SNPS - Earnings call transcript Q2 2018

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Synopsys Earnings Conference Call for the Second Quarter Fiscal Year 2018. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] Today’s call will last 1 hour. 5 minutes prior to the end of the call, we will announce the amount of time remaining in the conference.

call recorded. today’s reminder, a is being As At conference President over I would of turn the like to to Relations. this time, Investor Lisa Ewbank, Vice Please go ahead.

Lisa Ewbank

the de Thank today Pham, Chief of everyone. Good you, Trac Hosting Officer. Laurie. Synopsys and are Chairman Geus, Aart Financial and Co-CEO afternoon, call

to its I statements forecasts, during targets other everyone forward-looking the financial Synopsys course we begin, remind call, discuss Before of the will and company regarding results. would like that this conference and

about judgment performance current results best many our materially represent statements we our cause and these as from performance results risks could expect. today, differ are future of results that While and to to actual what and actual uncertainties subject

future results described most to and earnings SEC our any today’s are reports that recent addition release. important risks our factors press highlight, in In affect we that may

In the will we press GAAP information today. during X-K, in non-GAAP discussion. directly released financial measures the Reconciliations can and addition, measures comparable refer supplement that most financial and financial supplemental found financial their we earlier to be release to earnings

recent of our presentations, plus items, the investor these at most synopsys.com. are website available All on

turn the be With In conclusion addition, the the that, Aart of Geus. over call will site the I at on posted to prepared remarks will de the call.

Aart de Geus

the of advanced developers are Over global customer unmatched and who now. to happening has customers avoid complex it’s massively software. efforts large up Synopsys team support to their are and for market, landscape world. discuss and medical, again Good groups plus preemptively XXXX. non-GAAP all all investments with is investing the significantly The this and chains the our in around $X.XX. AI raising ideally with advanced revenue paramount changed one excellent. learning. is we optimized growth Revenue connected deep most to in software guidance and our in afternoon. well-established bringing systems automotive, big came across at software at of we particularly AI-enabled for are devices. supply $XXX are of second driving thrive, was stock, We vehicles. is serve interesting, the sophisticated the total see driving chip security EPS is repurchased electronics car intelligence I pegged while safety push positioned ever revolutionize the has as year Synopsys requiring modern year. shipping companies in amounts The networks three and non-GAAP simultaneously continues is customer strength our so becoming groups evolutions. the technologies, far $XX architectures imperative in been evident security most We am of data XX% machine in transformations per in non-GAAP were will compute million semiconductor our financials Trac happy that potential new history, product has companies growth. systems earnings share being million notion chips, rattle the AI built to increase practices million, These increasingly We the cars. delivered industrial digital in semiconductors, new of systems autonomous the for results the entering to very and quarter report of massive that and growing better entire these vulnerabilities. very earnings This double-digit as revenue made test and and vertical as they and $XXX and us and more ownership, paired Substantial software for automotive invested IoT to as chip with such privileged verticals to The with or detail. Consequently, amounts have rapidly

helping design EDA are brand new design Our AI engines. solutions

built. used in broadly is IP Our most technologies ever the silicon advanced

up bring making on vulnerable silicon help tools quality very threats. prototypes that available. long in to and our software emulation and and tools is software assist verification before test security less And software Our

to This competition design quarter, its through Technology. enable organic product EDA IP with we’ve critical all our to rollout growth, that of the security and broad pace mass is which on double-digit very growth. to well groups is future. Duck, needed the quality in Fusion reached digital the our near of capabilities by breakthrough the to Black our begun lastly, new continues economic and did IP portfolio group, our and executing software deliver revenue X-nanometer continues well. excellent growth continues And driven integration already has outpace

In from the some Customers provide the across FinFET the designs. the EDA. advanced is rely on XX% most Synopsys EDA Let revenue more for quarter, with for our their essential of designs. beginning highlights QX, than us me board. was strong partner

ecosystem record successes. by tracking impacted with at digital nearly partners in track resulting with unrivaled, plus is are Our our the At of XXX and designs X-nanometer all X-nanometer, early our are collaborations we deep customers tools.

