Cadence's record $8.2 billion backlog covers fewer years of sales

Revenue is up 22%, and raised 2026 guidance points to 21% growth. Backlog has risen only 5% since December, reducing sales coverage to 1.34 years from 1.47 at the end of 2025.

Cadence reported a record backlog of $8.2 billion on Monday. That backlog now covers 1.34 years of sales, against 1.47 at the end of 2025.

Revenue is outrunning backlog because more sales are booked and delivered inside the same year. The board also approved an additional $2.5 billion buyback authorisation, which is a ceiling on spending. Third quarter repurchases of $400 million already exceeded free cash flow of $362 million.

Cadence reported strong quarterly growth. Revenue was $1.633 billion, up 22% from $1.339 billion a year earlier, with double digit growth in every product category. Chief financial officer John Wall said growth was "driven by growing momentum from AI-driven designs".

Cadence raised its 2026 revenue range to $6.387 billion to $6.417 billion from $6.26 billion to $6.34 billion.

Why backlog covers less revenue

Backlog rose too, but more slowly. It went from $7.8 billion at the end of 2025 to $8.2 billion, up 5%. Revenue for the nine months rose 22% on the year.

Backlog divided by trailing twelve month revenue shows the effect. Revenue for the twelve months to 30 September was about $6.13 billion, so $8.2 billion is 1.34 times sales.

The same calculation gives 1.47 for 2025, 2024 and 2023, and 1.63 for 2022. Cadence does not report this ratio. It is our calculation from the CFO commentary.

Upfront revenue, which is booked when a product ships, explains part of the shift. It was 21% of third quarter sales against 18% a year earlier. It peaked at 23% in the first quarter of 2026, then slipped to 22% and 21%.

Over the trailing twelve months upfront revenue is 22% of sales against 20%. A larger upfront share means less of each year is covered by contracts signed before it starts.

Cadence guides to 64% of 2026 revenue coming from backlog it held on 1 January, down from 69% in 2025. On the $6.4 billion midpoint, that is $4.1 billion, or 53% of the $7.8 billion opening backlog.

The other $2.3 billion has to be sold and recognised inside the year. That amount depends on deliveries rather than contracts already signed, making it a measure to watch.

Growth varied across the businesses. System Design and Analysis grew 30%, IP 24% and core EDA 20%. Core EDA is electronic design automation, the chip design software at the centre of the business. Hardware had what the release calls another record quarter.

Cadence also reports 16 new digital and signoff full flow wins in core EDA. China was 16% of revenue against 18% a year earlier. In dollars that is about $261 million against $241 million, so China still grew.

Backlog measures contracts rather than demand. About 79% of revenue is recurring, so part of the lower multiple is simply growth.

But trailing recurring revenue slipped to 78% from 80%. And only $4.2 billion of the $8.2 billion backlog converts into revenue within twelve months.

Buybacks and free cash flow

The buyback also puts pressure on cash flow. Cadence repurchased $400 million of stock in the quarter, 1.305 million shares at an average of about $306. Buybacks ran at $200 million a quarter for the year before.

That $400 million was 110% of third quarter free cash flow. Free cash flow is operating cash flow of $424 million less $62 million of capital spending. The buyback was $38 million above it.

Over nine months the picture is less stretched. Free cash flow was $1.25 billion and repurchases were $800 million, or 64%. Adding $196 million of stock withheld for employee taxes lifts that to 80%.

The additional $2.5 billion is 2.0 times nine month free cash flow. It is 1.4 times the roughly $1.76 billion expected for the full year. At the $322.17 close on 26 October it would retire 7.8 million shares, or 2.8% of the 275 million diluted count.

Operating cash flow is guided to about $2.0 billion for 2026. A pace of $400 million a quarter is $1.6 billion a year. The new authorisation therefore gives Cadence room to buy more stock without committing it to spend.

Cash, debt and margins

Cash fell to $1.45 billion from $3.0 billion at the end of 2025, after $2.14 billion went on acquisitions. Cadence says about 15% of that cash is in the US, roughly $218 million.

Debt principal is $2.65 billion, so net debt is $1.2 billion. That includes $150 million on the revolving credit facility, after $875 million drawn and $725 million repaid this year. Another $499 million of long term debt falls due within a year.

Margins fell as well. GAAP operating margin fell to 26.2% from 31.8%. Amortisation of acquired intangibles rose to 4.9% of revenue from 1.9%, and restructuring took 2.6%.

Non GAAP operating margin was 44.1% against 47.6%. Non GAAP earnings per share rose to $2.11 from $1.93, while GAAP earnings per share stayed at $1.05.

The acquisitions also lifted goodwill to $4.93 billion from $2.75 billion. Acquired intangibles on the balance sheet rose to $1.79 billion from $718 million.

Other balance sheet lines moved with the larger business. Inventories rose to $449 million from $304 million at the end of 2025. Days sales outstanding, a measure of how long customers take to pay, were 66 against 55 a year ago. Headcount reached 15,753 from 13,693.

Fourth quarter guidance

The profit guide also moved. Cadence now expects 2026 non GAAP earnings per share of $8.37 to $8.43, up 17% to 18%. For the fourth quarter it guides GAAP operating margin of 30% to 31%, up from 26.2% in the third.

The fourth quarter will settle the coverage question by the 31 December year end. Cadence guides revenue to $1.695 billion to $1.725 billion, up 18% to 20%. With backlog at or above $8.2 billion, coverage holds near 1.3 times. A lower year end backlog would mean coverage is still shrinking.