CDNS 10-K & 10-Q changes, risk factors and insider trading

Our operations and financial results are subject to various risks and uncertainties, including those described in the sections below, that could adversely affect our business, financial condition, results of operations, cash flows, liquidity, revenue, growth,growth prospects, demand for our products and services, reputation and the trading price of our common stock, and make an investment in us speculative or risky. The following does not summarize all of the risks that we face, and there may be additional risks or uncertainties that are currently unknown or not believed to be material that occur or become material.

•Uncertainty in the global economy and instability within international relations, including changes in governmental policies relating to technology, and any potential downturn in the semiconductor and electronics industries, may negatively impactaffect our business and reduce our bookings levels and revenue.

•We are subject to governmental export and import controls that could subject us to liability orand impair our ability to compete in global markets as well as a variety of other laws and regulations.

•We may not realize opportunities presented by AI and may incur reputational and financial harm and liability as a result of issues inrelating to the developmentmanagement and governance of our use of AI.

•Cyberattacks that compromise the confidentiality, integrity or availability of our or our third-party providers’ information technology systems or confidential information could materially harm our reputation, business, reputationfinancial condition and financialresults condition.of operations.

•Our business is subject to the risk of natural disasters anddisasters, global climate change.change and other catastrophic events.

•Our debt obligations expose us to risks that could adversely affect our business, operatingfinancial condition and results orof financial condition,operations, and could prevent us from fulfilling our obligations under such indebtedness.

•Various factors could increase our future borrowing costs or reduce our access to capital, including a lowering or withdrawal of the ratings assigned to us and our NewSenior Notes by credit rating agencies.

Purchases of our products and services are dependent upon the commencement of new design projects by semiconductor and electronics systems companies. The ICsemiconductor and electronics systems industries are cyclical and are characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life cycles and wide fluctuations in product supply and demand. The semiconductor and electronics systems industries have also experienced significant downturns in connection with, or in anticipation of, maturing product cycles of both these industries’ and their customers’ products.

Uncertainty caused by challenging global political and economic conditions, including inflation, interest rates, bank failures, U.S.government deficit concerns, government shutdowns or political stalemates, geopolitical conflicts and other adverse changes to international relationships among countries in which we or our customers operate or do business, protectionist measures or decline in corporate or consumer spending could negatively impact our customers’ businesses, reducing the number of new chip designs and their overall research and development spending, including their spending on our products and services, and as a result decrease demand for our products and services. Adverse developments that affect financial institutions, transactional counterparties or other third parties, such as bank failures and failure by the U.S. Congress to increase the U.S. federal debt ceiling on a timely basis, or concerns or speculation about any similar events or risks, have led and could lead to further credit downgrades and market-wide liquidity problems, which in turn may cause customers and other third parties to become unable to meet their obligations under various types of financial arrangements as well as general disruptions or instability in the financial markets. Public health emergencies and reactionary measures by governments and businesses have also had, and could in the future have, the effect of curtailing economic activity and causing substantial volatility and disruption in global markets. Decreased bookings for our products and services, customer bankruptcies, consolidation among our customers, or problems or delays with our hardware suppliers or with the supply or delivery of our hardware products could also adversely affect our ability to grow our business or adversely affect our future revenue and financial results.

There is inherent risk, based on the complex relationships between certain countries and within regions, that political, diplomatic or military events could result in trade disruptions and other disruptions in the markets and industries we serve and our supply chain. A significant disruption in any area where we or our customers operate or do business could reduce customer demand, make our products and services more expensive or unavailable for customers, increase the cost of our products and services, have a negative impact on customer spending, make our products less competitive, or otherwise have a materially adverse impact on our future revenue and profits, our customers’ and suppliers’ businesses, and our results of operations. In addition, there is currently significant uncertainty in the global economy and the future relationship among the United States and various other countries, caused by increased geopolitical instabilities and changes in global trade policies. For example, the ongoing geopolitical and economic uncertainty between the United States and China, where we conduct business and have derived a substantial percentage of our revenue, the unknown impact of current and future U.S. and Chinese trade regulations, including tariffs and other trade restrictions, and geopolitical risks with respect to Taiwan, which serves as a central hub for the technology industry supply chain, could, directly or indirectly, materially harm our business, financial condition and results of operations. Similarly, many of our suppliers, vendors and other entities with whom we do business have strong ties to doing business in China and other countries impacted by recent tariffs and other trade restrictions. Their ability to supply materials to us, buy products or services from us, or otherwise work with us is affected by their ability to do business in impacted countries. Moreover, these tariffs and any other trade restrictions imposed on our suppliers could adversely affect our business, financial condition and results of operations through reduced demand for our products and services, cancelled orders, supply chain disruptions, increased transaction costs and increased expenses.

Our future business and financial results, including demand for our products and services, are subject to considerable uncertainties that could impact our stock price. If economic conditions or international relationships among countries in which we do business deteriorate, or, in particular, if semiconductor or electronics systems industry revenues do not grow, the ability to export or import products or services by the semiconductor or electronics systems industry is adversely restricted, or our supplies of hardware components and products are subject to problems or delays, we may be adversely affected. Further, political or economic conflicts between various global actors, and responsive measures that have been or could be taken, have created and can further create significant global economic uncertainty that could prolong or expand such conflicts, which could have a lasting impact on regional and global economies and harm our business and operating results.

We are subject to governmental export and import controls that could subject us to liability orand impair our ability to compete in global markets as well as a variety of other laws and regulations.

We must comply with the import and export restrictions and regulations and economic sanctions laws of the United States and of certain other countries in selling, providing or shipping our products and transferring our technology outside the United States, to foreign nationals (including foreign nationals within the United States) or across borders. Changes in our products or services, or changes in and continued expansion of these laws and regulations, including new or increased tariffs, trade protection measures, sanctions, trade embargoes and other trade barriers, may create delays in the introduction of our products or services into international markets,markets and prevent our customers from deploying our products or servicesservices. or, inIn some cases, such changes have prevented and may further prevent the export or import of our products or services to certain countries, governments or persons altogetheraltogether, or may result in increased costs for us, which could reduce our competitiveness, or for our customers, which could affect their purchasing behaviors. Any decreased use of our products or services or limitation on our ability to export to or sell our products or services in international markets would likely harm our business, operatingfinancial condition and results andof financial condition.operations.

