Q1 2021 Synopsys Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Synopsys earnings Conference call for the first quarter of fiscal year 2021 at this time.
And I am all participants are in a listen only mode. Later, we will conduct the question and answer session and instructions will be given at that time. If you should require assistance. During the call you May press star followed by zero.
<unk> call will last one hour five minutes prior to the end of the call. We will announce the amount of time remaining and the conference. As a reminder, today's call is being recorded and at this time I would like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations. Please go ahead.
Thank you Laurie.
Good afternoon, everyone with us today are archduchy S Chairman and co CEO of Synopsys, and Trac Pham Chief Financial Officer.
Before we begin I'd like to remind everyone that during the course of this conference call Synopsys 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. Our actual results 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 our future results are described in our most recent SEC reports and today's 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 early earnings press release financial supplement and 8-K that we released earlier today.
All of these items plus the most recent investor presentation are available on our website at Synopsys Dot com.
In addition.
The prepared remarks will be posted on the site at the conclusion of the call.
Finally, we are again, the all participating from different locations today. Please forgive any delays technology glitches or awkward handoffs and the Q&A session that occur as a result, thank you very much for that and.
And with that I'll turn the call over to art to J S.
Good afternoon, Q1 was the very good start for the year as we met or exceeded all of our guidance targets revenue was 917 million with GAAP earnings per share of $8.03 and non-GAAP earnings above our target range of $1 52.
Business was strong across all geographies and product groups and for the year, we are reaffirming our guidance with low to mid teens, non-GAAP EPS growth and revenue, surpassing the $4 billion milestone and non-GAAP operating margin of 29% to 30% and more than $1 billion and operating cash flow.
Meanwhile, our markets are strong.
Where everyone looks at the AI and machine learning Hyperscale enables cloud computing five G. Next generation automotive massively connected Iot or software enhanced medical devices all of the require more chips and software.
Chips to store and move huge amounts of Iot data through the cloud.
<unk> for massive general compute and AI, driven smarts and every vertical and market.
Still more chips to tie the huge hardware software assistant of seamlessly together and make them, both secure and safe and the.
The escalating need for ever more secure software, where the embedded on the and electronic system or in the enterprise software space.
Is the center of gravity for Synopsys with our product portfolio.
Folio that not only itself and advanced system on chip design, but reaches down into the critical foundation of silicon manufacturing and up to the intensifying needs of smart software.
We are uniquely positioned at the heart of this opportunity space.
It's quite rewarding to see the adoption and business momentum of the innovations we've introduced over the past several years and the enthusiasm around our further expansions and two brand new domains for our next wave of technology disruptions.
Let me share some highlights beginning with E D a.
Our groundbreaking fusion design platform continues to drive proliferation and competitive displacements supporting strong revenue growth. This.
And this includes major expansions and evaluations of historical.
The historical competitive strongholds.
Customers clearly recognized our leadership at the most advanced nodes now down to five and three nanometer.
On fusion compiler product, specifically deliver superior performance power and area of results.
With numerous competitive wins and wide deployments with influential of high impact semi and systems companies around the world, we see growing business momentum.
Integral to our sustainable differentiation is native integration of our golden sign of products, which guarantees the most accurate and timely results.
Our deep collaboration with foundries ensures that our mutual customers can access the most advanced technologies with well honed design flows.
This quarter for example, we announced the collaboration with Samsung foundry to deliver the fastest design closure and sign off for five and three nanometers.
We continue to also see good growth and momentum in Costa.
We again added several new custom compiler customers, including Julian the wireless communication segment.
Also for the inroads with memory companies, who are adopting our complete end to end custom solution.
And never ending challenge and today's complex designs is verification.
Not only of the chips, but also the intersection of the chips with the software that runs on top of them.
And our verification continuum platform is uniquely powerful and the sweet spot of modern design and is driving strong growth.
Adoptions are expanding rapidly and influential customers ranging from leading hyperscale or automotive do the most sophisticated global semis and systems companies.
For example, and AWS, which utilizes our verification software to accelerate the development of data center chips and automotive supplier automotive for its autonomous driving applications.
Strong demand continues for our market leading hardware solutions.
This quarter, we added 10, new customers and have 45 repeat orders.
The power of our comprehensive design loss of verification solution is evident and full portfolio of adoptions. This.
This quarter. It included a global design services leader, who adopted both fusion and verification platforms for highly complex designs, replacing their legacy tools.
Now to IP, where we again delivered strong double digit revenue growth.
Outsourcing of sophisticated IP blocks continues unabated.
Our track record of innovation reliability and advanced node leadership have led to our number one position and interface embedded memory and foundry specific IP.
We provide the broadest portfolio of by far accelerating time to market and reducing the risk for our customers.
This quarter, we continued to show strong momentum across multiple applications and products.
And of high performance compute which is one of the most dynamic segments today.
Preemptive IP portfolio has driven more than 450 wins and seven nanometer and over 105 nanometer.
We achieved silicon proof of our 112 gigabit Ethernet phy on five nanometer driving the leading edge in this key product area.
