Electronic design automation company Cadence Design Systems (NASDAQ: CDNS) announced better-than-expected revenue in Q3 CY2025, with sales up 10.1% year on year to $1.34 billion. Its non-GAAP profit of $1.93 per share was 7.8% above analysts’ consensus estimates.
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Cadence Design Systems (CDNS) Q3 CY2025 Highlights:
- Revenue: $1.34 billion vs analyst estimates of $1.33 billion (10.1% year-on-year growth, 0.9% beat)
- Adjusted EPS: $1.93 vs analyst estimates of $1.79 (7.8% beat)
- Management raised its full-year Adjusted EPS guidance to $7.05 at the midpoint, a 2.2% increase
- Operating Margin: 31.8%, up from 28.8% in the same quarter last year
- Free Cash Flow Margin: 20.7%, down from 26.1% in the previous quarter
- Billings: $1.36 billion at quarter end, up 9.1% year on year
- Market Capitalization: $94.04 billion
“Cadence delivered excellent results for the third quarter of 2025. With a record backlog and ongoing broad-based strength of our business, we are raising our full year revenue outlook to ~14% growth year-over-year,” said Anirudh Devgan, president and chief executive officer.
Company Overview
Powering the chips behind everything from smartphones to AI accelerators for over 35 years, Cadence Design Systems (NASDAQ: CDNS) provides essential computational software, hardware, and intellectual property used by engineers to design and verify advanced electronic systems and semiconductors.
Revenue Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Cadence Design Systems grew its sales at a 15.6% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds. Luckily, there are other things to like about Cadence Design Systems.
We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Cadence Design Systems’s annualized revenue growth of 15.3% over the last two years aligns with its five-year trend, suggesting its demand was stable. 
This quarter, Cadence Design Systems reported year-on-year revenue growth of 10.1%, and its $1.34 billion of revenue exceeded Wall Street’s estimates by 0.9%.
Looking ahead, sell-side analysts expect revenue to grow 9.7% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.
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Billings
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Cadence Design Systems’s billings punched in at $1.36 billion in Q3, and over the last four quarters, its growth was impressive as it averaged 21.8% year-on-year increases. This alternate topline metric grew faster than total sales, meaning the company collects cash upfront and then recognizes the revenue over the length of its contracts - a boost for its liquidity and future revenue prospects. 
Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Cadence Design Systems is extremely efficient at acquiring new customers, and its CAC payback period checked in at 7.7 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Cadence Design Systems more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.
Key Takeaways from Cadence Design Systems’s Q3 Results
It was great to see Cadence Design Systems’s full-year EPS guidance top analysts’ expectations. We were also happy its billings narrowly outperformed Wall Street’s estimates. On the other hand, its EPS guidance for next quarter was in line. Overall, this print had some key positives. Investors were likely hoping for more, and shares traded down 1.4% to $346.87 immediately following the results.
Is Cadence Design Systems an attractive investment opportunity right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.
