Q4 2019 Earnings Call
Correct.
Ladies and gentlemen, thank you for standing by welcome to the Synopsis earnings conference call for the fourth quarter and fiscal year 2019.
At this time all participants are in listen only mode. Later, we'll conduct a question answer session instructions will be given at that time.
You should require assistance during the call. Please press star followed by zero today's call will last one hour.
Five minutes prior to the ended the call we will announce the amount of time remaining in the card fronts.
As a reminder, today's call is being recorded.
At this time I would like to turn the conference over to Lisa You Bank Vice President Investor Relations. Please go ahead ma'am.
Thank you Greg.
Good afternoon, everyone.
During the call today, our art did yes, chairman and co CEO of synopsis and track from Chief Financial Officer.
Before we begin I'd like to remind everyone that during the course of this conference call synopsis will discuss forecasts targets and other forward looking statements regarding the company and its financial results.
While these statements represent our best current judgment about future results and performance as of today.
Actual results and performance are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect.
In addition to any risks that we highlight during the call important factors that may affect or future results are described in our most recent FCC reports and todays earnings press release.
In addition, we will refer to non-GAAP financial measures during the discussion.
Reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release financial supplement and 8-K that we released earlier today.
All of these items that's the most recent investor presentation are available on our web site at synopsis Dot com.
In addition, the prepared remarks will be posted on the site at the conclusion of the call with that I'll turn the call over to art Touchy, yes.
Good afternoon, I'm pleased to report another excellent quarter and with its an outstanding year for synopsis.
2019, a year in which we successfully navigated several external challenges we once again exceeded our plan.
We generated 3.36 billion in revenue and are well on track to our next milestone of 4 billion.
Oh backlog grew to 4.4 billion.
We expanded operating margins significantly and delivered 17% non-GAAP earnings growth to $4, a 56 cents for the year, well, returning 329 million to shareholders through buybacks.
This was strong across our semiconductor end system design segment.
Strengthened as the year progress.
Software integrity achieve profitability and grew 19% to 335 million.
I will discuss the financials in more detail.
Against a challenging global market backdrop, with geopolitical stress and unevenness in the semiconductor industry.
Hi, interactivity remain strong.
Growth in machine learning automotive Fiveg I O G cloud and the proliferation of smart everything is considerable.
New entrance, including AI startups, and cloud Hyperscalers, a pushing the boundaries of technology and time to markets.
So losses at the Sun drop this wave of innovation and growth.
And we are uniquely positioned to enable electronics design from the intricacies and complexity of silicon to the power and pervasiveness of software.
A year ago I communicated our strategy for our next phase of growth first sustain and grow old technology and market leadership in EDA and IP.
Second continue to scale and grow software integrity diverse customer base, and Newtown well steadily moving to solid profitability.
Third further drive operational excellence towards multi year operating margin expansion.
During the fiscal 19, we made very good progress on all three.
Let me provide some highlights beginning with EDI and IP, where we substantially expanded relationships with our customers and ecosystem partners.
He is a C. For example, recognize Synopsys was partner of the year awards for the ninth straight year.
Ward. This year were four interface IP joint development of six nanometer design infrastructure joint delivery of innovative three D Jumpstarting and cloud base productivity solutions.
In addition, some of the world's largest and most influential companies expanded their reliance on us.
One key example is a U.S. mobile systems leader, we significantly expanded its business with us across both <unk> and IP.
Any D.A.O. platforms increasingly stand out as the stronger than they've ever been.
This year, we began proliferating several game changing new products that already have significant momentum.
Notably our unrelenting innovation push in digital design is driving benchmark wins and increased competitive displacements.
Oh fusion platform, including our new fusion compiler product launch last November is achieving widespread wins and growing deployment exceeding our initial business sagas.
Fusion Kibali is winning head to head benchmarks was consistently better results and run time across many applications.
Breakthrough competitive wins have ranged from the largest global communications processor and graphics firms to high impacts cloud hyperscalers to multiple influential system houses such as a large global consumer electronics company for image sensor designs.
Leading automotive semiconductor company for autonomous driving is let's see designs and expand its competitive displacement at a leading mobile company for five nanometer and sub five nanometer designs.
Mark wins, a U.S. base graphics company with superior quality results in turnaround time, a large cap U.S. systems company selecting fusion compiler as its primary solution for digital implementation and the U.S. semiconductor leader, who is aggressively expanding deployment of fusion compiler <unk> mission critical programs.
Representing more than 95% of its business.
While still early in our multiyear product cycle.
