10-K – 2026-02-19 – cdns-20251231.htm

The long sales cycle of our products and services may cause our operating results to fluctuate unexpectedly.
Generally, we have a long sales cycle that can extend up to six months or longer. The complexity and expense associated with our products and services generally require a lengthy customer education, evaluation and approval process. Consequently, we may incur substantial expenses and devote significant management effort and expense to develop potential relationships that do not result in agreements or revenue and may prevent us from pursuing other opportunities. In addition, sales of our products and services have been and may in the future be delayed if customers delay approval or commencement of projects because of the timing of customers’ competitive evaluation processes or customers’ budgetary constraints and budget cycles. Long sales cycles for hardware products subject us to a number of significant risks over which we have limited control, including insufficient, excess or obsolete inventory, variations in inventory valuation and fluctuations in quarterly operating results. Further, economic conditions, including economic downturn and rising inflation, may have a delayed impact on our results and financial condition as a result of our long sales cycles. Similarly, such macroeconomic conditions may impact our long sales cycles by making it difficult for our customers to plan future business activities, which could cause customers to limit spending or delay decision-making.
We have incurred, and may in the future incur, substantial costs in connection with restructuring plans, which might not result in the benefits we anticipate, possibly having a negative effect on our future operating results.
From time to time, we initiate restructuring plans in an effort to better align our resources with our business strategy. We incur substantial costs to implement restructuring plans, and our restructuring activities subject us to reputational risks and litigation risks and expenses. Our past restructuring plans do not provide any assurance that we will realize anticipated cost savings or other benefits from any restructuring plans we implement in the future. In addition, restructuring plans may have other consequences, such as attrition beyond our planned reduction in workforce, a negative effect on employee morale and productivity or our ability to attract highly skilled employees. Our competitors may also use any future restructuring plans to seek to gain a competitive advantage over us. As a result, restructuring plans may affect our revenue and other operating results.
Our business is subject to the risk of natural disasters, global climate change and other catastrophic events.
Our corporate headquarters, including certain of our research and development operations and certain of our distribution facilities, and a significant portion of our employees are located in the Silicon Valley area of Northern California, a region known to experience seismic activity and wildfires. Our offices around the world may also be adversely impacted by natural disasters, including those intensified by climate change. Our offices, and those of our customers and suppliers, can be disrupted by droughts, extreme temperatures, fires, flooding and other climate change-related risks, as well as earthquakes, actions by utility providers, cybersecurity attacks, terrorist attacks, telecommunication failures and other catastrophic events such as an actual or threatened public health emergency. Catastrophic or climate change-related events could cause system interruptions, delays in our product development and loss of critical data and could prevent us from fulfilling our customers' orders. If a catastrophic event occurs at or near our offices or where our employees are located, or utility providers or public health officials take certain actions (e.g., shut off power to our facilities or impose travel restrictions), our operations may be interrupted, which could adversely impact our business and results of operations. These risks may be further increased if the disaster recovery plans for us and our suppliers prove to be inadequate. If a catastrophic event impacts a significant number of customers, resulting in decreased demand for their and our products, or our ability to provide services and maintenance, our business and results of operations could be adversely impacted.
Risks Related to Customers, Suppliers and Industry Competition
Customer consolidation could affect our operating results.
There has been a trend toward customer consolidation in the semiconductor industry through business combinations, including mergers, asset acquisitions and strategic partnerships. As companies attempt to expand, strengthen or hold their market positions in an evolving industry, companies could be acquired or may be unable to continue operations. If this trend continues, it could make us more dependent on fewer customers who may be able to exert increased bargaining power in negotiations with us and could increase the portion of our total sales concentration for any single customer. Customer consolidation activity could also reduce the demand for our products and services if such customers streamline research and development or operations, reduce purchases or delay purchasing decisions. These outcomes could negatively impact our operating results and financial condition.
Our failure to respond quickly to technological developments or customers’ increasing technological requirements and to continue to develop or acquire technological capabilities could make our products uncompetitive and obsolete and impede our ability to address the requirements in technology segments that are expected to contribute to our growth.
Our strategy is designed to increase our business among electronic systems companies, which are developing their own ICs and other electronic subsystems, and to increase our business among semiconductor companies, which are increasing their contribution to the end products into which their ICs and other electronic subsystems are incorporated. Part of this strategy involves addressing the needs across a variety of vertical sectors including consumer, hyperscale computing, mobile, communications, automotive, aerospace and defense, industrial and life sciences, where increased investment is expected by our customers. Each of these sectors require technologies, expertise, and marketing and operations infrastructure that are application-specific. Our inability to develop or acquire application-specific capabilities could impede our ability to expand our business and ultimately affect our future growth. The following trends may impact the sectors we serve:
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• changes in the design and manufacturing of ICs, including migration to advanced-process nodes, present major challenges to the semiconductor industry, particularly in IC design and verification, design automation, design of manufacturing equipment, and the manufacturing process itself. With migration to advanced-process nodes, the industry must adapt to more complex physics and manufacturing challenges. Novel design tools and methodologies must be invented and enhanced quickly to remain competitive in the design of electronics in the smallest nanometer ranges;
• with the availability of seemingly endless gate capacity, there is an increase in design reuse, or the combining of off-the-shelf design IP with custom logic to create ICs or SoCs. The unavailability of a broad range of high-quality design IP (including our own) that can be reliably incorporated into a customer’s design with our software products and services could lead to reduced demand for our products and services;
• adoption of cloud computing technologies with accompanying new engagement models for an increasing number of software categories may impact our business;
• with Moore's Law slowing, the trend towards more on-chip integration and advanced system level 3D package design may change the requirements for the design, multiphysics analysis and verification of complex systems; and
• changing end-user dynamics in our target customer vertical sectors could advance the need from simple ICs to full-system design and analysis capabilities that require increasingly complex computational software-based solutions.
If we are unable to respond quickly and successfully to these trends, we may lose our competitive position, and our products or technologies may become obsolete. To compete successfully, we must develop, acquire or license new products and improve our existing products and processes on a schedule that keeps pace with technological developments. We must provide frequent and relevant updates to our software products in order to provide substantial benefit to the customer throughout the license periods because of the rapid changes in our customers’ industries. The market must also accept our new and improved products. We must also offer high-quality technical support services to assist our customers in planning, deploying and gaining operation proficiency for our products. We must enhance our hardware platforms periodically to reduce the likelihood that a competitor surpasses the capabilities we offer. Our introduction of new products could reduce the demand and revenue of our older products or affect their pricing. We must also be able to support a range of changing computer software, hardware platforms and customer preferences. Additionally, we must be able to identify and successfully enter emerging international markets for our products. We cannot guarantee that we will be successful in keeping pace with all, or any, of the customer trends.
Our investment in research and development of new and existing products, technologies and services may affect our operating results, and our return on investment may be lower or develop more slowly than expected.
We invest and expect to continue to invest in research and development for new and existing products, technologies and services in response to our customers’ increasing technological requirements and to maintain and improve our competitive position. Such investments may be in related areas, such as technical sales support, and may include increases in employee headcount. These investments may involve significant time, risks and uncertainties, including the risk that the expenses associated with these investments may affect our margins and operating results and that we may not realize the intended benefits of these investments. If we do not achieve the benefits anticipated from these investments, if the achievement of these benefits is delayed, or if customers reduce or slow the need to upgrade or enhance their computational software products and design flows, our revenue and operating results may be adversely affected.
Our operating results and revenue could be adversely affected by customer payment delays, customer bankruptcies and defaults, modifications or non-renewals of licenses.
Our customers have and may continue to face challenging financial or operating conditions, including due to macroeconomic conditions or catastrophic events, and delay or default on their payment commitments to us, request to modify contract terms, or modify or cancel plans to license our products. Our customers’ inability to fulfill payment commitments, in turn, could adversely affect our revenue, operating expenses and cash flow. Additionally, from time to time our customers seek to renegotiate pre-existing contractual commitments. Customers may also choose to not renew their licenses to our products in full or at all. Payment defaults by our customers or significant reductions in existing contractual commitments could have a material adverse effect on our financial condition and operating results.
The competition in our industries is substantial, and we may not be able to continue to compete successfully.
The industries in which we do business are highly competitive and require us to identify and develop or acquire innovative and cost-competitive products, integrate them into platforms and market them in a timely manner. Failure to compete successfully could seriously harm our business, financial condition and results of operations. Factors that could affect our ability to compete successfully include:
• the development by others of competitive products or platforms and services, possibly resulting in a shift of customer preferences away from our products and services and significantly decreased revenue;
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• aggressive pricing competition by our competitors, including through significant discounts, may cause us to reduce the prices of our products, offer terms that are unfavorable to us or lose our competitive position, any of which could result in lower revenue or profitability and could adversely impact our ability to realize the revenue and profitability forecasts for our products and could, over time, significantly constrain the prices that we can charge for our products;
• the challenges of advanced-node design may lead some customers to work with more mature, less risky manufacturing processes that may reduce their need to upgrade or enhance their EDA solutions and design flows;
• the challenges of developing (or acquiring) technology solutions that meet the rapidly evolving requirements of next-generation design challenges;
• intense competition to attract acquisition targets, possibly making it more difficult for us to acquire companies or technologies at an acceptable price, or at all;
• new entrants, including larger electronic systems companies, in our industry;
• the combination of our competitors or collaboration among competitors and/or other companies (including through strategic alliances) to deliver more comprehensive or different offerings than they could individually;
• our entry into new product categories or technology vertical sectors, including those in which success depends on absolute or relative scale;
• decisions by customers to perform engineering services or IP development internally, rather than purchase these services from outside vendors due to budget constraints or excess engineering capacity;
• actions by regulators to limit the contractual terms that either we or our customers can apply to product and service offerings; and
• events or circumstances that damage the reputation of our company, leadership, products, services or technologies.
For more information about our specific competitors, see “Competition” under Item 1 of Part I of this Annual Report.
Our future revenue is dependent in part upon our installed customer base continuing to license or buy products and purchase services.
Our installed customer base has traditionally generated additional new license, services and maintenance revenues. In future periods, customers may not necessarily license or buy additional products or contract for additional services or maintenance. Our customers, many of which are large semiconductor and systems companies, often have significant bargaining power in negotiations with us.
We depend on a single supplier or a limited number of suppliers for certain hardware components and contract manufacturers for production of our hardware products, making us vulnerable to supply disruption and price fluctuation.
Our reliance on single or a limited number of suppliers and contract manufacturers for certain hardware components and contract manufacturers for production of our hardware products has resulted in, and could continue to result in, some product delivery delays and reduced control over contractual terms and quality. In some cases, it may not be practical or feasible to have multiple sources to procure certain key components. We have suffered from, and may continue to suffer from, delays and other disruptions in the supply of certain hardware components and the delivery of products by our contract manufacturers. Such delays and disruptions may be due to a variety of factors, including bankruptcy, shutdown or upstream supply chain issues, and may prevent us from delivering completed hardware products to customers or from supplying new evaluation units to customers, which could have a negative impact on our revenue and operating results.
Tax, Regulatory and Litigation Risks
Our results could be adversely affected by an increase in our effective tax rate as a result of U.S. and foreign tax law changes, outcomes of current or future tax examinations, or by material differences between our forecasted and actual effective tax rates.
Tax laws, regulations, and administrative practices in various jurisdictions are evolving and may be subject to significant changes due to economic, political and other conditions. Governments, including the United States, are increasingly focused on ways to increase tax revenues, particularly from multinational corporations, which have led to changes in tax laws, an increase in audit activity and harsher positions taken by tax authorities. We are currently subject to tax audits, administrative appeals and litigation in various jurisdictions and these jurisdictions have assessed, or may assess, additional tax liabilities against us.
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Our operations are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions, with a significant amount of our foreign earnings generated by our subsidiaries organized in Ireland and Hungary. Any significant change in our future effective tax rates could adversely impact our results of operations, cash flows and financial position. Our future effective tax rates could be adversely affected by factors that include, but are not limited to, changes in tax laws or the interpretation of such tax laws in jurisdictions in which we have business activity, earnings being lower than anticipated in jurisdictions with low statutory tax rates, changes in tax benefits from stock-based compensation, changes in the valuation of our deferred tax assets and liabilities, changes in our recognition or measurement of a tax position taken in a prior period, increases to interest or penalty expenses, new accounting standards or interpretations of such standards, or results of examinations by the Internal Revenue Service (“IRS”), state, and foreign tax or other governmental authorities.
The IRS and other tax authorities regularly examine our income tax returns and other non-income tax returns, such as payroll, sales, use, value-added, net worth or franchise, property, goods and services, consumption, import, stamp and excise taxes, in both the United States and foreign jurisdictions. The calculation of our provision for income taxes and our accruals for other taxes requires us to use significant judgment and involves dealing with uncertainties in the application of complex tax laws and regulations. In determining the adequacy of our provision for income taxes, we regularly assess the potential settlement outcomes resulting from income tax examinations. However, the final outcome of tax examinations cannot be estimated with certainty and could be materially different from the amount that is reflected in our historical income tax provisions and accruals for other taxes. Should the IRS or other tax authorities assess additional taxes, penalties or interest as a result of a current or future examination, we may be required to record charges to operations in future periods that could have a material impact on our results of operations, financial position and cash flows in the applicable period or periods.
We may recognize additional tax expense and be subject to additional tax liabilities due to changes in tax laws, regulations, and administrative practices and principles, including changes to the global tax framework, in various jurisdictions. In recent years, multiple domestic and international tax proposals were proposed to impose greater tax burdens on large multinational enterprises. For example, the Organisation for Economic Co-operation and Development continues to advance proposals or guidance in international taxation, including the establishment of a 15% global minimum tax. In addition, the One Big Beautiful Bill Act (“OBBBA”) enacted in the United States on July 4, 2025, included significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions including the immediate expensing of United States research and development expenditures. The OBBBA has multiple effective dates, with certain provisions effective in fiscal 2025 and others effective from fiscal 2026.
Forecasts of our annual effective tax rate do not include the anticipation of future tax law changes and are complex and subject to uncertainty because our income tax position for each year combines the effects of estimating the amount and composition of our annual income or loss in jurisdictions with varying income tax rates, as well as benefits from available deferred tax assets, the impact of various accounting rules, our interpretations of changes in tax laws and results of tax audits. In addition, we account for certain tax benefits from stock-based compensation in the period the stock compensation vests or is settled, which may cause increased variability in our quarterly effective tax rates. If there were a material difference between forecasted and actual tax rates, it could have a material impact on our results of operations.
Litigation, government investigations or regulatory proceedings could adversely affect our financial condition and operations.
From time to time, we or our products or technologies are involved in or subject to disputes and legal proceedings that arise in the ordinary course of business. These include disputes and legal proceedings related to IP, indemnification, mergers and acquisitions, licensing, contracts, customers, products, distribution and other commercial arrangements and employee relations matters. Governments and regulatory agencies in the jurisdictions in which we operate also open or initiate inquiries, investigations or regulatory proceedings from time to time. For information regarding legal proceedings in which we are currently engaged, please refer to the discussion under Note 18 in the notes to consolidated financial statements. The final outcome of these legal proceedings or any other proceedings that may arise in the future could have an adverse effect on our reputation, business, financial condition and results of operations. Legal proceedings can be time consuming, expensive and divert management’s time and attention from our business, which could adversely affect our revenue and operating results.
Errors, defects or other issues with our products and services could expose us to liability and harm our business.
