CDNS - Earnings call transcript Q1 2024 | Cadence Design Systems, Inc.

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Operator

Good afternoon. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence First Quarter 2024 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead.

Richard Gu

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

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

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

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

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

call to turn the over I'll Anirudh. Now

Anirudh Devgan

our Thank the I'm all to delivering We that financial everyone, you had and you, outlook on key the our the Cadence the financial to strong raising came first for for metrics upper pleased quarter a at year. start of solid range report in us joining results Richard. year, Good and of guidance for afternoon, today. thank XXXX. are end

details strong moment. trends AI record autonomous up nicely activity. for XG, cycle beyond. turbocharged We computing, provide John and design backlog driving $X us in are Long-term super all with sets the exited of a QX fueling by hyperscale and a broad-based more billion, of better-than-expected year which will

base. build We continue customer intelligent differentiated to end-to-end we long-standing solutions our design our our systematically system growing to to as portfolio out deliver strategy execute

entire years with our last advancement Technology Cadence. by over the And leadership customers of excited few process. solutions chip-to-systems acceleration. And design the Generative and development of ] AI Cadence.ai impactful unveiled and our [ comprehensive to and most intelligent are newly the reshaping momentum system product products. is chip the foundational for provides our portfolio promise the we is

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Duo, than of the insatiable Protium rack ZX higher new Dynamic Palladium and to Building the XX performance higher Last successes platform verification address solutions. delivering and increased performance per capacity industry-leading platform week, third-generation launched ZX emulation hardware-accelerated we upon generation. more prototyping the new twice the a previous our excellence, the demand for systems, set XX% of this XX capacity standard than the and

for have Arm powered and is gate The of by design the massive designed generations. at ZX XX processor next by AI launch. system our its select ZX and been capacity, Palladium is with endorsed $XX next-generation the were industry's and ZX IP. with was billion emulation deployed The customers AMD future-proof tools enabling several NVIDIA, and Cadence systems at largest custom

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top-tier of analog and therapeutic our customers design across our and design portfolio, XD supercharged discovery Orion capabilities to including of systems BioNeMo Additionally, at will partnership shorten for broaden and Cadence's packaging trusted and partners. with and proliferation platform, our molecular a key results. with In our NVIDIA's core footprint relationship We to we digital time microservices NVIDIA system QX, cloud-native our expansion expanded analysis drug be broad several and solutions. ecosystem deepened IC EDA our IBM with verification and furthered software

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hyper need let's for is analysis growing convergence QX. complexity core Increasing tightly between talk key mechanical system about for physical solutions. electrical, design integrated highlights the and and domain Now our the driving and

steady Our system integrated continue and end optimization our our solutions physics-based as results business across growth superior with delivered platforms multiple delivering design analysis AI-driven design markets. analysis

are years, methodically And acquire Over portfolio. unlocking now to thereby analysis, definitive it system signing analysis dollar opportunity. with the the out TAM past a our X CAE agreement to we have extending multibillion built structural of BETA the

BETA in Motors, as CAE's General customers Renault solutions a leading particularly footprint Stellantis, automotive including Lockheed aerospace and and strong at such verticals, have the Martin.

to delivering Our successful program, is access in tremendous realized performance fidelity groups and Millennium for scalability ramping high up which automaker after a its nicely. a deployment benefits. of QX, simulation production it Supercomputing phenomenal expanded multiple leading early performance Millennium In platform,

customers, momentum first Clarity up customers to XXx product and time. mobile enabling chip in and leading a Xx over System well to Asian XD and gain. Allegro realize simulation improvement to and And thermal development its uncover PCB than Celsius Intelligence Studios company early insight productivity while Samsung use Optimality Explorer XD engine is the automated AI to now technology precise to fully rapid packages Allegro attaining improvement. XXX is productivity X.XD XXx obtaining deployed significant AI, at design more and XX% X a design used continued industry's analysis X Solver for design

part design hardware-accelerated flow. demand the verification our of continue with complexities propel Ever and software functional must-have increasing customer in of to products system verification the a now the up bring verification

On wins, leading a year, the semiconductor record hardware networking to some at while proliferate company our and at of automotive at customers products continue including supplier. existing a a notable major also gaining heels competitive

for over was hardware XX% and strength during quarter platforms. orders the seen particular of the the with at broad-based both Demand included hyperscalers

design time. Data Silicon Verisium reduction to getting leverages Verisium that workloads, optimize accelerating Our automatically and boost said up to verification customer accelerate Qualcomm of Big stim to saw increase AI analysis CadenceLIVE a bugs platform coverage they in workload run while cause that adoption. and At root verification AI XXx total coverage use Valley,

which fast solid strong Gen and growth digital We digital flow and intelligently the Delivering a at design. on It's solutions customers over have productivity advanced had process tapeouts. flows benefits. at foundries. nodes. had well our leverages automatic deployed most of X-nanometer Our another best-in-class flow in XXX full multiple XX integral nodes full optimize digital to as the manner fully now proliferate to business at as Cadence hyperscalers, in over customers, new design digital quarter at as IC PPA below flow for been part well has AI in the our and becoming Cerebrus, [indiscernible] used marquee continued

semi ] ramble top delivering new custom in this business, first automation XX have its release continued In and migrated and AI-powered Studio, layout of strongly, XX to [ year. Virtuoso optimization IC the

offered and Our from IP multi business continued architecture. by opportunities AI to chiplet-based market benefit

interface cases, AI in HBM, We and that nodes. strong to edge DDR, especially IPs leading PCIe seeing momentum are use are essential UCIe at