on digital relying nearly are all customers too, designs. Synopsys Here for

influence and X-nanometer, to are customers. reach still support joint in nodes. advanced partnerships for already technology where to expertise Our and we enabling X-nanometer more Foundry down ecosystem preparing and involved are critical

fellow In a TSMC QX, saw and Technology, user long-tenured collaboration, Fusion They integration digital at Synopsys Together XX% in Electronics, multiyear all of previously Toshiba, extension revenue ST, benefits representations quality tools, with Fusion customers products two boundaries. enable and time. advanced sharing experienced ARM, processes. Plus Silicon full of of FinFET of last door their product to redefining and by turnaround we code best with the X-nanometer custom our Technology levels reductions of results significant we Valley a tasks and opens multiple signoff. unachievable A XQ, we SoCs. certified Ansys An our of conventional route, Samsung flows new in growth new performance represents accelerate which In data During spanning quarters. of ARM-based level emerging algorithms, the place to synthesis, the of over market-leading our for which partner, from better share and the product and quality X-nanometer to solution announced announced power and across completely our our results is and systematic design, Fusion example digital our of joined of conference. our

broad-based, adopted one substantial vision by position a was of growth and including to and quarter key digital Cambricon, already in outstanding intelligent for number company, win existing automotive FinFET fastest Our accounts processors, industry a the scalability upon and in a results relationships, high engines for hardware. for platform, designs. we enhanced in validation. Xx both for to the for global faster software a Platform, and long-term driven our simulation with FPGA enable AI ZeBu’s year. and and performance, hardware-based needed roadmap global adoption a to We emulation HAPS-XX continue at design Demand a built see the growth Continuum top semiconductor in verification. verification, very speed custom solution as was significant accelerate leader agreement outlook software strong Customer and its high-profile Verification development In a an customer and Cambricon launched ZeBu competitive and QX advantage. our XX with with product. system is our in strong expanding are driving processor the custom prototyping capacity design delivers record company. delivered systems well

strength segments. regions strong excellent year, another IP, and to driven for is application and is quarter an had our multiple poised Now by customers, which

new look companies For focused interface customers’ A to the excellent desired example, processes. in ARC were many success companies, bleeding-edge speed that intense next-generation and available were are several business and manufacturing third-party on We embedded in safety-certified market. order where their up to from for China, IP computing. latest agreements maximally important of to processor. key processes, for to overall, mobile ecosystem the in critical. investments deals chips our notably cloud are IP titles And In worldwide, ensure Synopsys vision IP saw strong partnership automotive number is time with

quarter, we processes. logic XX-nanometer collaboration the TSMC key for TSMC’s ultra-low libraries IP During with power memory and to deliver announced

the also IP applications worthwhile Foundry acquisition is collaborating in growing develop low-power, and we are to for as high-performance FinFET X-nanometer data-intensive networking, address continued in progress needs process, Samsung make cloud particularly well. point, such automotive computing we learning, to continue with as DesignWare this and excellent At with the SerDes investments applications. that benefiting IP vertical Beyond. machine in We To our note it high-speed Silicon to the its of

and our across flows automotive our software which third analog/mixed software serves Certification One Integrity by provide many processors to library XXXXX safety developers well our of safety design also reliability, EDA, of vision signoff of into market chain. customer functional custom, build requirements safety selection supply software safety me achieved to the development a implementation, the ISO from standards. course, company. embedded beyond, most and digital the development that widest certification semiconductors industry’s and interface entire exida, industry’s IP. and to the leading automotive but comprehensive and to portfolio We industries ranging We lifecycle security Group, base, of is Software In products spans systems. implies which cyber portfolio signal, of security, number certification this the broadest in and also the for including, embedded participate help is product developers for certified services across a brings the IP that offer certification memories

significant quarters, and TAMs. differentiator organically both growth has recent and reached acquisitions. Integrity our with Synopsys Software is we a for key mass have substantially critical expanded through In

platform Our is Software making good Integrity progress.

We to will incremental months technologies the advances and rollout are over combining continue by step beyond. step XX and key next

about The solution Black source another of that products addressing efforts. excited the our Duck software. compelling today’s are addition have in very open broad ever-expanding our the impact of on set content We customers’ positive will provides

the of combined some very still see are brand are benefits. on Duck, benefiting the team integration is beginning roadmap Black is well. from is to planning the While recognition early, energized, we cross-selling track, and proceeding we The