These important wins represent significant momentum and usage share gains setting the stage for revenue share gains going forward.
Turning to custom design custom compiler revenue nearly doubled this year fueled by multiple full flow competitive displacements.
Our expansion is driven by key wins in the Fiveg AI in server chip markets, including a tier one North American server company, a large U.S. high speed communications chip maker and complete full flow competitive displacements at a large idea I'm in Japan, and a major DRAM company.
We also announced a full flow custom compiler platform deployment that Samsung for its five L.P.E. process and are seeing good momentum with startups, who are not locked into a legacy flows and demand modern technology.
Let me know move to all verification continuum platform, where we hold the number one market share position in both software and hardware.
Benefiting from native integration of the fastest engines on the market.
Verification software products continue to drive competitive wins and proliferation.
Contributing substantially to growth a broad set of system houses and chip makers ranging from cloud Hyperscalers in North America to a <unk> automotive mobile and memory leaders around the world.
Hardware based verification were strong as well.
Despite our largest hardware custom or delaying delivery. All these substantial number of emulate or is due to near term spending priorities.
We finished the year with record hardware revenue.
We maintained that number one market segment position with a third year in at all.
Our hardware products are particularly well suited to today's complex designs with unmatched speed highest capacity lowest cost of ownership a lowest power consumption.
As a result, we significantly expanded our customer base, adding nearly 40, new customers and more than 80 repeat orders in 2019.
We saw major expansions and share gains at intellectual customers ranging from prominent global systems companies to growing hyperscalers and leading semis.
M.D. for example, standardize on zebu, expanding the emulation capacity to accelerate time to market for processor graphics and gaming chips.
Now to IP were strong market demand in our rich portfolio are driving double digit growth.
We had a record year, reaching more than seven on 50 million in revenue with prominent engagements across all major markets, including <unk> automotive cloud and Fiveg.
As the number one provider of interface embedded memory and foundry specific IP, we provide the industry's broadest portfolio to address today's most complex design requirements accelerates time to market and lower risk for customers.
We have particular strengths in U.S. be memory interfaces and PCI Express 5.0.
This year, we achieved the significant milestone of 1 billion in cumulative U.S. VIP bookings bolstering our position as the number one you as the provider by far.
And our new 56, and on and 12 gigs Thirtys IP is gaining good market trends traction.
During 2019, well mens momentum accelerated in automotive, where we've achieved nearly 230 automotive socket wins and advanced Finfet processes. The girls approximately 30 major semiconductor companies.
We announced a collaboration was infinium to incorporate the arc embedded vision processor into their next generation Arvixe controller to accelerate AI in automotive applications.
From the embedded vision the lines, we were awarded the best process Award for 2019.
Finally, our track record of delivering IP and advanced process nodes continues and is highly valued by our customers.
We achieved more than 250 IP wins on TSMC seven nanometer finfet process.
And announced the collaboration with TSMC for development of IP on their most event five nanometer process, where we signed yet another significant multiyear agreement was a very large global customer.
We're also seeing great momentum with Samsung phone reprocess down to four L.P.E. and global foundries across a range of processes.
Oh, the software integrity, the tools that test software code for security vulnerabilities and quality issues.
We entered this new time in 2014.
By the end of 2018, we have completed a number of significant acquisitions integrated them into synopsis and enhance our products with new features and broader language coverage.
In 2019, we completed phase one of our software integrity strategy by delivering 10% of synopsis revenue in achieving approximately 10% operating margin.
Although orders were a bit softer than plan, we outpaced the market was 19% growth.
This was achieved through progress is driving multiyear multimillion dollar agreements steady increase in the number of customers adopting multiple solutions and growth in all about key verticals.
In 2020, we're now moving to phase II scaling the business to half a billion dollars and built.
The opportunity as fast as companies must embedded security dusting into their software development process without compromising time to market.
Synopsis is well positioned to enable this evolution was a great combination of high value products and consulting services.
Oh, we're scaling efforts for 2020 spend three areas.
One expanding Polaris, our cloud based software integrity platform.
We announced florist in Q2, including a compelling roadmap of product integrations and new capabilities over the sub sequence 12 to 18 months.
We've had a growing number of adoptions, thus far including a fortune 500 insurance company and customers ranging from financial services to networking to medical and industrial Digitization.
Stay tuned as we expand the Polaris capabilities and enhanced support locks deployments.
True scaling consulting engagements.
This is where we help our customers was high level benchmarking program development advice as well as large product deployments.
