Q3 2023 Cadence Design Systems Inc Earnings Call

Please standby were about to begin.

Speaker 1: Please stand by. We're about to begin.

Good afternoon, My name is <unk> and I'll be your conference operator today at this time I would like to welcome everyone to the cadence third quarter 2023 earnings conference call.

Speaker 1: Good afternoon. My name is Beau, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then 1 on your telephone keypad. Thank you.

All lines have been placed on mute to prevent any background noise. After the speakers' prepared remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then one on your telephone keypad. Thank you.

Speaker 1: I'll now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead, sir.

Ill now turn the call over to Richard <unk>, Vice President of Investor Relations for cadence. Please go ahead Sir.

Yeah.

Thank you operator.

Speaker 2: I would like to welcome everyone to our third quarter of 2023 earnings conference call.

I would like to welcome everyone to our third quarter of 2023 earnings Conference call.

I'm joined today by honoured to have done.

Speaker 2: President and Chief Executive Officer, and John Wall, Senior Vice President and Chief Financial Officer.

President and Chief Executive Officer.

And John Wall, Senior Vice President and Chief Financial Officer.

Speaker 2: The webcast of this call and a copy of today's prepared remarks will be available on our website, cadence.com.

The webcast of this call and a copy of today's prepared remarks will be available on our website cadence dot com.

Today's discussion will contain forward looking statements, including our outlook on future business and operating results.

Speaker 2: Today's discussion will contain forward-looking statements, including our outlook on future business and operating results.

Speaker 2: Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussion.

Due to risks and uncertainties actual results may differ materially from those projected or implied in today's discussion.

For information on factors that could cause actual results to differ please refer to our SEC filings.

Speaker 2: For information on factors that could cause actual results to differ, please refer to our FCC filing.

Speaker 2: including our most recent forums, 10K and 10Q, CFO commentary, and today's earnings release.

Including our most recent forms 10-K and 10-Q CFO .

CFO commentary in today's earnings release.

Speaker 2: All forward-looking statements during this call are based on estimates and information available to us as of today. And we disclaim any obligation to update.

All forward looking statements. During this call are based on estimates and information available to us as of today.

And we disclaim any obligation to update that in.

Speaker 2: In addition, we will present certain non-GAAP measures, which should not be considered in isolation from or as a substitute for GAAP results. Reconciliations of GAAP to non-GAAP measures are included in today's earnings release.

In addition, we will present certain non-GAAP measures, which should not be considered in isolation from or as a substitute for GAAP results reconciliations of GAAP to non-GAAP measures are included in today's earnings release.

Speaker 2: For the Q&A session today, we would ask that you observe a limit of one question and one follow-up. Now, I'll turn the call over to Anirudh.

For the Q&A session today would ask have you observed a limit of one question and one follow up now I will turn the call over to Andrew.

Thank you Richard.

Good afternoon, everyone and thank you for joining us today.

Speaker 3: Good afternoon, everyone, and thank you for joining us today.

Speaker 3: I'm pleased to report that Cadence delivered strong results for the third quarter of 2023.

I am pleased to report that cadence delivered strong results for the third quarter of 2023.

We exceeded our Q3 guidance on all key metrics.

Speaker 3: We exceeded our Q3 guidance on all key metrics and are raising our outlook.

And are raising our outlook for 2023.

Speaker 3: John will provide more details on our financials short.

John will provide more detail on our financials shortly.

Notwithstanding the macro uncertainties.

Speaker 3: Notwithstanding the macro uncertainties, design activities remain strong.

Design activity remained strong.

Speaker 3: driven by transformative generational trends such as AI, hyperscale computing, 5G and autonomous driving.

Driven by consummated generational trend.

AI.

Hyperscale computing <unk> and autonomous driving.

Growing hyper convergence between electrical and mechanical domain.

Speaker 3: Growing hyperconvergence between electrical and mechanical domains.

Speaker 3: systems and semis, and hardware and software.

Systems in semi and.

And hardware and software.

Speaker 3: is driving the need for tightly integrated co-design and analysis solutions.

Is driving the need for tightly integrated core design analysis solution.

Speaker 3: Additionally, trends such as growing number of 3D IC and chiplet designs, and system companies building custom silicon are accelerating.

Additionally.

Trends such as growing number of three D IC and chip led design and.

And system companies building custom silicon at.

Our accelerating.

And is that I believe all wing design landscape.

Speaker 3: In this rapidly evolving design landscape, the relevance of AI-driven design automation cannot be overstated.

The relevance of AI driven design automation.

It'd be overstated.

Speaker 3: as it's enabling customers to accelerate their pace of innovation, while enabling them to meet their targets.

And it's enabling customers to accelerate their pace of innovation.

While enabling them to meet their targets more efficiently.

Speaker 3: Over the past few years, we focused initially on incorporating powerful AI algorithm.

Over the past few years the focus initially on incorporating powerful AI algorithm.

In our core engines.

Speaker 3: and then build our generative AI solutions on top of our software platform.

And then build our generative AI solutions on top of our software platforms.

Speaker 3: We are seeing growing momentum for our comprehensive ZI generative AI platform.

We are seeing growing momentum for our comprehensive Jedi.

Operator: Please stand by. We're about to begin. Good afternoon.

Generative AI platform.

Operator: My name is Bo, and I will be your conference operator today.

With an increasing number of customers adopting these solutions.

Speaker 3: with an increasing number of customers adopting these solutions.

Operator: At this time, I would like to welcome everyone to unique cadence third quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.

In achieving exceptional quality of results and productivity gains.

Speaker 3: and achieving exceptional quality of results and productivity gains.

Speaker 3: While still in the early stages, sales of our Gen AI solutions have nearly tripled in the last year.

While still in the early stages.

Operator: After the speakers prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then one on your telephone keypad. Thank you.

Sales of our Gen AI solutions have nearly tripled in the last year.

Our solutions are enabling marquee a infrastructure platform companies.

Speaker 3: Our solutions are enabling marquee AI infrastructure platform companies.

Richard Gu: I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead, sir. Thank you operator. I would like to welcome everyone to a third quarter of 2023 earnings conference call. I'm joined today by Anir Devgan, President and Chief Executive Officer, and John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call and a copy of today's prepared remarks will be available on our website cadence.com.

Speaker 3: to deliver their next generation compute, networking, and memory products.

To deliver the next generation compute networking and memory products.

Last quarter, we had referenced our successes with Nvidia and Tesla.

Speaker 3: Last quarter, we had referenced our successes with NVIDIA and test.

And this quarter, we are pleased to announce that broadcom.

Speaker 3: And this quarter, we are pleased to announce that Broadcom

Speaker 3: has accelerated the adoption of cadence cerebras across multiple business units, achieving impressive quality of results.

Has accelerated the adoption of cadence steady breath across multiple business units achieving.

Achieving impressive quality of results.

In Q3, we pioneered leveraging <unk> LLM capability.

Speaker 3: In Q3, we pioneered leveraging Gen AI's LLM capabilities.

Richard Gu: Today's discussion will contain four looking statements, including our outlook on future business and operating results. Due to risks and uncertainties, actual results made differ materially from those projected or implied in today's discussion. For information on factors that could cause actual results to differ, please refer to our SEC findings, including our most recent forums 10K and 10Q, CFO commentary, and today's earnings release. All four looking statements during this call are based on estimates and information available to us as of today, and would display any obligations to update them. In addition, we will present certain non-gap measures which should not be considered in isolation from, or as a substitute for gap results. Reconciliation of gap to non-gap measures are included in today's earnings release.

The chip design.

Speaker 3: successfully collaborating with Renaissance on accelerating functional specification to final design.

Successfully collaborating with Renaissance.

On accelerating functional specification to final design.

This is a key step in demonstrating the potential of LMS.

Speaker 3: This is a key step in demonstrating the potential of LLM.

To automate the translation of natural language specification.

Speaker 3: to automate the translation of natural language specification to final chip design and verification tasks.

Two final chip design and verification des.

Thereby boosting the quality and efficiency.

Speaker 3: We also renewed and deepened collaboration with some large semi and system customers.

We also renewed and deepened collaboration with some lives semi and system customers.

Speaker 3: in the 5G, AI, hyperscale and connectivity areas.

In the <unk>, AI hyperscale and connectivity areas.

Speaker 3: For instance, we strengthen our long-standing partnership with a global marquee systems company through a significant expansion of our EDA software, hardware, design IP, and system solutions.

For instance.

Strengthen our long standing partnership with a global marquee systems company.

Through a significant expansion of our EDA software hardware design IP and system solutions.

Operator: For the Q&A session today, we would ask that you observe a limit of one question and one follow up.

Speaker 3: as the digital transformation in aerospace and defense accelerates.

As the digital transformation in aerospace and defense accelerated.

Richard Gu: Now, I'll turn the call over to Anir Devgan. Thank you Richard.

Speaker 3: We continued our momentum by enhancing our core EDN systems footprint with several customers, including two market shaping companies.

We continued our momentum by enhancing our core EDA and systems footprint.

Anirudh Devgan: Good afternoon everyone, and thank you for joining us today. I'm pleased to report that Caden's delivered strong results for the third quarter of 2023. We exceeded our Q3 guidance on all key metrics and are raising our outlook for 2023. John will provide more details on our financial shortly. Notwithstanding the macro uncertainties, design activities remain strong, driven by transformative generational trends such as AI, hyper scale computing, 5G, and autonomous driving. Growing hyper conversions between electrical and mechanical domain, systems and semi and hardware and software is driving the need for tightly integrated co-design analysis solutions.

Several customers, including at two market shaping companies.

Now, let me share some of the business highlights starting with digital IC.

Speaker 3: Now let me share some of the business highlights starting with digital IC.

With 11, new wins, our digital full flow delivering industry, leading quality of result at the most advanced nodes.

Speaker 3: With 11 new wins, our digital full flow delivering industry's leading quality of results at the most advanced nodes, continued proliferating with market shaping customers.

You need proliferating with market shaping customers.

We are very pleased with the accelerating momentum.

Speaker 3: We are very pleased with the accelerating momentum of our flagship Cadence Cerebras Gen AI solution.

Our flagship cadence cerebral <unk> solution.

Speaker 3: Whose transformative results have led to its deployment at all of our top 10 digital customers and in about 300

Whose transformation results have led to its deployment.

At all of our top 10 digital customers.

And in about 300 tape outs to date.

Anirudh Devgan: Additionally, trends such as growing number of 3DIC and chiplet design and system companies building custom silicon are accelerating. And this rapidly evolving design landscape, the relevance of AI-driven design automation cannot be overstated, as it's enabling customers to accelerate their pace of innovation while enabling them to meet their targets more efficiently. Over the past few years, we focus initially on incorporating powerful AI algorithms in our core engines and then build our generative AI solutions on top of software platforms.

Imagination technologies used cadence of zebras, and our digital full flow on his latest five nanometer GPU design in the cloud two.

Speaker 3: Imagination technologies use cadence cerebras and our digital full flow on its latest 5 nanometer GPU design in the cloud to achieve a 20% reduction in leakage flow.

To achieve a 20% reduction in leakage Butler.

Next.

I will talk about our functional verification business.

Speaker 3: which had another strong quarter with 18% year-over-year revenue.

Which had another strong quarter with 18% year over year revenue growth.

Ever growing system design complexity, coupled with the need for the first time right silicon.

Speaker 3: ever growing system design complexity coupled with the need for first time right silicon.

Anirudh Devgan: We are seeing growing momentum for our comprehensive Jedi generative AI platform with an increasing number of customers adopting these solutions and achieving exceptional quality of results and productivity gains. While still in the early stages, sales of our our solutions are enabling marquee AI infrastructure platform companies to deliver their next generation compute networking and memory products. Last quarter, we had reference our successes with Nvidia and Tesla. And this quarter, we are pleased to announce that Broadcom has accelerated the adoption of cadence cerebrus across multiple business units, achieving impressive quality of results.

Speaker 3: continue to drive strong demand for our palladium Z2 and proteome X2 hardware platforms that provide industry-leading system verification and software bring-up capability.

Continued to drive strong demand for our Palladium zone, two and Protium X two hardware platforms.

That provide industry, leading system verification and software bring up capability.

Our hardware business had a record Q3.

Speaker 3: with close to half of the hardware orders, including both platforms.

With close to half of the hardware orders.

In both platforms.

Highlights for the quarter include a major dynamic door expansion with a top AI and automotive chip supplier.

Speaker 3: Highlights for the quarter include a major dynamic duo expansion with a top AI and automotive chip supplier, and a significant deal with the market shaping data center chip welcome.

And a significant deal with the market shaping datacenter chip company.

Speaker 3: Our flagship custom IT business continued to pave the way in analog innovation.

Our flagship custom IC business continued to pave the way in analog innovation.

Speaker 3: delivering 15% year-over-year revenue growth.

Delivering 15% year over year revenue growth.

We are pleased with the reception of our AI driven.

Virtuoso studio solution at.

Speaker 3: Virtuoso Studio solution has several marquee customers adopted for their N2 and N3 design.

As several marquee customers adopted for their end to end pre design.

And it has close to a thousand downloads since its launch six months ago.

Speaker 3: and it has close to a thousand downloads since its launch six months ago.

And the symbol micro devices utilize the virtuoso studio custom IC design platform.

Speaker 3: And the Shimbol Micro Devices utilize the Virtuoso Studio Customized Design Platform to gain a 30% reduction in turnaround time for routing analog blocks.

Anirudh Devgan: In Q3, we pioneered leveraging Gen AI's LLM capability to chip design, successfully collaborating with Renaissance on accelerating functional specification to final design. This is a key step in demonstrating the potential of LLM to automate the translation of natural language specification to final chip design and verification tasks, thereby boosting their quality and efficiency. We also renewed and deepened collaboration with some large STEMI and system customers in the 5G AI, hyperscale and connectivity areas.

To gain a 30% reduction in turnaround time for routing Antelope blocks.

In Q3.

We continued investing in our IP business and closed the acquisition of the Rambus.

Speaker 3: We continued investing in our IP business and closed the acquisition of the Rambus.

By I B assets.

Customer reception has been overwhelmingly positive.

Speaker 3: Customer reception has been overwhelmingly positive.

Speaker 3: to the addition of their HBM and GDDR IP to our star design IP.

The addition of the HBM and GDR IP.

Our star design IP portfolio.

Speaker 3: Design IP had a record booking quarter with strong AI and chiplet design activity.

Design IP had a record booking quarter with strong AI and chip led design activity.

Especially in the mobile automotive and hyperscale or verticals.

Speaker 3: especially in the mobile, automotive, and hyperscaler vertical.

Anirudh Devgan: For instance, we strengthen our long standing partnership with a global marquee systems company through a significant expansion of our EDS software, hardware, design IP and system solutions. As the digital transformation in aerospace and defense accelerates, we continued our momentum by enhancing our core EDN systems footprint with several customers including a two market shaping company.

In addition, we launched our 10 silica Neil <unk> IP.

Speaker 3: In addition, we launched our Tensorica Neo NPUIP and Neuroweave software tools to accelerate on-device and edge AI performance.

And neuro these software tools to accelerate on device and edge AI performance.

Our system design and analysis business that is driving our expansion beyond EDA.

Speaker 3: Our system design and analysis business that is driving our expansion beyond EDA continue to deliver.

Continued to deliver strong growth in.

Speaker 3: increasing revenue by 20% year over year.

Increasing revenue by 20% year over year.

On the PCB front.

Allegro X AI has several successful engagements with market shaping customers underway, and we announced archived eggs.

Speaker 3: Allegro XAI has several successful engagements with market shaping customers underway. And we announce Orkide X.

Anirudh Devgan: Now, let me share some of the business highlights starting with Digital IC. With 11 new wins, our digital full flow of delivering industries leading quality of results at the most advanced nodes continued proliferating with market shaping customers. We are very pleased with the accelerating momentum of our flagship cadence cerebrus Gen AI solution, who's transformative results have led to its deployment at all of our top 10 digital customers and in about 300 tap outs to date.

Speaker 3: our next generation AI driven PCB design solution enabled by cadence on cloud and targeting small and medium business.

Our next generation AI, driven PCB design solution enabled by cadence on cloud and targeting small and medium businesses.

Speaker 3: Our Fidelity CFD platform continued its strong momentum with customers in automotive, aerospace and defense, and industry verticals.

Our fidelity CFT platform continued its strong momentum with customers in automotive aerospace and defense and industry verticals.

In summary, I am pleased with our team's continued innovation and execution.

Speaker 3: In summary, I'm pleased with our team's continued innovation and execution.

We are well positioned to benefit from the tremendous opportunities ahead.

