Cadence's Q2 2026 revenue rose 24% to $1.58B and GAAP EPS rose to $1.33 from $0.59, mostly because last year's $128.5M export-settlement charge fell away; Hexagon deal costs kept the underlying margin roughly flat, backlog hit a record $8.1B and guidance was raised.
Revenue
$1.6B
+24.2% YoY
Net income
$367M
+129.3% YoY
Diluted EPS
$1.33
+125.4% YoY
Operating margin
28.4%
Overview
Cadence Design Systems makes the software (and some specialised hardware) that chip designers use to lay out and test semiconductors. It also licenses pre-built chip building blocks ("IP") and sells simulation tools for whole electronic systems. In the quarter ended June 30, 2026, revenue rose 24% to $1,584.5 million. GAAP net income more than doubled to $367.1 million ($1.33 per diluted share).
That profit jump overstates how much the business improved. A year ago Cadence took a one-time $128.5 million charge to settle a US export-control case with the Commerce Department's Bureau of Industry and Security (BIS) and the Department of Justice. Without that charge, Q2 2025 operating income would have been about $370 million, or 29.0% of revenue. That is slightly above this quarter's 28.4%. So profits did not grow faster than sales. What actually changed: sales grew across the board, China rebounded sharply against an easy comparison, and spending rose steeply because of the $2.9 billion purchase of Hexagon's design-and-engineering business.
Key figures
Metric
Q2 2026
Q2 2025
YoY Change
Revenue
$1,584.5M
$1,275.4M
+24.2%
Operating margin (GAAP)
28.4%
19.0%
+9.4 pts
Operating margin (non-GAAP)*
45.5%
42.8%
+2.7 pts
Net income (GAAP)
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Starred figures come from the company's July 27, 2026 earnings release and CFO commentary (8-K Exhibits 99.01/99.02), not from the 10-Q itself. Operating margin is the share of revenue left after running the business, before interest and tax. Cadence's "non-GAAP" version leaves out stock-based pay, amortization of acquired intangibles, acquisition costs and one-offs such as last year's settlement charge.
First half (six months to June 30): revenue was $3,058.7M (+21.5%). GAAP operating income was $881.6M (28.8% margin vs. 24.0%). Net income was $702.7M (+62.1%), and diluted EPS was $2.56 vs. $1.59.
Where the growth came from
By product group. Cadence reports these only as a share of total revenue. The growth rates come from the press release:
Product group
Share of Q2 2026 revenue
Share of Q2 2025 revenue
YoY growth (per earnings release)
Core EDA (chip design & verification software and hardware)
68%
71%
+18%
Semiconductor IP
15%
13%
>40%
System Design & Analysis (SD&A)
17%
16%
+37%
IP grew fastest. The release credits demand for its "Star IP" portfolio, including "a significant agreement with Intel." IP revenue is usually booked in full when delivered, so it can swing from quarter to quarter.
SD&A growth is partly acquired. It includes the Hexagon design-and-engineering business, bought on February 23, 2026. The 10-Q says that business's revenue is mainly classified in SD&A, but it doesn't separate acquired growth from organic growth. So the 37% overstates how fast the pre-existing SD&A business grew.
Core EDA grew 18% even though its share of the total fell. The release says hardware had "another record quarter," adding 12 new customers. This hardware is the emulation systems chip designers use to test designs before manufacturing.
By geography (10-Q):
Region
Q2 2026
Q2 2025
Change
United States
$656.1M
$591.2M
+11%
China
$236.2M
$120.7M
+96%
Other Asia
$321.8M
$238.2M
+35%
EMEA
$243.3M
$200.2M
+22%
Japan
$104.8M
$86.0M
+22%
Other Americas
$22.3M
$39.1M
-43%
China's near-doubling is mostly a comparison effect. The 10-Q says the increase was "partially attributable to export license requirements that were temporarily imposed by BIS on EDA Software and Technology from May to July of fiscal 2025, which impacted our ability to deliver software offerings to our customers in China." In other words, China sales in Q2 2025 were artificially low. China rose to 15% of revenue from 9%. But it had already reached 18% in Q3 2025, once the restriction was lifted (per the CFO commentary). Read the 96% as a recovery, not a new growth rate.
Export-control risk has not gone away. BIS wrote a rule extending restrictions to companies that are 50% or more owned by blacklisted entities, and that rule is suspended only until November 9, 2026. Management says it expects the impact "to be limited."
In Other Americas, the company blamed the decline on the timing of design-services work.
Why the margin didn't improve underneath
Acquisition amortization tripled. When a company buys another, part of the price is recorded as intangible assets (technology, customer relationships). Those are then written off as an expense over several years. That expense was $79.9M this quarter ($45.6M in cost of revenue plus $34.3M in operating expenses), up from $23.7M a year earlier. The 10-Q attributes the increase "primarily" to the Hexagon deal, which added $1,248M of intangibles and $2,147M of goodwill.
