Prepared remarks
Good afternoon. My name is Abby. I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence second quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. Thank you. I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead.
Thank you, operator. I would like to welcome everyone to our second quarter of 2026 earnings conference call. I'm joined today by Anirudh Devgan, President and Chief Executive Officer, and John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call and a copy of today's prepared remarks will be available on our website, cadence.com. Today's discussion will contain forward-looking statements, including our outlook on future business and operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussion. For information on factors that could cause actual results to differ, please refer to our SEC filings, including our most recent Forms 10-K and 10-Q, CFO commentary, and today's earnings release. All forward-looking statements during this call are based on estimates and information available to us as of today, and we disclaim any obligation to update them. In addition, all financial measures discussed on this call are non-GAAP, unless otherwise specified. The non-GAAP measures should not be considered in isolation from or as a substitute for GAAP results. Reconciliations of GAAP to non-GAAP measures are included in today's earnings release. For the Q&A session today, we would ask that you observe a limit of one question only. If time permits, you can re-queue with additional questions. Now I'll turn the call over to Anirudh.
Thank you, Richard. Good afternoon, everyone, and thank you for joining us today. I'm very pleased to report that Cadence delivered outstanding financial results for the second quarter of 2026, with all key metrics exceeding our guidance. We exited the quarter with record backlogs that were above our expectations. We are seeing growing demand for our AI-driven solutions across our expanding customer base. The AI transformation is driving strong, broad-based performance across both design-for-AI and AI-for-design fronts. Given the growing business momentum and accelerating demand, we are raising our guidance for the year to 19% revenue growth and with higher profitability as we become more central to our customers as a strategic and trusted partner. John will provide more details on both our Q2 results and the updated financial outlook. Let me start with the overall environment. Design activity is growing as AI drives exponential design complexity and a new generation of system architectures spanning hyperscaler infrastructure and physical AI. Customers are investing aggressively in these opportunities, led by AI and HPC, and we are also seeing continued signs of improvement across the more traditional analog and consumer verticals. Chip and system design present demanding engineering challenges that require deterministic physics-based engines, proprietary silicon-correlated data, and deep design knowledge. Our three-layer cake framework uniquely brings these capabilities together with accelerated compute and data at the bottom layer, physically accurate simulation and optimization solvers in the middle layer, and AI agents and orchestration at the top layer. Agentic AI is a demand accelerator for Cadence as autonomous agents expand the design exploration space and call our underlying physically accurate engines more often, creating a durable tailwind that represents a significant long-term TAM expansion opportunity. We extended our leadership in agentic AI with AuraStack AI Super Agent, delivering up to 15x higher productivity and 2x faster time to market for PCB and advanced packaging design. Cadence is now the only provider with agentic solutions spanning the full electronic system design flow, from digital and analog design and verification to advanced packaging and PCB. We see strong early traction across our AI Super Agent portfolio, with initial customer results demonstrating meaningful productivity improvement and better design outcomes. Our ChipStack AI Super Agent, enabling higher verification productivity and faster design cycles, has more than 20 customer engagements and is already deployed in production across multiple chip designs. At Computex 2026 together with NVIDIA, we introduced the industry's first fully autonomous virtual AI design engineer, extending ChipStack to even higher levels of autonomy. Early customer results include more than 40x faster RTL validation, reducing a typical five-week verification cycle to less than a day on a state-of-the-art advanced-node