Speaker 3: We are well positioned to benefit from the tremendous opportunities ahead.

Speaker 3: as we help customers design their differentiated products.

As we help customers design their differentiated products.

Speaker 3: with improved quality of results, productivity, and shorter time to mark.

With improved quality of results productivity and shorter time to market.

Anirudh Devgan: Imagination technologies use Cadence Ariebras and our digital full flow on its latest five-nanometer GPU design in the cloud to achieve a 20% reduction in leakage power. Next, I will talk about our functional verification business which had another strong quarter with 18% year-over-year revenue growth. Ever growing system design complexity coupled with the need for first-time right silicon, continue to drive strong demand for our palladium Z2 and proteum X2 hardware platforms that provide industry-leading system verification and software bring up capability.

I did want to take a moment to comment on the unfolding conflict in the middle East.

Speaker 3: I did want to take a moment to comment on the unfolding conflict in the Middle East.

The ongoing violence and loss of innocent life is truly heartbreaking.

Speaker 3: The ongoing violence and loss of innocent life is truly heartbreaking and a matter

In a matter of global concern.

The well being of our employees and their families in the region is of utmost importance to us.

Speaker 3: The well-being of our employees and their families in the region is of utmost importance to us.

Speaker 3: and we continue doing everything we can to support them.

And we continue doing everything we can to support them.

Our thoughts are with everyone, who has family friends and loved ones there.

Speaker 3: Our thoughts are with everyone who has family, friends and loved ones there.

Speaker 3: And we are helping out by providing humanitarian aid through the cadence.

And we are helping out by providing humanitarian aid.

Through the cadence giving foundation.

Speaker 3: John will now go through the Q3 results and present our Q4 and updated 2023 outlook. and this a sobering did with us.

John will now go through the Q2 results and present, our Q4 and updated 2023 outlook.

Anirudh Devgan: Our hardware business had a record Q3 with close to half of the hardware orders including both platforms. Highlights for the quarter include a major dynamic dual expansion with a top AI and automotive chip supplier and a significant deal with the market shaping data center chip company. Our flagship custom IT business continued to pave the way in analog innovation delivering 15% year-over-year revenue growth. We are pleased with the reception of our AI driven virtual studio solution as several marquee customers adopted for their N2 and N3 design.

Thanks Anna.

Good afternoon, everyone.

Speaker 4: I'm pleased to report that Caden's delivered another strong porter of top and bottom line results in Q3.

I am pleased to report the cadence delivered another strong quarter of top and bottom line results in Q3.

Speaker 4: All businesses contributed to revenue growth, and we completed more hardware installations in Q3 than we originally was.

All businesses contributed to revenue growth and we completed more hardware installations in Q3 than we originally assumed.

Here are some of the financial highlights from the third quarter, starting with the P&L.

Speaker 4: Here are some of the financial highlights from the third quarter, starting with the P&L. Total revenue was 1 billion and-

Total revenue was $1 billion and $23 million.

Speaker 4: Gap operating margin was 28.6%, and non-gap operating margin was 41.1%.

GAAP operating margin was 28, 6% and non-GAAP operating margin was 41, 1%.

Speaker 4: Gap EPS was 93 cents, and non Gap EPS was $1.20.

GAAP EPS was <unk> 93.

And non-GAAP EPS was $1.26.

Next turning to the balance sheet and cash flow cash balance at quarter end was $962 million.

Speaker 4: Next, turning to the balance sheet and cash row cash balance at quarter ends was $962 million.

Anirudh Devgan: And it has close to a thousand downloads since its launch six months ago. And the symbol micro devices utilize the virtual studio custom IT design platform to gain a 30% reduction in turnaround time for routing analog blocks. In Q3, we continued investing in our IP business and closed acquisition of the Rambus Phi IP assets. The customer reception has been overwhelmingly positive to the addition of their HBM and GDDR IP to our star design IP portfolio.

Speaker 4: while the principal value of debt outstanding was $650 million.

While the principal value of debt outstanding was $650 million.

Operating cash flow was $396 million.

Speaker 4: Operating cash flow was $396 million.

And we used $125 million to repurchase keeping shares in Q3.

Speaker 4: And we used $125 million to repurchase Capen shares in Q3.

Speaker 4: Before I provide our updated outlook, I'd like to highlight that our outlook contains the usual assumption that export control regulations that exist today remain substantially similar for the remainder of the year.

Before I provide our updated outlook I'd like to highlight that our outlook contains the usual assumption, but export control regulations that exist today remained substantially similar for the remainder of the year.

Speaker 4: Our updated outlook for fiscal 2023 is revenue in the range of 4.06 to 4.1 billion dollars.

Our updated outlook for fiscal 2023 is revenue in the range of 4.06 to $4 1 billion.

Anirudh Devgan: Design IP had a record booking quarter with strong AI and chiplet design activity, especially in the mobile automotive and hyperscaler verticals. In addition, we launched our 10 silica neo NPU IP and neuroweave software tools to accelerate on device and edge AI performance. Our system design and analysis business that is driving our expansion beyond EDA continue to deliver strong growth, increasing revenue by 20% year-over-year. On the PCB front, and Allegro XAI has several successful engagements with market shaping customers underway.

GAAP operating margin in the range of 35% to 31%.

Speaker 4: GAP operating margin in the range of 30.5 to 31%.

non-GAAP operating margin in the range of $41, 5% to 42%.

Speaker 4: non-gap operating margin in the range of 41.5 to 42%.

Speaker 4: GAPIPS in the range of $3.48 to $3.

GAAP EPS in the range of $3 48.

To $3.54.

non-GAAP EPS in the range of $5 seven.

Speaker 4: non-GAPIPS in the range of $5.07 to $5.13.

$5 13.

Speaker 4: operating cash flow in the range of 1.3 to 1.4 billion dollars.

Operating cash flow in the range of one three to one 4 billion.

And we expect to use at least 50% of our annual free cash flow to repurchase cadence shares.

Speaker 4: And we expect to use at least 50% of our annual free cash flow three purchase can't you?

Speaker 4: As a result for Q4, we expect revenue in the range of $1 billion and $39 million to $1 billion and $79 million.

As a result for Q4, we expect revenue in the range of $1 billion and $39 million to $1 billion and $79 million.

Anirudh Devgan: And we announce Arcade X, our next generation AI-driven PCB design solution, enabled by Kaden's on-cloud and targeting small and medium businesses. Our fidelity CFD platform continued its strong momentum with customers in automotive, aerospace and defense and industry verticals.

Speaker 4: Gap operating margin of approximately 31%. Non-gap operating margin of a-

GAAP operating margin of approximately 31%.

non-GAAP operating margin of approximately 42%.

Speaker 4: Gap EPS in the range of 85 to 91 cents.

GAAP EPS in the range of 85 to 91.

Speaker 4: non-GAPPS in the range of $1.30 to $1.36.

non-GAAP EPS in the range of $1 30.

To $1 36.

Anirudh Devgan: In summary, I'm pleased with our teams continued innovation and execution. We are well positioned to benefit from the tremendous opportunities ahead as we help customers design their differentiated products with improved quality of results, productivity and shorter time to market.

Speaker 4: And we expect to use approximately $125 million of cash to repurchase game shares.

And we expect to use approximately $125 million of cash to repurchase cadence shares.

As usual, we've published the CFO commentary document on our Investor Relations website, which includes our outlook for additional items as well as further analysis and GAAP to non-GAAP reconciliations.

Speaker 4: As usual, we've published a CFO commentary document on our investor relations website, which includes our outlook for additional items, as well as further analysis and gap to non-gap reconciliation.

Anirudh Devgan: I didn't want to take a moment to comment on the unfolding conflict in the Middle East. The ongoing violence and loss of innocent life is truly heartbreaking and a matter of global concern. The well-being of our employees and their families in the region is of utmost importance to us and we continue doing everything we can to support them. Our thoughts are with everyone who has family, friends and loved ones there and we are helping out by providing humanitarian aid through the Kaden's Giving Foundation.

In summary, we are on track to deliver a strong 2023.

Speaker 4: In summary, we are on track to deliver a strong 2023.

Speaker 4: I am pleased with our team's continued execution of our intelligence system design strategy.

I am pleased with our team's continued execution of our intelligence system design strategy.

With our updated outlook for 2023 at the midpoint, we now expect revenue growth of approximately 15%.

Speaker 4: With our updated outlook for 2023, at the midpoint, we now expect revenue growth of approximately 15%.

non-GAAP operating margin of approximately 41, 75%, our seventh consecutive year of greater than 50% incremental operating margin.

Speaker 4: non-gap operating margin of approximately 41.75% a seventh consecutive year of greater than 50% incremental operating margin.

And non-GAAP EPS of $5 10.

Speaker 4: and non-GAPIPS of $5.10, a sixth consecutive year of high teen or better non-GAPIPS growth.

Sixth consecutive year of high teen or better non-GAAP EPS growth.

Speaker 4: As always, I'd like to close by thanking our customers, partners, and our employees for their continued support. And with that operator.

As always I'd like to close by thanking our customers partners and our employees for their continued support.

John Wall: John will now go through the Q3 results and present our Q4 and updated 2023 outlook. Thanks Anaroud, and good afternoon everyone. I'm pleased to report that Kaden's delivered another strong quarter of top and bottom line results in Q3. All businesses contributed to revenue growth and we completed more hardware installations in Q3 than we originally assumed. Here are some of the financial highlights from the third quarter, starting with the P&L. Total revenue was 1 billion and 23 million dollars.

And with that operator, we will now take questions.

Thank you at this time I would like to remind everyone who wants to ask a question to please press Star then the number one on your telephone keypad now we ask that you. Please limit yourself to one question and one follow up question, we will pause for just a moment to compile EQ and a roster.

Speaker 1: Thank you. At this time, I was like to remind everyone who wants to ask a question to please press star. Then the number one on your telephone keypad now. We have to easily limit yourself to one question and one follow up question. We will pause for just a moment to compile EQ in a roster.

And your first question comes from Charles <unk> at Needham.

Speaker 1: And the first question comes from Charles Cheat at Needle.

Hi, Good afternoon. Thanks for taking my question I wanted to ask you a little bit about the backlog looks like the backlog compared with last quarter.

Speaker 5: Hey, good afternoon. Thanks for taking my question. I want to ask you a little bit about the backlog. It looks like a backlog compared with last quarter was up. I mean, the September quarter kind of implies really good bookings for September quarter. So I want to ask you see the backlog will continue to grow into the year end, because you talked about the second half bookings strength. I want to see where it goes from here. Thanks.

John Wall: Gap operating margin was 28.6 percent and non-gap operating margin was 41.1 percent. Gap EPS was 93 cents and non-gap EPS was $1.26. Next, turning to the balance sheet in cash row, cash balance at quarter ends was $962 million while the principal value of debt outstanding was $650 million. Operating cash row was $396 million and we used $125 million to repurchase Kaden shares in Q3.

<unk> was up I mean, the September quarter.

Hello implies.

Calls for.

For September quarter.

Just wanted to ask do you see the backlog will continue to grow into the <unk>.

You talked about the second half okay. So I want I want us to close off here. Thank you.

Speaker 4: Yeah, Charles, thanks for the question. And thanks for remembering what we say is last quarter. Yeah, we expect a very strong second half for bookings and Q4 is exceptionally strong. But so our expectations for bookings is very, very strong Q4.

Yeah, Charles Thanks for the question.

Thanks for remembering what we said last quarter, yes, we expect a very strong second half for bookings in Q4 is exceptionally strong.

So our expectations for bookings is very very strong Q4.

John Wall: Before I provide our updated outlook, I'd like to highlight that our outlook contains the usual assumption that export control regulations that exist today remain substantially similar for the remainder of the year. Our updated outlook for fiscal 2023 is revenue in the range of 4.06 to 4.1 billion dollars. Gap operating margin in the range of 30.5 to 31 percent. Non-Gap Operating Margin, in the range of 41.5 to 42 percent. Gap EPS in the range of $3.48 to $3.54.

Thanks, maybe I wanted to ask one quick follow up.

Speaker 5: Thanks. Maybe I want to ask a one quick follow up. You kind of raised your four year revenue outlook. A little bit less than you used the Q3 in terms of revenue. And kind of implies that your four year outlook you provided one quarter goal was largely accurate, but that seems to be some timing shift for the revenue. I mean, pulling in from Q4 to Q3 was that related to your comment about how installation and the timing of that. Thank you.

Kind of raised your full year revenue outlook, a little bit less that you eat.

Three in terms of grabbing kind of imply stopped that.

Yeah outlook, you provided one quarter call was largely accurate, but that seems to be some timing shift.

For the revenue I mean pulling in from Q4 to Q3 was that.

Related to your comment about hardware installation and the timing of that.

Thank you.

That's right Charles.

Speaker 4: That's right, Charles. You know, in hindsight now, I was a little too prudent in the Q3 guide with respect to hardware installations that were scheduled in China around the end of September . If you recall in our guide,

In hindsight now I was looking to prudent in the Q3 guide with respect to hardware installations that were scheduled in China around the end of September if you recall in our guidance we assumed that those.

John Wall: Non-Gap EPS in the range of $5.07 to $5.13, operating cash flow in the range of $1.3 to $1.4 billion and we expect to use at least 50 percent of our annual free cash flow, three purchase paid in shares. As a result for Q4, we expect revenue in the range of $1 billion and $39 million to $1 billion and $79 million. Gap Operating Margin of approximately 31 percent, non-Gap Operating Margin of approximately 42 percent. Gap EPS in the range of 85 to 91 cents, non-Gap EPS in the range of $1.30 to $1.36. And we expect to use approximately $125 million of cash, three purchase paid in shares.

Speaker 4: that those installations would fall into Q4. In actual fact, we completed those hardware installations.

Installations would fall into Q4 in actual fact, we completed those hardware installations.

Speaker 4: The second half looks stronger than we thought this time last quarter, that even with all of those hardware, we can beat our...

The second half looks stronger than we thought this time last quarter.

Even with all of those hardware, we can beat our.

Speaker 4: expectations in Q3 and Q4 is higher than we thought.

Expectations in Q3, and Q4 is higher than we thought.

Thank you.

Okay.

Thank you and the next now Gian Marco coffee at Deutsche Bank.

Speaker 1: Thank you for the next, now, Tion Marco Conty at Deutsche Bank.

Yes, hi, Thank you for taking my questions I.

Speaker 6: Yeah, hi, thank you for taking my questions. I guess my question would be when you expect to be giving a more AIKPI is, whether on concert, by the up-place or penetration rates, or just as much as any color you can provide as somehow can be quantified the AI tailwind in your numbers, and whether we're going to see this coming through in bookings in front of you. Thank you.

I guess my system.

When do you expect to be giving a lot more kpis, whether unconscious bias play store penetration rates.

Any color you can provide us some how can we quantify the tailwind in our numbers.

We see this coming through in bookings and some time. Thank you.

Yeah, let me take that so.

John Wall: As usual, we've published the CFO commentary document on our investor relations website, which includes our outlook for additional items, as well as further analysis and gap to non-Gap reconciliations. In summary, we are on track to deliver a strong 2023. I am pleased with our team's continued execution of our intelligence system design strategy. With our updated outlook for 2023, at the midpoint, we now expect revenue growth of approximately 15 percent. Non-Gap Operating Margin of approximately 41.75 percent, a seventh consecutive year of greater than 50 percent incremental operating margin. And non-Gap EPS of $5.10, a sixth consecutive year of high teen or better non-Gap EPS growth.

Speaker 3: Like we mentioned in the prepared remarks, we are seeing a lot of activity in AI.

Like we mentioned in the prepared remarks, we are seeing lot of Activia DNA.

Speaker 3: And that's a, you know, multiple customer and multiple verticals. So whether it's the system company designing their own chips, or of course, the semiconductor company is designing it. Or we mentioned this time, for example, Broadcom, which helps, you know, other companies design it. So we are participating in the AI kind of design process in all three ways. And last time we talked about, you know, Nvidia and Tesla.

And thats it.

Multiple customer and multiple verticals so whether it's.

The system company designing.

Their own chips.

Or of course, the semiconductor companies designing it.

We mentioned this time for example, Broadcom, which helps you know other companies design. It. So we are participating in the AI kind of design process in all three ways than last time, we talked about you know Nvidia and Tesla.

Speaker 3: And then on top of that, it's also applying AI to our own products. And then we have these extra generative AI products on top of our base products that also drives revenue. So the first part, which is build out of the AI infrastructure, whether it's with...

And then on top of that it's also applying AI to our own products and then we have these extra generative AI products on top of our base products that also drives revenue.

The first part which is build out of the AI infrastructure, whether it's wood.

