Earnings call transcript Q2 2023

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Operator

Good afternoon. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator

turn Investor over go Relations now Vice ahead. Richard President of for the will to call Gu, I Cadence. Please

Richard Gu

will our today's Wall, by webcast and Anirudh available Thank welcome website President Officer. and be earnings would A I Officer; Devgan, prepared President call. second and a at and Executive to Financial John conference today you, call XXXX Vice our quarter copy of joined like I'm remarks this Chief of of Senior operator. on everyone cadence.com. to Chief

forward-looking Today's discussion risks including will may projected future on business actual in uncertainties, operating contain differ to statements, Due implied our from those discussion. or outlook results. materially results and today's and

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

non-GAAP in In for, which of we to Reconciliations GAAP certain are a in measures, or release. present will considered results. should not substitute measures non-GAAP GAAP today's isolation from, earnings addition, included be as

that session Q&A follow-up. today, observe the one For of we'd you question limit and ask one a

Now, I will turn the call over to Anirudh.

Anirudh Devgan

today. joining Thank and you, everyone, Richard. us afternoon, you for thank Good

customer on will the updated demand XX% key innovative raising yet provide XX% year. results excellent the all and XXXX for financial non-GAAP are our John the growth. growth both for year second strong revenue results for Cadence QX our in ongoing and financial resulting We again, of guidance the our and delivered for exceeded more quarter details technology. shortly outlook metrics EPS year-over-year on our outlook with

AI Generative make globally. impact promise, a unparalleled to beginning significant is its With

it uniquely the combined several AI potential positions computational this tremendous invaluable and deliver to on lies dedicated that at past focus the to over core with this data Our years our of AI knowledge. of expertise software transformational us

increasing design starts a innovation complexity, fully crucial design AI-driven realize and escalating in talent shortage, growing is With potential. design empowering customers their to automation

Our of Cadence. achieving productivity chip, these ramping our and system, benefits as quality solutions. up adopting spend for exceptional are opening package, up Generative AI results they're Customers in with portfolio, R&D customers increasingly significant AI-driven automation, their opportunities are board,

are platform companies solutions to their AI Our products. memory marquee infrastructure networking generation-compute, next deliver enabling and

commented that Computex keynote Huang partnership and between is For strategic system quarter, earlier biology. on the analysis, noted accelerate Nvidia to a of his instance, customer Nvidia Cadence Cadence in Nvidia and Jensen expanding and this big digital AI EDA,

has X.XD collaborated development developing IC Tesla successfully of for changing XD Tesla DOJO the broad chips analog, DOJO a verification, their and AI array with on analysis digital, solutions. supercomputer. across custom Cadence of game and system and solutions Cadence utilized

We are and generation DOJO FSD Tesla's platforms. very excited to extend next our partnership to

Our AI customers of like technology related the chips able AI the Generative results revolutionary and solutions. Cerebrus Cadence leverage of quality power are optimize their of Tesla to groundbreaking to

and opportunities for core and system autonomous as future. for solutions semi creating applications, computing, design life AI other AI it And such they're sciences across spur activity market system to from portfolio portfolio. hyperscale ED plan to trends robust include extend the technology underpinning, our With as and continue AI-driven began analysis by differentiated expanded we a then generational XG, perspective, design to providing in driving, companies, products to our and ample

systems business of QX. hardware, we for through our for about in become talk tape portfolio. long QX and and IP our verification out EDA, chip have our broad software let's XX% partnership growth. a secular our QX, the platforms and In bring-up a deepened flows a highlights must with Ambulation to of and year-over-year demand revenue have standing a our drove prototyping part company expansion marquee electronic key Now system ranging core hardware

record repeat customers, the was for half a and both XXXX more during demand hyperscale XX based solutions. solutions than are particular quarter the record Palladium seen for With and these broad XX accelerated QX a ‘XX new as Following best-in-class hardware ZX and included automotive segments. hardware in AI, our QX market Protium platforms delivered orders Demand platforms. with and XX customers strength computing,

development successfully center those designed A for data deployed internal XX chips services use, AI significantly to the the leader for applications. ZX communication global and of systems accelerate including their

software traction software ZI Our at built hardware database engines our and AI-driven natively gaining market verification first-pass with platform is bring-up, verification enable them silicon their platform integrated customers. verification and shaping and Verisium, enabling workload that's the success. to accelerate our upon

a code is source improvement on chip of in large semi identification us across deploying a times the Verisium automotive a developing a regression company Verisium new erroneous app instance, working check-ins. For optimization customer actively saw apps SoC and mobile with already X Japanese is and his

Our digital proliferation with quarter XX% by node flow, at most revenue our full growth the driven another largely at IC had year-over-year especially advanced shaping market business digital solid of customers.

of leverages Our with space AI-driven that entire run Cerebrus XX deployed major is Cadence technology Cadence and their multiple explore to eight and A rate the new automatically a digital to accelerated. full our hyperscaler now marquee doubled transformational of optimize customers. at full And Adoption and top digital design expansion results. included Cerebrus breakthrough Cerebrus. through deliver our flow Cadence flow proliferation the solution leading wins,

achieved analysis, silicon. X efficiency times digital design significantly and Joules hyperscaler latest shaping Through studio. between Cadence And leakage with flow and RTL to XX% RTL used iterations [Indiscernible] market on reduce their Another productivity a successfully new to better full reduction times a achieve and our X implementation. Cerebrus custom power

SerDes well for expand expanding profitable of IP the benefiting Rambus IP We asset technology. IT subsystem ongoing our the with application. Demand solutions, by and On HBM IP enhances agreement signed IP, ecosystem. scalable opportunities providing The agreement our solutions multiyear offered with to design complete Samsung to for Samsung's Foundry AI portfolio, strong, as portfolio addition definitive led networking, design and leading five our their their with acquire by demanding as hyperscaler, established advanced availability and growth of continues from along for outsourcing talented foundry our team. the trend, was GDDRX strategy our a IP process