Whereas the tremendous growth of Internet traffic security is a big concern and protecting the data transfer and Hyperscale cloud centers.
This quarter, we launched the industry's first security IP modules for PCI Express five point O and <unk> cell communication interfaces.
We've already secured the first design win with a growing pipeline.
Building on our lead and advanced Technology, We released the first phases of our three nanometer Foundation IP offerings.
Building on our innovation and momentum and EDA and IP, we have invested in unique and breakthrough solutions to next generation challenges that our customers face.
We do this and close collaboration with ecosystem partners through a combination of R&D and technology acquisitions.
While we have a number of these and our innovation pipeline, let me highlight three debt for you recently announced.
One three D multi die design.
True AI, driven design flows and three silicon lifecycle management.
Starting with <unk> multi day design.
Think of it of combining and stacking multiple day together not on the board, but on the specialized large chip.
This leads to extremely type of configuration with much higher data speed and bandwidth and with a traditional board and packages approach.
Our new three the IC compiler product enables the design and analysis of these complexity of these systems, taking full advantage of our technical breadth by leveraging both fusion compiler and our sign off tools.
Early momentum is building rapidly with expanding evaluations and adoptions.
Designers of seeing the performance and capacity benefits of a single environment and are beginning to move away from older mix and match solutions for.
For example, three D. IC compiler helped a large agent and semiconductor company complete of highly advanced test chip in record time saving weeks of design time.
With this we also combine our high bandwidth memory and die to die IP that enables the interconnecting these complex systems.
Moving next to AI driven design.
We have of breakthrough and already award winning new solution DSO Dot AI.
DSO stands for design space optimization.
While maximizing the contribution of engineering teams.
So the AI Leverages machine learning techniques and computation to explore the design space for still better solutions in terms of chip performance power and area.
This autonomous search substantially accelerates the work of the human design team.
Indeed, and Q1 customers using DSO dot AI and reported remarkable productivity improvements consistently realizing better results in a fraction of the time and effort typically required.
On top of that multiple production tape outs have recently been completed.
Our customers are already housing the DSO down and AI as an anchor product and are beginning to deploy across the organizations.
And finally silicon of lifecycle management and.
A new platform to monitor analyze and optimize chips as they are designed manufactured and tested and deployed in the field.
Synopsys is uniquely well equipped to provide a comprehensive solution for our longstanding expertise in design manufacturing and IP.
We add sensors monitors and data analytics on chip to provide insight to test yield and reliability management tools.
This gives smart visibility into critical performance reliability safety and security issues for chips and entire lifespan.
In Q1, we expanded our capabilities with the acquisition of more tech, which provides leading edge process voltage and temperature sensors.
Initial interest and activity are strong and expanding wear.
And we're in talks with the number of leading IDM and Fabless customers.
We're also engaged with major cloud service providers to deploy aspects of our solution into their platforms.
These new innovation areas create not only new business growth opportunities and.
They also leverage strong cross disciplinary expertise and synopsys from design to manufacturing to IP.
Now to software integrity testing software code for security vulnerabilities and quality issues.
We delivered a solid beginning to the year and are on track towards meeting our fiscal 'twenty, one goals to reaccelerate growth.
As I mentioned in December we have implemented several important enhancements all showing encouraging progress.
First evolving our go to market strategy and customer success organization and.
Including tuning our sales coverage and building and indirect channel program.
Second bolstering, our strategic consulting capabilities to better serve growing market needs.
And third evolving our product roadmap to capitalize on the latest security trends.
These improvements at the beginning to show and our results.
All geographies delivered at or above plan.
We have numerous multimillion dollar new agreements and sizable expansions with customers ranging from industrial and aerospace and electronics and financial services.
The trend towards adoption of multiple products continues.
Customer interest and a consulting led approach to software security is growing.
Recent publicized security breaches only underscore that need.
Our expanded team is ramping up and we see very good long term opportunity.
In addition industry analysts continue to recognize the quality and breadth of our portfolio and.
Losses was again named a leader in the Forrester wave for aesthetic application security testing.
To summarize.
Q1 was a very good start to the year.
We delivered strong financial results and are reaffirming our outlook for fiscal 'twenty one.
Our markets are healthy of customer investment and critical chip and system designs as well as immense amounts of software remains very strong.
Our differentiated portfolio of solutions, including exciting innovations and brand new areas of technology disruption is generating high demand and strong growth.
Lastly, keep an eye out for our second annual corporate social responsibility report to be published and the next few weeks.
We are proud of the progress we've made in the areas of environmental stewardship, social solidarity and corporate governance.
We look forward to sharing with you our metrics and future objectives.
Without the I'll turn it over to track.
Thanks, Eric and good afternoon, everyone.
We delivered a very strong start to the year and continue to execute well on our short and long term targets.
We grew revenue broadly across all product groups and geographies we've.
We reported non-GAAP earnings above our target range and continue to expand non-GAAP operating margin.
We produced another quarter of the robust collections, leading to a very strong cash flow.
