CDNS - Earnings call 3 2023 | Cadence Design Systems, Inc.

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Operator

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

Richard Gu

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

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

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

Anirudh Devgan

We XXXX. to is as our driving. Growing details XXXX. Richard. our outlook Good hyperscale transformative solutions. of the activity systems raising need Cadence tightly analysis that between report design provide and delivered hyper core computing, semis key John mechanical and generational uncertainties, integrated for pleased XG our macro trends joining for third strong, remains the software and metrics will autonomous hardware Notwithstanding driven and shortly. and design electrical more driving domain, strong on conversions I'm quarter all you, Thank and by for AI, such are financials today. afternoon, everyone, you QX and for on us and results the guidance thank exceeded

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John Wall

contributed Thanks, in everyone. bottom afternoon, businesses QX. and and than All and top more line originally to revenue Anirudh, QX we pleased report I'm we that good of in completed hardware results quarter growth, delivered Cadence strong to assumed. another installations

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

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

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

cash Non-GAAP to margin $X.X operating $X.XX the billion for the of is flow range $X.XX. in range the to $X.XX the revenue range expect XX%. the $X.X shares. outlook billion. of EPS of $X.X least fiscal range to flow XXXX Cadence margin XX% repurchase and of operating to $X.XX range of cash updated of use EPS Our to in to $X.XX. Operating Non-GAAP range billion, to in annual in our GAAP at we XX%. of XX.X% the to XX.X% billion GAAP in in free

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

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

Operator

Shi Needham. And [Operator comes from at Instructions] your question first Charles

Yu Shi

from bit backlog, kind for I quarter September backlog ask was booking last want compared mean to want see ask the I up. backlog grow see with the to bookings talked I looks here. year-end about goes and about where want you to just September of a because good the -- quarter to the very into the I continue will do half implies it little you it you the like second quarter. strength.

John Wall

half question. -- very remembering what expectations we expect so second strong last Thanks QX strong. is quarter, for for thanks a exceptionally bookings QX. Yes, But for the is strong very bookings and Charles. yes, for said And very, we our

Yu Shi

follow-up. want to quick Maybe I one ask

the installation year that of was than You largely related terms ago I some was shift in QX provided full comment of kind your that. how seems QX, implies timing raised year of your outlook, to timing the your for you beat of but pulling from be little QX, mean, bit to a -- there you outlook the less about that accurate, in revenue one revenue kind quarter full revenue,

John Wall

That's we're respect in hindsight September. scheduled in little guide China right, installations was too Charles. QX with end hardware a In of that to around prudent now, I the the

thought even hardware, in those hardware installations. fact, than you higher QX thought. And fall second But those . looks beat we with and our time QX. actual we we than of stronger last guide, of our that quarter. recall If we completed in we QX In installations expectations those into all kind assumed half this is the would

Operator

at Deutsche now Conti next Gianmarco The Bank. is

Gianmarco Conti

in through whether some provide tailwind going AI and I in how do in color to can value can when you any KPIs, bookings are guess see giving numbers be my uplift just would more AI contract rates on the us or quantify first penetration we this your one out be, we sometime. coming you whether to expect

Anirudh Devgan

Anirudh. It's

take me Let that.

So seeing like activity prepared a we lot verticals. that's AI, are we in a of in and multiple the customer remarks, mentioned and multiple

system chips which So it whether for mentioned design designing own the the example, course, companies other companies company of or semiconductor this their it's Broadcom, or it. time, designing we helps

in revenue. participating our process own also products. time that and it's And applying then talked So AI on design AI the then And base of AI products And top all of in we generative extra X top Tesla. we have our that, ways. NVIDIA are of kind drives about last also on products these we to

big figure mean companies first products platform, and and part is has a JedAI that selling infrastructure of build-out which out second we ourselves, part, our ], ] to NVIDIA or is difficult the guess the Verisium, activity don't with, be for because exactly what system large customers' a in business. that large like But part products. sometimes like design a or [ to AI like which Broadcom, there break of out Serebrus that's it's business in of course, don't part kind specifically like like semi to the AI what significant companies companies is customers I to using portion are happen try going main is Tesla So not, build that's part of what X of we like know which want the our business out years, whether are of AI or our our okay? Now for. of [ of AI to you We and

are segment, own IP So products in and software that if our products AI-enabled.

