SNPS - Earnings call transcript Q3 2018

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Synopsys Earnings Conference Call for the Third 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 one hour. Five minutes prior to the end of the call, we will announce the amount of time remaining in the conference.

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

Lisa Ewbank

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

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

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

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

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

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

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

Aart de Geus

Synopsys growth, of solid and our flow. you our your fiscal for XXXX I’m expectations An phase exciting a entered to revenue. it’s XX-month another Good we Synopsys the revenue, to outstanding our mark cash that and partners next afternoon. trailing in $X delivered support. good time milestone earnings of report all our happy quarter billion and passed and for enter customers, think as We team, with

expect of the excellent exceed share deliver on for result per growth to customer to and double-digit year. communicated we execution, a substantially we’re last and revenue earnings and November strong non-GAAP As the targets track demand

$X.XX, share bringing our non-GAAP $XXX and flow. product repurchased the For of posted for with strength all operating total across million. $XXX cash per million, we to earnings stock, million QX, in the $XXX were groups; We we million year revenue of $XXX generated

complex guidance customer age for Lastly, revenue provide The as drives across strong, we’re raising the as environment moment. more the is software. companies, and non-GAAP traditional year. AI, all compute the will cloud systems challenges, networking Investments to and directed huge continue are and is Add intersection supplying in the sitting to hefty well demand of these readily detail for years or uniquely digital to of and will to hardware developers see a positioned as and come. the and data security, the semiconductor Synopsys Trac by power, of investments storage, and new increasing software that solutions for infrastructure, design address growing at massive many software. industries. of for can intelligence, need technological challenge and at that in our earnings expand support one

entire large, a enable the strong embedded quarter, sophisticated initial some group, key differentiator EDA lithography strengthened adjacent branched capabilities. announced process We of last has stages Samsung out for early In this the Synopsys established all IP collaboration and to TAM on advanced beginning as advanced in me digital broad context, and products, complexity growth in result, Today, software by grown some our position the we’ve software design week, IP IBM certification highlights from electronic advanced solutions. announced our leadership we been quality. our custom successes leadership business a amounts into And development. engagements and the EDA, As with complexity. designs Whether immense partner tools, to we’re and process more and this manufacturing, development is verification. broad X, of of chip. very provide security or history, manufacturing driver a and let moving built benefit several or just With the means a with primary in from process to The demonstrated due Foundry X-nanometer technologies, of nodes, our in EDA. design at processes, X, the These for their subsequent to and digital technologies. a process even quarter. of with TCAD the In

accelerating reaching an Our over design generated revenue year. greater platform with past the growth all-time plan, than high,

number On chips, the XX% does further realizing Engagements signoff, standardized but the Fusion speed, brings techniques infrastructure to certified and synthesis, Technology, this a customers. Low which better we’ve for provide power. between technology improve have Fusion level place design really Foundry a integration of the digital AI & Multimedia introduced with area on recently its embedded hitting a already and Vatics partners customers Technology process mark side, SoC runtime with grown. that is our of route, our provider EUV. about after revolutionary Plus Technology X-nanometer only with new and has Not reduction. Fusion Power Samsung fundamental

companies. results. We to Automation the highlighting industry Design that technology new Samsung plan-of-record AMD, solid Conference, implementation at by are the early adoption leaders seeing Broadcom, their benefits Qualcomm, and brings presented several And high-profile systems Renesas the flows,

real-life engines key broad-based ZeBu. and DAC reduce number In than hardware flash renewals. another verification an multi-day successes Continuum FPGA-based complexity analog excellent With design engineers companies the datacenter for prototyping, presented Verification three Intel memory Server simulation Synopsys built QX, the profile less Now high and day. requirements emulation the collaborated verification. and and ZeBu accelerate networking, adoptions X, runs our industry’s address had fastest for High and quarter. and Memory learning, technologies largest-capacity automotive, with is quarter, very Samsung, all to In we at AMD announced strong industry using XX of to Platform, over in positions general fellow and resulting software. the Demand systems, their system. to the areas: one Toshiba Verification increasing performance SoCs. where emulation, The we delivered verification verification, competing demanding in and to availability in fastest upon also ZeBu extremely is machine simulation, a XD our XG, ideal

now One, where several and Let IP, is driven outsourcing record covering by of security, process automotive, it outsource to us. semiconductor broad we continued demand customers interfaces, cloud optimized their high-growth that dynamics. four, markets of IP to Double-digit easier Three, such move efficient the blocks. another computing. and for established an for And for in and IP expect as make to portfolio designs embedded leading-edge year. subsystems more coverage growth nodes. and memories, me increasingly processor IP IP Two, AI,

are IP ARC demand Processor first IP that autonomous Embedded We features solutions, embedded vision for seeing processor strong industry’s applications. driving ASIL-D-Ready for our notably the the Vision

in bearing fruit, non-volatile are orders acquisitions different memory with in segments. significant across Our the also quarter market many

in integrity, provides the quality vulnerabilities security code defects software where Synopsys phase. Now for development and testing software to during