And we announced the $250 million repurchased and the quarter.
Our strong start market leadership, and the resiliency of our business model with nearly 90% recurring revenue gives us the confidence to reiterate our 'twenty and 'twenty one financial targets.
I'll now review of our first quarter results all comparisons are year over year, unless otherwise stated.
We grew total revenue to $970 million of 16% as design activity generally and demand for our products in particular of remained high.
The quarter also reflected the timing of some product shipments shifting forward into Q1.
Semiconductor and system design segment revenue was $878 million with both E D E and the <unk> performing well.
Software integrity segment revenue was $92 million, a solid start towards our full year objectives.
Moving on to expenses total GAAP costs and expenses were $822 million.
Total non-GAAP costs and expenses were $684 million, resulting in a non-GAAP operating margin of 29, 6%.
Adjusted operating margin for semiconductor and system design was 31, 8% and software integrity was eight 6%.
Finally, the GAAP earnings per share for $1.03 and non-GAAP earnings per share were $1.52.
Turning to cash we generated $174 million and operating cash flow, our highest first quarter operating cash flow to date, driven by strong collections and a couple of large customer payments that came in early.
We initiated a $250 million stock repurchase consistent with our commitment to increasing buybacks this year.
We ended the quarter with the cash balance of 1.02 billion and total debt of $123 million.
I'll now provide our guidance we are reiterating a very solid all of us growth and profitability for the year.
Revenue of 4.0 to 4.0 of 5 billion.
Total GAAP costs and expenses between 3.234 and 3.279 billion.
Total non-GAAP costs and expenses between $2 85 to 85 5 billion on.
Non-GAAP operating margin of 29% to 30%.
Other income and expenses between minus 11 and minus $7 million.
Non-GAAP normalized tax rate of 60 per cent.
GAAP earnings of $4 and 29 to $4 of 45 per share.
Non-GAAP earnings of $6 and 23 to $6 30 per share.
Cash flow from operations of one two to $1 3 billion and capital expenditures of approximately $100 million.
Now, let's see of the targets for the second quarter revenue.
And between $970 million and $1 billion.
Total GAAP costs and expenses between 801 and $819 million.
Total non-GAAP costs and expenses between 697 and $707 million.
GAAP earnings of 93.
The $1 two per share.
And non-GAAP earnings of $1 50 to $1 and 55 per share.
As we announced in December we are raising our long term financial objective to manage to a rule of 45 model over the next several years.
We'll achieve this through a combination of solid revenue growth and non-GAAP operating margin expansion for the B out 30 per cent.
Reiterating of strong outlook for the year and executing to our plan is an important step towards that objective.
At the same time, we continue to work through our long term planning process and will provide additional details as we have and the past once that process is complete.
In conclusion, we delivered a very good start to the year, we drove double digit revenue and earnings growth and generated strong cash flow.
Our ongoing focus on managing the business for sustainable long term growth has served us well.
While steadily expanding profitability, we continue to adjust and the critical next generation technologies, driving our customer and some momentum.
And we've prudently managed the strong cash flow, we generated two of Dallas.
Our balance of value enhancing M&A and substantial buybacks and with that I'll turn it over to the operator for questions.
Thank you and ladies and gentlemen, if you wish to ask a question. Please press one and then zero on your telephone keypad and you may withdraw your question at any time by repeating the one zero command and if you are using a speakerphone. Please pick up the handset before pressing the numbers once the.
Again, if you have a question you May press, one and then zero at this time.
And before we begin the Q&A session I would like to ask everyone to please limit yourself to one question and one follow up to allow us to accommodate all participants if you have additional questions. Please re enter the queue and we'll take as many as time permits.
Thank you and our first question is from the line of Mitch Steves with RBC capital markets. Please go ahead. Your line is open.
Hey, good afternoon, guys and so obviously, a good quarter here and I just had a couple of questions. The first one is actually just on the guidance I've got them all of that goes back pretty hard and I realize you guys haven't missed a quarter and something like a decade, but I guess historically when you guys beat the first quarter and guide up the second quarter, usually take up the full year and leased by the magnitude of.
The beat so I guess why isn't that why is that not occurring.
This time and then secondly, just in terms of the software integrity business can you maybe provide us and update on kind of how you expect the margins to trend I realize the last year's probably a difficult year in terms of getting your bad debt, but how should that kind of trend through the year. So those of my two questions. Thank you.
Okay and Mitch.
This is Chuck let me check the the first question with regards to the guidance for the full year and we definitely feel very good about the the outlook for the year.
Especially in light of the strong quarter that we just posted in Q1 now that said, it's still early in the year and there's still a lot of business the book and our.
Our focus is making sure that we execute and the guidance for Q2 and ensuring that we are on track to deliver very good growth and and earnings.
The good growth and earnings earnings growth for full year.
Our strong Q2 ahead of us and we will focus on that and we'll provide more color on the year, when we reported and and Matt.
Regarding cig.