even own that ago. has early our from we a it's in process, that, in did our almost the So from revenue AI tripled year products comment though

progress. that So we are pleased very with

AI, wanted is just there's also I say is of So of to And infrastructure, which that. the more part to highlight predict. build out difficult which another

John Wall

tripled the that not that revenue. called And revenue has reclassifying platform. our is we attributable have that just Gianmarco, in in months, those those to I to we're almost would products out the X space that, products JedAI revenue when direct XX This any add from Anirudh of

Gianmarco Conti

bit Right. That's just really follow-up, on talking a China. have perhaps little good. a I

any comment mature into If the to Chinese place? entity on the any visibility understand also, could And you new whether rules and you designing list come impact customers whether whether had there more I is if actually track whether trying conversation nodes. whether there know it great. into at -- is versus nodes. like be this, into from they're lot that China way used in would of around advanced feel mature versus are to been there's on EDA on advanced a tools being for Any color a you

Anirudh Devgan

of some recent good Yes, reports the on in regulation. changes that's a question a of were there because lot

companies difference. chip or much the that So were some Most companies. of for there's targeted manufacturing regulations us, not

design As process. you are the in know, we

the have So those business. round big Cadence latest a regulations, on doesn't effect

some to added entity the there list. Now companies are

monitor of includes were and so announced our course, follow a And impact that's carefully. U.S. impact since not regulation. But regulations And the of that all the these not is we diversified terms we either. business. material latest all recently. all that significant in So that are carefully we to we But just of our gave change that customers, guidance geographically

Operator

to now at next go Harlan We JPMorgan. Sur

Harlan Sur

in are in relatively expected is markets, the auto, seems Accelerated cyclical semiconductor still end provider many industry muted, across different strong, enterprise market are still more to industrial, gradual conditions we're close service right? bottom, soft. Macro recovery but fairly a than AI computing

across some buy, hesitation team pushouts that is seeing So any IP rates, the signs or different different your or track, you hardware renewals, take of metrics across customers businesses?

Anirudh Devgan

and growth. to develop going through tough we I have you that as designing AI are still R&D we lot mentioned Yes, would lot Like of Harlan, these segments know, ago, say is some some part and time, see cycle. last say a times would then segments years X question. of of mentioned, we months Like accelerated overall, products like like that's are customers a several design to the you compute activity our But good compared strong and the I activity. a take And similar. are

in So what our we see glad future, building the or is investing we the customers and partner products still are R&D them. to for with

it months that largely, I environment the similar was few like Yes. think I a say is than So would ago.

John Wall

producing And was on of today you fast in hardware of And absolutely. at Yes, finished goods in our end as see than the ] we hardware XX-Q year. inventory our QX. were side, we quarter all can we're [ XX as that the filed million less value that and the the

strong delivering as I they're number IP for a a year. were And up to expecting So a quarter solutions that strong sets expecting very well the producing QX demand of group, customers really quickly in silicon our we're strong that but as we QX. mean that and all really think I the our hardware We're for can. just still group. is as we

Harlan Sur

Yes. I the there. appreciate comments No,

AI recently but accelerating productivity obviously, product customer accelerating competitors out design AI they're more laid these the exactly they're other I've doing required. maps, right? cadence? given space not that, guys the to chip this product then has family. believe year every got that lines, you chip the large new chips GPU road seeing Are actually in So much on is maps next-generation segment road right? starting all their prior same only of higher are road to step-up so activity thing. their their per your top complexity SoC future maps, their And was every of workloads which compute years, of X And versus One right, in

this visibility? and sort is business how of your momentum in all reflected the So being

Anirudh Devgan

at automotive, design mean very happening. said activity, that's Yes, like good least the very, and earlier, for is segments massive then X strong. and weaker, But terms some business. environment activity are design point. the especially and I the of say, is electrification strong system I especially, are given center you X And future, of the AI is of verticals the would data for verticals very transformation semi the macro challenging, in the And the in future the some and stronger.

