Executive Summary

Cadence delivered a strong Q1 2025: revenue $1.242B (+23% YoY), non-GAAP EPS $1.57 (+34% YoY), both above guidance; FY25 revenue and EPS guidance were raised modestly on stronger recurring revenue and bookings .
Results beat Wall Street: Q1 revenue $1.242B vs $1.241B consensus* and non-GAAP EPS $1.57 vs $1.50 consensus*; Q4 2024 also beat on revenue and EPS* .
Broad-based strength: IP +40% YoY, System Design & Analysis (SDA) >50% YoY, core EDA +16% YoY; hardware demand remains supply-constrained; backlog $6.4B and cRPO $3.2B support visibility .
Stock reaction catalysts: raised FY25 outlook (non-GAAP EPS midpoint +$0.08), accelerating AI attach (Cerebrus ~50 new logos), and minimal tariff impact due to diversified hardware manufacturing and predominantly software mix .

What Went Well and What Went Wrong

What Went Well
- AI-led product momentum and broad-based demand: “We exceeded our guidance on all key financial metrics… 23% revenue growth and 34% increase in non-GAAP EPS” and raised FY25 outlook .
- Segment outperformance: IP revenue +40% YoY; SDA revenue >50% YoY; core EDA +16% YoY .
- Hardware strength and AI partnerships: strong hardware proliferation at hyperscalers; expanded NVIDIA partnership (Grace Blackwell; agentic AI with Llama Nemotron) .
What Went Wrong
- China caution persists: despite a good start, guidance still assumes China flat for the year, reflecting prudence amid macro/trade risks .
- Hardware remains capacity-limited: demand outstrips production capacity; company is mitigating via diversified lines, but supply is still the limiter .
- Tariff uncertainty: management does not expect material impact given software mix and diversified manufacturing, but it remains a monitored headwind .

Financial Results

Revenue, EPS and Margins (sequential trend and Q1 vs estimates)

Metric	Q3 2024	Q4 2024	Q1 2025	Q1 2025 Consensus*
Revenue ($USD Billions)	$1.215	$1.356	$1.242	$1.241*
GAAP Diluted EPS ($)	$0.87	$1.24	$1.00	—
Non-GAAP Diluted EPS ($)	$1.64	$1.88	$1.57	$1.50*
GAAP Operating Margin (%)	28.8%	33.7%	29.1%	—
Non-GAAP Operating Margin (%)	44.8%	46.0%	41.7%	—

YoY: Q1 revenue +23% YoY; non-GAAP EPS +34% YoY (vs Q1 2024) .
Beat/Miss: Q1 revenue and EPS both beat consensus; Q4 2024 revenue and EPS also beat consensus* .

Segment/Category Mix (percent of revenue)

Category	Q3 2024	Q4 2024	Q1 2025
Core EDA	70%	68%	71%
Semiconductor IP	14%	13%	14%
System Design & Analysis	16%	19%	15%

Q1 2025 growth by business: IP +40% YoY; SDA >50% YoY; core EDA +16% YoY .

Selected KPIs

KPI	Q3 2024	Q4 2024	Q1 2025
Backlog ($B)	$5.6	$6.8	$6.4
cRPO ($B)	$2.9	$3.4	$3.2
Operating Cash Flow ($M)	$410	$441	$487
Free Cash Flow ($M)	$383	$404	$464
DSO (days)	44	48	44
Cash & Equivalents ($M)	$2,786	$2,644	$2,778
Debt (principal, $M)	$2,850	$2,500	$2,500
Share Repurchase ($M)	$150	$150	$350

Guidance Changes

Metric	Period	Previous Guidance (2/18/25)	Current Guidance (4/28/25)	Change
Revenue	FY 2025	$5.14B–$5.22B	$5.15B–$5.23B	Raised
GAAP EPS	FY 2025	$4.19–$4.29	$4.21–$4.31	Raised
Non-GAAP EPS	FY 2025	$6.65–$6.75	$6.73–$6.83	Raised
GAAP Op Margin	FY 2025	30.25%–31.25%	30.25%–31.25%	Maintained
Non-GAAP Op Margin	FY 2025	43.25%–44.25%	43.25%–44.25%	Maintained
GAAP OI&E ($M)	FY 2025	$(53)–$(67)	$(43)–$(57)	Improved
GAAP Tax Rate	FY 2025	~25%	~26%	Higher
Non-GAAP Tax Rate	FY 2025	16.5%	16.5%	Maintained
Diluted Shares (M)	FY 2025	274–276	273–275	Lower
Op Cash Flow ($B)	FY 2025	$1.6–$1.7	$1.6–$1.7	Maintained
Revenue	Q2 2025	—	$1.25B–$1.27B	New quarter guide
GAAP EPS	Q2 2025	—	$0.89–$0.95	New quarter guide
Non-GAAP EPS	Q2 2025	—	$1.55–$1.61	New quarter guide

