Q4 2023 Synopsys Inc Earnings Call
Ladies and gentlemen, and welcome to the Synopsys earnings conference call for the fourth quarter and fiscal year 2023.
Speaker 1: Ladies and gentlemen, welcome to the Synopsys Earnings Conference call for the fourth quarter in fiscal year 2020.
Speaker 1: At this time, all participants are in a listen-only mode. If you would like to ask a question during today's call, please press star 1 on your telephone keypad. To remove yourself from the queue, press star 1 again. If you should require assistance during the call today, please press star followed by zero. Today's call will last one hour, and as a reminder, today's call is being recorded. I would now like to turn the call over to Trey Campbell, Senior Vice President and Best Relations, please go ahead.
At this time all participants are in a listen only mode. If.
If you would like to ask a question during today's call. Please press star one on your telephone keypad to remove yourself from the queue Press Star one again.
If you should require assistance during the call today. Please press star followed by Zero today's call will last one hour and as a reminder, today's call is being recorded.
I'd now like to turn the call over to Trey Campbell Senior Vice President Investor Relations. Please go ahead.
Thanks, Lisa good afternoon, everyone with US today are art did she is chair and CEO of Synopsys, So seen Ghazi, president and COO and Sheila Glaser CFO before we begin I'd like to remind everyone that during the course of this conference call Synopsys will discuss forecasts targa.
Speaker 2: Good afternoon, everyone. With us today are Art DeGios, Chair and CEO of Synopsys, Sasin Ghazi, President and COO, and Sheila Glaser, CFO . Before we begin, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts, targets, and other forward-looking statements regarding the company and its financial results.
And other forward looking statements regarding the company and its financial results.
Speaker 2: While these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainty.
These statements represent our best current judgment about future results and performance as of today. Our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect in addition to any risks that we highlight during this call important factors that may affect our future results are described in our most recent SEC.
Speaker 2: That could cause actual results to differ materially from what we expect.
Speaker 2: In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release.
Reports and today's earnings press release. In addition, we will refer to certain non-GAAP financial measures during the discussion reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release financial supplement and 8-K that we released earlier today all of these items plus the most recent.
Speaker 2: In addition, we will refer to certain non-GAAP financial measures during the discussion. Reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release.
Speaker 2: financial supplement, and 8K that we released earlier today. All of these items, plus the most recent investor presentation, are available on our website at www.synopsys.com.
Investor presentation are available on our website at Www Dot Synopsys Dot Com. In addition, the prepared remarks will be posted on our website at the conclusion of the call with that I'll turn the call over to art <unk>.
Speaker 2: In addition, the prepared remarks will be posted on our website at the conclusion of the call. With that, I'll turn the call over to Art DeGioia.
Good afternoon in Q4, we exceeded the high end of all our guidance targets and delivered another quarterly revenue high at 1.5 dollars 99 billion.
Speaker 3: Good afternoon. In Q4, we exceeded the high end of all our guidance targets and delivered another quarterly revenue high at $1.599 billion. Q4 thus capped a record year, growing revenue by 15% to $5.84 billion, with strong orders expanding backlog by $1.5 billion to $8.6 billion.
Q4, this capped a record year growing revenue by 15% to 584 billion with strong orders expanding backlog by $1 5 billion to $8 6 billion.
Speaker 3: We further improved non-GAAP operating margin to 35.1%, increased non-GAAP EPS by 26%, generated $1.7 billion in operating cash flow while maintaining an exceptionally strong balance sheet. Clearly, Synopsys has moved to a new level
Further improved non-GAAP operating margin to 35, 1% increased non-GAAP EPS by 26% generated $1 7 billion in operating cash flow, while maintaining an exceptionally strong balance sheet.
Clearly synopsys has moved forward with sustained momentum.
Speaker 3: Over the last five years, we've grown revenue at 13% CAGR, expanded non-GAAP operating margin by 13 points, and increased non-GAAP EPS at a 23% CAGR.
Over the last five years, we've grown revenue at 13% CAGR expanded non-GAAP operating margin by 13 points and increased non-GAAP EPS at a 23% CAGR.
Speaker 3: Through the year, we also widened our differentiation by substantially expanding our AI-driven product capabilities, but also through unique collaborations that strengthened our customers' differentiation, while cementing deep long-term relationships.
Through the year, we also widened our differentiation by substantially expanding our AI driven products capabilities, but also through unique collaborations that strengthened our customers differentiation, while cementing deep long term relationship.
We thank our employees for their passion and dedication and our customers for their business and trust and Synopsys.
Speaker 3: We thank our employees for their passion and dedication, and our customers for their business and trust in Synops.