Harlan, whole if activity years, you next look significantly, more growing data are X, And they anyway, know So cadence and design centers of given and products this X even the grow at all, you is and end so -- -- the complexity first these if to AI-driven the need and because segments of efficient customer will look X be at going for increasing. those up. they you also, is the automotive more

use be more are even and is we and be more design to also there activity ourselves. AI accelerate using of AI And internally productive. So more to productive

we and verticals, center very say always now these is -- is mentioned with and customers, and for work definitely space. big also the This We leading some of data fortunate you trend. in multiyear and big, with. space our the we and on the a focus So X large AI not in to the this companies a always are want to winners, win automotive we

So is and activity expect continue. that strong, I to that

Operator

We at now Wells Gary Fargo. go to next Mobley

Gary Mobley

averaged license XX%. has John, your upfront revenue year-to-date around

it's XX%. I think typically,

next hardware on Given you revenue how year? see cycles, the and see where do to the that backlog the year? And related you at and next growth product there, how conversion in verification XX of ZX trending, overall you're influence that, the looking upfront would into

John Wall

watching question, we're Great Yes. carefully. always that Gary. I mean,

point up X recurring XX%. over on first I the reflection if it's ratable think the growth XX% XX to about probably of a trailing at of essentially is of X-quarter current last rolling piece XX% XX% of the business. know, end year, quarters. [ ], year, rate look think the XX-month XX% mean, the XX, we're This your I but revenue, on you But although basis, hardware QX, at a guide revenue ticked As I look line. XX-Q, to and you of strength upfront a that's for the the you if think a the now, closer part at our that's in assuming I on

like For is the basis about well. year, but XX% that's X-year a over consistent with as CAGR

year. not we're next course, guiding Of

Gary Mobley

AI where suspect the if in AI Understood. to maybe but you are any baseline they in working maybe a of just to going where and out metrics on to Or still different not we're design a us sense get the licensing us right. license you tools. route, that gives activity? their in a X them Understood. more the I sense of give at expect can into baseline All renewals? it way Have you of commercialization per basis of a we're cut

Anirudh Devgan

that's good Gary, a point. Yes,

they that So are JedAI platforms like carefully, on with know, engage these of and our watching on these products and should major leading platforms. or top us you And new our we run as of customers kind existing of that X course.

depends So AI in of these take years happened adoption major releases of or it it, of the new are early in to of the I any we tools say these as kind customers. mean on products of software right? I stages sort know, any still you would in do. because, platform we still the this fully deploy digital

it, like experience contract have digital X past are that's for at least fully said we what X, go. we take with though deploy, it ago, X typically it cycles X years about like to them years okay? X, think even my So some is to time So in took still to in the fully years products. I And still these deploy like will into X

which mind deployment. years like of thing go natural good and X, into because progress this it in X, X probably is my to years is still a You're X

depends Now customer. it the on

them there much hyperscalers, especially like new Some customers adopting of in is improved cadence AI kind -- like a the bigger an the are activity. in previous discussion, design way, of design

adopting than of other are they So little verticals. a faster them the some maybe

with -- some or seen designs some on still of our have on are So engagement broad customer. helps But tried few deployment, and we it overall particular just kind like that a on pretty groups. that few depends

was Gary, engaged some what remarks in I that customers they I that's truly talking think the we that's these And I So think remarkable. also. past in now fully XX% results that customer but mentioned early, Actually, good X% a and improvement are are are what say, and it's of still okay? X like the major recently, getting to mean to I would of to prepared all have we from thing, huge several the I power mentioned improvement. like top Cerebrus,

go may a improvement, node or roughly Sometimes equivalent or of to XX% you AI that that's and to from getting to XX% equivalent PPA close get node better like that X/X tools. another, to Typically, one from you roughly migration. you're

products with the So really what sure in But like process are focused doing pace and value and on, of provide mentioned. the that's And is want some it to it's there. the natural that much then deployment are to them we make deploy. then of customers faster, some a see value the they because I work try

Operator

Vleeschhouwer at now next go Jay to Griffin Securities. We

Jay Vleeschhouwer

For the ask my question. market variant I'd like first of a environment question, EDA to

So the what hand, are new expansion terms business that of could or seeing intra-contract you new say, is that positively. unscheduled be to construed in on one business,

It's different or evident thinking Intel. it's dynamics. of so hand, about semi of A to still R&D you reasonably be other a lower still, ask those But that you how attributable the And than X deceleration concerned lot much X growth. X better about then are follow-up. can On been. ago, I'll but good, how the are than years

Anirudh Devgan

even strong. carefully. we said, of I the it the still like Yes, mean, that if Jay, is in is realize the impacted activity though macro you is course, of earlier, good revenue to invest the they need for macro design because R&D natural like mean, I said challenging. -- customers environment we Like in But question. we big It's future bookings, are had And this terms general, customers become -- prudent. just segment, -- so we is R&D, have design to investing strong. more decisions still that in but situations, a we mentioned. in see all the But just of like process good QX then natural a the -- still in activity lot they're is large watching business

happens what will we'll So idea forward. going also us QX a and give in see better that