John Wall: As always, I'd like to close by thanking our customers, partners, and our employees for their continued support.

Speaker 3: Of course, large semi-companies like Nvidia or large system companies like Tesla or companies like Broadcom. I mean, that's a big part of our business.

Of course large semi companies like Nvidia or like supply system companies like Tesla.

Operator: And with that operator, we will now take questions. Thank you. At this time, I would like to remind everyone who wants to ask a question to please press star. This is the number one on your telephone keypad now. We have to easily limit yourself to one question and one follow-up question. We will pause for just a moment to compile EQ in a roster.

Companies like Broadcom I mean, that's a big part of our business.

Speaker 3: We don't break that out specifically because sometimes it's difficult to figure out exactly what part of customers' business is AI or not and we don't want to be in that kind of to try to guess what part of our

We don't break that out specifically, because it's sometimes difficult to figure out exactly what part of customers' businesses AI or not and we don't want to be in that.

Kind of to try to guess what part of our.

What the customers are using it for but AI is a significant portion of design activity and the build out that's going to happen for years now.

Speaker 3: what the customers are using it for, but AI is a significant portion of design activity and the build out that's going to happen for years.

Charles Chi: And your first question comes from Charles Chi at Meetham. Hey, good afternoon. Thanks for taking my question.

Speaker 3: Now, there is a second part of our business in which we are selling AI products ourselves, you know, like Siri Bros and very CM and our Jedi platform, which has five main products. So in that segment, if our own software products and IP products are AI enabled, so in that we did comment that even though it's early in the process, our revenue from our own AI products has almost tripled from a year ago. So we are very pleased with that progress.

There was a second part of our business in which we are selling AI products ourselves.

Anirudh Devgan: I want to ask you a little bit about the backlog. It looks like a backlog compared with last quarter was up. I mean, the September quarter, honey implies really good bookings for September quarter. So I want to ask you see the backlog will continue to grow into the year end. Because you talked about the second half bookings. I want to see where it goes. Thank you. Yeah, Charles. Thanks for the question.

Sorry, Bruce and where you see them in our Jedi platform, which has five main products so in that segment.

Our own software products and IP products for AI enabled so in that we did comment that even though it's early in the process.

Our revenue from our own AI products has almost tripled from a year ago. So we're very pleased with that progress.

Speaker 3: So I just want to highlight that and also say there's another part of AI which is the build out of infrastructure which is more difficult.

So I just wanted to highlight that and also say there is another part of AI, which is the build out of infrastructure, which is more difficult to predict.

Anirudh Devgan: And thanks for remembering what we say is last quarter. Yeah, we expect a very strong second half for bookings and Q4 is exceptionally strong. But so our expectations for bookings is very, very strong. Thank you. Thanks.

Speaker 4: And Gianni, I would just add to that, that when Anor would cause out that the revenue from those products is almost tripled in the space of 12 months, we're not reclassifying any revenue. This is direct revenue attributable to those five products that we have in our GDI path.

John I would just add to that.

When Android caused out that's so the revenue from those products is almost triples in the space of 12 months, we're not reclassifying any revenue. This is direct revenue attributable to those five products that we have in our Jedi platform.

Charles Chi: Maybe I want to ask a quick follow-up. You kind of raised your four-year revenue outlook. A little bit less than you beat the Q3 in terms of revenue.

Speaker 6: Right, that's really good. Thank you. I just have a follow-up, perhaps talking a little bit on China. If you could comment on whether there is any impact on the entity list and the new rules comment title, remember, if you want to comment on the same thing, you can talk about. So compassion. My importance.

Right. That's that's really good thank you.

Anirudh Devgan: Kind of implies that your four-year outlook you provided one quarter goal was largely accurate, but that seems to be some timing shift for the revenue. I mean, pulling in from Q4 to Q3 was that related to your comment about how installation the timing of feedback. Thank you. That's right, Charles. You know, in hindsight now, I was a little too prudent in the Q3 guide with respect to hardware installations that were scheduled in China around the end of September.

A follow up perhaps talking a little bit on China. If you could comment on whether there is any impact from the entity list in the new are new rules come into place and also if you have any visibility into Chinese customers and into trying to understand whether you actually know.

Speaker 6: And also, if you have any visibility into Chinese customers, and into trying to understand whether you actually know whether they're designing more mature versus advanced nodes, I feel like there's been a lot of conversation.

Whether they're designing more mature versus advanced nodes I feel like there's been lots of conversation.

Speaker 6: around whether there is a way to track you know whether EDM tools are being used in China for the tool versus advanced modes.

Around whether there is a way to track.

Anirudh Devgan: If you recall in our guide, we assumed that those installations would fall into Q4. In actual fact, we completed those hardware installations. And the second half looks stronger than we thought this time last quarter. But even with all of those hardware, we kind of beat our expectations in Q3 and Q4 is higher than we thought. Thank you.

Whether EPA tools are being used in China for mature versus advance nodes.

Speaker 6: any color that on this it would be great.

Any color on this.

Great. Thank you.

Yeah. That's a good question because there was a lot of.

Speaker 3: Yeah, that's a good question because there were a lot of recent reports on some of the changes in regulation. So for us, you know, there's not that much difference. You know, most of the regulations were targeted.

Recent reports on.

Some of the changes in regulation.

So for us.

There's not that much different you know most of the regulations that are targeted at.

Right.

Speaker 3: some chip companies or manufacturing companies as you know we are in the design process so those regulations the latest round

So chip companies manufacturing companies has been as you know we are in the design process. So those regulations the latest round.

Gianmarco Conti: The next now, Gian Marco Conti at Deutsche Bank. Yeah, hi. Thank you for taking my questions.

Anirudh Devgan: I guess my system would be when do you expect to be giving out more AI KPI is, whether on concert, radio, place, or penetration rates, or exercise, any color you can provide us somehow can be quantified the AI tailwind in your numbers, and whether we're going to see this coming through in bookings and from five. Thank you. Yeah, I never take that. So, you know, like we mentioned in the prepared remarks, we are seeing a lot of activity in AI.

Speaker 3: doesn't have a, you know, big effect on cadence business. Now, there are some companies added to the entity list, you know, so we monitor that carefully. But since we are so diversified geographically and, you know, in terms of customers, you know, that's not a significant impact either. And all the, our guidance that we, we just gave includes the impact of all these regulations. That was another.

Doesn't have a big.

Big effect on cadence business now there are some companies added to the entity list.

So we monitor that carefully.

Since we are so diversified geographically and in terms of customers.

That's not as significant impact either and all of our guidance that we just gave includes the impact of all these regulations.

Anirudh Devgan: And that's a, you know, multiple customer and multiple verticals. So whether the system company designing their own chips or, of course, the semiconductor company is designing it. Or we mentioned this time, for example, Broadcom, which helps, you know, other companies design it. So we are participating in the AI kind of design process in all three ways. And last time we talked about, you know, Nvidia and Tesla. And then on top of that, it's also applying AI to our own products.

He was announced recently.

And of course, we carefully follow all U S regulations, but the latest changes not.

Speaker 3: And of course, we carefully follow all US regulations, but the latest changes, not that material to our business.

Not that material to our business.

Thank you.

Speaker 1: Thank you. We'll go next now to Harlan Sir at Jake E. Morty.

Thank you the next now to Harlan sur at Jpmorgan.

Good afternoon, Thanks for taking my question.

Speaker 5: Good afternoon, thanks for taking my question. You know, macro conditions in the semiconductor industry are still fairly muted. I were close to a cyclical bottom, but...

Conditions in the semiconductor industry are still fairly muted right, where we're close to a cyclical bottom but because.

Speaker 5: recovery seems more gradual than expected across many different end markets. Right, accelerated computing in AI are strong. Auto, industrial enterprise service provider market still relatively soft. So across the metrics that you track with NULs hardware buys, IP take rates is the team seeing any size of hesitation or pushouts across your different customers or different businesses?

It seems a more gradual than expected across many different end markets. So it accelerated computing AI or stall auto industrial.

Anirudh Devgan: And then we have these extra generative AI products on top of our base products that also drives revenue. So the first part, which is, you know, build out of the AI infrastructure, whether it's with, you know, of course, large semi companies like Nvidia or like large system companies like Tesla or companies like Broadcom. I mean, that's a big part of our business. We don't break that out specifically because it's sometimes difficult to figure out exactly, you know, what part of customer's business is AI or not.

Phil Enterprise service provider market is still relatively soft.

Anirudh Devgan: And we don't want to be in that kind of to try to guess, you know, what part of our what the customers are using it for. But AI is a significant portion of, you know, design activity and the build out that's going to happen for years. Now, there's a second part of our business in which we are selling AI products ourselves, you know, like, you know, like Siri, Bruce and very same and our Jedi platform, which has five main products.

A couple of metrics that you track with Knowles hardware by.

Takeaways is the case.

Any signs of hesitation or push outs across different customers or different businesses.

Yes, that's a good question.

Speaker 3: Like we mentioned last time, we still see a lot of strong design activity. And I would say compared to three months ago, I would say the activity is similar. Like you mentioned, some segments are going through tough times. And then some segments like Accelerate, Compute and AI have a lot of growth.

Like we mentioned last time, we still see a lot of strong design activity and I would say compared to like three months ago.

I'd say the activity is similar.

Like you mentioned some segments or are going through tough times, and then some segments like accelerated computing AI I have lot of growth.

Anirudh Devgan: So in that segment, if our own software products and IP products are AI enabled. So in that, we did comment that even though it's early in the process, our revenue from our own AI products has almost tripled from a year ago. So we are very pleased with that progress.

But overall as you know these products that our customers are designing take several years to develop.

Speaker 3: But overall, as you know, these products, you know, that our customers are designing, you know, take several years to develop.

Speaker 3: And we are part of the R&D cycle. So what we see is the customer still investing in R&D for building our products for the future. And we are glad to partner with you.

And we are part of the R&D cycle. So what we see the customers still investing in R&D for building our products for the future and.

And we are glad to partner with them. So.

Speaker 3: So I think I would say the largely the environment is similar than it was like three months ago.

So I think I would say that largely the environment is similar that it was like two months ago on the hardware side, where we're producing hardware as fast as we were all year and you can see in our 10-Q that we filed today.

Speaker 4: Yeah, I'm so on the hardware side where we're producing hardware as fast as we were all year and you can see in our 10 queue that we filed today that

John Wall: So I just wanted to highlight that and also say there's another part of AI which is the build out of infrastructure which is more difficult to predict. And Gianni, I've just add to that that when Andrew calls out that the revenue from those products is almost triples in the space of 12 months, but we're not reclassifying any revenue. This is direct revenue attributable to those five products that we have in our Jedi platform. Right, that's really good. Thank you.

Speaker 4: You know, the value of finished goods in our inventory was less than 10 million at the end of the quarter in Q3. So demand is really strong still.

The value of finished goods and our inventory was less than $10 million at the end of the quarter in Q3. So the demand is really strong sale.

Speaker 4: and we're just producing the hardware as quickly as we can. But we're expecting a very strong Q4 as well for our IP group. I mean, they're delivering a number of silicon solutions to our customers in Q4.

And we're just producing the hardware as quickly as we can but we're.

We're expecting very strong Q4, as well as for our IP group I mean, they are delivering a number of silicon solutions to our customers in Q4.

Speaker 4: And I think that sets up a really strong quarter for that group, but we were expecting that all year.

And I think that sets up a really strong quarter for that group, but we were expecting that all year.

Anirudh Devgan: I just have a follow-up perhaps talking a little bit on China, if you could comment on whether there is any impact on the entity list and the new rules come into place. And also if you have any visibility into Chinese customers into trying to understand whether you actually know whether they're designing more mature versus advanced nodes. I feel like there's been a lot of conversation around whether there is a way to track whether e-mail tools are being used in China for mature versus advanced nodes.

Yep well appreciate the comments there.

Speaker 5: appreciate the comments there. You know, one of your large AIS will see customers recently laid out their future roadmap, right? And...

Of your large customers recently laid out their future roadmaps.

Speaker 5: Given the complexity of all these next generation AI computer work, flip work loads right there actually accelerating their trick-rolled maps to new GKU chip.

Given the complexity of all of these next generation AI compute workloads right, they're actually accelerating their chip roadmap, so new GPU chip.

Speaker 5: every year versus every two years, which was their prior cadence. And then on top of that,

<unk> year versus every two years, which was their prior cadence and then on top of that.

Speaker 5: They're starting to segment their product lines, right? So not only accelerating roadmaps with more ships for product family, I've got to believe that other competitors in the space are doing exactly the same thing. Are you guys seeing this step up in design activity? Obviously, much higher productivity is required. So how is this all being sort of reflected in the business momentum and your visibility?

They're starting to segment their product lines, so not only accelerating roadmaps more chips per product family.

I believe the other competitors in this space are doing exactly the same call.

Anirudh Devgan: Any color that on this, it would be great. Thank you. Yeah, that's a good question because there were a lot of recent reports on some of the changes in regulation. So for us, you know, there's not that much different, you know, most of the regulations were targeted at some chip companies or manufacturing companies as you know, we are in the design process. So those regulations, the latest round. It doesn't have a, you know, big effect on cadence business.

The Spartan design activity, obviously, much higher productivity as required. So how is this all being a sort of reflected in the business momentum and your visibility.

Yeah good point.

I mean like you said earlier, the macro environment is challenging, especially some of the segments are weaker somewhat stronger but.

Speaker 3: I mean, like you said earlier, the macro environment is challenging, especially some of the segments are weaker, some are stronger, but design activity is very strong. And especially, I would say, in two verticals for the future, for the future of the semi and the system business. And at least the two very, very strong verticals in terms of design activity.

Design activity is very strong.

And especially I would say in.

And two verticals for the future for the future of the semi in the system business.

Anirudh Devgan: Now, there are some companies added to the entity list, you know, so we monitor that carefully. But since we are so diversified geographically and you know, in terms of customers, you know, that's not a significant impact either. And all the, our guidance that we, we just gave includes the impact of all these regulations that were announced recently. And of course, we, we carefully follow all US regulation, but the latest changes not, the not that material to our business. Thank you.

The at least the two very very strong verticals in terms of design activity.

Speaker 3: is data center and AI and then automotive, given the electrification and the massive transformation that's happening. So if you look at even, you know, there's anyway, you know, Harlem, if you look at for the next, you know, three, four years.

As data center, and AI, and then automotive given the electrification and the massive transformation that's happening.

So if you looked at even.

Theres anyway.

If you look at for the next three or four years.

Speaker 3: you know, these two segments will grow significantly, you know, the whole AI driven data centers and automotive. And because they are growing, so first of all, the cadence of those, you know, end customer products is increasing. And also, you know, they need to be more and more efficient given the design activity and complexity is going up. So there's more design activity and also use of AI to accelerate and be more productive. And even if you are using AI internally to be more productive ourselves.

These two segments will grow significantly the whole AI driven data centers and automotive.

And because they're growing so first of all that the cadence of those and customer products is increasing and also they.

Need to be more and more efficient given the design activity and complexity is going up. So there is more design activity and also use of AI to accelerate and be more productive and even EMEA or using AI internally to be more productive ourselves.

Harlan Sur: Thank you for the next now to Harlan sir at J. E. Morgan.

Anirudh Devgan: Good afternoon. Thanks for taking my question. You know, macro conditions and the semiconductor industry are still fairly muted. We're, we're close to a cyclical bottom, but. Recovery seems more gradual than expected across many different markets, right? Accelerated compute in the air strong auto industrial enterprise service provider markets, still relatively soft. So across the metrics that you track with rules, hardware buys, IP takeaways is the team seeing any size of hesitation or pushouts across your different customers or different businesses.

Speaker 3: So definitely for these two big, big verticals and this is a multi-year trend, you know, this is not a, and you mentioned some of our large customers. We are very fortunate to work with, you know, we always say we want to win with the winners, and we always focus on the leading companies in the data center and AI space and also now in the automotive space. So that activity is strong, and I expect that, you know, to continue.

So definitely for these two big Big verticals and this is a multiyear trend this is not a.

And you mentioned some of our large customers. We are very fortunate to work with we always say we want to win with the winners that we always focus on the leading companies in the data center and AI space and also now in the in the automotive space. So that activity is strong and I expect that to.

To continue.

Okay, well thank you.

Anirudh Devgan: Yeah, Harlan, that's a good question. You know, like we mentioned last time, you know, we still see a lot of strong design activity. And I would say compared to like three months ago, I would say the activity is similar, you know, like you mentioned some segments are are going through tough times and then some segments like absolute compute and AI have a lot of growth. But overall, as you know, these products, you know, that are customers that are designing, you know, take several years to develop and we are part of the R&D cycle.

