CDNS - Earnings call transcript Q4 2019 | Cadence Design Systems, Inc.

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Operator

Good afternoon. My name is Jesse, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cadence Fourth Quarter 2019 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. you. Thank Instructions] [Operator

like Director the Cadence. of now Alan, Go over the Group Investor to would call turn to ahead. I Relations for

Alan Lindstrom

everyone of Wall, XXXX Jessie, our Lip-Bu am Officer. Tan, you, and and today's The Officer; would call President of by to Thank is remarks and and Executive at John XXXX. available Financial will cadence.com be I this website joined XX, website archived today fourth of Vice conference earnings be welcome webcast quarter A the Chief also our call. copy prepared will Senior our available March through I through like to Chief call on today. conclusion the

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

factors and XX-Q, For earnings the filings our could comments Cadence's most press on information refer the in and difference today. recent Commission. include release regarding cause company's with please results cautionary forward-looking in the These Form the statements reports that including XX-K on the our future to filings Securities issued Exchange and a Form

measures In also of results. financial financial of available and financial investors today. to results certain potential we are accounting the non-GAAP to their GAAP, principles comparable Investors the certain measures. Relations useful financial at financial will to our business, to results evaluating generally in reconciliation be non-GAAP section reconciliations using review are in that encouraged results or most with also addition cadence.com. The review Investor GAAP with accordance measures direct in believes Cadence accepted GAAP management non-GAAP addition present prepared using can it

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

turn And the Lip-Bu. to call I'll over now,

Lip-Bu Tan

Thank the to achieved QX, that afternoon, results year. delivered excellent for operating joining pleased us I'm report for today. a Good everyone. you Cadence strong

X% shortly. more delivered operating across XX% environmental year-over-year provide non-GAAP revenue strength growth headwinds, product margin For details we with will XXXX amidst our John and lines.

Macro continues need AI nodes uncertainty computing, foundation IoT computing, being well which This and next-generation into their machine generational headwinds and XG, drivers. but learning, the XXXX, advanced front. connectivity for propelling as both is storage. hyperscale have design More-than-Moore helped activity geopolitical industrial technology as and persist driven autonomous semiconductors and and strong all vehicles are by at at

custom continue aerospace digital the vertical I start-ups believe trends to silicon, to will years. silicon these of system developing and silicon processing, transformation defense fuel renaissance in and industrial, like and addition computing, few over companies domain-specific segments next

pervasive maximize System and our is of XXXX, intelligence. foundational design market several We as achieved In innovation that of wide-ranging opportunities, beyond enable TAM excellence, we design at strong which EDA customers. excellence well particularly EDA core our expanding tripling growth products, into unveiled innovative us and by comprised expansion will system through IP to fueled in proliferation our these solutions launch strategy and Intelligent in of shipping as Design segment while the

continued, achieved time business capabilities. market revenue the solutions to signoff proliferation performance, customer growth and best-in-class, by Our and double-digit for area, for as offering digital power, strong driven year, demand

and of our global partnership expansion footprint. us, significant expanded which shipping with through software large company market Our mobile booking, a their a, EDA included digital comprehensive

of Broadcom and using Building expanded, digital creation implementation collaborations designs, to their include X-nanometer the upon Cadence successful, X-nanometer designs, Cadence solutions.

advanced competitive leading XX including wins with full about for full XXXX, FPGA of a recent designs, new have node win, chips. a flow new We maker in flow

in several such Verification as, wins our customers. Innovium, of MediaTek, suite segments, of the business verification our Mellanox XXXX. in During And we digital successes Uhnder. Socionext, and challenges vertical the year announced our successful one had customers is -- top across Samsung, multiple with

Our with at win company. technology the innovative this U.S. leading tech Xcelium to computing simulator and had proliferate parallel noteworthy a continues rocket recently

Palladium And comprised Protium hardware-software Our software IP development. ZX FPGA-based regressions XX, emulator. across of SOC recently and hardware a prototyping introduced earlier and verification, family comprehensive platform solution provides

common, working in this when compiler traction tandem to compelling strong complementary Palladium are with at XX And more Due to we deliver customers. a deployed Protium platforms being getting front-end value even our accounts.