Meanwhile, dark geopolitical clouds are inflicting unimaginable harm and multiple conflict zone.
Speaker 3: Meanwhile, dark geopolitical clouds are inflicting unimaginable harm in multiple conflict zones.
Our hearts hurt with deep compassion for our employees families colleagues customers and all others impacted by paying loss and uncertainty.
Speaker 3: Our hearts hurt with deep compassion for our employees, families, colleagues, customers, and all others impacted by pain, loss, and uncertainty.
Yes, we will never give up believing in the positive potential humanity.
Speaker 3: Yet we will never give up believing in the positive potential of humanity.
Speaker 3: It is thus heartwarming to see how fast our teams have turned compassion into caring, caring into action, and how respect and support for each other is an active norm at Sonora.
It is thus heartwarming to see how fast our teams.
And compassion into caring carrying into action and how respect and support for each other is that active norm at synopsys.
Speaker 3: Let me now briefly share some thoughts on the state of the industry and our company before I pass the baton to Sasim.
Let me now briefly share some thoughts on the state of the industry and our company before I pass the baton to succeed.
So on the first days of Synopsys 37 years ago, Synopsys has enabled and navigated the exponential ambition that came to be defining the semiconductor industry and which in turn radically impacted the world.
Speaker 3: From the first days of Synopsys 37 years ago, Synopsys has enabled and navigated the exponential ambition that came to be defining the semiconductor industry and which in turn radically impacted the world.
Speaker 3: Our initial contribution, Synthesis, revolutionized digital design.
Our initial contribution Cintas has revolutionized digital design.
Speaker 3: We ushered in the transition from CAD, computer-aided design, to EDA, electronic design automation, so far delivering roughly a 10 million x increase in design productivity.
We are shut in the transition from CD computer aided design to EDA electronic design automation, so far delivering roughly a $10 million X increase in design productivity.
Speaker 3: During Synopsys' entire existence, the vast majority of our products have been the state of the art.
During synopsys entire existence, the vast majority of our product has been the state of the art.
Speaker 3: Together with the leading foundries, we thus empowered digital age exponential, referred to as Moore's law.
Together with the leading foundries, we thus empowered digital H exponential referred to as Moore's law.
Speaker 3: And then at the very moment that the economics of classic Moore's law are slowing down in terms of transistor performance and cost improvements.
And then at the very moment that the economics of classic Moore's law slowing down in terms of transistor performance and cost improvements.
Speaker 3: The era of big data and AI becomes real, triggering enormous compute needs on the horizon.
Era of big data and AI becomes real triggering enormous compute needs on the horizon.
About eight years ago Synopsys forecast at this age of smart everything will become the driver for the semiconductor growth to a trillion dollars in this decade.
Speaker 3: About eight years ago, Synopsys forecasted this age of smart everything would become the driver for the semiconductor growth to a trillion dollars in this decade. And here we are. This year's generative AI advances and furious adoption clearly fulfill our vision.
Here, we are this year's generative AI advances and furious adoption clearly fulfill our vision.
As pervasive AI is now massively underway.
Speaker 3: A pervasive AI is now massively underway. The classic Moore's Law era in turn is morphing into the system or era. Systemic complexity, but still with a Moore's Law exponential ambition.
Classic Moore's law era in turn is morphing into the system more ore systemic complexity, but still with a Moore's law exponential ambition.
Speaker 3: SysMOR is happening in front of our eyes by reinventing architectures not based on a single chip, but on multiple chips, tightly connected or even stacked on top of each other with extreme proximity.
So it's more is happening in front of our eyes by reinventing architectures not based on a single chip.
But on multiple chips.
Connected or even stacked on top of each other with extreme proximity.
These so called software defined multi die architectures will enabled massive increases in the number of transistors available.
Speaker 3: These so-called software-defined multi-diarchitectures will enable massive increases in the number of transistors available.
Speaker 3: And again, synopses at the heart of the heart of catalyzing exponential impact.
Synopsys is at the heart of the heart of capitalizing exponential impact.
Our investments in multi die design are massive collection of IP building blocks and maybe silicon technology.
Speaker 3: Our investments in multi-die design, our massive collection of IP building blocks in mid-silicon technology, our prototyping and electronic digital twinning technology that lets customers run software before the hardware actually exists, are all essential enablers driving the new race into AI-driven computation.
Our prototyping and electronic digital twinning technology now lets customers run software before the hardware actually exist.
Are all essential enablers driving the new race into AI driven computation.
Speaker 3: Adding one more spark to our technical leadership, Xenopsis also pioneered the use of deep learning AI in chip design.
I think one more spark to our technical leadership Synopsys also pioneered the use of deep learning AI and chip design.
Applied to optimization and verification and tests.