Speaker 1: Thank you. We go next now to Gary Mowgli at Wells Fargo.

Thank you your next now to Gary Mobley at Wells Fargo.

Hey, guys. Thanks for taking my question.

Speaker 1: John , your upfront license revenue year-to-date has averaged around 17%. I think typically it's 15%.

John Your upfront license revenue year to date has averaged a wrap around 17% I think typically it's 15%.

Speaker 6: Given where you're at in the verification or hardware product cycles, Z2 and X2 and the conversion of the backlog there, how do you see that up front, revenue trending, looking into next year and related to that, how would you see the influence and overall growth?

Given where you're at in the.

Verification hardware product cycles <unk> next to.

And the conversion of the backlog there.

How do you see.

That upfront.

Revenue trending you know looking at next year and related to that how would you see the influence on the overall growth next year.

Anirudh Devgan: So what we see is the customer still investing in R&D for building our products for the future and we are glad to, you know, partner with them. As fast as we were all year and you can see in our 10 queue that we filed today, that's, you know, the value of finished goods in our inventory was less than 10 million at the end of the quarter in Q3. So demand is really strong still.

Yes, great question Gary.

Speaker 4: Yeah, great question, Gary. I mean, we're always watching that carefully. As you know, last year, the upfront piece ticked up to 15%.

We're always watching that carefully as you know last year, the upfront piece ticked up to 15%.

Speaker 4: This year, I think in the 10Q, if you look over on a rolling four quarter basis to the end of Q3, it's at 16% now. What I take your point is probably closer to 17 for the first three quarters.

This year I think in the 10-Q, if you look over on a rolling four quarter basis to the end of Q3, it's at 16% now, but I think your point is probably closer to 17 for the first three quarters.

Speaker 4: that I think that's a reflection of the strength of hardware on the readable and recurring part of the business.

But I think that's a reflection of the strength of hardware on the ratable and recurring part of the business.

Anirudh Devgan: And we're just producing the hardware as quickly as we can, but we're expecting a very strong Q4 as well for our IP group. I mean, they're delivering a number of silicon solutions to our customers in Q4. And I think that sets up a really strong quarter for that group, but we were expecting that all year. Yep. No, appreciate the comments there.

Speaker 4: Although that's 84% of the training 12 months revenue if you look at

Although that's 84% of the trailing 12 months revenue. If you. If you look at our guide at 40 80, I mean, we're assuming essentially about a 13% growth rate on a recurring recurring revenue line for the year, but that's consistent with like over a three year CAGR basis is about 13% as well.

Speaker 4: Our guide at 4080, I mean we're assuming essentially about a 13%

Speaker 4: Go through it on a recurring, recurring revenue line for the year, but that's consistent with like over a three year tagger basis is about 13% as well.

Anirudh Devgan: You know, one of your large AIS will see customers recently laid out their future road maps, right? And given the complexity of all these next generation, AI compute workloads, right? They're actually accelerating their chip road maps, so new GPU chip every year versus every two years, which was their prior cadence. And then on top of that, they're starting to segment their product lines, right? So not only accelerating road maps with more chips per product family, I've got to believe that other competitors in the space are doing exactly the same thing.

Okay of course, we're not guiding next year.

Speaker 7: I'm just good. I'm just good. All right, I suspect that we're not going to get any more AI metrics out of you, interrude, but maybe if you can just get us a sense of where we're at, and the commercialization of the five different AI tools, have those started working their way in the baseline license renewals or are they still on a per design basis and maybe it gives a sense of where you expect them to cut into baseline license.

Understood understood Alright, I suspect that we're not going to get any more AI metrics added new inner road, but maybe if you can just give us a sense of where we're at in the commercialization of the five different AI tools.

Those started working their way in baseline license renewals or are they still on a per design basis, and maybe give us a sense of where you are.

Anirudh Devgan: Are you guys seeing this step up in design activity? Obviously much higher productivity is required. So how is this all being sort of reflected in the business momentum and your visibility? Yeah, good point. I mean, like you said earlier, you know, the macro environment is challenging, you know, especially some of the segments are weaker, some are stronger, but you know, design activity is very strong. And especially I would say in in two verticals for the future, you know, for the future of the semi and the system business.

Expect them to cut into baseline licensing activity.

Yes, Gary that's a good point. So we are we're watching that carefully of course and as you know these jedi in these five major.

Speaker 3: Yeah, Gary, that's a good point. So we are watching that carefully, of course. And as you know, like these Jedi and these five major...

Anirudh Devgan: And you know, at least the two very, very strong verticals in terms of design activity is data center and AI and then automotive given the electrification and the massive transformation that's happening. So if you look at even, you know, you know, there's anyway, you know, Harlem, if you look at for the next, you know, three, four years. You know, these two segments will grow significantly, you know, the whole AI driven their centers and automotive.

Speaker 3: platforms are new products that our customers should engage with us on and they run on top of our existing kind of leading platforms.

Platforms are our new products that our customers.

Should engage with us on and they run on top of our existing kind of leading platforms.

Speaker 3: So, you know, it depends on the customers. I would still say we are still in the early stages of the adoption of these AI products, because as you know, any of these new software tools takes years to fully deploy, right? I mean, this sort of happened in digital or in any major kind of platform releases we do.

So you know.

It depends on the customers I would still say we are still in the early stages of their adoption of these AI products because as you know any of these new.

New software tools take years to fully deploy right. I mean, this is what happened in in digital or in any major kind of.

Platform releases, we do.

So even though we are like two years into it I think it will still take some time to fully deploy these products and what we have said in the past is as typically at least in my experience with digital.

Speaker 3: So even though we are like two years into it, I think it'll still take some time to fully deploy these products and what we have said in the past is as typically, you know, at least in my experience with digital.

Speaker 3: you know, like about seven, eight years ago, it took like two contracts cycles for them to fully deploy. Okay, so that's...

Like about seven eight years ago. It took like two contract cycles for them to fully deploy okay. So that's so that's still three or four years to go you'll probably like two three years. They do it and still three four years to go which is a good thing in my mind, because you know.

Anirudh Devgan: And because they are growing, so first of all, the cadence of those, you know, end customer products is increasing. And also, you know, they need to be more and more efficient given the design activity and complexity is going up. So there's more design activity and also use the AI to accelerate and be more productive and even we are using AI internally to be more productive ourselves. So definitely for for these two big, big verticals and this is a multi year trend, you know, this is not a.

Speaker 3: So that's still three, four years to go. You're probably like two, three years into it and still three, four years to go, which is a good thing in my mind, because you know, this is natural progress of deployment.

Natural progress of deployment.

Speaker 3: Now, depends on the customer. You know, some customers are adopting them in a much bigger way, you know, especially like in the previous discussion, you know, the new kind of AI designs or hyperscalers, you know, there is like a improved cadence of design activity. So they are adopting them maybe a little faster than some of the other verticals.

The.

It depends on the customer in some customers are adopting them in a much bigger way, especially.

Like in the previous discussion.

A new kind of AI designs at a hyper scaler.

Anirudh Devgan: And you mentioned some of our large customers, we are very fortunate to work with you know, we always say we want to win with the winners, we always focus on the leading companies in the data center and AI space and also now in the in the automotive space. So that activity is strong and I expect that, you know, to continue.

There is like a improved cadence of design activity, so theyre adopting them, maybe a little faster than some of the other verticals.

Speaker 3: So it just depends on some are still on like, you know, try it on few designs or few groups, but we have seen some pretty broad kind of deployment and that helps, that helps our overall engagement with that particular customer. So.

So it just depends on somehow still unlike.

Try it on few designs are few groups, but we have seen some pretty broad.

Anirudh Devgan: Yeah, well, thank you.

Kind of deployment and the help that helps our overall engagement with that particular customer so.

Gary Mobley: Thank you. We'll go next now to Gary Mobley at Wells Fargo.

Speaker 3: So that's what I would like to say Gary, that I think it's still early, but what good thing I think we mentioned in the prepared remarks that all top customers are now fully engaged and some of the results are truly remarkable. Actually, I was talking to one major customer recently.

So that's what I would like to say Gary that I think it's still early but what good thing I think we mentioned in the prepared remarks that all top customers are now fully engaged and some of the results.

John Wall: Hey guys, thanks for taking my question. John, your upfront license revenue year-to-date has averaged around 17%, I think typically it's 15%. Given where you're at in the verification hardware product cycles, Z2 and X2 in the conversion of the backlog there, how do you see that upfront revenue trending, you know, looking into next year and related to that, you know, how would you see the influence and overall growth next year?

Truly remarkable actually I was talking to one major customer recently.

Speaker 3: and they are getting, you know, like 8 to 10% power improvement from cerebrus, okay? And we have mentioned several of these in the past also. I mean, that's a huge improvement. You know, sometimes that's equivalent or roughly equivalent to a node migration.

And they are getting.

8% to 10% power improvement from Citi, Bruce Okay, and we have mentioned several of these in the past also I mean, thats a thats a huge improvement sometimes thats a coolant are roughly equal to a node migration.

Speaker 3: you know, typically go from one node to another, you may get like 10 to 15% PPM improvement, and you're getting close to that or, you know, roughly, you know, two-third of that.

Typically you go from one node to another you may get like 10% to 15% BPA improvement and Youre getting close to that are you know rough.

John Wall: Yeah, great question, Gary. I mean, we're always watching that carefully. As you know, last year, the upfront piece ticked up to 15%. This year, I think in the 10 queue, if you look over on a rolling four-quarter basis to the end of Q3, it's at 16% now, but I take your point, it's probably closer to 17 for the first three-quarters. But I think that's the reflection of the strength of hardware on the readable and recurring part of the business.

Roughly two third of that from better AI tools. So the value is there.

Speaker 3: from better AI tools. So the value is there. And that's what we are focused on. Make sure the products really provide value and then work with the customers in the pace of deployment that they want to see because it's a natural process to try some and then deploy. But some of them are doing it much faster, like I mentioned.

And that's what we're focused on make sure that the products really provide value and then work with the customers and the pace of deployment that they wanted to see because it's a natural process to try some and then deploy.

But some of them are doing it much faster like image.

Thank you both.

Yes.

John Wall: Although that's 84% of the trending 12-month revenue, if you look at our guide at 4080, I mean, we're assuming essentially about a 13% growth rate on a recurring revenue line for the year, but that's consistent with like over a three-year tagger basis is about 13% as well.

Thank you we'll go next now to Jay <unk> Griffin Securities.

Speaker 1: Thank you. We'll go next now to Jay Fleece Hauer at Griffin Security.

Speaker 8: Thank you, good evening. For my first question, I'd like to ask a variant of the EDM market environment question.

Thank you good evening.

For my first question I'd like to ask a variant of the <unk>.

EMEA market environment question.

Speaker 8: So on the one hand, what do you see in terms of...

So on one hand, what are you seeing in terms of.

John Wall: Okay, of course, we're not guiding next year. I'm just good. All right, but I suspect that we're not going to get anymore AI metrics out of you in a rude, but maybe if you can just get a sense of where we're at and the commercialization of the five different AI tools, have those started working their way in the baseline license renewals, or are they still on a per-design basis and maybe it gives a sense of where you expect them to cut into, you know, baseline license connectivity.

Speaker 8: unscheduled new business that is to say intracontract, new or expansion business that could be construed positively.

Unscheduled new business that is to say intra contract new or expansion business that could be construed positively.

Speaker 8: On the other hand, how concerned are you about the evident deceleration of semi-R&D growth? It's still reasonably good, better than four or five years ago, but somewhat slower than it's been. A lot of that can be attributable to Intel, but still how are you thinking about those two different dynamics, and I'll ask the follow-up.

On the other hand, how concerned are you.

About the evident deceleration of semi R&D growth its still reasonably good better than four or five years ago, but somewhat slower than it's been.

Lot of that can be attributable to Intel, but so how are you thinking about those two different dynamics and then I'll ask a follow up.

Speaker 3: Yeah, hi Jay. Good question. I will be just watching it carefully, like you said earlier, I mean design activity is still strong.

Yes, Hi, Jay.

Good question.

John Wall: Yeah, Gary, that's a good point. So we are watching that carefully, of course. And as you know, like these Jedi and these five major platforms are new products that are customers, you know, should engage with us on and they run on top of our existing kind of leading platforms. So you know, it depends on the customers. I would still say we are still in the early stages of the adoption of these AI products, because as you know, any of these new software tools take years to fully deploy, right?

I believe we're just watching it carefully like you said.

You said earlier I mean design activity is still strong.

Speaker 3: But of course, the macro environment is challenging. It's like natural, even though the customers realize that they need to invest in R&D for the future, if the revenue is impacted because of macro situations, that decision becomes a lot more prudent. But to this just natural business process.

But of course, the macro environment is challenging.

Natural even though the customers realize that they have.

Need to invest in R&D for the future.

The revenue is impacted because of macro situations.

That decision has become a lot more prudent.

But so this is just natural business process.

Speaker 4: But in general, you know, still the large customers and the big segment they're all investing in our indeed design activity is still strong. And then we just have to see, you know, we had a good Q3 in terms of booking, like we mentioned. So we'll see what happens in Q4 and that will also give us a better idea, you know, going forward. Yeah, you know, a lot of our customers come back and purchase add-ons during the course of their baseline contracts and with the teams releasing significantly specific.

But in general there is still that the large customers and the big segment. They are all investing in R&D design activity is still strong and then we just have to see we had a good Q3 in terms of bookings like we mentioned so we will see what happens in Q4 and that will also give us a better idea going forward, yes jazz.

John Wall: I mean, that's what happened in digital or, you know, in any major kind of platform releases we do. So even though we are like two years into it, I think it'll still take some time to fully deploy these products. And what we have said in the past is as typically, you know, at least in my experience with digital, you know, like about seven, eight years ago, it took like two contracts cycles for them to fully deploy.

John Wall: Okay, so that's, so that's still three, four years to go. You're probably like two, three years into it and still three, four years to go, which is a good thing in my mind because, you know, this is natural progress of deployment. Now, depends on the customer, you know, some customers are adopting them in a much bigger way, you know, especially like in the previous discussion, you know, the new kind of AI designs or hyperscalers, you know, there is like a improved cadence of design activity.

All of our.

Customers come back and purchase add ons during the course of their baseline contracts and with the team's releasing significantly.

<unk>.

Speaker 4: new business, new products from the different Ornley groups, the customers have an intent to come back and keep purchasing. So they don't wait, we launch AI tools, they don't wait for the baseline renewal to come up or to expire to purchase them, they'll purchase add-ons and they'll purchase a few licenses and then hopefully proliferate more on the on the contract renewal. And as you know, we have a lot of contracts that come up or renew link you.

New business, our new products from the different R&D groups, so that customers have an incentive to come back and keep purchasing so they don't wait we launched AI tools. They don't wait for the baseline renewal to come up or to expire to purchase them they'll purchase add ons and the purchase of few licenses and then hopefully proliferate more on the on the contract renewal and as you know.

We have a lot of contracts.

Come up for renewal in Q4.

Speaker 8: understood. For follow up, I'll ask about some interesting cadence management comments at last month's cadence live event up in Boston. So there was an interesting comment about the role of AI as quote, D risking schedules in addition to the design exploration use case.

Understood for follow up I'll ask about some interest in cadence management comments at last month's.

John Wall: So they are adopting them maybe a little faster than some of the other verticals. So it just depends on some are still on like you know, try it on few designs or few groups, but we have seen some pretty broad kind of deployment and health that helps our overall engagement with that particular customer. So so that's what I would like to say Gary that I think it's still early, but what good thing I think we mentioned in the prepared remarks that all top customers are now fully engaged and some of the results are truly remarkable actually I was talking to one major customer recently and they are getting you know like 8 to 10% power improvement from cerebrus okay and we have mentioned several of these in the past also I mean that's a huge improvement you know sometimes that's equivalent or roughly equivalent to a node migration, you know typically go from one node to another you may get like 10 to 15% ppm improvement and you're getting close to that or you know roughly you know 2-3rd of that from better AI tools so the value is there and you know that's what we're focused on make sure the products really provide value and then work with the customers in the pace of deployment that they want to see because it's a natural process to try some and then deploy, but some of them are doing it much faster like I mentioned.

Cadence live event up in Boston.

So there was an interesting comment about the role of AI as quote de risking schedules in addition to.

John Wall: Thank you both.

The design exploration.

Use case.

Speaker 8: And what's interesting there is historically, you know, schedule risk or completion risk has to do more towards the back end of the process. You know, for example, physical verification. So to the extent that more of that risk mitigation moves up earlier in the process.

And what's interesting there was historically.

Schedule risk or completion risk has to do more with towards the backend of the process for example, physical verification.