one new record XX and the a marquee at largest year. while significant that Including of over for a expansion had customers, Hardware orders with hardware ever XX customer ZX customers, year several new adding plays global Cadence. the XX

outstanding our business, IP XX% growth. an for was year XXXX with year-over-year revenue

while portfolio trend, enabling leveraged IP customers the As time continuing their strong to our accelerate and strategy to outsourcing innovation, focus and market.

quarter It was earbuds learning. imaging, products, audio for Particularly machine the speakers. where and strong. Tensilica, DSP computer Tensilica HiFi, Loyalty increasingly was studio-based smart Wireless growth vision wins year an audio, and are proliferating the and processor our in strong with in in especially in True next-generation market

PCIe had well SerDes with proliferate in we with fully XG and IP our great as products, computing. XXX-gig AI, and DDR, cloud Design a as strength in customers year

Early processor in -- products. SerDes the largest semiconductor our well as as interface IP arrangements IP through agreements memory marquee XXX-Gig a our company, which and with ever, additional U.S. augmented we year IP IP partnership included Tensilica

system Celsius our Intelligent two the by Now co-simulation billion and $X we strategy. solution. Design market. Solver, XXXX, system The us simulations; on Solver, introducing next-generation electromagnetic Clarity industry estimated segment Thermal move products: the first to System let electrothermal innovation new the analysis field solution for An XD opportunity the In exciting complete TAM entered of

the and system time Increasing to solutions. of while limitation performance the pressures industry are existing and need more far market complexity capacity for underscoring simulations, driving engineering significant

up Celsius XX are while that gold to massive faster parallel performance, maintaining delivers proven accuracy. standard architecture on based times and Clarity Both

of and underway Micron, We are than SÜD, these the STMicro, innovative XX including with ramp with XX well pleased extremely evaluations TÜV more Realtek products Ambarella. customers to-date over and

our the advanced a year-over-year for are demand packaging heterogeneous increased slowing -- double-digit Generational down coupled drove leading increasing need industry Law Moore's to solutions trends for strong integration of driving growth. with

for RF solution. in and complex are aerospace in a the that There challenges application, high-frequency in end, especially AWR wireless, XG acquired and RF products high-frequency we leader defense To segments. automotive growing designing

a Integrand leading acquire extraction. RF also provide Software, for analysis We and solution which

Integrating to these design and for National customers us and to with will millimeter products We verification which platform is and into enabling improve RF initial a on Instruments quality offer enable simulation, technologies wave implementation, entered flow platforms Virtuoso alliance design with manufacturing. to Allegro reduce comprehensive a the market. from our agreement strategic time test focused to to

partnered simultaneously our with on and contest. first extended customer Microsoft Cadence XXX productivity, layout we providing environment and we the EDA IC cloud hundreds benefits. space cloud accelerated with TSMC TSMC delivered of and CloudBurst layout using tools. allows portfolio the scalability in students compelling Lastly compete Cadence our flexibility Adoption passed of to that leadership Cadence Azuro customers mark. several

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

John Wall

our all the on afternoon am pleased with business and in and performance our year. Despite growth revenue groups operating non-GAAP everyone. margin good and headwinds, XX% and QX Lip-Bu delivering growth X% I profitable XXXX. revenue for focus Thanks macro resulted financial some grew for across we revenue

include margin for the XX% numbers EPS $X.XXX quarter year. Non-GAAP approximately $X.XX and Irish and was $XXX quarter benefit year. GAAP with $X.XX transfers This $X.XX tax quarter fourth rights the revenue year. GAAP-only P&L. of a the billion related and subsidiary. for EPS for Cadence's for the and the certain intellectual $X.XX tax to quarter starting one-time quarter for operating to million XX% GAAP the property the and was the Total year the for for benefit intercompany Turning was the for for of the year. the to

one-time the and EPS and year. was were EPS GAAP-only $X.XX the the benefit, Excluding for $X.XX $X.XX the for year. tax GAAP for $X.XX Non-GAAP the quarter for quarter

for cash were million million balance the repurchased and days at for QX the total and $XXX balance Operating the flow, at million for was during year-end. Cadence cash flow $XXX $XXX quarter in full sheet year. DSOs and of of shares we $XXX a the year. million our XX $XX Looking cash fourth totaled million

dropping $XXX around revenue income. million that into into incremental operating XXXX, by grown dropping since income. During That our through with million million around incremental million annual now we growth operating through $XXX that non-GAAP means, of by of non-GAAP we $XXX grew revenue have revenue over with XXXX, revenue growth $XXX

