Cadence Design Systems (CDNS) 20 Oct 202020 Q3 Earnings call transcript

Company Profile

Participants

Lip-Bu Tan	CEO
John Wall	SVP and CFO
Alan Lindstrom	Senior Group Director, IR
Gary Mobley	Wells Fargo
John Pitzer	Credit Suisse
Mitch Steves	RBC Capital Markets
Vivek Arya	Bank of America Merrill Lynch
Joe Vruwink	Robert W. Baird
Jason Celino	KeyBanc Capital Markets
Jackson Ader	JPMorgan
Tom Diffely	D.A. Davidson
Jay Vleeschhouwer	Griffin Securities
Pradeep Ramani	UBS
Rich Valera	Needham
Joshua Tilton	Berenberg
Krish Sankar	Cowen

Call transcript

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Operator

Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Third Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. Instructions]. [Operator you. Thank turn Group now over Alan to I of the Investor Senior Director Relations Lindstrom, will call for Cadence. Please ahead. go

Alan Lindstrom

copy Mike, through site by The contain archived that this through prepared Senior December of be Lip-Bu Vice of will like results A available webcast would Web today’s today Chief Executive forward-looking third of will XXXX. our today’s conference and and actual and expectations. John that at everyone Web Tan, may I our you, be also will Wall, and cadence.com call. and today our the earnings quarter discussion available note remarks Chief to joined materially XX, differ those call conclusion statements call. am on President is Officer; Please the from to site XXXX Thank welcome I Financial Officer.

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

Web The certain available non-GAAP direct be accordance measures with review the most results results reconciliations in measures. with using to GAAP, financial evaluating addition to results. the of financial XXXX, today’s practices release Relations press investors that earnings if non-GAAP our section at I and financial tables GAAP to conducting also Note remote addition Lip-Bu. useful non-GAAP XX, using GAAP continuing Accepted are handoffs Cadence encouraged to Apologies than social financial are CFO comparable cadence.com. in Investor related to also dated we results for and in distancing that of our review are and call today’s financial to Investors September adhere turn available prepared will management a is of potential Accounting will commentary respective October to usual. reconciliation on our now, take are are Principles, site. today. over Cadence their In locations. quarter longer call therefore it or or also the from measures Generally there in XXXX ended little we financial certain the XX, Copies glitches the present advance believes any can that And business,

Lip-Bu Tan

afternoon, our of us metrics results achieved Good that and challenges the to financial pleased navigate exceeded Cadence through Cadence today. financial everyone, to team posed on by XXXX. joining outstanding We all outlook quarter successfully pandemic. continues for third the thank report the key you I'm for as

provide AI, our strong hyperscale raised for fuel System our year. details analytics, innovation. to Design Intelligent strategy centric in their and semiconductor revolution a data data John more The outlook to positions moment. led enable customers also our the accelerate by us design to continues computing system We will And uniquely activity.

using full-flow digital our out includes major us customer quarter. is deepened our design shaping We foundational taped ranging expansion IP maker our market our portfolio. with core for the our with of full This our portfolio. third let their through to and wide of EDA Excellence chip marquee Design customer X-nanometer software continued design X on global and across layer and the Momentum strategy flow solutions partnership move Now accelerating highly a wins innovative teams. & hardware is solution and a signoff EDA digital and design flow. of highlights proliferation our our now the digital complex significantly the their for auto

XX had address our its in and highest-ever Our well Xcelium hyperscaler machine introduced by customers. challenges. which Verification Hardware expansions, particularly significant prototyping, learning up is particularly simulation, and We uses wins AI and continuing with logic our and suited to mounting Suite to best core analysis, regression formal quarter, emulation ML, throughput XX. at Protium new class revenue simulator comprised Palladium of to to ZX premier of get verification across engines design customers improve the

products, strong XXx in momentum by this true excited needs. chip end faster like we expectations. acquisitions smoothly, IP top those the and technology the addition Photonics IP and AWR has broadening our added level and Design Clarity Transient internal deploying advanced the more end-markets for our Clarity system are up included many a successful our with and our we Earlier and tracking earlier packaging system defense. system hyperscalers, year. by safety as hyperscale simulator major the In vertical month, shaping market an we EM XX QX, packaging, Teradyne system portfolio for this and In area, new through Celsius that markets business innovative wave quarter simulation. developed, continues was Cadence become maker XG, is System delivers and applications I’m companies, integration QX, continued linchpin of adoption, as technology AWR In their had a of particularly System and royalties the AI, for systems our wafer production designs. used a of new level Allegro XG/millimeter acquisitions On our than organically adopted segments. the & and with ahead of for wireless history Rockley to front, our by verticals the deliver strong particularly mobile bandwidth nicely were Tensilica a both and hyperscaler X-nanometer and auto customers automotive, automotive the Analysis functional adopting for such automotive expanded very Solver wins In aerospace complex ramp memory in in XD for IP Clarity long Integrand level that Systems designs. our hyperscale, use. has automotive which enterprise to companies obtained in and use well Innovation, to as was the ADAS. EMI and PCIe in with for stereo high company Integrand

over to let John results detail our us and turn more to Now, go over update in the outlook. to it

