CDNS - Earnings call transcript Q2 2024 | Cadence Design Systems, Inc.

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Operator

Good afternoon. My name is Briana, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Second 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 Second I'd Call. everyone XXXX Conference of like to I'm Anirudh and including forward-looking today copy on John business webcast joined our by future this our of Wall, Officer; Chief of operating discussion will and Senior outlook and today's Executive website, prepared on Vice be and cadence.com. Today's statements, President call Chief remarks Officer. The Devgan, Financial results. a President available and contain will from actual uncertainties, or results and those risks materially projected in differ to discussion. today's Due implied may

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

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

Anirudh Devgan

as revenue of our financial to the healthy you, for tailwinds for joining exceeded particularly all and us by companies tremendous strong cycle strong driving across you key Good for for the with on afternoon, outlook updated trends our chip multiple our backlog XX% updating both guidance their for increasing technologies. We automotive. verticals, a product differentiated complexity over and Along leading innovative Thank all the are Cadence our building AI expected, and momentum delivered second were and QX demand autonomous own everyone, creating system underscoring these for the driving, solutions. in data robust year our silicon, the design and center thank activity year-over-year today. details and underpinned metrics across to John growth. are more broad-based XG stronger will than Richard. year. Generational and such XXXX, quarter trends our Bookings computing, provide outlook super are with hyperscale on results portfolio. results

intelligent new We extending and our the design R&D in system Customers analysis design are their expanding core to automation. ramping footprint area. executing while in EDA, leadership system in steadily spend up steadfastly our our AI-driven strategy, are

quality momentum Our than with gain offering tripling Cadence.AI benefits the year. portfolio to unparalleled last and results orders of more continues over productivity

solutions are the Our the system semi enabling space. across build-out AI massive infrastructure and

long-standing flows photonics embedding collaboration design analog and EDA NVIDIA product our and leadership IP providing technology process, digital digital solutions. In driving were node further several QX, digital extended expanded deliver technologies. Samsung's Additionally, advanced expanded to analog through AI development of around XD-IC EDA, comprehensive its to Cadence.AI X gate and with accelerating design to our and we our increased SFII a opportunities partner, and a foundry its SDA ZI Cadence broadly deployed and optimized and next-generation advancement, Palladium with A for in the proliferation in ecosystem our node for leading of enhanced industry. migration. We ranging solidifying and biology activity through process growing is continue full innovative our TSMC's and We from AI hyperscaler partnership in collaboration with Cadence's marquee long-term optimized TSMC driving QX, map, partners. latest announced Cadence.AI that and very significant board creating our tools products. industry-leading in And all foundry portfolio. The quality hardware meaningfully road results we QX for

design. new Integrity platform XD has multi-chiplet TSMC's for fabric and several has unified analysis architectures. design, platform for like sign-up Our latest now is offerings XD-IC hierarchical all enabled integrity leading XD-IC certified the been industry's and of features

announced also assembly enabled multi-die of Integrity all chiplets. stacked integration design the that been and Samsung for offerings, of has accelerating Foundry's We

reference optimized advanced released EMIB Intel flow that foundry is Additionally, to complete Intel work a we packaging XXA seamlessly technology. with

collaborating growth the XX% IP saw HPC elements the for and advanced strong with and use business, PPA [indiscernible] and portfolio momentum gig communications demand to customers fueling latency, have seamless they're Cadence flows. for SerDes the but our to designs. We mobile process HPC, high-speed are GDDR IP industry-leading in I Network-on-a-Chip primary optimize so ensure [indiscernible] lower cases, technology executed XXX cores our with and growth foundries for of into solution. drivers applications automotive our mission-critical as heterogeneous software and and our that prototyping HBM addition with become profitable our products. We integration delivering IP QX. were minimum in UCIE system year-over-year Emulation to PCIe of effectively AI, we We targets enabling chip also manages their with to as risk. design faster and achieve their multiple expanded AI scalable customer integration strategy.

Following XX best-in-class launch the platforms, capacity these continue hyperscale automotive accordingly. and is particularly AI, robust companies, for market-leading demand to our and there and we up ramp of by production ZX systems, our

up platform, rapid Verisium, in verification adoption Verisium to time. a customer verification continued using with successfully several SIMAI for maximization our Qualcomm coverage including and workload XXx seeing market-shaping AI-driven customers, achieving reduction

momentum revenue design growth. QX, system business continued delivering analysis strong its in XX% and year-over-year Our

expansion industry-leading our and and increased adoption traction, Integrity at memory gain customers. XD-IC architectures platform large deployments from hyperscale, had consumer chiplet-based As XG,

is portfolio. with EV being as AI-enabled competitive our and hyperscalers a and in-design Allegro Allegro forged adopted and leading advantage defense, significant multiple driving the a a displacement next-generation X's customers take of platform a multiphysics partnership also multi-physics rapidly Cadence, across analysis the platform's productivity analysis driving EV design investment X of and capabilities. breadth capabilities our strategic company aerospace making auto solutions. In QX, of pull-through Our are

platform of close electrothermal electromagnets, CA CFD multiphysics the in Structural comprehensive offer now we Solutions. a With Analysis beta and QX, covering

flow months, industry, last to continues full tape-outs, XX with especially flow our the XXX wins are advanced deliver at digital on Our tool and the of continued Cadence nodes digital amazing full customers PPA delivered the IC [ to another custom Proliferation hyperscalers. With it solid over ], increasingly relying XX as and Celebros over businesses productivity in most quarter. benefits. leading AI at the close