for While develop business number rely software companies our traditional as and on developers critical to who and growth customer a component services, medical and software TAM in verticals we us, financial large much such broader as base devices, is the EDA IP. mounting just prime their need represents that tap. industrials a of a beginning opportunity aerospace are are This automotive, in than of

well. code Black to platform and of for general unified combination Integrity consulting recent testing making least the tool enable early of set XX% more mission tools, which need towards through one risks progress address X,XXX Duck important planned open Platform, of at vulnerability our of found software. a an Software code scanned is to next vulnerabilities than availability that source is of components. to platform open source both A XX% had Duck with and we’re growing diagnose security easily the commercial now. analysis the happening Black Our of is With services. source proprietary The open per An companies a source steady of integration test bases with codebase. contained year, XX average open applications testing more in part going

early brand opportunities is visible and through cross-selling this us, both enhanced For recognition.

towards another development the industry and stimulating is customers. organization such the four by a services process. aspect to assisting years over further progress recognized security as interest mature new Gartner The approach more past been others, holistic by Our our has strong made customer of journey leaders important

current months we’re also perspective, For recent Conference, is a received our XX revenue, market X,XXX from Reaching We’ve for we inquiries financial nearly entire around are trailing Synopsys, well. focus in security, Security in future not customers, key potential dollars doubling a portfolio. critical example, and BlackHat quarter across at software up automotive executing mass, the the billion only From enthusiastic emerging tally. about a into potential. reached but year’s last segments, passing and vertical quite

create tool subsystems, their panel By semiconductor for the division with development to better and an Tier time-to-market collaborated the across start traction TSMC gaining we leading objectives. of automotive with of is At prototyping can virtual with hosted the critical NVIDIA, technologies automotive strict leaders NSI-TEXE, companies and automotive X successes most DAC, Tier ISO-XXXXX-qualified who providing functional earlier chain. from and models safety comprehensive unique a and automotive differentiated flow, leading chips Panasonic, Danso, shared reliability. Synopsys. OEMs with software supply meet to We’ve Our Xs

also actions our years, deliberate. the past key ASIL-D to our portfolio strategy from summarize and the have vision IP, memories. over our ranging been We embedded comprehensive To most processor automotive-certified interfaces of several have

leadership our First, maintain in grow and EDA.

and technology gained leader, we’re have market new share. leading-edge out the As rolling

continue broaden portfolio customer to adoption. Second, our and IP

brand-new, titles revenue As reached brand, scale the to third, ongoing billion the the see growth. We organic believe diversified are having portfolio global built high-value TAM enter continue the we’ve number most two customer growth. And XX% poised for comprehensive of and that and IP vendor, dollar mark, and critical Integrity. double-digit we’ve recognizable passing a built base Software mass in by and quarter high-growth

years, through made did for delivering also guidance investments, both the our M&A. single-digit we growth. these high past on We significant organically and while During EPS

mark backdrop ago. foundation growth revenue earnings In Synopsys the years projections years, overachieved, for billion leverage over provides continued earlier solid the our crossing business. and than growth a last two fact, and in few in $X delivering internal This double-digit operating and own increased the

position in to be assumptions operating provide will quarter. report an and long-term next a we our update model objectives when We to

I will a with say over now, next ambition to high-XXs. For approximately intend margin XX% currently years, to drive the three non-GAAP longer-term that of we operating

to for another ready XXXX are yet of with in and accounting earnings margin we we our delivered the increase As and the To in even presently middle are we are to expect but year. revenue guidance conclude, the change non-GAAP guidance, we non-GAAP quarter next provide year, process, FYXX. excellent budgeting operating not revenue in raising

TAM in strategic revenue good is very making into Our and years strong customer quality the off. the expansion paying software relationships our EDA growth. leading progress. and EPS and are products our to excellent investments are several security Near-term, over past new IP and Longer-term,

me Let to now the turn Trac. over call

Trac Pham

Reaching are and that great Thanks, for is performance in billion Good not revenue financial our afternoon, our Aart. $X only also paying QX. investments everyone. strong the execution, long-term and strategy in for reflects a demonstrates accomplishment outlook This our off. quarter improved is evident this but that

our EPS revenue we’re XXXX and As raising result, non-GAAP a guidance.

Now numbers. to the

per and $XXX equivalents Total cash $X.XX, a results $XXX We of across total $XXX exceeding a in our is was product includes quarter GAAP margin I reflecting one-time the by to share for due bringing comparisons related million. be million. payment offset million unless our As share at flow in $XX range XX% targets, GAAP very were operating resulting million, expenses earnings revenue total non-GAAP strong Total year-over-year million, Mentor accelerated million, revenue per the to Operating Total otherwise. growth operational debt were increased with legal $XXX May, will million and settlement. non-GAAP million, portfolio Graphics litigation earnings all settlement. a execution. the share and cash XX.X%. our talk which at geographies. $XX were a through strength costs were expenses charge collections to were repurchase $XXX year-to-date and million specify which in Cash onshore, all of $X.XX. the patent buybacks $XXX $XXX costs and target XX% to quarter-end and $XXX I launched million, Mentor strong reflecting of Non-GAAP and for

versus count remaining As currently a our $XXX have repurchase our year. share million result, we’ve been authorization. We share able to reduce on last

purchase of of on estimate and $XX with accounting million well XXXX integration track a in very million. Duck, of progressing target $XX to to revenue. revenue Black haircut our We’re remain about achieve $XX million This deferred reflects our