John Wall

Jay, purchase products the their significantly releasing and as customers our of with baseline intent have lot and course business come add-ons new the you back know, back new from different R&D keep customers teams -- of groups a during purchasing. contracts and come to the that an

So renewal come that the add-ons purchase baseline they don't licenses of AI for up wait contracts up hopefully don't to know, to launch for few they'll more we They renewal tools. And on to and a when expire or wait the then as purchase purchase proliferate contract them, and we come in they'll lot renewal. QX. a have you

Jay Vleeschhouwer

Understood.

a Live in Cadence I'll about Boston. month's up Cadence at ask event comments follow-up, interesting some management For last

So towards process, AI has do as comment completion is to risk case, there the there physical of back schedules, interesting and role risk in an or the derisking design to schedule was addition of for more the about the historically interesting what's example, use end exploration verification.

tools. So of end of the back your more front mitigation play where there perhaps be a towards within share you to the end extent in EDA of the earlier do think spend, that some will process, more lot the that shift risk moves a totality the spending up with from you that

Anirudh Devgan

mean, I EDA, chip. would automation, for engineers. remember engineers say the I 'XXs, months of more would and and old years. maybe XX it risk takes XX, as now is history even able years in you we X lead big XXX in like last X to of should design XX know, activity take And history to some the this in to design we days are the that design I the if process. to Jay, that the reduce

like AI the productivity mitigation. that's next part and risk efficient generation, risk And more level XXX know, of next is So XX it think in I also of I mitigation. years ago. improvement as times mean, you than can, provide

then to it the more So lead especially system think I design company. should by activity,

I end, think is complicated end to of a the end back mean back still front Now shift process. I

of hardware AI think of things upfront And design though be a or can so platforms. even still back-end lot I using the some requires using pulled think I process the work.

definitely, you But I specification in And easier, of we LLMs GDS. thing especially So and the expect them. And should The is both formal the still I design to back is then front think formalize affects help end other Renesas noticed, and goal a customers it our of front structured like incorporate of the formal. end be AI activity anyway verification process. are and so have the you the strong front-end may to formalized. been especially as trying can process our more very LLM think make to to do And It's would has all end. more people partnership front, gates, do then with them. can that I we really less can the and we on lot go the a go has very But back-end process, process, process, which once have because like said, been minimize we risk. less

Operator

Markets. now to Jason We'll go Capital next KeyBanc Celino at

Jason Celino

to the might wondering tomorrow, guide of aren't Maybe be more I might fourth apologies why be first for on conservatism? Or the again, what in guide Where John. this will terms setup. upside quarter. seeing asking guess, for overlooking we the but about you folks the some QX be for

John Wall

respect by your fact mainly beat raised certain -- to the hardware a Jason, installations. million that guide due for as to QX question $XX with was that we million, in the Yes, by but probably emanates prudent from $XX you and know,

Silicon a having -- by quarter our for they're taken quarter the going to Solutions midpoint. expecting the up to IP we've million but up expected they're overall, it's mean quarter bookings and I strong year I year. But excellent an a think at think all I particularly we're the $XX because be have that QX, there's group strong that --

will come group. upside, there's from I it think probably if that

Jason Celino

Okay.

I just And share growth we got out guess, follow-up know don't might growth be seeing? like my Okay. comps Or stuff. might to know backlog, we of type hardware you've the quick then see that's on again? I fair. backlog. what stripped year-over-year No, way weird hardware-related some any there's you But I of if if the because

John Wall

Yes.

I you color bit to think of just give a on that.

you of end at on included think our year, I of XX if time weeks about lead recall, backlog last the hardware.