For example, BIS maintains and frequently adds entities to the “Entity List,” which limits our ability to deliver products and services to these entities, some of which are our customers. When customers are on the Entity List or are subject to new or expanded trade restrictions, it has a negative effect on our ability to sell products and provide services to these customers. In addition, the issuance of new or expanded trade restrictions, such as the continued expansion of the military end-user and military end-use rule, the foreign-direct product rules, or any other rule that prevents a class of commodities, software or technology from export to any specific country or countries without a license, could increase our costs or expenses. Anticipated or actual changes in trade restrictions could also affect customer purchasing behaviors. Entity List restrictions and other trade restrictions may also encourage customers to seek substitute products from our competitors, including a growing class of foreign competitors and open source alternatives, that are not subject to these restrictions or to develop their own solutions, thereby decreasing our long-term competitiveness. In particular, China’s stated national policy to be a global leader in all segments of the semiconductor industry by 2030 has resulted in and may continue to cause increased competitive capability in China. In addition, although customers on the Entity List are not prohibited from paying (and we are not restricted from collecting) for products we previously delivered to them (in compliance with applicable law), the credit risks associated with outstanding receivables from customers on the Entity List – including receivables from anti-piracy enforcement efforts and litigation settlements – and other trade restrictions could increase.

We cannot predict whether or when any additional changes will be made that eliminate or decrease these limitations on our ability to sell products and provide services to these Entity List customers or other customers impacted by other trade restrictions. We are unable to predict the duration of the export restrictions imposed with respect to any particular customer, technology, country or region or the long-term effects on our business or our customers’ businesses. For example, effective September 29, 2025, BIS issued an interim final rule that extended the export restrictions imposed on entities identified on the Entity List or the Military End-User List and certain other sanctioned parties, to entities that are 50% or more owned by one or more of such entities. However, on November 11, 2025, BIS published a one-year suspension of the new rule that is currently set to expire on November 9, 2026, absent a future extension. In addition, there may be indirect impacts to our business which we cannot reasonably quantify, including that certain restrictions, even if not directly applicable to us, may impact our customers' products which may have an adverse effect on demand for our products, or that a country-specific export control may limit or prevent our employees who are nationals of the restricted country from performing their duties unless a license can be obtained. Additionally, our business may also be impacted by other trade restrictions that may be imposed by the United States, China or other countries. For example, the United States and other global actors have imposed economic sanctions on Russia and other entities and individuals as a result of the Russian invasion of Ukraine and conflicts in the Middle East. New or increased tariffs and other changes in U.S. trade policy, including new sanctions, have triggered and could continue to trigger retaliatory actions by affected countries. For instance, the United States has increased use of Section 232 trade authorities to impose tariffs on certain commodities, including certain articles of steel, aluminum and copper. In response to these and other U.S. measures, China and other countries have taken a range of retaliatory measures. These include the imposition of retaliatory tariffs on certain U.S.-origin goods; the implementation of new export controls by China on various critical minerals, including rare earths metals; the scheduling of further retaliatory tariff measures; and other actions that may affect us directly or indirectly. The Chinese government has also responded to U.S. actions by adding U.S. companies to an “unreliable entity list,” which limits the ability of listed companies to engage in business with Chinese customers.

The laws and policies of the United States and other countries in this area are evolving and changing, and we have experienced and may continue to experience challenges in complying with new rules as they become effective. The application and interpretation of these laws and policies can also be uncertain and change over time, and we may need to adjust our policies and procedures accordingly. AnyIn addition to the matters described above, any further failure or alleged failure to comply with these laws and policies could have negative consequences, including significant legal costs, government investigations, penalties, denial of export privileges and debarment from participation in U.S. government contracts, any of which could have a material adverse effect on our operations,reputation, reputationbusiness, financial condition and financialresults condition.of operations.

In addition to exporttrade control laws, our global operations are subject to numerous U.S. and foreign laws and regulations, including those related to anti-corruption, anti-bribery, tax, corporate governance, financial and other disclosures, competition, antitrust, data privacy, data protectionprotection, cybersecurity and employment. These laws and regulations are complex and may have differing or conflicting legal standards, making compliance difficult and costly, and changes to these laws, or their interpretations, may require us to make significant changes to our business operations that may adversely affect our business overall. The policies and procedures we have implemented to assist our compliance with these laws and regulations do not provide complete assurance that our employees, contractors, agents or partners will not violate such laws and regulations. Any violation individually or in the aggregate could have a material adverse effect on our operations,reputation, reputationbusiness, financial condition and financialresults condition.of operations. For more information about the import and export restrictions and regulations that we may be subject to, see “Governmental Regulations—Trade” under Item 1 of Part I of this Annual Report.

• unanticipated costscosts, assumed liabilities or assumedchallenges liabilities,in enforcing consistent controls over the acquired business, including those related to an acquired company's disclosure controls and procedures, internal control over financial reporting, cybersecurity, taxes and other compliance programs;

Our ability to acquire other businesses or technologies, make strategic investments or integrate acquired businesses effectively mayis be impairedimpacted by geopolitical conflicts, trade tensions and increased global scrutiny of foreign investments and acquisitions and investments in the technology sector. The United States and several other countries havehas adopted, or areis considering adopting, restrictions on transactions involving foreign investments. AntitrustFor example, the U.S. government implemented an outbound investment review mechanism, effective January 2, 2025, which could limit our ability to pursue investment opportunities outside the United States. These restrictions, which impose certain notification requirements and prohibitions on investments by U.S. persons in sensitive sectors in China, such as semiconductors, quantum information technologies and artificial intelligence systems, may prevent us from capitalizing on opportunities that could otherwise benefit our business and stockholders. In addition, several other countries have also adopted, or are considering adopting, similar restrictions. Further, antitrust authorities in the United States and a number of countries have also reviewed acquisitions and investments in the technology industry with increased scrutiny. Governments may continue to adopt or tighten restrictions of this nature, some of which may apply to acquisitions, investments or integrations of businesses by us, and such restrictions or government actions could negatively impact our business and financial results.

IP infringement and misappropriation claims, including contractual defense reimbursement obligations related to third-party claims against our customers, regardless of merit, could consume valuable management time, result in costly litigation or cause product shipment delays, all of which could seriously harm our business, operatingfinancial condition and results andof financial condition.operations.

IP claims orand litigation hashave compelled and could in the future compel us to do one or more of the following:

If we were compelled to take any of these actions, our reputation, business, reputationfinancial condition and operatingresults resultsof operations might suffer.

Our success depends, in part, upon our proprietary technology and our ability to secure, protect and enforce our IP rights in our proprietary technology. We generally rely on a combination of patent, copyright and trademark law, trade secret protection and confidentiality or licenses agreements with our employers,employees, contractors, customers, business partners and others to establish and protect our proprietary rights in our proprietary technology and products. Despite the precautions we may take to protect our IP rights, from time to time third parties may challenge, invalidate or circumvent these safeguards. Our patents and other IP rights may not provide us with sufficient competitive advantages. Patents may not be issued on any of our pending applications and our issued patents may not be sufficiently broad to protect every feature of our technology. In addition, we believe that the protection of our trademark rights is an important factor in product recognition, protecting our brand and maintaining goodwill, and if we do not adequately protect our rights in our trademarks from infringement, any goodwill that we have developed in those trademarks could be lost or impaired, which could harm our brand and our business. Furthermore, the laws of foreign countries may not protect our proprietary rights in those countries to the same extent as applicable law protects these rights in the United States, and we may encounter difficulties in our attempts to protect our IP in foreign jurisdictions, particularly with respect to trade secret rights and including as a result of impacts from changes in international trade relationships. The protection of our IP may require the expenditure of significant financial and managerial resources. Moreover, the steps we take to protect our IP may not adequately protect our rights, or deter or prevent third parties from infringing or misappropriating our proprietary rights. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that such personnel have divulged proprietary or other confidential information to us. Litigation brought to protect and enforce our IP rights could be costly, time consuming and distracting to management. Furthermore, our efforts to enforce our IP rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our IP rights, which could result in the impairment or loss of portions of our IP rights.