design. In analog and custom design, ViraStack is seeing strong customer interest with more than 25 customer engagements, achieving 2x to 10x productivity improvements compared to traditional design flows. InnoStack is also building momentum as customers adopt agentic AI for advanced-node SoC design. During the quarter, Rapidus announced a collaboration to integrate the Cadence InnoStack AI Super Agent into its AI agent design solution, targeting up to a 2x faster design turnaround. We continue to deepen our strategic partnerships across the ecosystem. We expanded our collaboration with Intel through a multi-year engagement focused on enabling its 14A process, leveraging our design IP and agentic AI-based EDA to co-optimize tool flows and methodologies for next-generation HPC and mobile design. This agreement is expected to be a meaningful driver of growth over the next few years. We also deepened our collaboration with Samsung Foundry on two-nanometer and 3D IC technologies, combining our AI-driven flows and design IP to enable next-generation AI, HPC, and mobile systems. Now, turning to our businesses. We are pleased that all product groups delivered double-digit year-over-year growth. Our IP business had an outstanding quarter, growing over 40% year-over-year. AI performance is increasingly constrained by data movement, memory bandwidth, and advanced packaging, and our differentiated IP portfolio continued to see strong adoption. This was reflected in the strong demand for our star IP portfolio in AI and HPC applications, including PCIe, UCIe, HBM, and LPDDR6. We also expanded engagement with leading memory, semiconductor, and aerospace customers. We secured our first-ever Tensilica DSP design win with STMicroelectronics, reinforcing our strength in automotive and audio applications. Core EDA grew 18% year-over-year, driven by growing adoption of our AI solutions. Proliferation of our digital full-flow solutions continued. We saw expanded adoption of Tempus and Certus sign-off tools on leading-edge designs with wins across hyperscalers, top semiconductor companies, and startups. We also expanded our implementation and sign-off footprint at frontier AI companies, as well as at a marquee ASIC silicon vendor, underscoring their differentiated value in enabling the industry's most advanced designs. In analog, we had a significant competitive win with Spectre at a leading semiconductor supplier. Our FastSPICE simulator, Spectre FX, notched several production wins at leading customers. Our hardware business delivered another record quarter, driven by continuous strength in Palladium Z3 and Protium X3. As designs approach unprecedented scale, hardware-assisted design and verification is becoming a strategic capacity layer for our customers' AI roadmaps. These customers are designing some of the most complex chips and systems in the world. They critically depend on our scalable, high-performance hardware platforms to realize their designs. Demand remains especially strong from AI and HPC customers, including hyperscalers and leading semiconductor companies. We added 12 new logos and saw a meaningful expansion with several marquee AI customers, as well as a notable competitive win with a major AI infrastructure provider. System design and analysis revenue grew 37% year-over-year. As AI system complexity increases, customers are increasingly turning to our advanced packaging and PCB solutions. Allegro X AI was adopted by several customers, driven by significant layout design time reduction. With our 3D IC technology and collaboration with TSMC's 3DFabric advanced packaging solutions, we are enabling customers to confidently design cutting-edge silicon for increasingly demanding AI workloads. In structural simulation, our BETA CAE business had several competitive displacements, while the integration of recently acquired Hexagon's D&E business is progressing well, with key deals closed with top customers. There is strong customer interest in our integrated full flow that combines our multi-physics products across the electrical, CFD, and structural domains to best address next-generation system design needs, including in the emerging field of physical AI. In summary, Q2 was a great quarter for Cadence. I'm delighted with the continuing momentum of our business. With accelerating design activity, we continue to execute strongly. Our competitive position has never been better as we lead the transformation to agentic AI in chip and system design. With that, I will turn it over to John to provide more details on our Q2 results and our updated 2026 outlook.