we operating range $X.XX; margin Non-GAAP on moving guidance in revenue in our GAAP $X.XX of million to million. and to fiscal the XXXX, the $X.XX. to the QX expect approximately EPS EPS of range Now in $X.XX of $XXX XX%; of to $XXX range non-GAAP

of of we to and of revenue expect in in the XXXX, range Non-GAAP to the billion. billion $X.XX GAAP in of year $X.XX. XX% operating to $X.XX the EPS range range the margin EPS $X.XXX $X.XXX to For Non-GAAP XX%; $X.XX. full fiscal

free XX% $XXX of range to expect cash million, cash operating purchase in we approximately shares $XXX the Cadence flow our and flow use XXXX. in expect be to to to We million of

that the XXXX XX-week acquisitions we've please limitations be guidance. in remain completed We for that that And recently of included place two certain XXXX. all assumes will impact in export our finally, exist the customers those year guidance and Our today acquisitions of note for fiscal will for a Cadence.

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

of another conclusion, expanding revenue growth year profitability. delivered strong In Cadence and

the years. focus operating profitable of revenue portion three to in our through large revenue has resulted a Our growth flowing on delivering over growth income past

guidance the assumes half impact to trend the income. XXrd Excluding and that growth will of our operating continue XXXX recent revenue approximately acquisitions, in of flowing through with week

to would XXXX. hard-working continued for support forward look partners customers, our to updating thank and their for our I on you I employees progress like our and

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

Operator

question & Thank with Rich Company. first you. Valera [Operator Instructions] Your from Needham comes

open. Your line is

Rich Valera

evening nice and a to finish the Thank Good you. on year. congratulations

years. thinking nice of and the how could the initial sounds the you've products as to the products system doing the had your then in some proliferation where wanted if same over typical some engagement runway or proliferating market? digital type to this space like question system had you compares over go gaining have contrast with after First some products. engagement you're And of obviously with seat terms continue maybe one success in there see that the these on just you pattern think it Do you of new you And time? wins. it compare about It could success how

Lip-Bu Tan

This is Rick. Lip-Bu. Yes

Let me try questions. to your answer

Celsius going with are one excited are market XX Clarity also XD strategy. the moving organically simulator solver new opportunity we other and And space us. for in are the there's analysis developed Solver two $X the software. we're on we all, of the is that billion the in electro-thermal And about co-simulation and innovation First for Thermal and system our then system one product initially fuel EM about

and excited the been that the launching proven last architecture, and highlight part a later -- both have XX and evaluations performance out we are parallel of XX year are than customers massive More so X-X are few. had XXx positive. response and already And very and I'll both we

and is and products So, And our into just of move about that into this that to also system early that's addressing core clearly and about our I stage opportunity. the $XXX is in TAM provide computation And terms back solution compelling software to these request and market really two million competence entry excited our are also of our and we really think EDA customer. expanding so it of can in the to level. and customer we a related more to then us

to lending continue they gradually at future that. to your still the be performance And innovation then going the to ending are is beyond for the take then we what take to know within one can like that time are at a time, We company humble are the really answer our then step to would from question do digital? area them interesting that proliferate be what customer tell in our and and going customer customer-to-customer. us then one I the be will have. we And drive

So, I the It's tuned. think stay very overall game. early in still

Rich Valera

deferred for was blended John And the as a Great. Can into revenue you there you of much question then if a model? on your AWR. you that haircut quick say acquisition of

John Wall

from significantly rules added we've million Combined recognize accounting AWR. AWR our in the for Yes. XXXX. from we all Almost Sure can and guidance XXXX. Integrand Rich. annual revenue purchase revenue limit that Yes both of in to $XX

expect XXXX. accretive be to both in to be XXXX, acquisitions expect to we earnings dilutive We in them but

Rich Valera

much very gentlemen. Thank Perfect. you

Lip-Bu Tan

Thanks.

