Cadence Design Systems (CDNS) 12 Feb 242023 Q4 Earnings call transcript

Good afternoon. My name is Briana, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Fourth Quarter and Fiscal Year 2023 Earnings Conference. [Operator Instructions] Thank you. I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead, sir.

operator. you, Thank welcome earnings to our quarter fourth I'd call. everyone XXXX conference of like to I'm Anirudh and today John joined by Wall, Officer; Chief Senior and Executive Vice President Chief Officer. Devgan, Financial President and of business will available contain and remarks forward-looking operating webcast today's discussion our including website, be this copy results. on a The of and outlook prepared statements, cadence.com. Today's our will call on future in differ risks materially results from today's and discussion. or projected to Due may implied uncertainties those actual

could that to statements factors today's them. disclaim we For as actual including results most on refer on to information All obligation XX-K during any and please differ, cause are us based of CFO estimates our our today, forward-looking to call earnings update release. commentary filings, and and SEC this to and information recent Forms XX-Q, available

non-GAAP In should which of as substitute non-GAAP over for addition, GAAP from turn to today's the Instructions] Now not call I'll be to are certain will Reconciliation or we in isolation earnings release. a measures Anirudh. measures, results. [Operator included in present considered GAAP

afternoon, XX% platforms. with XX% to over our analysis to Richard. non-GAAP Cadence QX, EPS everyone, a delivered up outstanding thank and chip XXXX, joining us you billion Good and XX% today. report I'm an non-GAAP year. customers XXXX you, the Thank committed increasingly margin, wrapping integrated record a record that revenue for growth growth, $X pleased We achieving exited for as backlog of to system design and operating

hyperscale continue design fuel provide more super trends a our by driving in business to John We of computing activity. will to momentum cycle, all autonomous moment. Secular innovative AI bolstered driving broad-based broad-based in and an solutions strong expect digital transformation, continue details XXXX.

triples opportunity our We System continue greatly strategy portfolio. our executing Intelligent while TAM expanding to that Design our successfully

at our Fidelity The the and most thrilled supercomputer Total are custom to as platform. And and partnering collaborating and revolution, to Millennium, to exclusive our on solution, inference Arm Neoverse training the the on new we our the design collaborated edge. NVIDIA Cadence an accelerate to and integrates Subsystem. AI, CFD deliver announced partner MX the closely and is work Earlier energy at combines customers IDM technology substantially first advanced Honda, industry's cloud high-performance marquee software. customer event. to and extend with solutions based have GPUs a design QX, deepened EDA and design with success. impact. We unprecedented We delivered Boeing companies supercomputing multiyear and forefront expanded And NVIDIA's Our multiphysics of platform. including the relationships our from up at market-shaping of innovative with the products, X.X of our have Intel our honored a we with customers, thereby AI significant launch platform years. leading XXx EDA partners. key multiphysics computing closely and Cadence multiple We quarter, AI revolutionary the and accelerated our agreement XXXx for NeMo Cadence.AI strategy partnership co-optimized deepen Intel footprint Foundry providing engine speakers mutual were of hardware strategic recently, in Millennium our to is grew now at IP advancing as on GE partnership trailblazing with Retriever. Compute accelerated NVIDIA's HPC several twin our to tightly Cadence accelerating Intel's software The and platform. and over closely which Arm meaningful through further digital we Software expansion including SoCs, nodes, are several and efficiency ecosystem their on and partnership with SaaS it in Design, AI through the And development

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verification, duo majority XX hyperscalers across strong Our dynamic of momentum ZX with are all mixed-signal of auto new delivered the NVIDIA emulation significantly ZX we of the record mobile. Virtually modeling hyperscale, month, another accelerate applications that SoC and Palladium customers, the year supported top platform announced dynamic best-in-class and first marquee will the AI, X included that customers, and Palladium are capabilities of industry's Samsung and set them Protium also a announcement. Last including customers. and Palladium duo state

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adoption Virtuoso with major continues a had far Virtuoso our Virtuoso design tools memory are in X,XXX newer global mixed with internal IC custom with franchise Building announced year-over-year its Our interest a tackle increasingly crucial most downloads IC strong our in customers. our Spectre grew win solutions recently which our Studio our over and complex on the products custom and our replaced so for ramp. is company, in leadership, RF circuit to inspective QX. Customer platform and XX% signal, market analog, top of revenue technology. challenges simulation

XX% business finish strong the IP a to drove QX. in growing year-over-year year, Our

continue PHY IP been strategic We Rambus offered by our Customer in to Invecas which interest and PHY as positive, been extremely instrumental sharpen Star IP with deals. a capture some have IP such acquisition targeted in Rambus to and have assets, opportunities heterogeneous GDDR and market integration. closing especially HBM already the strategy AI

pleased engineering, business team is with skilled to with market and we acquisition and strategy, are Invecas momentum embedded the product advanced outstanding and synergistic in by also solutions expertise a the across in Our software. In closing, performance XXXX. adding are opportunities excited engineering in XXXX delivering packaging our custom highly design,

it to John Now provide over the details I to turn more XXXX results our QX and outlook. will on

billion Anirudh, delivered afternoon, backlog I'm across quarter strong coupled approximately of by current of obligation growth over pleased backlog finishing approximately demand in growth bookings the of and all in year our that achieve record pleased XX% activity and to strong and levels, report were and Robust we billion Cadence achieved with with record the Thanks, businesses. year. growth a for that execution customer revenue XX% EPS everyone. good performance XXXX, Fourth cRPO. to driven QX strong, at our helped design and remaining and I'm $X.X $X.X and us

the the of XX.X% and the operating the the quarter, and the was $X.XX for XX.X% was revenue fourth quarter margin $X.XX EPS was year. for margin for the from P&L. for year. year. $X.XX was billion financial Non-GAAP $X.XXX and some Non-GAAP the the for year, EPS GAAP GAAP the for the and billion quarter for highlights quarter quarter the operating for year. the XX.X% Total with the quarter year. XX.X% $X.XX and for and $X.XXX are Here starting was for