Thanks, Anirudh. Good afternoon, everyone. Cadence delivered excellent results for the second quarter of 2026 with accelerating momentum in AI and broad-based strength across all our businesses. Robust design activity and customer demand drove 24% year-over-year revenue growth for Q2, with double-digit growth across all our product groups. With strong execution, we generated Q2 operating margin of 45.5%. Second-quarter bookings resulted in a record backlog of $8.1 billion. Here are some of the financial highlights for the second quarter, starting with the P&L. Total revenue was $1,584 million. GAAP operating margin was 28.4%. Non-GAAP operating margin was 45.5%. GAAP EPS was $1.33. Non-GAAP EPS was $2.11. Turning to the balance sheet and cash flow. Our cash balance was $1,440 million, while the principal value of debt outstanding was $2,500 million. Operating cash flow was $635 million. DSOs were 65 days. We used $200 million to repurchase Cadence shares. Before I provide our updated outlook, I'd like to highlight that it contains the useful assumption that export control regulations that exist today remain substantially similar for the remainder of the year. For our updated outlook for 2026, we now expect revenue in the range of $6,260 to $6,340 million. GAAP operating margin in the range of 27.75% to 28.75%. Non-GAAP operating margin in the range of 43.75% to 44.75%. GAAP EPS in the range of $4.76 to $4.86. Non-GAAP EPS in the range of $8.05 to $8.15. Operating cash flow of approximately $2 billion. We expect to use approximately 50% of our free cash flow to repurchase Cadence shares in 2026. For Q3, we expect revenue in the range of $1,595 to $1,625 million. GAAP operating margin in the range of 27.5% to 28.5%. Non-GAAP operating margin in the range of 43.5% to 44.5%. GAAP EPS in the range of $1.11 to $1.17. Non-GAAP EPS in the range of $2.01 to $2.07. As usual, we published a CFO commentary document on our investor relations website, which includes our outlook for additional items, as well as further analysis and GAAP and non-GAAP reconciliations. In conclusion, I'm pleased with our strong first half results and the robust pipeline and momentum heading into the second half of the year. At the midpoint, we now expect revenue growth of 19%, operating margin of 44.25%, EPS of $8.10, and operating cash flow of $2 billion for the year. As always, I'd like to close by thanking our customers, partners, and our employees for their continued support. With that, operator, we will now take questions.
Questions and answers
Thank you. At this time, I would like to remind everyone who would like to ask a question to please press star 1 on your telephone keypad. As a courtesy to all participants, we ask that you please limit yourself to one question. We will pause for just a moment to compile the Q&A roster. Our first question comes from the line of Joe Quatrochi with Wells Fargo. Your line is open.
Thanks for taking the question. Maybe first, wonder if you could give us any help. You talked about agentic AI as being a long-term TAM expansion opportunity. Is there any quantification that you could give us on that TAM at this point? Maybe how do we think about that as driving EDA as a percent of R&D expense into maybe higher over time?
Joe, thanks for the question. The great thing about agentic AI is it opens up a new TAM opportunity and at the same time it calls more of our underlying physically accurate software. Going back to the three-layer framework, it's a new opportunity at the top layer and it reinforces the middle layer. We are pleased by the interest. The interest is strong — almost all the big customers want to engage in our agent stack, and now we have four super agents. It's a great opportunity for us. In terms of results, we had great results in Q2 and the year so far, and there's strength in different parts of the business. I'm particularly proud of the strength in the software businesses, looking at our recurring growth. That was particularly driven by strength of add-on business. We're seeing add-ons driven both for design-for-AI as our customers design more chips, and also AI-for-design, which is our agentic AI portfolio. You can see that in our results. What is particularly impressive — and this is the highest raise we have had — is that it is broad-based, including software and AI contributing to that growth. We'll see how things progress for the rest of the year.
Joe, if I could just add, the customer engagement continues to accelerate. We're seeing increased evaluations, pilots, and early deployments, and we continue to expect monetization through both the new workflow products as well as increased usage of underlying engines. Just to be clear, we're still not assuming a sudden step function in our guidance. The opportunity is continuing to develop well, though.
Our next question comes from the line of Joe Vruwink with Baird. Your line is open.
Great. Thanks. Staying on this topic, I wanted to ask about open source models designing chips. Maybe if I just take Kimi at face value, it seems like an agent sought out EDA tools and then orchestrated the flow when tasked with chip design. I guess my question is, the implication for Cadence from all of this — two things come to mind. One, if customers now have agents capable of accessing your EDA tools, does that drive higher usage and more net consumption ultimately? Then two, where do you think the differentiation lies with a customer buying the Cadence mental models for orchestration versus customers maybe deciding to build on their own?