Many of our products include software or other IP licensed from third parties. We may haveneed to seek new or renew existing licenses for such software and other IP. Our engineering services business holds licenses to certain software and other IP owned by third parties, including that of our competitors. In addition, we use open source software in our products, and due to uncertainties regarding the interpretation of open source software licenses, there is a risk that our use of open source software is inconsistent with what the copyright owners had intended, which could lead to disputes and enforcement actions,actions. includingFrom demandstime to time, there have been claims against companies that wedistribute releaseor applicableuse open source code,software andin their products, asserting that open source software infringes the claimants’ IP rights. We could be subject to suits by parties claiming infringement of IP rights in what we maybelieve to be forcedlicensed open source software. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third parties to continue offering our products on terms that are not economically feasible, to re-engineer our products or incur additional costs to remove and/or replace the affected open source software. Our failuresoftware, to obtaindiscontinue thirdthe partysale software,of otherour IPproducts licensesif re-engineering could not be accomplished on a timely basis or otherto IPmake rightsgenerally thatavailable, arein necessarysource orcode helpful forform, our businessproprietary oncode, favorableany termsof (or at all), or our need to engage in litigation over these licenses or rights,which could seriouslyadversely harmaffect our business, operatingfinancial condition and results or financial condition. In the case of infringement or misappropriation caused by technology that we obtain from third parties, any indemnification or other contractual protections we obtain from such third parties, if any, may be insufficient to cover the liabilities we incur as a result of such infringement or misappropriation.operations.

We use AI Technologies throughout our business and are making significant investments in AI initiatives, including expanding our generative AI platform and applications, to enable our customers to optimize their products’ performance, increase the productivity of their design teams and workflows and develop AI solutions themselves. AI Technologies are complex and rapidly evolving, and we face significant competition from other companies. Such other companies may develop AI Technologies that are similar or superior to ours and/or are more cost-effective and/or quicker to develop, deploy and maintain. Any inability to develop, offer or deploy new AI Technologies as effectively, as quickly and/or as cost-efficiently as our competitors could have a materially adverse impact on our operating results, customer relationships and growth. We expect that increased investment will be required in the future to continuously improve our development and use of AI Technologies. Such investments ultimately may not be commercially viable or may not result in an adequate return of capital, and we may incur unanticipated liabilities. Moreover, the long-term trajectory of this technological trend is unknown, and we may not be successful in our ongoing development and maintenance of AI Technologies in the face of novel and evolving technical, reputational and market factors. We may incur significant costs, resources, investments, delays and not achieve a return on investment or capitalize on opportunities presented by AI,AI Technologies, and we could incur financial losses.

Further, the introduction of AI Technologies into new or existing products may result in new or enhanced governmental or regulatory scrutiny, litigation, confidentiality or security risks, ethical concerns, or other complications that could adversely affect our reputation, business, reputation or financial results.condition and results of operations. The regulatory framework governing the use of AI Technologies is rapidly evolving. Existing laws and regulations, such as data privacy and antitrust regimes, may apply to us or our customers in new ways, and many U.S. federal, state and foreign government bodies and agencies have introduced or are currently considering additional laws and regulations. For example, in May 2024, the EuropeanEU UnionArtificial approvedIntelligence Act (the "EU AI Act") establishingestablishes a comprehensive, risk-based governance framework for AI in the EU market,market. The EU AI Act applies to companies that develop, use and/or provide AI in the breachEU ofand which could result inincludes fines for breach of up to 7% of worldwide annual turnover. Additionally,In existingaddition, the Federal Trade Commission has required other companies to disgorge valuable insights or trainings generated through the use of AI or machine learning technologies where they allege the company has violated privacy and consumer protection laws. Existing laws and regulations may be interpreted in ways that would affect the operation of AI Technologies, or could be rescinded or amended as new administrations take differing approaches to evolving AI Technologies. As a result, implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact future laws, regulations, standards or market perception of their requirements may have on our business and may not always be able to anticipate how to respond to these laws or regulations.

The implementation of AI Technologies may accelerate or exacerbate potential risks related to technological developments. These risks include the possibility of AI Technologies malfunctioning, producing biasedbiased, misleading or inaccurate resultscontent or failing to meet performance expectations. The development and deployment of AI Technologies carries the risk of other unintended consequences, such as ethical concerns, privacy violations and negative public perception. The rapid evolution of AI Technologies requires the application of resources to help ensure that AI is implemented responsibly in order to minimize unintended, harmful impact. If the development or use of AI Technologies by us or our customers draws controversy due to perceived or actual impact on human rights, IP, privacy, security, employment or the environment or in other social contexts, we may experience brand or reputational harm, competitive harm or legal liability. For more information about laws and regulations governing the use of AI Technologies, see “Governmental Regulations—Artificial intelligence” under Item 1 of Part I of this Annual Report.

Cyberattacks that compromise the confidentiality, integrity or availability of our or our third-party providers' information technology systems or confidential information could materially harm our reputation, business, reputationfinancial condition and financialresults condition.of operations.

We rely on hardware, software, digital infrastructure and computing networks for both internal and customer-facing operations that are critical to our business (collectively, “IT Systems”). We own and manage certain IT Systems but also rely on third parties for IT Systems and related products and services, including cloud computing. In addition, we and certain third-party providers collect, maintain and process data about our customers, employees, business partners and others, including information that relates to individuals and/or constitutes “personal data,” “personal information,” "personally identifiable information,information" or similar terms under applicable data privacy laws (collectively “Personal Information”), as well as proprietary data such as trade secrets (collectively,together "with Personal Information, “Confidential Information"”).

We face numerous, evolving cybersecurity risks that threaten the confidentiality, integrity and availability of our IT Systems, Confidential Information, products and services, including from diverse threat actors, such as state-sponsored organizations, opportunistic hackers and malicious insiders, as well as through diverse attack vectors, such as social engineering (including phishing), malware (including ransomware) and denial-of-service attacks, and due to human or technological error, such as misconfigurations, “bugs” or other vulnerabilities in software or hardware. Additionally, advances in technology, an increased level of sophistication and expertise of hackers, widespread access to generative AI, and new discoveries in the field of cryptography canincrease resultthe inrisk aof compromisesignificant compromises or breachbreaches of our IT Systems or security measures implemented to protect our systems. We and certain of our third-party service providers have experienced cyberattacks and other security incidents in the past and will continue to experience varying degrees of attacks and incidents in the future. Any such incidents could compromise our or our providers' IT Systems, which could cause system disruptions or slowdowns and lead to the informationConfidential Information stored on our networksor third-party systems being accessed, publicly disclosed, lost or stolen. Any actual or perceived unauthorized access or disclosure to our Confidential Information poses significant risk to our business as it could result in reputational and financial harm and further subject us to liability to our customers, suppliers, business partners and others. While to date no incidents have had a material impact to our operations or financial results, we cannot guarantee that material incidents will not occur in the future.