John Wall

Thanks and pleased non-GAAP than metrics everyone. the exceeded IP We of to profitability This to the key driver quarter margin. in report in a quarter. main sales all approximately improvement in I'm hardware X% financial quarter, revenue as strong result had better good for we expected our of and afternoon, China the our the was of our region. for the a operating contributing

margin million, results non-GAAP starting was quarter, for approximately third at the revenue non-GAAP P&L. GAAP EPS and was was XX%, $X.XX. key operating Looking with Total EPS $X.XX the was the $XXX

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

assumed seen QX. and China revenue QX provide levels assumptions the take add XXXX in week Before a and we updated in to share embedded remainder into this QX. approximately have will sales extra of of IP our a higher the $XX I'd expected middle to than during continue outlook. year for I the activity an of will hardware XXXX, Fiscal and We've the outlook moment of fiscal to million like is XX-week

increased second activity result, of level As our for million outlook the in IP $XX approximately a this and hardware sales half. includes

XXXX. the remain remainder XX%, in customers is our margin for our XX% and EPS You slightly due the as to revised recall the from outlook follows. of million. we usual, for our million in we’ve improved continues credit that QX credit in of operating the $XX million $XXX $X.XX QX as will several aforementioned had assumptions, million, at outlook QX bookings assume our COVID-XX the updated related range during of in end of place and the of limitations situation customer removed $X.XX. $X.XX to range backlog to down $XXX that GAAP to range of of for non-GAAP $XX that exist EPS $X.XX The today export estimate non-GAAP to the to to Embedding risk. And Revenue

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

non-GAAP about on find recommend of that like revenue growth And strong that we hardworking our all as I'm I by to the to on in you for site. analysis this further incremental CFO And first quarter's thanking partners shouldn't profitability during a year employees I'd improvement priority. Web will commentary that continues team their CAGR, our additional with most quarter the quarter. expanding the achieve to another But our in fact continue for guidance do. our What health very available our that is focus we the naturally results. fourth take effectively revenue well greater our of growth and by will delivered all now XX% and pandemic be on items I'm track as always would In we're to safety to than the and You operator, running. remind and and pleased summary, any for close much too like single Cadence three-year that customers, operate questions. they them results pleased margin

Operator

[Operator Instructions].

Your comes from Wells from Fargo. Mobley Gary first question

Gary Mobley

guys. Hi,

extent further and that under then to of influenced the on to of coming otherwise export I existing to so you the over customers your extend ask restrictions wanted some strong didn't export you in year, the in progression. have To year on related what serviceability wire, expect congratulations fiscal Related the done the million the of maybe top half? to seems Let those to me customers? second customers China-related what And trying speak? extraordinary to some about when in mil/aero of existing restrictions, by be the in revenue analysis $XX a perhaps first some related about some my half half second second latest the that down China is started get

Lip-Bu Tan

can’t we you. hear John,

John Wall

Sorry, I mute. a question. great was on Gary. That's Hi,

higher in That's record this revenue second In like saw look probably say the one to the million that benefits at But about extra pull-forward than that half; and QX million the XX understand terms million next year? $XX I the was say believe valuation and percentage non-recurring previous you We early won’t whether the two XXrd about generally when QX. thirds, level. revenue for about higher mostly week of a is revenue. it $XX but it's million. in XX% I the know But than second right of strength concern like about from, revenue 'XX. expected. is What at We that kind China the for extra half the of early valued $XX – it spike pipeline about there non-recurring of is that China, is I’d predominantly to that say in QX. year for is the X% China China I think too and is impacts split nature, from now. of next between It's to us until our we can third in year we

Lip-Bu Tan

are all And growth and regulations. big And China’s for export U.S. very And IT storage hardware is us. control a comply the we still clearly semiconductor with again strong engine. then

Gary Mobley

Okay.

sales? you are to And on As of to guess have that hardware-related thought is hardware higher it related than the we killing profitable of hardware margins, much workings relates guys I more sort mix, there it mix what is operating domestically What’s I to margin. given it's it the say would just to as mix revenue. originated guess contrary China inner relates hardware

John Wall

of we we invest with into like be helping a little XX% R&D, in as in to to expenses is Gary, to QX. range. margin at us that additional probably benefit than about lower. also end seem as XX% are margins get that we benefit but hiring less creeping baseline time the to Yes, of for in X.X% continues got helps is one QX the in and middle expected was extra I've were about X% for some non-recurring keep QX teeny. for slower X% XX% in high pandemic the and are the – actually to up China, a in QX, But to for there's QX us which mostly extra one-time hardware is assumed in and margin headwind week QX. is IP things and that probably that about range of nature. which the into the long margins of pandemic XX% We're continuing an the QX. naturally helping range that And extra and in And We certain revenue

Gary Mobley

Got right. All you. it. Thank

Operator

Your Suisse. John next from question comes from Credit Pitzer

John Pitzer

a the pandemic get results. OpEx, more up you letting i.e. we to do follow John, questions. Good help op how afternoon, guys. a the much just a when of better ask kind kind think related Congratulations of of me how has normal been on for tailwind us solid on Thanks back to relative that. targets? state, margin Can understand we about