XXXX. $X.XX second-half In addition, of to to Black Duck continue non-GAAP be in the we EPS XXXX expect reach to break-even dilutive approximately and to

the about into go ASC rules, to moving brief some for new November. us provide fiscal will Before beginning let on in in guidance, which XXXX, commentary XXX me revenue accounting effect

time we backlog discussed, previously at a of of one-time loss we’ve the transition. do expect As

recognized material rules, revenue current the While or on not the and current than do under impact of flows the slightly be we economics impact based our no will there rules is new lower under forecast, on expect a the business. cash

look outlook, hardware until year XXXX, and please record we coming next still that normal to guidance through premature it’s your quarter. business budgeting As to that we Therefore, our IP XXXX we’re process, suggest the and would are detailed in assessing another working XXXX. off estimates note we provide change

of in time. what provide XXXX high XX% also our years and of three will Aart at a full-year, objectives with reaching next let We a to assumptions view and goal the me long-term said. intend We the model margin and increase reiterate that full longer-term. the operating XXs beyond, operating in In meantime,

quarter XXXX overachievement in fiscal and which guidance, upside to reflects incremental in Now and fourth QX. QX

$XXX and minus million; million; the and settlement. expenses $XXX and earnings million; In to QX, and XXXX between of million; to share; rate results $X.XX GAAP of $X.XX million XX%; $XXX between $X.XX GAAP between revenue non-GAAP to and $XXX $XXX in We reflecting revenue $XXX program. capital billion earnings cash the of our operations QX one-time earnings share; are: normalized $X.XX XXX reflecting normalized GAAP tax and $X earnings, of million are for guidance non-GAAP The strong to investing about from conclusion, for rate flow growth. $XXX carry $X and returning of our $XXX and total double-digit million; shares another non-GAAP $X per delivered non-GAAP outstanding $X.XX and are $XXX $XXX minus billion; therefore: expenses fiscal per through delivering and of minus other also outstanding shares between $X.XX per billion targets a expenses costs For between total million $X.XX $X minus earnings tax we out income share; cash between earnings million; between growth costs a non-GAAP XX%; a million $X.XX million; to $XXX legal of and income $X.XX while repurchase and revenue expenditures $X on per $X.X other revised and share. million; $XXX to targets expenses million and commitments strategy, to full-year and year consistent million, of of both shareholders by and of raising non-GAAP Mentor reached to revenue stock

in approach We’re compelling also while of revenue opportunities maximizing long-term shareholder most operating confident balanced growth leverage. the our to value, driving making

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

Operator

Benchmark. first with [Operator question Gary Instructions] Please Our go Mobley comes ahead. from

Gary Mobley

sequentially, the on bit about points wanted from down evening, you’re to believe operating margin implied implied taking what points XX.X%, Good question. down I for is everybody. operating XXXX I basis basis about little maybe. your Thanks a operating margin delve deeper QX margin my implying XXX non-GAAP into what basis. a XXX

curious And Duck be small investments to question? just been just I’m and Black that well, there I’ll contribution a seemingly have – sort the stop of change would because dilution? So made, what

Trac Pham

Okay, Gary.

in the nothing I You’re the it expense year. normalize take a it’s for The Gary. really timing expenses and – the ramp ballpark, wouldn’t next and QX of unusual.

the seeing we’re a true-up for variable how quarter year, strong quarter comp the well. outlook our next is our program this Given and as in

year. of really it’s reflection strong So for outlook a very the

Gary Mobley

on a And security from your Automation All competitor the been whether Conference. you your thoughts have from just cloud? that maybe softened a delivery us right. latency system a ready standpoint, I latest EDA maybe is isn’t the think main And position standpoint. system just at stance for not and give on I file standpoint, or wondered cloud-based and your that a announced if infrastructure from ready has the Design

Aart de Geus

Sure.

time, between the available first why large customers need large by sweet all the to is go are sort utilization to From cloud. of spots have short to the practical of clearly very often interested is The for view, understand have economics, thing a a the and people and point driven find for periods in up performance themselves. this point clouds example. It’s of

an emulation large and We provide software have of customers also of our cloud, we our have are cloud. that actually, we that a running quite the on number clouds our very a ability And the we to a also substantial are running customers commercial own number on through have have that already. cloud. It’s to software say noteworthy

a And so if having big on that peak improved, on provided bit investments. quite I to hand number was It get without is that hand small would in the of one goes comment that how very to away. a customers at that correct other either also more substantially all one high customers the centered for security there very or security you’re years the resolved are the combination and And ago, so, have is about look of case quite never of terms The concern start little dramatically issues. on definitely performance is to better a say. of Today, they’re opportunities they make those rightfully have

the retain upon I variety But our time of vulnerabilities hopefully that of think, other certain is our helped clouds for doing part the of certain by on helped margin, system course, or and, fundamentally, us. on is things any I business. a think,

Gary Mobley

guys. Thank you,

Aart de Geus

You’re, welcome.

