CDNS - Earnings call transcript Q3 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 Third Quarter 2024 Earnings Conference Call. [Operator Instructions]. I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. sir. ahead, go Please

Richard Gu

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

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

For SEC CFO today's earnings information to our filings, results including actual release. our commentary and Forms that on XX-Q, could most cause and to differ, please refer recent factors XX-K

call forward-looking based and today, them. disclaim during All and us to information as on this update are to of statements available any obligation we estimates

our The to a release. non-GAAP GAAP on are financial or as Reconciliations this substitute In should discussed in today's in included from measures are considered GAAP of measures be non-GAAP results. call measures isolation addition, specified. non-GAAP for otherwise earnings unless not

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

Anirudh. I'll Now over the turn call to

Anirudh Devgan

strength everyone, our us thank results broad-based joining of product you, exceptional Richard. Thank portfolio. Good afternoon, Cadence across today. quarter with and XXXX, delivered you for for third the

we will raise are financials We are provide a our to and on outlook. a on details in pleased half, for full second more year track our strong EPS John moment.

activity continue center by hyperscale to driving especially in automotive. the cycle, data super all across as XG, verticals, autonomous accelerated such trends computing, multiple Generational fuel strong design and AI and

while system to to escalating innovation platforms navigating to the products design and AI drive chip race unprecedented Agentic complexities. customers AI cutting-edge Our develop next-gen as empower

part I'm TAM IP steadily executing in excited our significantly system design system portfolio our opportunity with EDA, analysis. core We and AI-driven it design and incredible is the how promise increasing strategy, triples and continue steadily an design across intelligent while investments automation. rapidly of about workflow integral our their AI's that to expanding becoming customers

Our the nearly as AI-driven delivering results and year, JedAI optimization it GenAI over unparalleled sales triple platform analytics and powered portfolio saw last quality cadence.ai continued Big benefits. by productivity agents, of Data

technologies continue micro We with services NVIDIA help ARM innovation customized broad and and their hardware our we GenAI NeMo partnering next-generation ARM's application, partnership AI NIM QX, through ARM to compute build AI-driven using optimization subsystems enhanced multiple AI across to deliver a of expansion accelerate delivering productivity. and IP, latest solutions enablement and our advanced In to with deepened design and are markets.

We with for TSMC, expanded certified our NX partnership technologies. flows AI NXP optimized and TSMC's with long-standing design

AXX the also technologies. blocks paving and are for TSMC are innovative of that next-generation the for like way collaborating solutions AI factories We on XD tomorrow.

showcased industry-leading grow for solution die-to-substrate first IC and XD continues Alliance was system-level Demand at adoption We industry's that enables for both our integrity auto OSAT hyperscalers, TSMC's connectivity. And with optimization accelerating foundries. the XDFabric workshop. router and by die-to-die that introduced PPA to

this PCB miniaturization, of converting our year. expanded new and increasing analysis our strongly of our QX, and collaboration solution to OrCAD with platform to accelerated XX% customers AI-driven High-speed ramping advanced OrCAD with designs new our X/X drove automation. transition mainstream tight solution. integration X over levels cloud-enabled require of multilayer Allegro PCB X, sales in technology this The PCB with simulation is this and

queries. of users reach tail key platform go-to-market with a contextual and marketplace online thousands the and XXX launched of to OnCloud, through which over to customers support technology Cadence recently We traction smaller and to year. past announced on orders insightful uses is customer GenAI online the the seeing over is Cadence system tens and provide doubling Cloud OnCloud accurate long strong Cadence answers customers, of

digital Aerospace continued U.S. chips Air this as Defense in their to strength Force systems. the in and spanning Cadence's vertical boards As we transformation commitment to saw accelerates, from to and solutions the Army expanded

accurate Grumman ASICs, in Northrup Our have digital years. out schedule successfully been used over accelerate twins helping hardware by several by X taping

hyperscalers In grew footprint systems, at several our and QX, we substantially of software a hardware IP our marquee broad proliferation through best-in-class portfolio.

business growth impressive delivering analysis the XX% in and revenue QX. design market, system outpace year-over-year with over Our continued results to

portfolio, in strongly with to AI-driven our signed large with expectations as expertise results We physics-based growth that with major portfolio acquired Celsius analysis are both our that Clarity wins, while BETA couples pleased grew deliver products competitive superior EV modeling outperformed CAE newly multiphysics of strong the out system optimization deals we with customers. our companies. to our and round our

solution AI-driven InsightAI, adopted higher customers successfully drop leading Our optimality reduction hyperscaler used several a was in and by designs. by Voltus achieve was to XX% an top their

X-nanometer IP advanced all AI, around for to nodes. SerDes growth. of the as growth opportunities we scalable in interconnect and the the Our momentum and growing complexity chiplet our differentiated adoption XX% DDR to providing our gate down over and trend, IP its foundry delivering business with business. strategy. new drivers strong continued executed our revenue to solutions and in HPC HBM, PCIE, high-speed strong primary are of tailwinds protocols, were year-over-year along profitable the QX, Increasing outsourcing most use ranging design UCI, cases from