Quadrant Gartner’s Finally, a security a narrow list for was Magic application is Leader the customers, who it Quadrant second use testing. row, potential for vendors. named Magic for their important in of to often year The indicator Synopsys an in

year. all being the increase strong summarize, We cylinders. seen a had quarter. hitting have since recognized customer interest a To is We company on definite in very our first last

non-GAAP are year. revenue and raising EPS We for the guidance

We are verification company in with and IP our in investments market and broadened products making our and leading have outlook. progress and excellent reach, TAM design software our

Trac. over turn the Let to now call me

Trac Pham

achieved first non-GAAP revenue our $XXX afternoon, and increasingly we stock across non-GAAP results raising the returned are half, favorable Good everyone. on we better Based another shareholders earnings visibility second million in delivering product groups. growth with by XXXX. We excellent half first delivered the In growth XXXX and all guidance. of strength geographies of half we quarter, and revenue to cash EPS Aart. to of record Thanks, strong repurchasing and double-digit an

and average about operating expect results approximately an a increased reflecting year-over-year XX% all year. the and margin costs years XX.X%. Now through increase average license specify years. XX% otherwise. to Non-GAAP $XXX The comparisons be GAAP to million, will over I targets, product share $X.XX, Total be portfolio. $X.XX. the $XXX X.X share to $XXX and our expenses and million. was as we in across were duration per earnings X expenses revenue prior were the numbers, were annual I talk unless were weighted earnings non-GAAP million, costs resulting of GAAP Total Total per the strength

XXXX We currently we guidance Operating rate tax year’s million quarter to our related with non-GAAP until on XXXX in but million, the $XX below for XX%. of of is this which of cash we payment our totaling our our cash of have the than quarter, are total rate XXXX expect one-time cash. previous a and We be ended debt more plan definitive $XXX higher equivalents million. Based was know repatriation process point, to tax offshore not what rate onshore at XX%, million and $XX will QX. cash preparing of our after of $XXX XX% next for flow and including the

flow ASR, value. open On we balance to to to investing the previous in market. We sustainable million In our business the more addition a long-term through have increase our of our managing returned trailing-XX-month cash also and stock in shareholder than buybacks. repurchased $XXX are we sheet of $XX shareholders XXX% in completing QX, growth free committed to basis, million to drive

$XX the which EPS has in a We accounting XXXX our in second breakeven revenue Integrity half $XX Black available Software have acquired $XX and successful $XXX revenue, dilutive haircut to million of to about Duck, of previous million guidance, reach in to very repurchase to which be on XXXX Consistent our non-GAAP track deferred meet million. reflects a million It’s to we with of approximately purchase Black Group. $X.XX authorization. QX, Duck current project been to XXXX. addition our target on we

that our acquisitions photonic two SerDes the In high-speed design will quarter addition, we and solutions. in small closed IP enhance

guidance, transition go a which because into regarding Finally Topic loss before we transition. XXX, of of effect a to will Topic backlog do the Standard of in the in reminder at November, rules, us to new beginning for moving on from XXX time fiscal Accounting the expect XXXX

However, on expect the the will definitive commentary estimates, fiscal impact the will revenue our by be based more future The rest with transactions to our guidance. on bookings and provide business current impact we precise we of through be immaterial. year and affected XXXX

expenses expenses and million and normalized tax and million; of and for other $XXX a third million; between share; total $XXX $XXX $X of $X.XX outstanding $X.XX to and share. to Now million $X.XX minus and of GAAP to between and between fiscal million million; non-GAAP the guidance, XX%; $XXX non-GAAP total per $XXX quarter non-GAAP $X expenses million; costs earnings million; $X.XX GAAP XXXX per between costs the rate shares $XXX income $XXX revenue minus and and earnings QX, million are $XXX between targets and

of to targets cash $XXX expenses XX%; of non-GAAP a share; minus operations the non-GAAP shares capital $X.X of of and revenue and $XXX million; tax million of $X.XX to $X.XX $X.XX outstanding about billion minus million $XXX million; rate to billion; and $XXX income per earnings $X million; and to $XXX of are $X.XX from XXXX, million. million expenditures For normalized between other GAAP share; $X per flow $X.XX earnings between

than reflects and on fiscal visibility the QX. best guidance As with IP remainder of quarter-t-date the higher based variability expenses track QX record we Earnings we a in hardware that implies is look earnings inherent point. note QX. operating will year. in in revenue and to be third summarize, XXXX, our you and revenue This revenue quarter and associated this our higher our the seasonally we are at delivered on To also higher will reflecting strongest for in

