Q1 2022 Synopsys Inc Earnings Call

Yeah.

Speaker 1: Ladies and gentlemen, thank you for standing by and welcome to the Synopsys earnings conference call for the first quarter of fiscal year 2020.

Ladies and gentlemen, thank you for standing by and welcome to the Synopsys earnings Conference call for the first quarter of fiscal year 2022.

Speaker 1: At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. Instructions will be given at that time.

This time, all participants are in a listen only mode.

Later, we will conduct a question and answer session and instructions will be given at that time.

Speaker 1: If you should require assistance during the call, please press star followed by zero.

You should require assistance during the call. Please press star followed by zero.

Today's call will last one hour.

Speaker 1: Five minutes prior to the end of the call, we will announce the amount of time remaining in the conference. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Lisa Eubank, vice president of investor relations. Please go ahead.

Five minutes prior to the end of the call we will announce the amount of time remaining in the conference. As a reminder, today's conference is being recorded at this time I would like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations. Please go ahead.

Speaker 2: Thank you, Eric. Good afternoon, everyone. With us today are Art DeGiois, Chairman and Co-CEO of Synopsys, and TracFOM, Chief Financial Officer.

Thank you Eric good afternoon, everyone.

With us today are art did you 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 the conference call Synopsys will discuss forecasts targets and other forward looking statements regarding the company and its financial results.

Speaker 2: Before we begin, I'd like to remind everyone that during the course of the conference call, Synopsys will discuss forecasts, targets, and other forward-looking statements regarding the company and its financial results.

Speaker 2: 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.

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.

Speaker 2: 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 report and today's earnings press release.

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.

Speaker 2: In addition, we will refer to non-GAAP financial measures during the discussion.

In addition, we will refer to non-GAAP financial measures during the discussion.

Speaker 2: Reconciliation to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release, financial supplement and 8K that we released earlier today.

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.

Speaker 2: All of these items, plus the most recent investor presentation, are available on our website at Synopsis.com.

All of these items plus the most recent investor presentation are available on our web site at Synopsys Dot com.

Speaker 2: 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 the public.

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 to Geos.

Speaker 3: Good afternoon. Q1 was an excellent start to the year. Building on the strength and momentum from 2021, we met or exceeded all of our key guidance targets with strength across all product groups and geographies.

Good afternoon, Q1 was an excellent start to the year.

Building on the strength and momentum from 2021, we met or exceeded all of our key guidance targets with strength across all product groups and geographies.

Speaker 3: Revenue was $1.27 billion with GAAP earnings per share of $1.99 and non-GAAP earnings at the high end of our target range at $2.40.

<unk> was one to $2 7 billion with GAAP earnings per share of $1 99.

non-GAAP earnings at the high end of our target range at $2 45.

Speaker 3: As a result of this solid start and confidence in our business, we are raising our full year revenue and earnings guidance.

As a result of this solid start and confidence in our business, we are raising our full year revenue and earnings guidance.

Speaker 3: We're also executing well on the long-term accelerated revenue growth and margin expansion objectives we communicated to you in December .

Executing well on the long term accelerated revenue growth and margin expansion objectives, we communicated to you in December .

The excellent results can be attributed to three reasons strong semiconductor market strong technology with increasing differentiation strong execution by our teams and adoption of new products.

Speaker 3: strong semiconductor market, strong technology with increasing differentiation, strong execution by our teams and adoption of new products. Lock will provide...

Chuck will provide more financial detail.

Speaker 3: Assessing the landscape, our market is very sound and growing in a way that is positive for synops.

Assessing the landscape.

Market is very sound and growing in a way that is positive for synopsys.

Speaker 3: As the power and impact of massive amounts of big data are increasingly realized, demand for smart everything continues to intensify.

The power and the impact of massive amounts of big data are increasingly realized demand for smart everything continues to intensify.

Speaker 3: As a result, customers ranging from traditional semiconductor companies to AI startups, hyperscalers and vertical system houses are all investing heavily in prioritizing design activity.

As a result customers ranging from traditional semiconductor companies to AI start ups hyper scaler and vertical system houses are all investing heavily and prioritizing design activity.

Speaker 3: Rapidly escalating technical complexity as big data and AI software are brought together in increasingly advanced ways means that today's products require highly complex chips, systems of chips, and more security and safety.

[laughter] rapidly escalating technical complexity as big data and AI software are brought together it increasingly advanced ways means that today's products require a highly complex chips systems of chips and more security and safety.

Speaker 3: As a result, customer investments are increasing across all market segments.

As a result customer investments are increasing across all market segments.

Synopsys has invested heavily over the past five years and a wave of unique innovation targeted at and ideally suited for this new era.

Speaker 3: Synopsys has invested heavily over the past five years in a wave of unique innovations, targeted apps and ideally suited for this new era.

Speaker 3: These investments are yielding excellent technical differentiation and business results.

These investments are yielding excellent technical differentiation and business results.

Speaker 3: At the center of enabling the smart everything era fits the power of AI to develop more complex chips better and faster.

At the center of enabling the smart everything era since the power of AI to develop more complex chips better and faster.

Speaker 3: Our solutions have featured machine learning technology for many years.

Our solutions have featured machine learning technology for many years.

Speaker 3: About a year and a half ago, though, after a multi-year development effort, we released a groundbreaking new AI-driven solution that directs not just individual tools, but greatly impacts results and productivity on major segments of the design flow.

About a year and a half ago, though after a multiyear development effort, we released a groundbreaking new AI driven solution direct the direct not just individual tools that greatly impacts result in productivity on major segments of the design flaw.

Our award winning DSO Dot AI solution is the first of its kind and the only one proven in customer production environments today.

Speaker 3: Our award-winning DSO.ai solution is the first of its kind and the only one proven in customer production environments today.

Dsos at AI learns and autonomously drive our design tools and the design space to find the best combination of chips performance power and area.

Speaker 3: DSO.ai learns and autonomously drives our design tools in the design space to find the best combination of chips performance, power and area.

Speaker 3: This automation substantially accelerates the work of design teams while delivering better results than traditional design flows.

This automation substantially accelerates the work of design teams, while delivering better results than traditional design flows.

Speaker 3: Customers are seeing remarkable outcomes and are deploying quickly to production use.

Customers are seeing remarkable outcomes and are deploying quickly to production use.

Speaker 3: DSO.ai has already been adopted in production design by five of the top ten semiconductor leaders.

DSO of AI. It has already been adopted and production design by five of the top 10 semiconductor leaders.

Speaker 3: In Q1, we saw multiple additional deployments across verticals, including mobile, data center, and processor design.

In Q1, we saw multiple additional deployments across verticals, including mobile data center and processor design.

Speaker 3: Samsung has completed multiple tape outs in mobile, including a state-of-the-art high-performance design in their latest process technology.

So I am wondering is completed multiple tape outs and mobile, including a state of the art high performance design in their latest process technology.

Speaker 3: A leading hyperscaler boosted DSO.ai by using hundreds of CPUs on the cloud and achieved excellent results for advanced SOC.

A leading hyperscale or boost the DSO that AI by using hundreds of Cpus on the cloud and achieved excellent results for advanced Soc.

This breakthrough results demonstrates how DSO to the AI can leverage abundant cloud compute for deep design space optimization.

Speaker 3: This breakthrough result demonstrates how DSO.ai can leverage abundant cloud compute for deep design space optimization.

Speaker 3: Critical to the success of the SO.ai are the powerful engines that sit underneath the integrated Fusion design platform.

Critical to the success of DSO does AI are the powerful engines that sit underneath the integrated fusion design platform.

Speaker 3: The overall solution is resulting in significant cross-selling opportunities and accelerating growth across our platform.

The overall solution is resulting in significant cross selling opportunities and accelerating growth across our platform.

Speaker 3: Momentum is manifest across a wide spectrum of market verticals and manufacturing processes.

Momentum is manifest across a wide spectrum of market verticals and manufacturing processes.

Speaker 3: During the quarter, we achieved multiple 3nm design wins, including at the top processor provider.

During the quarter, we achieved multiple three nanometer design wins, including at the top of processor provider.

Speaker 3: 100% plan of record adoption for a 3nm flagship SoC at a leading mobile provider and Advanced NodeWinds at the world's largest CPU provider

100% plan of record adoption for three nanometer flagship Soc at a leading mobile provider and advanced node wins at the world's largest CPU providers.

Speaker 3: We're also achieving competitive wins at established nodes, including at the leading LCD driver provider.

We're also achieving competitive wins at established nodes, including at the leading LCD driver provider.

Speaker 3: As a result of these high-value innovations, hyperscalers continue to expand their reliance on us throughout our portfolio, including multiple new designs using the Fusion platform.

As a result of these high value innovations Hyperscale has continued to expand their reliance on us throughout our portfolio, including multiple new designs using the fusion platform.

A critical aspect of enabling smart everything is tackling technical complexity across the entire system.

Speaker 3: A critical aspect of enabling smart everything is tackling technical complexity across the entire system.

Speaker 3: The Synopsys Maxxim, from silicon to software, is truly indicative of not only our long-standing focus on the system, but also our differentiating portfolio that puts us in a unique position to enable today's design.

The synopsis of Maxim from Silicon to software is truly indicative of not only our long standing focus on the system, but also our differentiating portfolio that puts us in a unique position to enable today's designs.

A bellwether of systems leadership with IP.

Speaker 3: Following a record 2021, we continued to deliver excellent results in Q1 and demand remains very high.

Following a record 2021, we continued to deliver excellent results in Q1 and demand remains very high.

Speaker 3: Driven by tremendous complexity and time-to-market pressures, customers increasingly choose to jumpstart their designs by relying more and more on the market-leading IP portfolio we've built and honed for more than 20 years.

Driven by tremendous complexity and time to market pressures customers increasingly choose to jumpstart their designs by relying more and more on the market, leading IP portfolio, we've build and hold for more than 20 years.

Speaker 3: In fact, a recent comprehensive IP market study performed by an independent research firm ranked Synopsys number one for the best IP, highest quality IP, and best support compared to other providers in the industry.

In fact, a recent comprehensive IP market study performed by an independent research firm ranked Synopsys number one for the best IP highest quality IP and best support compare to other providers in the industry.

We're seeing great momentum across key market segments, including automotive high performance compute mobile and consumer.

Speaker 3: We're seeing great momentum across key market segments including automotive, high performance compute, mobile and consumer.

Speaker 3: In automotive, for example, Infineon announced at the Consumer Electronics Show the next generation RX TC4X microcontroller family, which utilizes Synopsys IP and virtualization technology.

In automotive for example, Infineon announced at the consumer Electronics show. The next generation Rx Tc Forex microcontroller family, which utilizes synopsys IP and virtualization technology.

Speaker 3: Securing their data center is a top priority for our customers.

Securing their data center is a top priority for our customers.

Speaker 3: We see strong demand for our integrity and data encryption security IP with 20 plus design wins today, to date on a rapidly growing number of...

We see strong demand for our integrity and data encryption security IP with 20, plus design wins today.

To date on a rapidly growing number of active opportunities.

Speaker 3: Given the skyrocketing data requirement, storage is an important market for us as well. We continue to gain wide adoption of our PCI Express, ARC processors and next-generation mobile storage protocol IP.

Given the skyrocketing data requirement storage as an important market for us as well.

We continued to gain wide adoption of our PCI Express arc processors and next generation mobile storage protocol IP.

Speaker 3: Let me talk a bit about some of the innovative system solutions driving our results.

Let me talk a bit about some of the innovative system solutions driving our results.

Speaker 3: First, at the intersection of hardware and software, system verification is a synopsis tronzo.

First at the intersection of hardware and software system verification is a synopsis strong suit.

Speaker 3: Adjacent to our long-standing market leadership with chip simulation, static analysis and debug technology, we are early innovators in software and hardware-based prototyping, now a critical enabler of complex systems.

Jason to our longstanding market leadership with chip simulation static analysis and <unk> technology. We are early innovators in software and hardware based prototyping now a critical enabler of complex systems.

Building on another record year in 2021.

Speaker 3: Building on another record here in 2021, we continue to see excellent growth in hardware with both our Zebu emulation and HAPS prototyping products.

We continue to see excellent growth in hardware with both our zebu emulation and haps prototyping products.

Speaker 3: Demand is very strong as our solutions with the fastest engines, highest capacity and lowest cost of ownership are especially compelling for today's sweet spot of software bring up.

Demand is very strong as our solutions with the fastest engines highest capacity and lowest cost of ownership are especially compelling for today's sweet spot of software bring up.

Speaker 3: This quarter we achieved major expansions with our newest Zebu and HAPS100 hardware at several of the largest semiconductor systems and hyperscaler companies in the world.

This quarter, we achieved major expansions with our newest zebu and haps 100 hardware at several of the largest semiconductor systems in hyperscale companies in the world.

Speaker 3: This included noteworthy wins over the newest solutions from our competition.

This included noteworthy wins over the newest solutions from our competition.

Second <unk> IC design.

Speaker 3: This is a new generation of system design that uses tightly abutting or stacking multiple die on a specialized connection chip in order to enable massively more compute, storage and data mass.

This is a new generation of system design that uses tightly abutting ore stacking multiple die on a specialized connection chip in order to enable massively more compute storage and data management.

Speaker 3: Our 3D IC Compiler Platform is a single, unified design environment that combines exploration, construction and sign-off analysis.

See the IC compiler platform is a single unified design environment that combines exploration construction and sign off analysis.

It showcases significant performance capacity and ease of use differentiation over much older competitor solutions.

Speaker 3: It showcases significant performance, capacity, and ease of use differentiation over much older competitive solutions.

Speaker 3: In the quarter, 3DIC continued its strong momentum, deployed on production tape-outs as a leading US hyperscaler and a large networking systems company.

In the quarter <unk> continued its strong momentum deployed on production tape outs at a leading U S hyperscale or and a large networking systems company.

Our <unk> platform was recognized by winning Tsmc's customer Choice Award for leadership in <unk> IC design and analysis.

Speaker 3: Our 3DIC platform was recognized by winning TSMC's Customer Choice Award for Leadership in 3DIC Design and Analysis.

Speaker 3: And third, we have leveraged our expertise in design, manufacturing, and IP to develop an innovative approach that expands and redefines what's possible in terms of optimizing an entire electronic system.

And third we have leveraged our expertise in design manufacturing and IP to develop an innovative approach that expands and redefine what's possible in terms of optimizing and entire electronic system.

Speaker 3: Our Silicon Lifecycle Management Platform allows customers to monitor, analyze, and optimize systems as they are designed, manufactured, tested, and deployed in the field.

Our silicon lifecycle management platform allows customers to monitor analyze and optimize systems as they are designed manufactured tested and deployed in the field.

Speaker 3: We are seeing strong customer traction and growing adoptions of key elements, including by AI pioneer, Sarah Bras, who used our embedded monitors to understand on-chip dynamic thermal and voltage conditions in order to optimize power and performance.

We are seeing strong customer traction and growing adoptions of key elements, including by AI Pioneer Center Bronx, who used our embedded monitors to understand on chip dynamic thermal and voltage conditions in order to optimize power and performance.

