product and maintenance $ 4,821.6 $ 4,213.5 $ 608.1 14 % Services 475.2 427.8 47.4 11 % Total revenue $ 5,296.8 $ 4,641.3 $ 655.5 14 % Product and maintenance revenue increased during fiscal 2025, as compared to fiscal 2024, primarily due to growth in revenue from our software, hardware and IP product offerings as a result of existing customers' continued investment in complex designs for their products.
Results of operations: 2025 revenue and existing-customer investment · Filed 19/02/2026
Other recurring revenue includes revenue recognized at a point in time for short-term software arrangements that are typically renewed at least annually and revenue recognized at varying points in time over the term of other arrangements with non-cancelable commitments, whereby the customer commits to a fixed dollar amount over a specified period of time that can be used to purchase from a list of products.
Revenue recognition: typical renewals and fixed-dollar commitments · Filed 29/07/2026
The following table shows the percentage of our revenue that is classified as recurring or up-front for the three and six months ended June 30, 2026 and June 30, 2025: Three Months Ended Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 Revenue recognized over time 72 % 73 % 72 % 75 % Other recurring revenue 6 % 5 % 6 % 5 % Recurring revenue 78 % 78 % 78 % 80 % Up-front revenue 22 % 22 % 22 % 20 % Total revenue 100 % 100 % 100 % 100 % The following table shows the percentage of recurring revenue for the twelve-month periods ending concurrently with our five most recent fiscal quarters: Trailing Twelve Months Ended June 30, 2026 March 31, 2026 December 31, 2025 September 30, 2025 June 30, 2025 Recurring revenue 79 % 79 % 80 % 80 % 80 % Up-front revenue 21 % 21 % 20 % 20 % 20 % Total 100 % 100 % 100 % 100 % 100 % The percentage of revenue characterized as recurring compared to revenue characterized as up-front may vary between fiscal quarters.
Business overview: recurring-revenue history through June 2026 · Filed 29/07/2026
Additionally, as the EDA industry has matured, stronger competition has emerged from companies better able to compete as sole source vendors.
Risk factors: stronger sole-source competition · Filed 19/02/2026
Such other companies may develop AI Technologies that are similar or superior to ours and/or are more cost-effective and/or quicker to develop, deploy and maintain.
Risk factors: potentially superior or cheaper competing AI technology · Filed 19/02/2026
These restrictions have had, and any subsequent restrictions may have, an adverse effect on our business, results of operations or financial condition, either directly or by impacting our customers’ products, and restrict our ability to license or support our products to certain companies in China.
Trade regulation: realized adverse effects of restrictions · Filed 19/02/2026
Our operating margin for the three and six months ended June 30, 2026 and the three and six months ended June 30, 2025 was as follows: Three Months Ended Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 Operating margin 28 % 19 % 29 % 24 % 31 Our operating margin may fluctuate from period to period depending on the mix of products and services sold during each period, the timing and magnitude of restructuring plans and other significant, infrequent expenses.
Results of operations: quarterly and half-year operating margins · Filed 29/07/2026
During the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025, our operating margin increased, primarily due to the loss related to a contingent liability recognized during the three and six months ended June 30, 2025, partially offset by incremental expenses from our recent acquisitions, including amortization of acquired intangibles, that exceed incremental revenue for the periods presented.
Results of operations: settlement comparison and acquisition expense drag · Filed 29/07/2026
The shares repurchased under Cadence’s repurchase authorizations and the total cost of repurchased shares, including commissions, during the three and six months ended June 30, 2026 and June 30, 2025 were as follows: Three Months Ended Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 (In thousands) Shares repurchased 580 607 1,251 1,968 Total cost of repurchased shares $ 200,006 $ 175,009 $ 400,006 $ 525,016 15 NOTE 9.
Note 8: actual share repurchases · Filed 29/07/2026
STOCK-BASED COMPENSATION Stock-based compensation expense is reflected in Cadence’s condensed consolidated income statements for the three and six months ended June 30, 2026 and June 30, 2025 as follows: Three Months Ended Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 (In thousands) Cost of product and maintenance $ 3,205 $ 2,122 $ 6,211 $ 4,276 Cost of services 3,660 2,449 7,081 4,915 Marketing and sales 26,285 22,857 50,387 44,528 Research and development 93,318 73,188 180,659 140,277 General and administrative 20,422 17,709 40,735 31,942 Total stock-based compensation expense $ 146,890 $ 118,325 $ 285,073 $ 225,938 Cadence had total unrecognized compensation expense related to stock option and restricted stock grants of $970.8 million as of June 30, 2026, which is expected to be recognized over a weighted average vesting period of 2.2 years.