I X- time think now we're down for hardware. to to lead range an on XX-week

I'd think because pick as end we we've middle But in to look hardware So the remember value number really would the the last second the there'll renewals contracts fact in tick track year, In the because at troughed up backlog of annual contract deliver year. -- you The I'm annual I bookings I again a annual expired at strong production at think I so is capacity the much be or stronger to to essentially value QX expect eaten the have of back because the the second backlog the of quarter on of the annual back now CRPO value. one of result bookings starting saw we We're of looking in be this course, the it less that it, expecting have And the end backlog a again, thing to with we're the half year, quarter. strong in because of QX, that. when to the hardware. compare is a I out kind expect for is one the you half. for the expecting we up some we'd

Operator

America. Arya I'll go Vivek Bank at to next of now

Vivek Arya

outlook, record I 'XX your that that [ XX% ]. but could some was hoping give color early given I appreciate for is model you it's us a

Cadence or So from this mid-teens can just a 'XX what growth perspective? conceptually, what similar 'XX And likelihood, would different maintain make rate? kind to growth is the of

Anirudh Devgan

next like we year. the don't comment QX, Vivek, Yes. in on before

We assessment to then share to So. our looks see want finish glad make we have and call. like what sure that's worked that and earnings right? diligent. the we'll are year out the We next out the -- we year be has in QX well, in And our February past, in done what full

Vivek Arya

Okay.

on undergrow would just expecting near I or much over you kind IP as I you think, IP longer X and influence in John, the that? to a the for strong category contribute side, of prospects? what does So On the how IP IP wondering EDA? was think QX. question And longer-term term, that quarter that your your And do recent a business. growth acquisitions you're mentioned

John Wall

let Anirudh the it to the then But second take hand first Okay. of part. part I'll over and for me that,

between relation in to and for is say, I year, mean IP kind strong the year, if the expecting growth business, to QX of guide XX%. like XX% which look at grow that a QX for QX given XX% we're guiding revenue to means we're over we've think the for I XX% the to group essentially, going I you

largely, strength Now IP the QX. due that's our in business of to

about Do the you want talk longer term? to

Anirudh Devgan

we of more that mean, I always in the our kind in of in And business and participated profitability always the improved are as have so more participate more last said, portfolio that, needs. it's Star we you few IP know IP profitable. have already, customers want and their IP outsourcing years. we And over that to has

of profitability overall are happy we IP the think the I business. with so And

Rambus, are okay, what are IP. and other are And the strong now chiplet-based to see, and and for emerging, are XD-IC whole think design profitability. which used of reason X applications. So of grow maintain assets areas AI the hyperscaler this it areas that lot HBM and the and we're I also GDDR-based we bought can a which which the trying that's is And

and UCI now in IC-based into chiplet-based these of and right is portfolio the also our IP feel I most like in are and evolving that XD certain areas things. IP. the have and So this designs, AI of IPs other automotive and which use And also markets new hyperscaler

result more in then and in we we see 'XX. then strong we'll expect happens investing a business, and you So saw, IP are what as that, QX, our as of a

John Wall

likely Just clarify, is be from contribution the this year. to acquisitions to immaterial for

So the strong QX really that expecting from is organic we're business.

Operator

go now at Stifel. Ruben We Roy next to

Ruben Roy

wanted I talk to little about if Generative the more ] collaboration could maybe Renesas [ of detail XX chip Anirudh, you with bit kind a ask design. to in incorporate and AI,

those longer-term like efficiency a for you'd sort I going that about think about on X of collaboration have well. you're It years. expectations quality today. next would productivity year, some improvement, think expecting answers to this within improvement mentioned and sort sounds improvement, of milestones is thinking longer as be term, testing Are the that I you

with terms leading-edge would design. part frame in working incorporating the on? would of type Renesas just that along about a talk this that, that of wondering you Just great. types And about the you're time tools thinking of into could what these sort you of is design is final some chip consider of design Or if little a be bit

Anirudh Devgan

absolutely. Yes,

with very are is they very So close you other And with broad-based. be you we the them we are wanted look highlight or Renesas. a just the Renesas process, I have whole AI with are we partner companies, think this the if for collaboration mean, right? pleased time. if and collaboration And we initiative to a to I follow design glad with as So

has [ that design be of ] mainstream companies there fairly Renesas I can LLM the be new of is, better. of is in our to there the our already, they And we these But think the to tools team Typically, location. for of productivity which the other kind tools. collaboration with AI collaboration all like doing results way thing any digital to Verisium broad-based. or of -- a And other which like I is we other Cerebrus for but companies that from also, LLM, all of large is are the only It Renesas. they're forefront multiple all better, large one in mentioned. X. with can global pennies. And is almost like them AI kind it's be came of have one the benefit to and benefits, And on course, applied would diverse the range key true node also are using some can mall right? not partnership locations. are nodes. geographically the verification, advanced that are whether It's with highlight, teams, is quality One design.