Speaker 3: The growing complexity of systems greatly expands security and safety requirements across the spectrum from chips all the way up to the application software.

The growing complexity of systems greatly expand security and safety requirements.

Across the spectrum from chips, all the way up to the application software.

Speaker 3: Our software integrity business attacks this very challenge with industry leading portfolio security testing products and services.

Our software integrity business attacks is very challenged with industry, leading portfolio of security testing products and services.

Speaker 3: Software integrity had a very good start to the year, crossing the 400 million trailing 12-month revenue threshold, with strong growth across product groups, consulting and geography.

Software integrity at a very good start to the year crossing the $400 million trailing 12 month revenue threshold with strong growth across product groups consulting and geographies.

Speaker 3: Companies from a wide range of verticals, including hyperscalers, financial services, mill, aero and industrial continue to grapple with the challenge of bolstering their security posture.

Companies from a wide range of vertical, including Hyperscale financial services Mil Aero and industrial continue to grapple with the challenge of bolstering their security posture.

Security vulnerabilities for the entire software supply chain, including open source software are top of mind for developers reinforced by government directives and recent publicized breaches.

Speaker 3: Security vulnerabilities for the entire software supply chain, including open source software, are top of mind for developers, reinforced by government directives and recent publicized breaches.

Speaker 3: Our strategic consulting services are not only becoming more vital to customers, they're also thriving increasing product sales, adoptions and longer term engagement.

Our strategic consulting services are not only becoming more vital to customers. They are also driving increasing product sales adoptions and longer term engagements.

Speaker 3: In Q1, this was particularly evident in the financial services space.

In Q1, this was particularly evident in the financial services space.

And then ops, we see increased customer traction with our solutions, including intelligent orchestration to integrate application security testing into Dev ops workflows and.

Speaker 3: In DevOps, we see increased customer traction with our solutions, including intelligent orchestration to integrate application security testing into DevOps workflow.

Speaker 3: and CodeX to correlate and prioritize findings to help developers efficiently address remediation while maintaining development of the law.

And co Dx to correlate and prioritize findings to help developers efficiently address remediation, while maintaining development velocity.

Speaker 3: In addition, the progress of our indirect partner strategy is very encouraging.

In addition, the progress of our indirect partner strategy is very encouraging.

Speaker 3: Even in the early stages, the program is resulting in many new company adoptions around the globe and business that is ahead of plan.

Even in the early stages. The program is resulting in many new company adoptions around the globe and business that is ahead of plan.

In summary.

Speaker 3: Q1 was an excellent start to the year. We delivered strong financial results and are raising our outlook for fiscal 20.

Q1 was an excellent start to the year, we delivered strong financial results and are raising our outlook for fiscal 'twenty two.

Speaker 3: Our significant game-changing innovations are driving outstanding technical and business results.

Our significant game changing innovations are driving outstanding technical and business results.

Speaker 3: The market we serve is strong with intensifying customer investment in critical chips, systems design and immense amounts of software.

The market, we serve is strong with intensifying customer investment in critical chips systems designs and immense amount of software.

Speaker 3: Lastly, we will publish our third annual Corporate Social Responsibility Report, in which we share the solid progress we've made and the goals we've set in the areas of environmental stewardship, including achieving our third year of carbon neutrality, social solidarity and corporate governance. With that, I'll see you in the next video.

Lastly, we will publish our third annual corporate social responsibility report.

In which we share the solid progress we've made and the goals we've set in the areas of environmental stewardship, including achieving our third year of carbon neutrality, social solidarity and corporate governance.

With that I'll turn it over to truck.

Speaker 4: Thanks Art. Good afternoon everyone. First quarter results reflect good momentum across the company.

Thanks Art and good afternoon.

And everyone.

First quarter results reflect good momentum across the company.

Speaker 4: We delivered a very strong start to the year with significant revenue growth across all product groups and geographies.

We delivered a very strong start to the year with significant revenue growth across all product groups and geographies.

Speaker 4: Expanded expanding non-GAAP offering margin non-GAAP earnings at the high end of our target range and solid operating cash flow.

Expanding <unk>.

Expanding non-GAAP operating margin non-GAAP earnings at the high end of our target range and solid operating cash flow.

Speaker 4: Driving these results is a compelling combination of unprecedented market opportunities, accelerating customer adoptions of our groundbreaking new products, and our excellent execution.

Driving these results is a compelling combination of unprecedented market opportunities accelerating customer adoption of our groundbreaking new products and our excellent execution.

Speaker 4: Our confidence in our business is strong, and we are raising our full year 2022 targets. I'll now review our...

Our confidence in our business is strong and we are raising our full year 2022 targets.

Now I'll review, our first quarter results.

Speaker 4: All comparisons are year-over-year unless otherwise stated.

All comparisons are year over year, unless otherwise stated.

Speaker 4: We generated total revenue of $1.27 billion, up 31% over the prior year.

We generated total revenue of $1 $2 7 billion up 31% over the prior year.

Speaker 4: As expected, the quarter reflected strength in EDA software, as well as outstanding demand for IP and hardware.

As expected the quarter reflected strength in EDA software as well as outstanding demand for IP and hardware.

Speaker 4: Total gap costs and expenses were $923 million.

Total GAAP costs and expenses were $923 million.

Speaker 4: total non-GAAP cost in expenses, or $811 million, resulting in a non-GAAP operating margin of 36.2%. That earns per share.

Total non-GAAP costs and expenses were $811 million, resulting in a non-GAAP operating margin of 36, 2%.

GAAP earnings per share were $1 99.

Speaker 4: non-GAAP earnings per share were $2.40, up 58% over the prior year.

non-GAAP earnings per share were $2 40.

58% over the prior year.

Speaker 4: Semiconductor and system design segment revenue was $1.16 billion, with both EDA and IP performing well.

Semiconductor <unk> system design segment revenue was $1 $1 6 billion.

With both EDA and IP performing well.

Speaker 4: Software Integrity Segment revenue was $108 million, a better than expected start to the year.

Software integrity segment revenue was $108 million.

Better than expected start to the year.

Speaker 4: We are on track to reaching our 15% to 20% growth objective for software integrity with expanded adjusted operating margin in 2022.

We are on track to reaching our 15% to 20% growth objective for software integrity with expanded adjusted operating margin in 2022.

Turning to cash we.

Speaker 4: We generated $156 million in operating cash flow, higher than planned primarily due to early collection.

We generated $156 million in operating cash flow higher than planned primarily due to early collections.

Speaker 4: We used 250 million of our cash for stock buybacks and ended the quarter with cash and short term investments of 1.27 billion with total debt of 24 million.

We used $250 million of our cash for stock buybacks and ended the quarter with cash and short term investments of $1 $2 7 billion with total debt of $24 million.

Speaker 4: Now to guidance, we are raising our full year outlook for revenue, earnings and cash flow.

Now to guidance.

We are raising our full year outlook for revenue earnings and cash flow.

Speaker 4: For fiscal year 2022, the full year targets are.

For fiscal year 2022, the full year targets are.

Speaker 4: The revenue of $4.775 to $4.825 billion representing 14 to 15 percent growth.

The revenue of $4 775 to $4 85 billion, representing 14% to 15% growth.

Speaker 4: total gap cost in expenses between $3.809 and $3.856 billion.

Total GAAP costs and expenses between 3809 at $385 6 billion.

Speaker 4: Total non-GAAP costs and expenses between $3.255 and $3.285 billion.

Total non-GAAP costs and expenses.

Three to five five and $3 285 billion.

Speaker 4: resulting in a non-GAAP operating margin improvement of more than 100 basis points.

Resulting in a non-GAAP operating margin improvement of more than 100 basis points.

non-GAAP tax rate of 18%.

Speaker 4: GAAP earnings of $5.53 to $5.72 per share.

GAAP earnings of $5 53 to $5 72 per share.

Speaker 4: non-GAAP earnings of $7.85 to $7.92 per share, representing 15% to 16% growth.

non-GAAP earnings of $7 85 to $7 92 per share representing 15% to 16% growth.

Speaker 4: cash flow from operations of 1.45 to 1.5 billion.

Cash flow from operations of $1 45 to $1 5 billion.

Speaker 4: Now to the targets for the second quarter. We have a value between 1.24 and 1.27 billion.

Now to the targets for the second quarter.

Revenue between one four and $1 $2 7 billion.

Speaker 4: total gap costs and expenses between 931 and 951 billion.

Total GAAP costs and expenses between 931 and 951 billion.

Speaker 4: total non-GAAP costs and expenses between $800 and $810 million.

Total non-GAAP costs and expenses between 808 hundred $10 million.

Speaker 4: GAAP earnings of $1.67 to $1.78 per share and non-GAAP earnings of $2.35 to $2.40 per share.

GAAP earnings of $1 67 to $1 78 per share and.

And non-GAAP earnings of $2 35 to $2 40 per share.

Speaker 4: We continue to anticipate revenue for Q3 and Q4 to be roughly easily distributed with expenses skewed to Q4.

We continue to anticipate revenue for Q3, and Q4 to be roughly evenly distributed with expenses.

With expenses skewed to Q4.

Speaker 4: As we announced in December , our long term financial objectives are to deliver annual double digit revenue growth.

As we announced in December our long term financial objectives are to deliver annual double digit revenue growth.

Speaker 4: non-GAAP operating margin expansion of more than 100 basis points a year, and non-GAAP EPS growth in the mid-teens range.

non-GAAP operating margin expansion of more than 100 basis points a year.

Our non-GAAP EPS growth in the mid teens range.

Speaker 4: In conclusion, we delivered a very good start to the year and are raising our 2022 album.

In conclusion, we delivered a very good start to the year and are raising our 2022 outlook.

Speaker 4: Our long-standing commitment to managing the business for enduring long-term growth has not only generated the most compelling product portfolio we've ever had, but also positions us uniquely well for the current dynamic market landscape.

Our long standing commitment to managing the business for during long term growth has not only generated the most compelling product portfolio we've ever had.

But also positions us uniquely well for the current dynamic market landscape.

Speaker 4: As a result, we remain confident in the accelerated long-term financial targets we communicated to you in December . With that, I'll turn it over to the operator for questions.

As a result, we remain confident in the accelerated long term financial targets, we communicated to you in December .

With that I'll turn it over to the operator for questions.

Speaker 1: Ladies and gentlemen, if you wish to ask a question, please press 1 then 0 on your touch tone phone. You may remove your stuff from the queue at any time by pressing 1 then 0 again. If you're using a speakerphone, please pick up the phone.

And ladies and gentlemen, if you wish to ask a question. Please press <unk> zero on your Touchtone phone you may remove yourself from queue at any time by pressing one zero again if.

If you're using a speakerphone please pick up the handset before pressing the numbers.

Speaker 1: And before we begin the Q&A session, I'd like to ask everyone to please limit yourself to one question and one brief follow-up to allow us to accommodate all...

Before we begin the Q&A session I would like to ask everyone to please limit yourself to one question and one brief follow up to allow us to accommodate all participants. If you have additional questions. Please re enter the queue and we will take as many as time permits.

Speaker 1: If you have additional questions, please re-enter the queue and we'll take as many as...

Speaker 1: And we'll start questions from the line of Joe Bruink from Baird. Please go ahead.

And we will start the questions from the line of Joe <unk> from Baird. Please go ahead.

Speaker 1: Great. Hello everyone. I was hoping maybe to get a bit more detail on the product areas or geography.

Great Hello, everyone I was hoping maybe to get a bit more detail on the product areas or geographies.

Speaker 1: driving the $50 million increase in revenue guidance for the full year. And then in thinking about the sequencing of quarters this year since 1Q finished within the guidance range, is it fair that most of this upside is maybe coming in 2Q, just thinking about maybe your original expectations?

Driving the $50 million increase in revenue guidance for the full year and then.

Thinking about the sequencing of quarters this year.

<unk> finished within the guidance range is it fair that most of this upside is maybe coming in <unk>, just thinking about maybe your original expectations.

Let me start with the first part maybe.

Speaker 3: Let me start with the first part and maybe track into the second part. Our strengths have been really very much across the board. We can certainly say that the IP continues to stand out as going very well. But some of the new capabilities that we see at EDA Tools really are showing more and more opportunity going forward.

Truck can do the second part.

Our strengths have been has been really very much across the board, we can certainly say that.

The IP continues to stand out is growing very well, but some of the new capabilities that we see a DDA tools.

Really are showing more and more opportunity going forward.

Speaker 3: Now you heard about the surf toy integrity group. They continue on an excellent path. Last year was really a return to good growth, and now we are improving the growth there as well.

You heard about the software integrity group. They continue on an excellent path last year was really a return to good growth and now we are improving the growth there as well and lastly, the systems area, which is sort of the intersection between.

Speaker 3: And lastly, the systems area which is sort of at the intersection between, we like to call it, the intersection between silicon and software is an area that will continue to grow because most of the systems get now optimized.

So we like to call the intersection between Silicon and software.

Is it area that will continue to grow because most of the system get now optimized to make the software run as well as possible in the hardware the hardware be as responsive as possible to the software all the way to trying to optimize optimize even the power consumption. So these things are very linked and our hardware and prototyping solutions are extremely well suited.

Speaker 3: to make the software run as well as possible on the hardware and the hardware be as responsive as possible to the software all the way to trying to optimize even the power consumption. So these things are very linked and our hardware and prototyping solutions are extremely well suited for that and have been strong.

For that that have been strong.

Speaker 4: Hi Joe, let me check the second part. I would characterize the upside for the year, the raise of $50 million as simply a Q2 upside. You know, we delivered Q1 largely as planned. It was the biggest quarter of the year. The business that we booked in Q1...

Hi, Joe Let me take the second part I would characterize the upside for the year the raise of $50 million, that's simply a Q2.

Upside we delivered Q1, largely as planned it was the biggest quarter of the year.

The view of the business that we booked in Q1.

Speaker 4: We saw very strong growth in EDA software, which should give us a nice trajectory not only for this year but going forward. And then we continue to see very strong demand in IP and hardware. The momentum that we saw through last year continued in Q1 in terms of results for revenue, but also just the overall demand as Art highlighted.

We saw very strong growth in the EDA software, which should give us a nice trajectory not only for this year, but going forward.

And then we continue to see very strong demand in IP and hardware the momentum that we saw through last year continued in Q1 in terms of the results for revenue, but also just the overall demand is are highlighted.

Speaker 4: And traditionally, we don't raise the full year at this point, at this early point of the year, but just given the visibility we have, not only Q2, but for the rest of the year, we have the confidence to raise the overall guidance.

And traditionally we don't we don't raise.

The full year at this point.

This early point of the year, but just given the visibility we have not only in Q2, but for the rest of the year.

Had the confidence to raise.

The raise the overall guidance.

Speaker 1: OK, that's helpful. Thank you. And then I just wanted to focus in a bit more, given it came up in the prepared remarks, just the recent attention around open source vulnerability. I'm curious if you've seen a bit of a lift for BlackDuck within the portfolio, maybe an acceleration in interest that could end up benefiting growth for software integrity as we move through the year.

Okay. That's helpful. Thank you.

