CDNS - Earnings call transcript Q3 2019 | Cadence Design Systems, Inc.

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Operator

Good afternoon. My name is Josh and I will be your conference operator today. At this time, I would like to welcome everyone to Cadence Third Quarter 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator

turn of over Please Investor now Senior go Alan Group Director Relations the will to call Lindstrom, ahead. I for Cadence.

Alan Lindstrom

everyone Vice XXXX Josh, our Lip-Bu am prepared this Tan, you, our through and A the John available would CFO. by to through Thank Wall, The the and Senior website, of I will joined today’s today the copy of third is will and conference earnings at welcome quarter archived CEO; call. President cadence.com I like available to call be call be XXXX. XXth December of website on remarks also and today. our of conclusion webcast

from the contain today will that that forward-looking note actual discussion expectations. differ those and Please materially statements results may

the a Commission. For please the factors our results, filings cause to Exchange Securities and that in could refer difference our with information on

comments the the XX-Q, These filings and include and issued we XX-K Cadence's cautionary Form forward-looking Form today. most reports future Company's press on release regarding statements including recent the earnings in

to financial results GAAP, using in Generally to certain or to that Principles present management measures. results addition will GAAP results evaluating our Cadence can accordance in it also in using be also today. Accounting non-GAAP we Accepted certain addition with believes business, review financial prepared measures In useful non-GAAP financial

reconciliations financial of reconciliation The review section and GAAP non-GAAP financial available of Investor Investors results. with to measures most investors the are comparable potential their direct at cadence.com. encouraged Relations are the

also and September the dated available XXXX are ended the financial XX, for tables October XXXX, Copies press Commentary website. XX, our on release of today's quarter CFO related

to turn will I Lip-Bu. now the call over And

Lip-Bu Tan

Cadence year. X% technology are and report for results Based for am our the pleased our delivering on everyone again third strong XXXX, I quarter and that today. joining year-over-year. strength business, afternoon, and of raising us excellent you outlook the for operating our execution to of thank achieved Good we

the the trade place our outlook of of current remain ongoing uncertainty export situations China, year. assumes Given the rest in limitations the with for

provide our more shortly. John details outlook will on

continues, economic While activity. to global such long-term drive XG, cloud trends IoT and geopolitical as continues strong design uncertainty and AI,

The host and move technology startups, silicon driving well innovative high-density all pushing system as computing; custom for connectivity; companies building power and silicon, envelope a storage. of to high as domain-specific and need are high performance, low the bandwidth computing the

of the System and more out Intelligent focus building providing comprised strategy positions Design to the business. and our our Design core well maximize value segment, Our capabilities - resulting which our Excellence is opportunities, our portfolio strategy and The foundation is to us customers. IP through EDA of

I provide quarterly of will highlights area. key in some the now this

with QX, element a our collaborate A through product and has of deepened portfolio. verification market ecosystem agreement comprehensive shaping partners on we our key focus been Samsung and customers. our approach In our with partnership across closely to custom digital,

processor family this our year a breakthrough, design we included IP ultra-high-speed SerDes. our ranging partnership including and largest that Earlier I portfolio, U.S. our particularly ever order, marquee Tensilica that augmented pleased a company. wide semiconductor win with we with am that reported IP had

one its Year X-nanometer including Awards, Solution. recent four Cloud-Based At Platform Cadence recognized Productivity award for event, Joint infrastructure Open development with Partner of an design Innovation TSMC and of the Joint of Delivery for

solutions flexibility performance partners from our realize collaboration foundry and and momentum, our cloud and cloud-ready has meaningful portfolio great with Cloud with enabling XX our products, in Cadence the Cadence the close cloud. benefits cloud. using scalability, over customers Our customers using are to infrastructure

cloud capacity on-prem to the Our CloudBurst public from infrastructure, load. with used want model peak customers to where their is address infrastructures, cloud for burst hybrid augment

year-to-date nodes has revenue Signoff customers growth. at and proliferation double-digit the and market with share especially Digital strong advanced solutions, Continuing of most shaping gains our driven

numerous addition our using than digital there tape-outs, flow. more X-nanometer customer In at and engagements to nanometer X- XX are X-

X-nanometer for a for has production flow production in of At designs. X-nanometer the full Mellanox, solution all incumbent digital leader deployed their solutions, in our designs. MediaTek their Innovus data replaced connectivity

a design imaging with X-nanometer full had digital leading competitive flow win also company. We for Japanese a