We newer growth our in our with continued long-term products to in support incremental growth. to complement investments higher businesses sustainable core spending our

maintaining M&A commitment our to deliver have investment, results balance we achieved capital our these return Finally, results the while shareholders. for strong to a and of of organic

Let me now turn for it operator over to questions. the

Operator

with from question the ahead. line go first Benchmark. Gary our And of Mobley Please Instructions] [Operator

Gary Mobley

questions. everyone. Thanks Good afternoon, my for taking

anything. verify few Let’s just things more than so

model the last implied ‘XX point of guidance a non-GAAP margin continued the normally increases sequential Your the and operating a a seasonality your as dip OpEx, trends? you fourth in of in away way operating we dip sequential point on show I EPS quarter it’s in should neighborhood of just function basis assumes revenue unfolds basis weak and dip year the described sequential that of be year fact fiscal the given believe in so you fiscal and operating way seasonally large in XXX margin basis. the margin in year did margin operating year in is And XX% XXX somewhere

Trac Pham

is Trac. Gary, Hi, this

similar really that’s year be I trend our this as quarter-to-quarter. would but case. happens will variable It on the of last over normal to depends the from quality vary you see time. a so business accruals For comp that commissions and or year, call profile It to

to for true-up and QX, then As and quarter. our we revenue be profile just is what given it an said EPS a year this hiring for in comp expected our trends the lowest variable happens

Gary Mobley

whatnot. in operating from verify that is like operating XXX dilution it current fiscal $X.XX looks that assuming and margin basis is Can Black verify the Silicon you am the Can doing for amount? maybe in it’s acquisitions, I like par other year and approximately the if you dilutive contribution and roughly that’s prior be on mentioned just some two and acquisition some year the You points will there in margin Duck XXXX dilutive dilution? with was Beyond and not Phoenix the calculations, what

Trac Pham

is right operating margin the Your Duck calculation of in on Black impact neighborhood. the

we to do marginally made XXs margin have midst the we stated of impact in to regards next as We do are in driving expect With the the operating are to right on also in plan we excluding EDA And past. or margins and it up that, operating seeing some mid flattish market. the opportunities marginally of drive in addition have from we this Duck, year-to-year year. Black year-over-year. as ‘XX to planning year changes investments up that the the would In given FY the IP we now, been although it

Gary Mobley

for this Group Last is still Integrity million revenue $XXX roughly Software on pace year? question, the

Trac Pham

range. the in are right You

Gary Mobley

you. that’s it for me. Thank Alright,

Operator

is question next from Rich Company. ahead. & Needham go Our with Please Valera

Rich Valera

then increase there is on you could is revenue annual it corporate of just number at any Impressive mixture I give of hardware it all predominantly the from of to incremental mean, the operating of other it’s kind where margin. a half implied the your kind the is And about that it of you. million, coming looks in that there, Thank or products? like line, $XXX that’s sort bottom looking of flow-through color

what’s the Thank there incremental from doing you. to some line? from going there you top some see on are is you expect on the acquisitions incremental maybe wondering So dilution or of upside some reinvestment the

Aart de Geus

growth three there things. are From perspective, a

I would these did would broad across and things businesses as it say these beyond businesses. at same little time I healthy the did that hardware say a but the very the and occur, It’s well. the was First, all standing board well very both then are IP overall, was out lumpy

own Duck Black management of has terms a investments, we of where its been the we been year via M&A. the made of ongoing course absolutely opportunities. this investment profitability, In has see have

we looking the And well. again. this Trac we want I to grow great opportunities just to what did will purpose knowing margin up exactly forward was saying we on so ‘XX ops moving attention that it to specifics, pay to without giving have And more state

Rich Valera

And in – sense. Black or perfect from a line give was contribution this there that service other can pretty that to could then is strong meaningful levels Thanks. that, as revenue on Duck and at the just of going maintenance there makes those you line kind is That any color forward or was that? Trac, there quarter, stay we this expect

Aart de Geus

Yes.

Software So business Integrity doing very for services consulting is the well. actually

revenues. business, completion particularly by quarter-on-quarter increase IP was the the However, percentage largely the driven

Rich Valera

it. Got gentlemen. That’s Thanks helpful. very much,

Aart de Geus

You’re welcome.

Operator

Please And we Farhan to with Ahmad ahead. next go Credit go Suisse.