John Wall

didn't of we and to revenue. time the probably If the you of X% Yes, great I the helping for at our end a range question. But John, XX% to of QX at land probably that that – the that benefit items end have right And say, and us then from which we're solidly think range. now. had XX% higher T&E with the Like you to pandemic-related of like look be operating lower bridge the XX% pandemic, extra range. into kind we’d performance things toward for margin, that at margins lower when like the

China For extra QX, week. a because of X.X% about and of for revenue extra I'm then the the assuming headwind X%

If year, probably including a XX% come at it extra week extra and but week. in at the about normal we was in think will but the out QX you the back midpoint, XX.X% had we XX-week

John Pitzer

And look I some on it's translate saw language. last you oftentimes think and to new just coming out came of I that export continues software. sort over with around I'm the as government list that impact? And week technologies Commerce, the this language some to puts of you I'm 'XX, Department evening the industry what of emerging were on into to difficult takes sure put impact But is and calendar commentary last there ruling that came course tension year then China, back Thursday curious, computational out out of lithography guess EDA? as are the anything there U.S.-China just of week would to

Lip-Bu Tan

good a That's question.

any fluid. to and very week I And to global tool the drive is last with and it comply we computation as situation continue of to this very in and As clearly continue the closely clearly regulation. success and export impact mentioned earlier, monitor about we control meanwhile but the the regulation IP, all we best EDA. the fluid customer with And comply it's providing we

We’re to that do can. just the thing we closely monitoring best

John Pitzer

really they from there benefit Chinese follow But off situation order now need the them help if potentially Is or a a not where they're just and to that on. any in band about being than cut customers concerned later, more does tightens?

John Wall

on the if is we with 'XX. for really 'XX certainly what a customers second motivation a purchases high can is additional for John, strength speculate the can't you QX. certainty our of revenue that. But the from during the we in China tell At shift the in tell moment, can't into degree half really

we you January. right know think if time cautious I tell or generally But because know. and in I more shift from it's to nature, is if not, most a impacts is 'XX can't in it or revenue about I don’t IP. that it, of tell We’ll – can hardware sales one-time whether but you're it it's coming it be is what just it's one

John Pitzer

appreciate again. it. Congratulations Thanks, guys. I

Lip-Bu Tan

John. Thanks,

Operator

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

Mitch Steves

sort taking I guys. but assuming I on transaction a M&A for around start years two. impact Thanks got I see think as from impact well? that a of and recent topical AMD going occur? comments are you kind and big rehash point you may just that my ARM speculation ago, kind with to several the maybe get to think the closes, that the Xilinx got settles I’ve do want Hi, of to Nvidia proverbial M&A any any question from and of some questions.

Lip-Bu Tan

positioned Nvidia to important of and are great to clearly a try for able any not are common customer. me on for and we on that. very ARM ARM ARM they And answer and a then speculations well we our Cadence, company serve Yes, comment is first all, let and the to us, partner with are

think tell I approval. get will clearly time I’ll and

any the beyond companies. and all I to clearly through AMD them unique then comment And I a very companies are lot. and over then and engagement – And any so we beyond that. good Nvidia like ARM. I they're with very they good consolidation, are think to and we the well vendor. on in go And and think all years, the respect our that’s on consolidations all companies managed They the And the proactive Xilinx, cannot

Mitch Steves

to market ARM. Does Maybe share Okay. the the at in I RISC-V all that just clarify that, loses guess so impact on that a through we'll ARM video scenario, scenario piece so and go EDA the space? to just

Lip-Bu Tan

well they will very ecosystem have in we Yes. keeping with And the supporting If RISC-V, that to and the ARM work wants and then in to with closely eye. customer. we or RISC-V, again, ARM, close but with continue we ARM depend are customer a support software is meanwhile then a positioned whether and on customer clearly place cope then

Mitch Steves

second a opportunity. kind that. to Okay. continuing positioned XD RF. are back Perfect. seems And well my lot architecture one of requires on off that is going take From to and seen, guys we've then what it And chiplet is you of just the very like Solver

I seems guess you about marketing Ansys. guys logos there is front? more the talk guess it more is than on to better why significantly So I have not product or like that Because more

to terms not something you that what there. more talk guys or of a you getting seeing are about it So issue you is could if yet? Is sales in highlight COVID want just

Lip-Bu Tan

about on automotive I very design, important clearly applications. Yes, is engine our XG, I are advanced system a and we like noticed us think HPC the complexity excited the and in growth design for analysis system

we and developed also clearly delighted the the the is for AWR/Integrand very analysis level system critical so that organically acquisitions And have. with but them,

that XX us. more customers new Clarity shows very then is Celsius another simulation. quarter we this And exciting with have Solver that for And nice the EMI delighted XD portfolio customers – a is system XXx the then faster than us. Clarity we also in clearly very announced XX for So new Transient and customer level

all-in-all, – think But take over are then to that's about promise deliver. more we do the at I a customer, we under we right the And time. another far, step at support one right think like our and we be So excited so I the time. to opportunity important. meanwhile, marketing And

John Wall

still And to our add products. to It's Mitch, on revenue systems that that like I just we analysis recognize days. would early ratably

win is share mind Our system AWR/Integrand. to from and plenty came then plan [ph] got from repeat than orders these of companies follow. market We've and will share first more XX

Mitch Steves

Okay. Perfect.

so quarter, I’ll great Another of jump out queue.