Our customers use our products and services in designing and developing products that involve a high degree of technological complexity, each of which has its own specifications. Because of the complexity of the systems and products with which we work, including the interoperation of our products with third party products in a customer's environment, some of our products and designs can be adequately tested only when put to full use in the marketplace. As a result, from time to time, our customers or their end users discover errors or defects in our software or the systems we design, or the products or systems incorporating our designs and IP may not operate as expected. Errors, defects or issues arising from interoperability with third party products, whether or not our products are the source of such problems, could result in reputational damage, failure to attract new or retain existing customers or market share and acceptance, diversion of development resources to resolve the problem, loss of or delay in revenue or payments and increased service costs and liability.
Although we generally have limitation of liability provisions in our standard terms and conditions of sale, in some circumstances, we may be required to indemnify a customer in full, without limitation, for certain liabilities, including for losses suffered or incurred as a result of claims of infringement, misappropriation or other violation of IP rights, or other liabilities relating
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to or arising from our products, services or acts or omissions under our agreements with customers. Large indemnity payments could harm our business, financial condition and results of operations. Furthermore, any dispute with a customer or other third party with respect to such obligations could have adverse effects on our relationship with such customer or other third party and other existing or prospective customers, reduce demand for our products and services and adversely affect our business, financial condition and results of operations. In addition, although we do not control what our products are used for and our standard terms and conditions generally disclaim liability for our customers’ products, the sale and support of our products also entail the risk of product liability claims. We maintain insurance to protect against certain claims associated with the use of our products, but our insurance coverage may not apply or may not fully cover claims asserted against us. In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation, divert management’s time and other resources or cause reputational damage.
Our reported financial results may be adversely affected by changes in United States generally accepted accounting principles ("U.S. GAAP"), and we may incur significant costs to adjust our accounting systems and processes to comply with significant changes.
U.S. GAAP are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. We are also subject to evolving rules and regulations of the countries in which we do business. Changes to accounting standards or interpretations thereof may result in different accounting principles under U.S. GAAP that could have a significant effect on our reported financial results.
In addition, we have in the past and may in the future need to significantly change our customer contracts, accounting systems and processes when we adopt future or proposed changes in accounting principles. The cost and effect of these changes may negatively impact our results of operations during the periods of transition .
If we become subject to unfair hiring claims, we could be prevented from hiring needed employees, incur liability for damages and incur substantial costs in defending ourselves.
When companies in our industry lose employees to competitors, they frequently claim that these competitors have engaged in unfair hiring practices or that the employment of these persons would involve the disclosure or use of trade secrets. These claims could prevent us from hiring employees or cause us to incur liability for damages. We could also incur substantial costs in defending ourselves or our employees against these claims, regardless of their merits. Defending ourselves from these claims could also divert the attention of our management away from our operations.
We are subject to evolving corporate governance, environmental and social practices and public disclosure expectations and regulations that impact compliance costs and risks of noncompliance.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC, Nasdaq and the FASB, as well as evolving investor, customer, employee and other stakeholder expectations around corporate governance, executive compensation and environmental and social practices and related disclosures. These rules, regulations and expectations continue to evolve in scope and complexity, and many new requirements have been created in response to laws enacted by U.S. and foreign governments, making compliance more difficult and uncertain. For example, in January 2025, President Trump signed an executive order directing federal agencies to take steps to target diversity, equity and inclusion practices in the private sector, including directing each agency to identify up to nine opportune civil compliance investigations of publicly traded corporations, and requiring agencies to include terms within federal contracts for contractors to certify that they do not operate such programs that violate any applicable federal anti-discrimination laws, among others. We may be subject to increased litigation and regulatory scrutiny regarding these practices. The increase in costs to comply with such evolving expectations, rules and regulations, as well as any risk of noncompliance, could adversely impact us. We expect that rapidly changing laws, regulations, policies, interpretations and expectations related to corporate governance, environmental and social matters, as well as increased enforcement actions by various governmental and regulatory agencies, will continue to increase the cost of our compliance and internal risk management programs, which could adversely affect our business, financial condition and results of operations. Moreover, some stakeholders may disagree with our environmental, social and governance targets and practices and the focus of stakeholders may change and evolve over time. Stakeholders may have different views on where corporate governance, environmental and social focus should be placed. Any disagreement with our targets or strategies could adversely affect our reputation, business, financial condition and results of operations.
We have established environmental, social and governance targets and strategies, including relating to greenhouse gas emissions reduction. If our ESG practices, reporting or disclosure controls do not meet evolving investor, customer, employee or other stakeholder expectations and regulatory standards, or if we are unable to make progress on or achieve our goals and objectives, including our net zero target, then our reputation and our attractiveness as an employer, investment or business partner could be negatively impacted, which could adversely affect our operating results. Our disclosures and public positions or commitments on these matters may change from time to time, as may corresponding internal controls and external reporting standards, which can expose us to reputational, financial, legal, and other risks, including as a result of a failure or perceived failure to achieve aspirations, targets, or goals, such as our greenhouse gas emissions reduction target, or a failure to report accurately. Statements about our ESG initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change. In addition, we could face scrutiny from certain stakeholders for the scope or nature of such initiatives, targets or goals, or for any revisions to these initiatives, targets or goals.
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Risks Related to Our Securities and Indebtedness
Our stock price has been and may continue to be subject to fluctuations.
Our stock price is subject to changes in recommendations or earnings estimates by financial analysts, changes in investors’ or analysts’ valuation measures for our stock, our credit ratings and other factors beyond our control including macroeconomic factors. Furthermore, speculation in the press or investment community about our strategic position, financial condition, results of operations, business or security of our products, can cause changes in our stock price. In addition to these factors and industry and general economic and political conditions, our stock price may be adversely impacted by announcements related to financial results or forecasts that fail to meet or are inconsistent with earlier projections or the expectations of our securities analysts or investors, announcements of new products or acquisitions of new technologies by us, or by other companies, including our competitors or our customers, or announcements of acquisitions, major transactions, litigation developments or management changes. A significant drop in our stock price could expose us to the risk of securities class action lawsuits, stockholder derivative lawsuits or other actions by stockholders, which may result in substantial costs and divert management’s attention and resources, which may adversely affect our business.
The amount and frequency of our share repurchases may fluctuate, and we cannot guarantee that we will fully consummate our share repurchase authorization, or that it will enhance long-term stockholder value. Share repurchases could also increase the volatility of the trading price of our common stock and diminish our cash reserves.
We repurchase shares of our common stock from time to time in accordance with authorizations from our Board of Directors. The primary objective of our share repurchase activities is to prevent share dilution associated with our stock compensation plans. The actual timing and amount of our share repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors and may fluctuate based on such factors. Our repurchase authorization does not obligate us to acquire a minimum amount of shares, does not have an expiration date and may be modified, suspended or terminated without prior notice. We cannot guarantee that the authorization will be fully expended or that our share repurchases will enhance long-term stockholder value. Further, our share repurchase activities could affect our stock price, increase stock price volatility, reduce our cash reserves and may be suspended or terminated at any time, which may result in a decrease in our stock price.
Our certificate of incorporation and bylaws and certain provisions under Delaware law could prevent an acquisition of our company or limit the price that investors might be willing to pay for our common stock.
Anti-takeover defenses in our certificate of incorporation and bylaws and certain provisions of the Delaware General Corporation Law (the “DGCL”) that apply to us could make it difficult for anyone to acquire control of our company. Our certificate of incorporation allows our Board of Directors to designate and issue, at any time and without stockholder approval, up to 400,000 shares of preferred stock in one or more series, all of which are currently designated as Series A Preferred, but the number of such shares of preferred stock may be reduced to zero. Subject to the DGCL, our Board of Directors may, as to any shares of preferred stock the terms of which have not then been designated, establish the terms without stockholder approval. Our Board of Directors has the power to issue shares of Series A Preferred with dividend, voting and liquidation rights superior to our common stock at a rate of 1,000-to-1 without further vote or action by the common stockholders. In addition, our certificate of incorporation and bylaws contain provisions that may make the acquisition of our company more difficult, including the following:
• our Board of Directors’ exclusive right to elect a director to fill a vacancy created by an expansion, resignation, death or removal;
• a prohibition on stockholder action by written consent in certain circumstances, forcing certain stockholder actions to be taken at an annual or special meeting of stockholders;
• the requirement that a special meeting may be called only by our Board of Directors, the Board Chair, Chief Executive Officer or Secretary upon the written request of certain stockholders that satisfy the requirements specified in our bylaws;
• certain amendments to our certificate of incorporation requiring the affirmative vote of the holders of not less than a majority of outstanding voting stock(with different requirements for a related person); and
• advance notice procedures required to nominate candidates or to propose matters for a stockholders’ meeting.
In addition, Section 203 of the DGCL generally prohibits a Delaware corporation from engaging in any business combination with a person owning 15% or more of its voting stock, or who is affiliated with the corporation and owned 15% or more of its voting stock at any time within three years prior to the proposed business combination, for a period of three years from the date the person became a 15% owner, unless specified conditions are met.
All or any one of these factors could limit the price that certain investors would be willing to pay for shares of our common stock and could allow our Board of Directors to resist, delay or prevent an acquisition of our company, even if a proposed transaction were favored by a majority of our independent stockholders.
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Our bylaws designate the Court of Chancery of the State of Delaware as the exclusive forum for certain disputes between us and our stockholders.
Our bylaws provide that, unless a majority of our Board of Directors consents to an alternative forum, the Court of Chancery of the State of Delaware, subject to certain jurisdictional requirements, is the exclusive forum for any derivative action or proceeding brought on our behalf, any action based upon a breach of fiduciary duty owed by any current or former director, officer, employee or stockholder to us or to our stockholders, any action asserting a claim against us or our current or former directors, officers, employees or stockholders, arising pursuant to the DGCL, our certificate of incorporation, bylaws, or any action asserting a claim against us or our current or former directors, officers or other employees that is governed by the internal affairs doctrine. In addition, our bylaws provide that the federal district courts of the United States will be the exclusive forum for any complaint asserting a cause of action under the Securities Act. These exclusive forum provisions may limit a stockholder’s ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our debt obligations expose us to risks that could adversely affect our business, financial condition and results of operations, and could prevent us from fulfilling our obligations under such indebtedness.
We have significant outstanding indebtedness, as well as the ability to access additional borrowings under our revolving credit facility. Subject to the limits contained in the credit agreement governing our revolving credit facility and the indenture governing the $500 million aggregate principal amount of 4.200% Senior Notes due 2027 (the “2027 Notes”), $1.0 billion aggregate principal amount of 4.300% Senior Notes due 2029 (the “2029 Notes”) and $1.0 billion aggregate principal amount of 4.700% Senior Notes due 2034 (the “2034 Notes” and together with the 2027 Notes and the 2029 Notes, the “Senior Notes”), we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, share repurchases or for other purposes. If we do so, the risks related to our level of debt could intensify.
Specifically, our level of debt could have important consequences, including the following:
• making it more difficult for us to service our debt;
• limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;
• requiring a substantial portion of our cash flows (including U.S. cash) to be dedicated to debt service payments instead of other purposes;
• increasing our vulnerability to adverse economic and industry conditions;
• exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest;
• limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
• placing us at a disadvantage compared to other, less leveraged competitors and competitors that have greater access to capital resources;
• limiting our interest deductions for U.S. income tax purposes; and
• increasing our cost of borrowing.
In addition, if we incur any additional indebtedness that ranks equally with the Senior Notes, then subject to any collateral arrangements we may enter into, the holders of that debt will be entitled to share ratably in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding up of our company.
At the option of the holders of our outstanding notes, we may, under certain circumstances, be required to repurchase such notes.
Under the terms of the Senior Notes, we may be required to repurchase for cash such notes prior to their respective maturity dates in connection with the occurrence of certain significant corporate events. Specifically, we are required to offer to repurchase such notes upon a “change of control triggering event” (as defined in the indenture related to such notes), such as a change of control accompanied by certain downgrades in the credit ratings of such notes. The repayment obligations under such notes may have the effect of discouraging, delaying or preventing a takeover of our company. If we were required to pay the Senior Notes prior to their respective maturity dates, it could have a significant negative impact on our cash and liquidity and could impact our ability to invest financial resources in other strategic initiatives.
The terms of our debt agreements restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
The agreements governing our revolving credit facility and our Senior Notes contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to incur liens or additional indebtedness and guarantee indebtedness, enter into transactions with affiliates, alter the businesses we conduct, consolidate, merge or sell all or substantially all of our assets and to enter into sale and leaseback transactions. In addition, the agreement governing our revolving credit facility requires us to maintain a specified financial ratio. Our ability to meet that financial ratio can be affected by events beyond our control, and we may be unable to meet it.
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A breach of the covenants or restrictions under the agreements governing our revolving credit facility and the Senior Notes could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement governing our revolving credit facility would permit the lenders under our revolving credit facility to terminate all commitments to extend further credit. In the event our lenders or note holders accelerate the repayment of our borrowings, we may not have sufficient assets to repay that indebtedness.
As a result of these restrictions, we may be limited in how we conduct our business, unable to raise additional debt or equity financing to operate during general economic or business downturns or unable to compete effectively, take advantage of new business opportunities or otherwise grow in accordance with our strategy. In addition, our financial results, our substantial indebtedness and our credit ratings could adversely affect the availability and terms of our financing.
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to satisfy our debt obligations, we could face substantial liquidity problems and be forced to reduce or delay investments and capital expenditures or dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our debt obligations. Our debt agreements restrict our ability to dispose of assets and use the proceeds from dispositions and may also restrict our ability to raise capital to repay other indebtedness when due. We may not be able to consummate dispositions or obtain proceeds in an amount sufficient to meet any debt obligations when due.
In addition, we conduct a substantial portion of our operations through our subsidiaries. Accordingly, repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us. Our subsidiaries do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to us. Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. If we do not receive distributions from our subsidiaries, we may be unable to make required payments on our debt.
If we cannot make scheduled payments on our debt, we will be in default and holders of our debt could declare all outstanding principal and interest to be due and payable, the lenders could terminate their commitments to loan money, and we could be forced into bankruptcy or liquidation. In addition, a material default on our indebtedness could suspend our eligibility to register securities using short form, automatically effective registration statements, potentially hindering our ability to raise capital through the issuance of our securities and increasing our costs.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under our revolving credit facility are at variable rates of interest and expose us to interest rate risk. When interest rates increase, our debt service obligations increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, could correspondingly decrease. We may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.
In addition, the applicable margin is based on the credit rating of our unsecured debt. Accordingly, a credit rating downgrade would increase the applicable interest rate. Assuming our revolving credit facility was fully drawn and we were to fully exercise our right to increase borrowing capacity under our revolving credit facility, each quarter point change in the interest rate would result in a $4.4 million change in annual interest expense.
Various factors could increase our future borrowing costs or reduce our access to capital, including a lowering or withdrawal of the ratings assigned to us and our Senior Notes by credit rating agencies.
We may in the future seek additional financing for a variety of reasons, and our future borrowing costs, terms and access to capital could be affected by factors including the condition of the debt and equity markets, the condition of the economy generally, prevailing interest rates, our level of indebtedness, our credit rating and our business and financial condition. In addition, the Senior Notes currently have an investment grade credit rating, which could be lowered or withdrawn entirely by a credit rating agency based on adverse changes to circumstances relating to the basis of the credit rating. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the Senior Notes. Any future lowering of the credit ratings of the Senior Notes likely would make it more difficult or more expensive for us to obtain additional debt financing.