Uhnder is innovative on their convergence Genus, and digital results completely Cadence's automotive Radar-on-Chip. includes first best and to Innovus, engines common used and full Tempus, and which fastest flow, Pegasus, of the achieve digital integrated, on based quality highly

discuss of will our solutions. Verification highlights Design I System Next, and

prototyping recently now and development. the IP a FPGA-based provide Our solution verification, earlier introduced Protium Palladium SoC hardware/software ZX across software comprehensive platform, emulator, and and XX regressions,

continues added customer of hardware eight expansions. our interest our our complement family demand Protium I the complexity QX, XX, Protium and customers new ZX. in is failure the excited to by strong drive the for and In design Rounding off perfect Palladium a to strong is high system which had key ZX. am Palladium Growing ZX cost the XX. eight

and Protium the including in XX, of in for one global Asia their company full orders making additional well, semiconductor major with and Suite significantly A QX, footprint marquee had largest EMEA. in customer customer as capacity wins existing expanded a ever Cadence. ZX We it automotive several hardware hardware Verification an

quarter learning. had our imaging, strong computer strategy for IP revenue our products continuing our year-over-year and growth It best was benefit focused the portfolio wins IP, with XX%. IP outsourcing strong In have machine especially Tensilica to trend. in In for QX, with additional ever an vision, and us enabled from exceeding we quarter audio,

products. ICs to the Innovation solution electronic for strategy, our we systems which Intelligent physical Celsius enclosures. suite introduced the system from EM System In in XD Solver, Design first the Clarity Celsius the is co-simulation system growing industry’s electro-thermal joins to – or of Thermal our Solver complete System segment of analysis

that delivers iterations. to Based thereby Celsius to reducing an up system accuracy, at proven, earlier performance faster design parallel issues development architecture the full thermal massively mitigate on with XXX teams enables stage,

customers. endorsed in Bosch other earlier and product several both of are exciting with this Arm have midst we new and the discussions

announced active customer this thirty than and momentum underway. four the was engagements year, strong with quarter, its wins continued more which during earlier Clarity, competitive

I outlook. now the John provide call that the will With over and our review results to turn to financial updated

John Wall

or I key operating everyone. report to exceeded QX. pleased we our met Thanks good am of Lip-Bu, afternoon metrics in all and

of for across As for continuing business, are a our our robust strong fiscal we XXXX. demand and outlook execution our increasing result solutions

monitor I and the into we would to a take more QX the get companies continue remains situation talk fluid List, we trade Before to With results, like uncertainties. to the ongoing moment the recently and added will closely it. about Entity

purpose that of the of current the we’ve unchanged for XXXX, providing in Entity remains limitations List remainder remain for the For the export effect, the and guidance assumed year.

$X.XX. P&L: third up million, with operating Non-GAAP EPS key was the XX.X%. the year-over-year. $XXX let’s GAAP the was Total Now, revenue quarter, go starting EPS through for X% Non-GAAP and was results $X.XX, was margin

balance million. Cadence we for outstanding turning of $XXX Next, DSOs repurchased Operating at the cash flow was cash sheet end million. while the the flow, XX $XX cash quarter, debt of totaled $XXX shares. during $XXX to QX and principal million value the of were million was QX, and days,

I updated guidance. will provide Now, our

to of XX%, For $XXX million the expect approximately of $X.XX $XX in range QX, of non-GAAP expect EPS Cadence the and million, range shares. of to the results: in range $X.XX, margin we following $XXX $X.XX repurchase to $X.XX, of to we Revenue operating EPS the non-GAAP GAAP in million

of XX%, As in of non-GAAP million billion, Revenue EPS billion EPS to $X.XXX updated $XXX the cash to operating in range the to $X.XX flow range is to our of $X.XXX and of in range for $X.XX, $X.XX, in to million. a follows: result, XX.X% the guidance margin non-GAAP the $X.XX $XXX XXXX GAAP as fiscal operating range of

the in You further will Commentary our for on additional find items guidance analysis website. well CFO as available as

summary, am an our In environment. uncertain with execution I pleased in

Our reflect new core strong, market proliferation focused business, We in opportunities of highlighted driving areas. by the flow digital invest we diversity customer broad of on continue base. our dependable growth shaping customers, and growth our with our results product full remain to and global of the

In closing, would course to their I for of and thank our our customers, partners, support. like continued employees

take And questions. with now we’ll that, operator,

Operator

your America. Adam [Operator from question Bank Gonzalez comes Instructions] of with first And

Your line is open.