Operator

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

Steves, your open. open. Your Mitch is line line is

Mitch Steves

you can okay? hear me Hello. Hey,

John Wall

Yes Mitch. you. can hear We

Mitch Steves

Okay. Yes.

for So, me. two questions

technical. more The first one is little a actually

you have thinking Is future, You go why that guys to are talking a kind due space. lot that going that in of are reasons in the or when going I this about to of the too of that Am to RFs? RF with space? more design the is more complex fact one complex guys they're pushing chip architectures kind you into about

Lip-Bu Tan

Clearly, very a it's we Yes, good are customer. the to question. listening

know all on market some the other of the RF. challenging the is deploying you most As the application and REFINANCING, and then XG is high-frequency XG of

address And integration have way been to what terms put complexity this all it and so we the hydrogenous the in best of together? looking the to is

we working are able with acquire so of have we to partnership delighted been delighted a way alliance then And and Instruments and partnership. the are in in with National Instruments terms AWR form a National

the a then another we Solutions RF very compelling new gives also design. Integrand clearly for solution and add-on And high-frequency acquisition and just have us RF they the solution that called

design product millimeter Allegro simulation that from all Virtuoso our And a then verification. way to together wave platform RF comprehensive provide we to the and very for platform development with

really this verify. the very customer design and excited integration of this excited to needed we providing about solution are And that's why the solution then to so about that acquisition. really want are we that And

Mitch Steves

That then it. was Got really quick. John very helpful. just for And

Just half-on-half for operating the margin.

starting materially. at you're but are up of kind guys work talking XX%, pretty to You

the exiting get any that trying margin? what kind sort of help half-on-half. XX%, margin like imply that does terms XX% you're a operating So, in look to should of Just of

John Wall

of in back have due Sure a half it QX you the week. the the annual million course, that's I of profile the certainly will is about half higher extra income guess will terms the year. Yeah. the the upside of to Partly impact XXrd add than of Mitch. Yeah, -- first $XX margin to week when of the minimal But of in revenue. operating to expenses there. XXrd week add year,

first XXrd of the the acquisitions, the And half and bigger kind rules of acquisition kind is first the the reduces and then purchase of is the with four the basically in and -- combined over quarters. impact quarter of the the on like week over gradually accounting time impact

Mitch Steves

you. Perfect. Thank

Operator

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

Your open. line is

Tom Diffely

Yes. A year-over-year. XX% question Good wireless driven it organic And grew the the Wondering the that then sounds if of most on quick by earbuds? was business, that it Tensilica afternoon. side and IP all like was growth? of

Lip-Bu Tan

mean year we very that quarter for the and the clearly grew It's pretty the for revenue best the Yeah. XX% mentioned, across audio, expertly Tom in we I have as also growth I us the board. outstanding year year-over-year of Tensilica, IP is nicely. and and and a great much strong computer business, whole the and a imaging vision.

is And I the growth then and in the other part that the we have loyalty strong really earbugs their side. And footprint we speakers that very mentioned the a like very also there. smart audio especially about strong and

AI for too is that our across hyperscale design the machine and And not that other the the all PCIe learning. have great SerDes, and the infrastructure newly acquired the the also part from guy must-have board rollout year for IP then and then a is long and DDR that ago XXX-gig a

that And we across largest SerDes. answer semiconductor organically memory U.S. with XXX-gig Tensilica have nothing company the so, from is IP to we're developed and question, it all marquee the the acquisition. agreement also us delighted in and your different And in

Tom Diffely

the Great. Or too component heavily to call? third would make to based that on expect diversified And calendar to that the to you it quarter? be just consumer to more that, is continue weighted

Lip-Bu Tan

the question? Say again

Tom Diffely

IP for seasonality from it if calendar that in it -- make diversified the a if Yeah. third is wondering largest of to quarter? that the view point Or tough just I'm it's you be call? so expect to

John Wall

QX for with well. and we yeah, But where doing year. been growth only diversified. the our profitable has in went back seeing. now period pleased and growth. we're certainly quite revenue very a through It's guiding Right very, IP We're we're But went very we refocused Yeah. IP that XXXX the

Tom Diffely

specific the then basis, margins to follow-up a biggest it what's of mix? John, range? is And Okay. customer when product Is with the determinant at mix? look you quarterly Or on the it

John Wall

mix. product more probably It's

acknowledge course of QX, by officials should the navigating -- that take respond and we'll benefit year, accounting coronavirus. probably on rules the we and moment Asia partners two and purchase a Of China dynamic acquisitions. probably we're region first the now, to like Also the Pacific week. impacted our XXrd In situation, right get the the are in to health the part the employees as of

our on this Our our in with time that safety a of and impact is our revenue of and part large business the of early of to But working front-loaded minimal could is impact numbers. the impact. focus the more overall seen employee course But, with guidance. and nature authorities is and portion we crisis Any recurring of the at the impact potential quantify coronavirus that to date is to in immaterial we have dealing year. is kind on the our the

Tom Diffely

Thank you. helps. That Okay.