Operator

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

Rich Valera

you. Question Thank margin. operating on

margin without operating is the Integrity anyway this what to give would to M&A the there bit us could a business business, indicated of the a You’ve Software Software base be done SI be dilutive sense of business business? margin Integrity the in without you Is the of year. quite which going you’ve

Trac Pham

Rich. That’s a good question,

past years we the order investments were our in when – in the the the go commentary margins would you started TAM. probably investments at in because of five it that to overall and the our operating digital I ago, of think would points new even Coverity probably provided Black Duck XXX around look basis we on up if

Aart de Geus

fairly tended that, can companies the you grant that a first the answer And were through haircut that be would said to we’ve that was in circumstances those particularly I the that’s you place. a we different. of may period we a if I Yes, but of XX in not window, every that work recall notwithstanding typically There major the fact these acquisitions, XX all time made profitable typically months. one to in broad

are we living think, I much up that. very to

additional why we to And now And integrations that itself. time see mass. some that market we in so an would that the arrived reason have is a the well. hope operating think that for general, definitely critical leverage be has are positive we a has business gone markets The manifest

So we see opportunities. growth

comes So high make at that, it’s to our that of now job growth degree additional sure profitability.

Rich Valera

And to The that. just relative that baseline XXXX for expected your to Trac. what relative plus would to Thanks fiscal quick XXX, sort be that baseline? of a follow-up that

Trac Pham

we at Yes, Rich, today. where that refers to are

Rich Valera

on XX guess, getting Got more ZeBu I it. customers in limited it that and it what’s I now see X, when they’re release. in that you their before with, production think, beyond? wanted mentioned say was this demand sort ZeBu current DAC. customers quarter of – or if X one in that that know and to Server nice But release, the of Can then pent-up there Server production was I more just And with you at GA

Aart de Geus

I pent-up say wouldn’t demand.

hypercompetitive. sure thinking stories a that gradually, up of that, of were for hardware we had by to he the with the really on it that, some bring ahead about extraordinary example, literally I number market. shaves to you the to they’re they’re allowed now solid us speed product that number was software general market to tell the of the that as to cell make a and products for I that And customers which which that’s introducing of smartphones, to part is increase virtue strategy to months manage availability. also how go-to-markets could off clearly we further and phones, went demands by a time And of chips for a bring quite think

demand think, the very moments, strong. I where coming so And at capabilities the the is are online

for we hopes so have the Server And high X new ZeBu.

Rich Valera

a on Congratulations it. you strong Thank again. results. Got

Aart de Geus

Rich. Thank you,

Operator

comes ahead. go with question Tom Davidson. Please next from Our Diffely D.A.

Tom Diffely

Hey, good afternoon.

they thought over have operating a the years. Just on few next the margin projection

from most [Technical integrity coming the Difficulty]. that of increase software So

Aart de Geus

both Hi, from yes, Tom, I board. I you. time to But where specifically drive operating to improvements should $X and revenue answer at through we had be – board? expansion were going Having cooperating hearing businesses. across billion the would solid whether we’re or the I looking is, of revenues, be question the it’s a they a able was, going in growth think it’s business. the the software to the integrity executing leverage for short The way the point combination where to in a is across on is coming hard going the expansion reached come forward margin of various

Tom Diffely

forward? Okay. Would then slow rate the business going to software you integrity acquisition expect

Aart de Geus

Well, our we on generally is. acquisition don’t comment strategy what

we’ll so it, not own deal each into strategy. into going its and fits at or the overall it And whether on look

Tom Diffely

tax I going you think to for go I early, And then, year? now next Okay. it basis know for feel the points? can give seeing was for up what you’re us rate a but Trac, right XXX it’s

Trac Pham

about asking tax the rate, you Are Tom?

Tom Diffely

Correct. Yes?

Trac Pham

early. little still It’s

say, think, XX. it’s say, been it’s I where to somewhere historically between XX would I it’s and safe

Tom Diffely

Okay.

Trac Pham

going And tax light in taxes. are the changes the to the midst strategy again, significant U.S. tax – in going we’re forward we very through approach working how of of in U.S.

Tom Diffely

Are you? meaningful then at and is today? happen – point in – just advancements finally, when a are want get of you And you large the X-nanometer how of for nodes, X-nanometer to they are nodes before of those of revenue business they they front nodes today it look view some from Okay. or the

Aart de Geus

production years nodes, X-nanometer would that being and is technologies and are say, been X-nanometer and is technically the the look advanced for at moving progress, as least, number in years work the what a the we know are go. the of these is But really you well is have first over is like at viewed quite And So least to XX ready most I designs theme that’s ago The is now. into – we done a at nodes that now if again substantial say. X-nanometer. are advances would that, here astounding that impossible now

And so are high right the at high midst so technologies of are we that we in but and demand, in demand of the exciting feel quite the also – tools, degree of sophistication home.