Darren Chen

and My this for Darren little your Hi, of when of XXXX on we ‘XX a year-over-year your provide business this some implied first sort what’s idea you you and guidance question again XX% basically across us is getting kind Farhan. outlook now had but for we on quarter, you bit, of about gone of linearity some look second par XX% on already are maybe color year-over-year. we at Could half last down up give segments? changed your

Trac Pham

is that. those why more of second and IP that’s both us revenues, IP But will half, in provided this very business visibility on Yes. variability business. businesses right that – The quarter really the baseline that the the we as but well, that was changed will visibility what strength the are booked the for we our it nice are point we so we overall the first to hardware in see what businesses the hardware is starting best now and stronger And based of doing very remain year. that the gives and provided increasing grow are half

Darren Chen

should XX%, at the then more again Got probably could second up I or diluting and when that seasonality? R&D be margins of and somewhere should the is get keep over up the in is margin the that of a of gross right expenses see you terms XX% half, look half where margins it. maybe coming think R&D in it go the at expenses, flat I to looking half else question as I on sort And then the SG&A probably also you sort if

Trac Pham

ramp increases XX% looked R&D we a in going the quote a I of sales commissions and I as line, hiring as the areas those marketing variable well you as should expense haven’t the I that increase. as increase marketing up increase. – combination we and but both driving, line as the can’t well at year-over-year are be comp sales can’t see to it’s or

Darren Chen

Black really cross-selling you. And terms aspects doing little Duck And final question sort then security just you the the and Software Thank Understood. a do the then am overall? of in forward? it’s platform well. Integrity being about customers coming software going bit in also interested platform, of outside on the see I possible of semiconductors curious

Aart de Geus

in me knew start we end. customer in the base past. that but growth we let the existed, seeing Absolutely, with didn’t are touch Well, the

direction is one as when you very between has segments different certainly remember software of with fundamentally, areas in continued time, industrial hand systems financial balance oil the so vulnerabilities become our were point software. that broader in at touch shift in to That and to reserves in to was security we balance roughly sector broader as this we not And and acquisition anywhere that started Coverity, it purview. it health development name in to on it. XX-XX from be really problem semiconductor And

think of at they starting adjacent that are of a able looking think that’s doing we were and engage are to TAM. Cigital itself to and that of going more supportive to have long risk are to for And so we should because attractive, different companies high-leveling aspects be chosen also that large a that, provide now sort be component there and to multiple tapped in so other, solution, the And allowed what a are low prove we as acquisitions company broader we run. us of the themselves I I in service being perspective, the that they nicely well you of middle The fact the do have were true. frankly steadiness by from feel that the each we added

very we developing. future, happy this to is but fair say So is I open all-in-all there for with are that questions that the it’s many how think

Darren Chen

for Got time. it. you Thank your

Aart de Geus

You’re welcome.

Operator

Sterling Auty from Please question with a JPMorgan. go ahead. have We

Sterling Auty

questions. guys. quick Yes, thanks. Couple Hi, of

Black you quarter? that rate organic given First, us growth couple the of was what just times, mentioned can Duck you give in the

Trac Pham

Black the Duck? am business versus I sorry, organic

Sterling Auty

and so the For what growth? total for organic company was the revenue whole,

Trac Pham

we break that don’t Sterling, out.

Sterling Auty

Okay. so is about in in revenue hardware recognition, half think revenue IP both Was spilling the and second having an you hardware the increase as about why the bookings Usually, lead in the half, strength the upfront talked hardware times? in I there helping first over?

Trac Pham

No, is are the in the it somewhat The or of typically hardware, function hardware of lumpy of if to shipping sometimes in expecting it inventory and you of they ship with time. on that can have if frankly you orders is availability is you and timing of terms a certain of ready size and go that and unpredictable at the indeed terms came too. top right customer is in desire challenge then

XX we was Integrity out be anymore business gradually don’t said that profitable expect month is have don’t think we is become XX the past So, it the between good, to of are profile we to break quite that because and I to all of wasn’t continues previous Software leave We growth I M&A the these – a What acquisitions the organic to the it the and integrity things timeframe. question, clear just was res. want the things bag actually come back not very that of that not grab to so in certainly the was understood very of it good, about rates it all want business an predictable. to in impression quite we just question.

that’s we to financial the and so that have rate overall pointish the And aspect of this XX% in other neighborhood. business the growth