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Item 1B. Unresolved Staff Comments
None.

Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity and availability of our critical systems and information, including our customers’, vendors’, partners’ and employees’ data, including personal information.
Our cybersecurity risk management program is guided by frameworks and standards promulgated by the EU, National Institute of Standards and Technology, Cloud Security Alliance (“CSA”) and International Organization for Standardization/International Electrotechnical Commission (“ISO/IEC”). While we seek to maintain ISO/IEC 27001:2013 and ISO/IEC 27017:2015 certifications, and seek to achieve the SOC 2 Type 1 and Type 2 attestations, this does not imply that we specifically or comprehensively comply with technical specification or requirements, only that we use all the above-mentioned standards and regulations as a guide to help us identify, assess and manage cybersecurity risks relevant to our business.
Our cybersecurity risk management program is integrated into our overall risk oversight strategy and utilizes common reporting channels and governance processes that apply across other risk areas. We have a dedicated Chief Information Security Officer (“CISO”), who leads our Information Security team responsible for managing our cybersecurity processes, strategy and controls. Certain members of our Information Security team hold cybersecurity certifications, including the Certified Information Systems Security Professional (“CISSP”) and the Certified Information Systems Auditor (“CISA”) designations.
Our cybersecurity risk management program includes:
• a security incident response plan that includes procedures for responding to and escalating cybersecurity incidents;
• risk assessment processes designed to help identify cybersecurity risks to our critical systems, information, products, services and our broader enterprise IT environment;
• our Information Security team, principally responsible for identifying and mitigating cybersecurity risks, and managing our security controls and our response to cybersecurity incidents;
• the use of external service providers, where appropriate, to assess, test (including penetration test) or otherwise assist with certain aspects of our security controls and processes;
• global security operations center services through certain service providers;
• implementation of new hire and annual data privacy and cybersecurity training of employees, including senior management, and cybersecurity governance training for our Board of Directors;
• a cybersecurity insurance policy to cover certain types of costs and losses from cybersecurity incidents; and
• a third-party risk management process, including risk assessment and risk rating (using common vulnerability scoring system or similar methodologies based on industry practices), for certain service providers, suppliers and vendors.
We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected us, including our business strategy, results of operations, or financial condition . See Item 1A, “Risk Factors,” for descriptions of certain ongoing risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition.
Cybersecurity Governance
Our Board of Directors is responsible for overseeing our enterprise risk management activities in general, and our Board committees assist with certain aspects of risk oversight. With respect to cybersecurity risk, our Board of Directors shares certain of the oversight responsibility and processes with the Audit Committee of the Board of Directors (“Audit Committee”).
The Audit Committee, comprised entirely of independent directors, reviews and discusses with management our guidelines, policies and practices regarding risk assessment and risk management as they relate to our financial condition, and oversees our financial risk exposures, including planning regarding business continuity and cybersecurity. In addition, the Audit Committee oversees our annual enterprise business risk assessment, which includes the review of cybersecurity risks we face and our associated risk mitigation measures, and receives semi-annual reports from management on cybersecurity matters, including areas such as threat intelligence, major cybersecurity risk areas, regulations and cybersecurity incidents. In addition, management updates the Audit Committee, as necessary, regarding significant cybersecurity incidents, as well as any incidents with lesser impact potential.
The Audit Committee reports to the Board of Directors regarding its activities related to cybersecurity. In addition, the Board of Directors also directly receives reports from management on our cybersecurity risk profile and on the performance of our data privacy and cybersecurity risk management program, semi-annually in alternating quarters with the Audit Committee.
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Our Chief Information Officer (“CIO”) and CISO, who are members of the management team, are primarily responsible for assessing and managing material risks from cybersecurity threats, including supervision of our internal security incident response team and external cybersecurity service providers. Our Disclosure Committee comprised of certain of our employees (including any applicable subcommittees thereof) participates in incident escalations and analyses. Our management team has relevant expertise in the following: (i) understanding of cybersecurity risks in enterprise operations, including information technology, information security, product security, physical security and legal, (ii) experience in overseeing risk management and understanding risks faced by enterprise operations and (iii) significant operating experience allowing them to provide insight into developing, implementing and assessing our operating plan. In addition, our CIO has over 25 years of experience in managing enterprise information technology, with a background in software development and technologies, and holds a Bachelor of Engineering (BE) in electrical engineering, and our CISO has over 30 years of broad cybersecurity and information technology risk management experience, is a Certified Information Security Manager (“CISM”) and holds a Master's Degree in computer science and information systems.
Our management team, led by our CIO and CISO, stays informed about and monitors efforts to prevent, detect, mitigate and remediate cybersecurity risks and incidents, and is responsible for oversight and management of our cybersecurity risk management program. Our management team receives briefings from our internal Information Security team and the Disclosure Committee whenever applicable. Such briefings include information regarding threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us, and alerts and reports produced by security tools deployed in our information technology environment. Our CIO and CISO, as well as other management team members, also provide quarterly cybersecurity risk management program updates, to the Board of Directors or to the Audit Committee, in alternating quarters.

Item 2. Properties
We own land and buildings at our corporate headquarters located in San Jose, California. We also own properties in New Mexico, India, Greece and Italy. As of December 31, 2025, the total square footage of our owned buildings was approximately 1,330,000.
We lease additional facilities in the United States and various other countries. We may sublease certain of these facilities where space is not fully utilized.
We believe that these facilities are adequate for our current needs and that suitable additional or substitute space will be available as needed to accommodate any expansion of our operations.

Item 3. Legal Proceedings
For information regarding pending legal proceedings, related matters and associated risks, see Note 18 in the notes to consolidated financial statements under Item 15 of Part IV and the “Risk Factors” section under Item 1A of Part I of this Annual Report.

Item 4. Mine Safety Disclosures
Not applicable.

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PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the Nasdaq Global Select Market under the symbol CDNS. As of January 31, 2026, we had 294 registered stockholders. Because many shares of our common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders that are represented by these record holders.
Dividends
We have never declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends on our common stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our Board of Directors, subject to applicable laws and will depend on then existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our Board of Directors may deem relevant.

Stockholder Return Performance Graph
The following graph compares the cumulative 5-year total stockholder return on our common stock relative to the cumulative total return of the Nasdaq Composite Index, the S&P 500 Index and the S&P 500 Information Technology Index. The graph assumes that the value of the investment in our common stock and in each index on January 2, 2021, (including reinvestment of dividends) was $100 and tracks it each year thereafter on the last day of our fiscal year through December 31, 2025, and for each index on the last day of the calendar year.

*$100 invested on 1/2/21 in stock or index, including reinvestment of dividends.
Indexes calculated on a month-end basis.
Copyright© 2025 Standard & Poor’s, a division of S&P Global. All rights reserved.
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1/2/2021 1/1/2022 12/31/2022 12/31/2023 12/31/2024 12/31/2025

Cadence Design Systems, Inc. $ 100.00  $ 136.59  $ 117.75  $ 199.64  $ 220.23  $ 229.11 
Nasdaq Composite 100.00  122.18  82.43  119.22  154.48  187.14 
S&P 500 100.00  128.71  105.40  133.10  166.40  196.16 
S&P 500 Information Technology 100.00  134.53  96.60  152.48  208.30  258.38 

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

Issuer Purchases of Equity Securities
We are authorized to repurchase shares of our common stock under a publicly announced program that was most recently increased by our Board of Directors on May 8, 2025. Pursuant to this authorization, we may repurchase shares from time to time through open market repurchases, in privately negotiated transactions or by other means, including accelerated share repurchase transactions or other structured repurchase transactions, block trades or pursuant to trading plans intended to comply with Rule 10b5-1 of the Exchange Act. The actual timing and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors. Our repurchase authorization does not obligate us to acquire a minimum amount of shares, does not have an expiration date and may be modified, suspended or terminated without prior notice.
The following table presents repurchases made under our publicly announced repurchase authorizations and shares surrendered by employees to satisfy income tax withholding obligations during the three months ended December 31, 2025 :

Period Total Number
of Shares
Purchased (1)
Average
Price Paid
Per Share (2)
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs (3)
Maximum Dollar
Value of Shares 
Authorized for Repurchase Under
Publicly Announced
Plan or Program (1)
(In millions)

October 1, 2025 - October 31, 2025
230,300  $ 337.18  205,794  $ 1,532 
November 1, 2025 - November 30, 2025
206,963  $ 316.23  190,425  $ 1,472 
December 1, 2025 - December 31, 2025
221,319  $ 322.67  216,767  $ 1,402 
Total 658,582  $ 325.72  612,986 

_________________
(1) Shares purchased that were not part of our publicly announced repurchase programs represent employee surrender of shares of restricted stock to satisfy employee income tax withholding obligations due upon vesting, and do not reduce the dollar value that may yet be purchased under our publicly announced repurchase programs.
(2) The weighted average price paid per share of common stock does not include the cost of commissions.
(3) Our publicly announced share repurchase program was originally announced on February 1, 2017, and most recently increased by an additional $1.5 billion on May 8, 2025.
Shares Authorized for Issuance under Equity Compensation Plans
The information required by Item 201(d) of Regulation S-K under Item 5 is incorporated herein by reference from the section entitled “Equity Compensation Plan Information” in our definitive proxy statement for our 2026 Annual Meeting of Stockholders.

Item 6. [Reserved]

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report and with Part I, Item 1A, “Risk Factors.” Please refer to the cautionary language at the beginning of Part I of this Annual Report regarding forward-looking statements.
Business Overview
Cadence ® is a global market leader that develops computational, AI-driven software, accelerated hardware, and silicon IP products and solutions for engineers and scientists to bring new and innovative products to life. Our mission is to empower the world’s most innovative companies to deliver extraordinary electronic products that drive the global economy and improve everyday life. Our customers include semiconductor companies that design and manufacture ICs, as well as systems companies that design and manufacture electromechanical systems containing various types of semiconductor and other electronics.
Our strategy enables us to address our customers’ most challenging product development needs while expanding our capabilities beyond traditional chip design to encompass full electromechanical systems. By leveraging our deep expertise, we develop industry-leading computational AI-driven software, accelerated hardware, and IP solutions that adapt to our customers’ evolving design requirements. This flexibility helps our customers address critical business priorities such as reducing time-to-market and advancing sustainability goals. To address the growing complexity of modern design, we’ve integrated cutting-edge technologies including agentic and generative AI, machine learning, and digital twin algorithms, into our core products and solutions. These innovations, whether developed in-house or through strategic acquisition, empower our customers to achieve their business objectives with greater efficiency and precision.
We group our products into the following categories:
• Core EDA
• Semiconductor IP; and
• System Design and Analysis.
For additional information about our products, see the discussion in Item 1, “Business,” under the heading “Product Categories.”
Management uses certain performance indicators to manage our business, including revenue, certain elements of operating expenses and cash flow from operations, and we describe these items further below under the headings “Results of Operations” and “Liquidity and Capital Resources.”
Acquisitions
As part of our ISD strategy, we invest in and acquire complementary businesses, joint ventures, services and technologies and IP rights. The size and timing of these investments and acquisitions may affect comparability of revenue, expenses and cash flows between fiscal periods.
During the second quarter of fiscal 2024, we completed our acquisition of BETA CAE Systems International AG (“BETA CAE”), a system analysis platform provider of multi-domain, engineering simulation solutions. Revenue associated with our acquisition of BETA CAE is primarily classified as product and maintenance revenue in our System Design and Analysis product category, and cost of revenue associated with these contracts is primarily classified as cost of product and maintenance in our consolidated income statements.
During fiscal 2025, we completed multiple acquisitions, including our acquisition of a holding company containing the VLAB Works business (“VLAB Works”), our acquisition of the Artisan foundation IP business from Arm Limited and our acquisition of Secure-IC.
For fiscal 2025, the revenue associated with contracts assumed with our acquisition of VLAB Works was primarily classified as product and maintenance revenue in our Core EDA product category. Revenue associated with contracts assumed with our acquisition of the Artisan foundation IP business and Secure-IC was primarily classified as product and maintenance revenue in our Semiconductor IP product category. The cost of revenue associated with these contracts was primarily classified as cost of product and maintenance in our consolidated income statements.
On September 4, 2025, we entered into a definitive agreement with Hexagon to acquire its D&E business. This acquisition is expected to expand our System Design & Analysis portfolio, building upon our acquisition of BETA CAE in fiscal 2024. The acquisition includes substantially all of the subsidiaries and related assets comprising Hexagon's D&E business. Among other conditions, closing is conditioned on the expiration or termination of the applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, and receipt of other required approvals under antitrust and foreign direct investment laws of certain other jurisdictions.
For additional information about our acquisitions, see Note 6 in the notes to consolidated financial statements.
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Macroeconomic and Geopolitical Environment
Because we operate globally, our business is subject to the effects of economic downturns or recessions in the regions in which we do business, volatility in foreign currency exchange rates relative to the U.S. dollar, inflation, changing interest rates, expanded trade control laws and regulations, imposition of new or higher tariffs and geopolitical conflicts.
Trade control laws and regulations have amended over the past several years, including through the imposition of certain export control restrictions concerning advanced node IC production in China and the inclusion of additional Chinese technology companies on the BIS “Entity List” regulations governing the sale of certain technologies. In furtherance of these regulations, effective September 29, 2025, BIS issued an interim final rule that extended the export restrictions imposed on entities identified on the Entity List or the Military End-User List and other certain sanctioned parties, to entities that are 50% or more owned by one or more such entities. 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. We expect the impact of these current expanded trade control laws and regulations on our business to be limited, but we will continue to monitor future developments.
As previously disclosed, on May 23, 2025, BIS informed us that a license was required for the export, re-export or in-country transfer of EDA software and technology classified under Export Control Classification Numbers (ECCNs) 3D991 and 3E991 on the Commerce Control List (“EDA Software and Technology”), when a party to the transaction is located in China or is a Chinese “military end user” wherever located. On July 2, 2025, BIS informed us that the license requirements set forth in the May 23, 2025 letter from BIS were rescinded effective immediately. During this period, our revenue in China decreased primarily due to reduced deliveries of software offerings to our customers in China due to these license requirements. Following the rescission, we have restored access to EDA Software and Technology for affected customers in accordance with these updated U.S. export regulations. However, in light of continued negotiations between the U.S. and China, the United States may consider reimposing these or additional restrictions on the export, re-export or in-country transfer of EDA Software and Technology or our other products and services in China in the future.
Also, as previously disclosed, on July 27, 2025, we reached a settlement with each of BIS and the U.S. Department of Justice (“DOJ”) that resolved matters relating to export control violations that occurred between 2015 and 2021 primarily involving sales initiated by a Cadence subsidiary of products and services valued at $45.3 million in total over that period to a customer in China, as well as the subsequent transfer of technology involved in those sales to a third party in China, without the requisite authorization from BIS. These settlement agreements include ongoing audit, compliance and other obligations.
In addition, U.S. President Trump has made a series of announcements regarding the imposition of new and higher U.S. tariffs on imports from many countries, including China and Mexico. In response, China and other countries, as well as the European Union, have announced retaliatory tariffs on imports of U.S. goods and other countermeasures. We are monitoring these actions, including any pauses, escalations, exemptions or removal of exemptions, with respect to the threatened or imposed tariffs, and will continue to assess their potential impact on our business either directly, such as on our hardware business, or due to downstream effects.
We also continuously monitor geopolitical conflicts around the world, including the ongoing conflict between Russia and Ukraine and conflicts in the Middle East, and assess their impact on our business. To date, these conflicts have not materially limited our ability to develop or support our products and have not had a material impact on our results of operations, financial condition, liquidity or cash flows.
While our business model provides some resilience against these factors, we will continue to monitor the direct and indirect impacts of these or similar circumstances on our business and financial results. For additional information on the potential impact of macroeconomic conditions on our business, see Part I, Item 1A, “Risk Factors.”