Just wanted to focus in a bit more given it came up in the prepared remarks, just the recent attention around open source vulnerability.

I'm curious if you've seen a bit of a lift for black duck within the portfolio may be an acceleration in interest that could end up benefit and growth for software integrity as we move through the year.

Well I think.

Speaker 3: Well, you know, I think in general, the Software Integrity Group is doing better and better because it is managed really well and is executing well. But what you said is still there's truth because there have been in the past year a number of moments of high visibility of hacking on also open source capabilities, even the US government have.

In general the software integrity group is doing better and better because it is managed really well and is executing well.

What you have said this is still bears truth, because they have been in the past year, a number of moments of high visibility of.

<unk> also open source capabilities, even the U S. Government has made some mandates saying you have to pay more attention to this and their systems and so I think in general there is a high degree of recognition and that helps black dark because.

Speaker 3: made some mandates saying you have to pay more attention to this in their system.

Speaker 3: And so I think in general there's a high degree of recognition and that helps BlackRock because...

Speaker 3: the capabilities that we have there and also our consulting capabilities is precisely what customers need.

The capabilities that we have there and also consulting capabilities is precisely what customers need.

Great. Thank you very much.

Welcome.

Okay.

Speaker 4: Next we'll move the line of Jackson Adder with JP Morgan. Go ahead.

Next we'll move to line of Jackson Ader with Jpmorgan. Please go ahead.

Speaker 5: Great. Thanks for taking my questions, Gus. The first one is on the hyperscaler that you mentioned, the deployed DFO.ai in the cloud. And I'm curious, I guess, number one, the deployment, was it in an offices cloud, public cloud, the customers private cloud, and then the follow up being...

Great. Thanks for taking my questions guys.

On the Hyperscale agency mentioned that deploy DSO impact.

And I'm curious I guess.

The deployment was in natural foods.

I will call the customers either.

And then the.

Follow up being depending on where the customer chooses to kind of run those I think we've done hundreds of Cpus is there any kind of.

Speaker 4: depending on where the customer chooses to run those, I think you've done hundreds of CPUs, is there any kind of revenue leakage if the customer chooses to do something in their private cloud versus maybe the synopsis cloud?

Revenue leakage, if the customer chooses to do something in their private cloud versus maybe the economical cloud.

Speaker 3: Well, let me start at the end. No, there's no leakage. They have to use licenses like any other licenses. Pretty much all the hyperscalers do have large clouds themselves. Some are also commercial cloud providers, obviously. And it doesn't matter if it's a private cloud or a commercial cloud if you have both.

Well, let me start again no there is no leakage.

They have to use licenses like any other licenses.

Pretty much all the hyper scaler do have large clouds themselves. Some also our commercial cloud providers, obviously and.

It doesn't matter, if it's a private cloud or commercial cloud.

If you have both.

Speaker 3: it is the same result. In this case, these are people that are extremely competent on managing clouds and so considerate the commercial cloud.

It is the same results in this case. These are people that are extremely competent on managing clouds.

So.

Considering the commercial cloud.

Speaker 4: Okay, Jack, I would just add that we do see cloud as a very strong incremental growth opportunity, and that is independent of whether or not they're using Synopsys cloud or a third party cloud. We can support other scenarios, but the goal is to gain that business overall. Yeah, I mean the point

Okay, Jack and I would just add that regard, we do see cloud as a very strong incremental growth opportunity and that is independent of whether or not theyre using synopsys cloud or third party cloud we can support other scenarios.

But the goal is to gain that business overall.

Yes.

Part of the question writers.

Speaker 6: see if the customer would say, hey, thanks for DSO.ai. Now I'm going to take my ball and go play over here with it, right, and maybe try and gain the licenses. But no, that answers that. Thank you. And then the second question is actually around the labor market. So

The customer would say hey, thanks for DSO that AI and dominant my ball and declare but here with it right.

Maybe try and gain.

Again, the licenses, but know.

That answers that thank you.

And then.

Second question is actually around the labor market.

Speaker 6: Is there anything that you might see in a tight labor market that might suggest a slowdown in the hiring of engineers at your more traditional maybe semiconductor company?

Is there anything that you might see in a tight labor market that might suggest.

Slowdown in the in the hiring of engineers.

Your more traditional maybe semiconductor company.

Speaker 3: I think there is certainly no slowdown at attempting to hire.

I think there is certainly no slowdown attempting to acquire.

Speaker 3: As you well know throughout most industries there's an increase in turnover. A lot of people have been sitting at home for a few years and are looking for fresh air. And so the entire semiconductor industry right now is looking for people. And we ourselves have had a bit of that, actually not that much negative turnover, but we have hired a substantial amount of people.

As you well know throughout most industries there.

An increase in turnover a lot of people have been sitting at home for a few years.

And are looking for fresh air.

And so the entire semiconductor industry right now is looking for people and we ourselves have had a bit of that actually not that much.

Negative turnover, but we have hired substantially substantial amounts of people and so.

Speaker 3: And so I think that this will continue because there's no end in sight to the need and the opportunity space I think is very, very fertile.

I think that this will continue because there is no end in sight to the need and the opportunity space I think he is very very fertile so.

Speaker 3: So these things tend to last for a year, year and a half, and then they gradually equalize again.

These things tend to last for a year year and a half and then they gradually equalize again.

Yeah.

Alright, thank you.

Youre welcome.

Speaker 4: And next, we'll go to the line of Gary Mobley with Wells Fargo Securities. Please go ahead.

And next we'll go to line of Gary Mobley with Wells Fargo Securities. Please go ahead.

Speaker 4: Good afternoon, everybody. Thanks for taking my question. Congratulations to a strong start to fiscal year. I want to pick up on the last question and ask more so about wage inflation.

Good afternoon, everybody. Thanks for taking my question and congratulations to a strong start to the fiscal year I want to pick up on the last question and ask more.

So about wage inflation.

Speaker 4: is debated whether it's transitory or structural in nature but it's probably fair to say that wage inflation or at least higher wages are here to stay. And so my question for you is is are you able to pass this law pass this along in the way you're pricing license deals. And might there be a period of time in a labor intensive business that you're in where you've got a mismatch in the way deals are priced versus wage inflation.

Debated, whether it's transitory or structural in nature, but I think.

It's probably fair to say that wage inflation or at least higher wages are here to stay and so my question. For you is is are you able to pass. This law pass this along in the way you are pricing license deals and might there be a period of time and a labor intensive business that you're in where you got a missile.

Match in the way deals are price versus wage inflation.

Speaker 3: It's an excellent question because obviously...

Alright excellent question because.

Obviously.

Speaker 3: Especially in conjunction with the question Jackson had.

Especially in the conjunction with the the question Jackson said.

Speaker 3: Whenever there's movement, there tends to be some increase in wages because otherwise people wouldn't necessarily move.

There's movement there tends to be some increase in wages, because otherwise people wouldn't necessarily move and we see we see the same Fortunately we have had the good fortune that our business continues to grow very well.

Speaker 3: And we see the same. Fortunately, we have had the good fortune that our business continues to grow very well.

Speaker 3: And it tends to be a little bit more stable in terms of change because we have many multi-year transactions. But many of the transactions are becoming larger because customers want more tools, need more capabilities. And so we are more gradual in how we pass these costs along.

It tends to be a little bit more stable in terms of change because we have many multi year transactions, but many of the transactions are becoming larger because customers want more tools need more capabilities and so we are more gradual in how we pass these costs, along having said that and track and emphasize.

Speaker 3: Having said that, and Trac can emphasize it from the option margin perspective, but we are staying on track with not only growing the business, but also continuing to improve the profitability of it.

From the ops margin perspective, but we are staying on track with not only growing the business, but also continuing to improve the profitability of it. So so all of these things have been taken into account as we project forward.

Speaker 3: So all of these things have been taken into account as we project forward.

Speaker 3: I would add, Gary, that it's not in effect, we're able to manage the wage inflation and still drive margins up the way we do that. Obviously, we factor those costs.

I would add Gary that it's not.

In effect, we're able to manage the wage inflation is still drive margins up the way, we do that obviously, we factor in those costs.

Speaker 3: and the incremental cost into our expense and that's reflected in our guidance.

The incremental cost into our expense.

Reflected in our guidance and our expectations for improving margins. This year the way the best way to deal with it is really continue to invest in there is twofold. One is over the last several years, we continue to invest in innovation and new technology to drive value in our products.

Speaker 3: and our expectations for improving margins this year. The best way to deal with it is really continue to invest in the business twofold. One is over the last several years, we continue to invest in innovation and new technology to drive value in our products.

Speaker 3: And that has helped us extract more value in the negotiations. And that certainly has helped the accelerated growth in the business. Secondly, we've also been on path over the last few years of redeploying and being really critical about where we deploy resources in order to get the best return. So the combination of those things really is helping us manage wage inflation to that.

And that has helped us.

Extract more value in the negotiations and Thats certainly has helped the accelerated growth in the business. Secondly, we've also been on a path over the last few years.

<unk>.

Redeploying and being really critical about where we deploy resources in order to get the best return. It. So the combination of those things really is helping us manage wage inflation to that way.

Speaker 4: I appreciate the color. And then I wanted to ask a specific question about the RPOs or backlog. If you can't give us the amount, can you give us at least a sense of whether you built on that record high, you published at the end of the fiscal year and to what degree, a longer average license duration factor, then I know you don't get that metric anymore, but are we moving higher on that front as well? Backlog remained.

Got it appreciate the color and then I wanted to ask a specific question about the.

<unk> or backlog if you can.

Can't give us the amount can you give us at least a sense of whether you built on that record high.

You publish at the end of the fiscal year and to what degree.

A longer average license duration factored in I know you don't give that metric anymore, but are we are moving higher on that front as well.

Backlog remained at $6 9 billion.

Speaker 4: And average license duration, could you say it either stayed the same or increased? In the normal range. In that normal range that we traditionally managed to. Nothing we do feel."

Got it and average license duration could you say it either.

In the normal range.

In that normal range that we traditionally managed to.

Nothing unusual here.

Yeah.

Uh huh.

Speaker 3: And next we'll go to the line of Jay Fleeshauer with Griffin Securities. Go ahead. Thank you. Good evening. It's hard for you first. You've spoken often of course.

And next we'll go to line of James Lee Shower with Griffin Securities. Please go ahead.

Thank you good evening.

Art for you first you've spoken often of course about the intersection of hardware and software as a center of gravity of your business, which is perhaps another way of saying that semiconductor companies are becoming more like systems companies systems companies are becoming more like semiconductor companies. The question.

Speaker 3: about the intersection of hardware and software as a center of gravity of your business.

Speaker 3: Which is perhaps another way of saying that semiconductor companies are becoming more like systems companies and systems companies are becoming more like

Speaker 3: semiconductor companies. The question is with respect to the support implications for your business. That is to say the support you have to provide to customers given the growing complexity, the growth of the contracts and so forth.

As with respect to the <unk>.

Support.

Implications for your business that is to say the support you have to provide to customers given the growing complexity of the growth of the contracts and so forth.

Speaker 3: And perhaps you could just talk about that in general, how the profile of what you need to do on behalf of customers are devolving, vis-a-vis your evolution of your contracts and the portfolio. For instance, over the last year, we've seen that there's been a more than 140% increase in your openings for application engineers, even more than the increase in R&D openings over the last year. So perhaps you could just talk about that in general.

And perhaps you could just talk about that in general how the profile of what you need to do on behalf of customers evolving.

Vis vis your evolution of your of your contracts in the portfolio.

For instance over the last year, we've seen that there has been a more than 140% increase in your openings for application engineers, even more than the increase in R&D openings over the last year. So perhaps.

Speaker 3: perhaps tying to the earlier questions on hiring, what the AE environment looks like specifically as a critical component of supporting your customers. And then second question.

Perhaps turning to the earlier questions on hiring.

What the AE environment looks like specifically is a critical component of <unk>.

Supporting your customers and then second question for Trac.

Speaker 3: When you look at your segment results, if we strip out from the IP and systems integration segment, what we think your hardware business may have been, it looks like your annualized run rate.

When you look at your segment results, if we strip out from the IP and systems integration segment, what we think your hardware business.

They have been.

It looks like your annualized run rate.

Speaker 3: for IP in Q1 was well north of one and a half billion as compared to the 1.1, 1.2 billion coming out of Q4.

For IP in Q1.

It was well north of one 5 billion as compared to the $1, one $1 $2 billion coming out of Q4.

Clearly a substantial increase in the <unk>.

So to say of IP.

And that looks like it was fairly well correlated to the increase in China in the quarter. So perhaps you could talk about.

Those are those correlations within the IP business.

Speaker 7: Okay Jay, the question you asked will only take about half an hour. You have touched pretty much on everything we have to do.

Okay. Jay the question you asked will only take about half an hour you touched on everything we have to do.

Speaker 7: Let me phrase it like this. A number of years ago we put the Silicon 2 software under our logo. It was aspirational at that time because it meant moving to where the center of gravity was moving.

Let me, let me phrase it like this.

A number of years ago, we put the silicon to software under our logo. It was aspirational at that time, because it meant moving to where the center of gravity was moving I am absolutely convinced that the center of gravity for everything that will impact smart everything big data.

Formation in various ways is actually the intersection of those two and so let me first go downwards from the hardware and Theyre clearly one trend continues still smaller more sophisticated devices Thats technology evolution. The second trend that is complementing that is multi chip and more chip let's.

Speaker 7: And so let me first go downwards from the hardware. And there, clearly, one trend continues. Still smaller, more sophisticated devices. That's technology evolution. The second trend that is complementing that...

Speaker 7: is multi-chip or chiplet.

Speaker 7: And that is because at some point in time you want 100 times more transistors, but that is technically not feasible. And so you split it up and we'll see more of that.

And that is because at some point in time, we want to 100 times more transistors, but that is technically not feasible and so you split it up and we will see more of that and the third trend is that many of the chips become specialized architecture for just a limited set of tasks and this is not new because with.

Speaker 7: And the third trend is that many of the chips become specialized architecture for just a limited set of tasks.

Speaker 7: And this is not new because with graphical processors already 20 years ago...

Graphical processors already 20 years ago, they were essentially accelerators to manage pixels now of course, there's a lot of that those in the AI direction or data management, there and so on.

Speaker 7: They were essentially accelerators to manage pixels.

Speaker 7: Now, of course, there's a lot of that goes in the AI direction or data management direction and so on.

Speaker 7: So then we move to the other side of the equation, which is the software. The software, of course, has one ambition, which is do applications that add a lot of value in every domain you can think of, including many of the automation domains, the big data slash machine learning domains.

So then we move to the other side of the equation, which is a software as a software of course has one ambition which is.

New applications that add a lot of value in every domain you can think of including many of the automation domains. The big data Slash machine learning domains, and so the software needs to be matched to the hardware and the hardware needs to be matched to the software and that is where the prototyping is effective from.

Speaker 7: And so the software needs to be matched to the hardware and the hardware needs to be matched to the software. And that is where this prototyping is effective from both perspectives. And we're seeing rapid growth and just like anything else, people wish the prototype would be another 10 times faster than they could do 10 times more. And so I think that will continue for quite a while.