Speaker 3: applied to optimization, verification, and test. Production results are outstanding, and adoption is broad and rapid.
Reduction results are outstanding and adoption is broad and rapid.
Most recently, our announcement of exciting journey II capabilities adds yet another angle to driving the state of the art forefront.
Speaker 3: Most recently, our announcement of exciting Gen AI capabilities adds yet another angle to driving the state of the art for
If nothing else my enthusiasm for both the CIS more opportunity and for our technology advances should give you a sense how synopsys is on the move.
Speaker 3: If nothing else, my enthusiasm for both the SISMO opportunity and for our technology advances to give you a stencil synopsis is on the move.
Talking about on the move we're also well underway in our executive leadership transition.
Speaker 3: Talking about on the move, we're also well on the way in our executive leadership transition.
Speaker 3: I have great confidence, expectations, and enthusiasm for Saseem Ghazi as our next CEO .
I have great confidence expectations and enthusiasm for <unk> as our next CEO.
Speaker 3: Saseem, please give us your perspective, vision, and ambition for synopsis.
Please give us your perspective vision and ambition for us an opposite the floor is all yours.
Speaker 4: Thank you, Art, for your pioneering work in our industry and for building Synopsys into one of the world's essential semiconductor ecosystem.
Thank you art for Youre pioneering work in our industry and for building synopsys into one of the world's essential semiconductor ecosystem companies.
Speaker 4: I am profoundly grateful for the opportunity to succeed you as CEO , building on our strong foundation and propelling synopsis to the next wave of growth. Let's turn to market trends.
I am profoundly grateful for the opportunity to succeed you as CEO building on our strong foundation and propelling synopsis to the next wave of growth.
Let's turn to market trends.
Despite global macroeconomic uncertainty.
Speaker 4: Our customers continue to prioritize R&D investments and chip design starts.
Our customers continue to prioritize R&D investments and.
And chip design starts remain robust.
Speaker 4: We leave 2023 with $8.6 billion in non-cancellable backlog and have a time-tested business model that balances dynamic growth with macro resilience.
We leave 2023 with.
With eight 6 billion and noncancelable backlog.
And have a time tested business model that balances dynamic growth with macro resiliency.
Speaker 4: We expect solid growth across our geographies in 2024.
We expect solid growth across our geographies in 2024.
But our outlook reflects a continued challenging near term growth environment in China.
Speaker 4: But our outlook reflects a continued challenging near-term growth environment in China.
Speaker 4: China is an adaptable and large market. However, given the combination of entity lists and technology restrictions,
China is an adaptable and large market. However.
Given the combination of entity list and technology restrictions and a weaker macroeconomic outlook, we believe more pragmatism and our 2020 for China forecast is appropriate.
Speaker 4: and a weaker macroeconomic outlook, we believe more pragmatism in our 2024 China forecast is appropriate.
Speaker 4: Technology trends continue to create a rising tide for our business.
Technology trends continue to create a rising tide for our business.
Chief among those trends is a new era of AI driven productivity.
Speaker 4: Chief among those trends is a new era of AI-driven productivity.
Speaker 4: AI is reshaping industries and providing breakthrough solutions for intractable challenges.
AI is reshaping industries, and providing breakthrough solutions for intractable challenges.
Speaker 4: like the 15 to 30 percent design resource shortage the semiconductor is facing this decade.
Like the 15% to 30% design resource shortage. The semiconductor is facing this decade.
We pioneered AI driven semiconductor design.
Speaker 4: We pioneered AI-driven semiconductor design and are relentlessly advancing our AI capabilities so that we can drive step-up function improvement in our customers' productivity.
And are relentlessly advancing our AI capabilities. So that we can drive step function improvement in our customers' productivity.
Speaker 4: and thus play a greater role in their success.
Thus play a greater role in their success.
Speaker 4: Recently, at Microsoft's Ignite Conference, we announced a breakthrough generative AI capabilities for accelerating chip design synopsis.a.
Recently at Microsoft's Ignite conference.
We announced the breakthrough generative AI capability for accelerating chip design.
<unk> Dot AI co pilot.
The new capability is the result of a strategic collaboration with Microsoft to integrate Azure service that brings the power of Gen AI.
Speaker 4: The new capability is the result of a strategic collaboration with Microsoft to integrate Azure Service that brings the power of Gen AI into one of the most complex engineering challenges. The design process.
Into one of the most complex engineering challenges.
The design process for semiconductors.
The integration of Gen AI across Synopsys Dot AI provides chip designers with collaborative capabilities that offer expert tool guidance.
Speaker 4: The integration of Gen AI across Synopsys.ai provides chip designers with collaborative capabilities that offer expert
Generative capabilities to enable RTL and collateral creation and fully autonomous capabilities for workflow creation from natural language.