Results of Operations
The discussion of our fiscal 2025 consolidated results of operations includes year-over-year comparisons to fiscal 2024 for revenue, cost of revenue, operating expenses, operating margin, other non-operating income and expenses, income taxes and cash flows. For a discussion of the fiscal 2024 changes compared to fiscal 2023, see the discussion in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 20, 2025.

Results of operations for fiscal 2025, as compared to fiscal 2024, reflect the following:
• Growth in revenue from our software, hardware and IP offerings, including revenue from our recent acquisitions;
• Increases in operating expenses from continued investment in research and development and technical sales support, including additional headcount from acquisitions;
• A loss associated with our settlements with BIS and the DOJ that was paid during fiscal 2025; and
• Increased interest expense from our outstanding indebtedness.
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Revenue
We primarily generate revenue from licensing our software and IP, selling or leasing our hardware products, providing maintenance for our software, hardware and IP, providing engineering and cloud services and earning royalties generated from the use of our IP. The timing of our revenue is significantly affected by the mix of software, hardware and IP products generating revenue in any given period and whether the revenue is recognized over time or at a point in time, upon completion of delivery.
Recurring revenue includes revenue recognized over time from certain of our software licensing arrangements, services, royalties, maintenance on IP licenses and hardware, and operating leases of hardware. Other recurring revenue includes revenue recognized at a point in time for certain 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. Arrangements that require future decisions on the performance obligations to be delivered do not meet the definition of a revenue contract until the customer executes a separate selection form to identify the products and services that they are purchasing. Each separate selection form under the arrangement is treated as an individual contract and accounted for based on the respective performance obligations.
The remainder of our revenue is recognized at a point in time and is characterized as up-front revenue. Up-front revenue is primarily generated by our sales of hardware products, individual IP licenses and certain software licenses with a term greater than one year. The percentage of our recurring and up-front revenue and fluctuations in revenue within our geographies in any single fiscal period are primarily impacted by delivery of hardware and IP products to our customers.
The following table shows the percentage of our revenue that is classified as recurring or up-front for fiscal 2025 and 2024: 

  2025 2024
Revenue recognized over time 76  % 80  %
Other recurring revenue
4  % 3  %
Recurring revenue 80  % 83  %
Up-front revenue 20  % 17  %
Total 100  % 100  %

The following table shows the percentage of recurring revenue for the twelve-month periods ended concurrently with our five most recent fiscal quarters:

  Trailing Twelve Months Ended
  December 31,
2025 September 30,
2025 June 30,
2025 March 31,
2025 December 31,
2024
Recurring revenue 80  % 80  % 80  % 82  % 83  %
Up-front revenue 20  % 20  % 20  % 18  % 17  %
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. On an annual basis, we expect recurring and up-front revenue as a percentage of total revenue to remain relatively consistent with the results of fiscal 2025.
Revenue by Year
The following table shows our revenue for fiscal 2025 and 2024 and the change in revenue between years:

  Change
  2025 2024 2025 vs. 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.
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Services revenue increased during fiscal 2025, as compared to fiscal 2024, primarily due to increased revenue from our cloud and IP service offerings. Services revenue may fluctuate from period to period based on the timing of fulfillment of our services and IP performance obligations.
No one customer accounted for 10% or more of total revenue during fiscal 2025 or 2024.
Revenue by Product Category
The following table shows the percentage of revenue contributed by each of our product categories during fiscal 2025 and 2024:

  2025 2024

Core EDA
70  % 71  %
Semiconductor IP
14  % 13  %
System Design and Analysis 16  % 16  %
Total 100  % 100  %

Revenue from any one product category as a percentage of total revenue may fluctuate from period to period based on the mix of products and services sold in a given period and the timing of revenue recognition, particularly for our hardware, IP and certain software products for which revenue is recognized up-front.
Revenue by Geography

  Change
  2025 2024 2025 vs. 2024
  (In millions, except percentages)
United States $ 2,311.0  $ 2,159.7  $ 151.3  7  %
Other Americas 168.3  93.1  75.2  81  %
China 680.0  573.1  106.9  19  %
Other Asia 1,005.2  855.9  149.3  17  %
Europe, Middle East and Africa (“EMEA”)
790.6  699.3  91.3  13  %
Japan 341.7  260.2  81.5  31  %
Total revenue $ 5,296.8  $ 4,641.3  $ 655.5  14  %

Revenue in any one of Cadence’s six geographies may fluctuate from period to period based on the mix of products and services sold in a given period and the timing of revenue recognition, particularly for our hardware, IP and certain software products. During fiscal 2025, as compared to fiscal 2024, demand for our hardware, software and IP product offerings contributed to revenue growth in each of our geographies.
Revenue by Geography as a Percent of Total Revenue
  2025 2024
United States 44  % 47  %
Other Americas 3  % 2  %
China 13  % 12  %
Other Asia 19  % 18  %
EMEA
15  % 15  %
Japan 6  % 6  %
Total 100  % 100  %

Most of our revenue is transacted in the U.S. dollar. However, certain revenue transactions are denominated in foreign currencies. For an additional description of how changes in foreign exchange rates affect our consolidated financial statements, see the discussion under Item 7A, “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.”
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Cost of Revenue
 
  Change
  2025 2024 2025 vs. 2024
  (In millions, except percentages)
Cost of product and maintenance $ 518.7  $ 436.6  $ 82.1  19  %
Cost of services 203.6  210.9  (7.3) (3) %
Total cost of revenue $ 722.3  $ 647.5  $ 74.8  12  %

The following table shows cost of revenue as a percentage of related revenue for fiscal 2025 and 2024:
 
  2025 2024
Cost of product and maintenance 11  % 10  %
Cost of services 43  % 49  %

Cost of Product and Maintenance
Cost of product and maintenance includes costs associated with the sale and lease of our hardware products and licensing of our software and IP products, certain employee salary and benefits and other employee-related costs, cost of our customer support services, amortization of technology-related acquired intangibles, costs of technical documentation and royalties payable to third-party vendors. Cost of product and maintenance depends primarily on our hardware product sales in any given period, but is also affected by employee salary and benefits and other employee-related costs, reserves for inventory, and the timing and extent to which we acquire intangible assets, license third-party technology or IP, and sell our products that include such acquired or licensed assets, technology or IP.
A summary of cost of product and maintenance for fiscal 2025 and 2024 is as follows:
  Change
  2025 2024 2025 vs. 2024
  (In millions, except percentages)
Product and maintenance-related costs $ 453.3  $ 376.5  $ 76.8  20  %
Amortization of acquired intangibles 65.4  60.1  5.3  9  %
Total cost of product and maintenance $ 518.7  $ 436.6  $ 82.1  19  %

Product and maintenance-related costs increased during fiscal 2025, when compared to fiscal 2024, due to the following:

  Change
  2025 vs. 2024
  (In millions)
Hardware product costs
$ 57.6 
Salary, benefits and other employee-related costs 11.5 
Other items 7.7 
Total change in product and maintenance-related costs $ 76.8 

Costs associated with our hardware products include components, assembly, testing, applicable reserves and overhead. These costs make our cost of hardware products higher, as a percentage of revenue, than our cost of software and IP products. Hardware product costs increased during fiscal 2025, as compared to fiscal 2024, primarily due to increased installations of hardware, partially offset by a decrease in charges for excess and obsolete inventory related to previous generations of our hardware products.
Amortization of acquired intangibles included in cost of product and maintenance may fluctuate from period to period depending on the timing of newly acquired assets relative to assets becoming fully amortized in any given period.
Cost of Services
Cost of services primarily includes employee salary, benefits and other employee-related costs to perform work on revenue-generating projects, costs to maintain the infrastructure necessary to manage a services organization and provide cloud-based offerings, and direct costs associated with certain design services. Cost of services may fluctuate from period to period based on our utilization of design services engineers on revenue-generating projects rather than internal development projects and the timing of design service projects being completed.
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Operating Expenses
Our operating expenses include marketing and sales, research and development, and general and administrative expenses. Factors that tend to cause our operating expenses to fluctuate include changes in the number of employees due to hiring and acquisitions, industry trends for salary and other employee benefits, the timing and nature of restricted stock grants, foreign exchange rate movements, acquisition-related costs, and volatility in variable compensation programs that are driven by operating results. Certain prior period balance have been reclassified to conform to the current period presentation.
Many of our operating expenses are transacted in various foreign currencies. We recognize lower expenses in periods when the U.S. dollar strengthens in value against other currencies and we recognize higher expenses when the U.S. dollar weakens against other currencies. For an additional description of how changes in foreign exchange rates affect our consolidated financial statements, see the discussion in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.”
Our operating expenses for fiscal 2025 and 2024 were as follows:

  Change
  2025 2024 2025 vs. 2024
  (In millions, except percentages)
Marketing and sales $ 802.6  $ 757.5  $ 45.1  6  %
Research and development 1,768.8  1,549.1  219.7  14  %
General and administrative 313.4  274.0  39.4  14  %
Total operating expenses $ 2,884.8  $ 2,580.6  $ 304.2  12  %

Our operating expenses, as a percentage of total revenue, for fiscal 2025 and 2024 were as follows:

  2025 2024
Marketing and sales 15  % 16  %
Research and development 33  % 34  %
General and administrative 6  % 6  %
Total operating expenses 54  % 56  %

  Marketing and Sales
The increase in marketing and sales expense were due to the following:

  Change
  2025 vs. 2024
  (In millions)
Salary, benefits and other employee-related costs $ 28.0 
Stock-based compensation 10.0 
Facilities and other infrastructure costs
6.0 
Other items
1.1 
Total change in marketing and sales expense $ 45.1 

Salary, benefits and other employee-related costs and stock-based compensation included in marketing and sales expense increased during fiscal 2025, as compared to fiscal 2024, primarily due to our continued investment in attracting and retaining talent dedicated to technical sales support, including additional headcount from acquisitions.
Facilities and other infrastructure costs included in marketing and sales expense increased during fiscal 2025, as compared to fiscal 2024, primarily due to our growing workforce. We expect to continue attracting and retaining talent dedicated to technical sales support through hiring and acquisitions.
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Research and Development
 The increase in research and development expense were due to the following:
  Change
  2025 vs. 2024
  (In millions)
Salary, benefits and other employee-related costs $ 153.8 
Stock-based compensation 36.8 
Facilities and other infrastructure costs 25.5 
Other items
3.6 
Total change in research and development expense $ 219.7 

Salary, benefits and other employee-related costs and stock-based compensation included in research and development expense increased during fiscal 2025, as compared to fiscal 2024, primarily due to our continued investment in attracting and retaining talent for research and development activities, including additional headcount from acquisitions. Stock-based compensation also increased due to incremental expense from market-based equity awards granted to certain members of senior management.
Facilities and other infrastructure costs increased during fiscal 2025, as compared to fiscal 2024, primarily due to our growing workforce. We expect to continue attracting and retaining talent dedicated to research and development activities through hiring and acquisitions.
General and Administrative
The changes in general and administrative expense were due to the following:

  Change
  2025 vs. 2024
  (In millions)
Contributions to non-profit organizations $ 20.1 
Stock-based compensation 14.1 
Professional services 10.6 
Salary, benefits and other employee-related costs 9.2 
Facilities and other infrastructure costs (10.1)
Other items
(4.5)
Total change in general and administrative expense $ 39.4 

Contributions to non-profit organizations increased during fiscal 2025, as compared to fiscal 2024, primarily due to the timing of our contributions supporting charitable initiatives, including the Cadence Giving Foundation.
Stock-based compensation included in general and administrative expense increased during fiscal 2025, as compared to fiscal 2024, primarily due to incremental expense from market-based equity awards granted to certain members of senior management.
Professional services included in general and administrative expense increased during fiscal 2025, as compared to fiscal 2024, primarily due to increased professional services associated with acquisitions, including legal, accounting and advisory services.
Salary, benefits and other employee-related costs and stock-based compensation included in general and administrative expense increased during fiscal 2025, as compared to fiscal 2024, primarily due to our continued investment in retaining talent for general and administrative activities.
Facilities and other infrastructure costs included in general and administrative expense decreased during fiscal 2025, as compared to fiscal 2024, primarily due to a decrease in facilities and related resources allocated for general and administrative activities as these resources have been reallocated to support ongoing growth of technical sales support and research and development activities.
Amortization of Acquired Intangibles
Amortization of acquired intangibles consists primarily of amortization of customer relationships, acquired backlog, trade names, trademarks and patents. Amortization in any given period depends primarily on the timing and extent to which we acquire intangible assets.
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  Change
  2025 2024 2025 vs. 2024
  (In millions, except percentages)
Amortization of acquired intangibles $ 39.9  $ 30.4  $ 9.5  31  %