Cyberattacks are expected to accelerate on a global basis in frequency and magnitude as threat actors are becoming increasingly sophisticated in using techniques and tools – including AI – that circumvent security controls, evade detection and remove forensic evidence. Techniques used to obtain unauthorized access or to sabotage information systems change frequently and include zero-day software vulnerabilities that are unknown until exploited by threat actors. As a result, we may be unable to promptly or effectively detect, investigate, remediate or recover from future attacks or incidents, or to avoid a material adverse impact to our IT Systems, Confidential Information or business. Furthermore, state-supported and geopolitical-related cyberattacks against companies such as ours may increase due to geopolitical conditions. A cyberattack on our IT Systems or IT Systems of one of our third-party providers or customers could result in material adverse impacts due to any or all of the following: compromise to our Cadence Cloud portfolio, which includes both our managed and customer-managed environments, and our data centers and those of our customers and end users; corruption or stealing of Confidential Information such as proprietary information related to our (or our customers') business, products, services and infrastructure or personallyPersonal identifiable informationInformation; manipulation or stealing of financial data and assets; and/or disruption of our systems and services and those of our customers and others. BecauseAs a result, we makecould extensivebe use of third party suppliers and service providers, such as cloud services that support our internal and customer-facing operations, successful cyberattacks that disrupt or result in unauthorized access to third party providers’ IT Systems can materially impact our operations and financial results. Moreover, breaches of our security measures and vulnerabilities in our or third-party providers’ IT Systems or products or services may expose usexposed to a risk of loss or misuse,misuse of Confidential Information, loss of financial assets, business interruption, regulatory investigations, litigation and other potential liability. There can be no assurance that our cybersecurity risk management strategy, program, policies, processesliabilities and controls will be fully implemented, complied with or effective in protecting any systems or information.costs.

In the event of anAn actual or perceived breach of ourIT security,Systems or Confidential Information managed by us or a vendor'svendor security,could thesignificantly impact our business through diminished market perception of the effectiveness of our security measures could be harmed,measures, legal or regulatory actionsactions, couldsubstantial befines, initiated against uspenalties and werequired couldchanges sufferto our business practices, damage to our reputation or our business, orloss loseof existing customers and our ability to obtain new customers (including government customers), incur significant restoration, remediation and compliance costs, orand suffercause harm to our financial condition. The loss, misuseAny or theftall of personal data collected, used, stored or transferred by us, vendors or other third parties in the courseforegoing could materially adversely affect our business, financial condition and results of running our business could result in business or financial harm, damage to our reputation and legal or regulatory proceedings.operations. Also, we cannot guarantee that any costs and liabilities incurred in relation to an attack or incident will be covered by our existing insurance policies or that applicable insurance will be available to us in the future on economically reasonable terms or at all.

Cadence® is a global market leader that develops computational, AI-driven software, accelerated hardware, and silicon IP products and solutions for engineers and scientists to bring new and innovative products to life. TheOur mission is to empower the world’s most innovative technology companies use our solutions and services to deliver transformationalextraordinary electronic products to multiple industries that drive the global economy.economy Theand productsimprove theseeveryday life. Our customers include semiconductor companies developthat aredesign someand ofmanufacture theICs, mostas complexwell as systems incompanies thethat world.design Sinceand ourmanufacture inception,electromechanical wesystems havecontaining beenvarious at the forefronttypes of technology innovation. We work closely with our customers, helping them solve their most complex challenges in the semiconductor and electronicother systems industries to unlock limitless opportunities.electronics.

•Semiconductor IP; and

Recent Acquisitions

During the second quarter of fiscal 2024, we completed our acquisition of BETA CAE,CAE Systems International AG (“BETA CAE”), a system analysis platform provider of multi-domain, engineering simulation solutions. The acquisition of BETA CAE expands our multiphysics system analysis suite with highly complementary products, enabling us to offer a more comprehensive portfolio to customers in the automotive sector and at companies in the aerospace, industrial and healthcare industries. Revenue associated with contracts assumed with our acquisition of BETA CAE is primarily classified as product and maintenance revenue in our System Design and Analysis product category.category, Costand cost of revenue associated with these contracts is primarily classified as cost of product and maintenance in our consolidated income statements.

Because we operate globally, our business is subject to the effects of economic downturns or recessions in the regions in which we do business, volatility in foreign currency exchange rates relative to the U.S. dollar, inflation, changing interest rates, expanded trade control laws and regulations, potential imposition of new or higher tariffs and geopolitical conflicts.

•Growth in revenue from our software, services,hardware and IP andofferings, hardwareincluding offeringsrevenue from our recent acquisitions;

•ContinuedIncreases in operating expenses from continued investment in research and development activities and technical sales support, including additional headcount from acquisitions;

•Increased interest expense from our outstanding indebtedness.

We primarily generate revenue from licensing our software and IP, selling or leasing our hardware products, providing maintenance for our software, hardware and IP, providing engineering and cloud services and earning royalties generated from the use of our IP. The timing of our revenue is significantly affected by the mix of software, hardware and IP products generating revenue in any given period and whether the revenue is recognized over time or at a point in time, upon completion of delivery.

Recurring revenue includes revenue recognized over time from certain of our software licensing arrangements, services, royalties, maintenance on IP licenses and hardware products,hardware, and operating leases of hardware. RecurringOther recurring revenue alsoincludes includesrevenue recognized at a point in time for certain short-term software arrangements that are typically renewed at least annually and revenue recognized at varying points in time over the term of other arrangements with non-cancelable commitments, whereby the customer commits to a fixed dollar amount over a specified period of time that can be used to purchase from a list of products. Arrangements that require future decisions on the performance obligations to be delivered do not meet the definition of a revenue contract until the customer executes a separate selection form to identify the products orand services.services that they are purchasing. Each separate selection form under the arrangement is treated as an individual contract and accounted for based on the respective performance obligations.

The remainder of our revenue is recognized at a point in time and is characterized as up-front revenue. Up-front revenue is primarily generated by our sales of hardware products, individual IP licenses and certain software licenses.licenses with a term greater than one year. The percentage of our recurring and up-front revenue and fluctuations in revenue within our geographies in any single fiscal period are primarily impacted by delivery of hardware and IP products to our customers.