Lip-Bu Tan

Thank you.

Operator

your comes question Arya of America. from And Vivek Bank from next

Vivek Arya

Thanks for taking on my question the results. and congratulations strong

first that anything call one, thought I'm the non-China growth, about that at year? compare this or is so that trend, point you in you the my this your have just above what how you before, trend, growth would think Just surprised aspect about or of terms growth has does you? about versus year. curious It's you what markets how customers non-China the of below non-China year? it Would thought X% be this to year-on-year you For far what end whether trend

John Wall

people look I to CAGR. us intently second on that and Hi, was it focus we middle the year Vivek. question. unusual any the be John going year we take week China tell I'll of at revenue very you're of three-year XXXX way in pandemic, certainly I the always XXrd to This extra always too tend is when is have seeing a to the some here. Personally, in one the not for operating that revenue half Wall quarter. spike track for we're a But the

commentary, still to XXrd at put on you'll there ticked level guidance China because albeit a If X% going I like a of of It CAGR our to on only our remainder for year million, our adjusting that CAGR back revenue now commentary. occasional that CARG up growth to the the three-year $XX for week then view three-year be numbers, But about tailwind. solid year of last you'll that CAGR XXXX that year, XX% showing particularly up impact around you see X% close you our China revenue if three-year assume this to X XXXX. one-time myself. X.X%. And was XXXX. impacts there about it's But consistent a with find per the our helpful I based of year, growth our in three-year the spike is is even that find CFO out and second the Page look revenue on of half, looks

to think three So our years. I typical contract is two cycle

view with from quarter So trend get if at stand and that what's three-year terms discernible things, each take that. and a look line it's in back of of probably difficult a But you you one happening extrapolate business. more like of any to

Vivek Arya

actually trying Right X% was picks the and impact and better about last I appreciate i.e., growth non-China some a there that, does trying non-China reaccelerate? there, year, year and the up, was hopefully next That's say, is, year-to-date John. was I to looking to economy macro was the get what discern sense let's just X% if, for. growth is global I what start to I'm also

John Wall

design we're strong have know, But China. seeing add certainly don’t Lip-Bu, to in you to that? anything Yes, do I activity

Lip-Bu Tan

waves bullish design market expanded quarter highlight deepened and and marquee to the customer. then our and with activity. And increase longer I generation of the shaping quite in it our the terms with they're the meanwhile, system digital a five the think the I'm think run, we flow. I this to We about going Clearly partnership in customer design. work Yes, global proliferation we call and opportunity semiconductor I of continue

So to quarter-to-quarter. I term take look longer view that have think and all-in-all, for I at think a we

Vivek Arya

follow right, just And a Lip-Bu. up. All

you're the outside level activity that kind are two As you. three design you of of end hyperscale seeing most increasing of hyperscale? outside next other look at Thank year, of what or the markets

Lip-Bu Tan

Yes.

of and also automation and good part and the hyperscale hyperscale automotive. the As clearly for the beside data drive the clearly Cadence. the industrial are infrastructure And the AI, scaling I then massive engines some mentioned in in is terms this my analytics other remarks, of

requirements. the the highlight this of and we ADAS level Some system in

next but for about those all or well very It's opportunity to the are Cadence. [indiscernible]. year, I’m the in quarter-to-quarter long think very predict positioned excited think I I run hard we are and

Vivek Arya

All right. Thanks much. very

Lip-Bu Tan

you. Thank

Operator

Your from next Joe from question comes Baird. Vruwink

Joe Vruwink

Great. I'll and new guilty ratable wondering, just one growth systems right meaningful be quarter, but a because maybe direction to for as maybe sounds look number. the does it products Hello, pretty analysis. the solver are particular not moving I'm recognition like everyone. in of like it analyzing acceleration of And that the contributing much but

kicking are as of really get So think to to broader Allegro? are tools you're And benefits on right secular products trends the other as continuing. that just kind terms growth in course we rates company PCB their looking momentum at or seeing continue that in performance? of of the way companies about spending you modeling Is on more AWR, of the recent and above

Lip-Bu Tan

we and this think it to some intelligent of the And now one the EM excited of some thermal and moving are a system recall, this driving and related customer and some the the simulation. design. it in excellence they’re of announced foundation And this our we we to of our with design analysis as also compelling design of Celsius level tools up meanwhile I then and XD integrating Yes, then call of they're – solver acquisition have organically Clarity with space about the developed to if very make that’s I the in now additional and able drive and area the is analysis system Integrand. terms delighted and EMI system able and into Solver performance, AWR continue performance of And the system the very very related Transient clearly current Clarity differentiating with you the that’s show show we to performance.

think I all-in-all, Cadence. about growth think this is a for excited We're us. I So engine

Joe Vruwink

could that Thanks, difficult adopters of into the million China things one headwinds environment, a But about basis great. aerospace XXXX. of interweaving question XXX have of it Okay, up automotive, interesting points and had kind markets next that thing maybe Lip-Bu. end that of is are see some tailwinds the because is are more worth $XX sounds IP, year's some of And normalization, markets growth. your came then obviously thinking pretty like and like one

wash, of the perhaps lines in bit exposure, of of there's actually recoveries improvement some kind along earlier China while and just other market do there end you terms an we're think the still maybe your a essentially of in So enough areas where digit get in – so cyclical normalizes, targeted profile? at high-single you a is looking it growth an of question

Lip-Bu Tan

do want to you John, answer?