Adam Gonzalez

taking for Thanks yes. question strong results. the on Hi, congrats and my

Should you on IP focus I one a this like large first little but from know is? sustainable of can business. volatile us represents how you the in you sustainable IP inflection the the are? drivers bit to an and latter, kind what if reversion revrec help bit Thanks. standpoint, be of can QX a For can QX QX I’d expect a in boost saw little the walk to we understand us through

John Wall

year. Operator So, with business QX back best I Adam, growth long-term. can that But over be XX% mostly our exceeding revenue on trailing year-over-year IP. were be the we quarters, prepared mean, for last yes, impressive remarks half or his in quarter if as do quarter, Lip-Bu over quarters even any XX% up the that always revenue four believe I ever for in single sustainable year-over-year. lumpy was look IP the it’s fourth also that we mentioned see our But

Adam Gonzalez

Thanks. it. on then seeing are And give can on early I growth for my guess, view you that XXXX you follow-up, an booking just the today? us format Got based

John Wall

you repeat can Sorry, the question?

Adam Gonzalez

on are have could based overall growth in if XXXX for that if seeing momentum on business? you the Just view today an what not directionally absolute you early it’s be the value

John Wall

right one we it – guidance or even not quarter, we be any are Oh, now lumpy half on like XXXX in giving any it’s can say year.

end the that We of will guidance at provide year. our

Adam Gonzalez

Thanks. Got it.

Operator

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

is line Your open.

Gary Mobley

and at the congrats strong question of into so. us on what are that three quarter. probably in allegations be or I the a the hours another conclusion can guys. quarter? you about filing for Hey were taking Thanks XX-Q your you going give my performance realize preview remaining to But

John Wall

$X the QX Those selection quarter. I contracted from where already. are quantities access million Yes, were non-cancelable commitments at access IP end are The arrangements determined obligations each arrangements. by over unsatisfied customers $XXX customers products approximately approximately think including of and filed IP performance but it’s billion

Gary Mobley

Okay.

wins sequentially, mistaken? you licensing early your the Analysis of when as monetize to your have four these maybe are you existing $XXX deals So you Lip-Bu, early for recognize And multi-part question typical above and activity deal wins? remarks. you what types In I in you it’s them share in these size us perhaps words to the how existing four successful XX existing million about prepared to start separate Systems in customers? your well, Clarity from four All in ability wins on if with from have some relation can in revenue business. these mentioned your other right. that those customers, your Clarity engagements and wins could for EDA revenue runrate, beyond not

Lip-Bu Tan

question, Gary. for you thank Yes, your

of think couple things. I

this our of that and two software new System I we all, that’s very have System Analysis approach of complex space and – the apply core computation initially. competence can is something First this of products our our then we Analysis think have space of we into

have We XD now that security Solver. EM a is

We are delighted.

four engagements new We a more have competitive active than and going we is us wins and forward. have this great product customer for XX

announced demonstrate excited Celsius and especially X XX we Again that earlier we strength are our that Bosh meanwhile, performance we computational new our then, about performance Arm, so, discussions. And we have to both endorse are to they back that that up Thermal and to see and we and our made have just software up Solver. clearly delighted and customers products

we So provide power, total the and a can and IP, that because into whole our very at best want fits beside it system, that, it’s solution Analysis EDA, the more our more the system simulation the something early stage demonstrate still it’s really the emerging beside customer thermal, solution in whether the for to System customer. the they envelopes and love of look and

stay time, we not and basically it of close it’s it’s again, terms competitive and do and very EDA we unfold and our will in of and in very so, So our Over and early And then of then progress winning. to but – differently market a you the part updates. stage pricing, give early still pricing tuned.

Gary Mobley

Okay. you All Thank guys. right.

Lip-Bu Tan

you. Thank

Operator

Ader with comes Your Morgan. next question JP from Jackson

line Your is open.

Jackson Ader

seen up hardware? start Verification most Thanks the inventory segment was it bounces we’ve looks of year-over-year guys. couple that Thanks with Can probably like, quarters. the just the tick we the So for struggled questions. taking last and

in is just of business? building rates I maybe close curious, this hardware pipeline any that am of or are hardware we So some ahead a seeing of kind struggling

Lip-Bu Tan

the Yes, let you start and about John give then, details first, Jackson, will more inventory. me

our that see and of that software it make make all, the combination our hardware for largest eight regression function front-end delighted very provide us Protium I challenge partnership Cadence. also or marquee for the I customer the hardware think the solution we footprint existing I it the ZX eight and a one Verification add SOC – a make deepen clearly the customers and much lot development think – same And IP larger first customer. Digital Verification XX comprehensive and easier of and fastest we on Verification, are across earlier and the been Palladium orders software mentioned, global then, remain Protium Samsung pleased we key think for think QX, we expansions so that so now great through delighted the ZX us a especially can with their as And significantly customers as agreement and highlight are additional the in then at have we and I on XX hardware, opportunity the FPGA-based well expanded growing hardware as And Custom also and using and with giving capacity software one to emulation customers products. and that across for comprehensive doing but love just for prototyping I so, Protium we new