AI-assisted automotive with Tensilica DSPs Our scored across marquee multiple global use HPC, cases. and audio mobile wins customers design

delivered our revenue digital business core QX. EDA of in year-over-year X% custom, growth Our businesses verification and functional comprised

hyperscale platform logos and customers With most several Verisium on with companies. deploying productivity with especially XX tape-outs, past SimAI added PPA unparalleled the highly XXX at a for flow Our new Cerebrus offering flow performance, as broad seeing full designs. maximization. AI, increasingly over advanced adoption continued customers solution of leading of AI-driven accelerated Proliferation experienced continues coverage leading hardware the it capacity demand, efficient to benefits, verification over groundbreaking deliver year. rapid AI systems digital automotive industry's new our Verisium, customer nearly are and full Cadence scalability successfully using nodes spectrum our and strong at

Virtuoso capabilities and other Our AI-driven while this migration it Virtuoso integrating Cadence benefits in Studio significant analog, automated platform. logos seamlessly won flagship drive routing Virtuoso cutting-edge RF and for Gen With new layout designers. technologies, customers leverages with AI-driven placement to and our studio signal productivity rapidly technologies design of QX. mixed and the new XX are adopting

era to disruptive results verticals. multiple SDA AI the us positions compute In continuing orchestration summary, comprehensive opportunities, with business. and and QX of with momentum and the pleased our automation co-optimization massive accelerated AI-driven of The uniquely EDA, I'm our portfolio our IP offers solutions to provide and

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

John Wall

results Thanks, good that with Anirudh, I'm Cadence strong billion, year-over-year total delivered report revenue $X.X achieved to over of growth. XX% everyone. afternoon, QX we and pleased

Our year-over-year QX returned recurring on teens revenue basis. growth a to low

business strategy paying and robust and system our and prototyping strong our analysis delivering Design is continue System with we to see systems. design off, Intelligent Our growth, demand for emulation

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

and senior that in cash sheet the notes to received by We well QX $X.X was flow. offering turning market. the Next, had balance a billion

used balance end we for maturing the DSOs and $X.XXX notes have quarter other $X.XXX as XX debt well used purposes. days, was outstanding as Cadence billion, Cash corporate We shares. to prepaid were of million. principal term and proceeds the Operating cash at while general majority retire $XXX flow the value to loans repurchase was was of net billion. million $XXX

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

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

we $X.XXX the range XX.X%. to range in billion. GAAP $X.XX XX.X% operating $X.XX in -- to Non-GAAP operating mind, the XX.X% expect QX, in to And range $X.XX. the non-GAAP range And margin in EPS of of of the With GAAP $X.XXX $X.XX. range and of -- XX.X%. margin of revenue the EPS to billion for in that in to

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

with pleased In results. our conclusion, QX I'm

deliver to and Our are XXXX. QX strong, positioned looks bookings we pipeline exceptionally strong a well

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

Operator

Instructions]. [Operator

Your comes with Baird. Joe from first question Vruwink

Joseph Vruwink

worth Great. nature you I off of advanced road maps late of learning know given number public well maybe as would Cadence? investors being have or about the XXXX point considering you so for ask, anything bad to or out headlines new I typically might But information that the efforts appreciate something not you're the China, demand as good think wanted advance typically around learned means over maybe relationships of past customers off the from your in months calls. you what with just foundry either be, product or opportunity X

Anirudh Devgan

our mean a semiconductor several leading out. as earlier TSMC year, countries Well, Intel this recognized kind in seeing increasing and in relationship of I know is That's visit like Joe, and more even in this has that And good well years. more but the I own you is and improved. global quarter, of last Anirudh. is with the we that and already that global is commitment area countries course, also and foundry, I of did to to several more also, importance have that over the for worked there and build would overall say you're we different Samsung And economy is the question. highlighted now

continued in whether even do it's newer like would say investment that foundries, Japan other Rapidus and and I this Intel, Samsung general, in countries. in So we to see like

to and leading areas. -- we in TSMC it's we've closely partner But this see with more investments as made like report. other continue in players good the and ARM highlighted we So to

Joseph Vruwink

able Okay. looking Are go more but to a as don't the guidance, your did give maybe for backlog to color might expect XQ stands XXXX into And be and bit that what and pipeline you out. you or on you on of John, kind performance? normally bookings you would you forerunners then, what comment

John Wall

strong thanks mean, it's a for any very, -- now have that, I on XXXX I we right Yes. picking giving very mean, not outlook Joe. obviously, for we're on pipeline yet. up But QX.

a for biggest seen pipeline. of finished reminds think It kind ever we QX I similar it's the I've how it's bit, me XXXX. to little

we bookings had came XXXX, in a really recall, QX of annual in our If in XX% 'XX strong QX and in of you 'XX. about pickup in bookings in,

way, setting And the seems to everywhere. exceptionally same we're this and year, pipeline, be up second an strong it's but seeing strong half design activity the

Operator

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

Jason Celino

Maybe on just up question. Joe's following backlog

the fair is on a kind that it from the new guess Is looks order hardware to being the of you're I what large. pipeline say ZX, understand driven? So XX. perspective seeing that mostly of quite pipeline that curious composition pipeline

John Wall

Jason, I for the remainder I I broad-based really, to the the of X-year at of mean, through performing for verification, forecast mean, to mean I across system like thanks for all side, a year, basis, all growth mid-teen analysis. double-digit the of across All on CAGR are functional opportunity from strong when which board, to clarify. a right on part growth is on really the businesses well. design track growth our up our of look are for IP, right EDA businesses. growth it's XX% business kind right software hardware core groups the almost low