XD Our companies and and architectures Law increasing, XX% momentum chip system and design analysis to looking complexity With its down, growth. and achieve to continued in delivering better Moore's QX, and greater savings. chiplet-based strong business revenue cost year-over-year cost multi-die, performance IC, are slowing

single our kits collaboration system is the platform. In analysis through differentiated Samsung and QX, with and based reference XD of cockpit. industry IC uniquely unified integrity planning, packaging, platform Foundry on delivery in that expanded only flows The our level package we design system a includes

boosted solutions Generative our multi-physics and AI Our leverage deliver system technology, simulation differentiated optimization techniques by optimality results. superior to

one business and Our high includes and customers fidelity simulation multiple and technology, top CFD portfolio multi-physics growing across pleased for large add-on renewal our repeat were end recently acquired Defense Aerospace new with We the orders win from company. that portfolio with markets.

pleased our the the system chip automation intelligent In and with in QX AI-driven long-term. opportunities design momentum computational Cadence our massive strategy. system design of align That business. over continuing I'm summary, with and seamlessly results core for offers software, and competence, our

cutting We to customers EDA to analysis and edge invest partners. our in our world-class continue system and innovation design and to deliver AI capabilities

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

John Wall

Thanks, our afternoon, achieved Cadence pleased everyone. to business. strength Anirudh, by XXXX, second report the and for I'm of strong good of driven that quarter broad-based results the

as AI they Generative Our portfolio increasingly benefits productivity results and are solutions. adopting customers our these are exceptional quality achieving with

from financial EPS Total margin was XX.X%. quarter, with operating $X.XX. operating was $X.XX the revenue $XXX of P the Here margin are was starting the and million. non-GAAP GAAP some highlights non-GAAP second and was GAAP was XX.X% EPS &L.

value $XXX to balance quarter the cash QX. Operating the to of shares was turning while balance we repurchase million million. $XXX $XXX Next, flow. and cash and sheet flow debt $XXX in outstanding was at Cadence million million, end was used principal Cash

outlook functional second-half are solutions year the our as strong second-half verification remainder XX% for Demand our our of the particularly to revenue hardware continued year. portfolio. across remain year, growth, reflects to a last approximately for of the We for outlook the technology of our broad-based strength compared updated increasing result, due and the

our that the assumption the I'd year QX for to the for our our today Before that year. control contains of outlook like I expectations regulations usual and outlook export exist remainder updated highlight similar provide the that for substantially our remain

$X.XX fiscal revenue updated the billion. XXXX $X.XX Our outlook to billion for range of in is

non-GAAP XX.X% of operating GAAP XX.X%. to in the to margin $X.X of operating the of $X.XX the range $X.XX. of in EPS in range margin the in to XX.X%. range GAAP XX.X% EPS range to $X.XX, Non-GAAP

use for to cash in September repurchase XX% A of October. at in we billion large flow to our $X.X cash and shares. the delivery annual Operating flow billion early expect $X.X systems of and hardware of range to are slated Cadence number late free least

For hardware those providing it on deliveries into outlook the we assume ends of prudent which purposes thought fall for and September majority was of XXth, the October QX, that QX. vast our to

approximately mind, expect of cash non-GAAP expect use EPS of margin $X.XX to $X.XX range $XXX of to the billion. And approximately to GAAP shares. of EPS XX%. Cadence the margin million the we QX, $XXX XX%, operating Non-GAAP repurchase $X.XX. in of of that for With in operating million in range $X.XX range revenue to to GAAP $X.XX. in we approximately

commentary CFO document on non-GAAP our Investor which in outlook further items, to Relations GAAP a published includes analysis as our we usual, for as well As website, additional reconciliations.

delivered of In first-half a and QX conclusion, the strong we year.

the in exceed growth to annual XX%, And the over increase past non-GAAP result for three the take in XX%. outlook, approximately an which midpoint, XX%, of revenue revenue expect the at three-year to our EPS which year average approximately rate would XX% growth we With years. growth would now of CAGR our

to like support. our employees thanking continued close their partners our I'd always, for As and customers, by

will questions. with we now operator, And that, take

Operator

with Capital Thank comes question from Markets. Our first you. [Operator Jason Celino KeyBanc Instructions]

Jason Celino

I taking year, Great. if back, Thanks quarter, you think the take question. impressive. for XX% pretty my step up Anirudh. a we Good still know, for John,

another better? you kind still strong level we know, record could how the hoping, speak Maybe you but maybe up any quarter been investors do was and weren't could performance? of at were some hardware like or set think to that XX%, that you areas even Sounds have as will it I wonder,

Anirudh Devgan

are manage pretty long-term, results. with we Yes. the Hi, positive the Jason. our for we question. and Good business general, In

the like growth strategy then you For plus AI of with full-year, plus revenue XX%. at mentioned, EDA and STA more expertise. doing than growing it's earnings the are software And computational our XX%

deliver overall, think fronts, and we're know, partners working solutions. customers how the to drive I with right So pretty you to businesses And, continue all are performing. with the in pleased all

John Wall

thing unusual Jason, -- numbers probably for to anything one for first-half for that's in performance. Anirudh so If we've operating in some for upfront. know, opportunity, says, very an is There's buy first-half, be would the as larger flat because Anirudh with guide some me the we we pleased says, we're cash We've hardware inventory. the discounts quarter, as and and essentially to build had happy with I offered the the there's very our unusual, think you very the demand, inventory to manage business strong need had long-term. were opportunities we payment last

help year. the with It'll cash but margins in doesn't this operating So for guidance. we've embedded it that years, future help into with gross us

Jason Celino

early And can what as to it included guidance? it. goes then from the as Is decision, follow-up, IP? IP guess then Got into maybe strategic I rationale? And the Rambus. my versus Thanks. acquisition quick speak build high you in

John Wall

Jason. Yes,

included is the it's our to know year. us we everything guidance, So for in immaterial but