Amortization of acquired intangibles increased during fiscal 2025, as compared to fiscal 2024, primarily due to amortization from intangible assets acquired with our fiscal 2025 and fiscal 2024 acquisitions, partially offset by certain intangible assets that became fully amortized. Our strategy includes continuing to purchase intangible assets and acquiring other companies and businesses.
Loss Related to Contingent Liability
During fiscal 2025, we reached a settlement with each of BIS and DOJ that resolved matters relating to export violations that took place between 2015 and 2021. 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. For additional information relating to this matter, see Note 18 in the notes to consolidated financial statements.
Restructuring
We have initiated restructuring plans in recent years, most recently in September 2025, to better align our resources with our business strategy. Restructuring charges and related benefits are derived from management's estimates during the formulation of the restructuring plans, based on then-currently available information. As a result, our restructuring plans may not achieve the benefits anticipated on the timetable or at the level contemplated. Additional actions, including further restructuring of our operations, may be required in the future. For additional information about our restructuring plans, see Note 11 in the notes to consolidated financial statements.
Operating margin
Operating margin represents income from operations as a percentage of total revenue. Our operating margin for fiscal 2025 and 2024 was as follows:

2025 2024
Operating margin 28  % 29  %

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. In addition, our acquisitions may result in incremental expenses, including amortization of acquired intangibles, that exceed incremental revenue for a period of time. Operating margin decreased during fiscal 2025, as compared to fiscal 2024, primarily due to the loss recognized in connection with our settlements with BIS and the DOJ.
Interest Expense
Interest expense for fiscal 2025 and 2024 was comprised of the following:

  2025 2024
  (In millions)
Contractual cash interest expense:
Senior Notes
$ 111.0  $ 46.0 
Term Loans
—  25.9 
Revolving Credit Facility
1.0  0.7 
Amortization of debt discount and debt issuance costs:

Senior Notes
4.0  1.9 
Term Loans
—  1.2 
Revolving Credit Facility
0.3  0.4 
Other 0.2  (0.1)
Total interest expense $ 116.5  $ 76.0 

In September 2024, we issued $2.5 billion aggregate principal amount of senior notes, consisting of $500.0 million aggregate principal amount of senior notes due 2027 (the “2027 Notes”), $1.0 billion aggregate principal amount of senior notes due 2029 (the “2029 Notes”) and $1.0 billion aggregate principal amount of senior notes due 2034 (the “2034 Notes” and together with the 2027 Notes and the 2029 Notes, the “Senior Notes”).
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In fiscal 2024, we used a portion of the net proceeds from the Senior Notes to fully extinguish the outstanding principal and accrued interest of other debt instruments that were outstanding at that time.
Interest expense increased during fiscal 2025, as compared to fiscal 2024, primarily due to contractual interest from the Senior Notes, partially offset by the decrease in interest related to debt that was settled in fiscal 2024. For additional information relating to our debt arrangements, see Note 5 in the notes to consolidated financial statements.
Other Income, Net
Other income, net consists primarily of interest earned on cash, cash equivalents and investments in debt securities, realized and unrealized gains and losses from our strategic investments in equity securities of other companies, gains and losses from investments held in the Nonqualified Deferred Compensation (“NQDC”) trust and foreign exchange gains and losses.
Other income, net increased during fiscal 2025, as compared to fiscal 2024, primarily due to increased interest earned from deposits, a recognized gain during fiscal 2025 on the sale of IP and other assets and an increase in net gains from our strategic investment portfolio. These factors were partially offset by increased losses on foreign exchange. For additional information about other income, net, see Note 12 in the notes to consolidated financial statements.

Income Taxes
The following table presents the provision for income taxes and the effective tax rate for fiscal 2025 and 2024:

  2025 2024
  (In millions, except percentages)
Provision for income taxes $ 413.2  $ 340.3 
Effective tax rate 27.1  % 24.4  %

Our provision for income taxes for fiscal 2025 was primarily attributable to federal, state and foreign income taxes on our fiscal 2025 income. We also recognized tax benefits of $37.5 million related to stock-based compensation that vested or was exercised during the period partially offset by $33.4 million of tax expense for a non-deductible loss associated with our settlements with BIS and the DOJ that was paid during fiscal 2025.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions including the immediate expensing of United States research and development expenditures. The legislation has multiple effective dates, with certain provisions effective in fiscal 2025 and others effective from fiscal 2026. We recognized the fiscal 2025 tax effects of the OBBBA in our provision for income taxes in accordance with ASC 740, Income Taxes. The OBBBA did not materially impact our fiscal 2025 effective tax rate.
In 2021, the OECD announced Pillar Two Model Rules which call for the taxation of large multinational corporations, such as Cadence, at a global minimum tax rate of 15%. Many non-U.S. tax jurisdictions, including Ireland and Hungary, have enacted legislation to adopt certain components of the Pillar Two Model Rules or announced their plans to enact legislation in future years. The currently enacted Pillar Two Model Rules did not have a material impact to our provision for income taxes for fiscal 2025 and 2024.
Our provision for income taxes for fiscal 2024 was primarily attributable to federal, state and foreign income taxes on our fiscal 2024 income. We also recognized tax benefits of $42.9 million related to stock-based compensation that vested or was exercised during the period.
Our future effective tax rates may also be materially impacted by tax amounts associated with our foreign earnings at rates different from the United States federal statutory rate, research credits, the tax impact of stock-based compensation, accounting for uncertain tax positions, business combinations, closure of statutes of limitations or settlement of tax audits and changes in tax law. A significant amount of our foreign earnings is generated by our subsidiaries organized in Ireland and Hungary. Our future effective tax rates may be adversely affected if our earnings were to be lower in countries where we have lower statutory tax rates. We currently expect that our fiscal 2026 effective tax rate will be approximately 27%. We expect that our quarterly effective tax rates will vary from our fiscal 2026 effective tax rate as a result of recognizing the income tax effects of stock-based awards in the quarterly periods that the awards vest or are settled and other items that we cannot anticipate.
For additional discussion about how our effective tax rate could be affected by various risks, see Part I, Item 1A, “Risk Factors.” For further discussion regarding our income taxes, see Note 8 in the notes to consolidated financial statements.
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Liquidity and Capital Resources
  As of Change
  December 31,
2025 December 31,
2024 2025 vs. 2024
  (In millions)
Cash and cash equivalents $ 3,001.3  $ 2,644.0  $ 357.3 
Net working capital 3,034.4  2,646.0  388.4 

Cash and Cash Equivalents
Our primary sources of cash and cash equivalents during fiscal 2025 were cash generated from operations, proceeds from the issuance of common stock resulting from stock purchases under our employee stock purchase plan and stock options exercised during the year and proceeds from the sale and maturity of investments.
Our primary uses of cash and cash equivalents during fiscal 2025 were payments related to employee salaries and benefits, operating expenses, repurchases of our common stock, cash paid for acquired businesses, purchases of inventory, payments for income taxes, payment of employee taxes on vesting of restricted stock and purchases of property, plant and equipment.
Approximately 29% of our cash and cash equivalents was held by our foreign subsidiaries as of December 31, 2025. Our cash and cash equivalents held by our foreign subsidiaries may vary from period to period due to the timing of collections, cash paid for acquisitions and investments and repatriation of foreign earnings. We expect that current cash and cash equivalent balances and cash flows that are generated from operations and financing activities will be sufficient to meet the needs of our domestic and international operating activities and other capital and liquidity requirements, including acquisitions, investments and share repurchases, for at least the next 12 months and thereafter for the foreseeable future.
Net Working Capital
Net working capital is comprised of current assets less current liabilities, as shown on our consolidated balance sheets. Our net working capital varies from period to period due to changes in operating assets and liabilities and the timing of investing and financing activities.
Cash Flows from Operating Activities
Cash flows from operating activities during fiscal 2025 and 2024 were as follows:
  Change
  2025 2024 2025 vs. 2024
  (In millions)
Cash provided by operating activities $ 1,728.8  $ 1,260.6  $ 468.2 

Cash flows provided by operating activities include net income, adjusted for certain non-cash items, as well as changes in the balances of certain assets and liabilities. Our cash flows from operating activities are significantly influenced by business levels and the payment terms set forth in our customer agreements. The increase in cash flows from operating activities during fiscal 2025, as compared to fiscal 2024, was primarily due to increased business levels, the timing of cash receipts from customers, the timing of cash disbursements for operating assets and liabilities and cash paid for income taxes. During fiscal 2025 and 2024, our cash flows from operating activities was impacted by growth in our System Design and Analysis business in which revenue is recognized at a point in time and cash is typically collected over the term of the arrangement.
The increase in cash provided by operating activities was partially offset by settlement payments to BIS and the DOJ during fiscal 2025. For information relating to our settlements with BIS and the DOJ, see Note 18 in the notes to consolidated financial statements.
Cash Flows Used for Investing Activities
Cash flows used for investing activities during fiscal 2025 and 2024 were as follows:
  Change
  2025 2024 2025 vs. 2024
  (In millions)
Cash used for investing activities $ (460.5) $ (837.1) $ 376.6 

Cash used for investing activities decreased during fiscal 2025, as compared to fiscal 2024, primarily due to decreased payments for business combinations and an increase in proceeds from the sale and maturity of investments in equity and debt securities. We expect to continue our investing activities, including purchasing property, plant and equipment, purchasing intangible assets, acquiring other companies and businesses, and making investments.
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Cash Flows Provided by (Used for) Financing Activities
Cash flows provided by (used for) financing activities during fiscal 2025 and 2024 were as follows:
  Change
  2025 2024 2025 vs. 2024
  (In millions)
Cash provided by (used for) financing activities
$ (949.0) $ 1,239.2  $ (2,188.2)

Cash flows from financing activities decreased during fiscal 2025, as compared to fiscal 2024, primarily due to a decrease in net proceeds from the issuance of debt, an increase in repurchases of common stock and decreased proceeds from the issuance of common stock resulting from stock purchases under our employee stock purchase plan and stock options exercised during the period. These factors were partially offset by a decrease in payments of employee taxes on vesting of restricted stock.
Other Factors Affecting Liquidity and Capital Resources
Senior Notes
In September 2024, we issued $2.5 billion aggregate principal amount of senior notes, consisting of $500.0 million aggregate principal amount of 4.200% Senior Notes due 2027 (the “2027 Notes”), $1.0 billion aggregate principal amount of 4.300% Senior Notes due 2029 (the “2029 Notes”) and $1.0 billion aggregate principal amount of 4.700% Senior Notes due 2034 (the “2034 Notes” and together with the 2027 Notes and the 2029 Notes, the “Senior Notes”). Interest on the Senior Notes is payable semi-annually in arrears in March and September of each year. As of December 31, 2025, we were in compliance with all covenants associated with the Senior Notes.
Revolving Credit Facility
In August 2024, we terminated our existing revolving credit facility, dated June 30, 2021, and amended in September 2022, and entered into a five-year senior unsecured revolving credit facility with a group of lenders led by Bank of America, N.A., as administrative agent (the “2024 Credit Facility”). The 2024 Credit Facility provides for borrowings up to $1.25 billion, with the right to request increased capacity up to an additional $500.0 million upon receipt of lender commitments, for total maximum borrowings of $1.75 billion. The 2024 Credit Facility expires on August 14, 2029. Any outstanding loans drawn under the 2024 Credit Facility are due at maturity on August 14, 2029, subject to an option to extend the maturity date. Outstanding borrowings may be repaid at any time prior to maturity. Interest rates associated with the 2024 Credit Facility are variable, so interest expense is impacted by changes in the interest rates, particularly for periods when there are outstanding borrowings under the revolving credit facility. Interest is payable quarterly. As of December 31, 2025, there were no borrowings outstanding under the 2024 Credit Facility, and we were in compliance with all covenants associated with such credit facility.
For additional information relating to our debt arrangements, see Note 5 in the notes to consolidated financial statements.
Stock Repurchase Program
We are authorized to repurchase shares of our common stock under a publicly announced program. In May 2025, our Board of Directors increased the prior authorization to repurchase shares of our common stock by authorizing an additional $1.5 billion. The actual timing and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors. Our repurchase authorization does not obligate us to acquire a minimum number of shares, does not have an expiration date and may be modified, suspended or terminated without prior notice. As of December 31, 2025, approximately $1.4 billion of the share repurchase authorization remained available to repurchase shares of our common stock. See Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for additional information on share repurchases.
Cash Payments for Income Taxes
On July 4, 2025, the OBBBA was enacted in the United States. The OBBBA included the restoration of the immediate expensing of United States research and development costs starting in fiscal 2025. This legislation decreased our fiscal 2025 cash tax payments by approximately $151 million.
Pending Acquisition of Hexagon Design and Engineering Business
On September 4, 2025, we entered into a definitive agreement (the “purchase agreement”) with Hexagon to acquire Hexagon’s D&E business. Under the terms of the purchase agreement, we will pay Hexagon aggregate consideration of approximately €2.70 billion. Approximately €1.89 billion of the aggregate consideration will be paid in the form of cash, subject to customary purchase price adjustments in accordance with the purchase agreement, with the remaining consideration payable in the form of newly issued shares of Cadence’s common stock. We intend to fund the cash consideration through a combination of cash on hand and borrowings under existing debt facilities. Closing is expected to occur in the first quarter of 2026.
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The purchase agreement also provides for customary termination rights for the parties, including the right to terminate the purchase agreement due to the failure to obtain required regulatory approvals on or prior to September 4, 2026 (subject to two three-month extensions, at our election, until March 4, 2027) or if a governmental authority has issued a final and non-appealable order or injunction prohibiting closing. Under the purchase agreement, we will be required to pay a reverse termination fee of up to €175 million if the purchase agreement is terminated due to the failure to obtain required regulatory approvals on or prior to March 4, 2027, or following an injunction arising from certain antitrust or foreign investment laws.
For information relating to our acquisitions, see Note 6 in the notes to consolidated financial statements.
Other Liquidity Requirements
A summary of other capital and liquidity requirements as of December 31, 2025, is as follows:

Total Due in Less
Than 1 Year

(In millions)
Operating lease obligations (1)
$ 247.0  $ 58.5 
Purchase obligations
162.1  99.6 
Contractual interest payments
637.0  111.0 

Income tax payable 70.2  70.2 
Other long-term contractual obligations (2)
96.9  — 
Total $ 1,213.2  $ 339.3 

_________________
(1) Includes future payments under leases that had commenced as of December 31, 2025 as well as leases that had been signed but not yet commenced as of December 31, 2025.
(2)     Included in other long-term contractual obligations are long-term income tax liabilities of $47.6 million related to unrecognized tax benefits. The remaining portion of other long-term contractual obligations is primarily liabilities associated with defined benefit retirement plans and acquisitions.
As of December 31, 2025, we did not have any significant off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our operating results or financial condition.