The good news is I think that we have made a number of changes where we are starting to see some of the positives and for this year. Our main objective and it's not so much share to change the margins beds to come back to a growth rate that we can be more proud of.
And so that is trending and the right direction. It's just the first quarter. So it's a little early but Oh, we're very encouraged and I'm also very encouraged because I can see and feel of change of tone and the team I can see some very strong people have joined and so all of that is heading and the right direction, but I said the growth is our first objective because of.
And invariably once the growth as well our margin is much more manageable.
Okay.
Yeah, I would add to the arts comments I'd say it is a good start to the year and and as we resume growth and that business over the long term certainly it's kind of the leverage on that business is north of the combination of very strong growth and.
And the margin expansion that should contribute to the overall margin story as well.
Yes.
Understood. Thank you so much.
Youre welcome and.
Thank you, ladies and gentlemen, as a reminder, if you have a question you May press, one and then zero on the telephone keypad. We will go next to the line of Jason <unk> with Keybanc. Please go ahead.
Hey, Thanks for taking my questions on maybe my for my first one you know for Trac, you mentioned, a little bit of pull forward and the quarter you know very solid beat but maybe you could you just quantify.
Maybe what I'm the of mountain and what products.
Jason it's mostly on the the hardware side, we saw the hardware wasn't a bit better than expected for the quarter.
And then with regards to IP, we had some the IP deals that were schedule and Q3 of that we saw on Q1, but you know what.
That was an element of the quarter, but for most part the results and Q1 was or what the function is really good execution across the board and you can see that India. The mix of of how we did of geography geographically and also by the different products.
Okay, and then for my follow up it looks like you've broken out China, and and accelerated meaningfully in Q1, even from the whole year of last year and even with limited you know data here it seems to be.
And kind of confirming your confidence in the China with and Poland, but I'm curious what specifically about Q1 versus maybe what you saw all of last year.
Well in simple terms, the China is growing well as a high tech country and so there are many customers that are all doing more and more chips that here of doing more sophisticated chips and that rely on our tools to get there and so we see this essentially is a growing economy.
So that will continue to do well for a number of years.
Thank you and I'll remind everyone again, and if you wish to enter the queue. Please press, one and zero on your telephone keypad.
Yeah.
Thank you. Our next question will be from the line of Jackson Ader with Jpmorgan. The line is open. Please go ahead.
Great. Thanks for taking my questions guys.
Art, you mentioned that the kind of recent breaches and typically with solar and wind has.
Increase the awareness for the demand on.
Consulting led software integrity deals, but just curious.
On the product side, either for 10 flow tinfoil or the black dog products.
And are these also seeing and increased demand and and is there anything that those products due to the typically that might help its type of attack and the future.
Well you know all of the business tends to be not so much and the diagnostic of our issues and more in the AR and the prevention of them now and some of the the products that you mentioned are sort of on the boundary of that and to be honest I don't know if if the these had any bump up in general I would say that.
And these type of breaches initially go through almost like a panic phase where people just want to find out have they been breached and so on that is not the business that we're in and then they go into the the longer term considerations, which is how do they make their environment and much more solid and that is precisely where where our software integrity group is focused on and more.
From the North this is why our sophisticated consulting is of value because there are so many different product offerings and the world and and plotting of strategy that over the long term makes the development of environment stronger actually requires some sophistication and so that is why we're trying to staff up further in those area.
Because we do see that it has an impact.
Okay great.
Great and then just a quick follow up given the the supply chain disruptions that we see and the automated market can drag can you just remind us how much of your maybe IP revenue is booked on on royalties or product shipments and you know should we expect to see any any cash.
And of the headwinds from the automotive the slowdown.
Yeah.
Well I'll start with the the second part of the question of so far.
We haven't seen the change and the momentum of the IP of business. There's the IP business is pretty diversified obviously automotive is a good segment and the good element of growth for that business, but so far we're not seeing any impact in terms of the momentum that the.
And we've experienced over the last several years.
With regards to the the upfront and mix that's more of a function of the fact that we switched over to 606 and 12.
22019, and so you're going to see a little bit more upfront of for.
Front, and the business, which will create more variability, but that's the.
That's something that I think we've got some some good experienced over the last couple of years managing so.
I don't see that has a has an issue with regard to the real estate I don't have those numbers specifically in mind, but it just tends to be a smaller portion of the of the overall revenue.
Mhm.
Okay.
Alright, thank you.
You're welcome and welcome.
Our next question will be from the line of Joe for Wink with Baird. Please go ahead.
Oh, Great Hey, everyone I wanted to start and I was hoping and maybe get an update on where backlog and finished the coronary and and relatedly.
And in recent quarters, you've been making some comments to suggest you know order trends being in line or better than you're expecting expectations. Just wondering if we could maybe get an update on on how new business on track relative to your thinking of the story of the quarter.
Hi, Joe.
The backlog for the quarter ended at around $4 6 billion and.
And the the bookings trend for the quarter was was pretty much as planned we did well on the quarter.
Keep in mind that the the backlog and the bookings will vary from quarters of core depending on you know.