<unk> perspective, and we're seeing rapid growth and just like anything else people wish to prototype would be another 10 times faster. Because then they could do 10 times more and so I think that will continue for quite a while now in regards to the different supports youre absolutely correct that in the in the semiconductor area there.

Speaker 7: Now in regards to the different supports, you're absolutely correct that in the semiconductor area or the hardware down, it is more an evolution of what we've done for the last 35 years and AI is very important because it's now taking on much more complex multi-step tasks. And so that's where we give a lot of first.

The hardware down it is more an evolution of what we've done for the last 35 years and AI is very important because it's now taking on much more complex multistep tasks and so that's why we gave a lot of support whereas if you look upwards.

Speaker 7: Whereas if you look upwards, there are the system houses. In the past, only a few really have invested substantially in chip design or electronic system design. And now because the software is so much closer to the realization, they are investing.

There the system houses in the past only a few really have invested substantially in chip design or electronic system design and now because the software is so much closer to the realization. They are investing but these are also the types of companies that if they can buy partially finished solutions like big IP blocks.

Speaker 7: But these are also the type of companies that if they can buy partially finished solutions like big IP blocks, that is where they start. And so we increasingly look at our IP as reaching into that middle.

That is where they start and so we increasingly look at our IP is reaching into that middle and then the last comment is for each of the verticals there are often additional needs.

Speaker 7: And then the last comment is, for each of the verticals there are often additional needs.

Speaker 7: And automotive is a prime example of that because safety matters and security is a subcategory for safety in that case. Safety of course applies to many, many places.

Automotive is a prime example of that because safety matters and security as a subcategory for safety in that case security of course applies to many many places so long story short.

Speaker 7: So long story short, our opportunity is that we touch all of these players and become increasingly a catalyst between multiple players to make something successful. And therein lies the big opportunity for Synoptic.

Our opportunity is that we touch all of these players.

And become increasingly a catalyst between multiple players to make something successful and therein lies the big opportunity for Synopsys.

Speaker 3: Hi Jay, let me take the second part of your question. So you're right, Q1 was a very strong quarter for IP in addition to the other products.

Hi, Jay let me.

Take your the second part of your question. So Youre right Q1 was a very strong quarter for IP. In addition to the other products, but at a high level. The IP business is strong at all all areas, all geographies and across a very diverse customer base.

Speaker 3: But at a high level, the IP business is strong in all areas, all geographies, and across a very diverse customer base.

Speaker 3: And so tying that connection to China would be misleading. And in fact in China, we're doing very well across all of our product categories. You know, we had very good growth in EDA software, hardware did well in addition to IP. So trying to make that connection at the top level of the results, I think would give you a misleading conclusion.

And so China.

Tying that connection to China.

Would be misleading.

And in fact in China, we're doing very well across all of our product categories. We had very good growth in EDA software hardware with did well in addition to to IP. So.

Try to make that connection at the top level. The results I think would be would give you a misleading.

Conclusion.

Okay.

Thanks very much.

Youre welcome.

Speaker 7: Next we go to the line of Jason Salino with KeyBank Capital Markets. Please go ahead. Great, thanks for taking my questions. Maybe first one for Trac. You know the semi and design margins in the quarter, you know, were really impressive, you know 38%. You know, that's the highest we've ever seen them. How much of that strength is just mainly from the upfront nature of, you know, the IP and hardware strengths?

Next we go to the line of Jason <unk> with Keybanc capital markets. Please go ahead.

Great. Thanks for taking my questions, maybe first one for trac.

And design margins in the quarter were really impressive 38%.

It's the highest we've ever seen them.

Much of that strength is just mainly from the upfront nature of the IP and hardware strength.

Speaker 3: I'd characterize it more as the core visualization of the results, Jason. Because remember, when we talked to you in December , we described expenses as being relatively flat throughout the year, but the mix of revenue and the timing of revenues would skew margins to the front end.

I would characterize it more as the Corporatization of the results Jason because remember when we when we talked to you in December we described expenses as being relatively flat throughout the year, but.

Our mix of revenue.

The mix of revenue and the timing of revenues with SKU margins to the front end.

Speaker 3: But overall, I think margins are doing very well. And we do expect that over a multi-year period, we'll continue to improve marks.

But overall I think margins are doing very well and we do expect that.

Over a multiyear period, we will continue to improve margins.

Speaker 8: Okay, perfect, interesting. And then Art, I thought it was interesting how you mentioned hyperscalers with your SIG business comments. I didn't think strengthen with the hyperscalers was levered at all to the SIG business. So my question is, do these hyperscalers typically purchase the EDA and the SIG products separately, or do they have opportunities to bundle them together? Thanks.

Okay.

Interesting.

And then art I thought it was interesting how you mentioned hyperscale or whats your cig business comments.

Thanks strengthen with the Hyperscale or is it was levered at all does this thing business.

So my question is do these hyper scalar is typically purchased the EDA and the Sig products separately or do they have opportunities to bundle them together. Thanks.

Speaker 7: In general, we sell these things relatively separately. They're often very different buyers in the company that are looking at that. And we have proactively kept it somewhat separate. It's a better business practice than negotiating everything to the lowest common denominator. And so but of course, these hyperscalers have absolutely big needs in security. And and so we're collaborating well with them.

General we sell these things relatively separately they often.

Very different buyers in the company that are looking at that.

We have proactively kept it somewhat separate it's a better business practice than negotiating.

We're seeing to the lowest common denominator.

So but of course these hyperscale us have absolutely big needs in security.

<unk>.

So we are collaborating well with them.

Excellent. Thank you.

Youre welcome.

Speaker 7: And next we go to the line of Pradeep Ramani with UBS. Go ahead.

And next we go to the line of pretty per money with UBS. Please go ahead.

Speaker 9: Thanks for taking my question. I have a couple. Your deferred revenue saw a big pop, I think. What is driving that? Is that, first of all, is it from a product standpoint broad-based or sort of concentrated among either IP or ADA or hardware? Oh, sorry, I feel ADA and in terms of just

Thanks for taking my question I had a couple of tools.

Your deferred revenue.

Big pulp I think.

Driving that is that first of all is it from a product standpoint broad base.

Or sort of concentrated amongst either IPO.

Alright.

Oh, sorry <unk>.

And.

In terms of just <unk>.

Speaker 9: geographical or customer concentration that sort of drove that delta, if you could expand upon that. That would be helpful.

Geographical or customer concentration that sort of.

That delta if you could expand upon that that'd be helpful.

Speaker 3: I'll start with the first question, Pradeep. The deferred is very broad-based across all product lines, and the variability of deferred from one quarter to the next really just reflects the timing of when we bill and invoice our com.

So I'll start with the first question for deep the deferred is very broad base across all product lines.

And the variability of differed from one quarter and next.

Really just reflects the timing of when we bill an invoice our customers.

Speaker 3: I didn't hear clearly the second part of your question.

Hi, Tim.

Clearly the second part of your question.

Yes. It was it was more around.

Speaker 9: whether any one customer or one geographic geography sort of drove the upside or the problem or whether that was broad-based.

Were there any one customer or one geographic.

Geography sort of grow the.

The upside of the pump.

That was broad based as well.

Speaker 3: The overall growth was really broad-based.

The overall growth.

It was really broad based.

Speaker 3: Yes, customers across, customers globally.

Customers across.

Our customers globally.

Speaker 9: Okay, and for my follow-up, I guess you talked about BSL.AI and SLM.

Okay.

And my follow up.

I guess.

You talked about Dsos.

SLM.

Speaker 9: How would you characterize just in terms of what percent of your Semiconductor and system design revenue they are at right now and And and how do we think about sort of the growth path going forward for these two contributors? Yeah

How would you characterize in terms of what percent of your semicon.

Semiconductor.

Timberland revenue they are at right now.

How should we think about sort of the growth path going forward.

Two contributors.

Yes.

Speaker 10: Yeah, we're in early stage and typically we don't disclose for individual products.

Yes, we are in early stage and typically we don't disclose for individual product, but both of these areas have the potential to solve.

Speaker 10: Both of these areas have the potential to certainly grow faster than the rest of the company because they're in the early stage, but also because they bring a whole set of new values to the customer. And back to an earlier question, I didn't mention that in both of those areas, we also hire more people in order to help our customers succeed and quickly get to the high value that these capabilities offer.

<unk> grow faster than the rest of the company because in the early stage, but also because they bring a whole set of new values to the customer and back to an earlier question.

I didn't mention that in both of those areas. We also hire more people in order to help our customers succeed and quickly get to the high value that these capabilities offer.

Thank you.

You're welcome.

Speaker 7: And once again, as a reminder, if you wish to ask a question, please press 1 then 0 at this time.

And once again as a reminder, if you wish to ask a question. Please press one than zero at this time.

Speaker 7: Next question comes from Len of Charles Shee with Needham and Company. Please go ahead.

Next question comes from the line of Charles sheet with Needham <unk> Company. Please go ahead.

Speaker 1: Hi, good afternoon. Thank you for taking my question. Maybe the first question is both are.

Hi, good afternoon.

Thank you for taking my question.

Maybe it affects first question's for arch.

Speaker 1: You may be very well aware of the debate right now in semiconductors, on semiconductor industry cycles there's a debate about whether we're at the peak cycle or we are here stronger for longer.

You may be very well aware of the debate right now in semiconductors semiconductor industry cycles. There is a debate about whether we're at the peak cycle or we are here stronger for longer.

Speaker 1: Given your probably 40-year experience in this industry, can you kind of give us a sense, how does the cycle, what do you think about the current cycle? Is it the same as the previous ones you've seen or is it something different?

Given youre, probably 40 year experience in this industry.

Can you kind of give us a sense how does the cycle. What do you think about the current cycle is that the same as the boarder previous once you're seeing or is there something different and.

Speaker 1: How do you think the cycle affect the EDA industry and specifically to your business and in one way or another? Thank you.

How do you think the cycle effect, the EDA industry and specifically to your business.

In one way or another.

Speaker 10: Okay, I'm very clear about this. I think that we are into a long-term great opportunity wave because the opportunity to change how the world operates with the combination of enormous amount of data combined with machine learning, ultimately AI and automation, has very, very big economic impact for every vertical. And so while one could argue that for many decades,

Okay, I'm very clear about this I think that we are into a long term great opportunity wave because.

The opportunity to change how the world operates with a combination of enormous amount of data combined with machine learning ultimately AI and automation.

It has very very big economic impact for every vertical and so while one could argue that for many decades.

Speaker 10: Moore's Law has sort of pushed technology forward and that always had new benefits.

<unk> has sort of pushed technology forward and that always had new benefits now there is simultaneously a pull from the end markets that all realize that hey, they could potentially shave some economics out of their operations by just understanding the data better or even find better solutions and I think that is so profound.

Speaker 10: Now there is simultaneously a pool from the end market that all realize that, hey, they could potentially shave some economics out of their operations by just understanding the data better or even find better solutions.

Speaker 10: And I think that is so profound, that is as profound, I would say, as computation 35 years or 30 years ago impacting the world. Now at the same time, we are all well aware that there are some shortage of certain, actually fairly limited set, but a crucial set of parts.

That is as profound I would say as a computation of 35 years or 30 years ago impacting the world now.

At the same time.

We are all well aware that there are some shortage of.

Certain partially it fairly limited set.

<unk> set of parts and.

Speaker 10: And, you know, I hesitate to call that a cycle. There have been interruptions in the supply chains due to global politics. There have been COVID-19 that stop people from ordering. There have been a lot of things and it's mostly older parts. And so, yeah, there's some shortage there. There's some additional capacity being built in. Most of the capacity is being lined up for actually advanced nodes because of the earlier point that made all these new opportunities. And.

I am hesitate to call that the cycle there've been interruptions in the supply chain.

Due to global politics, they have been COVID-19 that stopped people from ordering there've been a lot of things and it's mostly older parts and so yes. There is some shortage. There there is some additional campus capacity being built in most of the capacity is being lined up for actually advance nodes because of the earlier point that made all these new.

<unk> opportunities.

So there will be always a little bit of a cycle of supply.

Speaker 10: There will be always a little bit of a cycle of supply and providers alignment, but in general I think that we're in for a decade of great opportunities in semiconductor.

The supply and providers alignment, but.

In general I think that we're in for a decade of great opportunities in semiconductors.

Speaker 10: Oh, by the way, I should add that includes us, of course. That was maybe the end of the key part of the question for synopsis. Yeah, we're very much in the middle of that. And, you know, we love this term of being a capitalist because we interact with literally the deepest technology, with the design, with the system configuring the optimization there, all the way into the software and in the security.

Oh by the way.

That includes of course that was maybe at the end of the keep our good question for Synopsys, Yes, we were very much in the middle of that.

We love this term of being a catalyst because we interact with literally the deepest technology with the design with.

The system configuring the optimization there all the way into the software and the security and so it puts us very much.

Speaker 10: And so it puts us very much in a position to interact with all the players that have to interact well for success.

In a position to interact with all the players that have to interact well for success and that's where a big part of our enthusiasm comes from.

Speaker 10: And that's where a big part of our enthusiasm comes from.

Speaker 1: Thank you. Maybe a quick follow up, maybe a question for Trak. In terms of your full year guidance and your fiscal second quarter guidance, what are the questions you would ask a Rachel Human Services

Thank you maybe a quick follow up.

Maybe a question for track in terms of your full year guidance and your fiscal second quarter guidance. It does seem to imply there is a bit of a moderation fuel revenue in the second half of the fiscal year.

Speaker 1: It does seem to imply there's a bit of a moderation of your revenue in the second half of your fiscal year.

Speaker 1: I have to think the time-based revenue has been quite linear, typical linear through the years steadily growing and maintenance service, I don't expect any unknown linear arity there.

<unk>.

I have two things that are time based revenue has been quite a lean year typical linear through the year steadily growing our maintenance service I don't expect any unknown linear.

Alrighty there.

Speaker 1: I was kind of wondering if you're sort of expecting a little bit of moderation in upfront revenue there, either it's the hardware or the perpetual licenses or the IP contracts there going into the second half. Thank you.

Just kind of wondering if you're sort of expecting a little bit of moderation in op ground revenue there either is the hardware or the perpetual licenses or IP contracts there going into the second half. Thank you.

Speaker 3: Charles, the quarterization profile is a function of when we expect the customers to pull down IP and hardware. So it's really those two items. Everything else as you described is quite linear. A little bumpy as well, but generally very linear.

Charles <unk>.

Organization profile is a function of.

When the customer when we expect the customers too.

Pulled out IP and hardware. So it's really those two items everything else as you described is quite linear.

A little bumpy as well, but generally very linear.

Thank you that's all from me. Thank you Youre welcome.

Speaker 3: A little bumpy as well, but generally very linear.

A little bumpy as well, but.

Generally very linear.

Thank you that's all from me. Thank you Youre welcome.

Yeah.

Speaker 7: And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation after using ATT teleconference. You may now disconnect.

<unk> and gentlemen that does conclude our conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

Okay.