Anirudh Devgan

Yes. us particularly you know, is what good in commercial acquire and to it know, a a of team. that a very this a operation. opportunity IPs good great case set you And, existing, for is And it's talented is

like, companies, teams it You and know, case, we HBM operation GDDR. to other opportunity existing this you know, commercial have key sometimes with IPs was but semiconductor in acquire know, from, you

and So that with we IPs. you IC IP and glad for know, opportunity, with helps, to, it partner Rambus we GDDR AI you HBM know, and really XD here took and

continue we all you in So our it’s and to IP. businesses, including good know, acquisition, overall invest

So…

Jason Celino

Excellent. you both. Excellent. Thank

Operator

Shi Charles from Needham We'll Company. take our question & with next

Charles Shi

Thank afternoon. questions. for Hi, you taking good my

then follow-up a have First, to bookings, about hardware. I I ask want on

implied or are quarter, accustomed kind bookings strong bookings John are like, think a bookings. still per the in plus actually that So, $X potential second-half? but you I already I in people Anirudh up of, billion definitely to, your bookings probably guys are QX, seeing saw

expect still can to get back we when to the you maybe that let's -- as that first-half Thank to So ’XX? say Do you. get bookings second-half level? strong

John Wall

Yes, Yes, stronger Charles, second-half bookings. expect great question. we'd for a

have the XXXX. in contracts last and As had we more second-half this said we of we the year, expiring contracts expiring quarter, first-half very the -- of few in

compared look expect we'd by be the in backlog, XX-Q So higher way. When the filed second-half, first. our bookings we at we to the to

our of billion from billion So dropped from at the at you'll billion RPO QX QX of backlog $X.X and to dropped $X QX the end of see $X.X to end at $X.X the end billion.

the the of the contracted value, RPO and is of quarter, value to RPO, RPO that multiplied billion quarter. current last billion annual customers. value that But $X.X is the our And as up you've current know, was essentially time it a last you $X.X by annual this quarter. up combination backlog from It's with

anticipated for or value, yes, that's we're on, it second we're was very very, focus we It and improving than again. bookings annual And be with what think the value. will improved QX. But making typically stronger better half, we've annual we expected. sure slightly the pleased had performance So we the

Charles Shi

Yes.

it is are for terms to QX the probably in we -- was us maybe forward? past guys that of safe you and fall for call So booking, going to way

John Wall

was low QX QX quarter for yes, definitely us. was a bookings lot Yes, stronger. a

Charles Shi

Got a it. around follow-up hardware. Maybe question

kind bookings QX imply isn't just parked But QX, in you're of about but hardware are QX, good you when a I -- up full-year what business guided the for by They relatively a can said your You expecting amount versus strong. into your at you. should of QX, made Thank that of think growth part you expecting QX. look would really strong for you're and Maybe commentary ratable bookings? for your a of layer revenue. you expecting guidance, you given hardware said it's But folks lot. hardware kind the guidance the the reconcile sequential on top that in QX see that and QX. very of

John Wall

step-up Yes, QX Charles, to guide. I referring QX to think in you're our from the

$X.XX $X in about with billion in QX. balance billion of guiding a over we're revenue So QX of just

there QX slightly that step-up annual due top-down in forecast that's for Now in increases lower the second-half, exaggerated at bookings in step-up. software the mainly When and we revenue the expect. software QX to originally looked a was value to we

looked not assume really speak, it many when and thought of hardware in we the the we of those rather at QX include than was and fall in them happen QX bookings, because deliveries when so we late timing our that to the should But there's hardware those. in about the quarter, that timing so including to implied it guidance, prudent I’m sure

Charles Shi

thank Okay, you.

John Wall

thanks. Okay,

Operator

next our of Arya from Bank Vivek We'll America. question take with

Unidentified Analyst

Hi, [Indiscernible] this is on for Vivek.

on start to several there few wanted looking you Just from a started you semiconductor if landscape, been ago. the Just design out, that could provide quantify have at insight years programs how some AI? benefits AI-related

attach could seen growth baseline Thanks. Or you the acceleration that we helpful? say your financials? would the benefits would in comment on your you've be And more should in to So already products expect if you even rate future? AI-enabled of the contracts,

Anirudh Devgan

Yes.

So for AI the multiple has us. implications

like a This The more is first AI part application. enable horizontal development of we side. the system is

our we AI then about server So and our are center partnership which talked Nvidia like there companies. on and building building is car like AI with AI systems with both kind we data partnership other talked side Tesla, other companies today, of the and about

of So that's or GPU supply applications or are the unique in we build-out. automotive data the a position and -- do center AI to -- it's whether AI to to all

can be There'll is more a think designed, in and role and I and still continuing. that play systems our tools And that. IP more key

believe of build-out kind are still And of first kind stages and monetization. in application. that's beginning of the So the I we that

products. vertical, second to more the it then part own would applying And be our

then of systems. position five we analog, all from as kind platform for way a AI AI a unique and package the data which board applications, with unique digital, JedAI a and platform, So have verification, and is

So for I believe package most chip portfolio we system have the design. product comprehensive

design early And for internally. we of using And seeing stages, course, that systems, chips with our vertical We right? kind also that of a of we are I think a them we have And the those then, adoption customers. own works engineering application also team are in are of applications. big but lot Palladium we

on our using providing and are and to but are internally we only solutions good and seeing not SDA, also customers So benefits. them we partners EDA

third going think the of of I ones the be and in part, life sciences. future, biggest applications, drive then AI And is out to new will more kind one which the also is definitely

So pay the next we out there are XX laying the which years. biology, groundwork with their will OpenEye opportunity to for five of our lot to a that digital apply and AI there's in in --

all for play and these to and emerging ourselves the plate our GPUs systems, EDA vertical will and areas system, things, in out of and there's sciences. a So for big kind emerge of customers AI three center -- data building life that both other horizontal

So we very overall, are positioned I this feel capitalize on megatrend. really well to

John Wall

We're on your essentially, it's But space. take And seeing in answer AI probably the the We the mean, I contract of revenue a it's in to side, strength cycles question, because quickly Yes. that clear will impact through. in couple software while will revenue for through. hardware to think strong I in a software to demand. software play But hardware up you're recurring of showing take it that feel pockets definitely hardware on flow the side. the -- it's side, seeing