In partnered QX, Intel leading and Intel foundry provide multiple to we solutions software advanced with at design IP nodes.

we ] NX [ top ecosystem, HiFi our SoC of one extended reached major XXX in Our software the and the milestone Tensilica standard Xtensa facto in the partners a infotainment entertainment. hyperscalers business with And for controller. our silicon with its of custom partnership automotive design home de

for our Piling In massive momentum chip potential automation the and of realize system offer results AI-driven these QX help pleased and complexity customers business. with and our computational continuing of to the benefits. I'm software summary, design opportunities tremendous our

addition In Great Work business XXXX's culture by of and thrilled For, Cadence our was proud XXX our Work results, ranking as to Best named inclusive Fortune to the that Place to I Companies and high-performance #X. of am strong one

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

John Wall

results to strong quarter Thanks, am Cadence that Anirudh, first and of pleased XXXX. good afternoon, delivered everyone. report the for I

bookings QX, $X good quarter some second QX strong impressive product new achieved sets backlog half A of for to the growth we a were billion. approximately record and launches, coupled up of with record us First year, for start in XXXX. momentum the

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

debt of repurchase flow shares end QX. million. turning principal billion outstanding flow. Next, Operating Cash XX cash we million. ], While $XXX was $XXX were balance Cadence used the quarter was to $X.XXX days, the to million value sheet balance at and was $XXX DSOs in [ cash and

Before I some outlook, in provide that I'd updated like to our are assumptions outlook. our embedded share

our the works the the team weigh revenue of to as to more recent towards half hardware XXXX we inventory in systems, of hardware the launch Given expect of shape new our new second build system.

CAE exist today outlook of and usual impact regulations year. it not our export remainder updated the that pending the for BETA contains remain similar does assumption of acquisition, include that Our the control the substantially

$X.XX. Non-GAAP GAAP EPS the in billion to for of the in in EPS margin of $X.XX $X.XX. is to range XXXX to $X.XX $X.XX the GAAP of XX%. Our range updated range XX% to of margin of in operating the range to in revenue outlook XX% fiscal range billion. the $X.XX operating XX%. Non-GAAP

GAAP with billion. $X.XX expect system With operating to Operating the cash usual, our on GAAP $X.XX lead their $X.XX. to of thanking our website, the repurchase well $X.XX, in continued XX% close cash document Cadence in we $X.XX of to as to XX.X%, employees to to is to XX.X% range our Investor track range as like non-GAAP we of our flow for in design margin GAAP I'd Cadence and as on strong support. revenue for mind, non-GAAP EPS that innovation we And of summary, strategy. by annual $X.XX reconciliations. In use outlook customers, additional in billion billion. expect the includes least XX.X% to in our for intelligent shares. the Relations CFO to $X.XX our in to to a and EPS QX, analysis flow continues for as we of range of range range non-GAAP XX.X%. execute at partners free $X.XX in to the XXXX items a operating range billion the commentary and published further margin And of which

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

Operator

comes Joe of [Operator first the from Vruwink line Instructions] question Your Baird. with

Joseph Vruwink

in terms maybe the start it. for Can good before it perhaps Maybe you And way assumption just outlook where year. frame today around of your this half with just versus to a to second provide maybe recalibrating stands quarter schedules. delivery your

I products. second think a come you but in range, the to more landing upfront revenue to can still the right year's going of the Is going in that up past, share was right you range, is see it this the if obviously is gave end that from half.

fits expectation a quarter Or that kind so original to And skewed guess, is have I relative [ ago? ] how views? to the what that, might your of been

John Wall

Joe. It's XXX% a question, year, But a backlog lot had But at hardware dedicated deliver recall year. XXXX. the look there. of in hardware QX that hit of this And production I hardware on quarter-over-quarter upfront in large and last that we to the think the when driving main I you've QX we you of orders, a great trends revenue point

total QX year, a this this QX result, for QX 'XX our of revenue. is revenue it's from sources. only upfront was XXXX, revenue in But As upfront XX% in revenue the QX of contrast, XX% coming from

think, and XX% and upfront XX%, time contrast same time what year. year to But last a But be around again expect was recurring that last this where I in as there probably of, last upfront were that but year we to revenue say, still That's and of revenue for we quarter. front we and last mean, was, thought expectation last our this quarter, the midpoint on midpoint will reflect up still this XX.X% is thought revenue revenue. with the we year I XX.X% for XX%

last year, This And our to million be was upfront. revenue $XXX we're to roughly expecting upfront. terms on it, of put million $XXX year, dollar

year. in versus year, half last the backlog, XXX at we're had hardware first in end. result half backlog in so with record second half we XXX shipments revenue that year, we of all deliver. the last bookings and the XXX year, ending and half. XXX the half first that prioritized substantial last The record skewed QX. scaling the We've the largely and IP as second But because the back falls towards looks of revenue our numbers XXX, in This in more XXX those first had I upfront of like XXX first to it got and quarter had that's A a we know up lot a that half into

the expect new demand to new hardware will also, be to hardware them chime heard, weighted those systems, to last to now And what ramp revenue systems on and launched we I'll here in second these deliver hardware expected a up let demand. so of and on be production that half systems, popular, but technical we'll of able aspects we be more to shift we've hardware week lot new but Anirudh because based have the to is

revenue upfront of second to half. So the it shifts the some

driving is about to ZX? of the a So I upfront Anirudh, you think talk lot skewed revenue metrics. want really do