So than have cases, better all of in on design -- do a lot and the if the experts. geographically depends super diverse you it So But right? point, starting not is team, we also, a are teams with can AI good that thing a human do. can

your AI or of variation best that better reason human is the team, chip thing the the the across the well, -- definitely teams, other not I were would to it happening historically greater results but a believe, like. true is industries performing And will The wherever than terms same can in other which as in in as deploy even also tool experience. is be productivity, well of in nature design. in as So just happen, your AI this there's And organization. if then by you

in years with you if X okay, years is chip AI, narrowing. So experience have experience that versus design, design doing gap chip XX

engineers. as less engineers almost experienced as can So productive be experienced more

of first these more in tools engineers we companies that adopt to multiple also with apart engineers. companies and So management -- kind the because think in almost that has And large well. the productivity from other quality of like experience this organization Renesas it like this experienced is they wide peers. and will what a are AI have from is And benefit, also other a and I workforce benefit results seeing benefit as range their locations organization young for faster interesting

definitely And companies, the we the that large NVIDIA. seeing Broadcom. talked about We about, working Renesas are of course, them. multinational we there's and of talked and talked companies many one so we about of fast-moving kind then have So other is great, them. Tesla We privilege with of

are which is AI, whole quite one. a profound. are there benefit more workforce development than actually There of So

Ruben Roy

nicely. That's I sounds what incremental. quick you're a guess I I mean, grown has mean, very follow-up. be from saying helpful. it this just should EDA

you EDA here, the last you on assume about, as several incremental would that sort renewals whether that the last have should at sort you think XX talked on tools would say months, be years like at CAGR. way can you've over incremental add-ons, or this that adding of the X from If the core call seen growth But of on or the X-year comment the over growth. you we EDA years, you at look so? guys -- software you been Would about John growing over the it's next would to this be XX, out EDA as growth mid-teens XX, what's going to

John Wall

that. comment our -- on we'll Well, of be go they're pace ready. and our think that I style patient at just That's with customers, the is would cadence to I

customer that As expect we proliferate in to base entire the X cycles. across our Anirudh contract over our earlier said call about AI tools

tools. adopting And more some are rapidly embracing and the

come the but tools That later. tends their might more be somewhere and adopting add-ons, purchase else. and economy back shaving because configuration just they're add-ons -- AI they they'll fourth be a back are to Some

the full a with very couple pleased we've we're but get to very, probably made. So start it takes cycles, effect, of contract the

Operator

to We'll go at next Tilton now Wolfe Josh Research.

Joshua Tilton

me? hear you Can

John Wall

Clear.

Joshua Tilton

extra the next potential given look account there question quarters you My maybe compared just Great. that And first of does of is of hardware for first kind some that the how QX to year. is XQ X slip is the hardware the you that guide for to still any to challenging, the year? saw pipeline conservatism in into strength some mentioned the in macro the

John Wall

I and in just really that a hardware question. verification -- pleased at now. tremendous. that high amaze But great to just the quarters real mean level through is fashion Those probably a me group very performing is very But just that. demand with it's strong. it's consistent Yes, a X pipeline -- continues such products so

like for it there a are pace. strong year noticed something slips next in to the if we're there's with have happen well. that think this the naturally, from vice customers because of relation that question same guidance. the But You to to know last that I and versa, QX, QX at expect said, outcomes QX planning buy goes We're from And QX range we've in of their go QX, AI in broader is stuff the bookings kept might as kind a or of the that same with in quarter I in from you the in hardware. guide that very we expecting accounted array guide. our QX strong or is amount customers. in Everything can We'll to patient our to thought probably from year have potential business a pipeline for QX. we we But on sign QX we an rate

Joshua Tilton

helpful. to seeing you of not triples, drive has historically? these market cause maybe business I And flow this want AI, users obviously, your a of the and can't tools But on as the more that a it. Super make or adopt more just follow-up, are then of decisions best-of-breed yours touch AI full to been

Anirudh Devgan

AI full it's implementation But tools, our them, to have be on a absolutely. AI add we then we on anyway basic verification. best of Yes, because AI and that's is the it of have by is tools to base. the have or you digital course, which on point. like it believe the whether helping tools. the best-in-class underlying flow engines is That's the flow, will full very nature, top and breed run good on on tools best-in-class. And the

underlying of tools when AI commented nature more customers in our as know, are we have AI So by past tools. doing used And also, that the a you the lot tools.