Cadence for global [indiscernible] delivering both than achieve on latest their to at in most been example, deployed gain marquee implementation company Foundry the power XX% leakage a reduction of and around nodes. Samsung has PPA their a Cadence flow is to and now more leveraged systems default for For XX% up a gate platform. all DTC part [indiscernible] the as designs SFII advanced

doubled reducing memory temper timing while cost reduce and closure to XX% XX%. closure by [indiscernible] utilized Socionext sign-off and time by productivity

continuing of markets. portfolio, with and results of our The to Virtuoso and for orchestration, to AI the Virtuoso And and XX automation and and pleased solutions comprehensive more the disruptive features QX solution to automated automotive EDA Our X is in RF business. Studio provide I'm leading summary, AI-driven from with much us uniquely massive logos accelerated AI-driven new designs. QX, added our computing and multiple SDA process the offers by customers. In node allow analog AI momentum migration Studio era our and defense top led aerospace its co-optimization another. opportunities efficient hyperscalers, new positions

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

John Wall

results billion. beta and half first XXXX, for platform $X by acquisition QX finishing the expanded delivered the good pleased quarter everyone. to we the of Thanks, completing second our Anirudh, of report in I'm afternoon, Also, approximately of with backlog that strong multiphysics Cadence CAE.

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

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

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

updated Our remainder CAE. control similar the that today includes remain the assumption year. And outlook substantially export for the exist of it regulations that usual contains beta

good Operating in $X outlook range EPS $X.XX GAAP Non-GAAP GAAP range $X.X flow of range cash to annual the our Cadence of in in of to operating XX.X% billion, margin in $X.XX to for XX% the the margin billion Non-GAAP of $X.XX operating of approximately range we $X.XXX $X.XX. use in in the EPS shares. With Our the billion, QX, is billion to updated $X.XX. free billion. of GAAP and outlook our our billion key mind, reconciliations. In repurchase for range the the GAAP as XXXX margin range revenue XX.X% XX.X% $X.X XX.X%. to range in to of for document in and our Relations cash on of the our to metrics. of $X.XXX of operating revenue in $X.XX. And we as in to all to we the range flow range to analysis expect well half sets includes that XX.X%. expect outlook margin items operating exceeded the non-GAAP in solutions million for non-GAAP second as GAAP up $XX.X conclusion, of and XX.X%, a for EPS strong to growth QX on I'm half the the to us We which pleased the of for strong in to XX.X%, to commentary CFO first our website, finish in results. further with XXXX. financial $X.XX additional ongoing published and EPS of range $X.XX range A usual, Investor non-GAAP $X.XX demand

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

Operator

Needham Your Charles Instructions] from & first Shi [Operator question with Company. comes

Yu Shi

want Anirudh picture a and I fairly do big one. first the a -- John, to ask maybe question, question big

semiconductors, but say, -- you it's like can to a much to bigger really pricing semiconductors. on gain your beta be semiconductor actually years especially reversal me sales your broader so being a outlook thoughts of to of any that -- value a necessarily seems don't pie is piece trend how CAE, thoughts measures, lot grow So or for asking I'm wonder either would from compared kind could pick the you not X and little great. in question the the the the you would other the the but last synopsis from track year, trend you driver but some with up with if actually faster, change But is the Cadence some semiconductor [indiscernible] overall of AI capture, through of bit for did I comes did but today. let's big of global peers' when AI? semiconductors, from terms and some this you of whether provide to a know

Anirudh Devgan

overall, performing. Yes. are question. first say the Charles, I'd that of we how to are thanks like we with mean, I all, for pleased

revenue XX% because -- asked than back operating back, we a growth deliver, question, about step longer-term step XX.X% you and expect, you we If If you margin. right? will more

So one also years, then our our performing that's semi of goes to in revenue we general, last best-in-class going growth and and favorite was long-term last R&D on a see which margin combination the there pretty But margin. you which well Charles, system of more I on to be to to that both metrics, operating CAGR But are companies cycle, likely tied of encouraging semi this of spend look not kind over if R&D is year, as of the And at revenue in both think you mentioned of X And year. is that's the are revenue if more it's I customers, continue mean growth projects. our customers. you growth terms up, there R&D. these course, to they're and spend expansion. And it well spend our the than and know,

improves, instantaneous an how but we'll this that spend. is R&D So semiconductor effect not goes revenue as see on the