Operator

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

line Your open. is

Gary Mobley

to of Hey, start year this correctly apples-to-apples to comparison a from Is guys year. of commitments? wanted current for to about the cited XX% I way increase backlog read and congratulations you that your IPAA a backlog. XXXX. the I strong conclusion the If about adjusting to for that versus ask you finish count a now XXXX strong

John Wall

agreements. includes non-cancelable billion including yes. year-end $X.X $XXX $XXX the billion million XXXX Hi, of at of IP million Gary, That's access up end Backlog of which was $X from at agreements. IP approximately access

it's timing by impacted Now renewals. the of

really, was our QX. because X.X weighted strong higher we weighted XXXX average duration really years. for That And average slightly had duration XXXX a for was

But weighted was X.X it average for if and look us also if QX strong took was the to years. XXXX X.X our XXXX to XXXX the And through in Now and duration quarter X.X-year range. it X.X at at in that's I XXXX average for to together, XXXX range. I for up usual look X.X-year typical a the

as than hardware of a slight had IP our also. know impact functional that verification software is you portion is As and lumpier

Gary Mobley

Okay.

Okay. whatnot with Rule concluded I just on growth projects guys and appreciate of the to have in operating business manage tried XX margin always based XXXX you the that. of and I new you revenue know XX%. acquisitions the the about non-GAAP some

XX% for and that. at has XXXX on I'm You're guiding extra the sure week some impact

should And to Cadence prior as of also XX%? top a XX% step the guide willing grower? are line being so your out of now margin Or start business well you consider long-term therefore to we

John Wall

in We XX% are XX target businesses the So of a you Rule the don't past. manage of kind gave to XX. long-term using Gary I a Rule we point think And of margin out the metric. right of

in we back you think revenue I XX% closed growth XXXX we margin go if and we XX% the non-GAAP it and XX%, XXXX? in year – just did X% achieved is just yes. Now what operating

So a XX on XX% metric. combined of the Rule

was piece But think XX.X% and I or XX% margin. non-GAAP growth XXXX for that prepared line. on The amount we've for range our revenue XX% growth approximately in driving it's called non-GAAP been operating – that's of guidance of the the profitable to operating – XX% and that our the for remarks about flowing I is out to income that's impact out focused And that's why in revenue growth. revenue through the calling of my see what you'll I

I think combined acquisitions. the take XXrd of and the the impact week if you

the to to those they the operating combined I revenue to income accounting our add purchase those acquisitions. purchase of impact XXXX accounting million fiscal on due negative predominantly mean in impact XXXX is slightly about $XX but

approximately the of half impact operating revenue XXrd of XXXX guidance flows assumes our in Excluding growth the through our week to in this income. the acquisitions

operating we that with put out increase seeing incremental to we're can margin through near-term about But adding no long-term so there's target. ceiling flow where we're but because are. haven't a XX% happy have operating But we income very see because margin year-over-year. the we much you're So we

Lip-Bu Tan

Yes.

Gary it. we like with then the on innovation, in continue and products continue numbers. print think and I'll to I efficiency just delight Rule to of Basically then we'd to drive drive to the of the add customer terms XX best the meanwhile

continue shareholders. execute So deliver to we the to result and the

Gary Mobley

the cash. on the just I'm some It like that question quite amount. looks Last curious a is. repatriated what reasoning substantial behind cash you Okay.

John Wall

Yes.

the million that acquisitions $XXX totals As we're of At just the worldwide we at completed year-end about $XXX U.S. million start the the which of to of two within preparing acquisitions complete the over $XXX year. just cash million

Gary Mobley

Got Thank guys. you. you

Operator

comes Your from next Griffin Jay with Securities. Vleeschhouwer question

open. is Your line

Jay Vleeschhouwer

evening. longer-term you. a Thank intermediate Good An question and question. then term

the of case, or So marquee ramped has been the now AEs first there half customer XXXX to the U.S. second engineers of question in a have of and half your sure I'm conditions your or good starting additions connected the But applications and history first EDA, year, for the coincidental obviously others. of requirements up significantly a off. is, EDA. in in pretty you typically your last openings business there tailed leading through long indicator In

filled your much talk So your of the generally about have for now of rate employment question you're a And your largest is, for requirements to source of normal just run back you AEs thinking after largely AEs? is more and requirements second what R&D. maybe on

the And company group resources structure organization there that. Is that? dedicated a And then question a or technical follow-up how a do secondly, for then on the committing within company but computational of a as that? longer-term question to is software on the