Speaker 7: Ladies and gentlemen, thank you for standing by and welcome to the Synopsys earnings conference call for the first quarter of fiscal year 2022. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If 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 end of the call, we will announce the amount of time remaining in the conference. As a reminder, today's conference is scheduled for the first quarter of the year.

Ladies and gentlemen, thank you for standing by and welcome to the Synopsys earnings Conference call for the first quarter of fiscal year 2022.

At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session instructions will be given at that time.

If you should require assistance during the call. Please press star followed by zero today.

Today's call will last one hour.

Five minutes prior to the end of the call we will announce the amount of time remaining in the conference as a reminder, today's conference.

Speaker 7: Ladies and gentlemen, thank you for standing by and welcome to the Synopsys earnings conference call for the first quarter of fiscal year 2022. At this time, all participants are in a listen only mode. Later we'll conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, please press star followed by zero. Today's call will be recorded.

Ladies and gentlemen, thank you for standing by and welcome to the Synopsys earnings Conference call for the first quarter of fiscal year 2022.

At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.

If you should require assistance during the call. Please press star followed by zero today.

Today's call will last one hour.

Speaker 7: Five minutes prior to the end of the call, we will announce the amount of time remaining in the conference.

Five minutes prior to the end of the call we will announce the amount of time remaining in the conference. As a reminder, today's conference is being recorded at this time I would like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations. Please go ahead.

Speaker 7: As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Lisa Eubank, Vice President of Investor Relations. Please go ahead.

Speaker 2: Thank you, Eric. Good afternoon, everyone. With us today are Art DeGioia, Chairman and Co-CEO of Synopsys, and TracFam Chief Financial Officer.

Thank you Eric good afternoon, everyone.

With us today are art did you chairman and co CEO of Synopsys and track from Chief Financial Officer.

Speaker 2: Before we begin, I'd like to remind everyone that during the course of the conference call, Synopsys will discuss forecasts, targets, and other forward-looking statements regarding the company and its financial results.

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

Speaker 2: 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.

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.

Speaker 2: 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 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.

Speaker 2: In addition, we will refer to non-GAAP financial measures during the discussion.

In addition, we will refer to non-GAAP financial measures during the discussion.

Speaker 2: Reconciliation to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release, financial supplement, and 8K that we released earlier today.

A reconciliation 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.

Speaker 2: All of these items, plus the most recent investor presentation, are available on our website at Synopsis.com.

All of these items plus the most recent investor presentation are available on our website at Synopsys Dot com.

Speaker 2: 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

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 <unk>.

Speaker 10: Good afternoon. Q1 was an excellent start to the year. Building on the strength and momentum from 2021, we met or exceeded all of our key guidance targets with strength across all product groups and geographies.

Good afternoon, Q1 was an excellent start to the year Bill.

Building on the strength and momentum from 2021, we met or exceeded all of our key guidance targets with strength across all product groups and geographies.

Speaker 10: Revenue was $1.27 billion with GAAP earnings per share of $1.99 and non-GAAP earnings at the high end of our target range at $2.40.

Revenue was one to $2 7 billion with GAAP earnings per share of $1 99, and non-GAAP earnings at the high end of our target range at $2 47.

Speaker 10: As a result of this solid start and confidence in our business, we are raising our full year revenue and earnings guidance.

As a result of this solid start and confident in our business, we are raising our full year revenue and earnings guidance.

Speaker 10: We're also executing well on the long-term accelerated revenue growth and margin expansion objectives we communicated to you in December .

Also executing well on our long term accelerated revenue growth and margin expansion objectives, we communicated to you in December .

Speaker 10: The excellent results can be attributed to three reasons. Strong semiconductor market, strong technology with increasing differentiation, strong execution by our teams and adoption of new products. Truck will provide...

Actual results can be attributed to three reasons strong semiconductor markets strong technology with increasing differentiation strong execution by our teams and adoption of new products.

Chuck will provide more financial detail.

Speaker 10: Assessing the landscape, our market is very sound and growing in a way that is positive for synopsis.

Assessing the landscape our market is very sound and growing in a way that is positive for synopsys.

Speaker 10: As the power and impact of massive amounts of big data are increasingly realized, demand for smart everything continues to intensify.

The power and the impact of massive amounts of big data are increasingly realized demand for smart everything continues to intensify.

Speaker 10: As a result, customers ranging from traditional semiconductor companies to AI startups, hyperscalers and vertical system houses are all investing heavily in prioritizing design activity.

As a result customers ranging from traditional semiconductor companies to AI start ups hyperscale errors and vertical system houses are all investing heavily and prioritizing design activity.

Speaker 10: Rapidly escalating technical complexity as big data and AI software are brought together in increasingly advanced ways means that today's products require highly complex chips, systems of chips and more security and safety.

Rapidly escalating technical complexity as big data and AI software are brought together and increasingly advanced ways means that today's products require a highly complex chips systems of chips and more security and safety.

Speaker 10: As a result, customer investments are increasing across all market segments.

As a result customer investments are increasing across all market segments.

Speaker 10: Synopsys has invested heavily over the past five years in a wave of unique innovations, targeted at, and ideally suited for this new era.

Synopsys has invested heavily over the past five years and a wave of unique innovations targeted at and ideally suited for this new era.

Speaker 10: These investments are yielding excellent technical differentiation and business results.

These investments are yielding excellent technical differentiation and business results.

Speaker 10: At the center of enabling the smart everything era sits the power of AI to develop more complex chips better and faster.

At the center of enabling the smart everything era since the power of AI to develop more complex chips better and faster.

Speaker 10: Our solutions have featured machine learning technology for many years.

Our solutions have featured machine learning technology for many years.

Speaker 10: About a year and a half ago though, after a multi-year development effort, we released a ground banking, new AI driven solution that directs not just individual tools, but greatly impacts results and productivity on major segments of the design flow.

About a year and a half ago, though after a multi year development effort, we released a groundbreaking new AI driven solution direct direct not just individual tools that greatly impacts result in productivity on major segments of the design flow.

Speaker 10: Our award-winning DSO.ai solution is the first of its kind and the only one proven in customer production environments today.

Our award winning DSO Dot AI solution is the first of its kind and the only one proven in customer production environments today.

Speaker 10: DSO at AI learns and autonomously drives our design tools in the design space to find the best combination of chips performance, power and area.

Dsos of AI learns and autonomously drive our design tools and the design space to find the best combination of chips performance power and area.

Speaker 10: This automation substantially accelerates the work of design teams while delivering better results than traditional design flows.

This automation substantially accelerates the work of design teams, while delivering better results than traditional design flows.

Speaker 10: Customers are seeing remarkable outcomes and are deploying quickly to production use.

Customers are seeing remarkable outcomes and are deploying quickly to production use.

Speaker 10: DSO.ai has already been adopted in production design by five of the top ten semiconductor leaders.

DSO of AI is already being adopted in production design by five of the top 10 semiconductor leaders.

Speaker 10: In Q1, we saw multiple additional deployments across verticals, including mobile, data center and processor design.

In Q1, we saw multiple additional deployments across verticals, including mobile data center and processor design.

Speaker 10: Samsung has completed multiple tape outs in mobile, including a state-of-the-art high-performance design in their latest process technology.

Samsung has completed multiple tape outs and mobile, including a state of the art high performance design in their latest process technology.

Speaker 10: A leading hyperscaler boosted DSO.ai by using hundreds of CPUs on the cloud and achieved excellent results for advanced SOC.

A leading hyperscale or boost the DSO that AI by using hundreds of Cpus on the cloud and achieved excellent results for advanced Soc.

Speaker 10: This breakthrough result demonstrates how DSO.ai can leverage abundant cloud compute for deep design space optimization.

This breakthrough results demonstrates how dsos of AI can leverage abundant cloud compute for deep design space optimization.

Speaker 10: Critical to the success of the SO.ai are the powerful engines that sit underneath the integrated Fusion design platform.

Critical to the success of DSO does AI are the powerful engines that sit underneath the <unk>.

Great It fusion design platform.

Speaker 10: The overall solution is resulting in significant cross-selling opportunities and accelerating growth across our platform.

The overall solution is resulting in significant cross selling opportunities and accelerating growth across our platform.

Speaker 10: Momentum is manifest across a wide spectrum of market verticals and manufacturing processes.

Momentum is manifest across a wide spectrum of market verticals and manufacturing processes.

Speaker 10: During the quarter, we achieved multiple 3nm design wins, including at the top processor provider.

During the quarter, we achieved multiple three nanometer design wins, including at the top of processor provider.

Speaker 10: 100% plan of record adoption for a 3nm flagship SoC at a leading mobile provider and advanced node wins at the world's largest CPU providers

100% Pinal record adoption for three nanometer flagship Soc at a leading mobile provider.

In advanced node wins at the world's largest CPU providers.

Speaker 10: We're also achieving competitive wins at established nodes, including as a leading LCD driver provider.

We're also achieving competitive wins at established nodes, including as a leading LCD driver provider.

Speaker 10: As a result of these high-value innovations, hyperscalers continue to expand their reliance on us throughout our portfolio, including multiple new designs using the Fusion platform.

As a result of these high value innovations Hyperscale has continued to expand their reliance on us throughout our portfolio, including multiple new designs using the fusion platform.

Speaker 10: A critical aspect of enabling smart everything is tackling technical complexity across the entire system.

A critical aspect of enabling smart everything is tackling technical complexity across the entire system.

Speaker 10: The Synopsys Maxxim, from silicon to software, is truly indicative of not only our long-standing focus on the system, but also our differentiating portfolio that puts us in a unique position to enable today's design.

This is an option of Maxim from Silicon to software is truly indicative of not only our longstanding focus on the system, but also our differentiating portfolio that puts us in a unique position to enable today's designs.

A bellwether of systems leadership is IP.

Speaker 10: Following a record 2021, we continued to deliver excellent results in Q1 and demand remains very high.

Following a record 2021, we continued to deliver excellent results in Q1 and demand remains very high.

Speaker 10: Driven by tremendous complexity and time-to-market pressures, customers increasingly choose to jumpstart their designs by relying more and more on the market-leading IP portfolio we've built and honed for more than 20 years.

Driven by tremendous complexity and time to market pressures customers increasingly choose to jumpstart their designs by relying more and more on the market, leading IP portfolio, we've built and honed for more than 20 years.

Speaker 10: In fact, a recent comprehensive IP market study performed by an independent research firm ranked Synopsys number one for the best IP, highest quality IP, and best support compared to other providers in the industry.

In fact, a recent comprehensive IP market study performed by an independent research firm ranked <unk> number one for the best IP highest quality IP and best support compare to other providers in the industry.

Speaker 10: We're seeing great momentum across key market segments including automotive, high performance compute, mobile and consumer.

We're seeing great momentum across key market segments, including automotive high performance compute mobile and consumer.

Speaker 10: In automotive for example, Infineon announced at the Consumer Electronics Show the next generation RX TC4X microcontroller family which utilizes Synopsys IP and virtualization technology.

In automotive for example, Infineon announced at the consumer Electronics show. The next generation Rx Tc Forex microcontroller family, which utilizes synopsys IP and virtualization technologies.

Speaker 10: Securing their data center is a top priority for our customers.

Securing their data center is a top priority for our customers we.

Speaker 10: We see strong demand for our integrity and data encryption security IP with 20 plus designs wins today.

We see strong demand for our integrity and data encryption security IP with 20 plus designs wins today.

Speaker 10: to date on a rapidly growing number of active opportunities.

To date on a rapidly growing number of active opportunities.

Speaker 10: Given the skyrocketing data requirements, storage is an important market for us as well. We continue to gain wide adoption of our PCI Express, ARC processors and next-generation mobile storage protocol IP.

Given the skyrocketing data requirements storage as an important market for us as well we continue to gain wide adoption of our PCI Express arc processors and next generation mobile storage protocol IP.

Speaker 10: Let me talk a bit about some of the innovative system solutions driving our results.

Let me talk a bit about some of the innovative system solutions driving our results.

Speaker 10: First, at the intersection of hardware and software, system verification is a synopsis strong suit.

First at the intersection of hardware and software system verification is a synopsis strong suit.

Speaker 10: Adjacent to our long-standing market leadership with chip simulation, static analysis and debug technology, we are early innovators in software and hardware-based prototyping, now a critical enabler of complex systems.

Adjacent to our longstanding market leadership was chip simulation static analysis and <unk> technology. We are early innovators in software and hardware based prototyping now a critical enabler of complex systems.

Speaker 10: Building on another record here in 2021, we continue to see excellent growth in hardware with both our Zebu emulation and HAPS prototyping products.

Building on another record year in 2021.

We continue to see excellent growth in hardware with both our zebu emulation and haps prototyping products.

Speaker 10: Demand is very strong as our solutions, with the fastest engines, highest capacity and lowest cost of ownership, are especially compelling for today's sweet spot of software bring up.

Demand is very strong as our solutions with the fastest engines highest capacity and lowest cost of ownership are especially compelling for today's sweet spot of software bring up.

Speaker 10: This quarter we achieved major expansions with our newest Zebu and HAPS100 hardware at several of the largest semiconductor systems and hyperscaler companies in the world.

This quarter, we achieved major expansions, where it was our newest zebu and haps 100 hardware at several of the largest semiconductor systems in hyperscale companies in the world.

Speaker 10: This included noteworthy wins over the newest solutions from our competition.

This included noteworthy wins over the newest solutions from our competition.

Second <unk> IC design.

Speaker 10: This is a new generation of system design that uses tightly abutting or stacking multiple die on a specialized connection chip in order to enable massively more compute, storage and data management.

This is a new generation of system design that uses tightly abutting ore stacking multiple die on a specialized connection chip in order to enable massively more compute storage and data management.

Speaker 10: Our 3DIC compiler platform is a single, unified design environment that combines exploration, construction and sign-off analysis.

Our <unk> IC compiler platform is a single unified design environment that combines exploration construction and sign off analysis.

Speaker 10: It showcases significant performance, capacity and ease of use differentiation over much older competitor solutions.

It showcases significant performance capacity and ease of use differentiation over much older competitive solutions.

Speaker 10: In the quarter, 3DIC continued its strong momentum, deployed on production tape-outs as a leading US hyperscaler and a large networking systems company.

In the quarter <unk> continued its strong momentum deployed on production tape outs at a leading U S hyperscale or and a large networking systems company.

Speaker 10: Our 3DIC platform was recognized by winning TSMC's Customer Choice Award for Leadership in 3DIC Design and Analysis.

Our <unk> platform was recognized by winning Tsmc's customer Choice Award for leadership in <unk> IC design and analysis.

Speaker 10: And third, we have leveraged our expertise in design, manufacturing and IP to develop an innovative approach that expands and redefines what's possible in terms of optimizing an entire electronic system.

And third we have leveraged our expertise in design manufacturing and IP to develop an innovative approach that expands and redefine what's possible in terms of optimizing and entire electronic system.

Speaker 10: Our silicon lifecycle management platform allows customers to monitor, analyze and optimize systems as they are designed, manufactured, tested and deployed in the field.

Our silicon lifecycle management platform allows customers to monitor analyze and optimize systems as they are designed manufactured tested and deployed in the field.