Note 7: stock-based compensation expense and outstanding expense commitments · Filed 29/07/2026
Interest Expense Three Months Ended Six Months Ended June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025 (In millions) Contractual cash interest expense: Senior Notes $ 27.8 $ 27.7 $ 55.5 $ 55.4 Revolving Credit Facility 5.6 0.2 8.1 0.5 Amortization of debt discount and debt issuance costs: Senior Notes 1.0 1.0 2.0 2.0 Revolving Credit Facility 0.1 0.1 0.2 0.2 Other 0.6 (0.1) 0.9 — Total interest expense $ 35.1 $ 28.9 $ 66.7 $ 58.1 Interest expense increased during the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025, primarily due to incremental interest expense related to borrowings under our revolving credit facility at various times during the periods presented.
Results of operations: interest expense and revolving borrowings · Filed 29/07/2026
The increase in cash flows from operating activities for the six months ended June 30, 2026, as compared to the six months ended June 30, 2025, was primarily due to improved operating results, the timing of cash receipts from customers and the timing of cash disbursements for operating assets and liabilities.
Liquidity: operating cash-flow improvement and timing effects · Filed 29/07/2026
On February 23, 2026, we completed our acquisition of the design and engineering (“D&E”) business of Hexagon Smart Solutions AB.
Acquisitions: February 2026 completion of D&E acquisition · Filed 29/07/2026
Omnibus Equity Incentive Plan 115 Appendix B: Reconciliation of GAAP to Non-GAAP Financial Measures 129 Table of Contents CORPORATE GOVERNANCE CORPORATE GOVERNANCE HIGHLIGHTS Board of Directors: ✓ Independent director serving as chair of the Board of Directors of Cadence (the “Board” or the “Board of Directors”) ✓ Substantial majority of independent directors – ten of the eleven current directors are independent ✓ All Board committees comprised entirely of independent directors ✓ Regular executive sessions of the independent directors ✓ Annual Board and committee evaluations conducted by an independent third party and overseen by the Corporate Governance and Nominating Committee ✓ Board refreshment and succession planning ✓ Annual Chief Executive Officer (“CEO”) and senior leadership succession review ✓ Principled Worldwide Code of Business Conduct (the “Code of Business Conduct”) ✓ Robust insider trading and related party transaction policies and corporate governance guidelines ✓ Committee authority to retain independent advisors ✓ Stock Ownership Guidelines – each non-employee director required to hold Cadence shares valued at a minimum of $375,000 within five years of appointment or election ✓ Proactive, ongoing and responsive stockholder engagement program, including direct involvement by the Chair of the Board (“Board Chair”) and, as needed, Board committee chairs ✓ Board continuing education – new director orientation and continuing education on critical topics and issues ✓ Limits on the number of other public company boards on which directors may serve, including stricter limits on current executive officers Stockholder Rights: Executive Compensation: ✓ No stockholders’ rights plan ✓ No dual class common stock structure ✓ Ability to act by written consent ✓ Ability to call a special meeting ✓ Proxy access ✓ No supermajority voting requirements ✓ Robust stockholder engagement program ✓ Directors elected by majority vote in an uncontested election ✓ All directors elected annually (no classified Board structure) ✓ Annual Say-on-Pay stockholder vote ✓ Compensation Recovery (“Clawback”) Policy ✓ Prohibition on hedging or pledging of Cadence securities ✓ Use of an independent compensation consultant ✓ Stock Ownership Guidelines – (i) 3X the annual base salary for the CEO and (ii) 1X the annual base salary for all other executive officers, in each case within five years of appointment 1 Table of Contents CORPORATE GOVERNANCE Cadence is governed by the Board and the committees of the Board, which meet throughout the year.
Corporate governance highlights: independence, shareholder rights and ownership guidelines · Filed 25/03/2026
The Compensation Committee granted LTP Awards to all then-serving executive officers in fiscal 2016, 2019, 2022 and again in March 2025.
