Cadence lifts 2026 revenue growth outlook to 21% as backlog reaches record $8.2 billion

Cadence Design Systems raised its 2026 revenue growth outlook to 21% on October 26 after third-quarter revenue rose 22% to $1.633 billion from $1.339 billion a year earlier, and backlog reached a record $8.2 billion. Full-year non-GAAP earnings guidance rose to $8.37 a share to $8.43 a share from $8.05 to $8.15, and GAAP operating margin narrowed to 26.2% from 31.8%.

A record backlog and a third guidance raise

Cadence now expects 2026 revenue of $6.387 billion to $6.417 billion, up from a prior outlook range of $6.26 billion to $6.34 billion, and full-year growth of 21% against the 18% to 20% range in that prior outlook. Non-GAAP earnings guidance rose to $8.37 to $8.43 a share from $8.05 to $8.15, while GAAP earnings guidance moved to $4.84 to $4.90.

The fourth quarter carries a revenue guide of $1.695 billion to $1.725 billion and non-GAAP earnings of $2.19 to $2.25 a share. That implies 18% to 20% growth, slower than the 22% reported for the third quarter. The CFO commentary says Cadence exceeded its own third-quarter guidance for revenue, non-GAAP operating margin and non-GAAP EPS, without restating those earlier ranges.

Backlog ended the quarter at a record $8.2 billion, and revenue expected to be recognized over the next 12 months from remaining performance obligations was $4.2 billion. Recurring revenue rose 18%, but total revenue rose 22%, so recurring revenue slipped to 79% of the total from 82% a year earlier while up-front revenue rose to 21% from 18%. Core EDA revenue grew 20% from a year earlier, semiconductor IP 24% and System Design and Analysis 30%, the company said. China accounted for 16% of revenue, down from 18% a year earlier.

“Cadence delivered an outstanding third quarter. With broad-based business momentum, expanding technology leadership and a record backlog, we are raising our 2026 revenue outlook to 21% year-over-year growth,” chief executive Anirudh Devgan said in the release.

GAAP margins compress as acquired intangibles pile up

GAAP operating margin fell to 26.2% from 31.8%, a decline of 5.6 points, while non-GAAP operating margin fell 3.5 points to 44.1% from 47.6%. The GAAP-to-non-GAAP reconciliation lists five items: amortization of acquired intangibles rose to 4.9% of revenue from 1.9%, restructuring to 2.6% from 2.0%, stock-based compensation to 8.9% from 8.7%, and non-qualified deferred compensation credits to 0.0% from 0.4%, while acquisition and integration costs fell to 1.5% from 2.8%.

In dollars, amortization of acquired intangibles was $79.87 million against $25.98 million, and restructuring $42.16 million against $27.39 million. Those charges help explain why revenue growth of 22% produced GAAP net income of $289.75 million, up 0.9% from $287.12 million, and GAAP diluted earnings of $1.05 a share, unchanged from a year earlier. Non-GAAP net income rose to $582.19 million from $528.21 million, and non-GAAP diluted earnings rose 9.3% to $2.11 a share.

“Q3 revenue grew 22% year-over-year, with strong double-digit growth across all product categories, driven by growing momentum from AI-driven designs,” chief financial officer John Wall said. “With record backlog of $8.2 billion and continued strength in recurring revenue, we are poised to deliver a strong 2026.”

Cash, buybacks and the fourth-quarter bar

Operating cash flow was $424 million, up from $311 million, and free cash flow $362 million against $277 million. Cadence used $400 million to repurchase shares in the quarter and said its board authorized an additional $2.5 billion for the program.

The outlook assumes a 16.5% non-GAAP tax rate and about 64% of 2026 revenue from beginning backlog, down from roughly 65% in the prior outlook. It also leans on the fourth quarter: the $1.695 billion to $1.725 billion revenue guide is 18% to 20% above the year-earlier quarter, while non-GAAP earnings of $2.19 to $2.25 a share compare with $1.99 a year earlier.

The balance sheet and cash flow statement, both stated in thousands, show what the acquisitions cost: $2.14 billion paid for business combinations in the first nine months, net of cash acquired, against $250.7 million a year earlier. Goodwill rose to $4,926,955 from $2,749,143 at December 31, 2025, acquired intangibles, net, to $1,792,006 from $718,223, and cash and cash equivalents fell to $1,452,020 from $3,001,317. The exhibits do not name the acquisition targets, do not identify the acquired businesses behind the higher amortization, and give no profit measure by product category. Management discusses the results on a webcast scheduled for 5 p.m. Eastern on October 26.