Speaker 10: We are seeing strong customer traction and growing adoptions of key elements, including by AI pioneer Sarah Bras, who used our embedded monitors to understand on-chip dynamic thermal and voltage conditions in order to optimize power and performance.

We are seeing strong customer traction and growing adoptions of key elements, including by AI pioneer <unk>, who use our embedded monitors to understand on chip dynamic thermal and voltage conditions in order to optimize power and performance.

Speaker 10: The growing complexity of systems greatly expands security and safety requirements across the spectrum from chips all the way up to the application software.

The growing complexity of systems greatly expand security and safety requirements across the spectrum from chips, all the way up to the application software.

Speaker 10: Our software integrity business attacks this very challenge with the industry leading portfolio security testing products and services.

Our software integrity business attacks is very challenged with industry, leading portfolio of security testing products and services.

Speaker 10: Software integrity had a very good start to the year, crossing the 400 million trailing 12-month revenue threshold with strong growth across product groups, consulting and geography.

Software integrity at a very good start to the year crossing the $400 million trailing 12 month revenue threshold with strong growth across product groups consulting and geographies.

Speaker 10: Companies from a wide range of verticals, including hyperscalers, financial services, mill, aero and industrial continue to grapple with the challenge of bolstering their security posture.

Companies from a wide range of verticals, including Hyperscale financial services Mil Aero and industrial continue to grapple with the challenge of bolstering the security posture.

Speaker 10: Security vulnerabilities for the entire software supply chain, including open source software, are top of mind for developers, reinforced by government directives and recent publicized breaches.

Security vulnerabilities for the entire software supply chain, including open source software are top of mind for developers reinforced by government directives and recent publicized breaches.

Speaker 10: Our strategic consulting services are not only becoming more vital to customers, they're also thriving increasing product sales, adoptions and longer term engagement.

Our strategic consulting services are not only becoming more vital to customers. They are also driving increasing product sales adoptions and longer term engagements.

Speaker 10: In Q1, this was particularly evident in the financial services space.

In Q1, this was particularly evident in the financial services space.

Speaker 10: In DevOps, we see increased customer traction with our solutions, including intelligent orchestration to integrate application security testing into DevOps workflow.

And Deb ops, we see increased customer traction with our solutions, including intelligent orchestration to integrate application security testing into Dev ops workflows.

Speaker 10: and CodeX to correlate and prioritize findings to help developers efficiently address remediation while maintaining development velocity.

And co Dx to correlate and prioritize findings to help developers efficiently address remediation, while maintaining development velocity.

Speaker 10: In addition, the progress of our indirect partner strategy is very encouraging.

In addition, the progress of our indirect partner strategy is very encouraging.

Speaker 10: Even in the early stages, the program is resulting in many new company adoptions around the globe and business that is ahead of plan.

Even in the early stages. The program is resulting in many new company adoptions around the globe and business that is ahead of plan.

In summary Q.

Speaker 10: Q1 was an excellent start to the year. We delivered strong financial results and are raising our outlook for fiscal 2022.

Q1 was an excellent start to the year, we delivered strong financial results and are raising our outlook for fiscal 'twenty two.

Speaker 10: Our significant game-changing innovations are driving outstanding technical and business results.

Our significant game changing innovations are driving outstanding technical and business results.

Speaker 10: The market we serve is strong with intensifying customer investment in critical chips, systems designs and immense amounts of software.

The market, we serve is strong with intensifying customer investment in critical chips systems designs at immense amount of software.

Speaker 10: Lastly, we will publish our third annual Corporate Social Responsibility Report, in which we share the solid progress we've made and the goals we've set in the areas of environmental stewardship, including achieving our third year of carbon neutrality, social solidarity and corporate governance. With that, I'll stop there. Thank you for watching.

Lastly, we will publish our third annual corporate social responsibility report.

In which we share the solid progress we've made and the goals we've set in the areas of environmental stewardship, including achieving our third year of carbon neutrality, social solidarity and corporate governance.

With that I'll turn it over to truck.

Speaker 3: Thanks Art. Good afternoon everyone. First quarter results reflect good momentum across the company.

Thanks Art.

Afternoon, everyone.

First quarter results reflect good momentum across the company we.

Speaker 3: We delivered a very strong start to the year with significant revenue growth across all product groups and geographies, expanding non-gap offering margins, non-gap earnings at the high end of our target range, and solid operating cash flow.

We delivered a very strong start to the year with significant revenue growth.

Cross all product groups and geographies.

<unk> and <unk>.

Pending non-GAAP operating margin.

non-GAAP earnings at the high end of our target range and solid operating cash flow.

Speaker 3: Driving these results is a compelling combination of unprecedented market opportunities, accelerating customer adoptions of our groundbreaking new products, and our excellent execution.

Driving these.

These results is a compelling combination of unprecedented market opportunities accelerating customer adoption of our groundbreaking new products and our excellent execution.

Speaker 3: Our confidence in our business is strong and we are raising our full year 2022 targets. Our now reviewers...

Our confidence in our business is strong and we are raising our full year 2022 targets.

I'll now review, our first quarter results.

Speaker 3: All comparisons are year-over-year unless otherwise stated.

All comparisons are year over year, unless otherwise stated.

Speaker 3: We generated total revenue of $1.27 billion, up 31% over the prior year.

We generated total revenue of $1 $2 7 billion up 31% over the prior year.

Speaker 3: As expected, the quarter reflected strength in EDA software, as well as outstanding demand for IP and hardware.

As expected the <unk>.

Reflecting strength in EDA software as well as outstanding demand for IP and hardware.

Speaker 3: Total gap costs and expenses were $923 million.

Total GAAP costs and expenses were $923 million.

Speaker 3: to the non-GAAP cost and expenses, or $811 million, resulting in a non-GAAP operating margin of 36.2%. That earns per share.

Total non-GAAP costs and expenses were $811 million, resulting in a non-GAAP operating margin of 36, 2%.

GAAP earnings per share were $1 99.

Speaker 3: non-GAAP earnings per share were $2.40, 58% over the prior year.

non-GAAP earnings per share with $2 40.

58% over the prior year.

Speaker 3: Semiconductor and system design segment revenue was $1.16 billion, with both EDA and IP performing well.

Semiconductor <unk> system design segment revenue was $1 $1 6 billion with both EDA and IP performing well.

Speaker 3: Software Integrity segment revenue was $108 million, a better than expected start to the year.

Software integrity segment revenue was $108 million, a better than expected start to the year.

Speaker 3: We are on track to reaching our 15 to 20% growth objective for software integrity with expanded adjusted offering margin in 2022.

We are on track to reaching our 15% to 20% growth objective for software integrity with expanded adjusted operating margin in 2022.

Speaker 3: Turning to cash, we generated $156 million in operating cash flow, higher than planned primarily due to early collection.

Turning to cash.

We generated $156 million in operating cash flow higher than planned primarily due to early collections.

Speaker 3: We used $250 million of our cash for stock buybacks and ended the quarter with cash and short term investments of $1.27 billion with total debt of $24 million.

We used $250 million of our cash for stock buybacks and ended the quarter with cash and short term investments of $1 $2 7 billion.

With total debt of $24 million.

Speaker 3: Now to guidance, we are raising our full year outlook for revenue, earnings and cash flow.

Now to guidance, we are raising our full year outlook for revenue earnings and cash flow.

Speaker 3: For fiscal year 2022, the full year targets are the revenue of 4.775 to 4.825 billion, representing 14 to 15 percent growth.

For fiscal year 2022.

Full year targets are.

Revenue of $4 775 to $4 85 billion, representing 14% to 15% growth.

Speaker 3: total gap costs and expenses between $3.809 and $3.856 billion.

Total GAAP costs and expenses between 3809 and $385 6 billion.

Speaker 3: total non-GAAP costs and expenses between $3.255 and $3.285 billion.

Total non-GAAP costs and expenses reached.

Three to five five and $3 <unk> 5 billion.

Speaker 3: resulting in a non-GAAP opening margin improvement of more than 100 basis points.

Resulting in a non-GAAP operating margin improvement of more than 100 basis points.

non-GAAP tax rate of 18%.

Speaker 3: gap earnings of $5.53 to $5.72 per share.

GAAP earnings of $5 53 to $5 72 per share.

Speaker 3: non-GAAP earnings of $7.85 to $7.92 per share, representing 15 to 16 percent growth.

non-GAAP earnings of $7 85 to $7 92 per share representing 15% to 16% growth.

Speaker 3: cash flow from operations of $1.45 to $1.5 billion.

Cash flow from operations of $1 45 to $1 5 billion.

Speaker 3: Now to the targets for the second quarter. Revenue between $1.24 and $1.27 billion.

Now to the targets for the second quarter.

Revenue between one four and $1 $2 7 billion.

Speaker 3: total gap costs and expenses between $931 and $951 billion.

Total GAAP costs and expenses between 931 and 951 billion.

Speaker 3: total non-GAAP costs and expenses between $800 and $810 million.

Total non-GAAP costs and expenses between.

808 hundred $10 million.

Speaker 3: gap earnings of $1.67 to $1.78 per share and non-gap earnings of $2.35 to $2.40 per share.

GAAP earnings of $1 67 to $1 78 per share and.

And non-GAAP earnings of $2 35 to $2 40 per share.

Speaker 3: We continue to anticipate revenue for Q3 and Q4 to be roughly easily distributed with expenses skewed to Q4.

We continue to anticipate revenue for Q3, and Q4 to be roughly evenly distributed with expenses.

With expenses skew to Q4.

Speaker 3: As we announced in December , our long-term financial objectives are to deliver annual double-digit revenue growth, non-GAAP operating margin expansion of more than 100 basis points a year, and non-GAAP EPS growth in the mid-teens range.

As we announced in December our long term financial objectives are to deliver annual double digit revenue growth.

non-GAAP operating margin expansion of more than 100 basis points a year.

Our non-GAAP EPS growth in the mid teens range.

Speaker 3: In conclusion, we delivered a very good start to the year and are raising our 2022 outlook.

In conclusion, we delivered a very good start to the year and are raising our 2022 outlook.

Speaker 3: Our long-standing commitment to managing the business for enduring long-term growth has not only generated the most compelling product portfolio we've ever had, but also positions us uniquely well for the current dynamic market landscape.

Our long standing commitment to managing the business for enduring long term growth has not only generated the most compelling product portfolio we've ever had.

But also positions us uniquely well for the current dynamic market landscape.

Speaker 3: As a result, we remain confident in the accelerated long-term financial targets we communicated to you in December . With that, I'll turn it over to the operator for questions.

As a result, we remain confident in the accelerated long term financial targets, we communicated to you in December .

With that I'll turn it over to the operator for questions.

Speaker 7: Ladies and gentlemen, if you wish to ask a question, please press 1 then 0 on your touch tone phone. You may remove your stuff from the queue at any time by pressing 1 and 0 again. If you're using a speakerphone, please pick up the handset before pressing the number.

Yeah.

Ladies and gentlemen, if you wish to ask a question. Please press one than zero on your Touchtone phone may removes from queue at any time by pressing one zero again.

If you're using a speakerphone please pick up the handset before pressing the numbers.

Speaker 7: And before we begin the Q&A session, I would like to ask everyone to please limit yourself to one question and one brief follow-up to allow us to accommodate all participants.

And before we begin the Q&A session I would like to ask everyone to please limit yourself to one question and one brief follow up to allow us to accommodate all participants. If you have additional questions. Please re enter the queue and we will take as many as time permits.

Speaker 7: If you have additional questions, please re-enter the queue and we'll take as many as time.

Speaker 7: And we'll start questions from the line of Joe Bruink from Baird. Please go ahead.

And we will start the questions from the line of Joe <unk> from Baird. Please go ahead.

Speaker 11: Great. Hello everyone. I was hoping maybe to get a bit more detail on the product areas or geographies.

Great Hello, everyone I was hoping maybe to get a bit more detail on our product areas or geographies driving the $50 million increase in revenue guidance for the full year and then.

Speaker 11: driving the $50 million increase in revenue guidance for the full year. And then in thinking about the sequencing of quarters this year since 1Q finished within the guidance range, is it fair that most of this upside is maybe coming in 2Q? Just thinking about maybe your original expectations.

And thinking about the sequencing of quarters this year.

<unk> finished within the guidance range is it fair that most of this upside is maybe coming in <unk>, just thinking about maybe your original expectations.

Speaker 10: Let me start with the first part and maybe track into the second part. Our strengths have been really very much across the board. We can certainly say that the IP continues to stand out as growing very well. But some of the new capabilities that we see at EDA tools really are showing more and more opportunity going forward. Now, you heard about the Now, you heard about CICAdiy now, you heard about the Stern integrity group. they continue on an excellent path. Last year was really a return to good growth and now we are improving the growth there as well. And lastly, the systems area, which is sort of at the intersection between, we like to call it at the intersection between silicon and software, is an area that will continue to grow because most of the systems get now optimized to make the software run as well as possible and the hardware and the hardware be as responsive as possible to the software all the way to trying to optimize even the power consumption. So these things are very linked.

Let me start with the first part maybe.

Truck and do the second part.

Our strengths have been has been really very much across the board, we can certainly say that.

IP continues to stand out is growing very well, but some of the new capabilities that we see a DDA tools.

Really are showing more and more opportunity going forward now you heard about the software integrity group. They continue on an excellent path last year was really a return to good growth and now we are improving the growth there as well and lastly, the systems area, which is sort of the intersection.

Between.

So we like to call the intersection between Silicon and software.

An area that we will continue to grow because most of the system get now optimized to make the software run as well as possible in the hardware and the hardware be as responsive as possible to the software all the way to trying to optimize optimize even the power consumption. So these things are very linked and our hardware and prototyping solutions are extremely well suited for that.

Speaker 10: and our hardware and prototyping solutions are extremely well suited for that and have been strong.

There have been strong.

Speaker 3: Hi Joe, let me check the second part. I would characterize the upside for the year, the raise of 50 million as simply a Q2 upside. You know, we delivered Q1 largely as planned. It was the biggest quarter of the year. The deal, the business that we booked in Q1...

Hi, Joe Let me take the second part.

Wouldn't characterize the upside for the year the raise of $50 million, that's simply a Q2.

We delivered Q1, largely as planned it was the biggest quarter of the year.

The view of the business that we booked in Q1.

Speaker 3: We saw very strong growth in EDA software, which should give us a nice trajectory not only for this year but going forward. And then we continue to see very strong demand in IP and hardware. The momentum that we saw through last year continued in Q1 in terms of results for revenue but also just the overall demand as Art highlighted.

Very strong growth in the EDA software, which should give us a nice trajectory not only for this year, but going forward.

And then we continue to see very strong demand in IP and hardware the momentum that we saw through last year continued in Q1 in terms of the results for revenue, but also just the overall demand is are highlighted.

Speaker 3: And traditionally, we don't raise the full year at this point, this early point of the year. But just given the visibility we have, not only in Q2, but for the rest of the year, we have the confidence to raise the overall guidance.

And traditionally we don't we don't raise the <unk>.

Full year at this point at this early point of the year, but just given the visibility we have not only in Q2, but for the rest of the year, we had the confidence to raise.