Next, turning and cash sheet the flow. balance to

billion year. days, was were the the year-end, fourth we used to Operating $XXX million $X.X and year. XX Our during was shares cash balance repurchase in Cadence while full billion debt quarter value million flow outstanding the of and for $XXX $XXX the million. at cash $X.XX was DSOs principal

mix hardware I that revenue strong another our outlook. at we approximately start result, growth. XXXX, for midpoint, demand. provide of at Before that In XX%. in at revenue our due last hardware the delivery assumes our due and assumptions was largely XX%, mix are And XXXX, times share upfront the of record lead to improve IP revenue the our XX%, to mix like upfront will In approximately approximately upfront expect midpoint, QX to our increase strong QX assumes an year to our our In outlook XXXX, embedded hardware effort for largely the our year QX as year. revenue XXXX, to XX.X%. In and some outlook approximately to I'd mix increased XXXX, outlook a revenue upfront

of range the Operating $X.XX non-GAAP non-GAAP use XXXX our similar of margin regulations to range to we on of EPS remain the for outlook rate our that finally, Cadence in the we to range EPS $X.XX; XXXX. EPS margin QX of $X.XX. to free GAAP for And of in in expect repurchase $X.XX based export place XX% year. In on substantially operating based of revenue in our XX% to $X.XX remainder in Our to range is tax billion to outlook shares $X.XX billion a the billion, for expect of control in flow flow the $X.XX usual approximately XX.X%. the and and billion. of assumption operating $X.XX cash today in the XX%; range is to XX%, the XXXX, of in outlook range our cash XX% GAAP non-GAAP

XX.X% our GAAP year well expect conclusion, we Investor further GAAP we margin in range XX.X% range achieved I XXXX, in website, XX% pleased am as range and $XXX non-GAAP outlook range document that $X.XX, of XX%. revenue to QX, of up margin includes EPS the ourselves in $X.XX the in record finished $X.XX a on the And XX% year non-GAAP GAAP billion, over $X.XX. XX.X%. and XX.X%. of setting margins, range cRPO revenue in Non-GAAP And XX%. the For which to Relations resulting and growth as $X.XX our achieved to the published EPS We items for analysis the usual, commentary EPS the CFO million of additional Xth non-GAAP to reconciliations. In great operating of operating XXXX. a of incremental we growth of of to operating operating for of margin we non-GAAP as for over consecutive and with backlog in to

our and will we As with like our customers, take always, questions. partners operator, thank for employees to that, their I'd continued support. And now

Markets. Jason comes first KeyBanc [Operator Capital Instructions] Celino question with Your from

Monday. Happy

maybe strength, drove impressive, comp. hard sounds hardware broad especially like It Anything based. first John Anirudh, really strength or So the its question on given it's the maybe here? helpful? backlog what year-over-year the my and related

it's yes, geographies hardware. hardware the the very this Jason, on year. Actually, with X lead those across of for times a down to we might across months We broad-based we're all and the recall businesses. normal at X time last now broad-based, backlog. broad-based And addressed year, start backlog weeks front, the hardware of finished of of you more over

maybe businesses. compare on certainly backlog strong 'XX the end But reflects the bookings hardware, less bookings, all broad-based think it of of versus end all against of the at end the end the of you side, hardware hardware 'XX. 'XX in 'XX, across backlog or when at So slightly less geographies, across the I

XXXX And big other 'XX, is that? look timing year? XXXX guess, years whole, renewal think a particularly think a it Okay. you Or then how we things compared like about about I as renewal and does when when to

Yes. towards don't weighted be renewals. it the second heavily that that's the for weighted kind expect of half a of -- year. in last to heavily this Jason, Great second year very question, was We half

Looking at to probably value, weighted annual and due, they if the you when half look software first it's XX% XX% come half. second at renewals

comes Charles Needham. Your from with next question Shi

now, ANSYS Any organic needs I call the Cadence be way? many thoughts -- Synopsys you investors. to Especially that mind whatever on merger probably than any the organic System more would or execute you guys way guess, strategy top of it. Intelligent on of and Can Design great. provide thoughts

is Charles, Anirudh. Yes. this

have becoming be and we XX% last you Design Intelligent look X this it business, And convergence is all course, We XXXX So from and companies. But System years as X know. business this at years. core system for last And our and AI This system you domains. of results system will a is this over than on in call on expanding in about is executed of we XX% semi-companies, and for we as that mean XXXX. -- our not System of into on and I been there you business XX% electrical EDA, revenue for is on, Design of we system focusing not now. know, SD&A, rate. we at companies really even market in course, convergence have our which that now been from companies of has while is up semi-companies know been doing our executing silicon, more And that commented is several strategy SD&A, up XXXX, And what this mechanical coming started which Analysis SD&A. growing our the X, & the if years, whereas that have

and So this to in we our SD&A response. of and customer a are share is right, products, our due gaining lot primarily

embraced our strategy our embraced really product have and differentiation. customers the So

in like in the element you more and So areas share, simulation is lot a a must that our then we later. is CFD. -- finite and benchmarking a you we is had winning in first is customers. SD&A. years, And big CFD. I the products two last this seen lot element, there most Clarity, Millennium, started CFD in CFD product is One can of are the recently, market. with revolutionary and with big And with of Millennium other the very well, one tell of XX new the are which about That's have finite already

that which strategy critical only is then and packaging are SD&A XD-IC. thing for and company position we is very PCB, in in a has -- and chiplets strong the the third So our

market terms I momentum very a strategy The and and I So lot we see implemented X have our overall, confident feel in of for going position. years, growth forward. of