Jason Celino

Okay. X one then just quick Perfect. really China. on And

you derisk XX% do cap what expect of of us and you purchasing still assumptions. year? taking different drivers the think semi your and to smaller some about quarter, overall of providers. EDA the incremental your another China you I I quarter, Obviously, very revenues tell leg this from demand the might But there? some last this from think to region solution obviously, can and come point see there I But trying see else demand some were guess worries Cadence environment be habits that down. were

John Wall

years. at years mean, I revenue. I my reading look than through team this data-driven. we're our mean mind, XX a back went myself last That's X times in revenue expecting only China China we're be Because my year went to were last looking Jason, question. We We Great -- XX year. to China. happened back -- have and the giving Yes. lower you're

was First XXXX. time

XXXX, for to XXXX. QX on were strong XXXX. high recovering like dipped and there in looks it's activity. that dipping was it recovered in I'm than on to high in to a Obviously, gone revenue. until was recovered a basis. with than China in design a in it XXXX, XXXX. took new And it very, immediately China macro new reach But in us QX XXXX seems and -- stronger back pleased things well stronger that very it And But immediately be QX dollar

Operator

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

John Marco Conti

be points you there. XXXX anecdotes for incremental great suites, And it is qualitative us growth? If on could amazing. Yes. a if if Congrats touch bit a will appetite Maybe the be again could you any that going little data for material Cadence.AI give seeing or quarter. perhaps you're to

Anirudh Devgan

mean with all earlier, right like it is portfolio mean, now, think our I I we pleased top how customers. is doing. used by pretty I And Cadence.AI absolutely. Yes, have mentioned our

So of in different -- solution. our customers proliferation all the at of -- now top amount are some of customer. them our are we AI engaged right is now, with But each

analog, we you have platforms, package AI system analysis. and PCB may know, and as verification, major digital, And X all

So routinely X% which it's improvement customers rich is portfolio. XX% are pretty a anywhere PPA, And the in seeing significant. to from

a not can value in is productivity, value just AI AI think is but result. have mean, of it I a productivity huge. when of the history I the of we EDA, improvements give is better which

well. can think value the our also happen and as better. design where the if is result monetization real chips we I And that's own So

own As one TSMC. group. our of most right, by the own you IP, Palladium. IP We know, design our our in is that we chips chip, made complicated design And

So own well. we are applying also solutions our internally as

these non-AI you true solutions. are give of like comparisons AI So -- versus

anywhere Cadence and the IP see improvement XX% our our in the like is own customers. Cerebrus consistent we in using group which improvement AI top latest we with designed, what saw in from So XX% using IP, to we XX% even latest ZX-chip, saw Palladium power we solutions, Cadence.AI in very with

So overall, anywhere that on benefits especially highlight can productivity PPA in I and PPA to with the are almost would AI. And cloud are but the improvement, node, X and Xx we pleased with truly improvements are equivalent improvement between PPA benefit be getting, XXx, to we X and then to node XX% last remarkable cadence migration our of we kind can process get offering. is the typically AI get thing XX% to with with the like

are have customer So we to we a there applying customers. in give big applying do response portal, Cadence AI another and give this support. of is GenAI trend support better to better And our customer and to

AI group our AI our So whether applying us all more major overall, applying Cadence.AI, efficient. then improve all support in for customer of top customers with much applying platforms, course, across make X internally to own working designs, can IP hardware and it's or

John Marco Conti

overordering obviously, the follow-up. don't of a hardware quick say FPGAs of and bit but particularly in you commentary of should of on see raw does little translate your into that could kind specifically Is just the of QX, if we out? of down the sequentially. ask backlog? air how just materials. from I'm it backlog you could you I backlog, kind sort And any XXXX share a I that curious think know was guide around pocket -- visibility, If to closing Amazing. fair

so be any . there, commentary will And amazing. that

John Wall

strong. the as I see. ordering I've strong demand. haven't as John here. robust to demand But previous is certainly QX The super seen said, seeing categorize We're pipeline any that in I wouldn't like our been over that FPGAs Yes, it I this of as we ordering Marco, fit very

set we're for up QX. a So tremendous

look of have I'm looks time give landed kind in performance this At the and with the when we year that at expect to pleased hardware of give production to looks indication year, the before we QX, you business the any bookings and what with to in this, of the as very, the strong time But it's as any such ramping the up year to meet next get to that they're difficult always of next very all demand, years particularly quarter and what demand. indication like. like like quality a

Operator

from Stanley. Simpson comes question next Our Lee Morgan with

Lee Simpson

me ones So of from quick a actually. couple

looking big the think Just do platform, at that be you the for on the Millennium from there, how maybe will beyond demand following is who and last characterize could what question When, interest platform? NVIDIA. we the

have the that And maybe on maybe the to with that CSS. the it specific collaboration that Or aerospace as ARM were from autos? vertical of about just new I'm a you Does is it? any follow-on question, Is interested talking there? stuff timing on impact

Anirudh Devgan

Lee. Yes. Good question,

So we CPUs know, and first, like with ARM, more over ARM is IP in of collaboration, back and and mean, latest also mean, especially subsystems going a development which we ARM their is chiplets the design, GPUs. pretty to expanding partnership total years. I broad you have And more and years, droplets. terms compute I more XX as this doing highlighted, in which