There's lag sometimes. some always

the semi really And revenue. -- so to in see are we improvement the encouraged spending overall but we semiconductor in

see we've would in and maintained a backlog. healthy also, I like to pretty So can you backlog say, our

phones I are have which this partnerships to more well, and great like edge you think PCs. is mean beyond overall, center, glad devices to out. So we this well. out automotive, consumer to broadening things are and know data performing AI I AI broadening is

feel good position course, provider industry our pretty So it design software. as in of essential overall, of about I and the the

Yu Shi

light maybe Got quick in quarter. pretty still it. follow-up like looks a China. the on It China second And revenue is

previously it let slightly China I you than or thinking still were China a the of the even make be recall But half China to is mid-teens -- up like than X probably still compared a growth. if less revenue little as to a revenue do you bit XX%-ish, So maybe actually going gets assume China case? Is XX%. the that less weaker me second implies a of months ago, you little thought? contribution bit think Or with reacceleration maybe the

John Wall

predict. And notoriously revenue performance to that's pleased the only say I able first the guide, hadn't overall mean hardware a very focused that The EPS non-GAAP our by hard revenue your I you half, and question, of mean, with Core question, first in in the growth. to is and to hit scale raised very continue that but to first raise strong SD&A new need to half, our well, did when bookings systems. $X.XX. regional midpoint revenue IP we and continue will the response know, we we to customers' businesses revenue we we're for to grow at strongly. businesses midpoint. really current on profitable QX -- outlook, to I of indicated Charles. Thanks you China XX% get look at had be I that

with as to look it very prudent release, guidance. but for our XX% very, the to press midpoint at We're current a of we're is when CE year only track very non-GAAP about to $XX EPS, We the Opcash that $X.XX XX% And of communicated our what excluding the Beta midpoint overall, million get an it. pleased. of But guide dilution previously lower profitability. there guide, pleased CE. revenue. at this you and beta we thought well. as guide. need of in guide, on CE that's was to is incremental impact in margin, of the China beta it's in to impact in But the our actually is for revenue We the assume result to improvement

Operator

from question Our next comes John Conti Bank. Marco Deutsche with

John Marco Conti

Yes.

you an could of unusually QX reaching would you a for? renewals about mostly that one, in first at hardware giving of is through? And you're it Or up guidance? coming midpoint to Is XX% higher great. here the talk implied bit confidence number my the there on the waiting little the So color visibility target? what growth be ramp are Any QX

John Wall

there's the lot a the mean, side. AP revenue expecting shape software the just from more I revenue it's from quarter. really timing revenue in second the comes to up extent curve mean Marco. said I of year. change no some hardware on shipments of IP the lesser half Yes, We're typically revenue the last is and SG&A real for upfront that's what we effectively for a

build With the systems. the to hardware, takes it time

on -- We deliveries. IP, also guide of have have shape is the QX revenue just that higher recognize and versus QX It's revenue the QX a in as IP We're in in result. But from timing of there's what based we QX we confident IP and now. the guide. is

John Marco Conti

Okay. Great.

on would [indiscernible]. So be my follow-up

understand and delivering if in essentially. a quarter, in have you you trying to delivering backlog the is same seeing hardware major uplift talk to actually amount little a Are booking, bit there you're all not If -- I'm the Or visibility how HX? could it? you in for is quarter about booking growth? a much different and same it why manufacturing in we're hence,

John Wall

Thanks some for there is the to systems, systems. line, in building a time the on the lead a Yes, cases, question. newer time

mean challenge have there's our do some ability mix. actually Yes, always deliver in systems. the have to past of quarter. and We the those as the those But so We demand. for than as could more with fulfill inventory getting those fast able bookings the did we We're to I inventory in we older bookings. building inventory a a have the

we've think that. dealt with of lot I a

amount biggest a of in portion for QX. -- of also OpCash to in the there's raw building materials guide. the the planning we're in see That's You'll change significant inventory OpCash purchase guide,

Anirudh Devgan

or like to Also as systems now, response is them of systems April, we the -- these add with current we biggest ago overall phenomenal. ago, I trillion launched like of remember, transistors, design and been the cycle, especially can couple but Palladium a these months XXX a transistors, protium of hardware ships, just last time, new billion billion you on and less. XXX mentioned and months them -- are X most has to both in just chip capacity Actually, Palladium the few

needed. So capacity is than we what are X higher XXx to

So for of that about industry I'm new several suit that to systems also production we pretty should the well customers. our what pleased years. And next delivered very major deployments is some

world So we of highlighted NVIDIA, hyperscalers. mobile and the of leading deployment ZX, mobile the a development partner in with of a the also significant companies one leading system, one

we that markets multiple across our performing latest it's systems, which well. delivered So exceedingly are

and Protium value. have lead TSMC It's advanced a SPGA, So chip of we does and that systems. of the then and on a nature based the for that And well significant based is and solution competitively. very sets only our a our Cadence future on the is given Palladium provides up also that process. is And own unique combination

So overall, I multiyear cycles. you as And know, think hardware business these is upgrade performing are well.

is this not in So all 'XX.