So all, I in and think, we I up all the think reason building can of John inventory. then the highlight strength see

John Wall

mean, solutions is into we QX into command proven the were building slightly hardware very good. QX are results because and our to have Yes, robust heading were strong inventories Lip-Bu says, cost as on going we in pipeline Jackson, be up But QX. XXXX. QX marketplace I

Jackson Ader

is quick sense Cadence from XX on Can Or you us Okay. That significantly question. customer Clarity EDA? customers any of different kind A And makes just that base it then, those? the give sense. in follow-up engagements. for one the

Lip-Bu Tan

customer Yes, – integrated. system compute system simulation value and the they silicon fully not see are and many a to both XXX semiconductor emulation I from It’s companies to down the the on really performance and think, up just that’s well because the that of the with loves. tying

Jackson Ader

Thank you. Okay.

John Wall

Thank you.

Operator

Co. Rich comes question with next from & Valera Your Needham

is line open. Your

Rich Valera

you. Thank

previously. marquee marquee customer? a to on you that the wanted from IP significant clarification. same well, that is clarify, different order had Congratulations large I the just one? customer you as mentioned referenced First the order was from the just Was hardware a

Lip-Bu Tan

so Yes, I semiconductor a deal marquee semiconductor semi U.S. they it is then think one largest IP that, company is and they increasing Protium already are fully hardware a a lot customer. marquee that and and mentioned are they we they orders. hardware earlier our – the like company, their marquee global integrated company – what U.S. with the the that hardware is But capacity make and global plus clearly of

Rich Valera

Got it.

perfectly So they are different customers that were – just to clear? be

Lip-Bu Tan

Yes.

John Wall

yes. Yes,

Rich Valera

for those products, them understand, wanted Okay. case, to And and system you. wanted endorsed that mentioned both said these just clarify Thank then, had products you on Clarity? I have I of if that to of think to that both you was you the of and just And and they moving Clarity? in Celsius Bosch and endorsement the first Arm that’s fact Clarity? then, has either actually an purchased competitive among wins Are four

Lip-Bu Tan

Yes, the wins then about product. active endorsed the and I And mentioned think another four we mentioned competitive customers. Celsius XX Bosch Clarity, we plus and Arm

differentiation, that’s yes. a So

Rich Valera

put is list sort a guess, same, from of essence it. to Got year the if anything are and recently, providing some tough are if three both cases you’ve know, in from have you whereby benefit this as we about actually been and into country. incentives number put couple there we next year, customers. is the revenue companies then, on a headwind say, in for as which policy a I subject, year, into tools in sort EDA see year, in them in of the wanted for look But place for and IP full China you Understood. in maybe of getting the you next the I tailwind but you quarters those of willing had This customers year. cases, quarters to purchase of some And go just a some they could had NND to list stays be the also entity conceivably a of kind China

as just but into sort know year? give don’t And a anything is look sort can lot numbers, to play. helpful. of wondering of factors you would just be that any thoughts you I There China So, next if of at there we about say there is want

Lip-Bu Tan

Sure.

even first place and the year. remain all, for monitoring will and we just mentioned, carefully me United and has Commerce let – think was situation with So Export as continue Cadence this touch comply rest but of I and on, export Control of fluid assume in we with the Department is of uncertainty, limitation the the clearly, I are current to States

are we everything we So already provide our in know and guidance this not.

And so, John? kind is where we are. of think I

John Wall

the and is in second first the that in for plays speculate headwinds. in going those in that then, the out half and year. – into your to will next for But of we have we is some Yes, year. change, assessment headwinds the some quite revenue terms are there cases If and no correct we some year customers and not of do different are persist you how half some of next year had

Rich Valera

Okay. Thanks questions, for the taking gentlemen.

Lip-Bu Tan

Thank you.

Operator

Your question D.A. Davidson. Tom from Diffely next comes with

is Your line open.