Thanks for the question. I've said for years that real AI orchestration and monetization will happen through the three-layer cake. The top layer is AI agents and orchestration, the middle layer is our traditional physically accurate tools — the ground truth — and the bottom layer is compute and data. This framework is being confirmed by recent events. The value of AI will go more vertical than horizontal, and even in chip design the value is in the agentic framework, the mental models, the knowledge graphs, and then calling physically accurate tools on a rich set of hardware. In the Kimi example, they worked on a small block with older technology; even for that they needed EDA tools. Open source EDA has existed for decades and is used in some university or specialized settings. To do real designs, people use Cadence. The differentiation will be in all three layers. We want to differentiate across the knowledge graph and mental model and how we do reinforcement loops at the agents, how we call the middle layer via deep API access and the strength of our traditional tools, and in the bottom layer through our hardware platforms like Palladium and our other systems. Our differentiation across all three together is stronger than it has ever been. Customers may always have their own agents, just like they have their own flows now. To do mission-critical tasks, they increasingly depend on Cadence, as you are seeing in our engagements.
Joe, Anirudh often points out that agentic AI actually increases demand because agents invoke EDA tools continuously while exploring more design alternatives, and Kimi was a good example of that.
Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is open.
Thanks for taking my question. I know the IP business has accelerated to over 40% growth. I'm curious, what's driving this? How much is organic versus inorganic, and what is the sustainable growth rate for IP? If we zoom out, I just wanted to clarify with John what the contribution is now with Hexagon and the EPS dilution. Thank you.
Sure. On Hexagon contribution, Hexagon is delivering as we originally expected, and it continues to contribute to SDA growth. The strength in our SDA numbers is much broader. We're seeing momentum in 3D IC, advanced packaging, PCB, multi-physics, and physical AI. The integration of Hexagon D&E is progressing well, and we see a significant opportunity to strengthen both the technology portfolio and go-to-market over time. On the IP side, IP had an outstanding quarter driven by AI, HPC, advanced-node activity, memory bandwidth, chiplets, and advanced packaging. There were strong customer engagements and meaningful wins. IP revenue can be timing dependent quarter to quarter. We're pleased with the momentum; I wouldn't annualize any one quarter. Our competitive position continues strengthening across interface IP, memory IP, and foundation IP. As Anirudh called out, the Intel relationship represents another example of customers choosing broader strategic engagement with us. Anirudh, would you like to add?
Thanks, John. Vivek, very pleased with the IP performance and SDA performance. Both IP and SDA now have meaningful scale and are approaching a billion-dollar run rate, which gives a lot of strength to engage with customers. On IP specifically, there are three big reasons for the acceleration. One, the quality of our IP — power, performance, area — for leading nodes is better, and we are getting competitive wins we would not have two years ago. Two, our IP strategy is more focused on leading nodes and on star IP for AI and HPC segments — interface IP and memory IP are super critical. Three, the foundry ecosystem is more diverse. We mentioned Intel, Samsung, Rapidus. These foundry partnerships expand the market for our IP. Most of the recent growth is organic. We'll see how it proceeds, but the signs are positive.
Our next question comes from the line of Siti Panigrahi with Mizuho. Your line is open.
Thanks for taking my question. Apologies for the background noise. Anirudh, I'm at DAC conference, and I can tell you the key theme here is agentic AI, which kind of validates what you said. My key question is, you talked about some of these agents — super agents, ChipStack, ViraStack — that your customers have been using. Wondering, what kind of feedback you are getting and the cost savings and the value that you bring to the customer. I know John earlier talked about monetization, which might take contract renewal or cycle time. As you see the usage, are you seeing any kind of accelerating adoption where the timeline can be compressed?
Siti, demand is strong for these agents. The use cases we've publicly discussed show 2x to 10x improvements and, in some cases, 40x improvements. Those examples are a small subset of our engagements. The number of use cases and the benefits are real. Interest is high in terms of engagements and customers wanting to work with us. We launched these products in Q1 and have been working with customers for roughly six months. Early add-on business is encouraging, but we're still in the early days; we'll see how it goes. So far, the demand is tremendous.