It's a key synopsis different change or in the software Dev ops market.
And three refining our channel.
We've realigned our sales organization to better serve large enterprise customers key market verticals and new regional business.
Yeah, that's right 20, we intend to further increase both our sales and support capacity.
We believe we're on track to exceed market growth in this business delivering approximately 15% to 20% growth over the next couple of years as the market evolves.
For 2020, we plan to hold non-GAAP operating margin roughly steady then resumed expansion in 2021 and beyond.
For Synopsys as a whole.
And that's why 20, we expect solid revenue growth.
Even as we exclude from our forecast any revenue from companies currently on the U.S. government entity list.
Furthermore, we planned substantial non-GAAP operating margin expansion.
Mid teens earnings per share growth.
And strong operating cash flow.
In summary, we executed very well in 2019, delivering financial results substantially above the beginnings of your targets.
Market demand is strong and we are well positioned.
Our product platforms are driving benchmark wins and competitive displacements.
And we are driving continued financial execution and growth.
As we move into the holiday season, I want to thank our employees for their innovative and hard work and our partners and customers for their continued commitments to our products and trusted synopsis.
With that I'll turn it over to truck.
Thanks.
Good afternoon, everyone.
2019 was a very strong year.
Right and what was at times, a tough macro environment.
We achieved record results in all key metrics and finish well ahead of our initial expectations.
We delivered these results despite multiple unique hurdles, including the operational transition to assay six to six.
The U.S. entity lists and general geopolitical uncertainty around the world.
We delivered strong growth in revenue non-GAAP earnings and operating cash flow, while expanding non-GAAP operating margin by almost three percentage points.
We're entering 2020, well positioned to continue our momentum.
Our product portfolio is a strong as it's ever been which in combination with healthy design activity is driving robust demand.
The result is reflected in our backlog, which ended the year at 4.4 billion up from 4.1 billion at the end of 2018. Despite the S. C. Six so six backlog reduction.
Our results speak to our solid execution and the durability of the business we've built.
With that approximately 90% recurring revenue model it diversified customer base spanning multiple key verticals and geographies.
On a product portfolio consisting.
Well its mission critical tools, we're confident in our ability to deliver growth even in the context of an even macroeconomic environment.
I'll now review, our full year 2019 results.
We generated total revenue of 3.36 billion, 8% growth were 9% adjusting for the extra week in fiscal 2018.
Semiconductor system designed revenue was 3.03 billion, an increase of 7% or 8% adjusting for the extra week with both product groups contributing to the strong results.
He risk.
He reported a strongest year to date and easy to use software continues to grow well within our mid to high single digit target range.
Revenue had another record year, reflecting the broad based strength of that business.
We again earned the number one market segment position as growth in our diversified customer base more than offset a decline in emulation revenue from our largest hardware customer.
Excluding hardware revenue from that customer grew very well.
The software integrity segment generated revenue of 335 million.
19% growth or 20% adjusting for the extra week.
As our discuss 2019, Mark the key milestones as we grew the business to approximately 10% of total revenue at solid profitability.
Returning to the consolidated level.
Total GAAP cost and expenses were 2.4 billion, which includes approximately 47 million in restructuring costs as we work to optimize a resource allocation for sustainable long term growth.
Total non-GAAP cost and expenses were 2.52 billion.
Filtering into non-GAAP operating margin of approximately 25%.
For our segments adjusted operating margins were 26.7% for semiconductor and system design.
And 9.6% for software integrity.
GAAP earnings per share for $3.45.
non-GAAP earnings per share were $4 at 56 cents.
17% growth or 19% adjusting for the extra week.
Turning to cash operating cash flow for the year was 801 million.
We completed buybacks of $329 billion in the year $1.8 billion over the past five years, returning approximately 75% of our free cash flow to investors over that period.
We ended the quarter, where the cash balance southern her 29 billion and total debt of 138 million.
Now to our targets, which assume no change in the U.S. government entity list during the year.
Based on a current assessment of the timing of hardware and IP deliveries. We expect the first half second half split roughly 45%, 55% for revenue at 35%, 65% for EPS due to more evenly distributed expenses.
For fiscal 2020.
Revenue of 3.6 to 3.65 billion.
Total GAAP cost and expenses between 2.934 and 2.983 billion.
Total non-GAAP costs and expenses between 2.63 and 2.66 billion.
Resulting in a non-GAAP operating margin of approximately 27%.
Other income and expenses between minus 16, and minus 12 million.
non-GAAP normalized tax rate of 16%.