Operator: Thank you.

So to the extent that more of a risk mitigation moves up earlier in the process.

Speaker 8: Do you think that there will be a spending share shift within the totality of EVA spend, perhaps some from the back end more towards the front end where you play with a lot of your tools?

Do you think that there will be a spending share shift within the totality of EMEA spend perhaps some from the back end more towards the front end, where you play with a lot of your tools.

Hey, Jay I would say that.

Speaker 3: It should lead to more design activity if we are able to reduce risk in the design process. I mean, as you know, this is the history of EDA, history of automation, even for the last 20, 30 years.

It should lead to more design activity.

Able to reduce risk in their design process I mean as you know this is the history of EDA history of automation, even for the last 2030 years.

Speaker 3: You know, I remember in the old days in the 90s, we would take like five years, you know, and 500 engineers to design some big chip. And now that takes, you know, six to 12 months.

And I remember in the OLED in the nineties, we would take like five years.

500 engineers to design some big chip now that takes six to 12 months.

Speaker 3: and you know, maybe 50 engineers. So that's like 100 times more efficient than...

And you know maybe 50 engineers, so thats like 100 times more efficient than.

Speaker 3: than 25 years ago. And I think AI can, as you know, provide the next generation, next level of improvement in productivity and risk mitigation. I mean, part of it is also risk mitigation. So then I think it should lead to more design activities, especially by the system company. Now, the shift of front end to back end, I mean, I think back end is still a complicated process. And, you know, so I think even though some of the things can be pulled up front using AI or using, you know, hardware platform.

25 years ago, and I think AI can as you know provide the next generation next level of improvement in productivity and risk mitigation I mean part of it is also.

Jay Fleshauer: We'll go next now to Jay Fleshauer at Griffin Securities.

Risk mitigation. So so then I think it should lead to more design activity, especially by the system company now the shift a front end to back end I mean, I think back end is still a complicated process.

Jay Fleshauer: Thank you good evening for my first question I'd like to ask a variant of the EDA market environment question so on the one hand what do you see in terms of unscheduled new business that is to say intro contract new or expansion business that could be construed positively on the other hand how concerned are you about the evident deceleration of semi-R&D growth it's still reasonably good better than four or five years ago but so much slower than it's been a lot of that can be attributable to Intel but still how are you thinking about you know those two different dynamics and then I'll ask the follow up. Hi Jay good question I'll be just watching it carefully you know like you said like we said earlier I mean design activity is still strong but of course the macro environment is challenging you know it's like natural even though the customers realize that you know they need to invest in R&D for the future if you know the revenue is impacted because of macro situation you know that said decisions become a lot more prudent you know but to this just natural you know business process but in general you know still the large customers and the big segment they all investing in R&D design activity is still strong and then we just have to see you know we had a good Q3 in terms of booking like we mentioned so we'll see what happens in Q4 and that will also give us a better idea you know going forward.

So I think we'll even though some of the things can be pulled upfront using AI or using hardware platforms.

Speaker 3: Yeah, I still think the back-end design process requires a lot of work. So I would expect it affects all of them.

I still think the backend design process requires.

Florida work, so I would expect it affects all of them.

Speaker 3: And then the other thing we are trying to do on the front end, as you may have noticed, is really incorporate LLMs, like our partnership with Renisars, because all of the front end process has been less formal. You know, the back end process, you know, especially once we have RTL, then we go to gates, we go to GDS, it's a very formal process, very structured process.

And then the other thing we are trying to do on the front end as you may have noticed.

Is really incorporate llm's like our partnership with Renaissance.

Because all of the front end process has been less.

Formal.

The backend process, especially once we have <unk> then we go to gauge who go to GDS is a very formal process very structured process.

Speaker 3: but the front end of the process, especially verification and specification has been less formalized. And I think AI and LLM can help formalize that, which definitely, like you said, can minimize the risk. But I think activity should still be strong in...

But the front end of the process, especially verification and specification has been less formalized.

And I think <unk> can help formalize that which definitely like you said can minimize the risk, but I think activities should still be strong in both.

Speaker 3: both front and back end and our goal anyway is to make the design easier. So more customers and more people can do them.

Both front end and back end and our goal anyway is to make the design easier so more customers and more people can do them.

Okay.

Thank you Oliver.

Speaker 1: Thank you. We go next now to Jason Puglino at Event Capital, March.

Thank you we'll go next to Jason <unk> Keybanc capital markets.

Great. Thanks for taking my question maybe.

Speaker 9: Great, thanks for taking my question. Maybe first for John , you know, on the Cooper Guide about apologies for harassing this again, but folks might be wondering tomorrow, I guess why aren't we seeing more upside to the guide for fourth quarter? Where might be some conservatism or what way will you be overlooking in terms of the setup?

Maybe first for John on.

On the Q4 guide apologies for crafting that's again Bob.

Folks might might be wandering tomorrow, I guess why aren't we seeing more upside to the guide for fourth quarter.

Jay Fleshauer: Yes you know a lot of our customers come back and purchase add-ons during the course of their baseline contracts and with the teams releasing significantly new business new products from the different R&D groups the customers have an intense come back and keep purchasing so they don't wait when we launch AI tools they don't wait for the baseline renewal to come up or to expire to purchase them they'll purchase add-ons and they'll purchase a few licenses and then hopefully proliferate more on the on the contract renewal and as you know we have a lot of contracts that come up or renewal in Q4, or understood.

There might be some conservatism or what why we overlooking in terms of the setup.

Speaker 4: Oh, yeah, Jason, the, as you know, your question probably emanates from the fact that, you know, we beat by 23 million in Q3 and raised by 10, but that was, that was mainly due to a prudent guide for Q3 with respect to certain hardware installations. I think overall we've taken the quarter up by the year up by 10 million at the midpoint.

Oh, yes.

Yes, Jason.

As you know.

Your question properly emanates from the fact that.

We beat by <unk> 3 million in Q3 and raised by 10, but that was that was mainly due to a prudent guide for Q3 with respect to certain hardware installations.

I think overall, we've taken the quarter up.

The the.

Europe by $10 million at the midpoint.

But I think there is because it's it is expected to be a strong bookings quarter, and a particularly strong quarter for IP.

Speaker 4: But I think there's because it's expected to be a strong bookings quarter and a particularly strong quarter for our IP Silicon Solutions group that I mean, they're having, they're gonna have an excellent Q4, but we're expecting that all year. I think if there's, if there's upside, they'll probably come from that group.

Jay Fleshauer: For follow up, I'll ask about some interesting cadence management comments at last month's cadence live event up in Boston. So there was an interesting comment about the role of AI as, quote, de-risking schedules in addition to the design exploration use case. And what's interesting there is historically, you know, schedule risk or completion risk has to do more towards the back end of the process, you know, for example, physical verification.

IP Silicon solutions group.

They are having.

They're going to have an excellent Q4, but they.

So we're expecting that all year.

I think if theres, if theres upside will probably come from that group.

Speaker 9: Okay, now that's fair. And then just make my quick follow up on backlog. You know, I know you've got some weird comps because of the hardware stuff. But when might we see like year of year growth again, or I guess if we stripped out the hardware related backlog. I don't know if there's any way to share what type of growth you might.

Okay.

No. That's fair and then just my quick follow up on on backlog.

No you've got some weird comps because of the hardware stuff, but when.

Mike.

We see like year over year growth again, or I guess, if we stripped out the hardware related backlog.

Anirudh Devgan: So to the extent that more of that risk mitigation moves up earlier in the process, do you think that there will be a spending share shift within the totality of EVA spend, perhaps some from the back end more towards the front end where you play with a lot of your tools. Jay, I would say that it should lead to more design activity if we are able to reduce risk in the design process.

If there's any way to share what type of growth.

It might be fun.

Yeah, I think just to give you a bit of color on that I think if you recall at the end of last year. Our backlog included about 28 weeks of lead time on hardware I think we're down to an 8% to 10 week range now on lead time for for hardware. So.

Speaker 4: Yeah, I think just to give you a bit of color on that, I think if you recall at the end of last year, our backlog included about 28 weeks of lead time on hardware. I think we're down to an eight to 10 week range now on lead time for hardware. So of course, we've eaten some backlog as a result of last.

Of course, we've eaten some backlog as a result of glass.

But I think we talked out essentially in the middle of the year, we're expecting the second half to be stronger for contract renewals because the number of contracts expired in the in the second half.

Speaker 4: But I think we chopped those essentially in the middle of the year. You know, we're expecting the second half to be stronger for contract renewals.

Anirudh Devgan: I mean, as you know, this is the history of EDA, you know, history of automation, even for the last 20, 30 years. You know, I remember in the old days in the 90s, we would take like five years, you know, and 500 engineers to design some big chip. And now that takes, you know, six to 12 months and, you know, maybe 50 engineers. So that's like 100 times more efficient than 25 years ago.

Speaker 4: because the number of contracts expired in the second half.

Speaker 4: In Q3, you still backlogs starting to take back up again. We'd expected to take back up again in Q4, because we have a strong booking squatter. Or we're expecting a strong booking squatter. The one I'd look for really is the annual.

In Q3, you saw backlog starting to tick back up again, we would expect it to pick back up again in Q4, because we have a strong bookings quarter or we're expecting a strong bookings quarter.

The one I look for really.

Annual.

Speaker 9: The kind of CORPO is the one I track, because I'm not going to have the annual value. And I think when you compare the annual value at the end of this year with the annual value backlog at the end of last year, the thing to remember is the fact that there'd be so much less hardware in it I would expect because we have the production capacity now to deliver on the hardware. OK, perfect. Now it's super helpful. Thank you.

<unk> is the one I track because I'm looking at the annual value.

Anirudh Devgan: And I think AI can, as you know, provide the next generation, next level of improvement in productivity and risk mitigation. I mean, part of it is also risk mitigation. So then I think it should lead to more design activities, especially by the system company. Now, the shift of front end to back end, I mean, I think back end is still a complicated process. And, you know, so I think even though some of the things can be pulled up front using AI or using, you know, hardware platforms, yeah, I still think the back end design process requires, you know, a lot of work.

And I think when you compare the annual value at the end of this year with the annual value of backlog at the end of last year. The thing to remember is the fact that.

There'll be so much less hardware and I would expect.

Because we have the production capacity now to deliver on the hardware.

Okay perfect now Super helpful. Thank you.

Well go next to Vivek Arya with Bank of America.

Speaker 10: Thanks for taking my question. I appreciate it early for a 24 outlook, but I was hoping that you could give us some color, you know, given that your model is 85% recurring. So just conceptually, what is the likelihood cadence can maintain this kind of mid-teens growth rate? And what would make 24 different or similar to 23 from a growth perspective?

Thanks for taking my question I.

I appreciate it's early for 2000 and for outlook, but.

Anirudh Devgan: So I would expect it affects all of them. And then the other thing we are trying to do on the front end, as you may have noticed, is is really incorporate LLMs, you know, like our partnership with Renaissance, because all of the front end process has been less formal, you know, the back end process, you know, especially once we have RTL, then we go to gates, we go to GDS, it's a very formal process, very structured process.

I was hoping that you could give us some color given that your model is 85% recurring.

So just conceptually what is the likelihood cadence can maintain this kind of mid teens growth rate and what would make 24 different or similar to <unk> 23 from a growth perspective.

Yes, hi.

Speaker 3: Hi Vivek, like before, in Q3, we don't comment on the next year. We are diligent, we want to make sure we finish out the year, see what Q4 looks like, and then we'll be glad to share our assessment in our next, in the full year, in a February earnings call, and that's what we have done in the past, and that has worked out well.

Like before.

In Q3, we don't comment on the next year, we are diligent and we want to make sure we finish out the year.

Anirudh Devgan: But the front end of the process, especially verification and specification has been less formalized. And I think AI and LLM can help formalize that, which definitely, like you said, can minimize the risk. But I think activity should still be strong in both front end and back end. And our goal, anyway, is to make the design easier. So more customers and more people can do them. Thank you, Audible.

Anirudh Devgan: Thank you.

What Q4 looks like and then we'll be glad to share our assessment and in our next.

Full year in our February earnings call and that's what we have done in the past and that has worked out well.

Yeah.

Speaker 10: On the IP side, I think John , you mentioned that you're expecting a strong quarter for IP in Q4. I was wondering how much would your two recent acquisitions contribute to that and just longer term. Do you think IP as a category over or undergrows the EDA and does that influence your growth process? So what kind of near and longer term question on the IP?

Okay.

On the IP side, I think John you mentioned that you're expecting a strong quarter for IP in Q4 I was.

Wondering how much would your two recent acquisitions contribute to that and just longer term do you think it is a category over or under grows the EDA and does that influence your growth.

Jason Celino: We're going next now to you, Jason, Selina at eBay Capital Merchants. Great. Thanks for taking my question.

John Wall: Maybe first for John, you know, on the Q4 guide about apologies for asking this again. But folks might be wondering, tomorrow, I guess, why aren't we seeing more outside to the guide for fourth quarter? Where might be some conservatism or what way will you be overlooking in terms of the setup? Oh, Jason, your question probably emanates from the fact that we beat by 23 million in Q3 and raised by 10, but that was mainly due to a prudent guide for Q3 with respect to certain hardware installations.

Prospects are both kind of near and longer term question on the IP business.

Okay.

Speaker 4: Let me take the first part of that, and then I'll hand it over to Andrew for the second part. I think in relation to the IP business, like I say, we're expecting a strong...

Let me take the first part of that and then I'll hand, it over to Andrew for the second part.

I think in relation to VIP business like I say, we were expecting a strong.

Speaker 4: Q4 for that group. I mean, if you look at the guide we've given for the year, essentially, we're regarding to 14 to 15% revenue growth for the year, which means Q4 over Q4 is gonna grow.

Q4 for that group.

I mean, if you look at the guide we've given for the year essentially were regarding to 14% to 15% revenue growth for the for the for the year, which means Q4 over Q4 is going to grow kind of between 15% to 20% largely that's due to the strength of our IP business in Q4.

Speaker 4: Kind of between 15 and 20%. Now, largely that's due to the strength of our IP business in Q4.

John Wall: I think overall, we've taken the quarter up by the year up by 10 million at the midpoint, but I think there's because it's expected to be a strong bookings quarter and a particularly strong quarter for our IP Silicon Solutions group that I mean they're having, they're going to have an excellent Q4, but they were expecting that all year. I think if there's if there's upside, they'll probably come from that group.

Do you want to talk about the longer term.

Speaker 3: You want to talk about the longer time? Yeah, I mean, as you know already, more customers are outsourcing.

I mean, as you know already more customers are outsourcing.

Speaker 3: their IP need and we have always participated in that and we have always said, we want to participate in that in kind of a star IP portfolio so that it's more and more profitable and the profitability of our IP business has improved over the last few years.

You know their IP need.

And we have always participated in that and we have always said we wanted to participate in that in kind of a star IP portfolio, so that it's more and more profitable.

And the profitability of our IP business.

John Wall: Okay, okay, now that's fair, and then just make my quick follow up on on backlog. You know, I know you've got some weird comps because of the hardware stuff, but when might we see like year of year growth again, or I guess if we stripped out the hardware related backlog, I don't know if there's any way to share what type of growth you might be seeing. Yeah, I think just to give you a bit of color on that, I think if you recall at the end of last year, our backlog included about 28 weeks of lead time on on hardware, I think we're down to an 8 to 10 week lanes now on lead time for for hardware.

It has improved over the last few years.

Speaker 3: And so I think we are overall, you know, happy with the profitability of the IP business. So now we're trying to see, okay, what other areas can it grow and maintain profitability? And I think the areas that are emerging, which are strong are this whole chiplet-based design and 3DIC and which are used for a lot of AI and hyperscaler application.

And so I think we are overall happy with the profitability of the IP business. So now we're trying to see okay. What other areas can it grow and maintain profitability and I think the areas that are emerging which is stronger as whole chip led based design and <unk>.

And which are used for a lot of AI and hyper scaler applications.

Speaker 3: And that's also the reason, you know, we bought the fire assets of Rambus, you know, which is the HBM and GDDR based IP.

And that's also the reason we bought the <unk> assets of Rambus.

Which is the HBM and <unk> based IP.

Speaker 3: So I feel now that our IP portfolio is in the right areas and also the use of this automotive and hyper-scaler and AI IPs and most of these markets are evolving into chiplet based and 3DIC based designs which also has certain new IPs like UCI and other things.

So I feel now that our IP portfolio is is in the right areas and also the use of this in automotive and Hyperscale or an AI IP and most of these markets are evolving into into chip led based and <unk> based <unk>.