Unidentified Analyst

can quickly And it. Got well. Helpful. as a capital as we then discuss allocation I policy just follow-up. your hope

cash Just issuing could repurchases? and towards any you the given future the the also, any position of is well? as company, if cash significant in more in interest share in cash on the dividend there pretty comment generation solid allocating And interest

John Wall

stock QX, In to we an that repurchase. we our (ph), $XXX the used allocation in share all $XXX time at [Blake] accelerated Yes, that of due look on million million policy. cash repurchases. yes, was of terms

coincide and times merit with our coincide was Now cycle. the to timing that promotion deliberately of with was -- to

You our compared expenses for cycle refresh in well employees And might in down that slightly kicks have on company. take noticed pay we that's and and our rise do a to at stock as first-half. guide our the step-up promotion in because Cadence. X second-half, That's typically margins when July

the use of a we're that stock We've our lot makes want year, from ideally, granted we the sure And time. our we then want it count to at to because of most stock for repurchase to over with Board And first. share we excess we talked stock repurchases. dividends cash time sense about that time-to-time, but offsetting in make reduce that approach, the -- we dilution think

Our to cash us enough to repurchase over the essentially grow to policy free business. offset the see should our time give XX% and least is than more use at count of to And flow decline shares. continues dilution, that share

Unidentified Analyst

Thank Great. you.

John Wall

Always.

Operator

We'll Jay take question our from Securities. Griffin next with Vleeschhouwer

Jay Vleeschhouwer

Thank and first follow-up. Business question a as you. question Good evening. technology a

The last you question we've though customers requirements, mention distinguish of do cycles, they those continues Anything in terms semiconductor RPO increasingly two become to years, Anirudh, of and that So for as sales conversion customers? know, you often profitability? about dissimilar the is, important to ways alike. what of spoken couple care systems how in companies can remain classes of account to revenue, services

Anirudh Devgan

I semi companies companies I Jay, system becoming Yes, are written, companies. becoming semi system the companies like are you've also mean, mean, and

semis a system system big are system semi doing traditional company. the companies and one in are a companies some traditional lot -- have software, semi, much companies And several with big done of more lot of now of

are similarities. there So of lot a

has be of system by software the to terms definition, in asking hardware key one that and I mean, companies, have guess differences, difference together. You're I

good of and company is mean mechanical are and example emerging and software have It's electrical right? electronics because also emerging have software. system hardware car, a it's and together. a a mechanical and I You you

software. like think is in that data software, just built even for a lot And has Nvidia, own And in hardware is chips about So a applications, bring-up. lot be are software the to the of business, doing has lot hardware. traditionally is company, it are companies design, we course, talked I the for for software of the lot their of strength And lot then of chip along it that have a a which we a not for reason, of that AI of the semi with seeing

the whole is think enablement in electrical CFD. other why the becomes system our I which for in and software So That's cars, key. data of a big And investment thermal mechanical. simulation, merger electromagnetics, analysis centers is of thing design thing and and this

hardware key is is So think different software mechanical. electrical thing and the is unique plus I plus

also we services Now And do strategic cases, a them that's get to in for companies difference. some system started. some I unique think

them get will we sometimes, So provide to chip going development. with help

big So too. the growth Jay, I it's compared But see say, three to these in to. probably would differences good the are semis,

to semi of happy and them are system whole ways. love market doing phenomenal, customers, have we in still are We all a our partnering they're all with new but and kinds companies, we with

Jay Vleeschhouwer

Okay.

the there As term the EDA. presentation DAC a is productivity Cadence or interesting abstraction. at the task going regard weeks at AI related there with very to for technology follow-up of And by future to that to conference and used productivity a Cadence use two by where come was was quite from in was ago, interesting

kind a in we've the from last decades seen for extraction new of years. the EDA of many So abstraction

be terms that term very part of that EDA to So in all going you much those forward seems sorts of how development, abstraction for going productivity? critical forward your of a are of product new concept packaging, since things manifesting thinking

Anirudh Devgan

way innovation. up you mathematics mean, EDA you of is in all lot Yes. fundamental the back, big polygons there step the at layer, the look right, science, a transistors, to to of RTL. the to parallelism. is abstraction moving from from if One right, other history Jay, abstraction, I are innovations, And gates, is or -- we things. about course, computer if But talk at two of look you

even I And as of started EDA, -- abstraction, computing mundane EDA XX in last use the with opportunity the higher to real know. And if to AI, and went you tasks, is CPUs. also back to it But more at parallelism opportunity move look last I automate right? cloud history in XX years you years, level. first, abstraction this more think do it the there then of mean, parallelism, is with Basically, -- with

done the the engine. can user be AI what by So was done by

in a abstraction to even functions, technology we the and automation technology of we seeing design planning are apply partitioning lot which higher-level should foundries. to We productivity with end improvement. can with AI leading previously will provide of can -- floor and And design integrity. So that apply apply XD-IC manual to codesign

overall, So system theme and enabled AI, be doing more the more this these on in of the all doing tasks digital the and applying that mundane so of verification, let higher-level focus beginning is abstraction, user on. work of aspects, more design productive is only and and

Jay Vleeschhouwer

Okay. Thank you.

Operator

Our next question from with Ruben comes Roy Stifel.

Ruben Roy

or of how similar Thank areas top AI some SerDes Jay's. about I there, XX placed some with cetera? in I'm these left implemented are could just in deployed it's being eight you. other was we? even you from think Or your talk wondering, route? of it today, where mentioned Anirudh, leading-edge the seeing AI was planning, far mostly designs, had question you wondering Is that packaging et off How I customers. along I if you are a at I is used? being you But start of to whether floor can

Anirudh Devgan

It's getting pretty pervasive.

now, almost almost it's all -- SerDes I'm of tools because will in we now One like three years on of using an like our terms they years thing customers these from ago is our a compared irreversible trend. are few with two working positive now started thing be The customers. this I'm to ascertain first two, ago, and that years

placement first in or was ways. route And one then some the

within will to, I floor has functions, you you're lot mentioned, verification. impact never AI verification it's So adoption. on right? a with done. profound But NP-complete an it most and verification be is the So planning, like on problem, a do higher-level See, more unbounded I it verification more working in working extending because with end, do have will of EDA believe foundries, can

with in you So talked And that's heavily of about customers We the us apply verification. couple see the in are AI prepared why remarks. examples first to to Verisium. we investing

and And that traditionally like then the had other thing areas lot of package a haven't automation, is PCB.