I your follow-up. the want IC little into revenue. a bit a and Maybe dig do to digital design sign-up

it show $XXX of 'XX. has exceeding around million second to it think, $XXX part since strength You good million think some then bumping early really does XXXX. since, But it's half reported quarter, I when I last been seem

QX? understand curious, share the And gains, how overlap you strength the about you I your have and most is competitor, talked sustainable direct part fourth the what's us You in upside provide saw with Synopsys. the is do the that? can the color people business really quarter? this you where How just for about on any think revenue there And in driving that should of sustainability the

I saw in driving I of reasons course, would reason But the main Charles, QX, there a mean question you business. good as -- that digital. say AI super main cycle. the that. But the growth our that's had multiple on driving and that's good digital we is in are

there's lot So design a activity. more

noticed their You some Cadence the of development. major our increasing even kind of key partners, of product

ways. is, in build-out great in is AI-enabled overall hyperscalers. And and partnership several So just there is then of Cerebrus AI AI, all AI participate like a products the and and portfolio. of we also, the our other AI, the which One infrastructure, Optimality with NVIDIA course,

remarks, which for So as my AI. digital I mentioned Cerebrus, the flagship using in prepared product implementation is

went to business Our Xx.

overall also most top then mentioned growth design synthesis -- overall of then AI place more on especially providing just flow, and lot node acceleration in people AI pull-through products but other product thing of implementation, it there also of that. And the is and Cerebrus, has a is provide use signoff. there's I terms much that's had So not of one the advanced at activity, route, that so full before, and as which and the the a also but digital

see very one products doing through they're I'm but is Cerebrus synthesis. what well, to pulling pleased AI like So is also

lot the also in X signoff synthesis in engagement. a year Our position has last improved of dramatically and

pleased not progress, top traditionally using customers are mentioned, solutions with like now, also and the using AI we I'm with Cadence. that XX customers pretty digital. the overall, were technology And engagement some in Cadence progress, big So all

progress how continue. So expect I that but to it we'll progresses, digital, see think it's good and I on

I think would of we would add saw QX, kind some creditworthy very from didn't that collect just we customers we lower that Charles, to cash good that customers those that, were collections in -- cash. that

in So it our wasn't forecast.

had that. upside we some So from

Arya comes America Bank of Your question Securities. from next Vivek with

a had on question growth. actually I

first side, entire than has IP segment growth of more kind the Just modest on company growth. been the

at that So than Anirudh, to I XX% 'XX last in are us for could lot versus question is what impressive semiconductor give if then deceleration, few XX% that. these right, team. that my of it mean, the color AI the years, see look for XX% you hoping but rates that right, different Cadence, on then to and shows a I last guiding bigger growth companies year. overall was so some year, sales I semiconductor which when is Generative very But growth industry, are you're is exposed and the we the for acceleration this now for other the a still, AI

So names? way deceleration acceleration what get is the the number the growth your AI interpret versus at bigger? acceleration in right back initiatives expecting we a is what some this some your be sales? the point Or and compare right rate Like AI of these of in to as should interpret growth way to of

Vivek, Yes, good question.

quarters, application X the and in the like And several So and had strong macro we IP, as or talent previous of And than first the assets and and UCIe the And in HPC IP. very uncertainties assets this you cycle, and compare part, XX% SerDes driving more the doing AI was that portfolio growth IP, of improve right? on So XD-IC much in QX, 'XX, whole more -- then much start our know, acquisitions consolidated well. at in own growth you Rambus IP. pretty IP. the did super DDR X and all as as you of overall more year, challenged know, growth see but we our requires and why but acquired IP UCIe also, primarily is disaggregation some AI to is that's we I with like and is IP, then is can we had HBM first, the more and think in memory

foundries, And the I years IFS, overall, I'm 'XX. we And our AI, partnership our all mentioned. last and and IP just have because also IP few focus 'XX with but may improve. business. there's going are Intel, in should can But all better So most current we profitability have also these should with of with in now expanding profitability we're say with our more more should challenges today. much like And growth to think some more think nodes business going glad I our and on the much do our we that because Intel on activity forward, That's pleased pleased IP you Foundry okay? help had I now, seen other as portfolio. IP also do announced actions of foundries, that to unusual also that that we focused that I do our advanced and own forward. business are happy think levels over And the we So major modeling. And other

at are side. and continues been XXXX, accelerate. to contracts X-year We Vivek, our And In just we software accelerating, on I a like a XX% you CAGR X-year you -- of look X-year add, revenue the X-year CAGR if most hit to asked because And about on since look basis. customers CAGR baseline our mean at XXXX, exceeded the actually how look XX%. on We I'd growth. tend to to it over has

we're the that XX.X%. very, again. we is of midpoint were guide at the over very pleased XX% the for 'XX, about then X-year year, And CAGR last For