John Wall

kind that always too to model by XXXX, a CFO way extrapolate three-year it. that of course. we're of look numbers one-time to this has Joe, the revenue XXXX a I and of we to three-year of our Yes, that's if on view. shift year But have better three anything of into not looking bit look a to But kind of you see we of But prior a and off that at year year. to visibility of our looking Generally, is years. how the rate three-year why results when I'm don't CAGRs the can a commentary, giving CAGR have it. I'm guidance. XXXX and John. get be but wonderful, year XXXX tends two but a been be off out many for X because course, We’ll and improve for of view the to CAGR in I'd XXXX included given contracts It's based dramatic time over we that That's pipeline. so guidance most Page the way the at to better give I inclined the been look I things. in extrapolate position be that’s new in weird try at impacted are a more great

Joe Vruwink

you. Okay, great. Thank

Operator

comes next Your Jason KeyBanc. from Celino question from

Jason Celino

customer been you it's today, that and for full the a on One details IP entail what that we of heard Hi, since does any customer guys. year beginning, marquee This about marquee taking point other could on expansion Thanks you clarifying side. maybe my clarify? talked questions. another expanding

Lip-Bu Tan

sure. Yes,

marquee digital are And customer, we our expansion business portfolio. are and accelerating global across EDA this So I wide proliferation our excited software of of flow hardware our teams. by ranging design they think in in very full

leadership is So are then terms excited have challenging our other most product time this and very out clearly solution the designs. hardware And of also our we're about process relationship – we and that and of also for software part partnership the something key is really their demonstrates in we this technology Clearly, stands performance. delighted. our of the

Jason Celino

Okay.

John Wall

that there to we a Jason, marquee I’d the last talked about add customer one like is to many and year. one have different this we marquee customers

Jason Celino

Great. clarification. analysis about. question the talked Thank customer the one you on then for And you system

You actually or It's automotive markets; cross-sell talked aerospace And two this these the in net then, customers more new and events. first mentioned the of ones? for about time verticals case? Celsius. you are are Cadence a of end to Clarity Is those they and kind

Lip-Bu Tan

simulator. think Yes, we customers, two Rockley clearly our And mentioned I Teradyne Photonics, also and aerospace. EM we Clarity automotive using and about mentioned XG

of customers. traction We income in have XX new the

As new products. developed organically you are the recall, these

a don't in new product this – the past. we have So

tuned, And this beginning this we’ll is have the and more. So is for just exciting us. so stay

Jason Celino

great. Thank Okay, you.

Operator

JPMorgan. from question Jackson next from Ader Your comes

Jackson Ader

Hi, for guys. taking Thanks questions. my

look of that you mean and on And from maybe number digital at Just this down in the to if expansions. we marquee in full you I'm John slowed went three-year and your XXXX. through the segment? following Lip-Bu design I expecting I and Because segment, CAGR win a just digital even curious, I wins prepared talked your up customer guess year relative customers it’s be digital what remarks on about that different should flow

we given flow? as you've the digital full should head So strength some XXXX, in be acceleration just we into seen whether seeing all expecting

Lip-Bu Tan

Yes.

I me fill start think So then and can in. let John kick

So we're delighted.

full flow very and also the X party progress wins made earlier are placements Those group are that good. we're physical laser customer and at and and more and improvement parties customer We here are the optimization pushing the with And in [ph] that’s XX the about able tools faster of full the proliferation that design engines have we different XX% focused then global working meanwhile, Cadence. this and marquee throughput. show we the excited shaping PPA Xx on talking very we’ve to now also in in AI other flow – then special are provided them market different innovative we

John Wall

Jackson, were customer impacted we QX digital And quarter. situation focus by we credit and too wouldn't on the heavily that QX for had. one particularly again, any

Now of $XX we gone. XX there's XX that's we our the of we QX has that's get at where that that we paid. during million about left, improved bookings expect had recover. backlog about out slightly took the we million won't end million of about expect and million, of to think didn't Updating QX million XX to we XX about recover that that still XX million Of other because

double a you I'm the QX. that's extra the guidance, strong And at well. we're our in But you expecting of QX. from or just expecting not digits. see the week situation year, as slightly grow product So if high-single improved all look categories digits in can that the And to entire

Jackson Ader

up usage been adoption, checking any you cloud usage follow given of a cloud great. that from revenue kind And in has such a metrics guys or just track remote and on either XXXX year? maybe a the contribution Okay, cloud

John Wall

and separately, Yes, so our XXX book revenue now. we're adopted QX far have momentum customers with to cloud good going in not order cloud our that count we but solutions largest we've did

Jackson Ader

Thank Awesome. you. Okay.