And broad-based, ARM, multiple I not but IP a markets, are also our is for ARM expansion this of for they including strength ARM as is a just gets relationship this their more stronger, strategy, lot but compute. this development HPC question but is think morph in But kind automotive. -- and in of they seeing of are with is even total

we is results -- in that got CPUs And And accelerate I other of systems optimistic, reason a that accelerate combination on mean, Millennium Millennium, okay? questions like GPUs, I've lot your new Spectre. can is in and example. with on of a am mentioned software fabulous We I terms we our course, of EDA. for before can the in of general, And these like perfect

provider is simulation, with And CPU, acceleration able platform. the Millennium latest circuit GPU are example platforms, of by systems, to Xx by XXx to these leading for a perfect system We on design which is circuit the is analysis, these are which accelerate we and also Spectre that. leading simulation but

is And design multiply And and thing largely AI. course, CFD algorithms matrix a other system nature, that of lot multiply the for is multiply. a Like that matrix a reason is operation. that analysis matrix of essentially by does the is, the involved

systems multiply these and -- AI operation. So well for matrix tuned or are

kind SD&A naturally So for application. they are very tuned of

because we're are like a optimistic great GPU I'm okay? been and And Millennium. by automotive partner a this with they you'll that and CPU, and broader to portfolio, for think going So they for is tremendous platforms, especially have platforms aerospace -- in development limited and companies, the Because example, of can that more can pretty CFD I these getting seeing we simulation this results how general, is apply as highlighted provide I get kind think we the see forward. much acceleration Honda early sophisticated, that we typically,

Operator

question Our next from Shi Charles comes with Needham

Yu Shi

But want X those headlines, about still positive, to No. internal using a we underrepresented, mean, I so perspective, because despite and will that ask another the another your bit largely all little customers from know were not been Samsung. are they which historically but market tools. share the the EDA I question has Intel wear

to development could companies if customers X -- the that merchant customers I a commercial on being net want more "outsourced" there all is EDA EDA let's given Is it it mean, happens? it can guys? tools, meaning thoughts point be say, if is challenges, positive those those Cadence to to I doesn't it to inflection sound what that So of the get more it like possible be, dependence and you're immediate for And seems for changes. although the you like some be EDA an any seeing the facing, X of happen work

Anirudh Devgan

last Charles, a partnership very in and and X, ARM change, I observation. the is Samsung with think we TSMC in strong Yes. you historically Intel. years ecosystem the historically with know, that over that's strong XX I and great especially the Though, and year. year beginning to strong this with mean, as as not are TSMC -- last

We company challenges, always is every great both And to they're and know. opportunities best you goes me, whenever through always more for companies. ups downs, mean, us. going and And typically more lead We -- the as I Samsung we believe solution. with are products. And through have Intel there's when

saw the So on of also new and -- across our we software. hardware AI-enabled both are these and our We systems Intel, with are we IP working companies partnership, mentioned we seeing strength platforms with new then that. our

So time. will typically, take these things

So done competitive is -- whenever big we in typically, some these situations. those well a of historically customers, general, but situation in have there with

Yu Shi

because Maybe Altera clarify [ looking the other hopefully, ] been is maybe Cadence acquiring Got the to has and here. ] if question some I acquire to it. or you it can Systems, want news that provide comments ask [ Engineering you Altera maybe

Anirudh Devgan

as I as are mean, know, on said strategy. rumors, but specific you we our comment before, mean, Yes, we have don't very we with pleased I I mean,

pleased strategy of how growth tuck-in We pretty So plan we are that and going are Yes. forward, that's some our that most we happy do and our changed, okay? positioned. with is and not we very M&A, organic has are small sometimes

Operator

Securities. question Our Griffin comes with Jay next from Vleeschhouwer

Jay Vleeschhouwer

beginning ML product end then time, how Anirudh, to you packaging call or ago, separately, you on cases and use might, markets. quarter cases for we you're your also see various you AI recall about may that different -- the change a use talked spoke about conference over that

making likelihood verticals. bring selling specifically packaging. got for markets? end we a you're them obviously vertical and ML is into to of branded Maybe question apps more domain-specific any now. you I And you've specific of different those -- But those technologies you can do the X applications, packaged foresee see things right would taking and together. AI the more know

ML I road to you talk my your development before map. a AI follow-up, about bit also also could get And little

like ask proliferation, Then and improvements footprint, that you're my scenario and to so speak making on they're for forth. from you at about things respect? memory so what Cadence live in follow-up. And I'll in could maybe had going talk customers be capacity, You've about looking you

Anirudh Devgan

have, Jay, of we in with and pleased of I we great AI enroll time, But right? the and one mean, observations. for very that's of we course, map that will Yes. highest products. R&D, road are all AI investments our over kind

of AI don't the preannounce to more as But you heavily. gets And X-layered kind cake powerful, I here. investing itself As that -- want know, I we overall, I custom always like of simulation AI middle talk with about mentioned the silicon. orchestration the and principal optimization and the of layer, layer CPU, it's the think anything and bottom are GPU I top, earlier,