see we'll go 'XX how and So yes. 'XX, in things

Operator

Securities. with question of comes from next Vivek Arya America Our Bank

Vivek Arya

on absolute rate stalled, sales revisions, of is at start the no fiscal in has the movement robust. essentially it 'XX, year. an right, basis, real since what of So you in growth organic terms But suggested

the Will company? pick be we accelerating $X do understand the sales So expect start I'm has sustainable transpired that being bookings second into we rate I'm And stays the you the growth it about what backlog curious, this thought? about and billion? here? Or Just of from to half? trying Anirudh,how you Should how trends thinking for backlog up? think should to versus that around year the kind

Anirudh Devgan

question. good Vivek,

given year this years. in say last So we shape is we expected X not is last Cadence like to of I factors. This mentioned is the what X unique like curve would multiple what general, to the times,

mentioned the for back-end So this loaded time, before. it's we reasons more

and rather of and are given is different, deliver do team we more were that we right the long and in and prudent for QX, a the the give little the that also, the So we'd business guide in guide curve, our term. overachieved shape then to flexibility like

the of our and backlog this the on versus think the more I few mentioned, the given last shape So guide, can John comment we John year that's in years is, like revenue difference expectations. curve, have prudence

John Wall

seeing We're the hardware I seeing we I bookings, half. the strong for pleased were Yes. the first CE, with demand up. bookings systems. in question, get not that essentially, revenue And businesses. in mean very Vivek. our don't across I is but guide we you we're guide strong I taking add beta when you're your And question our guess strength all really the mean,

I we think, It China QX, to think would right the needs I what the year. now, QX. was we only XX% it percentage. if and improve QX to question essentially, improved I it's -- will XX% over to get revenue improve? think QX, like mean, continue only the XX% guide China in your see of in guidance. is, It that midpoint to through to hit assume But our in

Vivek Arya

follow-up, drag a beta CAE my EPS. for you to quite mentioned And

$X.XX to a hit when like I to almost, it cash operating $XXX become acquisition what more? And that a does million to mentioned financials? think, you think is little and start your you dilution I accretive flows. describe Can

John Wall

Vivek. Yes,

the of of operating $XXX where clarify the to drop demand seeing. a lot for materials some of million that, -- just impact the things flows drop the of in of some through hardware or operating on operating beta plan like inventory we're geography the purchase it raw A where bigger of We're that OpCash. On purchase of portion lot I CAE, is million to payment our goes, impact price, in the inventory. a that cash to mean, cash $XXX M&A. that about slows prepurchasing is due -- that cash, XX% the

in hardware this make raw our inventory So we have the with to you'll acquisition, in all very to what we press QX -- sure release. all the mean I build-out different it's of to recent necessary to then in CAE, the that our up relation we're -- purchasing. we have beta raw no it's materials the see materials of spike ramp want the systems. And

to expecting now. were And accretive on But interest be expecting On operationally, we the it also in press guide. I of year, at accretive year. mean, next revenue next the we -- the guide non-GAAP cost there midpoint. the think embedded in That's will expect some this. release, $XX we million but said we dilution associated be EPS, it now is $X.XX it with be We're that's will

Anirudh Devgan

Also a couple things to clarify. of

I So multiple mean for one inventory used this of thing, years. just purchase 'XX. for be will hardware systems, the that not It's over

So portfolio then it decision right the that to in I prudent think position and a and our years, analysis on completes of a pays also investment strengthens And add make the several kind system structural for onetime it's parts beta, our to for automotive. that's future? get analysis, it to

is is Of of big with AI this all think the course, self-driving or super driver the other assistance. all getting data cycles, with but AI the center I one automotive in a also verticals vertical added exciting and electrification

chiplets So is moving and we automotive. through see Also, also design in a XD-IC. lot activity of automotive

I IST data design X So silicon It for of increasing more system course, for has of is AI all needed automotive computational content all is and and our tenets more automotive of has software. the and think design, and the that strategy. the

well and last them want in this X we working with see it's a X for and our solutions. in just with and I good as more And well Hungarian doing of chip system also portfolio the in big to McLaren McClaren. the FX, the future. And that There more few us for them and our but have also got automotive, completes we CAE was the do system more semiconductor deploy. weekend, doing reason, now, years, and and highlight OEMs positions months automotive is congratulate beta doing and news companies not companies to So this and design been

that the through and of expansion. and system So combination AI, driving we and results of is solution automotive then are a I organic think that we inorganic are silicon the seeing

Operator

Tilton Joshua Our with Research. Wolfe question comes next from

Joshua Tilton

hear you Guys, me? can

John Wall

Josh. clear, and Loud

Joshua Tilton

Great.

is lot I wrong questions of of recurring. just understand could it in it kind and I upfront know but been inventory. is, XQ, to little what X math that more versus a I there's clarification. thinking mix develop more half around a my component here, the a time just to of with guess I I'm second first trying more The the the about a right little bit now light was Am feels weighted way? and because like need -- still was upfront XQ weighted, in we're be you