Anirudh Devgan

Yes, absolutely.

very we the new launched. we of are systems proud So

in And ZX we know, emulations are you As time a launched was last hardware-based in we them leader with XX. XXXX.

was then was that ZX a XX ZX XX and XXXX, X-year 'XX. So was like cycle,

So major It's major, but a refresh. I'm particularly years. X developed we it in only about product, also game-changing was have what is pleased a

a in NVIDIA at Jensen their also silicon week about to significant we their the a system So CadenceLIVE it's Blackwell, and companies like last and new by our design have chips. they XXXX, latest design conference, And capacity. major in it's of used and And use terms companies refresh. even to ZX all chip how leap talked

is is truly about this ZX, ZX big is Xx like is capacity XX what than higher ZX a leap But exciting Xx, much it's more and a performance.

able internally reason TSMC it in to X do. do node. up of the versus several sets years years design be use world's in our So can chips, we largest it that's to us Cadence thing The nicely So generations for the right design years the for several next okay? is we to X the own advanced

using we're AI latest tools all the our So or latest tools.

own We overall very our are IP. new for can really our using There's capabilities a sets using process, verification hardware systems. that of up design on our we verification the all validation flow but good accelerate

the build them a then X naturally there is result, the last systems is and a have system, quarters. will go Now we to the the right twice as in normally, X period went and thing transition XX that a when that customers you through for already or new and to next the new But term. years we over do business long

to and the good accelerate getting bigger because the emulation bigger, these you for later. are It's and chips give So stats can I right? more demand getting and bigger, is AI bigger

we next the get well to felt and ready important So this accelerate to for several years, of we AI it was development that next-generation system for wave coming are the positioned. very

it some well impact the but worth As a in well have run. result, it does on long that's quarter-to-quarter,

Joseph Vruwink

That's all very helpful.

but you of, you renewals. Second approach frequency spoke engaging customers just change with of AI to how of ask wanted they some how question, also to things the the I start

becomes the So generation better a [indiscernible] of has customers listen just how ML reused, about each X that then, improved feedback. to they're new incorporating cycle. first there can last product not AI, talk generating the down course, brought be you velocity now to week but platforms you're run I years, X-year When up prior to next your models we're from if

about renewal start seem average in itself would stickiness, products. Does flow ends would deploying rate the to of but bigger, like AI that traditionally broadly see and it an incentive mean backlog? So a to much the that it customer be run would a becoming there we'll up than new more just maybe only creates deploy not think

Anirudh Devgan

Yes, observation. that's the correct

we before, As have you AI of lot benefit to lot our know, impact what has of said Cadence, a a profound to customers.

all be main X the of AMD all areas. fortunate hyperscalers whether there companies. NVDIA are and the working are is it's to or AI we with build-out AI So or One leading the the infrastructure,

first bigger chips, be chips. and to because big part, that so systems as So in bigger [indiscernible], thing need and they is that's the design in And bigger bigger they part. AI the

So have and new systems. support more The the to have the tools hardware platform be that's why that efficient. to

applying several Now week, had the mentioned portfolio, Qualcomm, that like which you results products, own portfolio. last And to including about AI second is part with And I of the Broadcom, customers AI significant. our success Intel, like Intel, is Cadence.AI we Juniper, Arm. are talking mentioned, the

work. of kind these So of whether no trial things we a longer will are in phase

Now Like we're improvements. MediaTek getting power X% we significant got mentioned, pretty like improvement.

the companies XX% X% hyperscale to of One power improvement. got

significant numbers. These are

the a I to we Xx. leading AI like up AI is basis it deployment think of is on our run And portfolio. XX-month mentioned rate trailing So

And think Okay. over last well history process EDA design was I of automated. already automating years. a design XX has the

the in somewhat you process need AI to unique a So apply because to automated position be is base AI.

well So we level automation. you take can to already automated, were the and of AI next now

the third reality which with to that's data which second is of markets about AI part product. applying our So announced new And are to Millennium, I'm digital ramp is little center we the Those AI. of X of open impact is up, the little like of own pretty then pleased part things AI, kind they with or take up, like that but biology. or design, acceleration which proliferation that longer these have systems we a -- a designing

AI AI The AI. first and being and to chips own direct our of being applications systems; third, second, products; design applying of new

Operator

Your Shi come with of Needham from next Charles & will line Company. question the

Yu Shi

rest mentioned transition factor. maybe what's that it QX? in for standpoint, wonder pretty to that's to light. understand But graphical going just QX. on outlook the part you reason specifically gen the wanted second the ask just you're the I of year I about weighing that's revenue China third gen whether looks that's the I China QX, another and for from of now, hardware right to your

John Wall

great that's a charles, observation.