Critical Accounting Estimates
In preparing our consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. At least quarterly, we evaluate our assumptions, judgments and estimates, and make changes as deemed necessary.
We believe that the assumptions, judgments and estimates involved in revenue recognition, the accounting for income taxes and business combinations have the greatest potential impact on our consolidated financial statements; therefore, we consider these to be our critical accounting estimates. For information on our significant accounting policies, see Note 2 in the notes to consolidated financial statements.
Revenue Recognition
Our contracts with customers often include promises to transfer multiple software and/or IP licenses, hardware and services, including professional services, technical support services, and rights to unspecified updates to a customer. These contracts require us to apply judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition. Determining whether licenses and services are distinct performance obligations that should be accounted for separately, or not distinct and thus accounted for together, requires significant judgment. In some arrangements, such as most of our IP license arrangements and the license of certain software, we have concluded that the licenses and associated services are distinct from each other. In other arrangements, like the majority of our time-based software arrangements, the licenses and certain services are not distinct from each other. These time-based software arrangements include multiple software licenses and updates to the licensed software products, as well as technical support, and we have concluded that these promised goods and services are a single, combined performance obligation.
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Judgment is required to determine the stand-alone selling prices (“SSPs”) for each distinct performance obligation. We rarely license or sell products on a standalone basis, so we are required to estimate the SSP for each performance obligation. In instances where the SSP is not directly observable because we do not sell the license, product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual performance obligations due to the stratification of those items by classes of customers and circumstances. In these instances, we may use information such as the size of the customer and geographic region of the customer in determining the SSP.
Revenue is recognized over time for our combined performance obligations that include software licenses, updates, and technical support as well as for maintenance and professional services that are separate performance obligations. For our professional services, revenue is recognized over time, generally using costs incurred or hours expended to measure progress. Judgment is required in estimating project status and the costs necessary to complete projects. A number of internal and external factors can affect these estimates, including labor rates, utilization and efficiency variances and specification and testing requirement changes. For our other performance obligations recognized over time, revenue is generally recognized using a time-based measure of progress reflecting generally consistent efforts to satisfy those performance obligations throughout the arrangement term.
If a group of agreements are so closely related that they are, in effect, part of a single arrangement, such agreements are deemed to be one arrangement for revenue recognition purposes. We exercise significant judgment to evaluate the relevant facts and circumstances in determining whether the separate agreements should be accounted for separately or as, in substance, a single arrangement. Our judgments about whether a group of contracts comprise a single arrangement can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved.
We are required to estimate the total consideration expected to be received from contracts with customers. In some circumstances, the consideration expected to be received is variable based on the specific terms of the contract or based on our expectations of the term of the contract. Generally, we have not experienced significant returns or refunds to customers. These estimates require significant judgment and the change in these estimates could have an effect on our results of operations during the periods involved.
Accounting for Income Taxes
We are subject to income taxes in the United States and numerous foreign jurisdictions. Significant judgment is required in evaluating and estimating our provision for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. Our provision for income taxes could be adversely affected by our earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies and changes to our existing businesses, acquisitions and investments, changes in our deferred tax assets and liabilities including changes in our assessment of valuation allowances, changes in the relevant tax laws or interpretations of these tax laws, and developments in current and future tax examinations.
We only recognize the tax benefit of an income tax position if we judge that it is more likely than not that the tax position will be sustained, solely on its technical merits, in a tax audit including resolution of any related appeals or litigation processes. To make this judgment, we must interpret complex and sometimes ambiguous tax laws, regulations and administrative practices. If we judge that an income tax position meets this recognition threshold, then we must measure the amount of the tax benefit to be recognized by estimating the largest amount of tax benefit that has a greater than 50% cumulative probability of being realized upon settlement with a taxing authority that has full knowledge of all of the relevant facts. It is inherently difficult and subjective to estimate such amounts, as this requires us to determine the probability of various possible settlement outcomes. We must reevaluate our income tax positions on a quarterly basis to consider factors such as changes in facts or circumstances, changes in tax law, effectively settled issues under audit, the lapse of applicable statute of limitations, and new audit activity. Such a change in recognition or measurement would result in recognition of a tax benefit or an additional charge to the tax provision. For a more detailed description of our unrecognized tax benefits, see Note 8 in the notes to consolidated financial statements.
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Business Combinations
When we acquire businesses, we allocate the purchase price to the acquired tangible assets and assumed liabilities, including deferred revenue, liabilities associated with the fair value of contingent consideration and acquired identifiable intangible assets. Any residual purchase price is recorded as goodwill. The allocation of the purchase price requires us to make significant estimates in determining the fair values of these acquired assets and assumed liabilities, especially with respect to intangible assets and goodwill. These estimates are based on information obtained from management of the acquired companies, our assessment of this information, and historical experience. These estimates can include, but are not limited to, the cash flows that an acquired business is expected to generate in the future, the cash flows that specific assets acquired with that business are expected to generate in the future, the appropriate weighted average cost of capital, and the cost savings expected to be derived from acquiring an asset. These estimates are inherently uncertain and unpredictable, and if different estimates were used, the purchase price for the acquisition could be allocated to the acquired assets and assumed liabilities differently from the allocation that we have made to the acquired assets and assumed liabilities. In addition, unanticipated events and circumstances may occur that may affect the accuracy or validity of such estimates, and if such events occur, we may be required to adjust the value allocated to acquired assets or assumed liabilities.
We also make significant judgments and estimates when we assign useful lives to the definite-lived intangible assets identified as part of our acquisitions. These estimates are inherently uncertain and if we used different estimates, the useful life over which we amortize intangible assets would be different. In addition, unanticipated events and circumstances may occur that may impact the useful life assigned to our intangible assets, which would impact our amortization of intangible assets expense and our results of operations.
During fiscal 2025, we acquired intangible assets of $184.4 million, primarily through our acquisitions of the Artisan foundation IP business from Arm, Secure-IC and VLAB Works. The fair value of the intangible assets acquired was primarily determined by using variations of the income approach that utilizes unobservable inputs classified as Level 3 measurements.
For existing technology, the fair value was determined primarily by applying the relief-from-royalty method. This method is based on the application of a royalty rate to forecasted revenue to quantify the benefit of owning the intangible asset rather than paying a royalty for use of the asset. To estimate royalty savings over time, we projected revenue from the acquired existing technology over the estimated remaining life of the technology, including the effect of assumed technological obsolescence, before applying an assumed royalty rate. We assumed technological obsolescence at rates between 8% and 13% annually, before applying an assumed royalty rates between 25% and 30% and discount rates between 10% and 13%.
For agreements and relationships, the fair value was determined by using the multi-period excess earnings method. This method reflects the present value of the projected cash flows that are expected to be generated from existing customers, less charges representing the contribution of other assets to those cash flows. Projected income from existing customer relationships was determined using customer retention rates between 85% and 90%. The present value of operating cash flows from existing customers was determined using discount rates between 10% and 13%.
We believe that our estimates and assumptions related to the fair value of our acquired intangible assets are reasonable, but significant judgment is involved.

New Accounting Standards
For additional information about the adoption of new accounting standards, see Note 2 in the notes to consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
A material portion of our revenue, expenses and business activities are transacted in the U.S. dollar. In certain foreign countries where we price our products and services in U.S. dollars, a decrease in value of the local currency relative to the U.S. dollar results in an increase in the prices for our products and services compared to those products of our competitors that are priced in local currency. This could result in our prices being uncompetitive in certain markets.
In certain countries where we may invoice customers in the local currency, our revenue benefits from a weaker dollar and is adversely affected by a stronger dollar. The opposite impact occurs in countries where we record expenses in local currencies. In those cases, our costs and expenses benefit from a stronger dollar and are adversely affected by a weaker dollar. The fluctuations in our operating expenses outside the United States resulting from volatility in foreign exchange rates are not generally moderated by corresponding fluctuations in revenue from existing contracts.
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We enter into foreign currency forward exchange contracts to protect against currency exchange risks associated with existing assets, liabilities and other commitments. In connection with our pending acquisition of Hexagon’s D&E business, we entered into foreign currency forward exchange contracts to mitigate the impact of currency price fluctuations of the European Union euro relative to the U.S. dollar on the contractual cash consideration payable to Hexagon at close.
We enter into foreign currency forward exchange contracts to protect against currency exchange risks associated with existing assets and liabilities. A foreign currency forward exchange contract acts as a hedge by increasing in value when underlying assets decrease in value or underlying liabilities increase in value due to changes in foreign exchange rates. Conversely, a foreign currency forward exchange contract decreases in value when underlying assets increase in value or underlying liabilities decrease in value due to changes in foreign exchange rates. These forward contracts are not designated as accounting hedges, so the unrealized gains and losses are recognized in other income (expense), net, in advance of the actual foreign currency cash flows with the fair value of these forward contracts being recorded as accrued liabilities or other current assets.
We do not use forward contracts for trading purposes. Our forward contracts generally have maturities of 90 days or less. We enter into foreign currency forward exchange contracts based on estimated future asset and liability exposures, and the effectiveness of our hedging program depends on our ability to estimate these future asset and liability exposures. Recognized gains and losses with respect to our current hedging activities will ultimately depend on how accurately we are able to match the amount of foreign currency forward exchange contracts with actual underlying asset and liability exposures.
The following table provides information about our foreign currency forward exchange contracts as of December 31, 2025. The information is provided in U.S. dollar equivalent amounts. The table presents the notional amounts, at contract exchange rates, and the weighted average contractual foreign currency exchange rates expressed as units of the foreign currency per U.S. dollar, which in some cases may not be the market convention for quoting a particular currency. All of these forward contracts mature during June 2026.

Notional
Principal Weighted
Average
Contract
Rate
  (In millions)  
Forward Contracts:
European Union euro
$ 2,454.6  0.84 
Canadian dollar 174.1  1.39 
Japanese yen 146.1  154.47 
Chinese renminbi 107.9  7.04 
British pound 105.6  0.76 
Israeli shekel 101.3  3.21 
Swedish krona 66.8  9.33 
Indian rupee 61.2  89.4 
Taiwan dollar 22.0  31.32 
Swiss franc 7.7  0.79 
South Korean won
4.2  1,460.89 
Singapore dollar 4.1  1.29 
Brazilian real
2.0  5.52 
Total $ 3,257.6 
Estimated fair value $ (26.0)

As of December 31, 2024, our foreign currency exchange contracts had an aggregate principal amount of $927.6 million, and an estimated fair value of $(7.5) million.
We have performed sensitivity analyses as of December 31, 2025, and December 31, 2024, using a modeling technique that measures the change in the fair values arising from a hypothetical 10% change in the value of the U.S. dollar relative to applicable foreign currency exchange rates, with all other variables held constant. The foreign currency exchange rates we used in performing the sensitivity analysis were based on market rates in effect at each respective date. The sensitivity analyses indicated that a hypothetical 10% decrease in the value of the U.S. dollar would result in a decrease to the fair value of our foreign currency forward exchange contracts of $213.1 million and $18.3 million as of December 31, 2025 and December 31, 2024, respectively, while a hypothetical 10% increase in the value of the U.S. dollar would result in an increase to the fair value of our foreign currency forward exchange contracts of $219.4 million and $12.7 million as of December 31, 2025 and December 31, 2024, respectively.
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We actively monitor our foreign currency risks, but our foreign currency hedging activities may not substantially offset the impact of fluctuations in currency exchange rates on our results of operations, cash flows and financial position.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our portfolio of cash, cash equivalents, investments in debt securities and any balances outstanding on our 2024 Credit Facility. We are exposed to interest rate fluctuations in many of the world’s leading industrialized countries, but our interest income and expense is most sensitive to fluctuations in the general level of United States interest rates. In this regard, changes in United States interest rates affect the interest earned on our cash and cash equivalents and the costs associated with foreign currency hedges. All highly liquid securities with a maturity of three months or less at the date of purchase are considered to be cash equivalents. The carrying value of our interest-bearing instruments approximated fair value as of December 31, 2025.
Our investments in debt securities had a fair value of approximately $71.0 million and $50.3 million as of December 31, 2025 and December 31, 2024, respectively, that may decline in value if market interest rates rise. As of December 31, 2025 and December 31, 2024, an increase in the market rates of interest of 1% would result in a decrease in the fair values of our marketable debt securities by approximately $2.8 million and $2.0 million, respectively.
Interest rates under our 2024 Credit Facility are variable, so interest expense could be adversely affected by increases in interest rates, particularly for periods when we maintain an outstanding balance. As of December 31, 2025, there were no borrowings outstanding under our 2024 Credit Facility.
Interest rates for our 2024 Credit Facility can fluctuate based on changes in market interest rates and in interest rate margins that vary based on the credit ratings of our unsecured debt. Assuming our 2024 Credit Facility was fully drawn and we were to fully exercise our right to increase borrowing capacity under our 2024 Credit Facility, each quarter point change in interest rates would result in a $4.4 million change in annual interest expense on our indebtedness under our 2024 Credit Facility. For an additional description of the 2024 Credit Facility, see Note 5 in the notes to consolidated financial statements.
Equity Price Risk
Equity Investments
We have a portfolio of equity investments that includes marketable equity securities and non-marketable investments. Our equity investments are made primarily in connection with our strategic investment program. Under our strategic investment program, from time to time, we make cash investments in companies with technologies that are potentially strategically important to us. See Note 14 in the notes to consolidated financial statements for an additional description of these investments.

Item 8. Financial Statements and Supplementary Data
The financial statements required by Item 8 are submitted as a separate section of this Annual Report. See Part IV, Item 15, “Exhibits and Financial Statement Schedules.”

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2025.
Based on their evaluation our CEO and CFO have concluded that, as of December 31, 2025, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2025, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Inherent Limitations on Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. Internal control over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of internal control are met. Further, the design of internal control must reflect the fact that there are resource constraints, and the benefits of the control must be considered relative to their costs. While our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Cadence, have been detected.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025. In making this assessment, our management used the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our management has concluded that, as of December 31, 2025, our internal control over financial reporting is effective based on these criteria. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued an attestation report on our internal control over financial reporting, which is included in Part IV, Item 15, “Exhibits and Financial Statement Schedules.”