Siti, we view agentic AI as a demand accelerator. Customers are not trying to do less design work; they are trying to keep up with design complexity, which is accelerating faster than engineering headcount can scale. As agents expand the design exploration space and call the underlying Cadence engines more often, that creates opportunities for new agentic workflow products and increased use of our core tools.
Our next question comes from the line of Jim Schneider with Goldman Sachs. Your line is open.
Good evening. Thanks for taking my question. Continuing on the agentic AI theme, could you maybe talk a little bit about some of the add-on engagements you're seeing for those tools and to what extent you're seeing them across more than the sort of 20 to 25 customers you've already noted? If you could quantify the impact of those add-ons in terms of either the guidance arrays or what it could mean for core EDA software revenue in the next year, that'd be great. Thank you.
Jim, we're careful about projecting next-year numbers. To step back, three things excite me. One, the overall environment is much better than 12 months ago, with hyperscalers and AI semiconductor companies committing to more silicon. Two, our competitive position has never been better; we are taking share and getting deeper engagement across agentic AI, hardware, and IP. Three, this new TAM expansion opportunity from agentic AI is meaningful. Those three factors are leading to strong results and the raise in our guidance. Some of the benefit from agentic AI is already present, and as we are prudent, we will continue to monitor progress going forward.
Jim, the raise we did for the year reflects broad-based strength across the business rather than reliance on any single customer or product. We saw strong Q2 execution across core EDA, IP, hardware, and SDA, all benefiting from continued AI-driven demand.
Our next question comes from the line of Harlan Sur with JP Morgan. Your line is open.
Good afternoon. Thanks for taking my question. As the volume of AI inferencing compute workloads surpassed training workloads in the second half of last year, inferencing is much more memory-intensive. We've seen diversification of memory architectures to address inferencing — HBM DRAM, SRAM-based offload, CXL-based DRAM offload, even SSD or flash-based memory. Given the focus on these memory architectures and memory controller architectures, is this translating into tailwinds for your custom Virtuoso family of EDA tool solutions or tailwinds for your CXL-based or memory compiler IP portfolios, or both?
Harlan, that's a great point. The strength is broad-based and the analog group is seeing strong momentum. Virtuoso is the leading platform for analog, mixed-signal, and custom design in the industry, and the variety of architectures for inferencing — the memory, networking, and custom silicon efforts — are benefiting our analog, IP, verification, and hardware businesses. We're seeing more activity in startups and high-profile new entrants in AI, networking, and CPUs. Overall, the environment is supportive and will require Cadence products to enable that innovation.
The next question comes from the line of Charles Shi with Needham & Company. Your line is open.
Hi, good afternoon. Anirudh, one scenario on many people's minds is where in the future a prompt to a very powerful LLM could autonomously generate GDSII code that gets sent to a foundry directly for tape-out without running through commercial EDA tools. Do you think this so-called end-to-end LLM-based chip design is a real possibility at all? Or since you mentioned a three-layer cake, how should we think about that possibility?
Charles, I've said for years that improvements will happen through the three-layer cake. Agents like our super agents will be part of the picture, and our tools will remain central and run on varied hardware. The ground truth — physically accurate tools and silicon-correlated data — will prevail. If anything commoditization will likely happen more at the agent layer where there will be choices of LLMs, while the middle layer's physical accuracy remains critical. Customers want choice in LLMs for different tasks, and that is what we are seeing. The three-layer framework and criticality of our tools will continue.
Our next question comes from the line of Lee Simpson with Morgan Stanley. Your line is open.
Great. Thanks for squeezing me in. Maybe a generic competitive question. Cadence has expanded DTCO collaborations with Intel, built out its Samsung roadmap, and deepened relationships with TSMC. Your positioning in stacked-die and multi-chip designs is strong relative to peers. Exposure to digital design and IP interfaces may differ from Synopsys. Where are you seeing the most competitive pressure from peers in contested accounts? In the context of other agentic AI pushes at rivals, are you winning or losing share in digital implementation and verification at the leading edge?