Headcount and pay. R&D spending rose $89.2M (+20%), mostly salaries and stock-based pay, "including additional headcount from acquisitions." Employee numbers grew from 13,152 to 15,445 in a year (CFO commentary). General and administrative costs rose 28%, driven by consulting fees for "acquisition-related activities."
Gross margin dipped. GAAP gross margin (revenue minus the direct cost of what was sold, as a share of revenue) was 84.9%, down from 85.6% (CFO commentary). Amortization was again the reason. On a non-GAAP basis it improved to 88.2% from 87.2%.
The MD&A says outright that the extra expenses from recent acquisitions "exceed incremental revenue for the periods presented." The non-GAAP margin rose 2.7 points because it leaves those costs out.
Below the operating line, net income got help from a $71.9M gain on investments (vs. $38.4M), part of $95.1M in "other income." Interest income fell to $9.9M from $26.0M because cash was spent on Hexagon. The effective tax rate fell to 28.1% from 43.0%. Cadence expects about 26% for the full year.
Takeaway: Demand is strong: revenue grew 24%, all three product groups grew by double digits, and backlog hit a record $8.1B. But the 129% jump in profit comes mainly from last year's $128.5M settlement charge falling away, plus investment gains. Excluding that charge, GAAP operating margin actually slipped from about 29.0% to 28.4%, because the Hexagon acquisition is so far adding costs (amortization, staff, integration) faster than revenue.
Backlog and recurring revenue
Backlog ($8.1B) is revenue already under contract but not yet recognized. It includes $0.9B of customer commitments where the specific products are still to be chosen. Excluding those, the 10-Q expects 58% to turn into revenue within 12 months. The release puts revenue from backlog over the next 12 months at $4.2B.
Recurring revenue made up 78% of the quarter, unchanged. This covers software licences recognized over time, maintenance and royalties. Over the trailing twelve months it slipped to 79% from 80%, as more one-time hardware and IP revenue came in. Management expects the annual mix to stay "relatively consistent" at about 80%.
The share of 2026 revenue expected to come from backlog held at the start of the year is now about 65%. That compares with about 66% in the previous guidance and about 69% for 2025. So a slightly larger part of the raised forecast depends on new business signed during the year.
Cash, debt and buybacks
Cash fell to $1,440.4M from $3,001.3M at year-end 2025. The drop reflects the Hexagon deal: $2.2B in cash plus 3.2 million Cadence shares valued at $902.2M. Cadence borrowed on its credit line during the half (debt principal peaked at $2,925M at the end of Q1) and repaid it by June 30. The remaining debt is $2.5B of senior notes.
Operating cash flow was $635M in Q2 and $990.7M for the half (vs. $864.6M a year earlier). Free cash flow, meaning operating cash flow minus capital spending, was $582M in the quarter (CFO commentary).
Buybacks: Cadence bought back 580,000 shares for $200.0M in Q2, and $400.0M worth in the half (vs. $525.0M a year earlier). $1.0B of buyback authorization remains. Even so, the diluted share count rose to 276.2M from 272.9M, because the shares issued to Hexagon outweighed the repurchases.
Guidance and outlook
In the July 27, 2026 earnings release, management raised its full-year 2026 outlook:
FY2026 guidance
Previous
Current
Revenue
$6,125M-$6,225M (16-18% growth)
$6,260M-$6,340M (18-20%)
GAAP operating margin
27.5%-28.5%
27.75%-28.75%
Non-GAAP operating margin
43.5%-44.5%
43.75%-44.75%
GAAP EPS
$4.39-$4.49
$4.76-$4.86
Non-GAAP EPS
$7.85-$7.95
$8.05-$8.15
Operating cash flow
$1,875M-$1,975M
~$2,000M
For Q3 2026, Cadence guides to revenue of $1,595M-$1,625M (19-21% growth), GAAP EPS of $1.11-$1.17 (vs. $1.05 a year earlier) and about $200M of buybacks.
Part of the GAAP EPS raise comes from outside the core business. Guidance for GAAP other income moved up to a range of -$17M to +$3M, from -$101M to -$81M, consistent with the investment gains booked in Q2. Non-GAAP other income guidance did not change. So the non-GAAP EPS raise (+$0.20 at the midpoint) is the clearer signal about the operating business.
Our read: The backlog and demand across product groups support the revenue forecast. For the next few quarters, two questions matter. First, does Hexagon's revenue start to catch up with the costs it adds? Second, do IP and hardware deliveries, which are booked in full when delivered, keep up this quarter's pace? GAAP margin guidance for the full year is roughly flat at about 28%, which suggests management doesn't expect acquisition costs to fade in 2026. For China, the date to watch is November 9, 2026, when the suspension of the BIS 50%-ownership rule is set to expire.