Operator

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

Tom Diffely

the for question. Thanks afternoon. Good Yes.

you, to has for assume. that have would to jump based, from be AMD more question seeing want the correct? processor just So, and edge, on these news we're Lip-Bu, better, other good the I as the to just that ARM fact leading industry all you designs players, the moves Is chip, that graphics base know, in earlier the and just Intel back you to

Lip-Bu Tan

general of can And at and and a to GPU continued CPU that's I data, be a that the workload purpose domain specific compute will Nvidia performance. lot think you do and changed application the just well optimization. Yes, not reflect has clearly into correct. then in But lot

so their lot to So guys the services there's an And you'll startup the to and company. AI of established from suite also a of new the hyperscale influence, solution also the drive. and machine drive try class see the specific or optimized in and for learning of to different application a ability has processor of the either some development, training, processor in

because activity only complex great are So news not tool of That more means hardware And also have of emulation, hyperscale highlighted remarks them we level because us. and for really guys those level also designs. are we the some about some analysis design knowhow system then that my packaging for our drive wafer our of the also the system in trying to challenges.

all this So I think opportunity. are we about excited

Tom Diffely

just the of general consolidated what that over well base? to means on there’s also it has don't your last about then minimal think and going it several the customers impact them. that your where forward I'm that five been business EDA? curious, And worry very And yours in consolidation consolidation among as is like it years you much seems get have customer to in too way on you high and EDA Okay. profile with view is I your ratable wanted

Lip-Bu Tan

we to that we to and think I they in want business. try a acquired this on place clearly creating cut. last continue attention the is to And all to are make company I sure Yes, consolidation, engagement, acquire consolidation it but always and win-win proactive the pay that order R&D be we

that's why want to going drive efficiency to partner we to great they're be innovation, continue a drive them. continue to So for and

very to far But consolidation customer with in our we been managed them. try own with a they of to proactive vendors. [indiscernible] of way try well terms their through what be partner so place, we has are respect and each taken And respecting in that do and consolidation are base very to has and then we we great unique

Tom Diffely

XX million impact John, up was as or million is extra about did a cost you XX you when week that I here, correctly follow the And than target actual the revenue, of the understand final Okay. and that? talked more

John Wall

$XX No, though non-GAAP revenue margins is that about more extra it week it's expense. the $XX million to headwind and is million but not about to a for

XX% XX back running is of we're for find for but the for that China that kind that if in we’re the end that margin baseline of high XX% the to pandemic because then closer in seen. of that And higher, of higher X% benefit out, kind those revenue weeks margin you'll we've of So helping you it at the to because is at XX% than moment. margins spike the QX, range

the middle continue of QX. We to expect that into

impact add you you'll add So XX.X. the find XX% QX to that, and down it if million you QX. for for to of in get when about XX that you XX add the XX-week for revenue X% back million the the a of a of quarter normal expense, But backs margin XX-week – midpoint

Tom Diffely

Okay. Thanks for detail. the

Operator

Your question from Securities. is next Griffin Jay from Vleeschhouwer

Jay Vleeschhouwer

about strategy a Thank of John, evening. let shorter-term you, implications for you. about Design Intelligent and me the start Good terms question Lip-Bu, System computational software long-term a in with question hardware. and you of then your

So, good deal over summer live at software again Lip-Bu, week the and Design. events the Cadence a System heard we Intelligent strategy about your and last computational

not applications that Cadence second or of your it. I R&D in engineering, of You've threefold, certainly role specifically has part strategy. course. as is question opportunity? towards new your terms least, you and too, you the you of spoken look engineers or for in of that is for the and the vis-à-vis after Anirudh orient pricing spoken are John. largest believe which methodology might And about of what R&D, terms the and last new of competencies headcount implications be the sales your it, And in which are organization Similarly strategy this

Lip-Bu Tan

good thank Jay, much you the so questions. for

couple So things. a of

something Intelligent thing is competency computation our is we the adjacent core and believe right clearly, for needs to also It’s software us. customer us the System Design So that and then that. is

at pointed of the silicon the they application, clearly were optimization So domain envelope the then besides system development just and and already the thermal required. whole out analysis EDA in now specific are providing looking the terms EM, as you

are our software computation we’d things expand into that into fit those adjacent gradually area that well to like is and so us. that really to And

the in of really initially methodology, clearly terms Celsius on important Clarity of more. So like focused orders that on we’ll and focused show we improvement. are and multiple have that R&D tool the customers, buy we in your Those they to laser very are proliferating able and take we’re customer then we times like terms take more our first advantage [indiscernible] clearly going to that to the – to to and important question and are are

the again delighted that improvement additional we're down so and delighted to going Clarity to Solver of tremendous And shows and XD we Transient double with that. our are the on that customer they're on

to talk We're serve can make to disciplined. more. provide that and John the it think we customer. correctly you We the the price want I sure pricing, to solution then to the of We want very to best customer. terms In

of John, for clearly I focused laser And the that Anirudh, the able priorities. that term are think in And so best to looking the to myself some our they're [indiscernible] the we're and then R&D back talent very then team serve on you. effectively of talent and space Those also from talents are the in customer.