Outstanding shares between 153 and 156 million.
Net earnings of $3 and 72 to $3.90 per share.
non-GAAP earnings of $5, an 18 to $5 at 25 cents per share.
Cash flow from operations of 800 825 million.
And capital expenditures of approximately 180 million as project timing cost some of the spending plan for 2019 to push into 2020.
We expect expenditures to decline in 2021.
Now to the targets for the first quarter.
Revenue between 805 and 835 million.
Total GAAP cost and expenses between 715, and seven or 44 million.
Total non-GAAP cost and expenses between 635 and 655 million.
Other income and expenses between minus five and minus 3 million.
Our non-GAAP normalized tax rate of 16%.
Outstanding shares between 153 156 million.
GAAP earnings of 43 to 54 cents per share.
non-GAAP earnings 89 to 94 cents per share.
In summary, our results this year reflect our strong execution and the resiliency of our business model.
Our strength came from across the portfolio as we exceeded our near term commitments and made significant progress on our longer term operating objectives.
As we looked at 2020 and beyond our focus remains consistent.
Strong execution to deliver on our long term targets of high single digit revenue growth.
Sustained margin expansion to the high Twentys enough that's for 21 at 30% longer term.
Double digit non-GAAP EPS growth a strong cash flow.
These metrics combined with the capital allocation strategy built on balancing internal investments.
M&A and buybacks give us confidence in our ability to continue to drive sustainable long term shareholder value.
With that I'll turn it over the operator for questions.
Ladies and gentlemen that if you would like to ask your question. Please press. One then zero on your telephone keypad you may withdraw your question that anytime by repeating the one zero command.
You are using a speakerphone please pick up the handset before pressing the numbers. Once again, if you have a question you may press one than zero at this time one moment. Please for the first question.
When we first turns to line up rich Valera with Needham and company. Please go ahead. Your line is open.
Thank you good afternoon.
Based on year annual profile or have to have profile looks like you must be expecting significantly stronger hardware.
Beyond the first quarter can you talk about if that's the case and what kind of visibility you have to that hardware ramping that if if that includes a significant pickup from the large customer that was down last year on the hardware shipments.
Hi, Rich Ah that's part of his it's a combination of both the IP at hardware deliveries that is affecting the quarterly profile.
Got it and can you just talked about your visibility to that is that something that's.
Kind of in backlog or how well.
What are sort of underpinned the visibility, particularly the hardware since that tends to be a little more volatile than.
Then the subscription revenue much yeah, you've touched on a good point, which is that a hardware and IP generally is more more variable from quarter to quarter and the way that we're checking revenues for this year is no different than how we have done in the past its combination of what is in backlog as well as you know our our assessment of our belated.
To close the deals are in our pipeline and.
With that IP in hardware.
So it really does reflect the reflect our best estimate of the the profile of this point.
Great just quickly it looks like sick wasn't little bit light in the fourth quarter and you have moderated I think your longer term target that had been 20% is out 15% to 20% is there anything structural you're seeing in that business or is sort of law of large numbers as you grow and you know how should we.
What what accounts for that sort of moderation of that that gross target there. Thank you.
Yeah Rich that's that's a good point I'll start with the second half. Your question, which is is there any fundamental change of the business and we don't see it that way certainly we're very optimistic about that business and we do see a good outlook for it or we did see some some challenges this year, which we were quick to address and we feel.
Good that we should be able to continue to grow at the market rates or or or higher.
It is a natural to us it's a the natural ebbs and flows of growing a business.
Great. Thank you congratulations on a good year.
Thanks Rich.
[noise].
We have a question from a line of Mitch Steves, our with RBC capital markets. Please go ahead.
[noise].
And Mr. sees your line is open you might have your phone muted.
Oh, Hey, sorry about that can you ever.
Hi, that's our job [laughter], sorry about that so I really two question. Unfortunately at the pick on track a limit here about so if I look at the numbers from the guide you guys are giving its like what kind of like 20, 122% operating margin for Q1, but that implies that kind of the rest of the year. The Q2 to Q4 is going to be around 20.6. So.
What does that mean that basically by 21, you're kinda give me close to high Twentys, starting the year or am I doing the math and correctly there.
Well certainly for the full year, we expect to be around 27% operating margin as we've said in the past the quarterly profile is really.
And outcome of the plan.
You candidly I've, but I think about the budget for flight 20, 199% of my time has really been focus on the full year plan and making sure that we've got and I'll defer revenue growth that is a sustained and where we are at or accelerating some areas and making sure that we're investing in their appropriate places while simultaneously.