AI, X seen a XX So in that its history nature first -- AI. EDA the has with Allegro is optimization time simulation, And of not for for system system then XX, had and years with automation the like by automation. see has possible XX-year area

Now it system techniques area, could optimizing was or with it. AI. electromagnetics, if like they with -- forget look it barely with more was simulate But not CFD at the you stuff, now classical and

only massive not simulate system on are to and faster accelerating also can them give on our So GPUs now because simulation. we up all things, are speed we algorithms and

So of this shape SD&A. the right? to big high wing, applies now very car. car you the what, a this user or the then can of very, the Fidelity of all in the and first of don't AI, time, which market end, is stimulate do the And the the can whole you for wants, top simulation They But just optimality it, want on exactly of design simulate. to

racing optimize think like affects work a I the AI. you'll huge that, that's already be we can car with, like companies So we're of car, that a the using for seeing the opportunity. of even wing with performance shape some And we

have will and promising in already we more we talk So pretty the results, about future. that

across first all, say, of would be I platforms. I it think So all will deployed these

We started very in In EDA, verification. the lot system with the but PNR, seeing we and And be in of already potential. will area, other huge is potential optimistic a simulation the AI. are end, I'm

Ruben Roy

very follow-up John. quick Anirudh for that. Thanks for much, A

of that? in little thinking we between hardware, obviously sort the QX? of, the towards about it up quarter Or bit should strengthening think me full sounds what QX on into how the and bit like about to bumped margin. a for a are and Just margin kind Down with year. end you of operating moving the operating You parts little QX. How

attach about year, margin you can hardware of out the exit the operating if rates us going up in be how as you So help you're thinking on would context that helpful?

John Wall

Yes. operating question. was XX%, I as I just for think the you think, first half But under margin. No saw, worries, non-GAAP roughly great

operating margin. XX% the half, XX% second to the guide For essentially implies

the merit pay XX% slightly engineers. it's last in July employees promotions when is that's do The and base first of down are engineers, few in But we increases. our vast about half. X to has and people Now the because our generally been is the half rises years the pay as That's compared second it expense majority and of cycle.

increases really you half. or the headwind us QX QX compared first from QX of in that step-up compare pay So QX impact first and when is to and seeing half day cost combined the second you're from the

Q Now on with because in late I've are exaggerated -- a be scheduled number the that to there's that guide a QX our little September. hardware hardware delivered bit the being by side of prudent systems

And is the late and period some worried October September, of -- I'm will just period is holiday China of those to early And other slip the that late Asia. September QX. parts in sorry, holiday

But QX. of half the half I'd XX% the assume And you it's prudent. in impacting to vast the them in slipped a prudence. majority showing for that whole, impact I that, margin as at for we're you So be of course, guide think the generally, that the is QX out to operating of the guide when XX% second take to if second look just the

Ruben Roy

Got John. it. Makes you, sense. Thank

John Wall

Thanks.

Operator

Blair Securities. from We'll Abernethy with our question take next Rosenblatt

Blair Abernethy

quarter. great and gentlemen Thanks

what's that a you'd be would you dive year-over-year to a wanted The this could anything there quite was any on helpful? on strong. little growth China. on how driving and give quarter color this bit Just And continues in basis --

the -- capacity you about production on John, on up. just just ramping hardware secondly, past your back the in commented side, And

times you're are Just here midyear at wondering how doing? where lead and

Anirudh Devgan

continuing are start John and strength design also hardware all I'll inventory. on business. Yes, in China, the But we good and of end can see pleased activity for overall, markets kinds comment first strong to then

So China there was had we've EV QX, mobile automotive, good I in hardware particularly China. own chips, system lot a big and designing say lot automotive strength vertical. particularly was business from would And A in companies, also strong. in companies a of some also their especially of

two to… rest diverse a you So we like of I were of all But and is in the pretty do want those just aspects mean, in China China. market, John, -- it. play verticals strong pretty is world

John Wall

capacity. in to the We for times big we to at forward. that's relation I us we business. exceeded We up rest question hurt a lead competing lead and ramped your capacity those ramped higher weeks. going have the production QX going think, production We XX year, and to dent up at hardware Yes. levels for the the times intend it thought production year that and And in the QX. terms keep in put of at throughout And because kept start we're in of of levels

those We're bringing times. down lead

out, of goal the the but we're to that time not get mean I down frame, QX, for let's we terms and $X to QX with is meet in prudence kind all need yet of you try I given say, don't -- bookings to prudence in took Our into it there that numbers. those the guide even if and XX-week though. hardware of XX- I've

the So now mark weeks, of probably terms we're in slightly deliver. over what around backlog have to XX the we in right XX-week

in but have we hardware demand the still of all through that is strong. get actually won't orders -- QX. backlog The in we So

We to the are mark that XX. I'd probably XX-week it's to to down reducing XX -- get now, around like but

Blair Abernethy

more Okay. on one the hardware, question Great. if can. actually, just And I

When XX So a the see in Protium the time. bit expect next-generation to and we ZX of Palladium for now versions? the been have market can out

Anirudh Devgan

-- don't It's launches, out we're doing which and been when last years like, know, think for great. only has out one years. And XX, was and ZX between six five, launch two Yes. this even two I ZX, even we been I system years, is our XX, it

So add keep go these that that's compile hardware top times right we And systems. part software the we I pleased -- software. these can mean, but on systems. improving with of and of it, improving the now, we're always we are pretty the also

anyway, So is really them of support rhythm software ongoing But the performance by phenomenal overall, customers and all there we mean, from our to independent the and the partners. appreciate hardware. this team, I

Blair Abernethy

Great. Thanks much, guys. very

Operator

question Baird. We'll take our next Vruwink from with Joe

Joe Vruwink

Hi, there.

in Let question. me a dig a bit leading of

now half about growing XX%. you're talking So second revenues

as of share? would both than to XX%. closer things that not your in are terms R&D Cadence better but There's is offering terms -- wallet are potential and also of what couple CAGRs what XX% of customers multiyear seem how you've acting trailing, be that next in to just on horizon to your intensity experienced, Some longer and in the quarters

what seeing of do what growth the instead of have is, question rates this and to growth the for the think growth we're of overall rates of So been, rate you maybe case XX% a historical high being end available the resetting be base going might company forward?