Why raised: management cited stronger recurring revenue bookings and Q1 outperformance that carries through the year; guidance assumes export controls remain similar; tariff-related expense modestly higher but manageable .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 & Q4 2024)	Current Period (Q1 2025)	Trend
AI initiatives (Cerebrus, agentic AI)	AI portfolio proliferating; record hardware; SDA +40% in 2024	~50 new Cerebrus logos; >1,000 tapeouts; collaborating with NVIDIA on agentic AI (Nemotron)	Accelerating
Hardware demand/capacity	Best-ever Q4 hardware; strong hyperscaler demand	Demand > supply; diversified production lines; limited direct tariff impact	Strong but supply-limited
China/macro/tariffs	China improving to 13% of revenue in Q3; macro headwinds watched	Assuming China flat for FY25; no customer behavior change; tariffs not material due to mix and supply chain	Cautious/stable
IP momentum	Q4 IP +28% YoY; major protocol/interface wins	IP +40% YoY; DDR5 MRDIMM Gen2 12.8Gbps announced	Accelerating
SDA/Systems & Digital Twins	SDA strong in 2024; multi-physics + AI	SDA >50% YoY; data center digital twin momentum with hyperscalers	Accelerating
Foundry ecosystem/Intel	—	Joined Intel Foundry Accelerator Design Services; sees opportunity at Intel under new leadership	Improving
Foundation IP strategy	—	Definitive agreement to acquire Arm Artisan Foundation IP; not in guidance	Expanding

Management Commentary

Strategy and demand: “We haven't seen any shifts in customer behavior… customers are investing in their next-generation designs… Our ratable software business model, strong Q1 exit backlog and… AI-driven product innovations… provide resilience and excellent visibility” .
Financial posture: “We repurchased more Cadence shares than initially planned in Q1… We are raising our 2025 revenue and EPS outlook” .
Tariffs and supply chain: “Software and services are not subject to tariffs… we have multiple manufacturing lines in U.S. and outside U.S.… we don't believe… tariffs will have [an] effect on our hardware business” .
Hardware demand: “Hardware revenue is limited by our production capacity because demand continues to outstrip our ability to supply” .

Q&A Highlights

China outlook: Strong design activity, but guide assumes China flat for 2025 out of prudence .
Tariff exposure: Minimal given software mix and diversified hardware manufacturing footprint inside and outside U.S. .
Hardware capacity/pricing: Demand exceeds capacity; diversified lines (incl. Mexico and other locations) mitigate risk .
Licensing/cloud model with GPUs: Transitioning to richer cloud SaaS offerings; packaging hardware + software (e.g., Millennium) while maintaining traditional term licensing .
Intel opportunity: Sees room for share gains as Intel re-engages ecosystem; discussions underway .
Foundation IP acquisition: Arm Artisan deal announced; explicitly excluded from guidance .
Agentic AI deployment: Initial focus on verification (SimAI), digital implementation (Cerebrus), packaging/PCB (Allegro X AI), and analog migration .

Estimates Context

Q1 2025: Revenue $1.242B vs $1.241B consensus*; non-GAAP EPS $1.57 vs $1.50 consensus* — both beats .
Q4 2024: Revenue $1.356B vs $1.347B consensus*; non-GAAP EPS $1.88 vs $1.82 consensus* — both beats .

Metric	Period	Consensus*	Actual	Result
Revenue ($USD Billions)	Q4 2024	$1.347*	$1.356	Beat
EPS (Non-GAAP, $)	Q4 2024	$1.82*	$1.88	Beat
Revenue ($USD Billions)	Q1 2025	$1.241*	$1.242	Beat
EPS (Non-GAAP, $)	Q1 2025	$1.50*	$1.57	Beat

Values retrieved from S&P Global.

Where estimates may adjust: upward bias to FY25 non-GAAP EPS and revenue given recurring revenue beat/flow-through and improved OI&E range, partially offset by slightly higher GAAP tax rate assumption .

Key Takeaways for Investors

Cadence’s AI-led product cycle is driving broad growth (IP +40%, SDA >50%, core EDA +16% YoY), with Cerebrus adoption and hyperscaler hardware proliferation underpinning multi-quarter momentum .
The business remains resilient: 80% recurring revenue (company target), $6.4B backlog and $3.2B cRPO support raised FY25 outlook and visibility .
Hardware demand outpaces supply; near-term upside exists if capacity increases, but management’s diversified manufacturing limits tariff and supply chain risk .
Macro/China caution is embedded (assumed flat), providing potential upside if demand in China accelerates; export control/tariff assumptions remain a watch item .
Strategic M&A broadens TAM: Arm Artisan Foundation IP brings foundational libraries/compilers into the portfolio (closing 2H25, not in guidance) .
Q2 2025 guide implies continued strength (rev $1.25–$1.27B; non-GAAP EPS $1.55–$1.61); beats in recurring revenue tend to carry through subsequent quarters .
Near-term trading setup: positive skew from raised FY25 guide and AI narrative reinforcement; watch for hardware delivery cadence, China policy headlines, and timing of Foundation IP close .

Additional Relevant Press Releases in Q1 2025

Cadence to acquire Arm Artisan Foundation IP business (definitive agreement; expected close Q3 2025) .
Industry-first DDR5 12.8Gbps MRDIMM Gen2 memory IP system solution for AI/HPC/data centers .
Expanded NVIDIA collaboration on Grace Blackwell and agentic AI for engineering and science (Llama Nemotron Reasoning Model) .

Footnote: Values marked with an asterisk (*) are consensus estimates retrieved from S&P Global.

CADENCE DESIGN SYSTEMS INC (CDNS)·Q1 2025 Earnings Summary