QX about for recall this functional If year, a strong talking were China verification time last for and very you revenue. upfront we for

those are to is when XX%, often deliveries. think at upfront But at X functional things XXX% comps down lower of XX% revenue compared production those dedicated year, the we tough with you XX% is this I linked. lapping really verification, course, China contracted is and to

half, activity. percentage percentage the with Asia when China revenue line other products have functional is China in goes revenue do of to blessed across really we quarter quarter. the mobile base it we And consumption on we revenue lead But hardware, lower lower and you down, have diversification. to as we're much is have increase. while upfront XX%, at seeing What we strong increasing to the percentage our And customer the where a But the that used. are coming diversification the lower that in we're think dropped look I design upfront second good China and geographical our China China, geographical we'd based pretty see business. could expect mix of verification, would while in generally revenue is more is a lower that we

Yu Shi

an larger, you are adopting larger they ASP versus a of uplift ZX can great question customers lot more ramp from a ask chips Xx much demand about think the third-generation more more that the hardware. of of to another ZX a XX? deal increase to want is the XX importantly, that ZX with the replacement much the XX? or XX about expect your expecting transistors. with the of customers replacing lot you I And nature XX your How upcoming ZX Xx What the ZX design Is capacity I mentioned demand. exactly like

Anirudh Devgan

all good Yes, Charles, observation.

to one try that one. me let So answer by

can has one terms more of mean if it in like more. your point, I last do system has, normally, capacity this So the

gives produces to it more value -- our So it customers.

value to are get we able back. So more

typically, way So that customer. systems better newer for better and us the are for

to give And are these things an Okay. example, you pretty complicated.

let's for So example. take ZX,

XX ships XXX of [ up rack designed TSMC racks the then ] And we one we itself, to like together. ZX makes. And can that TSMC connect is of one than chip and will So more ourselves. like these this have biggest this chips advanced

full if connected you and are -- you have interconnect. do liquid these optical emulating chips [ radical that, InfiniBand ] thousands and So cooled, that's by all of

So is this is what And like very, can do systems, emulate large supercomputer. just a truly very efficient. very, multi-rack very it a

which now last Blackwell, racks now can even week, biggest chip transistors world bigger on with ZX Xx So talked world, are of of ZX, ZX, the is So emulated okay? billion chips fewer than the in the it even XXX like in was already like which we Blackwell, with is NVIDIA XX biggest like about chips, which right? rack the right emulate

a of a full a keep gives Blackwell, the chip our AI, radical that key the just because of runway for on they lot the to is have needs not with package. that ship, So up, look going customers thing X chips capacity single at a

chips will a So as package also for chips and just chips. of node, know, you stacking XD more you a big those single not more, on in and multiple see but workload this

for the AMD, what just NVIDIA hyperscaler good is super with I in happening, this I and puts think partners this all AI, us this our feel also that is allows that boom not large but critical a is AI okay? this So what emulating which not all just very So multiple chip okay? companies, position is but like single for a chips,

systems be more that the being primary so will are much then capacity apart capabilities hardware, is okay? prototyping, for performance. big in will And for workload the go emulation software of features helps XX these mobile in on power for from that And that And chips FPGA. better low with which market. used unique more There require size we the demand capacity have analog some as then new

on is this over last in new XX years. capability emulation emulation, the especially a about with So X-state working we talked Samsung us, which

now wins, combination now. but world of of ships the the So in a combination a also lead of AI it's years to in processing continuing and for are new it's biggest which terms customers, from competitive required

that. get few as chips, ZX going bigger I that is next And to size the we know, set up years. is only in already you for think XX feel of the these

Operator

Your with come next line of Stanley. the question Lee will from Morgan Simpson

Lee Simpson

to to last said -- Arm It wanted did EDA as just around your an that back you your ARM total saying of what seem I with around were though And element design. you partnership could. there if of the work I using indeed, custom collaborating quite Neoverse. pulled a continues development you're verification. it's accelerate developing, lot SoC lot It to as to of wondered a in around or how work that exclusivity looks Great. was quite though partnership go quarter, functional was if of pull in

some guess third development as we're at and we sets I some aside in AI perhaps guess, I or in is for and rack And to look business. means the leaving not now And of hyperscalers, Arm's or development PCs that Protium, work generation in but seeing whether design, Palladium tool there, of pull that that is not scale beyond? likely just half second total out pulling

Anirudh Devgan

Arm and very customers, you Yes. customers. Cadence with partnership our Arm to the Thank a mean for are proud have joint question. strong with we and I

mobile Automotive do continues talked you in know partnership which, see, is to course, . kind also and to end markets. yes, but in well partnership what last new server I HPC already, our over because strong think I now say. we Arm getting it's of HARMAN and this talked about quarter, of to with had interesting total have years, about a we And I think compute. better. And like XX on the our partnership better we Also, very but automotive would this

partnership and doing order with subsystems other Digital and development, the higher pleased that are also Innovus platforms also are verification verification and requires Cadence that in they tools. hardware with partnership, more Flow with we and and and terms of end, more back So

Lee Simpson

activity seen late, quite IP from quick a follow-up. bit just Invecas. acquisition including the a of House of Maybe of Great. yourselves M&A We've