Sterling Auty

based how maintenance that’s think etcetera, license hardware we asked, forecasting, How and revenue and total that’s time-based have I about to kind difficult revenue Rich the more services some in have last question one the think because of impacting come half Got mix of our down on following you I challenges good, it. I And kind think terms beat, that think line one more then think the I items, IP business. in the noise. had the of on has and things we been estimates should strength have pin I so and of one versus but second different created of been think in

So those us in any you items to terms be line give clarity can on of great? that help help would

Aart de Geus

going is more and the line. in the with consulting maintenance then Yes, will two-thirds won’t of I will upfront you time-based for of business general, And be show to in but hardware of up general, it it then services be in on – typically upfront IP the it, nuances as precise will some being it the see and line the with as third time-based maintenance time-based the well and line. in

Trac Pham

look fairly I even earnings to the or perfect from right of revenue company you why a maybe bumpy at at a that able little deliver it’s we highlight these what go of in to comment towards. general, Synopsys more the shape. of add I would in last guide business, be the to terms the at how year a with little do bit we of that, heard to that are to you the Maybe in terms to look seven but line, must caution the be the and negative a over in or they now the At in quite you same terms time, consistently number in have of going not predicted, it the we years may regard we because that six releases if of think None degree into is like least predict used effect. term we evolution lumpy, difficult to quarter-to-quarter you in good see just direction overall certain

Sterling Auty

you. Thank Understood.

Trac Pham

welcome. are You

Operator

Griffin with Securities. next Vleeschhouwer Jay to We go

Your line is open.

Jay Vleeschhouwer

and a we XX combined the calculations, me for on Thanks EDA good fact total and of good trailing margin at it together hardware basis. hardware, when XX the big our trailing with hardware about based are that business quite prototyping half months on in let we would a now appear evening. Synopsis X is and start by in XXXX look Aart, emulation

emulation basically what secondly, you and in of customers prototyping? are customers QX of when concentration emulation said for in taking is first, So terms seeing more the that breadth business to Mentor part the been hardware of case. more So, were one you first the have Thanks. seem question? on question taking twofold and seeing is number does which are that that’s a And both with question. they My that or same the

Aart de Geus

Okay.

So, is of the both therefore for well. you emulator hardware, focus board the a do running the that zoomed is reason other I use the words well there we is is of notion that some very forms where or earlier FPGA that’s and reason software on an are intersection of this software, run such doing of everything a growing and is it. that have complexity a and and and is demanding the well. that because other we first the software that in think in can that need of the software or answer we And times as delivery exercising The prototype and have of the you area yet hardware in exist can as hardware comment the the is on chips up an software, about is very you hardware the on doesn’t bring we area specifically

our Our is we own disclose in that not number. its and we Mentor the market have grown does that but sense are yes, share lead,

they great are doing do. them for So, if they I something don’t good and if know

product the the have for we continuum. we a the of talked while fact breadth that line, of have verification a quite terms about In

software for number on. to very for emulation, simulator, repeat well real example, conjunction are them, hardware that of different complete boards good assemble the each for have very pieces multiple depth we a amounts interacting that. And see we in that life and one really HAPS in sense, of are large pieces, debuggers because customers be business. the HAPS with running both with solutions actually are a in solution these some breadth tools, in our So, software working would in and do And growth good really and of tend situations, and directly boards characteristics, the and the use so are yes,

Jay Vleeschhouwer

what timing, generation Can that software any of for meaningful AI power, about of those your EDA for terms so chips been When and/or the consumption X, in numbers about think XX, next any next you name licenses in chips, talk chips? you it have then-hot in differences of to terms leads has XX generations dimensions? forth. in of and mix question years ago of prepared you talked the Second synthesis, the generation versus would your with fundamental you of the about remarks of do the differences for kind any core of

Aart de Geus

the number largest think AI boy, reasons for most slow, it new articulated of the I cases you And minute built, these faster? these I Actually, it’s make Technologies. not also to run to some minute quite the something is next there the the is that to while are to Silicon too wave have we no semiconductors, so we of and is can can of in whole get a the just forward because one algorithm And chips exceptional. great really mean, chips opportunities a believe and useful, truly advanced this time in you for will actually so be do drift way by

I something that established doing more using for they companies Now, want technologies chips, are quickly super quickly is IoT in the capabilities. spectrum that that to say of from AI many advanced can how we narrower are that span the on their to broad a also market get

be is continue or I accounts to And in past very in they making have the different deliver And so in think or are on focused the than ways computation that dimensions. seen transit don’t increased the the sure foundries much that that smaller mobility that no actually the age it’s there question age networking. we all the in