example, Cerebrus design. our runs, which which AI task chip is in the when for of for tool So digital is one difficult most implementation,

run on be XX Cerebrus, one XX, typically run XX And them like each of CPUs. the customers them we'll -- So on will CPUs of could or typically, use okay? XX it machines, will like

licenses. So underlying of they a are of using also, using lot they're lot compute. And a

like XX Serebras [ of ] be could it is running. which So instances Innovus,

also place signoff verification, of of analog. synthesis, verification with and just formal -- not as is thing and It's and in case same Spector. digital, hardware then logic then case So like it's but and simulation, it and route Virtuoso, in

definitely and And effort. XXX instances or more multiple because still it's we're So runs. instead doing X it a more in automation manner. AI-based and faster more runs, we it compute a -- it search sequential and or interest that do XXX more parallel of doing But X you the a flow helps. process, But can also a user will of Typically, typically requires It may much the like it of can software, get we human because PPA and it's or worth better definitely AI-based intelligent so more but better PPA. manually it's design require runs. require full enable, more we're do in using that design automatically

Operator

go Vruwink Joseph We to Baird. now at next

Joseph Vruwink

Great.

RPO the belabor current going backlog we I look by, went years XQ the XXXX, at rewind I'm to up ago but and then X to suppose of Sorry if XQ questions, think, $XXX million I then start look could Is frame are to And just nearly you renewal potentially build that maybe sequentially. what on? you to values that coming would how and due part composition Jason's of to ramping on do on question it gets what been second the just in to change question. of able Cadence my just backlog back and And hardware software, has given XX-month at revenue does the to sort some year-end there, in production sitting backlog order expectation? support be in that capacity and change in needs relationship to what terms of next and of

John Wall

XX growth able year's hardware lead you lead now. that have large year, I service next backlog, course, X backlog of current or sounds last the Joe, end weren't we about months that you weeks guess a been, reason of time. called XX And that if like, there. the XX portion out XX contained was hardware, great But weeks year the of the the profiled to times I last to to way the yes, time for about of and questions growth, at would

I on of up for you'll answer the when levels this year, less production this the year, we've your out So same next I and at kept question backlog to level less the you of there, year. of production for because that to like there -- but guess backlog revenue get the come ramped said, revenue to need to all there'll second year's the part for the need was -- than in be end be for we've hardware

our lead to XX And every think we've the would with X I be so ahead not reduce silly I of impressed times So and for us. ratchet this that, And the important busy with to it very times think a production quarter, waiting really were normal But lead assume maintained and next talking hardware year. competitive up we're down mean try about would to we've that more last time we're year, solutions. get in over made progress again, those a But we level months we've this as QX people that get was pleased we to customers. year, continue I kind QX, that to level yes, very that's X got more weeks. to far but of to. because

Joseph Vruwink

Great. Thanks, squeeze John. in. more one can I

maybe forward? about update sciences how think to expectations play see Group Cadence from acquisition. the I that relative how can we're get original the role to and the the you to has about Sciences wanted OpenEye Molecular an generally thinking and lap tracked opportunity I is looking about in just your just life

Anirudh Devgan

Absolutely.

We are excited that. about super

years ago. We that future. is It's I terms to synergistic I and about EDA are our And about the XX excited before talk of design like want molecular and in molecular super design, how where specifically was tell almost similar product strategy you maybe and to.

which our So describe would I layers. of like I see a lot activity X in as main products,

products are simulation. or middle which they are molecular you're layer actual like design the either computational So are doing EDA flow simulation they is system dynamics software we have, or element, that finite doing doing

for of is which FPGAs Palladium, of So special of custom hardware, that, But special purpose And is we new Protium. we layer piece the now that's with below cake. our is which had past, the computational the middle had Like use hardware. this hardware chip. in emergence we

CPUs. and of GPUs, a with accelerated NVIDIA recently, have, AMD And especially Intel and then We activity course, GPUs computing. of xXX-based on lot

automation bottom the doing that about new we provide what was productivity can can this and done X-layer that's like of AI is level or ] top AI by Serebrsor Verisium. cake layer orchestration. with cake. talked humans, layer and And the done AI, So [ then the of typically of be

cake So is product central to strategy. our this X-layer

Fidelity is with simulation, optimality, EDA orchestration. is whether can whether clarity importantly, competitional biosimulation. X AI is biology-based. The it's then is whether whether which AI, and top So it's multiple asked like it's this you verticals, And design and The the be across with package design, verticalized bottom more is middle physics-based hardware. it CFD with Allegro ship and