Item 9B. Other Information
Insider Trading Arrangements
During the fiscal quarter ended December 31, 2025, our directors and officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated the contracts, instructions or written plans for the purchase or sale of our securities set forth in the table below.

Type of Trading Arrangement
Name and Position Action Adoption/ Termination
Date Rule 10b5-1* Total Shares of Common Stock to be Sold Expiration Date
Ita Brennan , Director
Adoption (1)
11/24/2025
X
Up to 720
3/18/2027

* Contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.

(1) Ms. Brennan previously adopted a Rule 10b5-1 trading arrangement on December 12, 2024, that expires on March 16, 2026, or, if earlier, upon completion of all authorized transactions under such plan (the "Prior Plan"). Trading under the new plan adopted on November 24, 2025 may not begin until after all trades under Ms. Brennan's Prior Plan are completed or expired without execution.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III.

Item 10. Directors, Executive Officers and Corporate Governance
We have an insider trading policy (the “Securities Trading Policy”) governing the purchase, sale and other dispositions of our securities that applies to all of our personnel, including directors, officers, employees, and other covered persons. We also follow procedures for our repurchase of our securities. We believe that our Securities Trading Policy and repurchase procedures are reasonably designed to promote compliance with applicable insider trading laws, rules and regulations, and listing standards. A copy of our Securities Trading Policy is filed as Exhibit 19.1 to this Form 10-K.
The information required by Item 10 as to directors is incorporated herein by reference from the sections entitled “Proposal 1 - Election of Directors” and, as applicable, “Security Ownership of Certain Beneficial Owners and Management - Delinquent Section 16(a) Reports” in our definitive proxy statement for our 2026 Annual Meeting of Stockholders. Our executive officers are listed at the end of Item 1 of Part I of this Annual Report.
The information required by Item 10 as to Cadence’s code of ethics is incorporated herein by reference from the section entitled “Corporate Governance - Code of Business Conduct” in our definitive proxy statement for our 2026 Annual Meeting of Stockholders.
The information required by Item 10 as to the director nomination process and our Audit Committee is incorporated by reference from the section entitled “Board of Directors - Committees of the Board” in our definitive proxy statement for our 2026 Annual Meeting of Stockholders.

Item 11. Executive Compensation
The information required by Item 11 is incorporated herein by reference from the sections entitled “Board of Directors - Components of Director Compensation,” “Board of Directors - Director Compensation for Fiscal 2025,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation,” “Compensation of Executive Officers,” “Potential Payments Upon Termination or Change In Control” and “Pay Ratio Disclosure” in our definitive proxy statement for our 2026 Annual Meeting of Stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is incorporated herein by reference from the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our definitive proxy statement for our 2026 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by Item 13 is incorporated herein by reference from the sections entitled “Certain Transactions” and “Board of Directors - Director Independence” in our definitive proxy statement for our 2026 Annual Meeting of Stockholders.

Item 14. Principal Accountant Fees and Services
The information required by Item 14 is incorporated herein by reference from the section entitled “Fees Billed to Cadence by the Independent Registered Public Accounting Firm During Fiscal 2025 and 2024” in our definitive proxy statement for our 2026 Annual Meeting of Stockholders.

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PART IV.

Item 15. Exhibits and Financial Statement Schedules
Page
 (a) 1. Financial Statements

Report of Independent Registered Public Accounting Firm (Auditor Firm ID 238 )
56

Consolidated Balance Sheets as of December 31, 2025, and December 31, 2024
58

Consolidated Income Statements for the three fiscal years ended December 31, 2025
59

Consolidated Statements of Comprehensive Income for the three fiscal years ended December 31, 2025
60

Consolidated Statements of Stockholders’ Equity for the three fiscal years ended December 31, 2025
61

Consolidated Statements of Cash Flows for the three fiscal years ended December 31, 2025
62

Notes to Consolidated Financial Statements
63

(a) 2. Financial Statement Schedules

All financial statement schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements or notes thereto.

(a) 3. Exhibits
103

The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Annual Report.
The exhibits filed or incorporated by reference as part of this Annual Report contain agreements to which Cadence is a party. These agreements are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about Cadence or the other parties to the agreements. Certain of the agreements contain representations and warranties by each of the parties to the applicable agreement, and any such representations and warranties have been made solely for the benefit of the other parties to the applicable agreement as of specified dates, may apply materiality standards that are different than those applied by investors, and may be subject to important qualifications and limitations that are not necessarily reflected in the agreement. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time and should not be relied upon as statements of factual information.

_____________
© 2026 Cadence Design Systems, Inc. All rights reserved worldwide. Cadence, the Cadence logo, and the other Cadence marks found at www.cadence.com/go/trademarks are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective holders.

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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Cadence Design Systems, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Cadence Design Systems, Inc. and its subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Identifying and Evaluating Terms and Conditions in Contracts
As described in Note 2 and Note 3 to the consolidated financial statements, the Company enters into contracts that can include various combinations of licenses, products, and services, some of which are distinct and are accounted for as separate performance obligations. For contracts with multiple performance obligations, management allocates the transaction price of the contract to each performance obligation and recognizes revenue upon transfer of control of promised products or services to customers. Management applies judgment in identifying and evaluating any terms and conditions in contracts which may impact revenue recognition. For the year ended December 31, 2025, the Company’s total revenue was $5.297 billion.
The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the identification and evaluation of terms and conditions in contracts, is a critical audit matter are the significant judgment by management in identifying and evaluating terms and conditions in contracts that impact revenue recognition, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating whether terms and conditions in contracts were appropriately identified and evaluated by management.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls related to the identification and evaluation of terms and conditions in contracts that impact revenue recognition. These procedures also included, among others (i) testing management’s process of identifying and evaluating the terms and conditions in contracts, including management’s determination of the impact of those terms and conditions on revenue recognition and (ii) testing the completeness and accuracy of management’s identification and evaluation of the terms and conditions in contracts by examining revenue arrangements on a test basis.

/s/ PricewaterhouseCoopers LLP

San Jose, California
February 18, 2026

We have served as the Company’s auditor since 2020.
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CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2025 and December 31, 2024
(In thousands, except par value)
 
As of
December 31,
2025 December 31,
2024
ASSETS
Current assets:
Cash and cash equivalents $ 3,001,317   $ 2,644,030  
Receivables, net 944,939   680,460  
Inventories 303,545   257,711  
Prepaid expenses and other 419,872   433,878  
Total current assets 4,669,673   4,016,079  
Property, plant and equipment, net 517,004   458,200  
Goodwill 2,749,143   2,378,671  
Acquired intangibles, net 718,223   594,734  
Deferred taxes 917,733   982,057  
Other assets 581,372   544,741  
Total assets $ 10,153,148   $ 8,974,482  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Accounts payable and accrued liabilities $ 856,856   $ 632,692  
Current portion of deferred revenue 778,435   737,413  
Total current liabilities 1,635,291   1,370,105  
Long-term liabilities:
Long-term portion of deferred revenue 155,997   115,168  
Long-term debt 2,480,150   2,476,183  
Other long-term liabilities 407,529   339,448  
Total long-term liabilities 3,043,676   2,930,799  
Commitments and contingencies (Notes 8, 17 and 18)

Stockholders’ equity:
Preferred stock – $ 0.01 par value; authorized 400 shares, none issued or outstanding
—   —  
Common stock – $ 0.01 par value; authorized 600,000 shares; issued and outstanding shares: 271,799 and 273,851 , respectively
4,719,443   4,181,737  
Treasury stock, at cost; 59,101 shares and 57,049 shares, respectively
( 6,344,213 ) ( 5,309,579 )
Retained earnings 7,100,756   5,991,868  
Accumulated other comprehensive loss ( 1,805 ) ( 190,448 )
Total stockholders’ equity 5,474,181   4,673,578  
Total liabilities and stockholders’ equity $ 10,153,148   $ 8,974,482  

See notes to consolidated financial statements.
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CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
For the three fiscal years ended December 31, 2025
(In thousands, except per share amounts)

 
  2025 2024 2023
Revenue:
Product and maintenance $ 4,821,589   $ 4,213,509   $ 3,834,359  
Services 475,170   427,755   255,627  
Total revenue 5,296,759   4,641,264   4,089,986  
Costs and expenses:
Cost of product and maintenance 518,673   436,600   331,760  
Cost of services 203,576   210,902   103,281  
Marketing and sales 802,633   757,483   690,319  
Research and development 1,768,772   1,549,093   1,441,796  
General and administrative 313,387   273,961   242,430  
Amortization of acquired intangibles 39,937   30,375   18,162  
Loss related to contingent liability
128,545   8,322   —  
Restructuring 29,194   23,765   11,013  
Total costs and expenses 3,804,717   3,290,501   2,838,761  
Income from operations 1,492,042   1,350,763   1,251,225  
Interest expense ( 116,541 ) ( 75,999 ) ( 36,185 )
Other income, net 146,542   121,055   66,886  
Income before provision for income taxes 1,522,043   1,395,819   1,281,926  
Provision for income taxes 413,155   340,335   240,782  
Net income $ 1,108,888   $ 1,055,484   $ 1,041,144  
Net income per share – basic $ 4.09   $ 3.89   $ 3.86  
Net income per share – diluted $ 4.06   $ 3.85   $ 3.82  
Weighted average common shares outstanding – basic 271,333   271,212   269,381  
Weighted average common shares outstanding – diluted 273,312   273,833   272,748  

See notes to consolidated financial statements.
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CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three fiscal years ended December 31, 2025
(In thousands)
 
  2025 2024 2023
Net income $ 1,108,888   $ 1,055,484   $ 1,041,144  
Other comprehensive income (loss), net of tax effects:
Foreign currency translation adjustments 192,877   ( 87,933 ) ( 4,815 )
Changes in defined benefit plan liabilities ( 5,846 ) ( 239 ) 1,566  
Unrealized losses on derivatives designated as hedging instruments
—   ( 7,038 ) —  
Reclassification of losses on derivatives designated as hedging instruments 607   —   —  
Unrealized gains (losses) on investments
1,005   ( 484 ) 132  
Total other comprehensive income (loss), net of tax effects
188,643   ( 95,694 ) ( 3,117 )
Comprehensive income $ 1,297,531   $ 959,790   $ 1,038,027  

See notes to consolidated financial statements.
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CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the three fiscal years ended December 31, 2025
(In thousands)

Common Stock
Par Value Accumulated
and Capital Other
in Excess Treasury Retained Comprehensive
Shares of Par Stock Earnings Income (Loss) Total
Balance, December 31, 2022 272,675   $ 2,765,673   $ ( 3,824,163 ) $ 3,895,240   $ ( 91,637 ) $ 2,745,113  
Net income
—  —  —  1,041,144   —  $ 1,041,144  
Other comprehensive loss, net of taxes —  —  —  —  ( 3,117 ) $ ( 3,117 )
Purchase of treasury stock, including excise tax ( 3,145 ) —  ( 641,041 ) —  —  $ ( 641,041 )
Equity forward contract —  1,688   ( 61,688 ) —  —  $ ( 60,000 )
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures
2,704   97,050   35,907   —  —  $ 132,957  
Stock received for payment of employee taxes on vesting of restricted stock
( 528 ) ( 23,058 ) ( 113,338 ) —  —  $ ( 136,396 )
Stock-based compensation expense
—  325,611   —  —  —  $ 325,611  
Balance, December 31, 2023 271,706   $ 3,166,964   $ ( 4,604,323 ) $ 4,936,384   $ ( 94,754 ) $ 3,404,271  
Net income
—  —  —  1,055,484   —  $ 1,055,484  
Other comprehensive loss, net of taxes —  —  —  —  ( 95,694 ) $ ( 95,694 )
Purchase of treasury stock ( 1,930 ) —  ( 550,026 ) —  —  $ ( 550,026 )

Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures
3,035   154,233   50,004   —  —  $ 204,237  
Issuance of common stock in a business combination 1,741   501,824   —  —  —  $ 501,824  
Stock received for payment of employee taxes on vesting of restricted stock
( 701 ) ( 32,503 ) ( 205,234 ) —  —  $ ( 237,737 )
Stock-based compensation expense
—  391,219   —  —  —  $ 391,219  
Balance, December 31, 2024
273,851   $ 4,181,737   $ ( 5,309,579 ) $ 5,991,868   $ ( 190,448 ) $ 4,673,578  
Net income
—  —  —  1,108,888   —  $ 1,108,888  
Other comprehensive income, net of taxes —  —  —  —  188,643   $ 188,643  
Purchase of treasury stock, including excise tax ( 3,165 ) —  ( 928,162 ) —  —  $ ( 928,162 )
Issuance of common stock and reissuance of treasury stock under equity incentive plans, net of forfeitures
1,477   138,723   7,178   —  —  $ 145,901  

Stock received for payment of employee taxes on vesting of restricted stock
( 364 ) ( 56,192 ) ( 113,650 ) —  —  $ ( 169,842 )
Stock-based compensation expense
—  455,175   —  —  —  $ 455,175  
Balance, December 31, 2025 271,799   $ 4,719,443   $ ( 6,344,213 ) $ 7,100,756   $ ( 1,805 ) $ 5,474,181  

See notes to consolidated financial statements.
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CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three fiscal years ended December 31, 2025
(In thousands)
  2025 2024 2023
Cash and cash equivalents at beginning of year $ 2,644,030   $ 1,008,152   $ 882,325  
Cash flows from operating activities:
Net income 1,108,888   1,055,484   1,041,144  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 227,828   196,935   145,292  
Stock-based compensation 455,175   391,219   325,611  
Gain on divestitures and investments, net
( 69,089 ) ( 49,593 ) ( 34,602 )
Deferred income taxes 66,048   ( 128,737 ) ( 36,512 )
ROU asset amortization and change in operating lease liabilities 6,016   ( 1,920 ) 451  
Other non-cash items 7,166   6,138   6,570  
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables ( 274,894 ) ( 180,287 ) ( 11,748 )
Inventories ( 91,029 ) ( 82,771 ) ( 65,895 )
Prepaid expenses and other 43,382   ( 81,529 ) 39,015  
Other assets ( 18,569 ) 11,866   ( 45,784 )
Accounts payable and accrued liabilities 184,897   33,676   5,415  
Deferred revenue 69,411   66,478   ( 21,583 )
Other long-term liabilities 13,551   23,592   1,802  
Net cash provided by operating activities 1,728,781   1,260,551   1,349,176  
Cash flows from investing activities:
Purchases of investments ( 40,895 ) ( 4,982 ) ( 176,170 )
Proceeds from the sale and maturity of investments 140,281   47,980   64,775  
Proceeds from the sale of IP and other assets
11,500   —   —  
Purchases of property, plant and equipment ( 141,871 ) ( 142,542 ) ( 102,337 )
Purchases of intangible assets —   —   ( 166 )
Cash paid in business combinations, net of cash acquired ( 429,538 ) ( 737,574 ) ( 198,351 )
Net cash used for investing activities ( 460,523 ) ( 837,118 ) ( 412,249 )
Cash flows from financing activities:
Proceeds from revolving credit facility —   —   50,000  
Payments on revolving credit facility —   —   ( 150,000 )
Proceeds from the issuance of debt —   3,196,595   —  
Payments of debt
—   ( 1,350,000 ) —  
Payments of debt issuance costs
—   ( 23,828 ) —  
Proceeds from issuance of common stock 145,901   204,237   132,957  
Stock received for payment of employee taxes on vesting of restricted stock ( 169,842 ) ( 237,737 ) ( 136,396 )
Payments for repurchases of common stock ( 925,034 ) ( 550,026 ) ( 700,134 )
Net cash provided by (used for) financing activities
( 948,975 ) 1,239,241   ( 803,573 )
Effect of exchange rate changes on cash and cash equivalents 38,004   ( 26,796 ) ( 7,527 )
Increase in cash and cash equivalents
357,287   1,635,878   125,827  
Cash and cash equivalents at end of year $ 3,001,317   $ 2,644,030   $ 1,008,152  