Rambus of deal speculation the transformative had been about lot you've being done. There's BETA emulation the you car. we a possibility now I space for? computer-aided mic would yourself, guess, the in sort acquired quite bought, the You've here, the a we business could look of market of a in get the for what Cadence sense a from given maybe be can thing that like that have on if

value you've ambitions being Or relevant several you the Would that emerging? Could are verticals to across a waterfront, high be silicon-to-systems industrial Cadence vertical let's would the a sort contiguous more something would in it a more spans business say, automotive? opportunities the for what given of look addressed, maybe that that in have already software that space. be

Anirudh Devgan

a there okay? you for are people get the normally times, thank that reports like the creative and question. and these of lot strategy changed, don't on I our to of these strategy XXXX. Well, But And would reports, hasn't lot a is say on comment what reporting. we very It's same from

of I what And IP we now that is all, you time, But EDA IP. is from are which know that core launched our want even and last to make is is sure and different First business, more this to valuable I the systems. yes, thing to much XXXX mentioned to super silicon on I EDA in it's focused whole one initiative systems what critical, is industry. that and

more focus much core become first our So has valuable itself business. in AI, business core okay? because is our Our of

in leading are our we business. So core

We like Along in now. the tuck-in that's the first I with say, organic say portfolio. what past. we opportunistic okay? like our M&A to on that, that way forward always And like. you is would That's is best development, M&A, usually, is adds focus to we which Our mentioned, have the done, some

It helped in us analysis. system

lot course, with foundry is, we HBM in in it a QX. Rambus this And of of our a technology I'm talked AI year. We partnership which IP IP Also, critical seeing Intel because optimistic and new assets, this about and growth very are IP also acquired did about HBM we we growth in year. in are HBM

we of John business, thing. saying that -- booked second towards half the will that's the as it's have deliveries year, happen the so earlier was Now

a it good some of us, are take that time. terms very It's that that, also and size for technology. in acquisition BETA, is because made Now it right we the will finishing on integrating sense and focused

M&A. in focus primary terms our of that's So

in footprint automotive good And technology. very aerospace it's a and They verticals. very a good have

'XX, tuck-in clarify, the well So same software very working synergistic as that's computational doing with from have as mostly just strategy organic primarily to we and acquisitions.

Operator

Your from next the Roy of Ruben with Stifel. question comes line

Ruben Roy

you mentioned that Anirudh, on the follow-up XX, of across about, would attach the to you of systems you're that latency rate ZX InfiniBand multiple I One ZX, especially network up thinking XX% both if up. go had imagine low ZX had the And you as that commentary the about had. things talk XX And a I of would to you continue with racks I was systems these ZX if expect on across your XX? do these you design think point you be which, both higher a And if comment to that and many systems? the to sort move development that new big attached InfiniBand days are attach have designing continue that so, chips, incorporate for for selling Do rates the in can customers the software of cases, process. to

Anirudh Devgan

absolutely. Yes,

which front okay, design, then forgot, for we call in, I bring what this is we FPGA okay? Duo think custom and and think Dynamic started I Duo this Dynamic Protium, I chip up, verification is and 'XX, is with a -- for which we Palladium, is Protium for the best-in-class best-in-class or 'XX, and common use I 'XX have RTL processor end. software Palladium because So and for

approach, So as embracing this development fully software as and the they And do our are these both chip the years, right over has systems invariably become a development. result, okay? customers both

the stack, I NVIDIA. They software have our perfect no development is, doing I development. mean all for that's partner, just example massive a true NVIDIA is course, and hyperscalers. longer chip mean long-term of

to our we And So question, architecture. because trend NVIDIA's do that is InfiniBand use products in unique is a now ZX systems which like very ZX we see your on continuing.

very, high-speed requires interconnect. very So it

So almost supercomputer. a it's like

requires XX XX. But on using are does it latest capacity as AMD but It We're the speed. in InfiniBand then versus which using side require great than FPGAs, Xx and ZX is software tight the is system, fabulous, p So So all are FPGAs. interconnect ZX, AMD XX InfiniBand a and too. it of innovation kinds well. higher used optical we has not in that more

And given we're are also then demand said forward. are these it very the palladium very than a hardware and of that of pleased, much both systems earlier, track are we expected, we I So to leadership like both seeing together for platforms, refresh record, pleased. confident true have Protium. in market we our able we going and these lot sooner I'm that

Ruben Roy

helpful. mentioned terms and on follow-up business you're for of shipping That's booked how about kind the general half any bigger was sales? HBM in if be then in ramps sort ramping Anirudh can to there update IP we second of Is in than of sort the of entire half. bookings half, relative at heavier segment IP IP picture second weight Or wondering it a I a helpful. half? think John. us a And viewing give second sort first of update of those a should you would

John Wall

our remains Ruben. were performance bookings strong Thanks, for and ahead business. IP for on QX the Yes. I of there expectations for IP XXXX and mean very everything a growth track year

have quarter we in half. a strong some had Of timing the to recognition this scale head the tremendous course, deliveries deliveries. to we're with of bookings prepare to the preparing of IP pleased backlog on orders. but But larger a of We're the year scale need timing for and number deliver a we very QX, IP But year. we expect to of count overall in second of revenue business some the on depends up the to momentum,

Anirudh Devgan

to I thing want highlight. One Yes.