John Wall

covered? Lip-Bu covered were I think of hasn’t it there Lip-Bu that there. that something you Jay already most Was Yes, asking you

Jay Vleeschhouwer

fine. that's No,

quarter not you, entirely XX-Q. in from in cost the revenues to second which hardware certainly though turning that by shorter-term in the that's you assume So the if record the increased and John, most your of the Interestingly are I for question, noted show substantiated hardware increase hardware. you've quarter inventories

in one did of So build by scheduling revenue shift sustain the or perhaps of upside QX in you both spite inventory an hardware, marketing the anticipating QX, 'XX customers?

John Wall

for the Yes, want is that's inventory Palladium due continue and short doing XX our demand caught well Jay, Protium platform, so out don't products. The ZX there. prototyping inventory to hardware ongoing to with we so of emulator is to We platform. maintain that be the levels strong the demand

inventory. build to continuing we're So

Jay Vleeschhouwer

verification been quite verification Anirudh was year strong. us have quite and that and talked I respective the physical number now. of of Okay. Mentor a optimization update numbers may, a opportunity leader definitive years. has the you doing been on Obviously, Pegasus? if category their going And about is there very about for he well Could the yield when with lastly, over market a on physical next in what's changes number back ago years

So, what's actually happening for you there?

Lip-Bu Tan

Yes.

– answer think So let to try I that. me

partners develop to and key sure certified good. delighted for so very also of that the us into partners It the make on this in tuned. the Pegasus of node process starting starting they most very and multiple engine that node. then it, quite and now are certified support. a want then are And solution. we're is stay this will a is embrace foundry advanced certification the manufacturing it. the We're right are advanced all, range node took then foundry to certified about tool make years starting foundry to first whole And have excited process side, then in customers that use sure few And different we to to We that their the is really partner the the because

customer important I year for will with confidently in their us And production design. think most place certification very be then XXXX the that now a all can the using advanced for node. for

So stay tuned.

Jay Vleeschhouwer

much. very you Thank Okay.

Operator

next question from UBS. from comes Your Ramani Pradeep

Pradeep Ramani

Hi. had I taking Thanks the for a questions. couple.

are but memory feel First, or in of sort like have reason general versus this respect I share on is just to an the not lot terms M&A ask you guess I going to share, trying your in understand to terms of memory. memory specific in exposure, to your in I'm you comparable? your and speculation do a of question, they exposure logic there’s of more is And M&A

Lip-Bu Tan

to Yes, – I your think let answer me try question.

the storage. important more analytics be more and So in to is I in and memory you to whole memory this want close think data the

of plane. and this for infrastructure the the also is the big areas So hyperscalers whole one

So very memory is essential.

development And and a customer. we so new HDM to have so strong the some foothold, memory memory clearly then from of the clearly with work multiple MEMS to we of and very

I FI key DDR, think well and in solution positioned the the and we not success And the the on tool memory also the the IP, have have. we some controller some of [ph] the the of past, and have. memory and only we in we IP of PCIe, some highlight

have to this is -- we think to position we're and good an it. area I So going expand on continue

Pradeep Ramani

a Okay. follow more little on is And bit analysis. up my system

can like share it as how pound to So, or with the the the we positive much Integrand tools. acquisitions, inflect? XXX But did on you feedback well? on especially and versus And sharing higher how side? organic gain prior your share two, inflect where close are to you I space [ph], respect million think does already guess hearing X% competing with AWR sort this we are of one, how about Clarity, Are

Lip-Bu Tan

a exciting have we in repeat want in have all the for tools to starting XD me to value us the delighted first for we they performance Yes, And encouraging acquisitions we all, is key the when exceed – working XXX is Clarity the John really and out. expectation. share performance more we developing. level, give have come at of like we we better, they first come out tuned, our think have, think have is to whole so And want wave, and one a suggest of always we very to millimeter see that the about it. are differentiating they we really area And When and Transient customer and have and plus to then of feedback just require think is Solver to is developing are the That customer a clearly beginning we of that with of really starting internally stay a continue have And why the automotive you orders, that's the can is that very this and all, while to and is look and then the internal we for But R&D. closely validation and now excitement as AWR opportunity. made, the incumbents to me. clear them like the then XG sure point I some demonstrate good the using have our are Celsius two discipline I million. of market They are and then at they're the cleared the I investing and a we ourselves, market big back And good. validated. very buy to customer we correctly -- system is that they the clearly, then starting Integrand, and and make see a interested on starting the addressing, things customer really and that can I, working more, them is then some of and what

Pradeep Ramani

Okay. And a I guess to up. just I want follow quick clarify this.

Integrand AWR understand XX they there want you than XX from Celsius and same? were just customers or Clarity I are independent the greater that quarter to customers for So XX this said and – that. and for

Lip-Bu Tan

Yes.

market XX is we of and customers, that analysis. clearly after. about on there’s whole this something clearly system I and on mentioned proud we we are go we think add very opportunity end And that altogether this new this

Pradeep Ramani

Thank you.