The overall guidance.

Speaker 11: OK, that's helpful. Thank you. And then I just wanted to focus in a bit more, given it came up in the prepared remarks, just the recent attention around open source vulnerability. I'm curious if you've seen a bit of a lift for BlackDuck within the portfolio, maybe an acceleration in interest that could end up benefiting growth for software integrity as we move through the year.

Okay. That's helpful. Thank you.

And then I just wanted to focus in a bit more given it came up in the prepared remarks, just the recent attention around open source vulnerability.

I'm curious if you've seen a bit of a lift for black duck within the portfolio, maybe an acceleration in interest that could end up benefit and growth for software integrity as we move through there.

Speaker 10: Well, you know, I think in general, the Software Integrity Group is doing better and better because it is managed really well and is executing well. But what you said is still there's truth because there have been in the past year a number of moments of high visibility of hacking on also open source capabilities. Even the US government has made some mandates saying you have to pay more attention to this in their systems. And so I think in general there's a high degree of recognition and that helps BlackRock because the capabilities that we have there and also our consulting capabilities is precisely what customers need.

Well I think.

In general the software integrity group is doing better and better because it is managed really well and is executing well.

What you have said this is still bears true because they have been in the past year, a number of moments of high visibility of.

<unk> also open source capabilities, even the U S. Government has made some mandates saying you have to pay more attention to this in their systems.

So I think in general there is a higher degree of recognition and that helps black dark because.

The capabilities that we have there and also consulting capabilities is precisely what the customer needs.

Speaker 11: Great, thank you very much. You're welcome.

Great. Thank you very much.

Welcome.

Speaker 7: Next we'll move the line of Jackson Adder with J.P. Morgan. Go ahead.

Next we'll move to line of Jackson Ader with Jpmorgan. Please go ahead.

Speaker 5: Great, thanks for taking my questions, Gus. The first one is on the hyperscaler that you mentioned, the deployed DFO.ai in the cloud. I'm curious, I guess, number one, the deployment, was it in Synoptics' cloud, public cloud, the customer's private cloud, and then the follow-up being...

Great. Thanks for taking my questions guys.

On the.

The Hyperscale agency mentioned deploying DSL and debt.

All right.

I guess.

Number one the dip.

Climbing was in Appleton.

All the customers and the quality.

The follow up being depending on where the customer chooses to kind of run those I think we've done hundreds of Cpus is there any kind of.

Speaker 3: depending on where the customer chooses to kind of run those, I think you've done hundreds of CPUs, is there any kind of revenue leakage if the customer chooses to do something in their private cloud versus maybe the synoptic cloud?

Revenue leakage, if the customer chooses to do something in their private cloud versus maybe the synopsys cloud.

Speaker 10: Well, let me start at the end. No, there's no leakage. They have to use licenses like any other licenses. Pretty much all the hyperscalers do have large clouds themselves. Some are also commercial cloud providers, obviously. And it doesn't matter if it's a private cloud or a commercial cloud if you have both.

Well, let me start again, no theres no leak edge they have to use licenses like any other licenses.

Pretty much all the hyper scaler do have large clouds themselves. Some also our commercial cloud providers, obviously and it doesn't matter if it's a private cloud or a commercial cloud.

If you have both.

Speaker 10: it is the same result. In this case these are people that are extremely competent on managing clouds and so consider it a commercial.

It is the same results in this case. These are people that are extremely competent managing clouds.

So.

Considering the commercial cloud.

Speaker 3: Okay, Jack, I would just add that we do see cloud as a very strong incremental growth opportunity and that is independent of whether or not they're using Synopsys cloud or a third-party cloud. We can support either scenarios but the goal is to gain that business overall.

Okay, Jack and I would just add that regardless, we do see cloud as a very strong incremental growth opportunity and that is independent of whether or not they are using synopsys cloud or third party cloud we can support other scenarios.

But the goal is to gain that business overall.

Speaker 3: Yeah, I mean, the point of the question, right, is just to see if the customer would say, hey, thanks for DSO.ai. Now I'm going to take my ball and go play over here with it, right? Maybe try and gain the licenses. But no, that answers that. Thank you. Thank you. And then the second question is actually around the labor market.

Yes.

The question <unk>.

If the customer would say hey, thanks for DSO that AI and now I'm going to take my ball and go Claire Bahir with it right.

Maybe try and.

Again the licenses.

That answers that thank you.

And then.

Second question is actually around the labor market.

Speaker 6: Is there anything that you might see in a tight labor market that might suggest?

Is there anything that you might see in a tight labor market that might suggest.

Speaker 6: a slowdown in the hiring of engineers at your more traditional maybe semiconductor company.

Slowdown in the in the hiring of engineers.

Your more traditional maybe semiconductor companies.

Speaker 10: I think there is certainly no slowdown at attempting to hire. As you well know throughout most industries there's an increase in turnover. A lot of people have been sitting at home for a few years and are looking for fresh air and so the entire semiconductor industry right now is looking for people. And we ourselves have had a bit of that, actually not that much negative turnover but we have hired substantial amounts of people. And so I think that this will continue because there's no end in sight to the need and the opportunity space I think is very, very fertile. So these things tend to last for a year, year and a half and then they gradually equalize again.

I think there is certainly no slowdown attempting to hire.

As you well know throughout most industries there is.

An increase in turnover a lot of people have been sitting at home for a few years.

And are looking for fresh air.

And so the entire semiconductor industry right now is looking for people and we ourselves have had a bit of that actually not that much.

Negative turnover, but we have hired substantially substantial amounts of people.

No.

I think that this will continue because there is no end in sight to the need and the opportunity space I think he is very very fertile so.

These things tend to last for a year year and a half and then they gradually equalize again.

Speaker 12: All right, thank you.

Alright, thank you.

Youre welcome.

Yes.

Speaker 7: And next we'll go to a line of Gary Mobley with Wells Fargo Securities. Please go ahead.

And next we'll go to line of Gary Mobley with Wells Fargo Securities. Please go ahead.

Speaker 4: Good afternoon, everybody. Thanks for taking my question. Congratulations to a strong start to the fiscal year. I want to pick up on the last question and ask.

Good afternoon, everybody. Thanks for taking my question and congratulations to a strong start to fiscal year I want to pick up on the last question and ask more so about wage inflation.

Speaker 4: more so about wage inflation, which is debated whether it's transitory or structural in nature, but I think it's probably fair to say that wage inflation or at least higher wages are here to stay. And so my question for you is, is, is, are you able to pass this along, pass this along in the way you're pricing licensed deals? And might there be a period of time?

G debated, whether it's transitory or structural in nature, but I think.

Probably fair to say that wage inflation or at least higher wages are here to stay and so my question. For you is is are you able to pass. This law pass this along in the way you're pricing license deals and might there be a period of time and a labor intensive business that you're in where you got a mismatch.

Speaker 4: in a labor intensive business that you're in where you've got a mismatch in the way deals are priced versus wage inflation.

Match in the way deals are priced versus wage inflation.

Speaker 10: It's an excellent question because obviously, especially in the conjunction with the question Jackson said, whenever there's movement there tends to be some increase in wages because otherwise people wouldn't necessarily move. And we see the same. Fortunately we have had the good fortune that our business continues to grow very well and it tends to be a little bit more stable in terms of change because we have many multi-year transactions but many of the transactions are becoming larger because customers want more tools, need more capabilities and so we are more gradual in how we pass these costs along. Having said that, and Trac can emphasize it from the option margin perspective, but we are staying on track with not only growing the business but also continuing to improve the profitability of it. So all of these things have been taken into account as we project forward.

Alright excellent question because.

Obviously.

Especially in the conjunction with the the question Jackson said.

There's movement there tends to be some increase in wages, because otherwise people wouldn't necessarily move and we see we see the same Fortunately we have had the good fortune that our business continues to grow very well.

It tends to be a little bit more stable in terms of change because we have many multi year transactions, but many of the transactions are becoming larger because customers want more tools need more capabilities and so we are more gradual in how we pass these costs, along having said that and track and emphasize.

From the ops margin perspective, but we are staying on track with not only growing the business, but also continuing to improve the profitability of it. So so all of these things have been taken into account as we project forward.

Speaker 3: I would add, Gary, that it's not in effect we're able to manage the wage inflation and still drive margins up. The way we do that obviously we factor those costs.

I would add Gary that it's not.

In effect we are.

We're able to manage the wage inflation is still drive margins up the way, we do that obviously, we factor those costs.

Speaker 3: and the incremental cost into our expansion and that's reflected in our guidance.

The incremental cost into our expense and thats reflected in our guidance and our expectations for improving margins this year.

Speaker 3: and our expectations for improving margins this year. The best way to deal with it is really continue to invest. There's twofold. One is over the last several years, we've continued to invest in innovation and new technology to drive value in our products.

The best way to deal with it is really continue to invest in the business twofold. One is.

Last several years, we continue to invest in innovation and new technology to drive value in our products and that has helped us.

Speaker 7: And that has helped us extract more value in the negotiation. And that certainly has helped the accelerated growth in the business.

Extract more value in the negotiations and that certainly has helped the accelerated growth in the business. Secondly, we've also been on a path over the last few years.

Speaker 7: Secondly, we've also been on path over the last few years of redeploying and being really critical about where we deploy resources in order to get the best return. So the combination of those things really is helping us manage wage inflation in that way.

<unk>.

Redeploying and being really critical about where we deploy resources in order to get the best return. It. So the combination of those things really is helping us manage wage inflation to that way.

Speaker 4: I appreciate the color. And then I wanted to ask a specific question about the RPOs or backlog. If you can't give us the amount, can you give us at least a sense of whether you built on that record high, you published at the end of the fiscal year, and to what degree has a longer average license duration factor? And I know you don't get that metric anymore, but are we moving higher on that front as well? Backlog remained at $50.

Got it appreciate the color and then I wanted to ask a specific question about the <unk> or backlog.

Can't give us the amount can you give us at least a sense of whether you built on that record high you publish at the end of the fiscal year.

To what degree.

The longer average license duration factored in I know you don't give that metric anymore, but are we are moving higher on that front as well.

Backlog remained at $6 9 billion.

Speaker 4: And average license duration, could you say it either stayed the same? In the normal range. In that normal range that we traditionally managed to. Nothing unusual.

Got it and average license duration could you say it either.

David I'm a normal range.

In that normal range that we traditionally managed to.

Nothing unusual here.

Sure.

Uh huh.

Speaker 4: And next we'll go to the line of Jay Fleeshour with Griffin Securities. Please go ahead. Thank you, good evening. Hard for you first. You've spoken often of course, about the intersection of hardware and software as a center of gravity of your business, which is perhaps another way of saying that semiconductor companies are becoming more like systems companies and systems companies are becoming more like semiconductor companies. The question is with respect to the support implications for your business. That is to say the support you have to provide to customers given the growing complexity, the growth of the contracts and so forth.

And next we'll go to the line of Jay Fleece shower with Griffin Securities. Please go ahead.

Thank you good evening.

Art for you first you've spoken often of course about the intersection of hardware and software as a center of gravity of your business, which is perhaps another way of saying that semiconductor companies are becoming more like systems companies and systems companies are becoming more like semiconductor companies. The question.

It is with respect to the <unk>.

Support.

Implications for your business that is to say the support you have to provide to customers given the growing complexity of the growth of the contracts and so forth.

Speaker 7: And perhaps you could just talk about that in general, how the profile of what you need to do on behalf of customers are devolving, vis-a-vis your evolution of your contracts and the portfolio. For instance, over the last year, we've seen that there's been a more than 140% increase in your opening for application engineers, even more than the increase in R&D openings over the last year. So perhaps you could just talk about that in general.

And perhaps you could just talk about that in general how the profile of what you need to do on behalf of customers is evolving.

Vis vis your evolution of your of your contracts in our portfolio.

For instance over the last year, we've seen that there has been a more than 140% increase in your openings for application engineers, even more than the increase in R&D openings over the last year or so perhaps.

Speaker 7: perhaps tying to the earlier questions on hiring, what the AE environment looks like specifically as a critical component of supporting your customers. And then second question for...

Perhaps tied to the earlier questions on hiring.

But the AE environment looks like specifically is a critical component of supporting.

Supporting your customers and then the second question for Trac.

Speaker 7: When you look at your segment results, if we strip out from the IP and systems integration segment, what we think your hardware business may have been, it looks like your annualized run rate for IP in Q1 was well north of one and a half billion as compared to the 1.1, 1.2 billion coming out of Q4. It's clearly a substantial increase in the ARR, so to say, of IP, and that looks like it was fairly well correlated to the increase in China in the quarters. Perhaps you could talk about those correlations within the IP business.

When you look at your segment results, if we strip out from the IP and systems integration segment, what we think your hardware business.

May have been.

It looks like your annualized run rate.

For IP in Q1.

It was well north of $1 5 billion as compared to the $1, one $1 $2 billion coming out of Q4.

It was clearly a substantial increase in the <unk>.

So to say of IP and that looks like it was fairly well correlated to the increase in China in the quarter. So perhaps you could talk about.

Those are those correlations within the IP business.

Speaker 10: Okay, Jerry, the question you asked will only take about half an hour. You have touched pretty much on everything we have to do. Let me phrase it like this. A number of years ago we put the Silicon 2 software under our logo. It was aspirational at that time because it meant moving to where the center of gravity was moving. I am now absolutely convinced that the center of gravity for everything that will impact smart everything, big data, automation in various ways is actually the intersection of those two. And so let me first go downwards from the hardware. And there clearly one trend continues, still smaller more sophisticated devices, that's technology evolution. The second trend that is complementing that is multi-chip.

Okay. Jay the question you asked will only take about half an hour you have touched on everything we have to do.

Let me, let me phrase it like this.

A number of years ago, we put the silicon to software under our logo. It was aspirational at that time, because it meant moving to where the center of gravity was moving I am absolutely convinced that the center of gravity for everything that will impact smart everything big data.

Automation and various ways is actually the intersection of those two.

So let me first go downwards from the hardware and Theyre clearly one trend continues still smaller more sophisticated devices Thats technology evolution. The second trend that is complementing that is multi chip and more chip left and that is because at some point in time, we want to 100 times more transistors.

Speaker 10: or chiplets, and that is because at some point in time you want 100 times more transistors, but that is technically not phaseable. And so you split it up and we'll see more of that.

But that is technically feasible and so you split it up and we will see more of that and the third trend is that many of the chips become specialized architecture for just a limited set of tasks and this is not new because with graphical processors already 20 years ago. They were.

Speaker 10: And the third trend is that many of the chips become specialized architecture for just a limited set of...

Speaker 10: And this is not new because with graphical processors already 20 years ago...

Speaker 10: They were essentially accelerators to manage pixels.

Actually accelerators to manage pixels now of course, there's a lot of that goes in the AI direction or data management or a chance alone.

Speaker 10: Now of course there's a lot of that goes in the AI direction or data management direction and so on.