The percentage of revenue characterized as recurring compared to revenue characterized as up-front may vary between fiscal quarters. WeOn an annual basis, we expect ourrecurring and up-front revenue as a percentage of annual up-fronttotal revenue to continueremain torelatively increaseconsistent in 2025 as growth in our product offerings for which revenue is recognized up-front is expected to be greater thanwith the growthresults of our product offerings for which revenue is recognized over time The following table shows the percentage of recurring revenue for the twelve-month periods ended concurrently with our five most recent fiscal quarters:2025.

Product and maintenance revenue increased during fiscal 2024,2025, as compared to fiscal 2023,2024, primarily due to growth in revenue from our software, hardware and IP product offerings as a result of customers’existing customers' continued investment in complex designs for their products.

Services revenue increased during fiscal 2024,2025, as compared to fiscal 2023,2024, primarily due to growth inincreased revenue from our designcloud and IP service offerings, which were supplemented by our acquisition of Invecas.offerings. Services revenue may fluctuate from period to period based on the timing of fulfillment of our services and IP performance obligations.

Cost of product and maintenance includes costs associated with the sale and lease of our hardware products and licensing of our software and IP products, certain employee salary and benefits and other employee-related costs, cost of our customer support services, amortization of technology-related and maintenance-related acquired intangibles, costs of technical documentation and royalties payable to third-party vendors. Cost of product and maintenance depends primarily on our hardware product sales in any given period, but is also affected by employee salary and benefits and other employee-related costs, reserves for inventory, and the timing and extent to which we acquire intangible assets, license third-party technology or IP, and sell our products that include such acquired or licensed assets, technology or IP.

Costs associated with our hardware products include components, assembly, testing, applicable reserves and overhead. These costs make our cost of hardware products higher, as a percentage of revenue, than our cost of software and IP products. Hardware product costs increased during fiscal 2024,2025, as compared to fiscal 2023,2024, primarily due to increased installations of hardwarehardware, productspartially andoffset increasedby a decrease in charges for excess and obsolete inventory related to previous generations of our hardware products.

Cost of services primarily includes employee salary, benefits and other employee-related costs to perform work on revenue-generating projects, costs to maintain the infrastructure necessary to manage a services organization,organization and provide cloud-based offerings, and direct costs associated with certain design services. Cost of services may fluctuate from period to period based on our utilization of design services engineers on revenue-generating projects rather than internal development projects and the timing of design service projects being completed. Cost of services increased during fiscal 2024, as compared to fiscal 2023, primarily due to increased costs associated with our design service offerings and costs associated with the service offerings from our acquisition of Invecas.

Our operating expenses include marketing and sales, research and development, and general and administrative expenses. Factors that tend to cause our operating expenses to fluctuate include changes in the number of employees due to hiring and acquisitions, industry trends for salary and other employee benefits, stock-basedthe compensation,timing and nature of restricted stock grants, foreign exchange rate movements, acquisition-related costs, and volatility in variable compensation programs that are driven by operating results. Certain prior period balance have been reclassified to conform to the current period presentation.

Many of our operating expenses are transacted in various foreign currencies. We recognize lower expenses in periods when the U.S. dollar strengthens in value against other currencies,currencies and we recognize higher expenses when the U.S. dollar weakens against other currencies. For an additional description of how changes in foreign exchange rates affect our consolidated financial statements, see the discussion in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Risk.”

Salary, benefits and other employee-related costs and stock-based compensation included in marketing and sales expense increased during fiscal 2024,2025, as compared to fiscal 2023,2024, primarily due to our continued investment in attracting and retaining talent dedicated to technical sales support, including additional headcount from acquisitions. Facilities and other infrastructure costs included in marketing and sales expense increased during fiscal 2024, as compared to fiscal 2023, primarily due to our growing workforce. We expect to continue attracting and retaining talent dedicated to technical sales support through hiring and acquisitions.

Salary, benefits and other employee-related costs and stock-based compensation included in research and development expense increased during fiscal 2024,2025, as compared to fiscal 2023,2024, primarily due to our continued investment in attracting and retaining talent for research and development activities, including additional headcount from acquisitions. FacilitiesStock-based andcompensation other infrastructure costsalso increased during fiscal 2024, as compared to fiscal 2023, primarily due to ourincremental growingexpense workforce.from Wemarket-based expectequity awards granted to continuecertain attractingmembers andof retainingsenior talent dedicated to research and development activities through hiring and acquisitions.management.

OutsideStock-based legal feescompensation included in general and administrative expense increased during fiscal 2024,2025, as compared to fiscal 2023,2024, primarily due to increasedincremental legalexpense servicesfrom associatedmarket-based withequity acquisitionsawards and legal proceedings. For additional information about our legal proceedings, including the increase in estimated legal liabilities, see Note 18 in the notesgranted to consolidatedcertain financialmembers statements.of senior management.

Salary, benefits and other employee-related costs and stock-based compensation included in general and administrative expense increased during fiscal 2024,2025, as compared to fiscal 2023,2024, primarily due to additionalour headcountcontinued from acquisitions. Also, during fiscal 2024, as compared to fiscal 2023, we experienced an increaseinvestment in foreignretaining servicetalent taxfor expense,general becauseand weadministrative did not benefit from any foreign service tax refunds as we did during fiscal 2023. Contributions to non-profit organizations decreased during fiscal 2024, as compared to fiscal 2023, primarily due to the timing of our periodic contributions to support charitable initiatives, including the Cadence Giving Foundation.activities.

Amortization of acquired intangibles increased during fiscal 2024,2025, as compared to fiscal 2023,2024, primarily due to amortization from intangible assets acquired with our fiscal 20242025 and fiscal 20232024 acquisitions, partially offset by certain intangible assets that became fully amortized. Our strategy includes continuing to purchase intangible assets and acquiring other companies and businesses.

Restructuring and Other Charges

We have initiated restructuring plans in recent years, most recently in AugustSeptember 2024,2025, to better align our resources with our business strategy. Restructuring charges and related benefits are derived from management's estimates during the formulation of the restructuring plans, based on then-currently available information. As a result, our restructuring plans may not achieve the benefits anticipated on the timetable or at the level contemplated. Additional actions, including further restructuring of our operations, may be required in the future. For additional information about our restructuring plans, see Note 11 in the notes to consolidated financial statements.

OperatingOur operating margin decreasedmay duringfluctuate fiscalfrom 2024, as comparedperiod to fiscalperiod 2023,depending primarily due toon the mix of products and services sold during each respectiveperiod, period.the timing and magnitude of restructuring plans and other significant, infrequent expenses. In addition, our acquisitions duringmay fiscal 2024 resultedresult in incremental expenses, including amortization of acquired intangibles, that exceededexceed incremental revenue.revenue for a period of time. Operating margin decreased during fiscal 2025, as compared to fiscal 2024, primarily due to the loss recognized in connection with our settlements with BIS and the DOJ.