For the large deals that were expected to renew that quarter. So it will vary.
And what we typically emphasize more is looking at the the quality of the the deals that would be close and the quarter and whether or not run rate what the trend of run rate was and that was definitely higher this this quarter.
Okay on that.
That's helpful and then.
Our going back to the new product discussion between the.
Three of the IC compiler AR DSO of about AI and on the.
And that's all of them just just wondering yeah.
Over on mid term framework, which of these things do you think has the potential to be a.
More material to Synopsys performance, you know when you when you throw out yeah, so AI, becoming an anchor product for our customers or are you demonstrating the type of P. P E and where that you know if we think of few years down. The road. This is gonna be a flagship like some of your other flags.
Chips or would you may be quite the towards one of the other products and your discussion as being more influential to synopsys revenues and in the midterm.
And of course of every team at Synopsys has its own preferred one meaning the one day working on but you are suddenly very correct to say the DSO is is of high potential because of DSO really applies to some of our other flagships and in the case of design automation.
It uses of fusion compiler and a number of the tools that go with it and so the therein lies at the power because if you can amend the human with machine learning driven enhancements and acceleration that is very similar to what three literally the 30 years ago. When we we came out through the market of ours.
The automatic synthesis, where the the human and did a lot of work and the synthesis and became essentially of power tool for them and so I expect that we will see impact of that already this year and fill the next year. If we look at our three D. I C.
That will be a little bit more gradual, but it's very fundamental because as you well know a lot of people have predicted the death of Moore's law and by the way it's far from debt, but it has slowed down and what is so interesting and my opinion with three D. I see is that that is another way to adding substantial complexity, where instead of.
Doing it all on one chip you can do multiple complex chips, and and and connect them very closely together. So over time this will grow in importance and.
And then silica and lifecycle management is particularly interesting because the word lifecycle of isn't there and and that would tend to say well you know the the utilization will be over a longer timeframe, but the the interest turns out to be extremely high already now because people see that if we could put a variety of of day.
Our sources and intelligence inside of the chip for self diagnosis.
It's going to be rapidly more and more important for all of the places where chips are used on applications that could endanger of human life and of course. The car comes up out of the first example for that but robotics and the number of other areas. We'd have the same and so oh what from our perspective is exciting about this these are also.
So a very much organic innovations, maybe amended with ups of all acquisitions and and it bodes well for sort of the the speed and which we are creating new value and that's and additional reason to emphasize it to you.
Great I will leave it there thank you both.
You're welcome welcome.
And our next question from the line of Gary Mobley with Wells Fargo Securities. Please go ahead.
And.
Good afternoon, everybody and thanks for taking my question.
Wanted to and want to ask kind of the gets it and.
The intangible type question to art and and maybe you have a good answer maybe you don't but one of the things that we've been hearing from.
Fabless chip companies as they're struggling to get access to adequate manufacturing capacity and particular, leading edge process nodes is that there really seems to be less of a hurry.
And to develop the latest and greatest sub five nanometer chip.
And so my question to you is you know have you seen any slowdown or any feedback from customers and indicative of a perhaps a slower pace of design and innovation in light of the capacity constraints the chip industry Steve.
Okay, I do think I have a good answer for that for starters on the advanced nodes, we see none of that on the country.
I think the race is fully on a lot of companies understand that the impact of let me call. It AI and Hans computation is going to be enormous on a lot of end markets and and those of sophisticated chips and a lot of people are essentially change chasing that opportunity all in the hope of having the bed.
First the offering and so those no slowdown as far as we can tell and.
I emphasized in the preamble the many new technologies, we have precisely because of that is of high appeal.
I think the part of the confusion around the capacity question comes from the fact that the automotive industry, which is hammered right now by essentially the lack of a few parts in order to ship a car and it's really quite pathetic because these are little parts and they hold back our high value product is actually mostly.
In older technologies, and and older manufacturing and so not even 300 millimeter, but the smaller wafer sizes and for those.
The there's not really and alternative because.
There's a limited number of these foundries and sure you could redesigned these chips, but.
Who wants to redesign these old ships, just because right now for a couple of months you don't have enough parts.
And and so that is the picture that we see I expect that that will go away and in a few months, but nonetheless. Meanwhile, if you caught and and essentially the supply chain a narrow spot.
You can see the impact and so over time I think what we will see is that a number of our companies will become more careful and saying hey, if I have to to move the designed to of newer technology I want to design. It already now so that it's a better documented and can be a you know essentially re mapped to and new technology.
Okay. Appreciate the thoughts there as my follow up and I wanted to and you.
And I went to pin you down a little bit.
And you down on a little more detail.
Relating to the software integrity side go back to your last earnings call I think you.
And you guys were mentioning that perhaps you could you can generate 15% to 20% bookings growth and the current fiscal year, which would ultimately and.
And the translated to that similar growth rate and the out year, let's call. It the school year 'twenty, two and just opinion down here on that.
Is that what you're reaffirming today, you know given the start of the year.