John Wall

by reducing opportunity, as the of we doing will really are the strong a result much half. year QX that in expectations expectation That's -- can, for guide we're do taking in slightly building China. system took a of than and in took I harbor -- on more and and fall revenue fair, would we pressure were the to our strong range hardware bookings I off think we of those XX%. and quickly demand in newer really XX% [indiscernible] orders. our analysis the terms revenue, might well be Josh. recurring systems the still that of we are in on in we QX, mean, I expected bit orders. IP upfront bookings revenue as of doing stronger to design expect you is derisked reflected Upfront, uplift side and of the we got how we really for get recurring in QX. the some first a hardware But for we've We've is the got the particularly the and well. as what And we're We guide

Joshua Tilton

into out I inventory I how but clear. And the you meet you good it's another and require to then just shipping levels an now follow-up like guy develop question, upfront Or baked still between guess that super is, guess does guidance makes build you guidance? put do to that you the perspective like to boxes? what's my That and inventory of have feel much today visibility that from those

John Wall

quickly you'll Yes. that's the we're to But we onetime our raw and try Anirudh a to But revenue definitely But a the executing lot as those with says, thing in backlog, and it's against impact IP systems inventory half business, -- and as get materials purchasing. orders we're materials upfront second of have of strength QX on case from just raw a our comes the those see build amount can. need that to and those. of in doing we the it's as in and the the in a -- build we

have some upfront and Again, most or SD&A, in that to that's design from revenue in scheduled also the QX. occur system analysis and of system. We is QX orders

midpoint the side, of that mid- to SPG it's to to -- were hit be that's to group we what deliver digits able On single is hardware the expecting kind high of guidance. the

Joshua Tilton

maybe Super, a helpful. growing super can XQ? us to awesome way And in on then is is, just Is the help recurring supposed revenue recurring to the really any see mix you quarter. there quick what follow-up this be sequentially expected versus upfront

John Wall

let see dig back We'll but out to if hand, I that come can don't I it that. me have here. to

Operator

with comes Our from Roy Ruben question Stifel. next

Ruben Roy

just thinking XX?And a has general is that's for of of ZX, question. hardware terms John, then that But in a the real in on anything I'll question guess I purchases, when about products? you're right a assuming changed and ask mostly follow-up, I very and quick those inventory then the availability am

John Wall

purchases that's Yes, But of to the to new help correct. vast majority are get build those the materials systems. raw

Ruben Roy

in the it? of timing then And of terms

Anirudh Devgan

Yes.

systems, So and chip design we clarify, we I right? have the [indiscernible]. ourselves, to mean, mean, Palladium we [indiscernible] I Just X manufacture and also,

also itself FPGAs. but We silicon primarily Xilinx, with is AMD ourselves, the from design

should multiple and purchase this the of FPGAs, XX for serve is and for lot for us a years. So that

On said, and ZX, them, we're we quarter. this shipping they're like already already deployed production in

than of clarify that. the to mix different of in ZX XX is terms content think the I just So slightly silicon

Ruben Roy

product of top the thought I affected apologize. road real and their Okay. market And certainly sort impacted X-year road been I generally they changes is of complex or of available. your maps of going accelerated chips your to NVIDIA bringing to by the of question, any yet? have rhythm. were AMD customers the maps sort just of some certain sort way around seeing sort in acceleration their customers kind to not their rhythm the you very accelerating business have of of a Are

Anirudh Devgan

think Yes, the rhythm center of products like more within customization. I just -- chips. chips, even there big not them, I would the you and activity, more to the cadence or more design the It's we're like seeing said, more data but and different also is kind of and

And course, for they hyperscale example, the is doing with, doing our consumer about edge laptop partnership silicon. Qualcomm own Of AI are we talked or now devices. their and then

AI the center on of one have amount we the part should design think couple at accelerate, the of accelerating. the next obviously of data still we big that at the is And for data years. So see is we just center. spreading least I also center verticals, look AI it, visibility not And to still other when data

see years we'll design and little is already other phones that with automotive, center. thing is the maybe deployment goes. And but already a then PC starting a normally activity down seeing laptops. now So and automotive the takes then how data and consumer few longer, may be they're And after

all own is we in data Cadence.AI we it's it, center accelerating see it into do on of AI of our all it's AI of almost of -- And semiconductor are deployment the are kind very winning whether on proud whole engagements we overall, whether So ecosystem. XD-IC, position chips, our whether portfolio. products, kind our

infrastructure own more and overall, do see product. deployment more and So our of AI and design we AI

John Wall

is includes year if to just to be for revenue, Josh's XX% for that balance mix the I just we could and on recurring could revenue for to I sorry, question the come range to QX. recurring of XX% revenue sorry, if and then of And Josh's that QX the -- QX expect, come back middle the question back

So is. do and the what math out you can work upfront the piece

Operator

comes Vleeschhouwer next Our Griffin Jay Securities. with from question

Jay Vleeschhouwer

the question SG&A product about for rod a products. the the for thinking generally ask is how On EDA you're about evolution to and of packaging about like What portfolio perhaps I'd specifically.

more packaging products nomenclature a that my about acquisition? have are bundling more the now studio the specifically And year, the codes packaging Over EDA you've And of Then if ask how with integrating that in the and wondering I'm you're now multiple in codes, various that or across products? last do simulation name. about follow-up. the then I'll term assembled for via kind you've couple SD&A, or thinking introduced that for you you of thinking