] seen in Intel you just may want think I I highlight concluded with to was QX. partnership have that [ and our this. IFS

investing and really and so closely business with good IND foundry in the more us. Intel also And it's to more working see

to also -- the Intel And process, the people, that okay? we John hire to need time. that's our do So key some we like takes put the to have to But said, IP. a portfolio contributor

more next the will and the towards But end come partnership Okay. IP on are pleased So that of that's year. year we new with

Operator

from with Your next of Vleeschhouwer the line Securities. Griffin question Jay comes

Jay Vleeschhouwer

John, Anirudh. first and

terms conversation business John, what of of EDA. you're thinking talk might given market expansion that expecting better as This in follow-up of my capacity customary new substantially contract to for an you you're what back have EDA And are about past? you relatedly, than could in about pricing that then renewals this or Maybe seeing for So generally dynamics, or the for in in phenomenon seeing recent schedule? had, business. thinking pricing how has ongoing comment intra kind Anirudh. we is a EDA or then had measure beyond a you years And year, health

John Wall

our we Yes, is Great think at Jay. what getting see And recurring Thanks, question. Sure. the you're there what we past have I of business. AI revenue I a the renewal think add-ons. at seeing in Typically, are business, I the would part maybe But back and teens. growth. call predictable that as very of software have purchasing not revenue frequently. few years, that's double-digit we're over think that customers been tools at add-ons low But you'll coming number we're adopted

tools focused now, we're proliferating right on AI those account. into But

an increase there's is pricing I time. not now there, the right opportunity maybe but think to

something we'll year. we of AI to on of have now, accounts. in on And second tools that? the scale do the focus future focus We think certainly to there, anything on right momentum Anirudh, for we But on upfront second can proliferating into is add is intently preparing you have I strong in to technology half business. growth have such We're the our pricing half plenty proliferation. revenue revenue years. but continue the more into and the focus can

Anirudh Devgan

No.

Jay Vleeschhouwer

It's so your course, to track. what Intel AI conference Cerebrus, end Renesas, Okay. on one week, heavy Gen presentations Anirudh, of thinking back focus longest makes be sense. seemed particularly the interesting, was hear the last adoption a to and place forth. is which But by It the taking market. to

not verification, there amenable for to We about might lot the design brands for but And about are other perhaps, talk implementation, curve the critical the example. how lot from aside parts adoption as analog, flow being of you're hear don't synthesis, Cerebrus? be So enablement. applicable AI necessarily to a a you that any thinking AI hear about about could we

of more perhaps conventional technology. it it talk or makes remain maybe a about those knows lot less So where where sense and will areas

Anirudh Devgan

question. for Yes. Thanks, the Jay,

a So is more as other well, you Cerebrus the that also know, ones and we doing has have and well, X But commented you than too. major on doing AI like are platforms improvement. of lot with noted, Cerebrus out we and digital quite PPA tapeouts, one XXX all implementation the longest been being the

like Sometimes talk we you well. week task And don't products, doing verification, about others, last have bigger, I Qualcomm know, get because gets exponentially but because verification, exponential bigger. many the talked is as problem like like mentioned results as chips the we too quite an Verisium about enough verification is the pretty impressive

can of in significant benefit AI the So verification. be

you I packaging the to that years as okay? in implementation that and area benefits few be because in next think and will So of the of I like would AI, PCB automation. is see quarters other important as And that leading Allegro week and will verification terms about then is highlight Allegro XXx but proud packaging and to PCB. we in X area hasn't a last much Xx several really for PCB, about of X that including seen And using Intel talked talked AI customers, platform improvement And Allegro AI.

mean, Allegro apart is haven't and think the PCB then and is like well, not done and next more generation. design ones, X that design digital, verification are I from optimization areas the So I feel, in as I

do promise. models this a of think provide LLM-based lot I there, And

like going and verification. done as in the So the part And design RTL. this historically, That's truly right, digital haven't you generation, process. once to design RTL, almost have spec of pre-RTL, much more from we it's is part then creative optimization

but pretty we XX-page a X we this customers haven't RTL in good. document see where from and initial the but but automatically in with took we think have I generate English stages, it work So able X And which still but to document, some work it, okay? which see, XX, spec we like RTL a or with quality to is I But we have talked early -- last that's think mentioned we to week. results,

to So LLM again, requires see but that goes, how capabilities. these advanced we have that really

another that's something very be AI. be could of seen. kind if to So interesting that that Gen works But well, application of kind of

Operator

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

Gary Mobley

entity you're dilutive China John, quarter China fiscal as or to you to on year. U.S. Could or certain that fact And the that a whether I tough be the starting all around year-ago in work to to verification I be growth whether down the company revenue you around was comp expect appreciate that against the overall do function controls a begin your to gate to China business side the on first customers of see there, impact assume still hardware speak you list. ability not restrictions in backlog. export to added

John Wall

year. revenue just to for think to And China this be the flat I Gary, I question. last I thanks said quarter, expected clarify, down to

China. we there lot was that think a -- of was and strong that's had because oversized that. there was kind last I year, hardware still such an that And delivered expect catch-up a we of portion was of to that year