OpenEye computational we that that reason acquired critical with companies that. are the then few biological drug of GPUs. AI-based middle very simulation, gives can which and is But we to layer dry the can hardware physics-based that add So it do

for already top as discovery with giving speed on AI-based we'll So runs major it has more it may then talk expanded the biosimulation. And on top and and Orion do in collaboration you We about OpenEye pharmaceutical know, company drug future. X traditional recently platform, significant cloud-based and to -- Orion our an of X the platform. up OpenEye

also, this application the so the I in think, mentioned steps. of last into And go I also, think X is to forward, thing in the going go if as future, you AI time

of So Tesla we infrastructure. talked out is be companies to and first AI application course, about, and the Broadcom. like now like of great building going in NVIDIA

hyperscale build companies, you the there's So all infrastructure. other AI as and infrastructure they many know, out of building so are

the that's So AI first of phase adoption.

several need in progress digital to [ the not computational that biology that's of with then third about also. the And on today top. past, but I take biosimulation X there's pretty to longer, adoption do hardware need AI X the that AI that, we areas phase take sciences. talked applied AI. in were to well, And and mean cake, OpenEye like life and products last okay? huge Cerebrus years go. bring AI our platform. and of phase has applying a we And think, AI and adoption second about We with own talked is need think driven X-layer automated still So maybe I compute will year. AI JedAI The may Verisium is that And to going the and properly, that and that ] our to then of Celebros years we be to plus, that application I leading

So I'm future. very optimistic about the

circuit it's This but is simulation it CFD future, a invest or lot in what in some for other it to biosimulation synergistic the that. we and the -- is is not to of quarter with a will similar and parts like things Now time. do of right the take happens or

would good and and I overall, is Yes. the but big early there of emerge financially the the ] as biology we start, future innings say with we [ are the it's OpenEye to still in areas. for in course, think like for disciplined. to are a but it -- a the biosimulation one future potential I always controlled and But investing way, in is it So of

Operator

And DeGasperi comes our final Andrew question from at Berenberg.

Andrew DeGasperi

I you terms most X First of of put Just so ones. margin, know far could the I guidance range operating the on margin down on out the maybe quick have non-GAAP call. this were top the lay answered them of end -- a But slightly year? on you in the john, for know basis. for on the

wondering all without in there? lay right having Just that it of is year, pace time, to the puts out are change maybe you're at that have second making it, you're of, and the now? based seeing but crystallized the answer you number? you of Is going revenue might that if investments And for to call could acquisitions sort recent what what that made mix? next terms the like on Is it takes hiring

John Wall

to acquisitions Great -- to yes, dilutive questions, year. the relation more The the this in recent margin, are Andrew.

up about narrowed can -- But or EPS. for the was up little second we're picking and to what kind non-GAAP I've margin I We very on question. the part sorry, expense at the more range on us. picking very, of of $X.XX ], second the So out it immediately expense. [ that XX.XX works outcomes In revenue. relation midpoint -- the the of the We're part question of forgotten be think

Joseph Vruwink

no No, worries.

terms in so about you're the it in -- of far. how thinking on hiring, Just just terms of

John Wall

mean I great. -- Yes. that's it's

talent We to continue Cadence. to top attract

of head termination in in severance as with though our that bit of reductions. we our better our business initiated some year. I next million restructuring August, to You $XX preparation of incurred housekeeping and comprised a -- may we But categorize a did in notice that strategy. would align XX-Q, In relation and costs about we count resources benefits restructuring. for to kind payments of plan

Operator

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

Anirudh Devgan

Thank for afternoon. you this all joining us

customer-first we the of mindset drive with to intelligent our solutions. design portfolio AI-driven continue growth execution expand innovative strong as Our and strategy new system

be named our we proud innovation to inclusive and you. our recently and partners are and to of and of behalf sustainable for America's XXXX Companies customers, Greenest We on Thank list. Directors, culture in On confidence enabling cadence. focus Newsweek's our their investors Board honored continued of trust thank

Operator

conclude Earnings call. Conference Third today's participating quarter Thank today's This Call. in does you XXXX for Cadence

today. now participating may Thank You for disconnect. you

Cadence Design Systems (CDNS) 23 Oct 232023 Q3 Earnings call transcript