Lip-Bu Tan

Yes. Good Jay. question

Let chip and John me try answer will then to in.

we're add-on success signal we And AE hiring when customer for the are we all, not and drive plan. to always AE, our But clearly, drive efficiency. AE continue the of a we recruiting clear proliferation. First to guiding have

the look shareholders. see and also a drive in And efficiency terms can we we balance demand. for so meanwhile, really at return the drive And also highest the clearer we where down the of

so, that. we monitoring to continue And

And commitment out. project monitoring continue the so what the and to to based really also we company on us before rule required

in we're team. very needs and augment will bar. hiring far, R&D top way, the our and them. then product road is proliferate our build And out strong. so interest want the then space, continue we along clearly to for And our high in product and terms this of We But existing so the FAE analysis to see when system we very customer map we

to -- we whole the to and able to that right after. really efficiency go try analysis So, the to one pick then really drive system we that to want market sure the we make

John Wall

Digital We Jay, business groups. kind Cadence's And employees And five I we five across manage We've got across mean different or manage -- of -- business group groups. sorry five IC like the competence. functional over Board IC, Silicon mean the the XX across on the we're the side. innovative I Yes. different I system core business -- business combinational Group, groups Lip-Bu with say ramping verification ,the manage Custom IP. more and software the is employees Package Yes. analysis mean customers we're than as happy I And XX up products evaluations today. and way had said we underway

Jay Vleeschhouwer

data of A use and point that. Celsius, analysis Clarity across simulation Thus and But management you to technical to in to process also at at some about computational it capability least or multiple for of software kind do a unify have follow-up going cases. more taking customers much with engineering have to simulation and software approach what seems the on very when you're least tool broadly, far think me you're to that a solvers.

point So, you beyond comprehensive orientation? how tool product by towards strategy a tool or envision flow a do more point process just going

Lip-Bu Tan

question Good Yes. Jay.

Genus, an address then over best solution. strategy, when platform to think point first the point the time, Pegasus. platform drive of really platform. started And have you the you you we first along you the whole the the Innovus and then digital then tool solution start and for place able Liberate push And then then like had synthesis the our tool I all then have with drive implementation way integrated then start to you tool we -- then can our route with

our thing we And same do that. as suite then verification

is as in. really a the forward a beginning plan the can we then along full-court a earlier. lines the this acquisitions, through that have So as And also platform I creating way product a so that move press. just This of can is we initial mentioned we other and marching

we is so, go very we our after. TAM tool calculated And over taking million, time game we that our tuned. have big create plan, $XXX addressing now we that like while can market now, other Then right we then and and various stay then the are platform digital the push can verification. and a it unfold and over and developing and tool platform And the then will

Jay Vleeschhouwer

very Thanks much.

Lip-Bu Tan

Thank you.

Operator

comes from Jackson next JPMorgan. with Your question Ader

open. is line Your

Jackson Ader

Thanks, guys. my taking Thanks for guys. questions,

First in China Are the but from themselves? Are just virus. at How know, mentioned conversations you being actually Or about one, not moment? just manifesting your like the are I delayed? are minimal, Are were on on they safety orders focused the how business John, the mentioned conversations employees? the are impacts? conversations, being impacts delayed? those you they the of

Lip-Bu Tan

Yes.

and So chip then let can me start John in.

with So, first and and working with the we then, Pacific to really that employee also. safety our then all, we in then carefully make authority Asia sure And focused official health we coronavirus. with situation, of deal respond to carefully. acknowledge first is monitoring and dynamic partners and And priority China the crisis. and that our then, through meanwhile, employee on navigate the We're

monitoring, then, stage. closing we're back people how the the reopen our And And on lot be and chain and recurring and factory coming -- whole going then week different to also impacting a the the at -- on supply a to in of And good Wuhan nature. this getting also news work. is, it's revenue so is

we're key customer meanwhile, then, with all also situation the And check partner. monitoring and our

-- in in impact see we're immaterial And closely what the into is highlighting And our that, overall we so that's clearly, that monitoring and and minimum assumption, the far. we forecast number. whatever John already his built is so we And then, budget. far

John Wall

Yes. the mean, monitoring closely Jackson, situation. I we're

over try In our customers some paying time. terms of regions what to as we've from remote seen so people far expenses is, some we're support picking extra that we're we up

our that Pacific. comes of comes We have -- revenue royalties. because We've Asia in out China of royalty of QX, and royalty some revenue some expectations of revenue down from ratcheted our

Lip-Bu Tan

the in included is guidance? all And

John Wall

is in Everything Yes. our guidance.