Tom Diffely

Okay. Thank you.

Aart de Geus

You’re welcome, Tom.

Operator

Our next question Suisse. go comes from Credit John Pitzer ahead. with Please

John Pitzer

solid Good for Yes. afternoon, guys. on that. Congratulations Thanks results. a

hit us ready not absolute sort us trades assumption a ask me you has target more target? the somewhere give of And there relative historical you to could is Let an you’re just over kind sort rate business to years, revenue the on underlying of us leverage operating to if question give Can next question. of the seen? given kind numbers, the growth as the Trac, that margin understand that one help of XX% grows. three number

Trac Pham

the you think question there, I John. Yes, answered

not and growth software then prepared give that business. that of we IP is you or of digits. Traditionally, we’ve in we details for XXXX range. integrity see in the At the expect where in high mid-single terms areas EDA the low-double that to level, the digits, low to growth We’re is of the FY made XX% different the to long-term But comfortably in components of I the in the the the in definitely, a you we’ll past more would in refer model. comments December. talk about

new I this is X% impact. got terms thing would think, revenue I accounts mind the growth then in extra XXX, for too year-over-year, And rules you other to results. rec year, in though, December. more details about will at be which negative numbers. The of we’ll even the we’ve the It benefit slight that week highlight of for keep immaterial will rev give a that the that level high to the to But coming the a have impact

John Pitzer

Hot of and be, compute Conference. Valley you’re over like of general a of helpful. then, in we’re kind couple I of the large more more with the of to difficult world portfolio? versus couple world, how last to I’ve That’s law been guess the there’s that but the into spent purpose more moving thoughts at a I’d compute. the entering being And days of of Chips love a ASIC-driven on scaling becoming you, process debate model if across business least the things purpose in ASIC, maybe for general that years, And thought at sort last Law more your sort Moore’s resurrection the into slowing just maybe impact within importantly, EDA, ASICs end does over your that get your Aart

Aart de Geus

have massively, Okay. Well, computation, in the computation. years the X,XXXx one already forward thing The demands at that of more Xx many be you’d but that been for to especially there more computing in the present with continue to my that general not has no emerging like is pushed mind machine general doubt while learning will offerings cloud, in are AI success. techniques a the

still the thousand matter times further, could you silicon and to results. And squeeze no hard to that get reason be able technology so squeeze how no who you get faster believe there’s

do? number the is you see clearly that suddenly is new and you and can problem, XX to do the see you own the offering. ASIC, had i.e., And business, and visible or of what to that call thing call processors. one evidence can in which where particularly can this dedicated that XXXx that can is Well, to have their go all can are is broad. players is and at see the the more are we’ll do engines an a rapid a are investments we brand But number AI now building the in semiconductor breadth heading capabilities, dedicated in you of we so because the companies substantial ultimate well the our add of you and chip, And speed. But ultimate. reduced the a special say existing processors We that already it years, a last few task

we used And of leading but silicon the be is think, I cost, not immediately drive reasonable from maximum the every designs all so the cost, that edge techniques the affordable advanced most to will dimension. that benefit complexity the to and that these even on manufacturable typically are go push the And the at in the state-of-the-art. that, driving a, that chips because it’s –

course, underestimate to of forms of big the a various is the storage, and of amount that you of between course, there’s I new term is Lastly, communication storage data and into because, processing not effort going also data. wouldn’t and, lot the of

do quickly keep going where to does computation. become it accessible the be it And is for and so you key how

So bodes the we that all some the systems. And around of have that touching the these of many form from factors well I including for security of good angles. very those multiple risk the in fortune also this, domains in, fact are there we’re of think,

John Pitzer

there customers does years quantifying to growth it’s your the that whether is of Is of have might what new however the growth to TAM? this not cut sort last couple or of has market, it? this customers over quantify Aart, to there to few anyway of anyway either back you looking your addressable want of a been what rate the kind years dynamic or done non-traditional at

Aart de Geus

particularly a not semiconductor know, ago, the you only function very not function technical semiconductor that that you as the the many of health opposite the as remember well. because makes there a hardware industry. the lamenting six, the are industry may and possible. Well, also they’re needs this the seven years case Well, was the ago been growth demand, of years And always of supplies rates industry precisely, has this growing five, actually, the of

be that phenomenon banner actually doesn’t that a year an really it’s incredible is will so every year. pretty That mean broad. And

I is higher. of we of why we’re the about more market and healthy focus the it’s an serve maybe at the solidity that operating growth is also opportunity our market – think, in more to and but process. own that leverage that additional And forward, our increase that looking going reason

terms of would part those a consider I So market. of both healthy

Operator

Auty comes JPMorgan. ahead. question from go Our next with Sterling Please

Sterling Auty

Yes, thanks. you. maybe a for Trac, couple guys. Hi,

comparables in the the need next Duck. of our year trying to here sitting was organic Black models, you what understand working quarters with we’re give of quarter? as into As the we’re growth sense a work the us fiscal Can especially to

Trac Pham

for in range and SIG, growing that. the we’re with The pace is think we keeping XX% organic market growth generally, the

Sterling Auty

saying overall. I’m Synopsis No, for

So overall? for you organic look growth at if the revenue Synopsis what is

Trac Pham

across I acquisitions the on growth, now that, Duck. year majority And in we’re on of say, seeing you’re all Black you’re the organic. billion-plus impact which think what the $X we’re north growth that keep business is I a is and of really across The seeing this driving is in right business. seeing this in Overall, XXX, of regions. portfolio made entire mind, terms has material while would And successful that we

So healthy a lot of growth.