XX% X-year revenue basis. on over CAGR be years So growth consecutive that will X of a

a look it best distort time some to at timing get hardware over how it. that individual we ourselves. and years. quarters way at things looking can do you That's or lumpiness think probably from time, the individual like is we in timing, to But look or Now can CAGR X-year IP basis

maybe, it assumption incremental clarifications, China for one what still the Got And the then last or from used to but the is like it. below guidance, right? John, follow-up, 'XX? XX%, impressive, below contribution And EBIT, think seems it's in have what's years. been we it few my the two I It's for

also. could you would be very clarify that that, if So helpful

Yes. Great questions Vivek. Sure. again,

On year with XX%. the than tend and with in the than incremental the guide the growth initial front, over margin start We we we don't greater through to start XX% towards typically lower year. that build

if some we XX%, for you or but under the incremental because an our of followed contributed then compared always north to XX% few we of As But years a China, know, on look XX% typically, about -- last of when side, and relation have that's 'XX did And to But headwind -- previous to can that's in over you acquisition, the like 'XX, China, year deliver. revenue, that that 'XX. dilutive incremental a early and for XXXX years it at X our that. China two, lower XX% the it promise in XX% margin has in -- over be the you last with incremental slightly you margins. In and but acquisitions. we margins in China, asked years. And and XXXX bit glad was had organic me of

was benefited portion we for Now was kind I large backlog year, last had. that hardware backlog of of from that outsized That think the an China region. China that

wouldn't China. I for that to So repeat last this it year was year. expect a year boom

to or guide, In flat fact, slightly we'd down. China our be expect

would the China XX% this the XX% be range to of into kind years. previous we've So year, consistent X derisked with for which

Your Fargo next question with Securities. Mobley Wells from comes Gary

ask cRPO what revenue well and in me the disconnect your your revenue. Let outlook levels higher upfront as apologize the record assumed advance of is in between background for to and I for outlook about noise. want

that in why the 'XX, year mix so assumption of translates fiscal into cRPO the especially And less upfront? that considering of higher revenue

Yes, between cRPO -- of recall cRPO had if XXXX. at backlog of Gary, in this the in last we terms yes, hardware over months X the cRPO and of The good you relationship question. year's year, end revenue, and

now levels the So year. end the time hardware be important we like a production our we're to Customers 'XX, backlog for more is lead of delivery came capacity purchase hardware the really hardware ramped within in going portion to of normal and out up X about revenue 'XX on feel to weeks and for that able deliveries hardware, large of at want the they're back to of really, of get customers. which

and more this had production So correlated out of than in In typically, it demand. biggest expect more each a what's grow times, to takes addressing to business your is to expected was revenue coming guess, the coming to revenue out our hardware revenue for quarter-over-quarter record QX, backlog of we backlog hardware coming the those out result your of kind But of, slightly XXXX, build shape more year, versus that lot as quarter year, hardware last year throughout XXXX hardware XXXX, hardware whereas is of in is profile XXXX. quarter. capacity of what's meet lead hardware in business there's hardware another revenue of a and the I year. And this QX to new is planning we year a to different

John, be include cRPO to does clear, that RPO not Just does? backlog hardware

X include be I in hardware. would revenue all cRPO time, have mean, when even The to delivery months you a year. expected over it hardware lead would

in cRPO. So it's although your also -- backlog, it's your that's all in

So more year revenue had than product in cRPO would side. on hardware it have cRPO last the this certainly year, a lot

prepared in of several run is that rate on back, the And you quadrupling market-shaping circle Anirudh I right. a your at gave wanted metric the Cerebrus All remarks, to customers.

missing just Cerebrus those So contract can value at if who you should took clarify we -- market-shaping take that customers mean the for maybe that? or annual quadrupled that to I'm

Gary, so, yes.

up It are And I mentioned deployed months. all actually, at XX XXx the think engagements a of last in XX number well. customer even top AI, like Cerebrus the general, we in doing very customers.

so run first, have and as And before, will some the Cerebrus mentioned the they more. try then we adopt will rate, Cerebrus business, customers

have they what people think is much see QX bigger in were to then rate. what's customers I adopted were So that what the and at a -- good doing

to we are happy So that. see

other think mentioned we our will and going we go want X in Cerebrus, Virtuoso or there that forward. that's Cerebrus years good a little years like consistent But it. after to Studio promising. in or X is or have the they're we -- We yes, very are is X are it And still like always Optimality, right? Like in into Allegro that cycles contract also came the X growth and model, progression. X like are uptick it or we that. then good I and But think Verisium X room years AI seeing into products or take

of today a kind we AI and more products with it talked own developing with and So -- position I'm that X and AI, a ways what AI. this call, about also And to terms overall, is Palladium chips. in with -- happy big developing them last mentioned this have we with partner decade, in we I this puts benefit are from AI before also the all development very than other any AI, okay? true to a to of technology. very like new is the kind -- we our have marquee if their about first had for developments. lot with There for are of phase than So a for but are is NVIDIA, development, a the we which you the more it partnership them, Palladium strong Palladium, the Internet, of comparisons in infrastructure compare decade, in NVIDIA

of platforms AI and we initial phase design. our is applications X that's I pretty is So years, the are one phase then over deployments design. be want deployments. from benefit, AI. like in point deployments products the for the done It's second have believe automatic that's in for which chip AI work second started what more in application good a XX progressing major design. businesses, last the moving because chip the like with you infrastructure. And we the And is own have so what asked, in now much AI I side, best but all Cerebrus is chip digital and of X wider phase a is which talk one of products. thing well to it there's out design which And system AI And is more co-pilot into adopted the of lot of of those existing to will kind first like

we We of have built all kinds we language RTL, optimization like a in. have have

very automated. process the is chip So already

thing And then AI enable. it what ideal I of on apply and And are products for I in an and will of design, you chip the which biggest it's see years we and AI market going that's will OpenEye, several will that will for seeing. And phase investment be bio why okay, life years, the it is forward. sciences, system think new So life top third is new to and believe biosimulation OpenEye, sciences. enable AI the the that

is is activity. So our X design. system products AI Two life is our AI bio One infrastructure. and chip for AI own And there third phases these in are and of applying to sciences. AI