Supplemental cash flow information:
Cash paid for interest $ 111,951   $ 43,219   $ 34,934  

See notes to consolidated financial statements.
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CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three fiscal years ended December 31, 2025

NOTE 1. BUSINESS OVERVIEW
Cadence ® is a global market leader that develops computational, AI-driven software, accelerated hardware, and IP solutions for engineers and scientists to bring new and innovative products to life. The world’s most innovative technology companies use Cadence solutions and services to deliver transformational products to multiple industries that drive the global economy. The products these companies develop are some of the most complex systems in the world. Since its inception, Cadence has been at the forefront of technology innovation with its customers, helping them solve their most complex challenges in the semiconductor and electronic systems industries to unlock limitless opportunities.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of Cadence and its subsidiaries after elimination of intercompany accounts and transactions. All consolidated subsidiaries are wholly owned by Cadence. Certain prior year information has been reclassified to conform to the current year presentation.
Cadence’s fiscal year end is December 31, and its fiscal quarters end on March 31, June 30, and September 30.
Use of Estimates
Preparation of the consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recently Adopted Accounting Standards
Income Taxes
In December 2023, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” (“ASU 2023-09”) which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. Cadence adopted this ASU prospectively during fiscal 2025. See Note 8 in the notes to the consolidated financial statements for further details.
New Accounting Standards Not Yet Adopted
Disaggregation of Income Statement Expenses
In November 2024, the FASB issued ASU No. 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,” which requires additional disclosure of certain costs and expenses in the notes to the financial statements. The updated standard is effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027. Early adoption is permitted and will be applied prospectively with the option for retrospective application. Cadence is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosure s.
Measurements of Credit Losses for Accounts Receivable and Contract Assets
In July 2025, the FASB issued ASU No. 2025-05, “Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses for Accounts Receivable and Contract Assets.” This ASU provides a practical expedient that allows entities to assume that current conditions as of the balance sheet date do not change for the remaining life of the asset when estimating expected credit losses for current accounts receivable and current contract assets. This standard is effective for annual and interim periods beginning after December 15, 2025. Cadence does not expect the adoption of this ASU to have a material impact on its consolidated financial statements and disclosures.
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Accounting for Internal-Use Software
In September 2025, the FASB issued ASU No. 2025‑06, “Intangibles—Goodwill and Other—Internal‑Use Software (Subtopic 350‑40): Simplifying the Accounting for Internal‑Use Software.” The updated guidance changes the capitalization criteria for internal‑use software by replacing the existing stage‑based model with a principles‑based approach focused on the point at which management authorizes the software project, funding is approved, and it is probable that the software will be completed and used as intended. Costs that do not directly relate to the development of internal‑use software, such as training, data conversion, and ongoing maintenance, will continue to be expensed as incurred. This standard is effective for annual and interim periods beginning after December 15, 2026, and interim periods within those fiscal years. Early adoption is permitted and the standard will be applied prospectively. Cadence does not expect the adoption of this ASU to have a material impact on its consolidated financial statements or disclosures.
Interim Reporting
In December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270) Narrow-Scope Improvements,” which provides clarifications intended to improve the consistency and usability of interim disclosure requirements, including a comprehensive listing of required interim disclosures and a new disclosure principle for reporting material events occurring after the most recent annual period. The amendments do not change the underlying objectives of interim reporting but are designed to enhance clarity in application. The guidance is effective for annual and interim periods beginning after December 15, 2027. Cadence is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.
Foreign Operations
Cadence transacts business in various foreign currencies. The United States dollar is the functional currency of Cadence’s consolidated entities operating in the United States and certain of its consolidated subsidiaries operating outside the United States. The functional currency for Cadence’s other consolidated entities operating outside of the United States is generally the country’s local currency.
Cadence translates the financial statements of consolidated entities whose functional currency is not the United States dollar into United States dollars. Cadence translates assets and liabilities at the exchange rate in effect as of the financial statement date and translates income statement accounts using an average exchange rate for the period. Cadence includes adjustments from translating assets and liabilities into United States dollars, and the effect of exchange rate changes on intercompany transactions of a long-term investment nature in stockholders’ equity as a component of accumulated other comprehensive income. Cadence reports gains and losses from foreign exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature, as well as gains and losses from foreign currency transactions of a monetary nature in other income (expense), net, in the consolidated income statements.
Concentrations of Credit Risk
Financial instruments, including derivative financial instruments, that may potentially subject Cadence to concentrations of credit risk, consist principally of cash and cash equivalents, accounts receivable, investments and forward contracts. Credit exposure related to Cadence’s foreign currency forward contracts is limited to the realized and unrealized gains on these contracts.
Cash and Cash Equivalents
Cadence considers all highly liquid investments with original maturities of three months or less on the date of purchase to be cash equivalents.
Receivables
Cadence’s receivables, net includes invoiced accounts receivable and the current portion of unbilled receivables. Unbilled receivables represent amounts Cadence has recorded as revenue for which payments from a customer are due over time and Cadence has an unconditional right to the payment. Cadence’s accounts receivable and unbilled receivables were initially recorded at the transaction value. Cadence’s long-term receivables balance includes receivable balances to be invoiced more than one year after each balance sheet date.
Allowances for Doubtful Accounts
Cadence assesses its ability to collect outstanding receivables and provides customer-specific allowances, allowances for credit losses and general allowances for the portion of its receivables that are estimated to be uncollectible. The allowances are based on the current creditworthiness of its customers, historical experience, expected credit losses, changes in customer demand and the overall economic climate in the industries that Cadence serves. Provisions for these allowances are recorded in general and administrative expense in Cadence’s consolidated income statements.
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Inventories
Inventories are computed at standard costs which approximate actual costs and are valued at the lower of cost or net realizable value based on the first-in, first-out method. Cadence’s inventories include high technology parts and components for complex accelerated hardware systems. These parts and components are specialized in nature and may be subject to rapid technological obsolescence. While Cadence has programs to manage the required inventories on hand and considers technological obsolescence when estimating required reserves to reduce recorded amounts to market values, it is reasonably possible that such estimates could change in the near term. Cadence’s policy is to reserve for inventory in excess of future demand forecasts or for other known obsolescence or realization issues. Provisions for obsolescence reserves are recorded as a component of cost of product and maintenance in Cadence’s consolidated income statements.
Property, Plant and Equipment
Property, plant and equipment is stated at historical cost. Depreciation and amortization are generally provided over the estimated useful lives, using the straight-line method, as follows:

Equipment and internal-use software
2 - 7 years

Buildings 25 - 32 years

Leasehold improvements Shorter of the lease term or the estimated useful life
Building improvements and land improvements Up to 32 years

Furniture and fixtures 3 - 5 years

Cadence capitalizes certain costs of software developed for internal use. Capitalization of software developed for internal use begins at the application development phase of the project. Amortization begins when the computer software is substantially complete and ready for its intended use. Amortization is recorded on a straight-line basis over the estimated useful life. Capitalized costs were not material during fiscal 2025, 2024 or 2023.
Cadence recorded depreciation and amortization expense of $ 111.4 million, $ 96.9 million and $ 78.4 million during fiscal 2025, 2024 and 2023, respectively, for property, plant and equipment.
Software Development Costs
Software development costs are capitalized beginning when a product’s technological feasibility has been established by completion of a working model of the product and amortization begins when a product is available for general release to customers. The period between the achievement of technological feasibility and the general release of Cadence’s products has typically been of short duration. Costs incurred during fiscal 2025, 2024 and 2023 were not material.
Deferred Sales Commissions
Cadence records an asset for the incremental costs of obtaining a contract with a customer, including direct sales commissions that are earned upon execution of the contract. Cadence uses the portfolio method to recognize the amortization expense related to these capitalized costs related to initial contracts and renewals and such expense is recognized over a period associated with the revenue of the related portfolio, which is generally two to three years for Cadence’s software arrangements and upon delivery for its hardware and IP arrangements. Incremental costs related to initial contracts and renewals are amortized over the period of the arrangement in each case because Cadence pays the same commission rate for both new contracts and renewals. Deferred sales commissions are tested for impairment on an ongoing basis when events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment is recognized to the extent that the amount of deferred sales commission exceeds the remaining expected gross margin (remaining revenue less remaining direct costs) on the goods and services to which the deferred sales commission relates. Total capitalized costs were $ 53.1 million and $ 51.9 million as of December 31, 2025, and December 31, 2024, respectively, and are included in other assets in Cadence’s consolidated balance sheets. Amortization of these assets was $ 50.0 million, $ 47.6 million and $ 41.4 million during fiscal 2025, 2024 and 2023, respectively, and is included in sales and marketing expense in Cadence’s consolidated income statements.
Goodwill
Cadence conducts a goodwill impairment analysis annually and as necessary if changes in facts and circumstances indicate that the fair value of Cadence’s single reporting unit may be less than its carrying amount. To assess for impairment, Cadence compares the estimated fair value of its single reporting unit to the carrying value of the reporting unit’s net assets, including goodwill. If the fair value of the reporting unit is greater than the carrying value of its net assets, goodwill is not considered to be impaired, and no further analysis is required. If the fair value of the reporting unit is less than the carrying value of its net assets, Cadence would be required to record an impairment charge.
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Long-Lived Assets, Including Acquired Intangibles
Cadence’s long-lived assets consist of property, plant and equipment, and acquired intangibles. Acquired intangibles consist of acquired technology, certain contract rights, customer relationships, trademarks and trade names, capitalized software, and in-process research and development. These acquired intangibles are acquired through business combinations or direct purchases. Acquired intangibles with definite lives are amortized on a straight-line basis over the estimated economic life of the underlying products and technologies, which range from one year to fifteen years . Acquired intangibles with indefinite lives, or in-process technology, consists of projects that had not reached technological feasibility by the date of acquisition. Upon completion of the project, the assets are amortized over their estimated useful lives. If the project is abandoned rather than completed, the asset is written off. In-process technology is tested for impairment annually and as necessary if changes in facts and circumstances indicate that the assets might be impaired.
Cadence reviews its long-lived assets, including acquired intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset or asset group may not be recoverable. Recoverability of an asset or asset group is measured by comparison of its carrying amount to the expected future undiscounted cash flows that the asset or asset group is expected to generate. If it is determined that the carrying amount of an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount of the asset or asset group exceeds its fair value.
Leases
Lessee Considerations
Cadence has operating leases primarily consisting of facilities with remaining lease terms of approximately one year to thirteen years . Cadence has options to terminate many of its leases early. The lease term represents the period up to the early termination date unless it is reasonably certain that Cadence will not exercise the early termination option. For certain leases, Cadence has options to extend the lease term for additional periods ranging from one year to ten years . Renewal options are not considered in the remaining lease term unless it is reasonably certain that Cadence will exercise such options.
At inception of a contract, Cadence determines an arrangement contains a lease if the arrangement conveys the right to use an identified asset and Cadence obtains substantially all of the economic benefits from the asset and has the ability to direct the use of the asset. Leases with an initial term of twelve months or less are not recorded on the balance sheet. For lease agreements entered into or reassessed after the adoption of ASU 2016-02, “Leases (Topic 842),” Cadence combines the lease and non-lease components in determining the lease liabilities and right-of-use (“ROU”) assets. Non-lease components primarily include common-area maintenance and other management fees.
Operating lease expense is generally recognized evenly over the term of the lease. Payments under Cadence’s lease agreements are primarily fixed; however, certain agreements contain rental payments that are adjusted periodically based on changes in consumer price and other indices. Changes to payments resulting from changes in indices are expensed as incurred and not included in the measurement of lease liabilities and ROU assets. Cadence’s lease agreements do not provide an implicit borrowing rate, therefore an internal incremental borrowing rate is determined based on information available at lease commencement date for purposes of determining the present value of lease payments. The incremental borrowing rate represents a comparable rate to borrow on a collateralized basis over a similar term and in the economic environment where the leased asset is located.
Lessor Considerations
Although most of Cadence’s revenue from its hardware business comes from sales of hardware, Cadence also leases its hardware products to some customers. Cadence determines the existence of a lease when the customer controls the use of the identified hardware for a period of time defined in the lease agreement. 
Cadence’s leases range in duration up to three years with payments generally collected in equal quarterly installments. Cadence’s leases do not include termination rights or variable pricing and typically do not include purchase rights at the end of the lease. Short-term leases are usually less than two years and are classified as operating leases with revenue recognized and depreciation expensed on a straight-line basis over the term of the lease. Long-term leases are typically for three years and are classified as sales-type leases with revenue and cost of sales recognized upon installation.
Cadence’s operating leases and sales-type leases contain both lease and non-lease components. Because the pattern of revenue recognition is the same for both the lease and non-lease components in Cadence’s operating leases, Cadence has elected the practical expedient to not separate lease and related non-lease components and accounts for both components under Topic 842. Cadence allocates value to the lease and non-lease components in its sales-type leases using standalone selling prices (“SSPs”) similar to those used under ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” the current accounting standard governing revenue recognition. When Cadence leases its hardware in the same arrangement as software or IP, Cadence allocates value to each performance obligation using SSPs.
Investments in Equity Securities
Cadence’s investments in marketable equity securities are carried at fair value as a component of prepaid expenses and other in the consolidated balance sheets. Cadence records realized and unrealized holding gains or losses as part of other income (expense), net in the consolidated income statements.
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