Improving margins for for this year the outcome of the core that profile really is just the the timing of these deals so I wouldn't read too much into the core of the profile.
And I close it out by saying, we remain committed to our long term commitment of a high twentys and indefinitely 21, and will will come in and out further as the year progresses.
Okay and the second one of how did you guys didn't has done a few smaller acquisitions lately and that includes employee headcount and so all of that is encapsulated in the full year Guy do you guys are getting correct me if they're just give me no additional opex and that number.
Yes, that's correct.
Okay perfect. Thank you so much.
All right.
Returns from the line of Tom Diffely with D.A. Davidson. Please go ahead.
It tells you definitely you I have your line of new Yeah Hello.
Oh I'm sorry.
Yes again.
All sorts of taking films today, Yeah. So just a quick question. When you look at the outlook for 2020 and the nice margin profile. If you look at it on a year over year basis, how would you split the margin growth from product mix versus overhead absorption versus potentially no. It fine tune cost structure.
It's really come across the board the the progress that we made this year and 29 teachers improving it by three percentage points really came across all areas of the business are you we saw it across the different business groups from sales from the DNA functions.
And it's really a a continued and a broad base efforts for 2020 and beyond that we'll continue to do the same thing, it's really fine tuning across all areas of the business.
Okay, Great and then when you look at 'em items, like IP and hardware that tend to be little lumpy or is there any is there are there any other trends 2020, we should know about as far as you know.
Fourth quarter weighted and even after the first quarter, yeah, they kind of non no trends on a quarter that Keith.
We probably help you with with see a quarterly profile in detail, but Q4 would likely trend to be the highest quarter for us given what were.
What our visibility is at this point for both IP and hardware.
Okay, and then final question.
TV fairly she's not at this point like it's always a little bit higher than second half a year.
We're not really see seeing much seasonality in the business and as we said it really depends on.
On the timing of when the IP is delivered or when the IP is pulled down by our customers and you're going to see it that variability increase due to six so six so just keep that in my but overall.
The demand drivers for IP continues to be really strong and that's reflected in our outlook for 2020.
Great. Thanks for your time today.
All right. Thanks all.
Next we turned in line of Adam consolidate with Bank of America. Please go ahead.
Yeah. Thanks for taking my question can you just help us understand I don't know if you guide out the smart, but on the revenue growth you expect by product group for fiscal 2000, <unk> is it kind of inline with longer term targets you thought or is there any substantial deviation in any particular on product group. Thank you.
No our long term model pretty <unk> spelled it out pretty well between I.E.D.A.I.P. and software integrity.
And typically we don't break that down on a quarterly or out it on an annual basis, our view as we do bandages business or multi year horizon and.
The beauty of is that we we've been pretty good about managing it within that range over time.
Got it and the reason why I guess I asked that is because there's been some weaker data points on <unk> enterprise spending overall I'd imagine here a bit more insulated from that given the relative size of you're sick business, but.
Are you seeing any kind of impact from that I'm going to fiscal 20 or you know our again are you inflator not thank you.
I was sort of concerns are certainly factored into our guidance I wouldn't reference you to to how we perform historically.
That's that's the the great part of having a business that is close to 90% recurring.
Is that there is adapting effect when things go through different a different cycles.
The other thing I would I would add to that is a suddenly if you look at the software integrity a business, it's a business, where we're actually very young in an emerging situation and so there are many many customers that we haven't even touched yet and so I think that is a fairly open space now overall, obviously we are subject.
The the fluctuations off the global markets, but from a technology utilization point of view right now I think the demand for technology is quite high and so the rates continues to be a quite a quite fast.
Great. Thanks, I'll get back into queue.
And next returns for line of Gary Mobley with Wells Fargo Securities. Please go ahead.
Hey, everyone. Appreciate you taking my question.
It looks like you're not going to file your 10-K until January one. So I was hoping that on this call you can share with US. Your your next 12 month backlog, which excludes non cancellable that lets say in future royalties.
Oh.
<unk> rash, we don't disclose that that information what.
<unk> will describe that you have that number I'm sorry.
I don't have that number off the top mad.
Okay.
One of the question is is that it looks like your your if you take your next 12 month backlog as you've been disclosed in your different SEC filings and divide that by.
Your next 12 month revenue expectations, which is I think the juncture now it looks like you're either you're generating more revenue or expect to generating more revenue from from next 12 month backlog. So.
I'm just hoping that maybe you can speak to you know why you guys are sort of modeling and lower turns business as it relates to that.