So I the number year. higher last think it skewed China

lapping remains So tough in very pretty we're comps. China strong, Design activity though.

risk we in to other we're in XXXX There's as of comfortable there and China our impact can the outlook world. geopolitical strength all derisk guide. with have lot factored try of can as a the that to of very in and much best we diversification. the parts we We the

Gary Mobley

ask I bookings want to balance of about the Okay. trends The year. for follow-up, the

balance to the the expect balance would bookings for of highlighted booking QX better of seasonal You into ZX extent factor And what and trends. than play the to year? obviously will XX the out year? you that How the for

John Wall

mean expect I it's preparing -- year don't see another the to I I least that predict taking and expect up and we XX need we growth the definitely second another Yes. to we're hardware revenue that terms like hardware, in in but we see strong quarter hard scale into demand the hardware for And summer. on ZX quarter of at the the demand. we into of half until need to side, expect I pipeline normally, for strong with the that.

hardware on So for the we're systems as quickly basically we're side, But conservative trying yes, as to build be preparing generally, those there. possible. We'll scale.

We expect demand strong there.

Operator

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

Jason Celino

QX? how I the R&D in your in team. does XX, can all that Andrew, while right? when the And orders guess ZX Maybe they customers congrats to available [indiscernible] it become of too, designing Impressed that? start many -- putting cycle the for there, first, for box, reduced just

Anirudh Devgan

Yes.

it will we early But First have of now, yes, QX. already they become ramp And several available QX And running and at all, then customers. them thanks. okay?

overlap. know, announce months X as and they there our of because we X-month more something, will of is already you stable. general, partners, any then very mean X- normally system, in like QX -- to like been running a be of kind and But So one I in QX it terms when in for lead have normally, and

sell will ZX we XX and still ZX So XX. to then move

also ramp. . will So be then little and variation bigger that's that to contributing QX bit, quarter-by-quarter that's a but be should than QX bigger natural will And a it part. this And

John Wall

but cloud, them time, us Yes, assumption it's into to try strong that on-prem, want a get when demand over we opportunity and use to deliver of take derisk when for whereas To we you the with older capacity, that, the But they because the though, it extent share that upfront with I will a guide there's lot will we newer haven't it systems put give we ratable be the the of emulation the to cloud capacity have because used in [ use to large revenue our going to cloud systems. underserved revenue Yes. we do we offering. think had some revenue, the community our through ] lead to that the

Anirudh Devgan

X But . ramp. to to it the demand X takes quarters like

Jason Celino

that trying a not for do it it is Okay. function like air think is both. waiting of pocket, the the It I in a customers sound be clear buy this X-month about might I think was for want selling were next QX where kind a when to trying of Or what think going you period function and you'll I to XXXX, had ZX older inventory ask time that's Because like XX. ZX I last you're And to of Because doesn't you is they XX? again. version? to

John Wall

half the the Well, side. on But will that. it them But side that anticipated to wait. second wait, by some of the sell hardware extent we've derisk we the guide guide the intend year. we've to assumption the shift customers revenue might into -- customers many And

we're and but then expect change new To we profile the strength So it. the the to that new of into lot that shape system, system will extent the the as selling guide. putting those the trigger will customers cloud, that's for Well, But a of within revenue. not this buy outright of this well. continue of those ZX, the demand

Operator

the line question of Vivek of Arya America comes next Bank from with Your Securities.

Vivek Arya

see I all growth the I hardware. within it lot be will Do you a done? think you this hardware mentioned second half Will by be of more will think driven year? you benefit refresh grow the last it about exclude bigger is business guess my and really from benefit into XX%. year recurring Will the 'XX. question is year, continue that this upfront if your expected to I

we And expecting I'm is refreshes business? revenue along hardware curious, you Anirudh, kind part your be periodic core not the recurring -- or forward, going that growth interpret with right of of is expecting recurring that should your with are way to the or line right in

Anirudh Devgan

Very we IFS. first like in nonrecurring, and all, half it's Intel driven IP but not second by mentioned, business in we good just terms by because it's IP question. hardware, of of also have also new the

with along we loaded X back-end a hardware. And launch then takes new also normally, it it hardware is or hardware, that So when for fully. to system, years X

next X-month we though only a year, about not if are commenting be even surprised I'd So time, it's this impact.

be is used things X these built in years. design X, like I expect next for So to for

to be terms there basis way the we recurring revenue this And also in CAGR at like in could said growth and of a because but all. be fluctuation we following is think overall, go So not And X-year years. look impact revenue, some are just there. recurring year will the and from have I with the pleased we best

John Wall

was of think, -- Vivek, software renewals But guide about quarter software take been he if I'd XX%. the I the profile Gary's to about now the that half for the And digits, kind the quarter our think addressed right weighting recurring for half past, be asking like lightest think to some in we renewals, the this could, bookings I it's XX%. in we year. of last XX-XX double I above don't And QX But second year. Yes. year. explained I that the is for expect carry earlier in first is the to question about revenue I about ] of [ bookings because

Now what risks try huge to XX%. we will we're that derisk of a guide. guide the through, we to is the be but see. To do really that the that, the it to we not for number upside above do when add-ons, can anticipating extent grow that But comes