Tom Diffely

afternoon. good Yes,

question IP. Another on the

customer? increase demand due the in growth is as see one well? to broad based you IP curious Just the large Or solely a did sequential

Lip-Bu Tan

in high more and a IP that start a Clearly, datacenter memory like really me the and and our about Tensilica NewSemi XXX it. the on let gig build-up we from – Yes, in of portfolio beside we must speed that infrastructure and SerDes guys are SerDes lot hyperscale is from excited bought have keep first. IP connectivity focus fact we portfolio the and strategy then and strong adding

I earlier, we as we customers are our very our on this think nodes now and excited advanced on include of with is portfolio. and we and And add focused we And so marquee portfolio just focused so, strategy, company, leading block much the mentioned very broad IP of can we top pleased are and focus think we include wide and Design have building then laser this about win focused something And pleased add that then TenSilica it IP But have – on semiconductor portfolio, on largest IP with the it meanwhile we we are on it, far, are very system. ranging on the I very delighted I the progress. beside then, scale. and have we we a the very also the are like family, a

call You like, really a – we are star really that star the need start have the it must a IP. IP focused and on

John Wall

these are strong very pleased and was the But QX. then, last compare and of very we They a IP QX kind going last of on there strong they year in had with with course very consistent flat all a a finish tough creates a had forward. we things strong to execution Yes, it year. as QX. had QX

Tom Diffely

Yes, natural business do see is you that it the purely or seasonality project-based? in

John Wall

mean, purely is kind there – a random standpoint. of I it’s It’s seasonality from project-based.

Tom Diffely

Okay. John, in the that Okay. kind had. in mentioned finally And reorganization international a offices of you you release press press And release then, some John, finally, the of you mentioned

John Wall

Yes.

Tom Diffely

on The there forward, just taxes that? is something impact wanted going you can if of say

John Wall

thing. that I increase realignment tax a structure. And we October Yes, GAAP series I mean that's assets. realignment only our transactions may of foreign an deferred significantly mean international internal XXXX, operating our initiated involving of a in

is of As are expected asset to profits. future offset recognized the deferred the know, depreciation you when tax assets

impact. the estimate and So that our estimate of trying calculations tax quarter to We've the analysis value. impact and there go fourth a expect record not the yet completed in XXXX. income complete is But analysis to lot cannot we into the of the

our basically change. GAAP in We wanted because Commentary, CFO – this the for highlight current that doesn't guidance account to in our

we just that to is piece that So open. wanted highlight

Tom Diffely

forward? But no Okay. non-GAAP impact going

John Wall

That's right.

Tom Diffely

you. Thank great. Okay,

Operator

next question Steves Mitch Your from with Capital RBC comes Markets.

Your line is open.

Mitch Steves

my question. Hey for guys, taking thanks

Just two from me.

Is a that being and XX% historical, quarter guys quarter Just XX%. up with or confirm, blot it and dynamics pull into it? am way Huawei potentially why I last there terms reading of of in quarter regarding it's is much up that's some given the had China now reason down too sequentially kind you about there it's any hardware last to just the

John Wall

in was China what of revenue – XX% QX. Overall,

was from our quarters. XX% But XX% in last Now, was flat a that's of - mix of of it It's low revenue China X% QX think but I six QX about QX, to in well. QX. we've down It a think XX% back the in I in in as ranged over high kind seen XXXX. QX from from XXXX variability

pull-in XXXX, I and in not has been quite can strong in we hardware the is we But and see a was bit in for Back hardware for half QX one lighter the did for up did margin. hardware like a QX, and first hardware. shown gross hardware be quarter. experience lumpy QX any little pipeline strong said

Mitch Steves

is that the XX your lot like then that's growth placed significantly count X%. here sense. am secondly, from And mean of Okay, is ways actually thing better like the years years. next pretty But noticing to of X% probably I five one EDA employee makes going one increasing over mean to I I

just revenue years want grow fair now is clear point? Is like be the it I call three still let's look Because that pretty the to a OpEx close looks line. that here. under If at over it's going five next, your it years assumption? out to to this actually I

John Wall

Yes.

market XXXX guiding But new customers right of because not headcount in now. out opportunities has point and investing We that shaping are right grown, products. for proliferation you're the anything to are on we

Lip-Bu Tan

drivers, and is And because changes mentioned requirement needed. AI in very because XG, there are Cloud big and you of the about the whole a infrastructure is know, we then way, I couple and all driver some IoT big the excited environment, of these very data as AI,

requirements. have suite system they of the we all new start-up meet to so company, and a And try

a there happening. of lot is So innovation

some were and have and we also customers I increase see of the shaping design the key we And why think market activities being also so that flow proliferation of adopted. that's digital our

support customers. the of up commitment engineering and I, and see also win why And and deployment the John proliferating. increased the we some are and we building accounts from also then FAE these we headcount that's so the only to when the And the

Mitch Steves

very it. Got clear. It's Thank you.