John Wall: So of course, you know, we've eaten some backlog as a result of last, but I think we chopped out essentially in the middle of the year. We're expecting the second half to be stronger for for contract renewals because the number of contracts expired in the in the second half. In Q3, you saw backlogs starting to take back up again. We'd expected to take back up again in Q4 because we have a strong booking squatter, or we're expecting a strong booking squatter.

Designs, which also has certain new Ips like UCI and other things.

So as a result of that we are investing more in our IP business as you saw and then.

Speaker 11: So as a result of that, we are investing more in RIP business as you saw. And then, you know, we expect a strong Q4. And then we'll see what happens in 24. It's a clarify. The contribution from acquisitions is likely to be immaterial for this year. So the strong Q4 that we're expecting is really from organic business. Thank you.

John Wall: The one I look for really is the annual, the kind of CRPO is the one I track, because I'm looking at the annual value. And I think when you compare the annual value at the end of this year, with the annual value backlog at the end of last year, the thing to remember is the fact that there'll be so much less hardware in it, I would expect, because we have the production capacity now to deliver on the hardware. Okay, perfect. Now super helpful. Thank you.

A strong Q4.

And then we'll see what happens in 'twenty four.

To clarify the contribution from acquisitions.

Actually to be immaterial for this year.

So the strong Q4 that were expecting is really from organic business.

Thank you.

Thank you the next now to Ruben Roy at Stifel.

Vivek Arya: We'll go next now to the deck area at Bank of America. Thanks for paying my question. I appreciate it early for a 24 outlook, but I was hoping that you could give us some color given that your model is 85% recurring.

Speaker 5: Thank you. I wanted to ask if you could maybe talk a little bit more in detail about the collaboration with Renaissance.

Thank you Andrew.

I wanted to ask if you could maybe talk a little bit more in detail about the collaboration with Renaissance.

Speaker 12: kind of in court range, in the EI-L11 to chip design. I think you mentioned some expectations for quality improvement, efficiency improvement. I would think that, you know.

Kind of incorporating generative AI, how 11 to chip design I think you mentioned.

Some expectations for.

John Wall: So just conceptually, what is the likelihood cadence can maintain this kind of mid-teens growth rate, and what would make 24 different or similar to 23 from a growth perspective? Yeah, hi Vivek. Like before, in Q3, we don't comment on the next year. We are diligent, we want to make sure we finish out the year, see what Q4 looks like, and then we'll be glad to share you know, our assessment in our next, you know, in the, in the, in the full year, in the February earnings call.

Quality improvement efficiency improvement I would think that.

No.

Speaker 12: longer term you'd be thinking about productivity improvement as well. Are those milestones that you're expecting to have answers about?

Longer term you'd be thinking about productivity improvement as well are those milestones.

That you are expecting to have answers about.

Uh huh.

Speaker 12: within the next year or two years. It sounds like this is sort of a longer term collaboration and sort of testing going on today. Just wondering, sort of what you're thinking about timeframe in terms of incorporating some of these types of tools into chip design. And along with that, just the final part is, would you consider this a leading edge design that Renaissance is working on or if you could talk a little about the type of design, that'd be great. Thank you.

Within the next year or two years. It sounds like this is sort of a longer term collaboration and sort of testing going on today, just wondering sort of what youre thinking about timeframe in terms of incorporating some of these types of tools into chip design and along with that.

Just the final part is would you consider this a leading edge design that Renaissance is working on or if you could talk a little about the type of design that would be great. Thank you.

John Wall: And that's what we have done in the past, and that has worked out well, right? Okay. On the IP side, I think John, you mentioned that you're expecting a strong quarter for IP in Q4. I was wondering how much would your two recent acquisitions contribute to that? And just longer term, do you think IP has a category over or undergrows the EDA, and does that influence your growth process? So what kind of near and longer term question on the IP?

Yes, absolutely. So I mean, we're very pleased with the collaboration with Renaissance.

Speaker 3: Yes, absolutely. So, I mean, we are very pleased with collaboration with Ranishad.

Speaker 3: And I think they have a whole initiative if you follow them or if you look into the AI for the design process. And we are glad to be a very close partner with the NSAS as we are with other companies. So we just wanted to highlight the NSAS this time and the collaboration is broad-based.

And I think they have a whole initiative. If you if you follow them or if you like.

AI for the design process and we are glad to be very close partner with bonuses.

As we are with with other companies right. So we just wanted to highlight <unk>. This time and the collaboration is broad based.

Speaker 3: I think they're using almost all of our AI tools.

I think they are using almost all of our AI tools.

John Wall: Let me take the first part of that, and then I'll hand it over to Anirudh for the second part. I think in relation to the IP business, like I say, we're expecting a strong Q4 for that group. I mean, if you look at the guide we've given for the year essentially, we're regarding to 14 to 15% revenue growth for the year, which means Q4 over Q4 is going to grow kind of between 15 and 20%.

Speaker 3: whether it's Syri brus for digital or verification, very CM and other two. And also we are doing some new collaboration with them on LLM, like we mentioned.

Whether it's cerebral for digital verification of ACM and other tools and also we are doing some new collaboration with them on LLM like we mentioned.

Speaker 3: And the LLM collaboration is fairly broad-based. It can be applied to any kind of design. Especially Renaissance has a range of design all the way from advanced node to mainstream node.

And the collaboration is fairly broad based it can be applied to any kind of design, especially the NFL has a range of design all the way from advance.

Two mainstream nodes.

John Wall: Now, largely, that's due to the strength of our IP business in Q4. Do you want to talk about the longer term? Yeah, I mean, as you know already, you know, more customers are outsourcing, you know, their IP need. And we have always, you know, participated in that. And we've always said, you know, we want to participate in that in kind of a star IP portfolio so that it's more and more profitable.

Speaker 3: And the other, you know, the other, the, you know, you know, all this already, but the key thing, you know, one benefit of AI is that, you know, there's a, of course, the quality of results can be better, you know, productivity can be better, but there are other benefits, which are also true for large.

And the other.

You May know this already but the key thing one benefit of AI is that there is.

Of course, the quality of results can be better productivity can be better.

There are other benefits.

We are also true.

For large.

Speaker 3: kind of global companies like Venetra. And the tool that I would like to highlight, which came to the forefront with our partnership with Venetra, one is all these large companies have geographically, geographically.

Kind of global companies like Renaissance and the two that I would like to highlight which came to the forefront with our partnership with Renaissance. One as you know all these large companies have.

John Wall: And the profitability of our IP business. And it has improved over the last few years. And so I think we are overall, you know, happy with the profitability of the IP business. So now we're trying to see, okay, what other areas can it grow and maintain profitability. And I think the areas that are emerging, which are strong are this whole chiplet based design and 3DIC. And which are used for a lot of AI and hyperscaler applications.

Joe greatly geographically diverse teams right. It's not that the team is only in one location typically they are in multiple locations.

Speaker 3: It's not that the team is only in one location. Typically they are in multiple locations.

Speaker 3: So the good thing with AI is that, you know, and we can do...

So the good thing with AI is that and we can we can do.

Speaker 3: In a lot of cases, design better than a human can do.

In lot of cases design better than a human can do.

Speaker 3: but also it depends on the starting point. So if you have a geographically diverse team, not all teams are super expert. So if the AI tool is same or better than your best team, then the...

But also it depends on the starting point right. So if you have a geographically diverse team not all teams are are super expert. So if the AI tool is same or better than your best team.

John Wall: And that's also the reason, you know, we bought the fire assets of Rambus, you know, which is the HBM and GDDR based IP. So I feel now that our IP portfolio is in the right areas. And also the use of this in automotive and hyperscaler and AI IP. And most of these markets are evolving into into chiplet based and 3DIC based. Designs which also has certain new IPs like UCI and other things. So as a result of that, we are investing more in our IP business as you saw. And then, you know, we expect a strong Q4. And then we'll see what happens in 24.

Speaker 3: The reason to deploy it is that wherever, you know, just by the nature of, you know, human productivity, there's a variation across the organization, you know, the results can be even greater in your teams, which are historically not performing as well as you would like.

The reason to deployed is that the wherever just by the nature of.

Human productivity, there's a variation across the organization.

The results can be even greater.

Your teams, which are historically not performing as well as you would like.

Speaker 3: And the other thing is also true in terms of experience. And this will happen, I believe, in AI, in other industries as well, was definitely happening in chip design. You know, so if you have three years experience, doing chip design versus 20 years experience in chip design.

And the other thing is also true in terms of experience and this will happen I believe in AI in other industries as well, but its definitely happening in chip design.

So if you had three years' experience doing chip design versus 20 years' experience in chip design.

John Wall: It's clarified the contribution from acquisitions is likely to be immaterial for this year. So the strong Q4 that we're expecting is really from organic business. Thank you.

Okay with that.

Speaker 3: Okay, with AI, you know, that gap is narrowing. So, so, you know, less experience engineers can be almost as productive as more experience engineers.

That gap is narrowing so so.

Less experienced engineers can be almost as productive as more experienced engineers. So apart from like productivity and quality of results benefit. It has this other kind of almost.

Speaker 3: So apart from productivity and quality of results benefit, it has this...

Speaker 3: other kind of almost work force management benefit for large organization like Granistas because they have organization in multiple locations and also a wide experience range from young engineers to experienced engineers. And this we are seeing in other companies as well. And I think what is also interesting is that the companies that adopt these AI tools first and faster will benefit more.

Anirudh Devgan: Thank you for the next now to Ruben Roy, cycle. Thank you. I wanted to ask if you could maybe talk a little bit more in detail about the collaboration with Renaissance and kind of incorporating genera of the AI element to chip design. I think you mentioned some expectations for quality improvement efficiency improvement. I would think that, you know, longer term, you'd be thinking about productivity improvement as well. Are those milestones, you know, that you're expecting to have answers about within the next year or two years, it sounds like this is, you know, sort of a longer term collaboration and sort of testing going on today.

Workforce management benefit for large organization like <unk>, because they have organization in multiple locations and also a wide experience range from young engineers to experienced engineers and this we are seeing in other companies as well and I think what is also interesting is that the company's debt.

These AI tools first and faster we'll benefit more.

Speaker 3: you know, versus their peers. So we are seeing that the fast moving companies

Versus their peers. So we are seeing that the the fast moving company.

Speaker 3: And renaissance definitely one of them. And then we talked about of course, a broad calm. We talked about Nvidia. We talked about Tesla. And there's so many other kind of great, large multinational companies. We have the privilege of working with it.

Ryan This is definitely one of them and then we talked about of course, our Broadcom, we talked about Nvidia, we talked about Tesla and there are so many other kind of grade large multinational companies, we have the privilege of working with them.

So there.

Speaker 3: more than one there is a whole work first development benefit of AI which are actually quite pro.

Anirudh Devgan: Just wondering, you know, sort of what you're thinking about timeframe in terms of incorporating some of these types of tools into chip design. And along with that, you know, just the final part is, would you consider this a leading edge design that Renaissance is working on or if you could talk a little about the type of design, that'd be great. Thank you. Yes, absolutely. So, I mean, we are very pleased with the collaboration with Renisas, and I think they have a whole initiative if you follow them or if you look into the AI for the design process, and we are glad to be, you know, a very close partner with Renisas as we are with with other companies, right.

More than one there is a whole workforce development benefit of AI, which are actually quite profound.

That's very helpful. Thanks for all that detail on our Red I guess, just a quick follow up I mean, it sounds from what Youre, saying there should be incremental.

Speaker 12: That's very helpful. Thanks for all that detail on a read. I guess just a quick follow up. I mean, it sounds, you know, from what you're saying, it should be increment. I mean, EDA has grown nicely. If you look at the core EDA growth over the last several years, you guys like to call out the three-year cager, but from what's going on here, we should assume that this would be incremental on, you know, sort of the way you've seen EDA growth. Would you, can you comment on that, you know, as you think about?

<unk> has grown nicely if you look at the core EDA growth over the last several years you guys call out the three year CAGR, but from what's going on here.

We should assume that this would be incremental on sort of the way you've seen EDA growth, but can you comment on that as you think about.

Whether it's software renewals are adding add ons as John talked about over the next.

Speaker 12: whether it's offer new goals or adding add-ons as John talked about over the next 12, 18, 24 months, would you say this would be incremental to sort of that mid-teens growth that the EDA tools have been growing on over the last three years or so?

12, 18, 24 months would you say this would be incremental to sort of that mid teens growth that the EDA tools have been growing at.

Anirudh Devgan: So, we just wanted to highlight Renisas this time, and the collaboration is broad-based. I think that we are using almost all of our AI tools, you know, whether it's Syribras for digital or, you know, verification, you know, Verissium and other two, and also we are doing some, you know, new collaboration with them on LLM, like we mentioned, and, you know, the LLM collaboration is fairly, you know, broad-based. It can be applied to any kind of design, you know, especially Renisas has a range of design all the way from advanced node to mainstream nodes.

The last three years or so.

Speaker 4: But I would comment on that that's just, I think our style of cadence is to be patient with our customers and we'll go at the pace that they're ready.

I would comment on that that's just I think our style of cadences to be patient with our customers and will go at the pace that they are ready.

Speaker 4: as Andrew said earlier in the call that we expect to proliferate our AI tools across our entire customer base over about two contract cycles and some are adopting more rapidly and embracing the AI tools. Some are, you're adopting the AI tools in add-ons but they might be shaving back their configurations somewhere else.

As Andrew said earlier in the call.

We expect to proliferate, our AI tools across our entire.

Customer base over about two contract cycles.

Some are adopting more rapidly and embracing AI tools.

Sure.

They're adopting the AI tools and add ons, but they might be shaping back their configurations somewhere else.

Anirudh Devgan: And the other, you know, even all this already, but the key thing, you know, one benefit of AI is that, you know, there is, of course, the quality of results can be better, you know, productivity can be better, but there are other benefits which are also true for large kind of global companies like Renisas, and the tool that I would like to highlight, which came to, you know, the forefront with our partnership with Renisas. One is, you know, all these large companies have geographically, geographically diverse teams, right?

Speaker 4: That tends to be a false economy, because they'll just come back and purchase more add-ons later. So to get the full effect.

That tends to be a false economy, because they'll they'll just come back and purchase more add ons later, so it's going.

They get the full effect it probably takes a couple of contract cycles, but we're very very pleased with the start we've made.

Speaker 4: It probably takes a couple of contracts, but we're very, very pleased with the start we've made.

That's very helpful. Thank you Tom.

Thank you we'll go next to Josh Tilton at Wolfe Research.

Speaker 1: Thank you, we look next to Josh Tillman at Wolf Research.

Hey, guys. Thanks for squeezing me in can you hear me.

Clear.

Speaker 13: Great. My first question is just, how does the 4Q hardware pipeline look compared to some of the strength that you saw in the first three quarters of the year? And given that you mentioned that the macro is still challenging, is there any extra conservatism in the Q4 guide to account for the potential for maybe some hardware to slip into next year?

Great.

My first question is just.

Anirudh Devgan: It's not that the team is only in one location, typically they are in multiple locations. So the good thing with AI is that, you know, and we can, we can do, you know, in a lot of cases design better than a human can do, but also it depends on the starting point, right? So if you have a geographically diverse team, not all teams are super expert. So if the AI tool is same or better than your best team, then the reason to deploy it is that wherever, you know, just by the nature of, you know, human productivity, there's a variation across the organization, you know, the result can be even greater in your teams, which are historically not performing as, as well as you are like.

How does the how does the <unk> hardware pipeline look.

Compared to kind of some of the strength that you saw in the first three quarters of the year.

And given that you mentioned that the macro is still challenging is there any extra conservatism in the Q4 guide to account for the potential for maybe some hardware to slip into next year.

Yeah, that's a great question, but our pipeline is very strong.

Speaker 4: I mean, the hardware demand just continues to, to amaze me that it's just tremendous. Those products are that verification group is just performing at a really high level and such.

I mean, the hardware demand just continues to.

To Amaze me that it's just tremendous those products or clarification group is just performing at a really high level and such.

Speaker 4: in such a consistent fashion through probably eight quarters now.

Such a consistent fashion through probably eight quarters now, but so very pleased with us.

Speaker 4: But it's a very pleased with that. You might have noticed that we kept the same range on the guide from last Q3, from Q3, the same range, because we thought there's probably a broader kind of a array of potential outcomes with...

You might have noticed that we kept the same range on the on the guide from last Q3 from Q3. The same same rates because we thought there's probably a broader kind of a array of potential outcomes with the amount of business that we expect to sign in Q4, we're expecting a strong bookings quarter in Q4, and there is a strong pipeline for hardware, but like I said.