Well I'll give you some specific numbers around that the the backlog that we have schedule for fly 20 is roughly 65% that's true lower than that's traditionally been mostly because of the transition to six of six and with a hard higher mix of hardware and IP.
From a modeling perspective, when we take take into account, what we have visibility to from hardware and IP the range and and the range of how we're building the business between backlog and turns on what we have visibility too is pretty consistent with what we've been managing to over the last few years.
Okay.
And could you give us an update on on the the degree of of the impact from the answer see list not specific to maybe the one big customer, but maybe in the entirety.
Well in general a as you know we don't disclose specific customers nor do we disclose a subset of customers. Obviously it is as a negative impacts but at the same time the guidance that you. We gave a which I think is is there all the strong has fully encompass the facts that we assuming zero return or.
You know revenue from the until this Ah customers. So if things change for the better we will let you know of course immediately.
But for right now.
Why is this passes to not comment much more about the situation.
Okay.
I did you didn't come in in the past it could be a 100 basis points impacted the topline.
No we have not provided specific.
Numbers around that.
Okay, all right that's it for me thanks, guys.
Welcome.
Next we turn to line of Jackson Ader with JP Morgan. Please go ahead.
Great. Thanks. Good evening guys. First question is on the delay in the emulation on where is this something that's just absolutely no single customer specific or <unk>.
You know is it possible that it could be some symptom of Ah wrought or you know a broader trend.
It was single customer specific.
Okay. Okay.
And any just can follow up not any any additional color on that I mean, why the delay do you expect it didn't and I think rich asked earlier, what you expected in the first half or when the actual.
Delivery will be but any any additional color you can get there.
No we don't want to give color because as you know we always very cautious to not comment about specific customers, maybe I can give a little color I don't I mentioned, the which is a we were quite diligent that finding opportunities to grow a in a broader set of markets and actually if you look at the power of verification area on spin.
Typically the hardware, we'd had really really well and so we have no doubt stats the capabilities, we offer the very need for a lot of customers to run their software on prototypes, where they don't have the real hardware yet a continues to be a great opportunity for us and we continue to both invest there and are bullish.
About the broader customer sets that we have.
Okay Monkey bump models also a helpful color then switching gears to the to the integrity business the.
The sales channel and looking to scale. This thing said.
100 million and beyond so what.
What do you think in the in the sales channel or sales process is needed to be refined relative to what you're doing in 2019 any any additional since you can get there.
Let me just take a first step back given that we've had the unique experience off a growing synopses literally through these phases as well and you know I'm always a thrilled by the fact that.
Enterprises, new goes to different phases, and selling out of the 50 million dollar companies very different than the hundreds and that and Tom is very different than the corner.
Caught a billion.
And 500 again is different and and the difference is essentially the complexity of how you manage not only you internal product development and management, but also the external relationship with the Costar and this is certainly also true in the case off the software integrity group because they are too. There's also a bifurcation between a lot.
Large enterprise customers that typically are cautious and slow in adopting but when the adopting keep adopting and keep adopting as how they become overtime the bigger spenders bars as many of the smaller agile companies that are very quickly by a few copies and then it's more AD hoc how they expand on top of that you have the graph.
Joe broadening of geography or any of the startups that we acquired originally have certain geographies that they were focused on we of course, our global company and therefore open up brought a dark domains and then the third one which is maybe more markets here that was in the the semiconductor domain of who originally was in Oreo.
And is that they deal with individual verticals and so dealing with automotive is different than dealing with the financial sector on the health sector and song and so you have sort of these multiple variables and now. The question is how do you deploy and manage your salespeople and support people I should say against that backdrop of multiple dimensions.
And that's just another way of saying one continually learns and evolves and as we looking now two phase two which is the crossing of the half million and beyond.
That is essentially what we're talking about when we are saying Hey, we have we have the opportunity to optimize our go to market again, and no doubt and a in a year and a half we will say it again.
Okay alright, thank you.
You're welcome.
Next we turn to line or JV shower with Griffin Securities. Please go ahead.
Thank you I'll ask questions. Upon first for you artisan track.
Following up on a conversation we had when you were here in New York a couple of months ago regarding the a the next big thing any D.A.
You answered that prototyping broadly speaking and a new requirements in a distraction would be the next growth driver for <unk>.
And by document of course, not just hardware prototyping answered. My question is is this already showing itself in new business and how are you investing towards that since it's likely to be a multi year.
Phenomenon and then secondly for crack you spoke of your largest customer a in two separate ways, but if we combine that and could you talk about the.