Yes, Gary that's the.
Our that's why we're reiterating.
Alright, great. Thank you.
And ladies and gentlemen, as a reminder, if you'd like to join the queue for questions. You May press, one and then zero on your telephone keypad and our next question from the line of Jay Free shower with Griffin Securities. Please go ahead.
Yes, Thank you and good evening Art, let me start with you with the question concerning the breadth of growth in the core E D. A.
And then a follow up for you track so for art.
It's been quite obvious for the last number of years that theres been a rejuvenation of growth and and synthesis and.
And as well and implementation.
For obviously benefiting you.
Those two areas, but industry data and just the logic of technology would suggest that there was a close correlation between a synthesis and the usage of RTL simulation, where you're also a market leader and and similarly for implementation and correlated to the F N and physical verification.
The question. Therefore is has the growth are the better trajectory, you've seen and both D C and <unk>.
Implementation.
Induced a more rapid growth as well and those highly correlated.
And technologies and products and then for Trac, how are you thinking about your.
And your head count growth for the year and the context of your Opex guidance for fiscal 'twenty one.
At the end of the quarter you had what appeared to be a record number of openings are equivalent to over 6% of head count.
So maybe talk about how youre thinking about.
The rate of bringing people on and and frankly if you.
Are having issues with availability.
Given the large numbers that you have and your open reqs as to your two large competitors.
Okay J D and the question you're asking is complex because fundamentally the picture you're painting. The picture that started with individual tools and has long move towards tools that are very correlated with each other and often used in tandem and so a number of.
Of years ago.
Coined the term debt, we're moving from scale of complexity more of the same to systemic complexity, which is more of the same plus heterogeneous.
And the demands and and constraints of all coming together and so if you take care of instead of gravity like you did synthesis and implementation and you look upward.
Arrive at RTL, which is essentially the way to describe hardware, but RTL does the very much look like and what language and that's not a surprise because right on top of that it's software and so we very much see of cone upward.
And it's broadening where hardware and software and hardware software together have to be verified and optimized and this is increasingly the case for all of the large systems and by the way around the software for simulation, we add it.
A variety of hardware accelerator of such as emulation and prototyping.
If you look downwards, you mentioned, the FM, which stands for design for manufacturing and that is an absolutely correct term because the manufacturing which was nicely isolated somebody else was worried about the physics as you go to the smaller and smaller things you have to worry about a lot of things when you design, a chip and so the the connectivity down to the many of.
Factoring as is has grown substantially and we do ourselves way more of there, but aside of manufacturing I could've added the word test because we also do design for test you have now heard.
The the Silicon lifecycle management, which is sort of a.
Designing for what happens later I could've added the word few sort of functional safety because for all of the the the cars and all kinds of rules that one has to follow and we have actually a fabulous offering and that that is by the way also manifested in the IP and reliability is going to.
The grow in importance as well for all of these these products.
So for a long time.
We have always looked at this as the big picture.
And the the complexity of these intersections is actually one of the areas, where synopsys shines and that's precisely why I mentioned and the preamble of few times that that's the benefit of the cross disciplines is something that where we can really add a lot of value to our customers and I think that will continue.
Hi, Jay this is Chuck so I want to make sure I understand your question correctly, you're asking about head count growth and.
And how that matches up with our expense guidance for the year and therefore margin for the year of is that correct.
And more or less yeah, I mean, you're right.
And clearly we're looking to bring on a large number of people. If you worried and feel every one of your open positions today would you stay within the range of Opex guidance for example.
Hum.
And I wouldn't I don't want to comment about the the Rex itself, but in general generally speaking, we are definitely and destiny of the business and that's consistent with the investments that we're making of the business is consistent with the the.
The goal of.
Increasing margins to the 29% to 30 per cent for this year in.
In addition to that that investment is also related to our long term goal of driving to the rule of 40 45.
Which is going to be making sure that we continue to grow the business over time and also expanding margins simultaneously. So the the head count itself is really the commitment to a balanced COVID-19, but to drive growth and improve profitability.
Okay.
Thanks very much.
Youre welcome.
Our next question from the line of Pradeep Ramani with UBS. Please go ahead.
Hi, Thanks for taking my question.
I had a couple of questions on China.
And the old revenue the growing 74% I guess.
Year over year, but when I look at.
At the company level of your time based revenues of growing 13% to 14% year over year and upfront through 15 and 16%. So I mean is my interpretation of.
Correct that.
With regards to the mix in China with respect to E D E or hardware or IP. It is more or less in line with your mix.
The overall or are you sort of the or is the mix sort of skewed more towards EBITDA or hardware and both in terms of absolute revenue dollars and growth.
Well, let me take it from the from the the the product side and you know.
China of course came on line roughly speaking 25 years after most of the west and so when they entered the space of starting to do a let's say significant chips not the really small things, but the of some of some meaning our right of way they entered with a design methodology that.
Was a more up to date that and what some of the other companies use and so that's predicated on from the start a substantial amount of IP being used in parallel to the advanced technologies and so from that sense of the balance is slightly difference the than in the traditional way.