Lip-Bu Tan

you. Thank

Operator

next with question John from Your comes Suisse. Credit Pitzer

line open. is Your

John Pitzer

good you could thinking guess help I question how on added me clearly I for down over should me letting sizing just North as the afternoon new is the my to if Yeah, guys. question. quarter. wonder ask customers September just Thanks first relatively the American we for that move continues understand how about And business customer that years? multiple be to nodes? you scales business that

Lip-Bu Tan

Yes.

So, don't I we mentioned guide quite XXXX outlook. know about. don't new think America, any we I sure, semiconductor are clearly about North U.S. excited only the But we company. but marquee,

We and the proliferation part about the expanding continue. will excited tool expanding partnership and we're we IP are besides that the

are about We it. excited

John Pitzer

That's then my Lip-Bu. helpful. just follow-up And

AI about I I'm how kind there of years XX guess or either capitalist a And or lot could XX somewhere size as and curious that's start-ups changed big Just potential a funded. think to between and comments to business if went XX venture of maybe AI that around getting I going that growth? are your money industry of semiconductor AI, back are is, the without clearly overall of you the specifically, XX percent revenue

unfolding it's kind are how all think I how near-term? the do the just more And it AI viable a get the and latter, sense I that if to or is stream revenue important do companies of these from that of growth here? your be you likely about to is that this think to trying of in am consolidates going kind

Lip-Bu Tan

whole Yeah, be significant. the industry I implication think AI quite the to can

am school and now Carnegie raised degree Trustee the If for new that. look like are the of they of university MIT, I you there with $X Mellon billion AI is Same – They thing called School at the undergrads. just CMU, offering a and on just Computing. for

the And can see is AI. focused then, Fund you on Vision the tool SoftBank,

semiconductor. semiconductor all that So not AI is funding, in lot look AI. in into the you you recently is by applied AI of just the term see implication. you different are growth a vertical correct, if And fact driven It's at industries. can

a design can And are opportunity So quite by activities excited the lot. be impact that huge. increase this we

And so good I we I have think in clearly, position. a all very think, all,

machine AI have We the learning our tool. to application

terms improvement of see we various significant in our So tool.

In time terms of and PPA verification. run

we So improving tool. embarking on are our

we meet the get that And the the start-up. the requirement. can best just products development customer to AI is So not

system Tensilica, into video for of the AI. and and big our the so hyperscale we big provide have can on that’s All build and various trying top of platform, guy clear they we And some a stack engine audio, customer vertical they to also, AI like, very the others our to all solution company, are investment that a of all then then good the various AI degree various markets the we try for address. a software to application

John Pitzer

in the ago am then guys could if September margin And abundance quarter. and helpful. your for It’s year kind rather you quick an guidance of just what given did help in quarter, it would op me I do of the Can on for be of just December curious, than your sequentially down you I why year-over-year the conservatism a understand quarter just financial part? one sort in John. John, just

John Wall

Yes.

gross op same the XX%. this estimates same comes we was for QX. the better the In mean margin margin out mainly So, at as and gross QX, in we on XX% assume all we the our we side. Last I in did margin about how where essentially at it's way the for time I QX beat guided XX% and we mean, changed But guide. quarter QX we guide we haven't last were time. at quarter.

op It came out XX.X% was think XX.X% I margin. - at for and we landed

for gross the a a most result was – we have of hardware on beat op the the but So most margin in of heading is of My pipeline QX QX that, side significant margins. expectation similar, last into reminds I QX. down, and of was it where margin QX from were kind year, year QX. It this our time points basis XXX ticked think me last of gross we to

change we that are So in export things is got QX And you've right? QX now. got a that's no and combination of XX%. You've assuming that about because expecting right we happening, limitations are there

market also investing proliferation areas. product and shaping new opportunities, are in customers We in

So driving that's that's what's numbers. what's the –

John Pitzer

Thanks. helpful. That’s

Operator

The Jay Securities. with comes next Griffin question from Vleeschhouwer

Your line is open.

Jay Vleeschhouwer

Thank for first. you. Good you, evening. Question John,

of due just your based Was or a in to EDA $XXX commitments. mostly, think broadly question longer then, And in if precise customer tonight's remarks million you in numbers metric before that noted until You disclosed comprising do that be on solely Lip-Bu. to This term I or to customers terms market $XXX fairly prepared IPAA secondly, that? for not single it is not million a of IP amount Q. is

John Wall

Thanks to was the the have reported past. performance obligations include the and seem IP we - arrangements they rules, calculated old then, an arrangements. issue with and consistent obligations point under with in new past. under backlog Jay. the that had would how our Yes, didn't reported We Yes, to rules remaining And performance were didn't be Access in include that we we the how IP Access remaining the out.