Interest expense increased during fiscal 2024,2025, as compared to fiscal 2023,2024, primarily due to thecontractual interest expensefrom the Senior Notes, partially offset by the decrease in interest related to new debt issuedthat duringwas settled in fiscal 2024. We expect interest expense to increase during fiscal 2025 due to the increased level of debt on our consolidated balance sheet compared to prior periods. For an additional descriptioninformation ofrelating to our debt arrangements, see Note 5 in the notes to consolidated financial statements.

Other Income (Expense),Income, Net

Other income (expense),income, net consists primarily of interest earned on cash, cash equivalents and investments in debt securities, realized and unrealized gains and losses from our strategic investments in equity securities of other companies, gains and losses from investments held in the Nonqualified Deferred Compensation (“NQDC”) trust and foreign exchange gains and losses. Other income (expense), net increased during fiscal 2024, as compared to fiscal 2023, primarily due to increased interest earned from deposits and net gains from our investments in equity securities of publicly held companies. For additional information about other income (expense), net, see Note 12 in the notes to consolidated financial statements.

Our operations and financial results are subject to various risks and uncertainties, including those described in the “Risk Factors” sections in our Annual Report and this Quarterly Report, that could adversely affect our business, financial condition, results of operations, cash flows, liquidity, revenue, growth, prospects, demand, reputation, and the trading price of our common stock, and make an investment in us speculative or risky. We have updated below two of the risk factors insince our Annual Report.Report, as set forth in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2026 and below. The risks described in our Annual Report and this Quarterly Report do not include all of the risks that we face, and there may be additional risks or uncertainties that are currently unknown or not believed to be material that occur or become material.

Tensions are rising around the world, and there are a number of ongoing armed conflicts, including in Iran, other parts of the Middle East and Ukraine. There is inherent risk, based on the complex relationships between certain countries and within regions, that political, diplomatic or military events could result in trade disruptions and other disruptions in the markets and industries we serve and our supply chain. A significant disruption in any area where we or our customers operate or do business or that is critical to our or their supply chain could reduce customer demand, make our products and services more expensive or unavailable for customers, increase the cost of our products and services, have a negative impact on customer spending, make our products less competitive, or otherwise have a materially adverse impact on our future revenue and profits, our customers’ and suppliers’ businesses, and our results of operations. In addition, there is currently significant uncertainty in the global economy and the future relationship among the United States and various other countries, caused by increased geopolitical instabilities and changes in global trade policies. For example, the ongoing geopolitical and economic uncertainty between the United States and China, where we conduct business and have derived a substantial percentage of our revenue, the unknown impact of current and future U.S. and Chinese trade regulations, including tariffs and other trade restrictions, and geopolitical risks with respect to Taiwan, which serves as a central hub for the technology industry supply chain, could, directly or indirectly, materially harm our business, financial condition and results of operations. Similarly, many of our suppliers, vendors and other entities with whom we do business have strong ties to doing business in China and other countries impacted by recent tariffs and other trade restrictions. Their ability to supply materials to us, buy products or services from us, or otherwise work with us is affected by their ability to do business in impacted countries. Moreover, these tariffs and any other trade restrictions imposed on our suppliers could adversely affect our business, financial condition and results of operations through reduced demand for our products and services, cancelled orders, supply chain disruptions, increased transaction costs and increased expenses.

We face numerous, evolving cybersecurity risks that threaten the confidentiality, integrity and availability of our IT Systems, Confidential Information, products and services, including from diverse threat actors, such as state-sponsored organizations, opportunistic hackers and malicious insiders, as well as through diverse attack vectors, such as social engineering (including phishing), malware (including ransomware) and denial-of-service attacks, and due to human or technological error, such as misconfigurations, “bugs” or other vulnerabilities in software or hardware. Additionally, advances in technology, an increased level of sophistication and expertise of hackers, widespread access to generative AI, and new discoveries in the field of cryptography increase the risk of significant compromises or breaches of our IT Systems or security measures implemented to protect our systems. From time to time, we and certain of our third-party service providers experience varying degrees of cyberattacks and other security incidents. Any such incidents could compromise our or our providers' IT Systems, which could cause system disruptions or slowdowns and lead to the Confidential Information stored on our or third-party systems being accessed, publicly disclosed, lost or stolen. Any actual or perceived unauthorized access or disclosure to our Confidential Information poses significant risk to our business as it could result in reputational and financial harm and further subject us to liability to our customers, suppliers, business partners and others. For example, as described in our Quarterly Report on Form 10-Q for the period ended March 31, 2026, we recently learned that a threat actor obtained a limited amount of Confidential Information from certain of our IT systems including a limited amount of test files, configuration setting files and source code files which are not material to our business. We notified law enforcement, and we believe that the incident was contained. There was no operational disruption, and customer environments were not impacted.

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) and in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (our “Annual Report”). This Quarterly Report contains statements that are not historical in nature, are predictive, or that depend upon or refer to future events or conditions or contain other forward-looking statements. Statements including, but not limited to, statements regarding the extent, timing and mix of future revenues and customer demand; the deployment of our products and services; the impact of the macroeconomic and geopolitical environment, including but not limited to, expanded trade controls, tariffs, conflicts around the world, volatility in foreign currency exchange rates, inflationinflation, increased energy costs, supply chain constraints and changes in interest rates; the impact of government actions; future costs, expenses, tax rates and uses of cash; legal, administrative and tax proceedings,proceedings; includingobligations under our settlements with BIS and the DOJ andsettlement ongoing obligationsagreements; restructuring actions and associated charges and benefits; pending acquisitions, the accounting for acquisitions and integration of acquired businesses; and other statements using words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “forecasts,” “intends,” “may,” “plans,” “projects,” “should,” “targets,” “will” and “would,” and words of similar import and the negatives thereof, constitute forward-looking statements. These statements are predictions based upon our current expectations about future events. Actual results could vary materially as a result of certain factors, including, but not limited to, those expressed in these statements. We refer you to the “Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and “Liquidity and Capital Resources” sections contained in this Quarterly Report, the "Risk Factors" section contained in our Annual Report and this Quarterly Report, and the risks discussed in our other Securities and Exchange Commission (“SEC”) filings, which identify important risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.

Cadence® is a global technology leader that develops computational, AI-driven software, accelerated hardware, and silicon intellectual property (“IP”) products and solutions. Our customers include semiconductor companies that design and manufacture integrated circuits (“ICs”),semiconductors, as well as systems companies that design and manufacture electromechanical systems containing various types of semiconductor and other electronics. Our products and solutions empower our customers to design anddesign, verify and bring to life new and innovative products. Our mission is to empower the world’s most innovative companies to deliver extraordinary electronic products that drive the global economy and improve everyday life.