Sterling Auty

reported? I of want rate XXX was versus organic you that bps an to Because growth if around impact would the the to XXX looking estimate be at somewhere in quarter

Trac Pham

Well, our talked just that year say say, we I’d this organic. of portion for portion haven’t about good separation. large we’d though growth of a safely a is

Sterling Auty

Okay. And when talk… you

Trac Pham

IP, for and on has two having we’re strong that’s EDA You to phenomenal rate last year coming a in can years. the growth see the been very from where is,

Sterling Auty

Okay, that since benefit the three page. okay. include new to about comment operating I margins ASC you’re moving years, same made to if the on And you recognition XX% sure the make sales Does of one over commission XXX, transitioning that XX% want we’re under you the have to the rule.

sales And move XX%? to going are you commissions recognizing would how ratable? you words, today? other upfront to Are that in impact that So

Trac Pham

– be You’re the starting increase XX% highest operational. will at in the level really of

on One for two us. be immaterial. As of far revenues year, but impacts think is impact we as negative, which would reporting next goes, XXX the is for has is

impact as far next on few years. commissions, to the neutral of over going net-net be that is the As the

really out, even opposed operating of clarify about benefit expect about reporting margin When any is margins while December, it to to improvement leverage, And drag. but talk in do as improvement, impact in leverage operating when margin improve. XXX. to we test think, talk to we the we’ll truly So details do I expect the that. specific want give amount, we we’ll or we XXXX of on with have The XXXX more but improving I’m topic,

Sterling Auty

Excellent. on clouds. you products Aart, the And then cloud are on last currently the Synopsis and running actually question, mentioned customer that

the easy of cloud, you’re how emulation running to in process verification actual the think, it’s work understand will versus where because a us you some I of batch interaction. kind that for design have

up some curious, running customer and in these So are for Synopsis which actually products of I’m or customers? kind clouds of

Aart de Geus

cloud your have very spectrum. actually, they’re across we But broadly analysis verification to examples, batch-centric. think, I which say, the would right on, Well, of go because tends variety I is tools actually first, opening to comment that is the the or

for awhile. and continue large that think large for do you verifications there, will And so example, or I simulations

what We have this doing really announced in not area. we’re

too has on want own so I the comments And question is verification. it your I have to of think, many But gist this. much answer, very don’t its

Operator

ahead. to Capital goes question Markets. go Mitch with next RBC Our Steves Please

Mitch Steves

my questions. of one had Hey, a couple I one. taking few guys, long-term quick ones thanks and clarifying for

why little gross a sort hardware one Can you So July of came of is happened bit down due for us there over margins help to last the the of years? quarter that was case a down. understand thing outperformance slowing couple the

Trac Pham

the Mitch, that few into Keep hardware. up just there’s roll – COGS, in that a not it’s mind, things actually

last the you’ll lumpy. business So COGS I the is, gross business, Sidense margins, on is variation impact of in basis, correlation IP the part hardware. gross and part a – that few margins no made you’ll as as services recognized movements of percentage flow very we COGS really stressed a been year, other years wouldn’t security has strictly then that over of IP see last which And the hardware acquisition extrapolate we completion because in consulting changes And COGS – element and and specifically, of see an between services the there. in the Remember, there’s we variability IP the line. there’s that’s an

Mitch Steves

Yes.

Trac Pham

look we those margins as like – margin feel way individually gross for the that, when businesses. business we for far overall at a each at level appropriate of in of But we’re the as running

Mitch Steves

your right. XXX, then of is, or XXX, And second so flow one number cash it. Got the clarifying

Mentor guys us one of through normalized the the repatriation had bunch you know the, what walk would you a you I and guess, I settlement. So had loss, be, one-time had charges. the Hungarian you had Can because the you maybe

more of be So cash would what normalized kind number? flow the

Trac Pham

the Yes, one. big hit you

for about – the items the year, to an of $XX Hungarian guidance with the We repatriation. $XXX for the we tax had in had had million the to Early start dispute. year, the take outflow we beginning year. XXX a let’s $XX million payment million this – to of related the related also QX XXX. At let’s one-time So right? year, we have It’s

pending, keep a then but in And order Now still pay that’s Mentor had mind, quarter, past outflow we to in to in $XX had million this litigate. we for settlement. the

that it’s cash – that see is end, flows. can very at the and healthy strong you so And very, generating business

Operator

go Vleeschhouwer with Our Securities. next ahead. Please question goes Jay Griffin to