So overall, I'm positioning we very results AI the in in and have pleased, our very delivered. confident

Griffin Your next Vleeschhouwer Jay question comes from Securities. with

year the Allegro you how couple you're in just thinking products X of the those then you this so new talk be guidance number Anirudh, Could and and the incremental forth. introduced the follow-up. pre-existing year the products, you of ones incrementally might you've collectively Virtuoso just Optimality, then, of think products I've growth Innovus noted that and the contribution signoff to as about Studio, about of course, weeks your rank and ago. this over of such revenue most year, even perhaps Millennium above as your a part And last large

and for you right? rank chiplet a innovative like children. difficult you a we highest momentum a -- as years our the know, I done these I'm R&D -- to we mean, one of very Millennium, of company, invest of good as know. and for that have lot are There's percentages Jay, because are there we to now, question. and in also predict well, it's big being it how don't into X revenue AI. is, and about. all of them to areas all But long of the course, like will products. run, new EDA, We areas, of of course, excited and then the we try have with lot XD-IC There's to multiple SDA the super want do good products with And of it's momentum So AI all these R&D.

about I very, is be compute CFD physics-based we physical when from disrupted very innovation the talked accelerate very then to years needed about the Which and bottom is biggest -- simulation, acquisition in is XX right? much and the And the CFD in right? So the this acquisition years. cake, accurate which that X we think top have it orchestration fidelity, context, Stanford high modeling the I Cascade, at middle layer, CFD. to talk at ago. we AI didn't last made There layer in layer X-layer the is and at about

And in and So we at with together changes And the of CFD. had at the heart it. bottom game NVIDIA. then the this on AI that accelerate then compute completely top

For never we emulation in and are the been able hours simulate possible to few before. for that is first planes has entire time, almost cars systems

a is potential in of there So Millennium. lot

you CFD. is happy our new but is product, which have a the offering partnership about I'm ratable, of and are in chip is MCAD, the both Millennium seen and mostly, are on-prem. Palladium Actually, partnership. we So because overall is right we also on version, today, mostly PLM both then pretty and know, most customers And then cloud in and okay? is great. with as Millennium must Now you on-prem -- a choosing cloud that. Dassault. now, great It's is have Millennium Dassault leader this Palladium the business, more

with this. broadening partnership have We

and talked and So Intel -- hardware how and new our partnership then grow we that IFS continues this do business, to with can IP well. about

same And then always at contributing the we I good growth. to have on focus the multiple margin So think time. engines to it's

do one we But others, difficult anyway. a positioned forward. don't So are will well predict and it's better product to guide we the than which basis on going

Right.

follow-up. So the good today. And here since conference my Dassault, to that's segue so at quite a is actually you Cadence mentioned visible

above EDA CFD make in markets to ago question think effectuate earlier of developing now might you core to what X you that strategy. you about have having strategy do And investments not specifically, you're about and when kind And generally you ISD the the and the is, years so your resources over could you X, talk about were much perhaps and when those known my X, or know strategy beyond strategy? that

thing to is point XXXX revenue. that's a Jay, in of our is XX% SDA about Yes, business about question. good out, mean I one

at our So and of R&D good there's it's simulation significant R&D apply synergies to high space now enough a space, space, We R&D pretty to already lot SDA, R&D. And also a pace. to simulation And has also, EDA, from it know well. right? that scale

Which which pretty I'm invested how happy But very with okay? at thought you always, model to invest profitability. And we'll it our not we we the profitable time, So continue much simulation also we started right? revenue more have profitable, also R&D is -- when same and there. be when in more ago asked X we growth is me, It's should profitable which but just -- is because EDA. it years

is what out playing that's SDA. So in

the this is and with simulators this Millennium. out market in So it performance as and capacity pretty is we and And and CFD, to mentioned electromagnetic. And In would. it and profitable. before, in disruption, -- disruption with this I'm have extent then key with it is then out SD&A. always how now always I'm for much more simulation thing has it the first we And very I roughly played has thought confident massive Dassault, played new the in that's looking confident accuracy

always MCAD, not what SOLIDWORKS, that are end. like in synergy, So computational CATIA product are they and in in platforms are system as things PLM, the differentiation. leader terms mechanical typically, so in said things great is with will those. things But CAD the also space, that high see means in which right? clear a competition in not are like can are do, the we software You implementation product They great Dassault we PLM, we in of have company,

it's perfect for a Cadence. partner So

As we Dassault packaging that competition and was we're with and SBA, PCB and focus expansion software and today. see that announced on partner glad EDA to to

Harlan next comes Sur Your from JPMorgan. question with

IP X, given but growth comp relatively would to your year. it back to your closer And motivate order was have -- to more percentage chip thought to would have I the was X been your their I overall tough Your points customers business, growth, that that a in just relative XXXX, complexity know in that chip cycle license last design IP it design up drive efficiencies time. in higher IP to does

IP some for growth XX% into this year? to programs? think outlook that of does played dynamic So this of off just other year? this business was in IP total there maybe timing year, do some customer push there How customer was given Or your your you relative

good question. Yes,

of reasons in very, IP year two we XXXX, strong I think little But shape the had were very last was the a at all. were the mean think QX. I not revenue first X that I strong quarters atypical.

