Cadence Design Systems (CDNS.US) released its third-quarter 2026 financial results after the U.S. market closed on Monday.
The data showed that the company's quarterly revenue reached $1.633 billion, up 22% year-over-year from $1.339 billion in the same period last year. GAAP diluted earnings per share came in at $1.05, flat compared with the prior-year period. Non-GAAP adjusted earnings per share were $2.11, up about 9% year-over-year from $1.93 in the same period last year. Cadence shares rose more than 2% in after-hours trading.
On the profitability front, Cadence's third-quarter GAAP operating margin was 26.2%, down from 31.8% a year earlier. The non-GAAP adjusted operating margin was 44.1%, down from 47.6% in the prior-year period.
Despite the year-over-year decline in operating margins, all major product categories achieved double-digit revenue growth, driven by artificial intelligence-powered chip design demand.
Specifically, revenue from the core electronic design automation (EDA) business grew 20% year-over-year, mainly thanks to broad-based growth across the product portfolio and increased adoption by memory chip and hyperscale data center customers. The company also won 16 new full-flow digital design and signoff projects during the quarter.
Intellectual property (IP) business revenue rose 24% year-over-year, benefiting from strong demand for interface, memory and foundational IP products, as well as ongoing collaboration with major cloud computing companies, semiconductor firms and foundries.
The system design and analysis business stood out in particular, with revenue up 30% year-over-year, primarily driven by growing demand for printed circuit boards (PCBs), advanced packaging solutions and the Millennium platform.
The hardware business also posted a record quarterly revenue, mainly due to larger procurement volumes from major customers and continued growth in the hardware cloud service business.
On the AI product front, Cadence launched the Maestro series of artificial intelligence models purpose-built for chip and system design. According to preliminary test results disclosed by the company, compared with general-purpose foundation models, Maestro can achieve up to a 30% quality improvement in certain design workflows while boosting token usage efficiency by 5 times. Several customers have already begun deploying the related products.
In addition, the company's AI Super Agents business continues to advance, with more than 100 active customer collaboration projects currently underway, covering workflows such as digital design, analog and custom design, and system design.
On the orders front, as of the end of the third quarter, Cadence's backlog reached a record $8.2 billion, of which remaining performance obligation revenue expected to be recognized over the next 12 months was $4.2 billion. The company's third-quarter recurring revenue grew 18% year-over-year, further enhancing the predictability of future revenue.
Looking ahead to the full year 2026, Cadence raised its guidance and expects full-year revenue to be between $6.387 billion and $6.417 billion, corresponding to a midpoint of about $6.402 billion, representing year-over-year growth of approximately 21%. The company also expects a full-year GAAP operating margin of 28.2% to 29.2% and a non-GAAP adjusted operating margin of 44.2% to 45.2%. GAAP diluted earnings per share are projected at $4.84 to $4.90, while non-GAAP adjusted earnings per share are expected at $8.37 to $8.43, with a midpoint of $8.40.
On shareholder returns, Cadence spent $400 million repurchasing shares in the third quarter. In addition, the company's board of directors approved an additional $2.5 billion share repurchase authorization.
Cadence Chief Executive Officer Anirudh Devgan said that thanks to broad-based business growth, continuously strengthening technological advantages and a record backlog, the company decided to raise its full-year 2026 revenue growth forecast. He noted that with the launch of the Maestro AI models and the accelerated deployment of AI Super Agents, the company is well positioned to further capture the development opportunities brought by agentic artificial intelligence in the chip and system design space.
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