Lee, I'm proud of the Intel collaboration — we've been working to improve our position there for a long time. The agreement is broad-based, covering DTCO, agentic EDA solutions, and IP. Our position has improved at Intel and Samsung over the last 6 to 12 months. In digital and verification we're strong in implementation and place-and-route, and we're also getting stronger in sign-off. Overall, our team, technology, and customer focus are the priorities, and I believe our position is very strong.
Our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Your line is open.
Great. Thank you. Great to hear another record hardware quarter. John, you mentioned hardware is a pipeline business and you wait to the middle of the year for better visibility for the second half. Can you speak to the type of demand activity you are seeing for hardware? I noticed inventory ticked up nicely in Q2, both year-over-year and quarter-over-quarter. Thanks.
Great question, Jason. We continue to see strong hardware demand, particularly from AI and HPC customers. Hardware-assisted verification is becoming a strategic capacity layer for customers designing the most complex chips and systems. There can be quarterly timing effects, but demand remains solid, and we continue to expect 2026 to be another record hardware year. Hardware remains supply-constrained by customer demand rather than demand-constrained — we're building the systems as quickly as we can to deliver against the backlog. Part of the increase through the year was due to hardware strengths, but we are seeing strengths right across the board.
Our next question comes from the line of Gianmarco Conti with Deutsche Bank. Your line is open.
Thank you for squeezing me in as well. Amazing performance on IP. Could you share a few more words on the Intel win — exactly what does that entail? What parts of the portfolio? Was that displacement? How big is the contract and how does it draw down over time? Is this in guides? Any details would be helpful. Thank you.
This is a multi-year arrangement, and while some benefit is this year, most of it is to come. We will also invest more in Intel and Intel customers, which is expected. The arrangement includes IP, EDA, and DTCO work. For IP, we'll make our portfolio available on Intel process technology. As Intel Foundry engages more customers, they may acquire IP from us. We are conservative in our projections. The Intel agreement is an important part of a broader set of drivers that are contributing to our raised outlook.
Gianmarco, I want to highlight there will be some incremental expense in the second half as we invest around opportunities like Intel and integrate Hexagon's D&E business. The second half's slightly lower margins than the first half reflect targeted investments, not a deterioration in the underlying model. Our organic incremental margins remain attractive and we expect acquisition and IP profitability to continue to improve into 2027.
Our next question comes from the line of Ruben Roy with Stifel. Your line is open.
Thanks, John. I was looking at the implied operating margin near 43% and R&D expenses up probably 19% year-over-year based on implied guidance for the full year versus around 10% growth last year. Hexagon accounts for part of that. How much of this is the core business, and is agentic AI go-to-market hiring already committed and driving some of the expense increase? How do you expect that to roll into 2027?
It's not just hiring; it's investment in systems and integration. We're investing to properly integrate Hexagon's D&E business and other systems design analysis capabilities. We're focused on improving margins for next year. We always include prudence in our expense expectations and give the team scope to invest to capture profitability opportunities. The focus in the second half is to capture those opportunities and set ourselves up for better operating margins in 2027.
Our next question comes from the line of Kelsey Chia with Citigroup. Your line is open.
Hello. Hi, Anirudh. Regarding Intel, is the engagement around 14A more likely an incremental driver to the sort of 20% to 25% growth that the team has been delivering for the IP business? Also, will it be a meaningful driver to the EDA business in the coming quarters or how long should we think about that trajectory as it relates to EDA?
Kelsey, the Intel business we announced is incremental to our existing engagements with Intel — this is a new multi-year agreement on top of what we already had. It includes multiple parts of our portfolio. As Intel Foundry engages customers, they may acquire IP and differentiated tools from us. The Intel agreement is part of broader strengths across IP, hardware, EDA, and agentic AI that are driving our results.