Jackson Ader

be And right. to of more margin in market? a from different structural there All That's or you then reason there relative or would solver XD Is broad question profile Clarity and is XD helpful. that Celsius Great. just the the anything on business Okay. that core EDA really any see in terms your general. solvers,

Lip-Bu Tan

Yes.

business. I continue space good is think market lot And it's I good we the a our ready the And of our game. system analysis early a the driving is think is clearly are again a we that. customer. mentioned in to very request market and and opportunity customer proliferating with And the

John Wall

profitability And margin. is Yes. very is op is our our profile EDA. drivers The probably into of probably system profile to the entry one analysis of similar it's increased

margin in for you if look XXXX was the system XX.X%. we're of of analysis XX% we on and because are underway think our achieved And that at gross guidance we're the our I the XXXX because space. all it growth targeting evaluations seeing In XX%.

Operator

next question with Pitzer from comes John Your Suisse. Credit

John Pitzer

want influences? I to and margins John to the op understand go acquisitions throughout I rate to a of March acquisitions year. the kind impact kind little the op exit just you've bit having the about margins they're about maybe think in of But on the what appreciate And impact quarter. relative diminishing on the run talked better we should back that

John Wall

Right.

are million earnings like two XXXX. XXXX. say, So, in revenue of in add $XX dilutive the to combines acquisitions, it you about And they

and to in as the weighted we bleeds impact quarter XXXX. the still it a of into at of of kind of There's kind through XXXX, you bit expect bleeds toward be the -- purchase I first it think go but little heavily kind accretive accounting if is off, on quarters. look that each we four the

John Pitzer

That’s helpful.

John Wall

for driver of grown do is sorry, I headcount driver remind Another to you kind we've op profile want -- that, that QX, significantly. the margin of just another

X,XXX During entered less X,XXX. XXXX, XXXX we We were up employees. with than to

end in expansion in chasing with these TAM of opportunities. as X% market the investing and about up So XXXX, we're customers the by proliferation headcount

John Pitzer

That's XXXX, especially the you then how should my of of for about about sort AI? traditional kind core think of think as I'm helpful. applications kind the at customers organic And follow-on, curious, new maybe versus growth gains around growth when and customers EDA kind share new in in we of business,

better bought they to look been companies, was eight key a the EDA sort I'm to you you'd answer growth? question, scale. smaller pricing that behind curious meaningful the probably on semis us of whether last the that larger by to -- M&A time a kind And had companies theme five and or curious as of I'd that over a over just be years tools, presume not I has M&A of clearly, a perhaps as how revenue and a become is now of function back tailwind if big growth lot does revenue headwind in

Lip-Bu Tan

John, a good Yes. it's question.

about happening of industry, it's time. because this major same all, excited to unusual at I'm have First waves the five very

to service group. really massively whole infrastructure. also and AI machine And wave guy have then they And of have out you reaching then They're clearly then digital and XG then as expand starting quietly to are the I capability. building system some the this the a mentioned system that company have provider, transformation deploy us have the driving really and the and scaled to the is big to earlier, autonomous the industry You up we analysis learning silicon you beyond hyperscale of space.

about excited us. the are And think so opportunity we in front I of

I clearly the we are of very far the And of customer, think I have other core EDA in the in And driving from us opportunity some one are on gain. proliferation terms that I the front to pursue our and excited still for of then will recall we the strategy is lot launching the big a leading aggressively should of the we right new in And part think innovation. Cadence is that so now. -- you share that product of

Beside developed new organically have Jasper, we and we analysis seven Gold have So the X tool, and we then the system product last Spectre XX CloudBurst. Smart Protium have have we those have we year products.

to tool the and in And by cloud tried the leadership then and We the the of cloud. our into product basically take they it. some move the and cloud native that for we the way the customer scalability new love drive really performance

trusted get the we And so to on design down pricing-wise, of exciting won. to become to in we we this them the partner in then when supporting And then drive you success we're some And that's value and very be don't we partner the customer. value price They value then to in think for the us we want their drive our and drive and quality of really them. important be want terms to it I about to performance. when count can X-nanometer, return, that to we move really X-nanometer

John Pitzer

Thanks guys. Perfect. Congratulations.