If I can call it that on.
At the same time increasingly now all of these companies look the same to US the day in China be the inquiry or in the in Europe or in the U S. All of the ones that are driving the state of the art have to deal with the physics underneath have to deal with the software on top and have to deal with the sophistication of large IP.
Blocks and substantial development the capabilities and.
Well it was more difference maybe a decade or so ago I think it is now more of the same than it was before and.
And the hardware I think it's sort of a very similar picture of the the most advanced users are the people that are sitting at the intersection of hardware and software and that is precisely where synopsys shines.
Okay and for my follow up I guess.
If I look at your.
Again, the China revenue.
How long do you think of how are you looking at it in.
In terms of the.
And as you progress through the rest of the year I mean, do you get a sense debt obviously.
It's going to grow faster than the Latvia, and overall or are you sort of seeing.
On the comps get harder and the back half and sort of.
The selling a little bit.
Well I would say last year was a strong year for us as well and so in general as you well know the the Chinese economy did actually grow and contrast to some of the western economies of the hope of course is that the the west will start to grow as Covid gets Oh hammer down more but in general.
There's no reason to believe that China will not continue to be of very life market for us and and in general of the in general I would say overall and everything touching chips and around it right now is doing well because of the overwhelming.
Demand of all of the end markets and the the specialized vertical.
Thank you.
Youre welcome.
And ladies and gentlemen, if you have additional questions you May press, one and then zero on your telephone keypad.
Thank you and I have a follow up question.
From a deep Romani one moment.
For deep. Your line is open did you have an additional question or shall we move on to our next a person in the queue.
Okay I'm gonna release that line, we're going to go next to the line of Vivek Arya with Bank of America Securities. Your line is open.
Hello, and thanks for taking my question Arthur I'm curious are you seeing more customers design with the arm technology and the PC and server markets. How would you think about that trend now versus what it was and the last one of two years anyway to kind of quantify but that it has gone up or down.
Well, it's hard to quantify if theyre more but it is easy to quantify that they have progress meaning that the already a number of years ago and it was more than two years ago and number of people started to look at is it possible to use on course for in the server space.
And some are have continued to try and others have given up at that time, but now there is definitely a small group that is looking at are using the service actually in cloud environment and you know I don't want to announce who these people are some have a probably spoken publicly at this point in time, but.
And that that has oh, followed a lot of hard work to make that possible and.
And now the question will be on are the economics and the capabilities are sufficient to be a good a counterweight to the the X 86 family of processors at the typically used in the cloud. So it is possible that we actually going to see of further diversification of computation largely because of.
All of cloud is not and not only are the regular general purpose computation, but now we have a specialized efforts certainly and everything dealing with big data and machine learning.
And and for that clearly a number of players have put the processes on the market of.
That of dedicated to that and are particularly fast for it and so on fits into all of these categories and.
So so are a number of other people doing the specialized processes.
Got it very helpful. And then for my follow up Trac, just two clarifications.
I think you mentioned some of them that some shipments moved into.
Q1, I was wondering how much did the impact sales and EPS and and part B of that is.
And you've given a full year outlook of about 10 per center or so growth at the at the midpoint I believe.
What is the implied growth and the software integrity part of your business as part of that 10% growth for the full year. Thank you.
Okay. So.
The first part of the question gets the I'm sorry, guys.
The shipments moving into.
And I recall, you said something along those lines yeah. There there are some some IP that should the.
Shifts in Q1 that was originally planned for for Q3.
But overall, it's it was on a significant amount most of the the quarter was really strong execution.
With regards to the the <unk>.
Our software integrity business.
And what we had commented on at the beginning of the year was that.
We expect to.
<unk> bookings by over.
And that 15 to 20 per cent for the full year.
And that with the the.
The time based model that we have the revenue that we would exit the year at the double digit growth, but for the full year, it would probably and the high single digits.
And so far we are after after Q1 and we're on track for delivering that.
Alright, thank you.
Youre welcome.
Our next question from the line of John Pitzer with Credit Suisse. Please go ahead.
Yeah, and good afternoon, guys. Thanks for let me ask the question first one trac just going back to the Opex guide for the year, maybe another way to ask an earlier question was there anything about the COVID-19 environment that hindered your ability to actually bring people on board to actually accelerate growth and some of the markets like software integrity.
Such that if we get to a point, where the vaccine is widely distributed and things open back up you guys might take that opportunity to kind of reaccelerate opex for future growth or how do I think about the COVID-19 dynamic within Opex and then I have a follow up.
Yeah overall, I think we've done a pretty good job of bringing head count on and bringing on.
The people on board.
You know.
The as a matter of fact.
And you bring up the.
The topic and we brought our new general manager for the software integrity business on without ever physically meeting and so.
It's something that we're managing through and and much like the rest of the business. We're just learning how to work remotely and adapting.
The pretty well and I think.
And I think there will be will continue to do that through throughout the rest of the year and adjust as things free up for change with the the health environment.