Anirudh Devgan

say of EPS rate is growth performance of would first any amazing all, company. and I XX% growth an Well, XX%

deliver if is proud mean activity this. intensity, R&D are that the stronger. So of in of to I And getting design not team we and terms strong, very

it as So but tough and macro of been last see lot environment do of year as this semi activity. year, and course, system we a the overall has

different before, the any things we in of to pleased overall, how activity. But future, see go So we carefully pretty the have that's are design not to course. but monitor than

John Wall

we we're the Yes, cycle, our most track contracts Joe of CFO customers page complete in you'll to add-ons baseline we contracts. and second do really throughout and grow CAGRs. trying the the year CFO contract do -- commentary, coterminate with the through you'll see that see published accounts of to But a three-year baseline commentary it those in the our three-year

we a is CAGR metric. three-year good the So think

it's continuing decline. And three-year growth revenue CAGR the to if look on a rate you at basis,

pace this -- kind profitable the Now it's seems have -- buy in XX% acceleration to of certainly to the huge is generate aim growth. use back growth we and cash two mark to of down focus cash -- And But than shares we're driving amounts share revenue mid-teen more using reduce last on count. flow. that our slowed revenue we flow of of that years but

EPS compensation. that higher we're our trying be stock-based non-GAAP drive and disciplined to So with

around consistently X% EPS at for the CAGR, been midpoint we're that the our basis You'll now higher And been last XX% of see the growth stock-based or years. on us of five three-year non-GAAP that for XXXX. guide, on revenue, has XX% our a EPS for CAGR XX% and track has rate it's compensation with this on

is is for is We investors growth I But we're focus line. on our growing and EPS a very bottom an profitability, very, and really to continuing So respect. in means care end, about increase. that guess, that pleased EPS to revenue and growing

Joe Vruwink

you Okay, question. AI for one that. thank And then

Ruben's a introduced be candidate the about customer certainly fall, slower debone verification point prime underlying a adoption I'm is maybe your just But you -- like around about would markets far? wondering reason technology? contrast you you back-end Cerebrus. pace area for question. if like greatest that greatest any its and it's Cerebrus last on it a maturity, think can things think follow-up it's do think quicker the than So there it's into with seems experience the you've experience, on of so When the since the any not just compare I referenceability, of or adoption curve?

Anirudh Devgan

I big would the I good would point, a at adoption similar. a are, that's this Yes, Especially as Verisium, curves that verification said, question. are I say say area. is they

Now in there is with already that seen have a the they're some proof customers easier point sense that Cerebrus.

are deliver confident like thing our Allegro with overall Studio. same And So in they Virtuoso solutions. ability AI to X,

to in tried how adoption. right, is this on the also do have customers try they broad business, things but and they -- design, So then it some the

like with So so and as there that's in well, Allegro. Verisium always new areas

is a would So similar interest. lot there's of and overall, it I say,

apart which And like But a would interest I similar to is I process is natural mean is trying solutions point the this original in of take deploying. is from going say of some is rate amount high. this other AI at time, and the the very It of okay. Cerebrus adoption.

hardware But recognition. some the like the of is adoption because nature it's and Now overall, great of revenue the moving faster areas, along

Joe Vruwink

very you Thank much. Great.

Operator

from We'll take next Wells question Fargo. our Mobley Gary with

Gary Mobley

for confirm those you I commercialization of licensing wanted all, first about that the availability? JedAI license is products -- And general my question. price phase Thanks different basis ask umbrella. customers? to chip on those under discovery the guys. something, Or Hey, way are in to the with of taking the tools major and have five a tools I per renewals are a baseline baseline from to wanted design

Anirudh Devgan

to Gary, new are so all products. these

So they're not in previous contracts.

contracts to outside part renewal, these of with existing of And these and all in add-on be you renewal as purchased, introduced business our they products like which with we of not So but product. have purchased products be we in or can just the models business, different customers. base are have they know,

wide And then to of are them talk in as some deployment. customers, we very

think remarks some deployment hyperscaler. wide the I We gave these on AI one of example had tools. you of prepared a I in very very,

what products new stages. in there are Some in previous versus early the was But are these all contracts.

Gary Mobley

five I through from some it. energy, a ask And Rambus. you're business went to Got was to you maybe period that, for the a it. I the from what some acquisition decision signaling time the into Anirudh. Got areas of of the with the wanted of investments IP from company Thanks there you about of refocus like away know SD&A. where

your business. acquisition an grow making you're now so And some IP aspect to of

I'm so of give the effort? in an it as IP business with investment overall And you wondering fits business us the on if view can you how terms update in

Anirudh Devgan

five of lines having five Yes. IP the kids, It's segment business. business. all like an of We kids, important our is right? five love all

SD&A, plus. them of very XX% growing one and growing like is Now young

lines of don't care but So that's that great, we of take doesn't all the mean business.

which useful XD-IC. and great synergistic, to a get So and for IP, opportunity a AI right this is was IP, team

time, lines right digital. the we make business. we our at done like all of investments have think, with with so I So in And will Virtuoso,

to lines we so want competitive are make all sure of business And here.