Vivek Arya

Okay.

this question of follow-up mix you EBIT is Do incremental incremental margin. the hardware on margin. For my EBIT greater impacting think

last below about, I is I the guidance you calculate correctly, the right, that which that? still if years. new can the or X interpretation? incremental, what Is XX% what X, than have right think it And had right the is lower change

John Wall

I you're that row that referring achieve think achieve incremental every year, margins. in to years Vivek, pride of to a matter for we've what trying X It's achieving we'll We what, really that, but now, Yes, is a XX% I to mean, here, certainly we think been year. this try over be

about you in I XX% right high think probably this look XXs. It's guide when now. at we're the

BETA that Simpson, on of know, [indiscernible] which apparently but small I then delicious CAE the here. focus tuck-in M&A some do But the challenges in driven do Cadence, gold is course, we I the innovation and and we At with M&A. extent with M&A, growing you but we tuck-in small is organic with organically structural products simulation. standard we to larger and to one something have that want Lee think like over don't is of biggest go

for So acquisition big that's a us.

small the I those qualifies term, to short the now all in you the becomes haven't be long small given So later. in year. a that, think headwind When but we challenge, beneficial But something do when then M&As with incremental we do incremental short a and like It's still But size year in margin can accretive overcome that best as we'll that our will dilutive calculation that in That's be But the M&A I typically XX% first headwinds that this do on for tuck-in up they transactions our probably incremental we this. headwind. But are much the margin margin. to term, these of M&A term. tuck-in. look to at a because normally, achieve try pretty

Operator

the from come will JPMorgan. Harlan question line final Your with Sur of

Harlan Sur

After a and relatively to year strong X% is X% flattish starting XXXX the sequentially. about down

SDA, expected like expect Is do BETA I an starting full also do CAE, the point feels but SDA be overall SDA or articulated. it's think grow target guys have all you drivers of given faster your more to growth loaded? especially it SDA, you half for the unusual line year? in corporate is than this you second to expect ex for And

John Wall

something That's things Harlan. on know going that highlighting there's question. list that my great say, thanks think rounding to And because I Yes, with a for of on I comps that's lapping the to QX-over-QX. QX had funny on SDA kind growth rate 'XX. tough the you over growth high when is of I QX actual apply probably the for rates QX, against single digits for

up higher than and think our I again X-year if annum CAGR look XX% A will we're X-year SDA CAGR it's be Cadence expecting year, growth strong you per a basis, SDA. it But this average. think I on for a That's on the expectation. basis about

Harlan Sur

flagship [ Great. Blackwell by But we hyperscale cloud your Anirudh the announcements your announcements in like accelerated by market TPU to new custom we've announcement Arm-based of be their even ASIC; chips their to their TPU with classes customers own GPU accelerating. customers AI CPU with just even few big SoC the bringing as of that, And Meta X then, unveiled one saw seem actually ASIC to AI AI Google lots weeks past where ] seen over more VX, compute and maps NVIDA. of And addition with road their well. Google Gen

customers? forward? mean systems customers give activity you that the And from I level an within customer sort roughly design these is seeing going this can are your So above mix the of us accelerating on update rising XX% base? hyperscale you and contribution

Anirudh Devgan

is Yes, Google, Amazon. think a announcements the AI. of AI observation. these just that's public good Meta system big the is including, several but innovation that semi And And designing Meta pace did now companies, like right, is in and a increasing And very come lot of Microsoft, in course, silicon course, for think not I companies. I out, of Harlan, of

companies, had So along other NVIDIA, Samsung really AI kind this hyperscaler year. all the with the Qualcomm, big, all AMD, phone of

media XX,XXX train GPUs I they're to hyperscaler talked So at I lot there, glad of there on the amount. system new the we side both with do all is our about -- will I the think immense think And years mean, to provide that if big chain and there the you I like now, scale. for X, years right, players a and thesis some of for supply involved do is reasons And enough is is have semi the are about schedule X and think for of like talking a lot of if the workload models. of AI, solutions. benefits, cost companies, these look major the using and this and system on mean other acceleration I silicon side. social this we companies control we're customization, for XX,XXX, And because

And much, inference the increased, the then could to these size these right and now. number much and so that to on required course, train do models the higher models model to a of models. is of that go number than of

of semi the and innings working same are we early think own terms time, companies. developing in I the with the So chips at still system companies their in

the thing expect also business. doing lot is I like But the growing the a doing and say than system would semi grow faster is silicon, So of good guys that that those our average. with I to to companies business are Cadence

But semi So they overall, the than the a big are of XX% company. -- hyperscalers, AI I don't and of know will lot a doing because lot that that's companies. so if a combination are more

Operator

remarks. it I'll for over to Devgan now Anirudh back turn closing

Anirudh Devgan

the opportunities behalf confidence thank customers, Cadence for us and our and us positions exciting to product portfolio we It's an trust and all in for investors for our continued as and joining Directors, Board growing this And you partners highly our Cadence. the Thank employees our of on broad afternoon. their maximize and in semiconductor of time industry. leadership systems

Operator

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

Cadence Design Systems (CDNS) 22 Apr 242024 Q1 Earnings call transcript