Cadence Design Systems Inc. (NASDAQ:CDNS)

The common-size income statement reveals several noteworthy trends in the company’s financial performance between April 2021 and December 2025. Revenue consistently represents 100% by definition, allowing for a focused analysis of the proportional changes in various expense and income items. A significant shift is observed in the composition of revenue sources, and fluctuations in profitability metrics are apparent throughout the period.

Revenue Composition

Product and maintenance revenue consistently constitutes the vast majority of total revenue, generally ranging between 90% and 95%. However, a gradual decline is evident from 94.98% in April 2021 to 90.21% in September 2025. Conversely, services revenue demonstrates a corresponding increase, rising from 5.02% to 9.79% over the same period, with a peak of 10.59% in March 2025. This suggests a strategic shift towards expanding service offerings.

Cost of Revenue & Gross Margin

The cost of revenue, as a percentage of revenue, generally increased over the analyzed period, moving from 11.41% to 13.11%. This increase is particularly pronounced in the latter half of the period, reaching 16.22% in December 2022. Consequently, the gross margin experienced a corresponding decline, falling from 88.59% in April 2021 to 86.89% in December 2025. However, there were periods of improvement, such as the increase to 90.98% in December 2021.

Operating Expenses

Marketing and sales expenses remained relatively stable, fluctuating between approximately 15% and 19% of revenue. Research and development expenses exhibited a similar pattern, generally ranging between 31% and 39%, with a noticeable decrease towards the end of the period. General and administrative expenses showed an increase, particularly from 2022 onwards, reaching 7.17% in December 2025. Amortization of acquired intangibles remained relatively consistent, around 0.5% to 0.8% of revenue.

Operating Income

Income from operations demonstrated considerable volatility. It peaked at 35.37% in April 2022 but experienced a significant decline to 18.96% in June 2025. The period between September 2023 and December 2024 showed a recovery, with income from operations reaching 33.69% in December 2024. This fluctuation is likely influenced by the combined effects of revenue composition changes, cost of revenue increases, and operating expense management.

Net Income & Taxes

Net income, as a percentage of revenue, mirrored the trends observed in income from operations. It began at 25.43% in April 2021 and decreased to 12.55% in June 2025, before recovering to 26.95% in December 2025. The provision for income taxes varied significantly, with a notable increase in 2021 and 2022, and a substantial positive impact in December 2022 (3.32%), likely due to tax benefits or adjustments.

Other Notable Items

Loss related to contingent liability and restructuring charges were infrequent but impacted net income in specific periods. A significant loss related to contingent liability was recorded in December 2024 (-0.61%) and a substantial negative impact from restructuring in September 2025 (-2.05%). Other income (expense), net, fluctuated considerably, with a significant positive impact in December 2022 (0.94%) and June 2025 (5.31%).

In summary, the company experienced a shift in its revenue mix, with increasing contributions from services. While gross margin initially remained strong, it experienced a gradual decline due to rising costs of revenue. Operating income and net income exhibited volatility, influenced by changes in revenue composition, expense management, and infrequent items such as contingent liabilities and restructuring charges. The financial performance showed a degree of recovery towards the end of the analyzed period.