QX. you is mentioned, a overall year single strong So in like very the digits, but

couple now. IP some improving compares affected So like 'XX the a to are macro terms is semiconductor last typically a especially that. is course, year. tough than And been I And were And in I there think in of others more IP, couple it from mentioned, the of then that there though years, gets macro for environment tough, environment. has of the 'XX beginning then in reasons tough of of one

first portfolio One, cycle, then think So as I'm this and engagements AI the quarters more QX have, year, is with into is a challenging. companies. mentioned, this going and X our better, super that, I And cautiously new of combination pretty broader. optimistic whole IP. But IFS I and were we then like about other like then

the John, feel about I you to overall, comment about do assumption. So better 'XX want

yes. Yes,

year in say, profitable both our always percentage. a as revenue largely as increased in This on revenue growth XX% years. to you and to year. That's was back upfront XX.X%. significantly to of course, XX%. XXXX, for But you scalable to XX% to revenue quite the upfront contributes IP But hardware expecting comparison low we're from record go those revenue strong to revenue know, last growth and the of Harlan, prior percentage improvement expect we our to on upfront IP this Of year. focus year, because revenue contribute was we That the

Cadence than how be out. plays to we year. expect growth higher We'll this IP average then it the see And

Okay. Yes.

Like several you've team year, hardware-based good untapped of it's think, of outgrowing of sort as look and big over for there Millennium hardware like in taking to great in portfolio, in SDA the then is seems SDA how out certainly same opportunity design SDA your acceleration see a demand And business, It within a to the XX% your customer basically next right? lot strong you overall your supercomputer, emulation the your your recent outperformance years? chip base? portfolio, on market market success portfolio. peers verification segment. be the example concept up The had SDA I between Perfect. right, the would You're bringing MX that last that for synergies the the this

SDA believe for acceleration Even even general. and Absolutely. I worn hardware that XX school, when years, a opportunity was for EDA see that in is always And you out grad I in in massive Palladium.

course, AI acceleration Hardware hardware bottom top perfect we is And is about dreamed there's X-layer Palladium. is layer. So the and acceleration. always cake. why And the have that's a of example layer orchestration

it's Palladium than look business. $X on Now emulation, verification chip a billion at overall side is happened functional more the you and first, if in hardware what

you I that. and look became XX% of hardware all the think roughly software if at

hardware-assisted verification XX% became almost verification. chip of So

don't know acceleration. to CFD big of acceleration I out whether so is also of hardware-based go portion CFD same needed way, but Now along the there business. billion a And a play is to a it $X AI, it this will hardware-based potential with

design, Now the that. it only the system to works. -- percent will cases the said, XX% done use current CFD covering the current size of the of was use one the speed take In we all simulate XX% are it chip big of does, Which the is And of the companies. hardware-based the we I and the there, chip the clearly And CFD, because only is they're will cases or well. Like simulation to talking not area not them flight is CFD domain only in is they thing XX-point-some of if aerospace as a market comes improve other at that is it emulation And will few for these because in chip when improve envelope. it years. of unheard acceleration But so look the leading back, software. of in there it you design. accuracy

goes And to So one big higher system can the hardware-assisted this much potential portion that verification. the few XX% same opportunity much closer XX%. way, think then to with and can Millennium than now, bio, to that in again, go emulation which is again a thing X-layer the simulation right by of I can And repeat out. But repeat CFD. in the is a there is years and

pretty a I'm But use optimistic. So it's new market. that case for

to some new the can sometimes use deploy. take cases time And

exactly been have are the So we solution But you software the our and customers, with themselves, side. about this on to hardware far we right. always phenomenal. mimics a have of but chip some It response and AI, be cautious the success that. combined done And have -- doing has so because were people to and they

comes John Marco with Your question from next Bank. Deutsche Conti

is margins know the XXXX what on already, something seasonality given us explain as causing level IP Or versus and in could more line guidance revenue through else? some you color timing? past again top there you've of its but we implies providing I seasonality. the Can of by XX% the median run of well QX touched your QX the phasing guidance, in through XX% lower and/or X this on years as terms perhaps over is of hardware this

XXXX. But the the take yes, the That's the shape a slightly quarter. to -- expect Johny, of revenue by a largely revenue function we on mix XXXX question. side, different to for

had in XX.X%. XX%, expecting this in You'll revenue when XXXX, is upfront recall QX, the we're in QX year the but be year, year expected for up XX% when last XX% QX at to year we ended

we've year, we'd watermark -- the after upfront So expect clearly, last quarter the side, to from high on that, revenue. And you expect expense was increase really revenue heavily. year, then quarter that this that for QX invested whereas upfront

But year. for time. And loaded kind result, some lower feeding of heads extra launching the year. that for expense QX comparison innovation, we're year. new that's as the X,XXX and products the of that's front a of on for acquisitions all have We rest to about in continued margins more is And the this with -- into so the