Gary Mobley

Got you, it. Anirudh. Than

Operator

We'll question Berenberg with Markets. take next Andrew our DeGasperi from Capital

Andrew DeGasperi

guess my in analysis, bit came taking have for the slight is I thanks [Indiscernible] question. individual the a the system first deceleration. down I IP QX on also a segment. one noticed I and business

for would call there's you out those a if two? And follow-up. wondering anything have I Just

John Wall

expecting delivered more relation in to been half. the we've But Andrew. always the to IP, Thanks, It's in compared IP of be actually sure. half the second to Yes, XXXX. first opposite

well. quarter's called as I on call think that out last we

be a bit times at second expecting So deliveries. the timing IP stronger based a can it's of we're for IP, lumpy half because and on

of the and I very, with the that are our mean Again, design pleased there. system analysis very On strength growth businesses we're all growing strongly. of

our of in I all compared think revenue last of digits grow look XX% are second and we half our to think year, that I I at that businesses half, the to growing outlook. second total the double the when expect

Andrew DeGasperi

high to make get then of assumptions specifically, surprises you there the is And it. top end In that your look I for the positive surprises were guidance, exceed of for a we -- words, range there to on it? other for line, exactly Got to would in if would the potential -- have what even terms or at front?

John Wall

hardware I'm time the guide in those the QX week take QX the Well, guide. for when deliveries want I less -- very But half confident saw also But and in -- half. guide. didn't QX, the all for the I certainly and the those the confident I'm second was in I'm I now of confident final days half, second I'm risk confident very second including of in to of the few kind final

very I for But mean times And as certainly hardware our -- hardware, we business. demand we have and would across demand the strong. reduce strong design lead as found on we our seeing activity the strengthen is we're and of say, very, all Anirudh lines that

of revenue can with get the end through that hardware, to earlier, upfront. you profile. track to recurring So on the side, software growth revenue guidance of longer the the But extent because and I takes takes range because – those course, reduce to revenue to guess hardware deliver a of higher continue kind of the we that certainly times lead play

Andrew DeGasperi

Understood. Thank you.

Operator

We'll Harlan Sur from take question our JPMorgan. with next

Harlan Sur

afternoon. stronger as of fact right, you The front good half second expected, the playing taking out you. Thanks is the question. my in Hi, for full-year

and Your areas design drive semiconductor, strong maps, chip accelerated and especially activity your systems AI. the system in customers continue to road compute packaging, of

visibility, it you so can its for already when renewal team the backlog bookings have full-year? your Does believe grow combine your will be your pipeline, And half the second with said that you this guys strong.

Wall John - A

are I we terms our expect of don't here But backlog I think to to year higher guide unreasonable in backlog, bookings. -- we don't where here. the it's end So mean, than

on of value annual really the focus growing is that backlog. Our

a add will million we'll a So a $XX RPO year, into in backlog contract $XX $XX I contract a mean, like worth worth million RPO. three-year million to year $XX backlog add to two-year software million and

QX year, lower the typically we'll $XX be choice number, Now one year I our X.X. between current show a ARPU customer, is and year million if down if booking QX, a there earlier, options compared And those with because it it's will than it lower dropped up said look number, to million you -- that $XX to take backlog will RPO. at mean $XX like from the better two in a a million a X.X but I

in lower But the a look expect higher our to number, backlog backlog current the billion was of end with with at QX number, revenue gone next if from $X.X $X.X you RPO turn to RPO, of $X.X billion. we a up that's that QX At our that up of in At XX amount QX, billion. end months. the that's the

where So bookings. is light our quite first coming from because focus was is think generally -- understand on the But half question for I your I annual value.

it's, think to I here. We unreasonable half do say, increase I backlog to that second be expect expect stronger. from the to and RPO like not

Harlan Sur

just you fast And contribution a how Is of subsegment rough advanced Can from a packaging is design, on this give us board XX% the sense platforms. verification? Celsius roughly year-over-year Clarity, revenue near revenues? of adopting very appreciate Integrity, of all to that guys the very, chip are Here Anirudh, moving then and it simulation, you chiplet right? packaging Allegro, for customers die-based architecture. this with The And designs, these companies I are that. benefit complex board systems growing leading-edge basis?

Anirudh Devgan

high-performance are with all the definitely chiplet-based And observation, also, in HPC, design business. we kind verticals foundries, Yes, the of solutions. and that's Clarity, of our started in of I I mean -- analysis a their it will XD-IC different and know, the there's parts as of other and -- system both to leading it all It well. analysis SD&A AI. lot because shows other And in SD&A a leading up Celsius. you computing, permeate And as parts think good now it activity in includes design shows course. system up Allegro

XD-IC But by for I that's driven you very, and if especially strong is ratable is lot interesting, so say, a XD-IC new are because strong growth chip by why would it plus and this a quarter, on you're right? the years, and mean number, market the market very which a XX% growth. XX% nature, of a thermal very, very right, And system I several So market chiplet that's electromagnetic growing seeing revenue last intersection of the chiplet. growth is, the this traditionally. system, lot the this is of model,

thing, a customers chiplets a because targeted of or for So we targeted have big thermal chiplets. electromagnetics buying for solutions, especially that's lot

our inning It's continue SD&A. So second, Digital. will the And in the then we Virtuoso XD-IC, like definitely is baseball that still think and that analogy, I become business, still early see and see technology. regular it we or this still But still for dominant third Innovus innings. in the to

that all critical, on all into of mean, the chiplets will poses going but be I course, be and they and will forward. X.X-nanometer X-nanometer integrated

talk is people I -- and to and of think of important uniquely So what course, about remember, are a XD-IC, lot chiplets positioned. but we

and but only also for software not -- the with the design, So provider provide leading implementation Allegro for are package leading system tool. then we we analysis all for thermal design and chip package the then

benefit XD-IC. uniquely think chiplet I positioned is, from to and very I So believe, Cadence

Harlan Sur

you insight. the Thank for

Operator

next We'll Conti our Deutsche from Bank. take Marco question with John

John Marco Conti

my for Thanks taking Anirudh questions. John. and Hi,

how but usage, broader related nodes? we tools leading mature of companies any some usage tools the And system in design just think wins acceleration even more And not so you Could AI at AI quarter? you've Are customers? of I the this new on first a to about is, more one share color system nodes, know touched the little the bit. for on in space, this the can of

I the to not cost three be recovery cases. market? think as taking in I imagine better thinking GPU with use what of the might as this where you the when is price the trade-off next matched a next two, are cases adoption/proven investors current use years, in say function imperative higher

Anirudh Devgan

Yes.

as building think Horizontal know, of both has has is horizontal out I AI the and vertical you application right? AI the like, components, infrastructure.

the So also those GPUs beginning advanced be to tend in node and system companies.