Our next question comes from the line of Jay Vleeschhouwer with Griffin Securities. Your line is open.
Thank you. Anirudh, I'd like to ask about the practical implications and requirements for implementing AI and agents. When you think about pre-sale and post-sale support and customer support, how does that compare to classical EDA? Is there something quantitatively or qualitatively different now? For example, we've seen an uptrend in your AE openings, which is a leading indicator for adoption. Also, you've said GenAI is on the critical path for agentic adoption. Could you talk about that?
Jay, great question. Generally, we'll invest in R&D and application engineering as we grow, but agentic AI does not require a massive step increase in investment. We are asset light; customers provide the compute. Some skills are different, but our teams can pick up agentic AI capabilities. We are hiring AEs and other staff, but agentic AI also offers opportunities to make our teams more productive by applying AI internally — for example, enabling AEs to focus more on pre-sales rather than repetitive post-sales tasks. We are deploying AI for software development and within our agent stack to improve efficiency. You should not model a massive one-time investment specifically for agentic AI. The investments we mentioned earlier are more for SDA integration and targeted go-to-market efforts.
Our next question comes from the line of Joshua Tilton with Wolfe Research. Your line is open.
Hey, guys. Thanks for sneaking me in. One clarification and one thematic question. On clarification, could you unpack what's driving strength in other recurring revenue? That stood out this quarter. Thematic: you mentioned becoming more of a strategic partner. From a business perspective, are you growing wallet share, charging more, or otherwise capturing more financial value because you're becoming more strategic?
I'll take the recurring revenue question. Recurring revenue grew about 24% year-over-year in Q2, driven primarily by strong core EDA growth, some AI-driven demand, share gains, healthy renewals, and expansions through add-on business. Hexagon contributed roughly four points; adjusting for that, recurring revenue growth is in the high teens to around 20% on a pro forma basis. We expect full-year mix to be roughly 80% recurring and 20% upfront. Regarding agentic AI monetization, customers continue to purchase our underlying EDA software and also purchase Cadence agent licenses that orchestrate engineering workflows. Our economics scale with customer adoption.
Josh, we've always been strategic to semiconductor customers because our software is central to product development. Recently, our engagement is at a higher level across organizations because EDA and agentic AI are becoming critical to customers' roadmaps. As customers get more value from us through deeper engagements — DTCO, IP, agentic workflows — we can capture more value. The system companies now view semiconductor as essential and Cadence as a strategic partner, and that leads to deeper wallet share and stronger monetization, as you see in our results.
Our final question comes from the line of Gary Mobley with StoneX. Your line is open.
Thanks for sneaking me in. One thing that stands out is about a 55% increase in bookings in the first half versus the same period last year. I assume you'll build on a seasonally strong second half. What is driving that booking strength? Is it the chip cycle, strong chip design activity, or some of the AI tools driving increased usage of more copies of classic EDA tools?
Great question. Anirudh has spoken to this strategy. We're executing against our intelligent system design strategy, and the underlying structural demand drivers are strengthening: semiconductor complexity, AI infrastructure investment, engineering productivity needs, physical AI, and agentic workflows. These trends are early and are feeding into solid bookings. This year is probably one of the lower years in the three-year renewal cycle, yet we're seeing very good strength in add-on opportunities. I'm pleased with the progress.
John summarized it well. This year is typically a lower bookings year in the renewal cycle, but the combination of a better environment, improved competitive position, and the new TAM expansion from agentic AI explains the strong first-half results. It sets us up well for the rest of the year and beyond.
I would now like to turn the call back over to Mr. Anirudh Devgan for closing remarks.
Thank you all for joining us this afternoon. It's an exciting time for Cadence as we enter the second half of 2026 with AI-driven product leadership and strong business momentum. On behalf of our employees and our board of directors, we thank our customers, partners, and investors for their continued trust and confidence in Cadence.
Ladies and gentlemen, thank you for participating in today's Cadence second quarter 2026 earnings conference call. This concludes today's call. You may now disconnect.