For QX, similar QX than higher be Yes. last we'd to year. and or expect margins QX,

probably those things I are get think the to across. that's main --

really just end expectations Yes, into good. mean last seems And year. the helpful. that of flow timing operating follow-up I on perhaps was lower around one Really cash the commentary flat. next

there. compared of 'XX? And moving levers in the the how XXXX come flowing are what into backlog also, perhaps is XX% So to XX%

first, -- times me come to that's the of over year, question. But Johny, and time. yes, delivery X last so take lead had the cash for I'll lead we Yes. second back -- hardware part then months -- let

backlog. The this So was be can year's to hardware X% backlog for of much less there came hardware shift a all year. pretty out coming lot last of out allocated of revenue

believe investing ramp we production to a has included how we purchase that Now cash hardware included last to QX. our I on in hardware midpoint for year, like $X.XXX need hardware each we're that this although billion a expect But operating muted. in $X.XXX the year. we in kind But but year, that of was quarter -- it that year that guide. again was us revenue But for hardware in produce It than of last all our advanced this increase under was of reflection think for -- cash the just of the year. We so be the been inventory much that will more came it years metrics, purchase probably spending we already meet up do -- cash we're to to able beat we've lot to to materials build of billion, and in just intend operating raw on for the few flow we the less expecting. demand operating flow,

to we So the materials gross of by up operating margins that demand prepurchasing believe we're the that we a side. keep bunch improve investing to raw -- hardware need with some cash of on for

year. for half. another and year accelerate record hardware it's highlight forecast for until is I to business's the Now to the see include But the some quarter their demand revenue hardware quarter for wouldn't after second this again business. expected the thing a -- continue other hardware to for pipeline is I Normally, that I of wanted demand

to look We the times. the lead the summer at up of of pipeline kind the at look we So before year. second half closer taking

guide the see I'd the there we full forecast that to from So the summer. in like that back to the half I'd to does pipeline. second prefer the half hedge the when to And the see business. take is we through. until include higher pipeline not second get potential come then

next Tilton from question Research. with Your Wolfe Josh comes

of going was with to John, ask what your I comment kind you last anticipated there.

I just strong implies revenue clarify overdeliver? is what even we motto that very still which under think interpret XX%-plus is year I of to So just should and said what -- simply, growth another you would this of want the upfront you guide, underpromise fall

been The guide would have forecast. the that's Yes, higher. But full think fair. I fair. didn't That's include I

have the strong. XXXX IP we a but be of well IP for course, is the hold into always us. Of a hardware strong year. confident we the summertime. pipeline going last guide second more to huge nature, for kind 'XX certainly mean, going I we a mean But I we're I revenue. been as contribute see IP back around much on business contribution by half year. to until Again, hardware compared of like to didn't this amount. it's to great mean,

included the haven't from forecast the guide. we in So the business full

is, tool design the close into If if then Synopsys and indeed all? competition how ANSYS changing, And helpful. do Super fully acquisition their in digital just see follow-up this you my at ANSYS's set maybe flow. integrate specifically can

Well, in And even landscape or digital at SD&A. the in are Because all. digital marketplace. in the competing we is position. pulling AI, anyway, that I change That's will full with full effectively my in this a competitive flow assessment don't digital, think it very

three chip which like an There big I digital, -- the at portions is be to think XD-IC. may XD-IC. chip digital talked big are always your with Digital, implementation is of XD-IC top very much it. is has tied which than all customers. a XD-IC, have components tools, there But right? of I more is which One a we comment the business, is design actual about is But part to that, mean three growing tools. these XX bigger we

thermal are no okay? is news still thing the design, in the and and company and implementation, So And like Cadence matter digital packaged is second we a part differentiation is tools, analog third that only in are then doing there, design outside. strong the and part has chip design and both that what the chip in packaged leader is simulation electromagnetic very we And already is the the pretty M&A tools well. XD-IC

lot other that call And XD-IC. the also very a with formed But highlight, things as -- the go pretty about into expanding digital a have that also is are exclusive confident partnership what And Arm I'm on silicon, towards the our then Arm. Arm of partner advantage. is Dassault I and in So overall, one the competitive one of I talked feel ecosystem. confident matter in that. good towards that other is but very We in on anyway, so solutions. with implement about digital business. we including custom want very going SD&A we Design, want positioning more today, that position, we the what helps partnership the more into competing also highlight happens I our side. they our is Total Cadence really to they And our we thing are the product effectively. And M&A side strong news because No to

question next Roy from Your comes Ruben with Stifel.

is see. question, is growth about back point, understand that But rates, AI AI X the this or about really to you an had excellent. how sort phases is through seeing can question impact that's to you I I it's Anirudh, too I CAGR, -- there X-year when go next I start mean to as looking growth it about talk It's growing, guess, years how early if think go the quick a think contribution what these think AI nice contribution to you're -- been of or from been of you thinking Vivek's just to about about at if renewals? forward? on yet and impact these or as you should if we

Yes.

partnership tools the hyperscalers. all helping we like the AI, part I think Xx NVIDIA up already, of mentioned our about itself AI AI then and has And is higher definitely gone is by by AI then and than with also our us itself Cerebrus infrastructure like more that.

So ratable mostly are are of overall, that. with pleased pretty we But course, business. we a

these take So things think like fine. years that's in. bleed multiple And I to

Our model growth and revenue to always strong have is growth. margin

think this thing. think our So thing multiple come but years into of that's model, will It good that's I a years take I provides to still multiple -- growth.