Our customers include semiconductor companies that design and manufacture semiconductor devices, as well as systems companies that design and manufacture products containing many different types of semiconductors. Semiconductors, also referred to as integrated circuits (“ICs”), or chips, are integral components in a wide range of products across multiple industries, including both industrial and consumer end markets. As our customers tackle the challenges of designing increasingly intricate systems, they rely on our advanced AI-driven computational software, hardware, IP, and services to manage this complexity without proportional cost increases. Our products and solutions are critical for optimizing the performance, power, and area (“PPA”) of semiconductors and electronic systems while accelerating time-to-market.

On February 23, 2026, we completed our acquisition of the design and engineering (“D&E”) business of Hexagon Smart Solutions AB. This acquisition is expected to accelerateaccelerates our ISD strategy by expanding our SD&A portfolio, building upon our acquisition of BETA CAE in fiscal 2024. The acquisition includes substantially all of the subsidiaries and related assets comprising Hexagon's design and engineering business. For the three and six months ended MarchJune 31,30, 2026, revenue associated with contracts assumed with our acquisition of the D&E business was primarily classified as product and maintenance revenue in our SD&A product category, and cost of revenue associated with these contracts was primarily classified as cost of product and maintenance in our condensed consolidated income statements.

Because we operate globally, our business is subject to the effects of economic downturns or recessions in the regions in which we do business, volatility in foreign currency exchange rates relative to the U.S. dollar, inflation, increased energy costs, supply chain constraints, changing interest rates, expanded trade control laws and regulations, imposition of new or higher tariffs and geopolitical conflicts.

Trade control laws and regulations have been amended over the past years, including through the imposition of certain export control restrictions concerning advanced node IC production in China and the inclusion of additional Chinese technology companies on the BIS “Entity List” and regulations governing the sale of certain technologies. In furtherance of these regulations, effective September 29, 2025, BIS issued an interim final rule that extended the export restrictions imposed on entities identified on the Entity List or the Military End-User List and other certain sanctioned parties, to entities that are 50% or more owned by one or more such entities. However, on November 11, 2025, BIS published a one-year suspension of the new rule that is currently set to expire on November 9, 2026, absent a future extension. We expect the impact of these current expanded trade control laws and regulations on our business to be limited, but we will continue to monitor future developments. These laws, regulations and rules are subject to change.

In addition, U.S. President Trump has made a series of announcements regarding the imposition ofimposed new and higher U.S. tariffs on imports from many countries, including ChinaChina, Canada and Mexico. In February 2026, the U.S. Supreme Court struck down tariffs previously imposed under the International Emergency Economic Powers Act. However, tariffs imposed pursuant to other statutes remain in effect, and the administration has announced new tariff measures under alternative legal authorities and has continued to implement and pursue significant changes to U.S. trade policies, treaties and tariffs and conduct investigations on imports from foreign countries. In response, China and other countries, as well as the European Union,countries have announced retaliatory tariffs on imports of U.S. goods and other countermeasures.countermeasures, though certain retaliatory measures have been suspended pursuant to bilateral negotiations and trade framework agreements. We are monitoring these actions,developments, including any pauses, escalations, exemptions, removal of exemptions, court rulings, refundsrefunds, orreplacements replacements,and new investigations, with respect to the threatened or imposed tariffs,tariffs and trade policy, and will continue to assess their potential impact on our business either directly, such as on our hardware business,business and cost of imported components, or due to downstream effects.effects on our customers and the broader economy.

Our financial results reflect the following for the three and six months ended MarchJune 31,30, 2026 compared to the three and six months ended MarchJune 31,30, 2025 (unless otherwise stated):

•Increases in operating expenses related to marketing, sales and research and development activities from continued investment in research and development and technical sales support, including additional headcount from acquisitions; and

•Increased amortization of acquired intangibles from our recent acquisitions.acquisitions; and

The following table shows the percentage of our revenue that is classified as recurring or up-front for the three and six months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025:

The following table shows our revenue for the three months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 and the change in revenue between periods:

Product and maintenance revenue increased during the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, primarily due to growth in revenue from our softwaresoftware, hardware and hardwareIP product offerings as a result of existing customers'customers’ continued investment in complex designs for their products.

No single customer accounted for 10% or more of total revenue during the three and six months ended MarchJune 31,30, 2026 or MarchJune 31,30, 2025.

Revenue from any one product category as a percentage of total revenue may fluctuate from period to period based on the mix of products and services sold in a given period andperiod, the timing of revenue recognition, particularly for our hardware, IP and SD&A software products for which revenue is recognized up-front.up-front, which are affected by demand for, and our ability to deliver, existing products and services as well as the introduction or acquisition of new products and services.

The following table shows revenue by geographic region for the three and six months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 and the change in revenue between periods:

During the three months ended MarchJune 31,30, 2026, as compared to the three months ended MarchJune 31,30, 2025, the decrease in revenue in eachOther Americas was primarily driven by the timing of ourdesign sixservices geographies increased primarily dueprovided to continued demand for our softwarecustomers andin hardwarethat product offerings.geography.

The changes in product and maintenance-related costs for the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, were due to the following:

Costs associated with our hardware products include components, assembly, testing, applicable reserves and overhead. These costs make our cost of hardware products higher, as a percentage of revenue, than our cost of software and IP products. Hardware product costs increasedmay vary from period to period based on the mix of hardware products delivered to customers during theeach threeperiod months ended March 31, 2026, as compared toand the three months ended March 31, 2025, primarily due to increased installationstiming of ourcharges hardwarefor products.excess or obsolete inventory.

Amortization of acquired intangibles included in cost of product and maintenance may fluctuate from period to period depending on the timing of newly acquired assets relative to assets becoming fully amortized in any given period. The increase in amortization of intangibles during the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, is primarily due to definite-lived intangible assets acquired with our acquisition of the D&E business.

Our operating expenses, as a percentage of total revenue,expenses for the three and six months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 were as follows:

The increase in marketing and sales expense for the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, was due to the following:

Salary, benefits and other employee-related costs and stock-based compensation included in marketing and sales expense increased during the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, primarily due to our continued investment in attracting and retaining talent dedicated to technical sales support, including additional headcount from acquisitions. We expect to continue attracting and retaining talent dedicated to technical sales support through hiring and acquisitions.

The increase in research and development expense for the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, was due to the following:

Salary, benefits and other employee-related costs and stock-based compensation included in research and development expense increased during the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, primarily due to our continued investment in attracting and retaining talent for research and development activities, including additional headcount from acquisitions.

Facilities and other infrastructure costs included in research and development expense increased during the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, primarily due to our growing workforce. We expect to continue attracting and retaining talent dedicated to research and development activities through hiring and acquisitions.

The changes in general and administrative expense for the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, were due to the following:

Professional services increased during the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, primarily due to increased legal and consulting services associated with acquisition-related activities. We expect to continue to utilize professional services as we continue to acquire and integrate companies and businesses.

Stock-basedSalary, benefits and other employee-related costs and stock-based compensation included in general and administrative expense increased during the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, primarily due to headcount from acquisitions and incremental expense from equity awards granted to certain members of senior management.