Jay Vleeschhouwer

Hi, Synopsis thank EDA the market questions broad a you. two you about for Aart, or whole. as

ingest and is, and particular part including mix $X evolved more you when external The question think how your kind company? what plan with about. having and a along change really anticipate chips what the evolved, now assume has any, and has with business? tools then the what changes? is in design And as leading customer included announcement and in node other CEO about use, implementation are of and tools SIG, voila as then Synopses do first that super differently other chip. EDA. The you’ve talking And skills are billion you your the secondly so? with that see by In were But of end with but EDA management indicators the comes the by or to indicators customers’ specifically question and that or not terms the prompted you need touring is than external business was to along you the been we as rise that about recent words, generally have billion the And perhaps NVIDIA methodologies $X a seen you’ll and or the out customers customers, thinking differentiation technologies exclusively of if to base the its you and systems

Aart de Geus

Okay.

because imply the The internal And around amounts opportunities and the smarts of the And relevant, electronics there, is all of indicators the new belief moved horizon multiple the macro need and regarding both that. – sort around connectivity is manipulate, so with the but large stored words i.e., they to changing. obviously, dramatically of data risk, for silicon then, those external So also of therefore, chips. be on. that security world being risks. And and both are horizons with utilization – around

XX that. into let’s Software is assume also even many As There we’ve customers, in getting difference, of we what the and logos your meaning, the is, we at that say heard or more are zoom serve then, most never Integrity IP still business by least in of bit motivated never years-plus last new more a we little I question EDA before. or touched that

measure, we is While or a business that we we with we things we’ve more companies. because the assess of at levels, simultaneously for more are rates, number watch, the to try to healthy. they continue in two companies And more to departments that a essentially, moving adopt of those number larger look renewal the gradually seeing with spending users larger with a years done business

have good. certain and And that landscape internal great have word combination that talk companies this. so the When what attention really extremely which methodology to are you NVIDIA tools like of our execution companies added when to of attention And utilization flow. to of right so they the sophisticated, the the the to sophisticated pay on, pay also have and our been of tools know to they extremely things is in external is of about far combinations

more dealing reliability power dimensions are foundational. But is of to that and top of general on. the answer of spaces to transistors. satisfied meaning, silicon increasingly intersection absolutely still reduce yes. be the a approach maximize The speed, of have changing, traditional that complexity b, and meaning, of opportunities systemic My certain evolve a where In a, very popup, so so then not temperature, do how the lot are dimensions on sitting. between and the on would technology. issues also the people only more but automotive software, methodology? to with have area And in see much and of squeeze also point scale, their risk in they given we they complexity, and can safety And now that to your that chip is thermal is hardware constructs issues But out be So the in simultaneously.

it’s but provide together tools So amount could as be increasingly have Technology that help. that methodology, Fusion large essentially to the is number our of accelerate in an And in we and a tools. support really between context integrated viewed also of methodology intersection what

where convoluted So us good complex is that’s because and for somewhat value. actually add this may and we news, sound

Operator

Monika Garg question ahead. comes with go from KeyBanc. Please next Our

Monika Garg

taking Hi, thanks my for question.

think talked estimates, software about first And is here growth to about. our it greater you million the pretty talk about XX%, sized which you way a than which security think good how the for one profitability be a of next growing is business. growth? about XX% the So business? year, could to $XXX business And is right Could

Aart de Geus

see in do XX% this Well, before we’ve range. the we said growing that business

that, so you correctly. And did probably after the math

business, certainly we probability individual becoming on acquired We’re not time rapidly have point pre-announcing of companies the the profitable over where From very a XXXX, view months. in pieces, one but of in we right commented on you’re a were the each mark. to eight directionally, growing XX

in profitable year. have the commented of turning Duck We I Black on believe second-half next

bigger of the contribution. say, of while moving towards mentioning you forward that that so this how material range we it line, will being is And is in how the all the versus trading right in of it’s profitability numbers bit the there its to that of picture in essentially look be in company. can Synopsys, of growth a that. see we you’re yes, and direction. XX% is off heading aggregate, manage overall And the But And that, at bottom

Monika Garg

it’s given adding guiding about greater have growth. are even this than top estimate, in growth X% you Aart, probably I of effect you week line organic to is is growth? you. in extra the factor, for And the Duck, take growth high year-over-year if year. Could us But organic Black about you to leading the definitely basis. on Thank I mean, accelerating talk the which XXXX, XX%

Aart de Geus

tend directives that and that, that I sure own view. Having with and right point And are Yes. not we a against growth tools. And last Well, years penalize to that we’re on maybe what made too to we and electronics is the close EDA’s not The the overall factors great. giving from the great very because positive. from again, few not software are I’m over done direction the get all strategic We think electronics complexity I right said sophisticated our to a of largely, think, to careful and that term little proactively not external want are process. used providing just is XXXX have because is, years the combination of it the investments hit for from for we good deliver. the I margin we reason years, extrapolate importance making extrapolate of think we be think, can has just why coming for bit, broader our of hardware that way we’re, in OPs a but reluctant

the right that feel in position. we So we’re

do of we’ll of run lastly, year. that we combination a that okay, XXXX, the you of company the rate So number to on of but grow. the end predictions forwards a give at we’re continue And of in looking the areas to says, all see last