Yes.

very very, in in right now tools AI focused takes the adoption. very into up that early they're right adoption very to how tools proliferation. innings it's innings the to AI as uptake starting now. been mainly it's It on of pleased with our Anirudh on show But think early side. very, We've the because total. and time already. And says, I strongly is we're AI booking ratable, feed of on just P&L growing the But

think a lot there's to go. more I

Right, right.

quickly, terms Okay. sure make of Is the base, also visibility point. the talked in normalized. helpful. of you get I from customer that sounds changed, of just big at it's wanted customers confidence ordering, times to I of And of guess another correct? about a just you're That's lot hasn't John, you what And growth your hardware the very that right? in I'm would thinking far lead sure your given clear out understand, I then about saying just here have that function to just this has and kind think pretty increased Is which you sort attach correctly. make are to But have it a like going it rates, I be hardware. in how that that and then you're terms

terms plans. from you you I mean, know, of plans business from push the in the great think and the customers has confidence yes. I what as No, forecast I back And of than of down a into to QX. in built purchasing and I and growth you customers' on mean now purchasing are. always degree would activity be have kind times, hardware they're some But hearing itself, perspective, from for like budget that seasonality that Yes, we're in forecast. has the quarter-over-quarter it, customers lead QX bigger more normal

I've in being the been half still second second on I my than But have conservatism, even half higher forecast. half hardware. with conservative again, still the of Now first that

question Your Joe Baird. with comes final from Vruwink

on Just a the of follow-up earlier some questions.

your of tend your think So more mentioned a tied customers at at they is you revenue the R&D time. around lot then perhaps. is the your budgets, the earlier, and at same your steadily And R&D not I revenue ratable growth Anirudh, customers, to certainly, being budgets of move to

in end a included XXXX then in up influencing and in would if some can changes a, ask, I year purchasing you decisions, maybe in If it way, pretty does think really bigger inflection spending work customer R&D than to more kind semi to within it because XXXX? just a has probably see manifest in starting outlook and moving model. of that it basically, So take actually seeing base? renewals the that, to higher through is time the are though, does and big XXXX the b, I wanted your potential the

we backlog are 'XX. I think we I like model. feel will that be -- there -- happen activity. improving and can to improvement we a very if we as R&D, especially little that's more we before, there overall SDA lot overall very have in But a AI. for definitely, and guys I we I then kind seems mentioned our the see rather our And are tied investment and maybe that's guessing are changing our of and see and And that mean, good ratable, John 'XX. which we macro And outlook as QX IP position mood do EDA this of Joe, sentiment and we to Yes, then observation. be very more 'XX comment things in year an though will R&D, well. But in some know are was tough in good see mean, are design the you good business. the well diversified, there's in and what But in based then bit, a is there our than very on grew 'XX, in we continue change a the in -- the 'XX we environment, expanding was all

we're -- to China we business the drops assume on -- of the to thought about, this design be Yes, But kind recession that normal everyone was I this in revenue when we best year. lead always certainly, tried employees compared strong that this they're revenue outperformance back was year, of talk when that's activity the China might our that we think -- guide me, business guide. everyone customers This time approach chasing. to China, always design feels the part asking XX% happen. seeing not be feel and time seems to time prudent best I right it's seems when the this the still guide long is XX%. that business focused then mean we prior term to hardware I year, the backlog. strong. things time achieving the in derisk large times, of -- now but the more of because with at Even because activity Cadence about was last the but concerned But last optimistic derisk we're for going so this the have last thought people China, be doing year in that for the more for And do year to of of embedded to to our between always in back year the we that XX%, levels

approach your the think to kind And then guess, on just revenues. Okay. Yes, I of smart. John, I that's forecasting all upfront

were running kind at that, look, intimating we're you XQ, in an total. think of kind elevated of of share I

changing cutting any designs total. basically haven't remain coming obviously, edge suddenly typically and And of strength of seen share mean changed you that need We from to is a hardware, And the hardware in in XX% verification just being into your so is upfront XQ? now it's AI going these AI, kind what higher AI I acutely products, go the been it's of order of normalizes. activity? it maybe Can

year. revenue XX.X% to hardware we're that last. it course. an new Yes, mix our revenue went to the growth -- is it 'XX time. -- have expect seen year expectation you've we yes, compared and in this been referring to upfront number more record I and contribution growth virtue of from in to mean, seen XX% we much year. And the partly, we've to last to years, We year all we're has go what over That's a That's increasing, if stronger the this that from it's to products launching XX% of of IP you're confident and feel the contribution course, think going another I IP expect last of

like in all part relation to we Now Millennium, not expect to a of them of but be will things sales Millennium large cloud-based. be maybe cloud-based

I'd for another back the in I slightly, what second hedged take expect the tailwind this like than only upfront the upfront because for that I'm to for is even summer of potentially XX.X%, think the revenue but out half higher. pipeline But year. before up But year. with in higher forecast we I a see the guide going XX.X% for comfortable I've that's revenue

HPC contributes then our mean, does given chiplet-based and contributes business and know, help on design it to to all as our just AI also Millennium. add, mean, you AI strength, I to activity, and AI And -- strong IP well, I comments is the as And hardware position. more

mean, this progresses. So -- Millennium. but yes, I with and along year, But is let's strong the hardware see it IP also how

will for I Devgan turn closing it now back Anirudh to remarks.

you and exciting Thank with afternoon. enter leadership as strong business an time we XXXX joining for Yes. momentum. for this all us product It's Cadence

portfolio. of inclusive core execution mindset we and continued System accelerating Our grow EDA are customer-first our high-performance Design and growth a while culture the Intelligent expanding business, as our driving strategy,

Work trust thank their of Directors, to on And employees one Great #X. it as continued of and partners the of in Cadence we Fortune in behalf Board Cadence. and World's for Best customers, our and confidence ranking Workplaces named our XXXX, our investors Place and

Thank Fiscal Fourth call. and participating today's Call. in Cadence This you Conference Quarter Year for XXXX today's Earnings concludes

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