with we more $X end the as $XXX number. worked last as we unsatisfied But it's auditors contracted, that million billion just the we you exact to QX, it is because, our say but comparable that we there So now in the had is say at backlog performance that obligations of to is year. to wanted of disclose have

Jay Vleeschhouwer

thank you that. for Okay,

or For market Lip-Bu, a part technology two maybe question.

it’s dedicate commitments, expression. resources do First, and how forth? How fall use that so And into term, of customer in do category? terms odd market more customers that those the and to you you you customers define often somewhat shaping specifically, a frankly

extended question, number a of of we've then, EDA have seen consecutive growth categories a growth. periods And in

had growth, course PCB more For trailing example, XX. your XX, more implementation XX-month than data, custom category the consecutive industry in XX the of numbers, has periods IC of than

very – to more four but years don't a cycles good years of meeting or for multiple last particular all that growth. consistent seen growth that's than So, for EDA periods historically, to each. four course, we've three years category historical categories years now of three beating are But

categories? thinking vis-à-vis different in sustainability So, or terms what's what’s different your the now, of

Lip-Bu Tan

let address Yes, so you thank Jay, one And questions. for time. these me each

of they market shaping leaders clearly that is sector. the first in all, So, about are definition their customer the

leadership driving enable are they be demanding most the trusted are the innovation. that partners because different want They the innovation And partner are to customer, the they they performance. or want so, We but vertical to them for we to the customers. driving shaping that we them they is the platform the various the their define how the them, in partner for to want their leader, markets continue marketplace market create. and in be we And are the -

of part the clearly terms different in In as I we know not particular the wave. way, with a they this requirement. you the the is of growth, hear growth passion the my in junction are landscape we there waves are can and changing creating mentioned, the right five industry beauty of driving are And you the changes, a are

one the all I are into the I just are mentioned, and data call about we As data-centric example and moving being it’s it and AI economy. X% being is then today, analyzed utilized. It's now data of only

it’s all really different memory, the So the of there the is verticals is the processor. driving churn to change and then, to a this driving a humongous storage, applying domain-specific the driving across And opportunity.

depending than of different data, rather the Different of different a the processor the markets different massive, CPU, able also workloads. require that and then memory, workload data. just class to infrastructure the So with a way there FPGA, in workload cope it's on terms of require explosion massive type we in are driving GPU of is specific our storage, new

out rack, in and And of terabit order infrastructure the scale to per high-speed the the interconnecting. the spy the second storage XX.X on and top XX.X second then, all example then all all to terabit per topping term is to the switch and and the to that the way going out of require support for so, network new the in this innovation scale programmability,

is so that's triple that. why it, SerDes and And for bought that requirement to And going down need that's important the the and we're the big then the infrastructure hyperscale really high speed. drive to Cadence why player

and excited learning requirement this a beginning the we So are increased I why just lot trying are mentioned we and a and we semiconductor and innovation side it's lot I trusted be of it. some fulfill that about of think is and are going to of a it this that's design driving partner to earlier be to in activity new

Jay Vleeschhouwer

much. very Thanks

Lip-Bu Tan

you. Thank

Operator

from with next Celino Jason Your comes KeyBanc Capital Markets. question

Your line is open.

Jason Celino

Hey question. for taking guys. my Thanks

me today. from Just two

this the pipeline from QX commentary we could tough that your with for following growth one, previously? year. upside you first But growth see a modest business, The comp to hardware if last your pipeline year more modest talked provided about holds, you've some that

John Wall

growth are Jason, for if It's kind over Yes, one quarter. kind the Functional the Verification mid-single-digits year. expecting I total of for you to move hard year, look in low of to needle we mean the

the enter kind is optimistic quarters Although end like and strong we QX, the I Verification a think four of up said, been with But has the pipeline. tough this QX into Functional you look like do high-single-digits. trailing year of if over challenge comps we to

Jason Celino

And thanks. my to with next great, your question System has Analysis do business. Okay,

announced am you electromagnetic solver thermal you not timing, solver, solver specific September. looking the timeframe just for remind second then and solvers your you us April could we necessarily but So out in can with in I came other the expect? what

Lip-Bu Tan

Yes.

entry this tuned. initial think are beginning. to on the we competence Analysis and I is just computational System stay mean, core using software I our So, just our

the We first excited out have second with out. you came traction. came about product out in They point People And the as performance. April now it. good are love correctly product

for it’s system business exciting PCB high-end really We very are our be continuing whole to investing well simulation the that system will also and area us. a and with modeling

you products. update announce So when will new we we stay and tuned any

Jason Celino

Okay, That's Thank me. thanks all from Lip-Bu. you.

John Wall

Thanks.