The total business from the largest customer fiscal 18. According to last year's K. It was 15.4% of your business, which worked out to just over 480 million to and that was flat with 17 would have been up very strongly so netting out everything you said about that customer did your business in fact grow either.
Fortunately or in absolute terms.
Okay. Jay the next Big thing and of course, you know next is always a function of Oh short term longtime medium term you name it but I [laughter] weird to say how sort of agree with my answer that I gave you a number of months ago rich is that the more systems become.
Complex the more it's necessary to essentially build mark ops, we called those prototypes all of them to see how well they work because the working is often illustrated on how well the software runs and the challenge is may very well be inside of the hardware with other words, you always have a very complex a modeling prop.
Position or how do you create a prototype off the hardware a level of abstraction off the hardware to use that word and then a run software on its eight to see how fast as it how much power does it consume our they are we at stops what happens if something breaks can you restart it if it's in the middle off.
Some lock up or things like that and and these things become a dramatically more important. If these systems also impact life, a dangerous situation such as driving a car or operating so machinery.
And it is a is these very clear that a lot of the world is going is actually in that direction. So I'll have we done without well. Initially we went up so markets that what's considered to be extremely slow moving in stodgy and that was the automotive market and that quite a radically changed a few years ago, a when two things out.
And one is a cargo attacks the jeep and wasn't literally driven off the street by somebody a using a cellphone and secondly people sell only saw the coming about autonomous driving with all the potential and the challenge is for security and safety and it's been quite remarkable to see how the.
Yeah I'm. So these are the end car companies, having interim pushed on there a tier one which is their supply chain, which in terms pushes on the semiconductor guys, which is their supply chain to now start putting all of these capabilities in malls, so that they kind of sublet long before that the the car is actually.
Already has as a prototype and so we've been central to that and it's been a quite quite rewarding to see how quickly does says advance on that industry that fundamentally for good reason has to be slow because it has to be a safe.
The concept I just described actually up.
Happens in all of the more sophisticated electronic systems and this is only two also for a cellular phone that has a very short time to market, where one can run the software on emulation for example, and actually discover a surprises before before one actually shifts the product. So that is that he is one of them.
Many directions that we're going into and it literally a takes advantage of our entire stack of relationships in the supply chain and stack on relationships and the technology levels.
Hi, Jay This is truck so to your second question you will see in our 10-K filing in a couple of weeks that the revenue for our largest customer will be down in 2019 and that is strictly a function of the hardware decline.
The rest of the business EDA and IP grew very well in 2019.
Got it thank you.
If I could squeeze in one more perhaps regarding your headcount.
Your number of AG opening a has increased significantly and.
Particularly the Americas, where they've nearly tripled over the last year end up by about 60% over the last year in Asia flatten the media. So maybe comment on what's driving that growth in AG rack.
And because it coincidental indicator leading indicator how are you thinking about filling or what is your second largest function by by opening faster R&D.
You know Jay you always give me the best summary of our [laughter] practices, but yeah. The increase of A's invariably has to do with either of products that are in deployment and need a support as we harvest the opportunity and that's certainly the case in areas such as fusion.
Compiler custom and I I and many of the pace of verification or it is a gradual rebalancing of the geography makeup as different parts of the of the world Oh different rates or have different needs at various times. It is rally the needs to increase specific skills because.
Our teams are actually quite strong and very broad, but every so often bringing in some specialists, let's say for example in the prototyping or in the intersection of hardware and software can be a quite beneficial as well. So the fact that we are hiring I think you can take as a as a positive in general and ER.
Adding much more yeah, probably enters the competitive knowledge space. So I'll refrain from that thank you.
Thank you.
As a reminder, if you'd like to ask your question. Please press one zero.
Next returns from the line of Jason's Lino with Keybanc.
Capital markets. Please go ahead.
Hi, Thanks for taking my question, one and tying back to Art's comments about.
Thank margin, 27% operating margin guidance for full year.
On track to do the high Twentys and physical 21, but how should we think about the design margins versus second margins I think art you said the margins won't be as expensive in 2020, but then ramp again in 2021.
Yeah. That's correct I think we said that we hold a sig probably roughly flat and of course that means if after the rest of the ops margin for the company grows then everybody has to Japan and Oh, we have obviously multiple parts in the company everybody is sensitized to Oh.
Operating margin that weve onto achieved for the company and so all of the the the reuse and subgroups all focusing on how do we get there while at the same time, not making any compromises for future growth and so you are probably aware that up a somewhat loosely we use the rule of 40 hasn't guideline and.