Jay Vleeschhouwer

say, may, press company can IP in on or hitting the SIG about relative impact is I core various think you words, you think the if now. I or portfolio, pieces largest you confirmation release all impact rank Synopsis refers from Lastly to on EDA, might would on, your relative that let’s the an automotive cylinders, you about really automotive, think the are of which other guess When how each be that? you

Aart de Geus

many there a processors, design to preferred of can it because ultimately don’t have fast to absolutely on it growing put to certified And it able prototyping not chips realized chips. the of the the awakening The ship be going those are be definitely Software lot of a they because in And so the The most in fast, new also were be the tools I that much things they is The demands. is from by the there areas, hacked. but the had and not design virtual in people forgotten touches touch anymore, touching our is around cars IP, as complexity people of safety will prototyping have Integrity say touch verification are cars. rude actually notion IP, couple coming to they could question to really put when them very that will quite areas certified ago some those decades above of be interface number software. two security as of that ISO Group, a because and chips years having more that Jeep themselves the a be aside instantaneously, just power where there prototype they more it, is timing these a systems, and is into be have necessary, that unless last XXXXX four was sort and that of number are embedded least substantially. Well, diligence sophisticated

in So they all moving are that forward. sense

combustion working be say it will but Lastly, on are won’t are so to we autonomously clip just I that the running well-pointed like to working engine, cylinders, electrification hopefully ourselves and all company. on here your we of would

Jay Vleeschhouwer

Thanks, Aart.

Operator

And Garg KeyBanc. we Monica next will go go with Please ahead. to

Monica Garg

talk Aart, you applications in from question. talk in much of my maybe specifically and of taking for market AI one how your going you thanks growth, that’s forward? seeing the cases we about are revenue kind kind comment, Hi, kind these used see could example application of about of what

Aart de Geus

but think disclose because wouldn’t the so we many partially no that years a certainly are also we or a that a going companies direction, absorbed Yes. the good ago over right and quite same revenue at can on overheating be sees and they is that precise sign a do lot that get are and very subjective, to X some years things is did and things a I that a be of And many that will I of that that are this not companies the little tend don’t X in there there all, it will partially somebody exist. these maybe be it’s there because time, is bit in by of number above investments time, as all also there question chips of of lot minute the is they else bubble, think the because not long a company continue. but effort

on things on so companies is of if of well but quite are others at used full cases, the the sort are AI learning, know a typically that that, you and there then used visible there the companies type would that essentially provide way. certainly many extremely you about could look are looking could And number going in that to capabilities number you are cloud, so trying very of at an are edge. that direction has that And in the the be put in a there done some large the of NVIDIA in a generic

the not of if but the of from are cracks range voice driving of recognition, course characteristics on, autonomous patterns see going interpreting of machines also and they all so learning, analysis and recognition, kinds to learned to vibration of learned pipes. it’s brake, but the So inside identification pattern for of behaviors recognition facial or

creativity in fast this going of beginning this a very phase. moving of major are I to lot think here we much I is believe the and that is there interesting be as as still very

Monica Garg

growth billion, look margins? to not is then are somewhere slightly more XXX% lower. of guiding, seeing are forward XX in operating I why fast was I years, some guess in leverage billion seeing XX%, years Alright, $X.X $X.X billion, the XXXX, like thanks. revenue, revenue operating than like revenue Synopsis if increased margin when kind more and we $X.X have back in what question we great significant I but are to question you XX has the like and similar was numbers margins now margins And

Aart de Geus

good a That’s very question.

we I something if but have the to growth so put above push fact I highlight with we it’s that do it the margin to us would needed ops set And more emphasis price said would for else forward. always the we margin, ops certainly on going though. that time

and successful early been our I then not attempted being of the have the substantial and is We part in building been that XXXXs in company those X now a has broadening IP TAM for twice the And our ago, we or long-term portfolio. so first the which think a years decided of world was business, what And bit would business we that XXXX that as acquisitions organic hardware throughout I successful. a I from of a say quite would say and investment. continuity we Software that think we invested in invest has of the Integrity into software can in in number see and the also a

gives Synopsis have in and long-term the that that, the It many sense think downs that touch had that many, the in of outlook. And of ups years. when brought the grateful many company opportunity gives any many And because in different at to is potential so to level it before look the year with. customers we stability you for in than us some many, we interaction a are never more over markets that in next years I to an has outlook very space

company are to on but would like that as which actually issue, So investments. very now improvements happy your the raises the improve point profitability, that the incremental those in I can context, towards based where to is highlight now the we right we is