Anirudh Devgan

good Jay, question.

as required, know, place solutions, or verification. for in more is but use and and So it's we also example, or sign-off. route, which that [indiscernible] will And lower is digital, to where nodes, EDA, there go synthesis are by not digital I just so, like AI, mean, integrate in analog integrated of accelerated you when further

verification our that the So major also definitely platforms have. same I thing X integrated product is And AI there. verification with think for we trend Verisium, leading

most a company, approach. So the leading, portfolio. it And more OEM, like and entire the of SD&A more EV that with platform-driven is can mentioned have we And we leading we a deployed complete portfolio. companies advanced a now EV one do that now like our

solutions individual as a with does do have us we of let whether native on just verification and SD&A. in done our now not digital EDA, products it's integrated So with what always have and we bigger integration, solutions, on analog, kind it own in focus portfolio SD&A,

Jay Vleeschhouwer

the number use of still but also are AI/ML early beginning see mostly small relatively for? As revenue? any in you employing convergence the effect a by know then ML and a or I AI towards having your meaningful tools cases and to commonality any propagation to customers, And follow-up, you quite peers are services customers the are on your that of seeing you relatedly, adoption it's

Anirudh Devgan

Jay. Yes,

increasing started process. like that this is at design so it is mean, would of to since that I biggest implementation course, the see cases of use is I heavy kind digital of what of of kind with So point. use we was the one case number say I

we was this you even digital leading And the deployed being see the Qualcomm. benefit. of huge Samsung. [indiscernible] by at one system process implementation flow talked automating the by used quarter, also a being used Also for verification So companies default

for in One XD-IC just DTCO, like that I planning that also but also higher technology co-optimization. case, or in not what think and things. floor is So going And process design [indiscernible] implementation is for the exploration. use the design, level for is happening X design, it

not for So other of just the and architecture there's but more workflow exploration. And like all thing automation. is implementation it's design, the for also

throughout end beginning the are it to design get towards they're the [indiscernible], process, the customers just they from process. using right not the As using of it used design

allow which automate, for was leading of has design. us cases, So workflow example, in it much XD-IC And package terms recently, one example, case. And and also entire used to than not in then allows and automation is there placement, to PCB thing use implementation for of its doing more an before and evolved customers use automating do packaging. Allegro capability workflow in X rather happening a more for more routing, well. is to [indiscernible] same specific of the more pretty

the and these So overall, think some of quarter. kind spec workflows it's maturing we I AI, to a of have RTL, of several LLMs we for highlighted last then And them do and workflows. Gen taking with

So chips, implementation turning see These expanding infrastructure. are LLM analog, lines. but there digital the finally to with now companies kind do and do the point see of in out we and expanding portfolio to we -- for XD-IC, have building of actually [indiscernible] deployment in design the X initial spec, I DPCO, being now the in workflow all is I kind major that a AI of big designing to always of comprehensive AI AI process most packaging, product expanding to to verification, the expanding course, terms do based of

pretty a it's actually, ago. a So year compared encouraging to view

Operator

Sur Our next Harlan from comes JPMorgan. question with

Harlan Sur

$X.X out orders which that orders of trend XX% guess much the backlog would is of figure backlog year XX% to I But first would to that acquisition? I'm due for year, full about backlog team. the trying full and for about Cadence if the half, increasing be the X- if how is ex-beta X-year are book-to-bill of is, to and CAE be the it to this CAE, to to What up sort just then core expected up X strong beta than for Because billion. expected profile X% still imply bookings year half? the this total year, second backlog Is greater continue

John Wall

like again, Harlan, Because is the their immaterial. Yes, but the I with to first basically upfront. very said, beta very pleased bookings, we is revenue it's very, backlog -- strong for it's small, guiding very, we're CAE were bookings half contribution not

to the the we revenue. always you recurring can than But of So of X, driving greater guide mean us rather book-to-bill a piece I that's very but we're business the typically be don't pleased. for than upfront expect bookings so...

Harlan Sur

array. memory logic more chip, moving Okay. advanced Similarly Perfect. The towards customers, NAND CMOS leading digital design, more They're for digital to to technologies [indiscernible] also your is Virtuoso, moving edge of with with dynamic advanced they towards and custom sort again, there's to but of this right? a your moving chip well. is And pretty are example, design customers, advanced customers and chip, control design. bonded moving more big periphery product right? your The family, periphery of some they're as of interesting

more starting design So customers? the implementation logic sort see of are memory verification advantage And on and leadership of to by your products via your capabilities? bring digital as in an you you give memory adoption they then advanced does also advanced more virtual