Operating margin represents income from operations as a percentage of total revenue. Our operating margin for the three and six months ended MarchJune 31,30, 2026 and the three and six months ended MarchJune 31,30, 2025 was as follows:

Our operating margin may fluctuate from period to period depending on the mix of products and services sold during each period, the timing and magnitude of restructuring plans and other significant, infrequent expenses. InDuring addition,the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025, our acquisitionsoperating maymargin resultincreased, inprimarily due to the loss related to a contingent liability recognized during the three and six months ended June 30, 2025, partially offset by incremental expenses,expenses from our recent acquisitions, including amortization of acquired intangibles, that exceed incremental revenue for athe periodperiods of time.presented.

Interest expense increased during the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, primarily due to incremental interest expense related to outstanding borrowings under our revolving credit facility.facility at various times during the periods presented. For additional information relating to our debt arrangements, see Note 5 in the notes to condensed consolidated financial statements.

Other income, net consists primarily of interest earned on cash, cash equivalents and investments in debt securities, realized and unrealized gains and losses from our investments in equity securities of other companies, gains and losses from investments held in the Nonqualified Deferred Compensation (“NQDC”) trust and foreign exchange gains and losses. Other income, net may fluctuate from period to period based on levels of cash deposits, gains and losses from the changesale of investments, changes in the fair value of our marketable equity securities and movements in exchange gains and losses.

The following table presents the provision for income taxes and the effective tax rate for the three and six months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025:

Our provision for income taxes for the three and six months ended MarchJune 31,30, 2026 was primarily attributable to federal, state and foreign income taxes on our anticipated fiscal 2026 income. We also recognized tax benefits of $13.6$3.1 million and $16.7 million related to stock-based compensation that vested or was exercised during the period.respective periods. The increase in our provision for income taxes during the three and six months ended MarchJune 31,30, 2026, as compared to the three and six months ended MarchJune 31,30, 2025, was primarily attributable to an increase in our earnings and nondeductible expenses.earnings.

Our provision for income taxes for the three and six months ended MarchJune 31,30, 2025 was primarily attributable to federal, state and foreign income taxes on our then anticipated fiscal 2025 income. We also recognized tax benefits of $18.6$2.8 million and $21.4 million related to stock-based compensation that vested or was exercised during the period.respective periods.

As of MarchJune 31,30, 2026, our principal sources of liquidity consisted of $1,406.7$1.4 millionbillion of cash and cash equivalents as compared to $3.0 billion as of December 31, 2025.

Our primary sources of cash and cash equivalents during the threesix months ended MarchJune 31,30, 2026 were cash generated from operations, proceeds from our revolving credit facility, cash generatedproceeds from operationsthe sale and maturity of investments and proceeds from the issuance of common stock resulting from stock purchases under our employee stock purchase plan and stock options exercised during the period.

Our primary uses of cash and cash equivalents during the threesix months ended MarchJune 31,30, 2026 were payments related to business combinations, operating costs and expenses, payments on our revolving credit facility, repurchases of our common stock, payment of employee taxes on vesting of restricted stock, purchases of property, plant and equipment and purchases of investments.

Approximately 79%84% of our cash and cash equivalents was held by our foreign subsidiaries as of MarchJune 31,30, 2026. Our cash and cash equivalents held by our foreign subsidiaries may vary from period to period due to the timing of collections and repatriation of foreign earnings. We expect that current cash and cash equivalent balances and cash flows that are generated from operations and financing activities will be sufficient to meet the needs of our domestic and international operating activities and other capital and liquidity requirements, including acquisitions, investments and share repurchases, for at least the next 12 months and thereafter for the foreseeable future.

Net working capital is comprised of current assets less current liabilities, as shown on our condensed consolidated balance sheets. Our net working capital varies from period to period due to changes in operating assets and liabilities and the timing of investing and financing activities. The decrease in our working capital as of MarchJune 31,30, 2026, as compared to December 31, 2025, was primarily due to an increase in cash paid in business combinations.

Cash flows provided by operating activities during the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 were as follows:

Cash flows provided by operating activities include net income, adjusted for certain non-cash items, as well as changes in the balances of certain assets and liabilities. Our cash flows from operating activities are significantly influenced by business levels and the payment terms set forth in our customer agreements. The decreaseincrease in cash flows from operating activities for the threesix months ended MarchJune 31,30, 2026, as compared to the threesix months ended MarchJune 31,30, 2025, was primarily due to improved operating results, the timing of cash receipts from customers and the timing of cash disbursements for operating assets and liabilities.

Cash flows used for investing activities during the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 were as follows:

Cash used for investing activities increased during the threesix months ended MarchJune 31,30, 2026, as compared to the threesix months ended MarchJune 31,30, 2025, primarily due to an increase in payments for business combinations, partially offset by an increase in proceeds from the sale and maturity of investments. We expect to continue our investing activities, including purchasing property, plant and equipment, purchasing intangible assets, acquiring other companies and businesses, and making investments.

Cash Flows From (Used for) Financing Activities

Cash flows from (used for) financing activities during the threesix months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025 were as follows:

Cash flows fromused for financing activities increaseddecreased during the threesix months ended MarchJune 31,30, 2026, as compared to the threesix months ended MarchJune 31,30, 2025, primarily due to an increase in proceeds from our revolving credit facility, which were used for our acquisition of the D&E business. This was partially offset by a decrease in payments for repurchases of common stock.

In August 2024, we entered into a five-year senior unsecured revolving credit facility with a group of lenders led by Bank of America, N.A., as administrative agent (the “Credit Facility”). The Credit Facility provides for borrowings up to $1.25 billion, with the right to request increased capacity up to an additional $500.0 million upon receipt of lender commitments, for total maximum borrowings of $1.75 billion. The Credit Facility expires on August 14, 2029. Any outstanding loans drawn under the Credit Facility are due at maturity on August 14, 2029, subject to an option to extend the maturity date. Outstanding borrowings may be repaid at any time prior to maturity. Interest rates associated withunder the Credit Facility are variable, so interest expense is impacted by changes in the interest rates, particularly for periods when there are outstanding borrowings under the revolving credit facility. Interest is payable quarterly. As of MarchJune 31,30, 2026, there were $425.0no borrowings outstanding under the Credit Facility, and we were in compliance with all covenants associated with the Credit Facility.

We are authorized to repurchase shares of our common stock under a publicly announced program. In May 2025, our Board of Directors increased the prior authorization to repurchase shares of our common stock by authorizing an additional $1.5 billion. The actual timing and amount of repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors. Our repurchase authorization does not obligate us to acquire a minimum number of shares, does not have an expiration date and may be modified, suspended or terminated without prior notice. As of MarchJune 31,30, 2026, $1.2$1.0 billion of the share repurchase authorization remained available to repurchase shares of our common stock. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” for additional information on share repurchases.

During the threesix months ended MarchJune 31,30, 2026, there were no material changes to our other liquidity requirements as reported in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report.