Operator

question comes Valera from from Rich Your next Needham.

Rich Valera

remarks, you. John. Thank wanted ask your to prepared question I a on

system that You and your system was of increased mentioned one you could was the if design year full simulation drivers new wondering AWR/Integrand guide. was And driving system that or say, in analysis I the was that? organic of it tools the acquisition

John Wall

commentary It's growing of that be now. fastest the stemmed our to and from that we both the combination expect really segment the year fact the for

Rich Valera

And in it you've most you you actually XXX like of helpful. is then a in hiring added looked Got the That’s terms while. heads QX, you plan mentioned behind which but were added it. in about that

So understand there? just try want to to that dichotomy

John Wall

that investment QX reason and that we was was expected a what called in reason The of invest operating headcount. we in to slower a to out strong continuing comparison is the hiring of we're had R&D than why margin guided. such in lot in Yes, that I part

We’re the to in expenses a was contribution hiring. lower the expected. quarter slower just than on of part slightly That we

Rich Valera

it, makes sense. Got

much. Thanks Okay. very

Operator

from comes Your from Joshua question next Tilton Berenberg.

Joshua Tilton

follow Hi, questions. guys. systems segment wanted and the perspective. design Thanks analysis from just I maybe for to taking my on different a up

years Given early about when revenue? segment that look out, Clarity a as think percentage we and in still innings, how very we should this are Celsius five of

Lip-Bu Tan

think we I disclosed about that opportunity. are excited this clearly by Yes, we don't

But encouraging we'll just that then this provide. As some of whole then in the solutions a so kind orders. is And do mentioned, portfolio from we have we beginning. have a we early our of broader repeat are we to and innings period customer over time,

to continue nice are So we and and acquisition innovate excited about continue opportunity. area we and can through the organically this to growth bear very develop out

I Intelligence of think something System is and is that this Design systems part analysis our strategy. design

Joshua Tilton

That’s helpful. to wanted just And then up. follow

them competitive replacements supplement their you to allocating Celsius are budget In or terms incremental date, and customers the being are Clarity more to simulation capabilities? your of seeing existing

Lip-Bu Tan

think to from I the us it's for always want opportunity I add to Yes, see new all you us for John, on? and products. about is importantly, business customer. that, think new of and we’re do repeat this are new we excited this orders and this the design win, excited to a more And category

John Wall

with Lip-Bu. agree you, I Yes,

such it's Given customer in but to terms for that. it's new to us, coming it's budget for space. for that And a it's budget speculate of from us additional suspect tell I out to very – what that is hard very, tell. business us difficult it's of on difficult

Joshua Tilton

guys. Thanks,

Operator

question Krish from comes final from Cowen. Our Sankar

Krish Sankar

them. of had I Thanks Hi. my two for taking question.

customers between budget consolidated did EDA tailwind had? some How think the Synopsys kind as size matter. even questions cut I not that they clearly Synopsys and Mentor the of Lip-Bu, there were customer for one, EDA has on that the consolidation not really customers versus or that was even budgets that even you consolidate raise suppliers First your your as consolidated, is or much impacted consolidation that of and a you, you your

Lip-Bu Tan

Yes, it's question. good a

very five thing the this like the last and much become therefore showed they well wave. don't consolidation. any And some We mentioned earlier, then and clearly they on consolidation. place see And consolidate, when as and correct. you talents all this I I mentioned, of as up. activity, slowdown mentioned, one closely, we is somewhere are generation monitoring We on I is, managed But are they R&D then the else of then design usually

university. R&D computer of because any so slowdown to the see we lot design more terms all. is of clearly love at needed And activity badly very don't a science now see We and double is in

Krish Sankar

can really disclose answer, to if any as gotten from follow-up you've or requiring Chinese helpful. license And letter can a if the you then customer? to government John, you either I a Lip-Bu any it, ship know that's don't Got

Lip-Bu Tan

– ahead. I want don't you answer? John, Yes. go think to

John Wall

Yes.

government. doing to So, Krish, communications specific our the disclosing can we're not support we're everything with customers, any we but

Krish Sankar

Thanks, Lip-Bu. John. Thanks,

Operator

call will closing back I to for turn Tan Lip-Bu the over remarks.

Lip-Bu Tan

for you joining us afternoon. all Thank this

expanded benefit nicely recognized Our for employees’ Design and Intelligent this of Intelligence, Directors, market. each continue System tirelessly and of we global Great to commitment all in a for very total to the that communities give them our from our to Work and care our on And and this other. all our has FORTUNE our and joining delighting our addressable and share dedication World’s on of I’m work thanks result Design been us behalf Thank innovation, frontlines the we opportunities a as customers, strategy to all to Workplaces, of pandemic. taking heartfelt to time. employees who afternoon. to Board Excellence, System fight Cadence is new Pervasive as playing Innovation delighted by an out recognition the of is This and very to Institute Best one Place fifth of you lastly,

Operator

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

disconnect. now may You

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