And so there's room for for people to make improvements to get there, but on the on a on the strongly positive note I think synopsis throughout its management is not only sensitized to this <unk> desire, but very committed and has a budget and plans to get there so from year to year I think different b.
Use will will gets a little bit more or less of a reprieve as a function off the investment needed or corrections or whatever else, we need to do but in aggregate. We all know that so we want to deliver on the numbers that we are guiding you towards.
Okay, Great and then maybe a little more clarification can.
On some of the fiscal responsibility you'd see on your E D a side if.
Because guidance one thing Jeff most of that improvement would have to come from that business.
Well, yeah realize of course that Oh, if Ah sake is a roughly 10% of synopsis and by definition. The rest is 90% and we have a multiple very different a efforts and <unk> and we have a are relatively large but still less than a quarter of the company.
IP business and so yeah, obviously between those different groupings, they all have to contribute and if I'm not mistaken all but one of the business as our heading towards improving ops much in one of them is heading a little bit more towards a a growing the the revenue.
But in aggregate and it's sometimes difficult to the measure because they they intertwined and the deals and song but in aggregate a it's all heading into the same direction, which is a but a dent in the role of 40.
Great. Thank you appreciate the color.
Welcome.
Next we turned for line of Krish Sankar with Cowen and company. Please go ahead.
Hi, Thanks for taking my question I have two of them. All I think you can you put bad called them do said the citigroup couldn't be happier, believing in revenues next year.
The case it looks like this I mean systems Division is gonna go like people, it's good but seems lower than historical isn't a function of the entity as well.
Is there anything else going on there and then a follow up.
Sorry, if I wasn't clear enough, but my statement was that the next a milestone is to pass half a billion I did not say that it would pass a billion next year and so so Oh, we gave you a sense of the growth rate for sake of 15% to 20%, which you think is a is a bit above the markets.
But that he is in right now and so I fundamentally a you know that there's no real change and in the past that synopsis is all in all its components from what we did this year end of last year.
We're fortunate to have a set of businesses that are all doing well and some are a very profitable also and so it's an aggregate improvement that's manifest itself in the financial results largely because of many years of big investments and a number off I think really good acquisitions that.
Got integrated well so so we're continuing to pathway and you know if you want to get the different Sun self synopsis that then just graph our results for the last 10 years, and then you'll see a very different level of stability of how we manage the company.
Got it and that's really helpful up and then just as a follow up a much more longer term industry question.
You know given you guys have a good pushing them CG Hobbs hog the.
And on can you come to that because you know the do you need group recently kind of curious from your vantage point when you look like five years or more than five years out where do you stand on the dilutive lithium Cds Wendy I application.
Then he has done in the DJ Wells is 18 debate.
Well you know it the AI field itself is a fields that has its own specialty and many many companies that all making different bats.
And Oh, it's useful to take a small step backwards, which is fundamentally AI has one need which he is much much much much much faster computation well no matter how hard we bush on Moore's law and song that's hard to achieve and so the answer by definition has to be therefore architectures will become optimized for different applications.
Now architectures can mean chips. They can be groups of chipset can be S.P.J. is that can be a combination of things and actually a number of the very large suppliers of you know provide combinations off of processors together was graphics processors together. It was EFI G.A.D. says all was one objective optimize for an architect.
Actually that's appropriate for specific situation and so in many ways. We ourselves have been a user all of these capabilities because of course, we use a lot of computation for our software tools that are the hardware tools that we provide is our own way to save for certain tasks such as for seeming.
Relation we can do much better on to emulate or or F.C.J. board. So I expect all of these technologies to continue to evolve to continue to be available and various combinations and the race will continually be on all how do you builds machines that can do really well.
I'll comment is we ourselves are the provider of tools to a vast vast group of emerging AI companies.
And this is encouraging because I think those people will will not give up for quite awhile and trying new architectures and some will ultimately go into very large volume and so in many ways. We see a number of those companies as hearts technology drivers for synopsis and business wise.
So we're doing very well with them.
Thanks, a lot.
You're welcome.
And speakers, we have no further questions in queue.
Well given that as you heard we had a very strong 19, we have a great outlook for 20, the market around us, which was a bit soft last year looks up slight beds. There lot of uncertainties as we all know, but Meanwhile, I think we're executing well and a this is also good time to say thank you too.
You for your support your often that provocative and stimulating questions and we'll be back with some of you in the next half hour. So thank you.
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