Lip-Bu Tan

you. Thank

Operator

of from with comes Adam question Bank America. next Gonzalez Your

open. is line Your

Adam Gonzalez

questions. guys. for Hi, taking Thanks my

a $XX in First, EDA market $XX about I versus analysis. $X billion billion What But $XX How difference the I this help analysis you've opportunity step you I market the plus and talking you just missing? Thanks. back system billion market and are wanted between of market the billion you $X to past take guys billion? reconcile you you're system and the IP. the am me getting billion in the a think EDA IP talked serve market? Can $XX serve, about that's inclusive

Lip-Bu Tan

Sure.

grow That So is picture it proliferation this we of And System it IP. driving. the There's of the strategy we we design call Design let of the on are me and system into you excellence. the call in innovating -- Intelligent the is and innovation. the a level Besides first moving core then really you. still for secondly, layer a floor lot products to call of the EDA some ground room next terms products, we draw we just that especially have the are

a just it. system and of analysis terms portion In of it's

embedded And business And we basically really another really $XX core is And to billion together then we and the that will next that overlay specific are our $XX in to layer some And the drive that security address excellence you billion vertical add also is five are have some applying two the from layers is know-how markets that the pervasive that. are AI the algorithm it then the then going we on call software, after. of intelligence. third vertical serving years. other of from up the that we total as that's design

Adam Gonzalez

Okay.

there? your are And in you're what that next a target tool differentiators years. me near of or And with you're cost is Celsius and you five competitive there the us that overview Can or addressing built perhaps in far, that it. future? good Thanks. momentum an landscape point market up far. on the $XXX Clarity Got looking job you've so TAM an solution overview and to give Next give the so following million then

Lip-Bu Tan

Yes.

and think target That solver And And we're market. is earlier I other in this area. about Initially, mentioned stay ready that. million. some $X we we also will products. then are tuned TAM the $XXX building we launch co-simulation EM So when thermal we the on billion that are quietly

that show get we software can performance. so a clearly the few, XXx it we drive the fruit, call we initially low-hanging computation differentiation And cannot

We're XX XX is more to that validate customers with excited up. evaluation and And signed coming.

really keep to -- So and I XXx want performance performance excited updated to that driven you think they are performance and the the Clearly on they we best tool. will have of they that. that can people see get see

the time And in over going us platform that to analysis. tool going are tell new I drive again, build go beginning. just really and the this to up we had the that they're acquire build then then to and in to and say is what the we're And system success

inning. the in early we're so And

Adam Gonzalez

you. Thank

Lip-Bu Tan

you. Thank

Operator

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

Your line open. is

Tom Diffely

than John structure when that on a revenues? it you bigger will Hi, look XX-week cost Just does a follow-up. year at impact the on have your quick

John Wall

Yes.

recurring look of week you to So adds $XX because annual piece our New up the for holiday Year, we it of But kind kind the it's extra the week a for. the revenue really and XXrd expenses. essentially Christmas million that -- week that on the side, between if at it's revenue about daily revenue the of subscription-based is of full we pick expense get

operating to minimal is upside week. the that for XXrd So income

Tom Diffely

Okay. Thanks.

Operator

And call back to you. will for Tan Thank I turn Lip-Bu remarks. any closing the

Lip-Bu Tan

joining this afternoon. for all you Thank us

System our intelligence Design innovation in pervasive expanded new opportunities design of an market. brings phase in Next Intelligent system strategy, and excellence, total addressable

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

a we our ranks are the November, to ethical governance list. and company in social overall. it we call with category is The success Cadence the the company impact environmental as important Investor's component -- first-ever in this and technology of number ranked very And corporate Business Cadence X a list and number to was Daily named regarding in who XX list Culture community. X ESG company sustainability Top

shareholders, the customer their to all would our Board continued like In and of and hard-working partners support. thank employees I for and Directors closing, our

Cadence Design Systems (CDNS) 12 Feb 202019 Q4 Earnings call transcript