They So about the we this, have server which chip. companies a car, full right, they have -- in of self-driving. talked one right? them is that's then side mentioned system with and Dojo because is also the So Tesla,

auto that, doing -- remarkable So going other think, this things. I grow AI companies is use that's of pretty doing similar a only to other companies with

for their I own And several you is building which guess customers, they mean this can then we and are. silicon who have well which are hyperscalers, publicized AI. also, are

to So large expansions meaningful them. done QX several by chips And companies. we in are continuing work with AI we to these had linked hyperscale

of it and SDA applies now And we -- in that of side, application built the kind all JedAI. that EDA X main to because portfolios vertical not dependent for is And talk on node product like AI or horizontal those I be with on nodes. Edge nodes AI started go the it think, will all even doesn't can node, X-nanometer. need be The but mainstream of Edge it X-nanometer And computing application, advanced because to to in at computing.

the advanced just are PPA Allegro in design. these of can be not are like some nodes. we cases, the it just benefit we that nodes. vertical we XX% the on put these when potential benefits across example, give AI. all or nodes, And seeing independent the can you cases, Virtuoso But ones -- in an the -- especially in from verification, AI are there or to some like XX%, the And depends get applied And

benefit XX% you node to if sometimes one another go node, is And from to the XX%.

better AI as to a new algorithms moving much node. getting benefit from as you're So

improves analysis, node. it But So will to system I efficiency terms think EDA and be node your and the it also of current at that applying design in independent.

John Marco Conti

Got it.

you on follow-up of talk the newer customers to is the line When X.X the do hardware. it three buy expect in with Palladium? or cycle, EDA renewal i.e., you and to back years? about Could a and Just Protium generation hardware? cycle for come

Anirudh Devgan

good a Yes, question. that's

If cycles systems. see up, year, new of what tied we hardware the our typically, every goes to and necessarily design will their purchases But size designs -- hardware. we the we sizes more they're That of design need to or up. to help customer they any then our when from go not more size are design typically, can going typically doing consume when ZX. ZX hardware tied big chips, is So because to the buy introduce

business been good last hardware of four, kind has purchase. years the one done and it's this because why a that's not so So over five

multiple more you bigger bigger You and need and chips. do to buy times as chips

Protium, was expect so much now, So years you lines less cyclical would like palladium what then -- and we it it or have a and makes it few multiple that ago.

John Wall

capacity secular or demand -- a and for there's Yes, pipeline a capacity that's emulation business. hardware it's

expires up, maybe system, new we software three is new our in typically, emulation growth hardware when opportunity the you in come the there's systems X.X, now years purchasing see to where in said, first used they're strong, renewal past, really, system, you contract unlike because but demand trend customer regularly see just and know we I back a the and demand comes and like existing So that a capacity. know purchase the -- secular really a after for business

John Marco Conti

you. Thank Yes.

Operator

Research. with Tilton comes question Joshua from final Our Wolfe

Joshua Tilton

Hey, guys. at my for Thanks sneaking two here. questions

the grow back the think, guys you The to hardware you year? to know you the to that the that year-over-year hardware go saw the strength But in half? first in want guide the XX% to mentioned to relative any conservatism compared what in expect, second-half. I I guide. you I in still first of that baking one, Are about the hardware first-half full-year in

John Wall

just XX% second revenue or at growth total expectation for versus correct Josh, the our half is in all second-half Cadence, that, to comparing the second-half businesses. So

all second-half, second of last We the grow our in to the year. expect half double-digits compared to businesses by

others. stronger than Some are

opportunities six capacity We relation the we've to helped in it certainly ramped second the over for production we're In demand because those, of specifically, In strong pipeline the to more demand couple tried years improved we months. consistently second-half. now. for in times seeing lead gone up hardware quarter, pretty QX, seen and with address a and had

Now comfort year. to of half is us pipeline the a guide the business. the But that gives it second for raise

into guide a but their spread strong four opportunities in, we quarter visibility to business. half, Typically, right you demand there for but we're about the now future. that hardware, In purchase. our continue. going if for have we keep And for potential before at the for to that we're months the to cases, production the decision increase intend some because is people demand get backlog a continue it's second only pipeline six into that's pipeline now, into at they that expect capacity to to put levels might and Right our to

Joshua Tilton

I the your one, to guys you full prepared in sentence. flow to Cerebrus driving used think of that. then Cadence? the my maybe more just with go word same dynamic choose Thanks And for flow in your full remarks, a customers tools in Are the you are or clarifying second seeing AI

Anirudh Devgan

full observation. to I That's two. one three mean seven adoption very Yes, that absolutely. advanced nodes five a to good trend is from flow to when driving move you is

years -- more ago complicated get this be full -- that because and to we flow. So things this and architected

flow. AI So is is -- can able the engine because secondly, orchestration the AI that helps of and all Cerebrus that it results to helps aspects or give optimize better if

a tie-in areas full both same as the thing accelerating verification. a trends for flow, and and advanced nodes us. is other the natural This fabulous are to of is deployment AI. like these is But in great there that, which So thing well,

Joshua Tilton

you very Thank much.

Operator

back will remarks. Anirudh turn to now Devgan for over I the closing call

Anirudh Devgan

Yes. and continued confidence our growing behalf Thank employee of our on and in world-class their the and base, our you afternoon. investors Cadence delight in partners. With customers with Directors, opportunities our partners time exciting Cadence. business On industry. us road of for deliver we all and map trust joining Board and innovation for we this thank a to customers continue and It's an momentum for semiconductor strong systems

Operator

call, today's Call. in may participating concludes Quarter for and today's XXXX you Earnings Second you Conference This now Thank disconnect. Cadence

Cadence Design Systems (CDNS) 24 Jul 232023 Q2 Earnings call transcript