Anirudh Devgan

big and our implementation most strength And and the memory fortunate they memory companies. I kind memory helps TSMC, at driven of partnership you overall, know, is -- XD-IC, strong and of actually, At standard are a memory lot you great to our were more to observation. other partnership with choice more companies. And companies, HBM primarily happening least maybe which for Samsung layers even our more the actually XX. then some they And all for the going and like lot example, but as lot the have is even now, is that's all major all going But trend the with doing platform also, memory are a these is X it's other companies. ones the X digital, also -- are there partnership also they're with my that advanced memory with the Virtuoso, so in plays big a mentioned, And strengths. true is XD-IC, the layers are X yes, at X of of us next we given there integrating in And we always there for design also are our kind deep to level. then given from and that a I memory memory. memory. and And TSMC's with technologies implementation, major doing And prepared kind players long Harlan, a mean X XD-IC trends. remarks, with Yes, and -- X from and digital there in of by mentioned, very with

we'll but NVIDIA side super general. then role, we in the big And and the but players emerging and So we of you, is But need integration, the in in memory are the tell I memories positioned, is AI memory progresses. and not very we in like leaders Samsung other see and logic are and and chips, overlooked. general, highlighted to It's position big cycle. chips, on don't well both memory HBM pleased our play in that big memory often with logic trends the essential a very just think how the often XD-IC overlooked I

Operator

from with Jason Markets. next KeyBanc comes question Celino Our Capital

Jason Celino

to is so X longer cycle. demand on saying a what some questions But what typically seeing? like much lead for the calls, times I prior far better the But the the XX timing. hardware normal on you've this the have are like than ZX, said That's are that delivery hardware John, is because [indiscernible] for are it think, you're you times XX than weeks.

John Wall

orders strong. The can that away. we as quickly we systems out than right can older build have faster them deliver as we we're inventory in newer having is build strong. What is was Demand systems I trying was them. we coming that because Demand can to are the do to of the point

So respect. moving the lead in target bit that times a of is a

as of a QX. can lot to purchase as We we quickly planning are materials and in raw build

see in end a our uptick the of you'll QX. So significant at balance inventory

Jason Celino

helpful. a then that's No, And clarification. Okay. just

like mid- were think the FDA single-digit familiar needed to high Is I with IP do SDG. to to see your imply like if saying to that guide? since you the functional out, that guide hit growth. verification group to kind the do you're then, for component on I'm not what hit that's other we year? need upfront the like guide of the does parsing And

John Wall

fair. weighted fastest X them. be That's for there's revenue is that's yes, versus And and more design It's growers a upfront really, strong They'll year. from having really Yes, is towards the again, -- system our as IP QX. year analysis. some QX then

we the anything? is curve of and prudent. And the as our you it add the I So categorize shape would guide. have would Anirudh, really driving

Anirudh Devgan

John. right, that's No,

And acronym, a is group. for sorry the SPG verification system

we when that say means verification. So SPG,

implying. massive John grow then growth like Verification we revenue year, to what that's the for also grow, it compared IP. is of are now, I last should this year. And upfront mentioned some you verification should assuming So think was in but not but right

we the remember, If new they in process. we portfolio are for And highlighted Intel. Intel you QX partnership IP with deploying -- our are

XD-IC just both So it it XXA, platform some on takes partnership this with to QX do and their of that, talked deliver time also QX. expansion EMIP, and time, is to -- the... our and to Intel clarify And on about packaging that in and and we

Jason Celino

Our next question comes Stanley. from with Lee Simpson Morgan

Lee Simpson

on Great. good a Well quarter. done

both a say might sense for correctly, situation? a Or OEM taken if And Just have chips on in, think say, know emulation that's I I let's work what mobile for and had be Would that a ZX it perhaps platform. be I for if do chips would be? you heard the heard network but device case, device? the I wanted on don't it the clarification. you some to get

Anirudh Devgan

for bring-up, Palladium We even on customers. our and case, AI platform in Palladium development. But and we cases even these give specific have given -- they system it -- customer chip this systems, question. for in can don't case a leading center of to is their the use to is all see how both true the used give design Palladium a for or Well, for are use And so data good use know, even for chip a is performs. hardware there, lot AI the to a even choice in you comment individual and general, AI chip, software Because model customers are it platform they customers Protium. use a as both model cases. Actually, are before software

system for for And So system true automotive, things. and it's data center, multiple that's major design both software. chip and for mobile, these verticals, design also

Mark Edelstone

Yes.

sense multiple look to on coming starting at verticals, that, that's get in tape hit incidence XD-ICs I now the if through, Just the the we those of automotive.

if as have or at But late. also. EV I this point, just mentioned of wonder you possible collaboration companies You system the chipmakers could mentioned the you major chipmakers between it's it if customers, have still or is about a a for talk semis split now, relevant, Xs talking of number even we i.e., the majority and customers? maybe Are OEMs the in Tier automotive right work? it's

Anirudh Devgan

great So, question.

in all but true in active with OEM ships And they also, to automotive first, I automotive. for They them. as other know, genesis have and to standard Because all now particularly I of out, data use to lot go the XD-IC. and over which each moving these progression. more automotive are other OEM. the course, can chiplets to And So moved that definitely some ago. think a to is some architecture, consumer. It automotive. verticals, I will months move And several And be prevalent the XX will you chips specifics, yes, laptop differentiate and to platforms the example, have you correctly like redesign laptop, for doesn't the But XD-IC chips. XD-IC HPC gradually more like of the value-added but to are already let's pointed X center verticals are all think the is in time, chiplet original the than, customer versus wants think that's we'll the say, as AI,