So all we is vertical these we areas. And like for also verticalization with are but overall, for But that. are right? there X pretty in some did parts it. vertical aerospace make we investing mean, is targeted Millennium, a particular AI believe sense big a a it may with That and we X that are I topic, automotive. -- itself And of like very I -- pleased at

more time, is the And The we over this AI. will I monetization horizontal a more AI think of vertical. technologies. of also lot -- And have and But initial talked the phase to have and about publicly, X horizontal. phases -- we are be I've

even things in I laptops AI, data solutions with and centers management have into would infrastructure edge right with call are we that. in vertical like more phones we then and devices and So like now data centers, going what starting thermal now and

okay? though even weak, of in autos design, not X, of horizon Horizon is like the weak mind it's now, auto physical the that's weak. but But X in market terms As is you is reporting self-driving, in robots. right infrastructure is And semiconductor the on my AI, AI. see lot a which drones, things

And data there me, saw seeing this are few I years like a to design in lot physical what activity, AI. So automotive. are in AI, as design what And a come. there's lot for second are we robots, But phase that activity of what okay? are required terms a drones of the to of for that's and in automotive is which is of ago the to required chips very similar is for center

AI, is X biggest AI, ago. AI X, of be what call open the And the Horizon then that's further why years the in application which physical is third And sciences, which the will I sciences AI from phase life okay? would out investment is and

So we business markets it. infrastructure, physical course, that's how exciting followed solutions Infrastructure we horizontal will by solutions followed are have tuned multiple look is of evolve, for of by fundamentally end AI, these physical and Sciences markets. horizontal some because that AI, But AI, sciences at we these times. to AI but megatrends and also have will especially AI, as vertical our

Jay Vleeschhouwer

Okay.

Sorry about that.

for with the ISD fact strategy, noted share the very market fraction the value. strength in the perspective, you you of $X.X X challenger with a billion still So, X you've full cumulative of first or a including acquisitions that did acquisition done over But you're much market to relative leaders. generally in But from BETA some larger since SD&A upside first quarter CAE. for the is your the market

So go-to-market, you've to acquisition about something about in done what across the think you you're applications especially, have the how more you could need and in CFD you're SD&A to various up about code tightly ramping supplement how which thinking about also talk thinking side? maybe talk on you do coupling is that I and

Anirudh Devgan

great Yes, observation. that's a Jay,

CFD acquisition, So BETA okay? whether is especially we feel complete, or earlier, of all, with first thermal pretty and and So with is now mentioned which portfolio like well, structural. the that and it then is we electromagnetics doing our fairly

how it's and the okay, to much portfolio and believe, is but I And in can -- So in market. better how we results our growth see see the good market. are is, pretty complete than is that well pleased the not you performing overall I rate key the just growth rate, the and watch the thing that

that it's like now but go-to-market. it good, I only products or and do the faster, is and be one finite of with element solution Celsius, thermal to have also with whether that can part XXx course, believe Millennium, for general for clarity is applications are and best-in-class, IC our BETA to products is, And both part of Xx CFD unique routinely XD

into full went and have to effect go market So ways. big I this to in especially really before it is we think we want highlighted X quarter,

way Cadence direct, is with one the which top working right, is trend, customers. So

in world's especially history, Our EDA with working the course, is, best directly companies. of

that's So in SD&A that design augment the we which with strategy, need as but X we focused still system do to the and other we are companies with were where are and that anyway. few top we years other parts the well, of doing companies was last --

of So okay? then channel And is through part, call direct the partners. channel, we from the cloud part second offerings, go-to-market indirect would what third channel and is apart e-commerce

in point, at QX, the more top a XXX go-to-market. increase So with our stride I from example, partners, a for channel channel, this we we from I are this than or apart okay, we now customers where which feel have think hitting especially is direct, this partner earlier. significant And go -- in that indirect

also OnCloud OnCloud. what And have is channel, to which itself, e-commerce channel -- direct is are -- we going a we And users. are are market also of all also we doing we of are through the tens our thousands partners

generation. So It's this through traditional the data in for so is platform, online is for great which in great or lead e-commerce, a whether directly all buys the cross-selling. way, customer captured is

shape. but go-to-market and especially progresses good are our has go-to-market, we feel direct to on sales. now products indirect really improved that we'll I the that see need in customer channel how this future, So are in year, it We focus especially

John Wall

to Do is multiphysics strong result BETA especially BETA. getting a in well, than the mean, more fantastic rounding to add that momentum as I if And I that as of A&D? in platform. automotive way Jay, also in revenue, getting about you more BETA But we're it's talk want could pull-through our A&D. more just out we're

Anirudh Devgan

have like history this we working on are of mean Army. not the a we the just is like see, me long we what silicon U.S. both and Force and is mean A&D system the working traditional which also, directly side. absolutely. exciting I about now highlighted to side I we But traditional the Grumman, A&D, U.S. Air -- highlighted Northrop the not Yes, time with dips with like just

strong SD&A, in. and electronics. X And There's big we terms that's the So traditional in are aerospace high-tech other traditionally or X of -- markets markets and Anyway, the of automotive. are there's markets.

and our us from own with in I history Aerospace, So helping the our automotive, of strength apart BETA think and other Northrop portfolio.

markets. that well in are big these feel we positioned X we So

Operator

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

Vivek Arya

if billion next get in how keep it, to for should for at try line that has this below revenue secular stock but this effects kind you this from year? I stock seen a know of the has had and of are there the do year? or core So 'XX, investors year lumpiness think other else because you this lumpy really all rate have or in for I EDA Or growth the a I slip IT to I investors the $X.X-ish smoother if be look is prepared guiding not hardware this Just suggest to quantify Anil, handle should impacted lumpiness sort of trend despite mind. we we run because And XXXX anything year. you're drivers, the And QX, underperformed XX%. would exiting think