Operator

from comes Joshua Berenberg. question next with Tilton Your

Your line is open

Joshua Tilton

questions. as to my such of drivers for am addressable of having drivers set previous appears starts a maybe set Yes, pricing? benefit companies does mobile. addresses of broader as broader curious how taking It if just I a relative hi, companies thanks the today design

John Wall

starts, of a Cadence growth having the generally is design design tracks benefits us, broader but yes, So, Cadence because for revenue set companies there the business. are better it starts more

Lip-Bu Tan

Yes.

can new or the AI the to new either in support player. think applications, we I providing to broaden solution the solution IoT or in system automotive that like XG opportunity customer find we really and opportunity huge them so industrial and and infrastructure for the So, and or Cloud,

so greater always good. customer And we our and diversity customers is broaden requirement can to that that the

Joshua Tilton

mentioned as to remarks, adopting Okay And sense. my a you follow-up. was build their competitors. just other that customers products tend then, using It were from a full digital prepared and that the In companies you both flow flow. makes understanding

we vendor? are starting So just from to see customers well as one standardizing

Lip-Bu Tan

Yes.

to different methodology. mean team you also know from will move fail, different that have So, different products, down of internal customers, geometry all to opportunity different to do an different build think tools you three, that and a the have have when I integrate seven five the to tools you to try the to to you integration lot because

line important, And it’s adopting think so, the really very the for to the flow the customers starting focus to like a Innovus best of best-of-breed the focus mentioned have over is customer are I to now, first earlier all, each we of most Right full place on it's getting – are our it and product a in majority, nodes. route. XX% advanced the

integrate the to and among then to product strong years. optimize and flow come have we Genus out see few how to very Tempus then that we them, out the Pegasus. of talking customers last not and how are been And best-of-breed different the them all also only and starting correlations come have now our up that The

node customers way at integrate mentioned you're and why hear digital seven now starting we the us flow that the that's to that's right to the now on product, customer. completely advanced for the five can so full we not continue going and are a to and And the on best-of-breed support in we depend and about most only three each our lot can we that

Joshua Tilton

Thank you. Those are helpful.

Operator

open. with go comes ahead, & Please Company. Our from is last question Krish Cowen Sankar your line

Krish Sankar

Any Lip-Bu, One traction with getting I taking silicon. How it And hyperscale that definitely customers? your kind way or traditional than you are the guys a their had one customers. then I Do semiconductor are is, helpful. two question. their would Yes. a of as of requirements curious I they blocks good hyperscale Hi, own for my for follow-up. is? build toward customers thanks be EDA IP have your them. on whatever am different see color

Lip-Bu Tan

to going They for Clearly, quietly important players. industry, hyperscale Okay. building are up. about the are very they we be because excited our are

mentioned requirement more network, out And more then earlier, server data so their and going to and that for processing more them. be storage changed. I it's in workload As important also the data into about domain-specific development scale the have even and

And first And important market to from scalability and more I different them. players. performance very great think them. Time they most semiconductor partners our all, also early for them customer the then, that are great And of us and days. we and love is to part, worked bit important to on is we

We partner on are with working them. already

some that. continue about that And our do tool very we to are also the we cloud infrastructure also excited we infrastructure the cloud on that using support the of leadership and

excited the in expect I the our partners we're multiples, So think we opportunity. cloud, and with working about are in

Krish Sankar

market how a or the are that is the this helpful, like Is would John. they? that then big apps, for Lip-Bu. hardware And Any And How Okay. either segments That's FPGA color helpful. you size can follow way this a there up you be different very is year? big it?

John Wall

can with of I terms market have happy but into don't Yes, you and with today, QX. very that very, pipeline data are any the that breakdown leading our the with is going share strong year how in we we I have

Krish Sankar

it. Thanks, Lip-Bu John. That’s Thanks

Lip-Bu Tan

you. Thank

John Wall

Thanks.

Operator

no back for are closing Lip-Bu turn time. questions at There further the call this I remarks. will to

Lip-Bu Tan

for afternoon. all you Thank this joining us

Next Design opportunities Design and expanded and phase in Intelligent an Pervasive of System market. total Excellence, brings System addressable our Innovation strategy, Intelligence new

We base proliferating solutions broader are with and a customers. of further our capitalizing on trends multiple technology

partners, our of the would their in and to continued closing, Directors our like for shareholders, Board I thank support. and hardworking And employees all customers

Operator

in Thank you today’s XXXX This Cadence today’s conference quarter call. for concludes and now disconnect. third may earnings you call participating

Cadence Design Systems (CDNS) 21 Oct 192019 Q3 Earnings call transcript