Anirudh Devgan: And the other thing is also true in terms of experience, and this will happen, I believe in AI in other industries as well as definitely happening in chip design, you know, so if you have three years experience during chip design versus 20 years experience in chip design. Okay, with AI, you know, that gap is narrowing. So, so, you know, less experience engineers can be almost as productive as more experience engineers. So, apart from like productivity and quality of results benefit, it has this other kind of almost work force management benefit for large organization like Granitas, because they have organization in multiple locations.

Speaker 4: the amount of business that we expect to sign in Q4. We're expecting a strong voting quarter in Q4 and there is a strong pipeline for hardware. But like I said, in relation to the AI question that we're very patient with our customers, we'll go with their pace. And naturally if something slips from Q4 to Q1, it goes from this year's next year or vice versa, you can have stuff.

In relation to the AI question, but we're very patient with our customers will go with their pace and naturally if something slips from Q4 to Q1. It goes from this year's next year or vice versa. You can have stuff that customers are planning to buy in Q won't happen in Q4, as well, but I think we've accounted for that in the guide everything we know is in our guidance.

Speaker 4: that customers are planning the buying queue, won't happen to queue four as well. But I think we've accounted for that in the guide. Everything we know is in our...

Super Helpful and then just.

Speaker 13: Super helpful and just a follow up obviously on AI. I cannot touch it. But as that business of yours triples, are you seeing the the drive or the want to adopt these AI tools cause more of your users to make full flow decisions when maybe this has been more of a best of breed market historically?

A follow up.

On AI cannot touch it.

Anirudh Devgan: And also a wide experience range from, you know, young engineers to experience engineers, and this we are seeing in other companies as well. And I think the, what is also interesting is that the companies that adopt these AI tools first and faster will benefit more, you know, versus their peers. So, we are seeing that the fast moving companies and renaissance definitely one of them, and then we talked about, of course, a broad calm, we talked about Nvidia, we talked about Tesla, and there are so many other kind of great large multinational companies, we have the privilege of working with. So, there are more than one, there is a whole work force development benefit of AI, which are actually quite pro. That's very helpful. Thanks for all that detail, Anirudh.

But as that business of yours triples.

Are you seeing the draw.

The driver the want to adopt these AI tools.

Cause more of your users to make full flow decisions. When maybe this has been more of a best of breed market historically.

Yes, absolutely Thats, a very good point.

Speaker 3: Because the AI tools, our AI tools will run on the full flow by nature, whether that's digital implementation.

Does the AI to.

Our AI tools will run on the on the full flow by nature, whether that's digital implementation.

Or it is in verification and of course, we believe we have best of breed tools anyway on the base.

Speaker 3: or it is on verification. And of course, we believe we have best on breed tools anyway on the base. You know, it's like you have to have the full flow the basic engines to be best in class and then add AI on top of them, which is best in class.

You have to have the full flow the basic engines to be best in class and then add AI on top of them, which is best in class.

Anirudh Devgan: I guess just a quick follow-up. I mean, it sounds, you know, from what you're saying, this should be increment. I mean, EDA has grown nicely. If you look at the core EDA growth over the last several years, you guys like to call out the three-year cager. But from what's going on here, we should assume that this would be incremental on, you know, sort of the way you've seen EDA growth. Could you comment on that, you know, as you think about, whether it's offer new goals or adding add-ons as John talked about, you know, over the next 12, 18, 24 months, would you say this would be incremental to sort of that, you know, mid-teens growth that the EDA tools have been growing out over the last three years or so?

Speaker 3: But it is helping the underlying tools. So when our customers are doing more AI tools,

But it is it is helping the underlying tools to win.

Our customers are.

Doing more AI tools.

Speaker 3: It also, and also, as you know, if you have commented in the past that the AI tools by nature used a lot of underlying tools. So when Siribirus runs, for example, which is an AI tool for digital implementation, which is one of the most difficult tasks in chip design,

Also and also as you know we have commented in the past that the AI tools by nature used Florida underlying tools <unk> runs for example.

As our AI tool for digital implementation, which is one of the most difficult task and chip design.

Speaker 3: So it will typically the customers will use them on like, you know, one run of cerebrus will typically run on 10, 20 machines. Okay. And each of them could be like 30 to CPUs or 16 CPUs. So they are using a lot of compute and also they're using a lot of underlying licenses. So it could be like, you know, 10, 10, 10, in centers of innovat.

So it will typically the customers will use them on like one run a cerebral will typically run on 10 20 machines and each of them could be like 32 Cpus are 16 Cpus. So they are using lot of compute and then also they are using a lot of underlying licenses. So it could be like 10 10 10.

Anirudh Devgan: Well, I would comment on that. That's just, I think our style of cadence is to be patient with our customers and we'll go with the pace that they're ready. As Anirudh said earlier in the call that, you know, we expect to proliferate our AI tools across our entire customer base over about two contract cycles. And some are adopting more rapidly and embracing the AI tools. Some are, you're adopting the AI tools in add-ons, but they might be, you know, shaving back their configuration somewhere else.

Anirudh Devgan: That tends to be a false economy because they'll just come back and purchase more add-ons later. So to get the full effect, it probably takes a couple of contract cycles, but we're very, very pleased to start with this. Very helpful. Thank you, John.

Incentives of <unk> with <unk> is running.

So and then it is also synthesis place and route and Sino like in case of digital and then logic simulation formal verification hardware in Gainesville verification and same thing with analog it's not just virtuoso, but expect so so that is definitely a full flow.

Speaker 3: So, and then it is also synthesis, place in drought, and sign off like in case of digital, as then logic simulation, formal verification, hardware in case of verification, and same thing with analog, it's not just what you also, but it's specters. So, it's definitely a full flow is enabled.

As enable but also.

Speaker 3: Typically it requires more instances because you know, we're doing AI based design or AI based intelligence search of the design process So it will require multiple runs, you know, typically instead of one or two runs It may require you know hundred or two hundred runs But the user were doing that manually, you know in a sequential manner and we can do that automatically in a more parallel

Typically it requires more instances because you'll be doing.

AI based designer AI based intelligent search of the design process.

Andrew DeGasperi: Thank you. We'll be the next guest to Josh Tillman at Wolf Research. Hey guys, thanks for squeezing me and can you hear me?

It will require multiple run typically instead of one or two runs it may require 100 or 200 runs, but the user we're doing that manually in a sequential manner and we can do that automatically in a more parallel mad.

John Wall: Clear? Great. My first question is just, how does the 4Q hardware pipeline look compared to kind of some of the strength that you saw in the first three quarters of the year? And given that you mentioned that the macro is still challenging, is there any extra conservatism in the Q4 guide to account for the potential for maybe some hardware to slip into next year? Yeah, that's a great question, but pipeline is very strong.

Speaker 13: So it definitely helps, but it's still worth it because you get much better PPA and it's like using more compute and more software, more automation in terms of more human effort. And we can do it faster in an better PPA. Yeah. Super helpful. Thank you.

So it definitely helps.

But it's still worth it because you get much better PPA.

And it's like using more compute and more software more automation into more human effort and we can do it faster and better PPA.

Super helpful. Thanks, guys.

Yes.

The next night too Joe week at bars.

John Wall: I mean, the hardware demand just continues to, to, to amaze me that it's just tremendous. Those products are that verification group is just performing at a really high level and such in such a consistent fashion through probably eight quarters now.

Yeah.

Great Hi, everyone Alright.

Speaker 14: Sorry to believe in the backlog questions, but as opposed to going to

Alright, belabor the backlog question, but.

You too.

Speaker 14: If we rewind two years ago and look at 3Q in the 4Q of 2021, the current IPO then went up by, I think, nearly $400 million sequentially.

If we rewind two years ago, and look at <unk> and at <unk> 2021.

John Wall: So it's a very pleased with that. You might have noticed that we kept the same range on the on the guide from last Q3 from Q3, the same, same race because we thought there's probably a broader kind of a ray of potential outcomes with the amount of business that we expect to sign in Q4. We're expecting a strong voting quarter in Q4 and there is a strong pipeline for hardware, but like I said, in relation to the AI question that we're very patient with our customers.

RTL than went up by I think nearly $400 million sequentially.

Speaker 14: Is that maybe how you would start to frame just renewal values that are coming do and what you could potentially look to build on? And then second part of my backlog question.

Is that maybe how you would start to frame just renewal values that are coming due and why you could potentially look to build on and then <unk>.

Second part of my backlog question.

Speaker 14: And it gets back to Jason's question, I'm just the changing composition of hardware and topware.

It gets back to Jason's question on just the changing composition of hardware and software just given like cadence has been able to do on production capacity and ramping there does that change the relationship in terms of what needs to be sitting in backlog at year end in order to support some sort of next 12 months.

Speaker 14: just given what Kate has been able to do on production capacity and and ramping there. Does that change the relationship in terms of what needs to be sitting in backlog at your end in order to support some sort of next 12 month revenue.

John Wall: We'll go with their pace and naturally if something slips from Q4 to Q1, it goes from this year's next year or vice versa. So you can have stuff that customers are planning to buy in Q1, happen to Q4 as well, but I think we've accounted for that in the guide.

Revenue expectation.

Anirudh Devgan: Everything we know is in our guidance. Super helpful and just a follow up obviously on AI cannot touch it, but as that business of yours tripled, are you seeing the drive or the want to adopt these AI tools, cause more of your users to make full flow decisions when maybe this has been more of the best of breed market historically. Yes, absolutely. That's a very good point. Because the AI tools, you know, our AI tools will run on the full flow by nature, whether that's digital implementation or it is on and verification, and of course we believe we have best on breed tools anyway on the base, you know, it's like you have to have the full flow, the basic engines to be best in class.

Hi, Joe Great questions there.

Speaker 4: Hi, Joe. You know, great questions there that, um, yeah, I guess the, you know, the way you profile last year's growth, um, a large portion of that growth would have been, of course, the, the hardware we weren't able to service at the time.

Yes, I guess.

The way you profile last year's growth.

A large portion of that growth would have been of course, the hardware, we werent able to service at the time.

Speaker 4: And the reason I called out the lead times was the end of last year that's a backlog and current year or the next 12 months backlog if you like contained about 26, 28 weeks of lead time for hardware. That sounds about 8 to 10 weeks now. So I guess to answer the second part of your question there, but you know when you get to the end of this year because we've ramped up on the the hardware production, you'll need less to be in backlog for the there'll be less need for revenue to come out of backlog.

And the reason I called out the lead times was end of last year, that's backlog and current year or the next 12 months backlog. If you like contained about 26 28 weeks of lead time for hardware.

It sounds about eight to 10 weeks now so I guess to answer the second part of your question there, but when you get to the end of this year.

Because we ramped up on the hardware.

<unk>.

Youll need less to be in backlog for the third there'll be less need for our revenue to come out of backlog.

Speaker 4: for next year's revenue than there was for this year.

For next year's revenue than there was for this year.

Speaker 4: that unlike we kept the production levels at the same level all year. So every quarter we ratchet it up in Q1 and we've maintained that production levels to try and reduce those lead times because we think we're more competitive with customers. I mean, I was impressed this time last year.

Unlike I said, we've kept the production levels at the same level all year. So every quarter, we ratcheted it up in Q1, and we've maintained production levels to try and reduce that.

Anirudh Devgan: And then then add AI on top of them, which is best in class, but it is helping the underlying tools. So when our customers are doing more AI tools, it also, and also, as you know, if you have comment in the past that the AI tools by nature used lot of underlying tools. So when cerebrus runs, for example, you know, which is our AI tool for digital implementation, which is one of the most difficult tasks in chip design.

Those lead times, because we think we're more competitive with customers.

Impressed this time last year people were waiting over six months for for our hardware solutions.

Speaker 4: you know, over six months for our hardware solutions.

Speaker 4: But we'd be silly to assume that that would continue as important to get the lead times down to eight to 10 weeks. And I think that's more normal level to get to. But very pleased with the progress we've made so far this year. And again, we're not really talking about next year, but we've got a very busy queue.

<unk>.

But we'd be silly to assume that that would continue as important to get the lead times down to eight to 10 weeks and I think thats more normal kind of a more normal level to get to.

Anirudh Devgan: So it will typically the customers will use them on like, you know, one run of cerebrus will typically run on 10, 20 machines. And each of them could be like 30 CPUs or 16 CPUs. So they are using lot of compute. And also they're using lot of underlying licenses. So it could be like, you know, 10, 10, 10 incentives of inverse, which cerebrus is running. So, and then it is also, you know, synthesis, place and route and sign off like in case of digital. And then, you know, logic simulation, you know, formal verification, hardware in case of verification and same thing with analog.

But yeah.

Very very pleased with the progress we've made so far this year and.

And again I mean, we're not really talking about next year, but we've got a very busy Q4 ahead of us.

Speaker 14: Great, thanks John . I can squeeze one more in. I think we're about to laugh the open-eye acquisition. I just wanted to see how that generally is tracked relative to your original expectations and maybe just get an update about how cadence is thinking about the opportunity from the molecular sciences group and the role you can play in life sciences looking forward.

Great. Thanks, John I can squeeze one more and I think we're about to lap the open eye acquisition I just wanted to see how does that generally has tracked relative to your original expectations and then maybe just get an update about how cadence is thinking about the opportunity from the molecular side.

<unk> group and the role you can play on life Sciences looking forward.

Anirudh Devgan: It's not just what you also, but it's expected. So, so is definitely a full flow is enabled, but also typically requires more instances because, you know, we're doing AI based design or AI. AI based intelligent search of the design process. So it will require multiple runs, you know, typically, instead of one or two runs, it may require, you know, 100 or 200 runs, but the user were doing that manually, you know, in a sequential manner, and we can do that automatically in a more parallel manner.

Absolutely we are super excited about that.

Speaker 3: Absolutely, we are super excited about that. You know, we are super excited.

We're super excited.

Speaker 3: about molecular design and the future. It's almost like, you know, where EDA was maybe 20 years ago.

About molecular design and the future it's almost like.

The EBITDA was maybe 20 years ago.

Speaker 3: And before I talk specifically about molecular design, I want to tell you in terms of our product strategy and how that is synergistic and similar to. So I see a lot of activity in our main products, which I would describe as like three layers. You know, three layers. So the middle layer is actual.

And before I talk specifically about molecular design I wanted to tell you in terms of our product strategy and how that is synergistic and similar to so I see a lot of activity in our main products, which.

I would describe as like game three layers.

So the middle layer is actual.

Anirudh Devgan: So it definitely helps, but it's still worth it because you get much better PPA. And it's like using more compute and more software, more automation in case of more human effort. And we can do it faster in an embedded PPA.

In our software products that we have which are like either you're doing like EDA design or theyre doing system simulation or they're doing finite element.

Speaker 3: you know, software products that we have, which are like either you doing like EDA design or they're doing system simulation or they're doing finite element computational fluid dynamics or molecular simulation. So that's the middle layer of the case.

Anirudh Devgan: Super helpful.

Computational fluid dynamics, our molecular simulations, so thats the middle layer of the cake.

Operator: Thank you.

Speaker 3: And below that is this new emergence of, of, you know, computational hardware, which is, you know, special purpose hardware. Like, like we had in the past, we had special purpose of hardware with palladium, which is our custom chip. But now we use FPGA for, for proteum.

And below that is this new emergence of Av comparatives.

Computational hardware, which is.

Jill Ruete: Next now to Jill Ruete at bar.

Special purpose hardware like like we had in the past we had special does the hardware with Palladium, which is a custom chip, but now we use FPGA is four four protium.

Jill Ruete: Great.

John Wall: Hi, everyone. Sorry to believe in the backlog questions, but as opposed to going to, if we rewind two years ago and look at 3Q in the 4Q of 2021. Current IPO then went up by, I think nearly 400 million dollars sequentially. Is that maybe how you would start to frame just renewal values that are coming to and what you could potentially look to build on. And then second part of my backlog question, and it gets back to Jason's question on just the changing composition of hardware and software.

Speaker 3: We have, of course, X86 based Intel and AMD CPUs. And then recently, a lot of activity on GPUs, especially within video GPUs and accelerated computing. So that's the bottom layer of the cake. And then the top layer of that three layer cake is AI orchestration.

We have of course X 86, based Intel and AMD.

Cpus and then recently a lot of activity on Gpus.

Actually with Nvidia Gpus and accelerated computing, so thats the bottom layer of the cake and then the top layer of that three layer cake is air orchestration.

Speaker 3: You know, AI can provide this new level of automation and productivity and doing what was typically done by humans. It can be done with AI. Like we talked about cerebrace or very similar. So this three layer cake is central to our product strategy.

AI can provide this new level of automation and productivity in doing what was typically done by humans. It can be done with AI like we talked about city brands are very soon so this three layer cake is central to our product strategy. So the middle is simulation, which is physics based biology based the top is.