Anirudh Devgan

that, Yes, Vivek, all I were first for were quarters say X Cadence. -- mean, not atypical would I is

QX because But back certain John comment things. more. before onetime QX of of to more and We QX kind is have can I do but normal, highlighted like believe

John Wall

QX our No, feels I to like I normal quarter. certainly back agree.

think terms QX we've convert. that a in pipeline unusual to massive have we lot upfront -- of revenue has I again QX that and of in got

normal at Cadence. more work quarter of But for a there lot before have do QX We can as kind XXXX. we I view about of XXXX, when I a talk to look

Vivek Arya

do design my follow-up, you think to core and segment I'm can I the And called EDA, digit. that do that? next system you analysis just organic kind generic SDA something business I'm different What a CAGR rate took double called is growth CFO that sales, your have have years? out SDA mind and saw you now but over You've commentary the chose if kind growth of EDA, have you of beyond curious achieve given the of the why not number mistaken, Okay. for always you in you core And in something

John Wall

nice have about about you talk EDA, combined. were software and we try. talk functional EDA, you those 'XX And have on. we talking about Look, groups and I We group core the X verification hardware about, core about core asking like say of talk again, we when EDA basically,

and are the and new launch strongly design really IP And we of system strongly. the really resulted analysis in the IP in about analysis The right The course, talk business business. systems business But we growing separately. typically then, have has of really, products now. verification hardware functional growing

apply alongside the software between hardware the there's hardware. that EDA methodology value software and when often an But bundled core to is allocation

EDA, combined. look of we internally, them core So often the X at

on like SD&A spoke high-teen things. of X-year basis, growth. the be on If you double-digit the of on core end all it's And EDA by that it for a the at think we're is CAGR very, to track side things. growth IP, -- the to. X-year I track like is strongest way But But which on again, would things all. like those Anirudh It achieve to growth revenue functional of looks and mid- basis, a we CAGR just it's look software, the on strong verification high-teen looks track very year,

Operator

Our Jeffries Clarke Piper comes from next with Sandler. question

Clarke Jeffries

verification half of set Is XX% focus know digits. I questioning I revenue true? mean, the year and about wondering what quarter, I happened more IP the with level or terms was around upfront second business, momentum wanted systems you to my great in still 'XX in what that guide? -- contribution? was IP the expecting in growth. versus a I and the quarter high fiscal talked last being single lot specifically you're QX what there the IP fair in full we could if on maybe in leading

the landed full tightened behind the that scenes on a expected? broader range, revenue X year QX, And the follow-up. of beat to happening was than differently then question Just what but

John Wall

being that to Clarke. rewarded quarter business and SD&A. QX, landed think momentum -- But team I fourth they're our our it's differently feel we Yes. revenue when IP for we similarly, -- the we're does has business. prudent in QX don't prudent his we I for that carry always chasing. with QX. expect think were were with best Sure, on not well I And into great basically, momentum. guide as to mean as I

businesses think Anirudh? there, performing Anything add to now. really, are I really well all

Anirudh Devgan

Yes.

years, in But separately. what right? So mean, if good more say, some there's I the on on each multiple business, you still think we comments it's, like a X-year growth which IP of over is quarter look on it QX I IP is business. course, and quarters in Just QX, at I look CAGR, mean, I any a we at focus and QX. expect would But strong, multiple good.

very in But say, the think CAGR X-year are key see. a is thing This on way I let's -- IP. in IP I a growing we we at, the in doing good position XX% are basis, finally,

I well. we historically mean very EDA, have done

leader But We as IP it recognized years, last have. back has strongest if done the business look are like But our as in well you well now we that as EDA. its feel not okay? finally X we in in IP I been, could is position have

of advanced at is our kind And TSMC in And reasons or is whole reason industry-leading are I on that. enterprise off. the for area kind And PPA focused advanced is taking these application. we deliver. that leading especially mean X-nanometer, for they that of there's with And key now always node. X-nanometer node, finally IPs X multiple we

think I So first that's reason. the main

is we trench-shoring we The of highlighted world. more for or kind that with there IP now is development working activities needed foundries are other like reason the and have throughout and second more onshoring

the in memory There's and now is the IP disaggregation. just need HPC like for other aggregation And XD in reason UCIE trend then this and and laptops all but even IC IPs. third interface automotive, not

feel year we is good basis. a IP for a but have do and good QX, multiple that just not CAGR So I portfolio in group -- very position, on a

Clarke Jeffries

to that. on clarify just or And follow-up Perfect.

from think of of of going question get more the come you half. to Just the IP thresholds second -- land some in anticipated in there with are to Or we're did had business #X investors execution the going that it QX? remaining some be in Does I QX?

of margin final attribute out benefit in expectations? the of around to And of incremental happened terms would in came sort maybe revenue point discipline margin then OpEx outperformance. the the call just but outperformance in how that may certainly, quarter, you margin, to your IP anything How optics compared