That's helpful and then artist as my follow up just in the core EDA business I'm wondering if you could help me just better understand how the business is tracking between sort of some of the more traditional customers you've had and that business, let's call. It the Intel Qualcomm and Broadcom to the world and and maybe some of the more non traditional customers.
The Hyperscale companies, we now have a very vibrant.
Vibrant private and semi market that we haven't had in years and I'm kind of curious that non traditional bucket. How big is that now part of the core EDA business and I'm, assuming it's growing meaningfully faster, but can you help me differentiate.
Sure well first I think your description of fits well the situation, meaning are the the traditional big players continue to invest heavily because they are of chasing or driving depending on how you look at it the advanced technology and no matter what secondly.
And secondly, the Hyperscale errors are clearly.
Continuing to see the opportunity to do more of designs themselves to do more and manufacturing not so much manufacturing, but the of control where they get their own products for them and the one thing that's different about hyperscale us versus other companies. They they don't design chips to sell the chips. They they design chips in order to use them.
And in their own product offering.
Having said that a number of these companies have been successful already at doing that some have acquired small startups and.
And some are literally growing their design teams and their experience to go with it as we speak and so it's a it's of a.
Part of the the the market that is definitely on on very good growth I would say probably twice as much of the rest and then the the other kind of agree you called them. The startups are sometimes and were also called them all AI companies on machine learning ish companies because there there are many companies around that and not that.
The old do AI processors, but the theres a vibrant world that is essentially trying to change the future and.
It's the only anything that is close to machine learning is super highly interested and at the minimum two things, which he is compute very fast and computer was a lot of data and once you say. These words you have to also say not using too much power because otherwise you Friday of chips and so those are all good work for us because that means they tend to.
Immediately.
Heads towards the most advanced IP had towards the most advanced of utilization of tools and so that has also been a very good market for us so.
Some of the AI guys get acquired by the traditional way of some of the traditional is get acquired by the the Hyperscale or it's the life market and you know life is a good word and here because oh. This is of fields, where we advanced a change and technology opens new doors at the very moment, where the a lot of opportunities.
And I know, it's fluid, but is there any way to the size of the non traditional bucket as a percentage of revenue today.
Well there is the way, but we don't do it for you of Unfortunately, Missouri, right and we don't disclose the individual buckets, but.
And I don't mean to be coy I want to be very clear I think hyperscale or is AI and a few other specialty areas are very good growth for us and.
And are also very demanding which is typically actually good for us because it drives the angles of technology that will be meaningful and and while for example, I didn't mention.
The whole out the automotive space because it tends to be a little behind on the most advanced technology. It is now looking very much forward precisely because of these needs of lifecycle guarantees reliability functional safety and the number of those concepts are very powerful and.
And we will over time I think also make it back into the other groupings.
So I guess, what I'm describing to you. It is a really live field and our job is to find which ones of these customers out of the nuggets and serve them as well as we can.
Great. Thank you very much.
John Thank you.
And with minutes remaining in our call we will take our last question in the queue from the line of golf Munda with bear and Bird capital markets. Your line is open.
Hey, Thanks for squeezing me in at the and I appreciate that and the first question is just around the EBITDA growth that you're seeing clearly above what we used.
He used to say, it's kind of a sustainable growth of the market and you're referring to some significant market share wins that you're taking and I was wondering if you're able to kind of separate what you're seeing in terms of what the market is growing at.
Recently, considering the fact that there's been an acceleration of the general market trend and how much is the market share win them and in addition to what you are growing as when you're growing you know.
Most of the double digits.
Well I think Oh, I'm always the low a careful before commenting on the competitors and I do think that the overall.
Market is actually strong as my response to the previous question and so I assume that all of us benefit from that.
There's no question in my mind up and some of the advanced area of that we have focused on for the last few years and often communicated to you about we.
We are doing particularly well and Moreover debt we're building on top of that sort of next generation capabilities that look very very promising so and so in that context I assume debt overtime, we may gain some share but this is all in the landscape that overall is positive and.
We should continue to invest in these areas because and I was a good time for that.
Got you and then just the last one and came back to China and you know if I looked at the revenue run rate that you're on right now and buying if you just extrapolate that they're on 460 million ish of with without any sequential growth of revenue, which is significant and how much of the China right.
And you and general would you classify as recurring is it similar to what you have and the rest of the business some of the percentage of.
Or is it more.
And more specific.
Overall, the business mix of China's very similar too.
Total synopsys and.
We've been able to do very well across the board.
Okay. That's helpful. Thank you Youre welcome. Thank you Kal.
Well I guess it springs assets at the end of the hour and so the first and foremost we hope that you and your families have been able to stay healthy and that the in the light of coming vaccines you have for both the patients to protect yourself and get there as soon as possible and also thank you for your continued following of Synopsys.
And for a number of you will be following up and the next few hours and one on one calls b well.
Okay.
Thank you ladies and gentlemen, this will conclude our teleconference. Thank you for using the AT&T conferencing service and you may disconnect.