Executive compensation: historical and March 2025 LTP grants · Filed 25/03/2026
Operating Income PSUs rTSR PSUs RSUs LTP Award Name Shares Per Share ($) Aggregate (based on Target Performance) ($) Aggregate (based on Maximum Performance) ($) Shares Per Share ($) Aggregate ($) Shares Per Share ($) Aggregate ($) Shares Per Share ($) Aggregate ($) Anirudh Devgan 21,659 255.11 5,525,427 11,050,855 21,659 345.29 7,478,695 43,319 255.11 11,051,110 282,000 107.65 30,357,300 John M.
Executive compensation: actual 2025 award types and CEO grant values · Filed 25/03/2026
Cadence’s Securities Trading Policy restricts certain transactions in Cadence securities and prohibits Cadence’s directors, executive officers and all other Cadence employees (and their respective family and household members) from hedging or pledging their ownership of Cadence securities (regardless of whether such securities were granted as compensation or are otherwise held, directly or indirectly, by such employee or director), including by purchasing financial instruments such as prepaid variable forward contracts, equity swaps, collars and exchange funds, or trading in publicly-traded options, puts, calls or other derivative instruments related to Cadence securities.
Securities trading policy: hedging and pledging prohibitions · Filed 25/03/2026
As of the Record Date, all directors met the Stock Ownership Guidelines applicable to them.
Director ownership: compliance as of proxy record date · Filed 25/03/2026
As part of the settlements, we entered into a plea agreement with the DOJ pursuant to which we agreed to plead guilty to one count of conspiracy to commit export controls violations.
Export-control settlement: agreement to plead guilty · Filed 19/02/2026
As part of the settlements, we recorded a charge of $128.5 million in Loss related to contingent liability on our consolidated income statement and paid BIS and the DOJ aggregate net penalties and forfeitures of $140.6 million during fiscal 2025.
Results of operations: settlement charge and actual penalties paid · Filed 19/02/2026
128 Table of Contents APPENDIX B: Reconciliation of GAAP to Non-GAAP Financial Measures Reconciliation of GAAP Operating Income to Non-GAAP Operating Income and Non-GAAP Operating Income Adjusted for Stock-based Compensation (In Millions) 2021 2022 2023 2024 2025 GAAP operating income $ 779 $ 1,074 $ 1,251 $ 1,351 $ 1,492 Reconciling items to non-GAAP operating income Stock-based compensation expense 210 270 326 391 455 Amortization of acquired intangibles 67 60 62 90 105 Acquisition and integration-related costs 23 41 56 96 135 Restructuring (1 ) — 11 24 29 Non-qualified deferred compensation expenses (credits) 6 (8 ) 11 11 14 Special charges* 27 — — 3 2 Loss related to contingent liability** — — — 8 129 Non-GAAP operating income*** $ 1,111 $ 1,436 $ 1,717 $ 1,974 $ 2,361 Stock-based compensation expense (210 ) (270 ) (326 ) (391 ) (455 ) Non-GAAP operating income adjusted for stock-based compensation*** $ 901 $ 1,166 $ 1,391 $ 1,583 $ 1,906 Table may not foot due to rounding * 2021 includes costs related to a voluntary retirement program.
Appendix B: 2021–2025 GAAP operating income and expense reconciliation · Filed 25/03/2026
Hardware delivered another record year, adding more than 30 new customers, with seven of the top ten customers purchasing both Palladium Z3 and Protium X3 systems, reflecting strong AI and hyperscale demand.
2025 business achievements: hardware customer additions and purchases · Filed 25/03/2026
Projected income from existing customer relationships was determined using customer retention rates between 85% and 92%.
Acquired intangible valuation: assumed customer retention · Filed 19/02/2026
However, on November 11, 2025, BIS published a one-year suspension of the new rule that is currently set to expire on November 9, 2026, absent a future extension.
Trade controls: suspension expiration disclosed in July 2026 · Filed 29/07/2026
Our public sector customers may have contractual, statutory or regulatory rights to terminate contracts with us or our business partners for convenience, in which case we may not be able to collect fees for products or services delivered, or due to a default, in which case we may be liable for replacement costs incurred by the customer.
Public-sector contracts: termination rights and collection exposure · Filed 19/02/2026
In addition, certain time-based license arrangements include remix rights and unspecified additional products that become commercially available during the term of the agreement.
Revenue recognition: remix rights and additional product rights · Filed 19/02/2026