John Wall

Yes. Sure, think great Again, momentum said, mean more we've -- I the -- IP got The Clarke. I like there. we side, I great questions. on

of those revenue. You're milestones were the with the at QX a did of triggered the second of year some kicked large of that to contract in, half -- in course, probably the referring start and we the year in and

in should will a that's next that momentum revenue more into -- trigger QX, are on multiyear that will There contract year. that continue but

margin core is for I is the great a growth business. I mean sustainable really side, on foundation EDA margins well. Cadence -- then I we scale -- mean, tremendous the profitable And and mean, revenue business business a and that it's

the lot incredible. that a areas, slows operating impact comes we Nice talking flows As other you just Typically, you grow of when in growth these the just is can margin. growth And margin the revenue through, about a down. growth incremental see lot into of margin. it to on hear operating has

Operator

with comes question Sur from JPMorgan. next Harlan Our

Harlan Sur

high. Your all-time an inventories that's are up sequentially,

can a exceeding words, hardware demand near-term for supply other for on hardware a manufacturing capabilities? ZX very XX new many the In your get and backlog shipment think just system I'm profile your demand implying trying your systems. it's into profile manufacturing strong to the supply I and and constraint? is QX next how strong extend year? quarters, cycle or sense upgrade Is

John Wall

in $XXX of was of for around impacting and year, kind that's it mid years. demand kind with the terms inventory to We on for last the also mentioned that supplier. Harlan, really a hardware. in in But quarter's a our hardware operating key the inventory come cash call, level million X that's Yes. strong purchases contract buying a as growth, of is very of terms this doing -- low next us our of result multiyear but for

Harlan Sur

Perfect.

then back business. China to And Okay. the

you've So your for as U.S. more year. normalized and lot the business or you direct There's maybe this got cycle, the indirect hardware upgrade think regulatory a more actions. about environment you've of XXXX takes headwinds potential from China got in business puts and where anniversary a

] WAN your activity. which [ maybe extreme impact cases, the macro You've does in environment, got

design So and some Is So Is in think best of track a design on starts How look? starts growth funnel leading but of over upcoming the few lot flat? quarters right? the you the moving right, starts, that kind of Anirudh increasing? I design it track programs. staying the activity pieces, next it China is design indicator planned you does

And then would year, top on upgrade expect as continued China early your what's on comps? into acceleration you view you in next year-over-year cycle sort overlay qualitative hardware look the when you of of this,

Anirudh Devgan

me. Harlan, good question for a that's

on I and then next think X that that to and But last quarters. overall with auto and it's that mean, the year. improved China mentioned I is with I do is -- improvement difficult there also, China in now also mean richer sector. into China. overall, portfolio specifically our First, forecast like we has more especially

is me chips. known designing China is they're designing mean is well I for in the for. companies other well -- have also markets is, and in markets chips what interesting China, those work is multiple in are see are like I But mean participate of that to of me now. all doing end to China now auto for how see to the on and major customers almost and luxury all interesting parts in what automotive this we we

with the And SDA, so silicon glad we but to work both EDA side with part. are them on the the also

this and overall, So several to in activity see seeing I progresses are the AI years. think hyperscalers, have activity demand for the driven the I we AI super with just elsewhere, strong think next and of U.S. and China amount But and by especially into is China in of in 'XX. design course, it cycle how the of both we

we'll see. We'll that. to continue So monitor

John Wall

Harlan. And Yes.

than down X pleased looks QX QX a what they're It's year. of from out seen we've Anecdotally, in going and that years. bring, to is XX never in we've row. seen out And in Pipeline see did lot activity we I'm last year year. the was on team year stronger seeing a years dollar third stronger back test predict than go back there. Although, can't only the this down strong. that we basis. design I obviously, China a a . And this QX is the China, QX revenue mean, strength to XXXX

that it's expect wouldn't 'XX. we on very hard second year down history, So predict a based just to but

Operator

Roy comes next Stifel. question from Our with Ruben

Ruben Roy

strength pipeline the broad-based. that. there, But John, to I to a quick bookings returning ask hear to great wanted was said and I you know the it question,

could wondering we drill Just of the if bit it, part little hardware into more. just a

ramp, the that at to hardware has hardware you historically, visibility this your previous kind is just given relative that a similar to of systems? you've have this visibility of bookings think limited new that wondering said kind on extending little all? I the I'm business. rest changed of point? Is Or your it at is

John Wall

got might it's emulation based Because Yes. Great quarter. be project. customers design hardware question. side, project into this often most plans mean, quarters will know at pipeline the production. on about they turn a hardware the customer the I starting, and of on projects of hardware in you've that X-quarter system quarter to for of X advance the typically, in up or kind need put they view then next and a like are pipeline. the the to tend when Opportunities that

we have X-month typically, a kind of view. so -- But

everything, strong convert convert we bookings this obviously But just give pipeline us always on at we great tremendous close you happens now converting of year. QX, to is to view let QX a come we'll 'XX. we've for have that quarter time a every QX soon us. got in time, to strong in an we'd X a you but there's you and year, that. [indiscernible], Now back QX outlook as that like months is as the the and history of because lot with you a By and

Ruben Roy

And Understood. quick one, then Anirudh. I hope a for

think that you revenue as might talk types we opportunity, think maybe phase at about new AI Just competitors the could through how I thinking you later NIM bit you're of timing of on talked you about some of NeMo you that if your said should characterize and areas the that. what little of wondering when mentioned NVIDIA would but of products those market. we just imagine I kind a through a kind on, of working and see some