And solid fairly so, at least, outlook. it says, we have a

Monika Garg

Okay.

use are ready are interest Synopsys so customers you Could And talk from much. the you side. usage the last to for solutions cloud? solution Just one the cloud the in on about seeing cloud? Thank in you how

Aart de Geus

in Well, most variety when interesting computation own are also Meaning than our programs It utilization quite environment the in that, a different for demanding EDA the their we world people the arguably cloud. is period. tends high-end own It to reasons. can of at be sophistication. of is well that of and software work things the make the among complex

large both run availability high very designs use power, to need are degree computational to actually tend they but also so that there. memory of the maximum a And

their a a quite that cloud. customers the have products our of on we number number run so of And own on

customer And I they to anytime go or I are if their think, they think they away won’t large do that a are continually looking themselves. soon. at off favor better the it are economics in

Operator

with And Sankar from Please ahead. our comes Cowen. question go next Krish

Krish Sankar

plus impact, had redo question. EUV of Hi, a for I’m X-nanometer you the kind on a then design? about question? I impact then customers thanks couple Is for X, EDA to and just foundry doing spoke What X-nanometer or a go EUV. I’m curious design? Yes. introducing do several at curious have X, customers start like kind Aart, my doing taking either new it also layers. material had them. start of and that, of follow-up like does I have your when and X, they X, you it X, where

Aart de Geus

that masks to the in terms you in reality, And in EUV or know time terms limited has that anything Well, fewer needs of quite have only lowest slow. for of techniques. is new in design layers, every introduced it prepared well Okay. to to about be complexity, typically mask-making, reduces while and technology the needs we it adds is. general, what because those more has things And different it it’s expensive

so EUV and And quite we’re needs those. satisfy familiar with

push say changed well, smaller for EUV perspective at so as the massively. looking – more that has continuing. our I’m I still wouldn’t a is business it dimensions And

steps are part that it for in new features – you use of time. is simulations picture business if possible I that point which because all And related features, that only in a to have of dimensions three more, very this so solutions of don’t another is small for. is the that those think the it it the touches But set our we at part changes that broad our really some manufacturing is designs, of much doing company EUV. are

Krish Sankar

for every Got shortening, it. to now, the few design, or in as with willing to Is autos? now. years like refresh would – like behavior philosophy design for That’s with been semiconductor auto same very same the in interacting and changed then long years. customers customers is or that for helpful. follow-up, cycle like have time years that has several whatever your the other changed? to a XX, have And Back guys you a days going now eight time design not XX into that they’re Has content where increasing technology component

Aart de Geus

Xs a a because reason of subsystems. the really companies would automotive do feels the for what give demands deliver. in and were that would Xs did, we’re had very characteristics we you layer lot general we then years certainly Tier when turn certain not. a what automotive the well needed many And a time, and they in companies was that a for is the the were very almost said with even And them it have with spec knew semiconductor of interacting, those Tier complex they Tier This subsystem would to people attracting And suppliers that the the to and go automotive for them companies Xs to automotive question, the provide called long chips. many,

had we years, last second change? And literally macro certain as – push and adding are so certainly from have of we up with anchored the value and the has speak. the this. deep chain, few pushing worked that And so to chain mostly chips back industry, notion companies change have this how one are automotive have the so companies have more the deal automotive security, down automotive way towards that What the and to right interactions to that up, the be way now we in the them. the food And actually you is, our up, sell many through people autonomous us cars manifests from two all one in did notion we’re why on designed, say the OEM phenomenally now companies. Well, are electrification because the is is to software changes safety of is because driving that with so which to is directly come

imagine ago richer we using a something it’s if just a you them. that a of inconceivable. are say year products with want question. the for you industry years life, in opinion, your XX Meaning and much have most my the smartphone, have XX- completely So to design The to least, will, interactions set that, struggle modern with we

have is question, in But make And to the companies certain think the something, it these going re some mechanisms, because over utilization. upgrade itself will is years. if go And still to upgradable I of challenging you you meant their long to survive sure there be to so periods pieces part of a where that car of platform works.

course, great of can is And value. that are problems while moving of And so others with we, the see value the number play that you that chain phenomenal. bring many technology up

dimensions. with My is, hardware this Integrity also number significant from day, like I is last quite almost well-positioned to at think, the automotive we’ve the of companies all a already to done directly in connect these multiple But intersection of this this back two they by end is company companies. of at connect the transactions comment Software And the completely software. visible different we’re with angles. business, our coming in way and some

Operator

I will now closing host to turn remarks. it for our back over

Aart de Geus

has a the milestone. very you of It version little a today. much the in by bit thank color release earnings of Well, $X for special billion participating

given many many we appreciate very also have point the and is to And are so support and followed have in may your we aligned appreciate feel the time our perspective that you company. while you And to from differ company we very that of and we always covered years. the reporting for often that do time,

on the thank so and milestone the today. And to time you for spent next

Operator

conference. Ladies and conclude does gentlemen, our that

Synopsys (SNPS) 22 Aug 182018 Q3 Earnings call transcript