John Wall: Just given what Kate has been able to do on production capacity and ramping there. Does that change the relationship in terms of what needs to be sitting in backlog at your end in order to support some sort of next 12 month revenue expectations.

Speaker 3: So the middle is simulation, which is physics-based biology-based. The top is AI orchestration. The bottom is computational hardware. And then this can be verticalized across multiple verticals, whether it's EDA and chip design, whether it's package design with, you know, Allegro XAI, whether it is clarity and optimality, whether it's CFD with fidelity and more importantly, like you asked with the biosimulate.

Is AI orchestration the bottom as competition hardware and then this can be verticalizing across multiple verticals, whether it's EDA in chip design, whether its package design win.

John Wall: Hi, Joe. You know, great questions there that, yeah, I guess the way you profile last year's growth, a large portion of that growth would have been, of course, the hardware we weren't able to service at the time. And the reason I called out the lead times was, you know, end of last year, that's a backlog and current year or the next 12 months backlog, if you like, contained about 26, 28 weeks of lead time for hardware, that sounds about 8 to 10 weeks now.

Allegra X AI, whether it is <unk>.

Charity and optimality, whether its cfd with the with.

With fidelity and more importantly, like you asked.

With the Biosimilars.

Speaker 3: So the reason we acquired Open Eye is that gives that critical middle layer of, you know, physics-based biological simulation, which are very few companies that can do that. But then we can add to it a-

So the reason we acquired open eye is that gives that critical middle layer of physics based biological simulation, which are really very few companies that can do that but then we can add to it AI based drug discovery and competition will hardware with Gpus. So as you may know the open <unk> has the Orion.

Speaker 3: drug discovery and computational hardware with GPUs. So as you may know, the Open Eye has a Orion cloud-based platform. It already runs on GPUs, giving significant speed up for bio simulation. And then recently, and we'll talk more about in the future, we expanded our collaboration with one major...

John Wall: So I guess to answer the second part of your question there, but, you know, when you get to the end of this year, because we wrapped up on the hardware production. You'll need less to be in backlog for the, there'll be less need for revenue to come out of backlog for next year's revenue than there was for this year that, unlike I said, we kept the production levels at the same level all year.

Cloud based platform it already runs on Gpus, giving significant speedup for Biosimilars <unk> and then recently and we'll talk more about in the future we expanded our collaboration with one major.

Speaker 3: top five pharmaceutical company.

But top five pharmaceutical company to do traditional and AI based drug discovery on top of open Iron Orion platform.

Speaker 3: to do traditional and AI-based drug discovery on top of open iron or iron black.

John Wall: So every quarter, we, we, we ratchet it up in Q1 and we've maintained that production levels to try and reduce that those lead times, because we think we're more competitive with customers. I mean, I was impressed this time last year, people were waiting, you know, over six months for, for our hardware solutions. But, but, you know, we'd be silly to assume that that would continue as important to get the lead times down to 8 to 10 weeks, and I think that's more normal, kind of a more normal, normal level to get to. But, you know, very, very pleased with the progress we've made so far this year, and again, I mean, we're not really talking about next year, but we've got a very busy queue for ahead of us.

Speaker 3: And so I think this thing in the future, if you go forward, you know, I mentioned in the last time also, you know, the application of AI also, I think is going to go into three steps. So first step, application of AI is going to be in building out the infrastructure.

And so I think this thing in the future if you'd go forward and I mentioned in the last time also the application of AI also I think is going to go into three steps. So first step application of AI is going to be in building out the infrastructure like we talked about of course, the great companies like Nvidia Tesla and now Broadcom. So the buildup of interest.

Speaker 3: Like we talked about, of course, great companies like Nvidia and Tesla and now Broadcom. So the build-up infrastructure and then there's so many other hyper-scaler companies as you know, they are all building our AI infrastructure. So that's the first way of AI adoption.

Sure and there are so many other hyperscale companies as you know they are all building out AI infrastructure. So that's the first way off of.

AI adoption.

Speaker 3: The second phase of AI adoption is applying AI to our own products, you know, like Syri Brus and Jedi and very soon, we talked about that today also. And that's going pretty well and we talked about the progress in the last one year. And that I think will still take several years to go.

The second phase of AI adoption.

He is applying AI to our own products like <unk>, and <unk> and <unk> talked about that today also and that's going pretty well and we talked about the progress and the last one year.

Anirudh Devgan: Great. Thanks, John. I can squeeze one more in. I think we're about to laugh the open eye acquisition.

And that I think it will still take several years to go.

Anirudh Devgan: I just wanted to see how that generally is tracked relative to your original expectations and maybe just get an update about how cadence is thinking about the opportunity from the molecular sciences group and the role you can play in life sciences looking forward. Absolutely, you know, we are super excited about that. You know, we're super excited about molecular design and the future.

Speaker 3: And then the third phase of AI adoption is AI applied to areas that were not automated in the past.

And then the third phase of AI adoption is AI applied to areas that were not automated in the past. Okay. So I think that that may take longer and are maybe five years, plus but that has to be driven to digital biology in life Sciences, there's a huge application of AI and to do that properly we need that really.

Speaker 3: So I think that in, you know, that may take longer, you know, maybe five years plus, but that has to be driven to digital biology and life sciences. I mean, there's a huge application of AI. And to do that properly, if we need that three layer cakes and we need AI on top, we need bio simulation with open eye bring and then computational hardware with our leading compute platform.

Cakes, and we need AI on top we need Biosimilars with open opening and then competition hardware with our leading compute blackstone's, so I'm very optimistic.

Anirudh Devgan: It's almost like, you know, where EDA was maybe 20 years ago. And, you know, before I talk specifically about molecular design, I want to tell you in terms of our product strategy and how that is the logistics and similar to. So I see a lot of activity in our main products, which, you know, I would describe as like a three layers in a three layer. So the middle layer is actual. You know, software products that we have, which are like either you're doing like EDA design, or they're doing system simulation, or they're doing finite element.

Speaker 3: So I'm very optimistic about the future. And it will take some time. It happens in a quarter or two quarters, but it's right to invest for the future. And it is synergistic with the other parts of.

Optimistic about the future and it will take some time and it happens in a quarter or two quarters.

Try to invest for the future and it is synergistic with the other part though in a lot of the.

Speaker 3: A lot of the biosimulation is similar to what we do in circuit simulation or CFDN.

Emulation is similar to what we are doing so good simulation, our CSD and things like that so but overall I would like to say, it's still in the early innings of biology, and Biosimilars in an open eye, but it is a good start and we are investing for the future in a controlled way of course, we're always financially disciplined.

Speaker 3: So, but overall, I would like to say, still in the early innings with biology, and bio-simulation and open eye, but it is a good start, and we are investing it for the future. In a controlled way, of course, we're always financially disciplined, but I think the potential is there in the future for it to emerge as one of the big areas. Yeah.

Anirudh Devgan: In our computational fluid dynamics or molecular simulation. So that's the middle layer of the cake. And below that is this new emergence of, you know, computational hardware, which is, you know, special purpose hardware like like we had in the past, we had special purpose of hardware with palladium, which is our custom chip. But now we use FPGA for, for proteum. We have, of course, X86 based, you know, Intel and AMD CPUs.

But I think the potential is there in the future for it to emerge as one of the big areas.

That's great thanks, very much out of it.

Thank you and our final question comes from Andrew <unk> at bearing Burke.

Speaker 1: Thank you. And our final question comes from Andrew D. Caspary at Baron Bird.

Speaker 15: Thanks for fitting me in. Just had two quick ones. I know most of them were answered so far in this call, but first on the margin, maybe did you lay out John in terms of the guidance for the year and are you put down slightly, but you could top end of the range for the operating margin on on-get basis?

Thanks for fitting me in just having.

Two quick ones I know most of them were answered so far on this call, but first of all on the margin maybe could you lay out John .

Anirudh Devgan: And then recently lot of activity on GPUs, you know, especially within video GPUs and excellent computing. So that's the bottom layer of the cake. And then the top layer of that three layer cake is AI orchestration, you know, AI can provide this new level of automation and productivity and doing what was typically done by. Humans can be done with AI like we talked about. So very. So this three layer cake is central to our product strategy.

In terms of the guidance for the year I know you took down slightly at the top end of the range for the operating margin on a non-GAAP basis. Just wondering maybe if you could lay out what the puts and takes are there is it revenue mixes at the recent acquisitions that you've made that might have sort of crystallized that number.

Speaker 15: Just wondering maybe if you could lay out what the puts and takes are there. Is it revenue mix? Is it the recent and acquisitions that you made that might have sort of crystallized that number?

Speaker 15: And without, you know, having interior answer the second time, but like in terms of investments that you're making for next year, there's a pace of, uh, a high ring going to change it all based on what you're seeing right now.

And without having into you have answered the second time, but like in terms of investments that youre, making for next year is the pace of.

Anirudh Devgan: So the middle is simulation, which is physics based biology based the top is, is AI orchestration, the bottom is computational hardware. And then this can be verticalized across multiple verticals, whether it's EDA and chip design, whether it's package design with, you know, Allegro X AI, whether it is a clarity and optimality, whether it's CFD with, with fidelity and more importantly, like you asked with, with biosimulate. So the reason we acquired Open Eye is that gives that critical middle layer of, you know, physics based biological simulation, which are very few companies that can do that.

While the hiring kind of changed at all based on what Youre seeing right now.

Speaker 4: Great questions Andrew. Yeah, in relation to the margin, you know, the recent acquisitions are more dilutive to this year. So we're picking up more expense. We're picking very, very little revenue. We're picking up expense immediately. And that kind of narrowed the range on the on the margin outcomes for us that are at the midpoint of 41.75. I think it works. So to be about $5 and 10 cents on non-gap. Yes. In relation. What was the second part of the question? Sorry, I forgot the second part of the question.

Great questions Andrew Yes.

Yes in relation to the margin. The recent acquisitions are more dilutive to this year. So we're picking up more expense with very very little revenue, we're picking up expense immediately.

And that kind of narrowed the range on the on the margin outcomes for us.

At the midpoint of $41 75, I think it works out to be about $5.10 and non-GAAP EPS.

<unk>.

In relation to what was the second part of the whole sorry, I've forgotten the second part of the question.

Yes.

Speaker 15: No, no, it's just on the, on the lens of hiring, just in terms of how you're thinking about it so far.

In terms of hiring.

Anirudh Devgan: But then we can add to it AI based drug discovery and computational hardware with GPUs. So as you may know, the Open Eye has a Orion cloud based platform, it already runs on GPUs giving significant speed up for bio simulation. So more about in the future, we expanded our collaboration with one major, you know, top five pharmaceutical company to do traditional and AI based drug discovery on top of Open Eye and Orion platform.

Just in terms of how youre thinking about it.

So far.

Speaker 4: Yeah, I mean, that's it's great. We continue to attract top talent to cadence. You may notice though in our 10 queue, we did some restructuring. In August , we initiated a restructuring plan to better align our resources with our business strategy. And we incurred about 12 million of costs comprised of severance payments and termination benefits in relation to head count reductions. But that's, I would kind of categorize that as a bit of housekeeping and preparation for next year.

Yes, I mean thats, great we continue to attract top talent.

The cadence you may noticed though in our 10-Q, we did some restructuring.

In August we initiated a restructuring plan to better align our resources with our business strategy and we incurred about $12 million of cost comprised of severance payments and termination benefits.

Relation in relation to head count reductions, but that's I would kind of categorize that as a bit of housekeeping in preparation for next year.

Anirudh Devgan: And so I think this thing in the future, if you go forward, you know, mention in the last time also, you know, the application of AI also I think is going to go into three steps. So first step application of AI is going to be in building out the infrastructure like we talked about, of course, the great companies like Nvidia and Tesla and now Broadcom. So the build of infrastructure and then there's so many other hyper scale companies as you know, they are all building our AI infrastructure.

Understood. Thank you.

Thank you I'll now turn it back over to <unk> for closing remarks.

Speaker 1: Thank you. I'll now turn it back over to Honorou Deppkin for closing remarks.

Thank you all for joining us this afternoon.

Speaker 3: A strong execution of the intelligent system design strategy and customer first mindset continue to drive growth as we expand our portfolio with new innovative AI driven solution.

Strong execution of the intelligent system design strategy and customer first mindset continued to drive growth as we expand our portfolio with new innovative AI driven solutions.

Anirudh Devgan: So that's the first way of of AI adoption. The second phase of AI adoption is applying AI to our own products, you know, like Syri brus and Jedi and very soon we talked about that today also and that's going pretty well and we talked about the progress in the last one year. And that I think will still take several years to go.

Anirudh Devgan: And then the third phase of AI adoption is AI applied to areas that were not automated in the past. Okay, so I think that in, you know, that may take longer, you know, maybe five years plus, but that has to be driven to digital biology and lifestyle. I mean, there's a huge application of AI and to do that properly, we need that three layer cakes and we need AI on top. We need bio simulation with Open Eye bring and then computational hardware with our leading compute platform.

Speaker 3: We are proud of our inclusive culture and focus on enabling sustainable innovation and honored to recently be named to Newsweek's America's Greenest Companies 2024 list.

We are proud of our inclusive culture and focus on enabling sustainable innovation and honored to recently be named to Newsweek's America's Greenest companies 2024 list.

On behalf of our board of directors, we thank our customers partners and investors for their continued trust and confidence in cadence.

Speaker 3: On behalf of our Board of Directors, we thank our customers, partners and investors for their continued trust and confidence in cadence. Thank you.

Thank you.

Speaker 1: Thank you, Herbert, for today's cadence third quarter 2023 earnings conference call. This does conclude today's call. You may now disconnect.

Thank you for participating in today's cadence third quarter 2023 earnings Conference call. This does conclude today's call you may now disconnect.

Yeah.

Yeah.

You may now disconnect.

Yeah.

Anirudh Devgan: So I'm very opportune, you know, optimistic about the future and it will take some time. You know, this not happens in a quarter or two quarters, but it's right to invest for the future and it is synergistic with the other parts of. You know, a lot of the bio simulation is similar to what we do in circuit simulation or CSV and things like that. So, but overall, I would like to say it's still in the early innings with biology, you know, and bio simulation and Open Eye, but it is a good start and we are investing it for the future in a controlled way, of course, you know, we're always, you know, financially disciplined. But I think the potential is there in the future for it to emerge as one of the big areas.

Yeah.

Anirudh Devgan: Yeah. That's great.

Anirudh Devgan: Thanks very much, Henry.

Andrew DeGasperi: Thank you.

Andrew DeGasperi: Our final question comes from Andrew Degasbury at Baronberg. Thanks for fitting me in. Just had two quick ones.

John Wall: I know most of them were answered so far in this call, but first on the margin, maybe could you lay out John on in terms of the guidance for the year. I know you put down slightly the top end of the range for the operating margin on on-get basis. Just wondering maybe if you could lay out what the puts and takes are there. Is it revenue mix? Is it the recent and acquisitions that you made that might have sort of crystallized that number.

John Wall: And without, you know, having to answer the second time, but like in terms of investments that you're making for next year. Is the pace of hiring going to change it all based on what you're seeing right now.

John Wall: Great questions, Andrew. In relation to the margin, the recent acquisitions are more dilutive to this year, so we're picking up more expense. We're picking up very, very little revenue. We're picking up expense immediately. And that kind of narrowed the range on the margin outcomes for us. At the midpoint of 41.75, I think it works out to be about $5 and 10 cents on non-gapy, yes. In relation, what was the second part of the question? It's just on the terms of hiring, just in terms of how you're thinking about it so far. Yeah, I mean, it's great. We continue to attract top talent to Cadence.

John Wall: You may notice, though, in our 10 queue, we did some restructuring. In August, we initiated a restructuring plan to better align our resources with our business strategy. And we incurred about 12 million costs comprised of severance payments and termination benefits in relation to headcount reductions. But that's, I would kind of categorize that as a bit of housekeeping and preparation for next year. On the start.

John Wall: Thank you.

Anirudh Devgan: I'll now turn it back over to you on a root deck in four closing remarks. Thank you all for joining us this afternoon. A strong execution of the intelligent system design strategy and customer first mindset, continue to drive growth as we expand our portfolio with new innovative AI driven solutions. We are proud of our inclusive culture and focus on enabling sustainable innovation and honored to recently be named to newsweeks America's greenest companies 2024 list. On behalf of our board of directors, we thank our customers partners and investors for their continued trust and confidence in cadence. Thank you.

Operator: Thank you, bro, which is waiting for today's cadence third quarter 2023 earnings conference call this does include today's call you may now just connect. All you may now just connect.