Also, you or getting for custom building customers from inbound otherwise Are you set? you're of And hyperscalers like said requests applications. feature type that AI that

Anirudh Devgan

thing that like our is highlight one I would to Well, platform. JedAI is

platform. data enterprise it the an that we to solution. and with it's go and like So market supports And AI way multiple GenAI

there. engines LLM we plug like We -- in become kind in want So different will different like almost agnostic. and customers can different of

AI all deployment and it it tools like X platform. a major But our becomes main and all works vehicles with our

-- give to want kind of we some there. that So depending may us, solutions on different AI which customers flexibility

because also our customers works be then some customer-specific customized, cloud And through AI the want can deployed customers, cloud. to be the both go on-prem and just JedAI can some that really JedAI to big not to the used also any solutions, and on solutions platform don't but

So case, we it in that on-prem. have

JedAI AI gives and market. to So this LLMs several I think solutions for to JedAI kind of deploy and we to a and have worked ways years, to on unique multiple position go these Cadence

Operator

from Siti Panigrahi Mizuho. with comes question next Our

Sitikantha Panigrahi

And to coverage. it's just on good Anirudh, be call, the it initiated

it X at really of keep to the time, want I interest question level for a just here. and So high

revenue new to what growth market. about to at mid-teens. and you even single the now rank And of about years in wondering it growth growth? been look products, the digit talked opportunity And gives your coming from foreseeable double-digit revenue you CAGR this and growth that accelerating to would you you how kind Anirudh, order when I'm many I this X future? think so When products product has trend, confidence sustain drivers

Anirudh Devgan

has at I also I we systemic improve to which year. and time, through you you are the have revenue before, said looking at want question. mentioned, the drivers, growth, mean, has thank And these to always always for I we thing lot improved also as improved, just is for profitability, same you Thank highlight which but continues initiating like one coverage. of think a every

also that of on course, not profitability. -- on together, and that, did our even right, put better shareholders. delivers QX, So And we results to in revenue but only

new better our a of lot business lot focus put think profitability. them and IP a Like our SD&A, AI driven driver, AI same areas and then on we mentioned, IP. moving move into by there in going the about forward. But the but optimistic also doing of to a I at I are I'm time, edge So like

manage continue to So forward. we that will going

Operator

from Our final with Research Joshua question Wolfe comes Tilton

Joshua Tilton

sense start to X is important. never I with I seen you your what nuanced of can you've a how a a seen a down the down John, us have bit row. after want And although I driven, at but previously it year China, to historical drive years guess in you think of year? you numbers. had question, talked recovery in you you looked mentioned a helps down years data you give to the But any

we or had a may believe And be type of it to upfront year is, demand do what there is bigger going at and Or the something have I'm weak hardware I to some lines trying or to more return along get environment in things function of recurring? more not contribution forward? just a was normal demand of that a

trying you I'm X down this year history, not once where of guess years don't previous the seen down just I outside up. and years you've expect is to see again why years similar understand to what versus and

John Wall

Yes.

model tremendous a opportunity amongst only momentum were revenue we somebody why where on that before previous a X a changed it. to think last I year-over-year years we also year get customer But it We syncratic China years, year bit Okay, from design back over that's base base, we back to high activity this couple a a XX There thanks an of downtick for seen growing the revenue a look customer color. and know China. XXXX in China. new qualities a provide little our as basis. -- like to a ratable XXXX, to and took revenue we've across years the I saw model. more upfront to And in XXXX

XXXX. XXXX revenue but recovered since -- XXXX, then from in then, dipped But dipped it high it's to a China new XXXX. only

there was new for software revenue hardware And hardware that the a and find Hardware on pull correlation China is we systems. China revenue. we to through between revenue incidentally, us more -- revenue side. do tends launched that Now

of that's and expect this think I the that delivered outside go revenue. we're hardware bit China and improve more that selling our seeing And year help more been launched being new is to of it year, China. would a to more of in next that little software will I

more like QX, there, Also, China year, I recovering higher, if been it's software since And you it hardware said, pull higher. been dipped look at has has think I in been recovers this through out revenue. QX as will QX but

Joshua Tilton

And from for BETA very updates follow-up. then just contribution are if quick you you're general, X the or $XX more the -- year helpful. on quarter original? or if we Any Super maybe in from guys track or in on expect what what was the should just still full million and your expecting

John Wall

selling with But -- when separately. getting we're for a seeing a result alongside of The pull-through automotive but the all across we're We're tuck-in. traditional BETA. big so as you small -- revenue a it's our technology include that not BETA we're contribution guiding BETA Cadence customers

Operator

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

Anirudh Devgan

Fem.ai the opportunities has for lead through exciting and afternoon. business you million Cadence $XX of workspace. Thank led investment to strong joining We customers. with the an time It's AI and and Cadence system launched equity growing an gender our initial initiative also for this momentum This in giving to the revolution committed all us with semiconductor foundation.

continue Cadence. our and and and delight confidence thank Board in Directors, road to partners our customers trust innovative world-class investors employee our a we base, our map On partners. delivering we hard continued working customers, behalf for of With and to of their

Operator

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

You may disconnect. now

Cadence Design Systems (CDNS) 28 Oct 242024 Q3 Earnings call transcript