Speaker 10: So then we move to the other side of the equation, which is the software. The software of course has one ambition, which is do applications that add a lot of value in every domain you can think of, including many of the automation domains, the big data slash machine learning domains. And so the software needs to be matched to the hardware and the hardware needs to be matched to the software. And that is where this prototyping is effective from both perspectives. And we're seeing rapid growth and just like anything else, people wish the prototype would be another 10 times faster because then they could do 10 times more. And so I think that will continue for quite a while.

So then we move to the other side of the equation, which is a software as a software of course has one ambition which is.

New applications that add a lot of value in every domain you can think of including many of the automation domains. The big data Slash machine learning domains.

So the software needs to be matched to the hardware and the hardware needs to be matched to the software and that is where the prototyping is effective from both perspectives and we're seeing rapid growth and just like anything else people wish to prototype would be another 10 times faster because then they could do 10 times more and so I think that will continue.

For quite a while now in regards to the different supports youre absolutely correct that in the in the semiconductor area, there or the hard way down it is more an evolution of what we've done for the last 35 years and AI is very important because it's not taking on much more complex multistep tasks and.

Speaker 10: Now in regards to the different supports...

Speaker 10: You're absolutely correct that in the semiconductor area, or the hardware down, it is more an evolution of what we've done for the last 35 years. And AI is very important because it's now taking on much more complex multi-step tasks.

Speaker 10: And so that's where we give a lot of support. Whereas if you look upwards, there the system houses, in the past, only a few really have invested substantially in chip design or electronic system design. And now because the software is so much closer to the realization they are investing.

So that's why we gave a lot of support whereas if you look upwards there.

The system houses in the past only a few really have invested substantially in chip design or electronic system design and now because the software is so much closer to the realization. They are investing but these are also the types of companies that if they can buy partially finished solutions like big IP blocks that is where they are.

Speaker 10: But these are also the type of companies that if they can buy partially finished solutions like big IP blocks...

Speaker 10: That is where they start. And so we increasingly look at our IP as reaching into that middle. And then the last comment is for each of the verticals, there are often additional needs.

Start and so we increasingly look at our IP.

Reaching into that Middle and then the last comment is for each of the verticals. There are often additional needs and automotive is a prime example of that because safety matters and security as a subcategory for safety in that case security of course applies to many many places so long story short our opportunity is.

Speaker 10: And automotive is a prime example of that because safety matters and security is a subcategory for safety in that case. Safety of course applies to many, many places.

Speaker 10: So, long story short, our opportunity is that we touch all of these players and become increasingly a catalyst between multiple players to make something successful. And therein lies the big opportunity for synopsis.

That we touch all of these players and become increasingly a catalyst between multiple players to make something successful and therein lies the opportunity for synopsys.

Speaker 7: Hi Jay, let me take the second part of your question. So you're right, Q1 was a very strong quarter for IP, in addition to the other products.

Hi, Jay let me take.

Take your the second part of your question. So Youre right Q1 was a very strong quarter for IP. In addition to the other products, but at a high level.

Speaker 4: But at a high level, the IP business is strong in all areas, all geographies, and across a very diverse customer base.

Business is strong and all all areas, all geographies and across a very diverse customer base.

Speaker 7: And so tying that connection to China would be misleading. And in fact in China, we're doing very well across all of our product categories. We had very good growth in EDA software, hardware did well in addition to IP. So trying to make that connection at the top level of the results I think would give you a misleading conclusion.

And so China time.

Tying that connection that China would.

Would be misleading.

And in fact in China, we're doing very well across all of our product categories. We had a very good growth in EDA software hardware, where it did well in addition to the IP. So.

Try to make that connection at the top level of the results I think would be would give you a misleading.

Conclusion.

Okay.

Thanks very much.

Youre welcome.

Speaker 10: Next we go to the line of Jason Salino with KeyBank Capital Markets. Please go ahead. Great. Thanks for taking my questions. Maybe first one for Trac. You know, the semi and design margins in the quarter were really impressive, you know, 38%. You know, that's the highest we've ever seen them. How much of that strength is just mainly from the upfront nature of, you know, the IP and hardware strengths.

Next we go to line of Jason <unk> with Keybanc capital markets. Please go ahead.

Great. Thanks for taking my questions, maybe first one for trac.

And design margins in the quarter were really impressive 38%.

It's the highest we've ever seen them.

Much of that strength is just mainly from the upfront nature of the IP and hardware strength.

Speaker 7: I'd characterize it more as the quarterization of the results, Jason, right? Because remember when we talked to you in December , we described expenses as being relative to flat throughout the year, but the mix of revenue and the timing of revenues would skew margins to the...

I would characterize it more as the quarters nation of the results Jason because remember when we when we talked to you in December we described expenses as being relatively flat throughout the year, but.

Mix of revenue and.

The mix of revenue and the timing of revenues would skew margins to the front end.

Speaker 7: But overall, I think margins are doing very well and we do expect that over a multi-year period we'll continue to improve margins.

But overall I think margins are doing very well and we do expect that.

Over a multiyear period will continue to improve margins.

Speaker 8: Okay, perfect, interesting. And then Art, I thought it was interesting how you mentioned hyperscalers with your SIG business comments. I didn't think strengthen with the hyperscalers was levered at all to the SIG business. So my question is, do these hyperscalers typically purchase the EDA and the SIG products separately, or do they have opportunities to bundle them together? Thanks.

Okay interesting.

Interesting.

And then art I thought it was interesting how you mentioned hyperscale or whats your cig business comments I didn't think strengthened with the hyperscale or is it was levered at all does this thing business. So my question is do these hyper scalar is typically purchased the EDA and the Sig products separately or do they have opportunities to bundle them together.

Weather.

Speaker 10: In general, we sell these things relatively separately. They're often very different buyers in the company that are looking at that. And we have proactively kept it somewhat separate. It's a better business practice than negotiating everything to the lowest common denominator. And so but of course, these hyperscalers have absolutely big needs in security. And and so we're collaborating well with them.

<unk>.

In general we sell these things relatively separately they often.

Very different buyers in the company that are looking at that and we have proactively kept it somewhat separate it's a better business practice them negotiating.

Everything to the lowest common denominator and.

So but of course these hyperscale is have absolutely big needs in security.

<unk>.

So we are collaborating well with them.

Excellent. Thank you.

Youre welcome.

Speaker 10: And next we go to the line of Pradeep Ramani with UBS. Please go ahead.

And next we go to the line of pretty per money with UBS. Please go ahead.

Speaker 9: Thanks for taking my question. I have a couple. So your deferred revenue saw a big pop. I think what is driving that? Is that, first of all, is it from a product standpoint broad-based or sort of concentrated among either IPO, ADA or hardware? Oh, sorry, IPO, ADA. And in terms of just…

Thanks for taking my question.

A couple of reasons.

The deferred revenue.

Big pulp I think.

What is driving that is that first of all is it from a product standpoint broad base.

<unk> concentrated amongst other IPO.

Hardware.

IPO EDA and.

In terms of just.

Speaker 9: geographical or customer concentration that sort of drove that delta, if you could expand upon that. That would be helpful.

Geographical or customer concentration that sort of drove that delta if you could expand upon that that'd be helpful.

Speaker 7: I'll start with the first question Pradeep. The deferred is very broad based across all product lines. And the variability of deferred from one quarter and X really just reflects the timing of when we bill and invoice our customer.

So I'll start with the first question for deep the deferred.

It's very broad base across all product lines.

And the variability of differed from one quarter to next.

It really just reflects the timing of when we bill an invoice our customers.

Speaker 7: I didn't hear clearly the second part of your question.

I think I think clearly the second part of your question.

Yes.

More around.

Speaker 9: whether any one customer or one geographic geography sort of drove the upside or the fault or whether that was broad-based as well.

Were there any one customer or one geographic.

Geography sort of growth.

There will be upside of the pump.

That was broad based as well.

Speaker 4: The overall growth was really broad-based.

The overall growth.

It was really broad based.

Speaker 7: Yes, customers across, customers globally.

Customers across.

Our customers globally.

Speaker 9: Okay, and for my follow-up, I guess you talked about BSLR AI and SLM.

Okay.

And my follow up.

I guess.

You talked about deals.

SLM.

Speaker 9: How would you characterize just in terms of what percent of your semiconductor and system design revenue they are at right now, and how should we think about the growth path going forward for these two contributors?

How would you characterize just in terms of what percent of your.

Semiconductor.

Beyond revenue they are at right now.

And how should we think about sort of the growth going forward.

Contributors.

Speaker 7: Yeah, we're in an early stage and typically we don't disclose for individual products, but both of these areas have the potential to certainly grow faster than the rest of the company because they're in an early stage, but also because they bring a whole set of new values to the customer. And back to an earlier question, I didn't mention that in both of those areas, we also hire more people in order to help our customers succeed and quickly get to the high value that these capabilities offer.

Yes.

Yes, we are in early stage and typically we don't disclose for individual product but.

Both of these areas have the potential to certainly grow faster than the rest of the company because in the early stage, but also because they bring a whole set of new values to the customer and back to an earlier question.

I didn't mention that in both of those areas. We also hire more people in order to help our customers succeed and quickly get to the high value that these capabilities offer.

Yes.

Thank you.

You're welcome.

Speaker 10: And once again, as a reminder, if you wish to ask a question, please press 1 then 0 at this time.

And once again as a reminder, if you wish to ask a question. Please press <unk> zero at this time.

Speaker 10: Next question comes from the line of Charles Shee with Needham and Company. Please go ahead.

Next question comes from the line of Charles <unk> with Needham <unk> Company. Please go ahead.

Speaker 1: Hi, good afternoon. Thank you for taking my question. Maybe it affects those questions for art.

Hi, good afternoon.

Thank you for taking my question.

The first question is for art.

Speaker 1: You may be very well aware of the debate right now in semiconductors, on semiconductor industry cycles. There's a debate about whether we're at the peak cycle or we are here stronger for longer. Given your probably 40-year experience in this industry, can you kind of give us a sense, how does the cycle, what do you think about the current cycle? Is it the same as the previous ones you've seen or is it something different?

You may be very well aware of the debate right now in semiconductors semiconductor industry cycles. There is a debate about whether we're at the peak cycle or we are here stronger for longer.

Given youre, probably 40 year experience in this industry.

Can you kind of give us a sense how does the cycle would be.

Do you think about the current cycle is that the same as the previous ones you've seen or is there something different and.

Speaker 1: How do you think the cycle affects the EDA industry and specifically to your business and in one way or another? Thank you.

How do you think of the cycle effect, the EDA industry and specifically to your business.

In one way or another it thank you.

Speaker 7: Okay, I'm very clear about this. I think that we are into a long-term great opportunity wave because the opportunity to change how the world operates with a combination of enormous amount of data.

Okay.

I'm very clear about this I think that we are into a long term great opportunity wave because.

The opportunity to change how the world operates with a combination of enormous amount of data combined with machine learning ultimately AI and automation.

It has very very big economic impact for every vertical.

So while one could argue that for many decades.

<unk> has sort of pushed technology forward and that always have new benefits now there is simultaneously a pull from the end markets that all realize that hey, they could potentially shave some economics out of their operations by just understanding the data better or even find better solutions and I think that is so profound.

Speaker 7: and that always had new benefits, now there is simultaneously a pool from the end market that all realize that, hey, they could potentially shave some economics out of their operations by just understanding the data better or even find better solutions. And I think that is so profound, that is as profound, I would say, as computation 35 years or 30 years ago impacting the world. Now at the same time, we are all well aware that there are some shortage of a certain, actually fairly limited set, but a crucial set of parts. And I'm hesitant to call that a cycle. There have been interruptions in the supply chains due to global politics, there have been COVID that stopped people from ordering, there have been a lot of things, and it's mostly older parts. And so, yeah, there's some shortage there, there's some additional capacity being built in, most of the capacity is being lined up for actually advanced nodes because of the earlier point I made, all these new opportunities. And so there will be always a little bit of a cycle of supply and providers alignment, but in general, I think that we're in for a decade of great opportunities in semiconductors.

That is as profound I would say as a computation of 35 five years or 30 years.

Impacting the world now at the same time.

We are all well aware that there are some shortage of certain partially it fairly limited said the crucial set of parts and.

I am hesitated to called out the cycle there've been interruptions in the supply chain.

Due to global politics, they have been COVID-19 that stopped people from ordering there've been a lot of things and it's mostly older parts and so yes. There is some shortage there theres some additional campus capacity being built in most of the capacity is being lined up for actually advance nodes because of the earlier point that made all these.

New opportunities and so there will be always a little bit of a cycle of supply.

Speaker 7: And so.

Speaker 7: There will be always a little bit of a cycle of supply and providers alignment, but in general I think that we're in for a decade of great opportunities in semiconductors.

Supply and providers alignment, but.

In general I think that we're in for a decade of great opportunities in semiconductors.

Speaker 7: Oh, by the way, I should add that includes us, of course. That was maybe the end of the keeper of the question for synopsis. Yeah, we're very much in the middle of that. And, you know, we love this term of being a catalyst because we interact with literally the deepest technology, with the design, with the system configuring, the optimization there all the way into the software and the security.

Oh by the way.

That includes of course, they had that was maybe at the end of the keep our good question for Synopsys.

We're very much in the middle of that.

We love this term of being a catalyst because we interact with literally the deepest technology with the design with the.

The system configuring the optimization there all the way into the software and security.

Speaker 7: And so it puts us very much in a position to interact with all the players that have to interact well for success.

So it puts us very much.

In a position to interact with older players that have to interact well for success and that's where a big part of our enthusiasm comes from.

Speaker 7: and that's where a big part of our enthusiasm comes from.

Speaker 1: Thank you. Maybe a quick follow up, maybe a question for Trax.

Thank you maybe a quick follow up.

Maybe a question for track in terms of your full year guidance and your fiscal second quarter guidance. It does seem to imply there's a bit of a moderation fuel revenue in the second half of the fiscal year.

Speaker 1: In terms of your full year guidance and your fiscal second quarter guidance, it does seem to imply there's a bit of a moderation of your revenue in the second half of your fiscal year.

Speaker 1: I have to think the time-based revenue has been quite linear, typical linear through the years steadily growing and maintenance service, I don't expect any unknown linear arity there.

I have two things from the time based revenue has been quite a lean year typical linear through the year steadily growing our maintenance service I don't expect any unknown linear.

Speaker 1: I was kind of wondering if you're sort of expecting a little bit of moderation in the upground revenue there, either it's the hardware or the perpetual licenses or the IP contracts there going into the second half. Thank you.

Hi, Ricky there I'm kind of wondering if you're sort of expecting a little bit of moderation in op ground revenue there either as to how we're or the perpetual licenses or the IP contracts there going into the second half. Thank you.

Speaker 4: Charles, the quarterization profile is a function of when we expect the customers to pull down IP and hardware. So it's really those two items. Everything else as you described is quite linear. A little bumpy as well, but generally very linear.

Charles the organization profile is a function of when.

The customer when we expect the customers too.

Pulled out IP and hardware. So it's really those two items everything else as you described is quite linear.

A little bumpy as well, but.

Generally very linear.

Thank you that's all from me. Thank you Youre welcome.

Speaker 10: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation after using ATT Teleconference. You may now disconnect.

And gentlemen that does conclude our conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.