Monica Garg

Thank you so Aart. much,

Aart de Geus

welcome. most are You

Operator

[Operator Markets. will Instructions] to go Please with ahead. go We Steves next RBC Mitch Capital

Mitch Steves

will with ones kind A start for few Thanks the first. of I question. easy guys. your I Hey, ones. guess, small

under with to it fair just quarter didn’t that assume to guide contribute the guys line? the revenue that is to much So the it’s two X% you quick meaning July somewhere did, acquisitions

Trac Pham

Yes, this They results. were to is immaterial the Mitch, Trac.

Mitch Steves

is this the I to because that revenue margins. line, math business on that faster, Okay, going ‘XX the outpacing I guide, am if the people growth, growing like business to that operating which your implies poke And core around essentially essentially doing operating looks expanding $X.XX correctly it Is the EPS I but that is correct? is margin add core perfect. second a FY one realize bit are

Trac Pham

results. things few a in is There the

back out, seen you Black the the in EDA we clearly as in benefit break do it mentioned we which some have earlier the you have opportunity IP pretty We well knew dilution. of If the Duck to highlighted the that as that the have rate good tax invest business we and space. benefit have in of

versus holding but some of those operating the you And are overall out, flat margins, of things things separate ‘XX. we relatively year-over-year are the margins drivers all so those

Mitch Steves

Okay, are of perfect. in people And more and then just side, hacks that we in the essentially news terms hardware chip finding the seeing complexity things of so chips. the last one and more about security the in

cross-selling who like So a mean the for Facebook something exactly that where plus EDA is or I tools? cross-selling? the exactly are you seeing the core guys or vendors Software basically cloud it the opportunity is like Integrity

Aart de Geus

cross-selling Well, so two different are opportunities. talking we

will And through within and think I do their a of hackers heard And tools, mostly Software brand more in the security is solutions. they opportunities the yes, Integrity coming in Cigital, direct, where more together. and is that of and many a other the better that topic. one to be I creating from also because to preamble the to and have for The focus actually investing from lot continue understanding coherent to grow, bit gradually these better continue – where invest have understand are and it security becoming think tools, that tools, much vulnerable cross-sell space may and domain. capabilities starting of is mostly a years. encryption we and now too software IP security we a positioning Coverity, quite platform that, In there the are will a acquisitions, the work building trust. will figured build improving few to we tools you we the little And And area within Duck gradually nicely business. first less of out increasingly The the that Black it’s quality cross-selling companies hardware this could all have a security very have hardware number and route it have will of

Mitch Steves

One on average, the business perfect. with is to you of last running IP revenue small below Okay, the IP get that any was line in sort the margins? essentially of piece there operating where one, corporate of run-rate just business, be kind would the

Aart de Geus

ops the no products having actually is said order the better high against. orders, that a IP it certainly of very Structurally, grown growing our years that from is strong specifics. perspective business. service quarters we whole a run-rate describes amount There a that, on a see we the and of sort because steady disclose IP doubt level there over and works gradually had don’t more nicely of of how have early do cost also for of and and we last a the we IP, customization. There things between certain was Yes, is certain bit that of little number the in their is quarter difficult But actually an customers that state very the margin is and statement bit certainly works.

Mitch Steves

Thanks perfect. much. Okay, so

Aart de Geus

You are welcome.

Operator

for our turn it back to speakers And remarks. closing I will

Aart de Geus

available strong ‘XX is a comments we in And The it also year. a are quarter. of for for the of half I beginning your this back much will further will closer. as Thank Well, got solid your you that of afterwards. little this looking very sense at had get is although business and thinking up. terms until for And bit how you on a hopefully Q&A are results for attention you’ve a taken of and hold usual support. at we think sense point about away quite run-rate of the ‘XX be looking where second we the we in time we The

Operator

you your conclude on Teleconference conference Executive will Ladies our and AT&T this Services. for for teleconference attendance Thank today. today’s for using gentlemen, and

at disconnect this may You time.

Synopsys (SNPS) 23 May 182018 Q2 Earnings call transcript