XD-IC So just do they're think your I end to semi for for and not even sense it's in more customize OEMs. is the then other. And this able the -- differentiate there actually companies, versus trend question, I to more also OEMs think because trend that makes

as other know, Japan, lot activity. we then we is EVs of you So and that seeing strong because, well then U.S. as China in seeing in and and critically are are that, geographies a there's

semi is I automotive, and there overall, OEMs, So activity both including more XD-IC, yes. on think

Operator

from with Our question Clarke Sandler. Piper comes next Jeffries

Clarke Jeffries

to Anirudh, panning question these the up, recurring follow-up. with first the that to software you bring consumption expect one additional a system? products third-generation how software after see portfolio? happening do you delivery translate of systems the acceleration how ZRX in consumption My And revenue do I verification additional then but out is, of delivery These are new have

Anirudh Devgan

[indiscernible]. significant Verification Yes. SVG, hardware System a saying, when the Great Group, Even And big business, John of though I of question. hardware part we say was part so is reasons it verification. verification in for Jasper what -- from And systems, group. the XLEM apart organized we like on of integrated is one mean from of as the for that lot we apart solution for logic for is, well are customer have is doing looking which verification. verification, other like that hardware pretty formal verification, products, a a

about To for in integrated is in be years that the had In several SDA. to going have what last earlier Jay question always solution that happening EDA, it's believed verification. you the

of -- stronger capacity we and simulation should get, Jasper do [indiscernible] to things it acceleration expect SIM also software called products, they help hardware So XL, lot logic some Because for used products what which and of simulation. our Palladium the hardware is Verisium. is in the a our like accelerate use verification

and between tie-in software natural products. hardware a verification is there verification So products

should in to us it strength. help how hardware out, overall in pans portfolio's see. just the exactly have Now But our strength we

Clarke Jeffries

X Perfect. for John. then follow-up And

is discussion and not million around curve maybe the in going revenue is I sort on of timing. million and that $XXX Is 'XX that there's and to than strongly in third SD&A by the Protium. of gen necessarily this fair interpretation rather being driven guess more beginning of takeaway? maybe a think then, in I a from of of cap is a the of a upfront IP demand the majority be that kind plan Gen systems that that, the and to X say second $XXX-odd just fair to that put it finally half, whole coming

John Wall

system, it originally place. build included exactly so hardware that No, is, Clark. time that think first I we take mean, I in that the in we right. guide our Yes, always to the that's would knew

Operator

with comes final question from Vruwink Baird. Joe Our

Joseph Vruwink

want to did raw stay and with verification up I Great. follow just to investment. material this

therefore, in you So the the and year thing I platform, meeting is imagine production, the this I'm expecting entered new trying to inventory. invest demand, scale strong would reconcile

inventory what in heart I demand expectation, changed of be raw the not guess input? now So purchase? just change forecast something this about to updated your we necessarily wondering happen question, because for flow hardware to did for associated cash the really into and the And warranted out with assumption quarter but I'm XXXX? And update the the from maybe getting at XXXX, cash that need news ops that of material your

John Wall

longevity like Yes, monitoring the and the the these it's of quarter business, I they because mean leaders longevity here And was onetime for wanted in the of of systems raw inventory is years materials. multi that systems. of great key the of spent purchase question, to with plenty feel time in is a them inventory thing last a to they of and very, quite new strong. prepurchase were Joe. a Demand confident it's I the QX. very that multiyear what this They demand then demand,

be onetime us, it that Now -- so that not all like, that next favorable we next doesn't thought cash. include QX at you we if will was year's impact for -- operating to to impact new mean thing I and now in wanted

Joseph Vruwink

an step-up where, we in lastly, noticeable contracts for and And getting rate start kind lineup has think guess coming contribution across both does and more quarters, run meant on of start, than value also more orders lift you Then without will EDA this also become possible AI that's this for from without the Cadence.AI backlog the it see in I Cadence what don't in business, have we'll year-over-year. you create at Great. Okay. a the a mentioned to pulling as tripled overall? AI revenue, in base ACV these SD&A. point? the I basis,

Anirudh Devgan

almost it is table good now. was mean, adding question. I I mean, mentioning like I -- becomes stakes AI like before, Yes,

portfolio and it's you go more to to contracts them. our Cadence.AI using customers using more get all kind AI back of start not So include using new as difficult the portfolio, And them. once to our used

whenever what AI. are sense So uptick contracts, But including into them. with without always we we like And general, as we cautious there about revenues to deploying more new makes happens is and in it them bookings, exactly in future have getting that. customers are

Operator

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

Anirudh Devgan

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

Operator

This Thank today's Second XXXX Quarter Cadence concludes Earnings you call. today's Conference for participating in Call.

You may now disconnect.

Cadence Design Systems (CDNS) 22 Jul 242024 Q2 Earnings call transcript