Speaker 4: generative capabilities to enable RTL and collateral creation, and fully autonomous capabilities for workflow creation from natural link.
We are engaged with leading chipmakers, including AMD, Intel and Microsoft to deliver the value of Gen AI across the Synopsys Dot dot AI full eda's stack from.
Speaker 4: We're engaged with leading chip makers, including AMD, Intel, and Microsoft, to deliver the value of Gen AI across the Synopsys.ai full EDA stack.
Some design.
Speaker 4: from design, verification, test to manufacture.
Verification test to manufacturing.
Speaker 4: We are at a very early stage of this new AI era, that our initial customer results...
We are at a very early stage of this new AI era.
But our initial customer results are exceptional.
Speaker 4: AI is key to massively unlocking customer productivity.
AI is key to massively unlocking customer productivity.
Speaker 4: And we are increasing our investment to accelerate the Synopsys.ai roadmap.
And we are increasing our investment to accelerate the synopsys dot AI roadmap.
Beyond AI, we see multiple other secular tailwind, providing our design automation and design IP business expanding growth opportunities with.
Speaker 4: Beyond AI, we see multiple other secular tailwinds providing our design automation and design IP business expanding growth opportunities.
With the slowing of Moore's law.
Speaker 4: increasingly architecture and design automation.
Increasingly architecture and design automation.
Speaker 4: are the main levers in delivering semiconductor PPA gain.
The main levers in delivering semi conductor PPA gains.
Speaker 4: even as insatiable use case demands push the frontiers of performance and performance per watt.
As insatiable use case demand push the frontiers of performance and performance per watt.
Speaker 4: Multi-dye implementations are accelerating as our customers seek to optimize costs and yield for these large complex designs.
Multi die implementations are accelerating as our customers seek to optimize costs and yields for these large complex designs.
Speaker 4: And our customers who rely on our critical competencies from silicon to software now require a systems level approach, both at the semiconductor device level with multi-dye and in the electronic design, software bring up, and software validation of full systems, like today's software defined card.
And our customers who rely on our critical competencies from silicon to software.
Now require a systems level approach both at the semiconductor device level was multi die.
And the electronic design software bring up and software validation of full systems like today's software defined cars.
Our design IP business.
Speaker 4: Our design IP business also has strong wind in its sails.
<unk> has strong wind in its sales.
Speaker 4: Applications crave ever faster ingest and throughput, resulting in faster protocol migrations and increasing IP content value per device.
Applications claim ever faster ingests and throughput, resulting in faster protocol migrations and increasing IP content value per device.
Customers are prioritizing scarce design resources to focus on their critical architectural differentiation and turning to us as an integral part of their chip design development teams for their foundation and interface IP needs.
Speaker 4: Customers are prioritizing scarce design resources to focus on their critical architectural differentiation and turning to us as an integral part of their chip design development teams for their foundation and interface IP need.
And now <unk>.
Speaker 4: And now, all three leading edge foundries are making Synopsys the advanced node IP vendor of choice.
All three leading edge foundries are making synopsys.
Advanced node IP vendor of choice.
They are partnering with us on a broad range of IP titles to minimize risk and accelerates silicon success.
Speaker 4: They are partnering with us on a broad range of IP titles to minimize this and accelerate silicon success.
Our design automation in design IP businesses have both leadership technology and market positions with industry trends playing to our strengths.
Speaker 4: Our design automation and design IP businesses have both leadership technology and market positions, with industry trends playing to our strengths.
Speaker 4: We're increasing our investment in these segments to capture more of this growing time.
We're increasing our investments in these segments to capture more of this growing Tam.
Speaker 4: We started our investments in software integrity with the acquisition of Coverti in 2014.
We started our investments in software integrity.
With the acquisition of Coverity in 2014.
Speaker 4: Software security was a pain point for every company, and risk surfaces were expanding.
Software security was a pain point for every company and risk surfaces were expanding.
Speaker 4: Customers were searching for innovative approaches in quality and security testing to help reduce the risk of software failures and security breaches. And we developed the broadest portfolio.
Customers were searching for innovative approaches and quality.
And security testing to help reduce the risk of software failures and security breaches.
And we developed the broadest portfolio to meet that need.
Flash forward to today our.
Speaker 4: Flash forward to today, our software integrity business has become the leader in application security testing with industry leading team delivering over half a billion dollars and trailing 12 months revenue at mid-teens non-GAAP operating margin.
Our software integrity business has become the leader in application security testing with industry, leading team delivering over half a billion dollars in trailing 12 months revenue at mid teens non-GAAP operating margin.
We are proud of the significant progress we've made over the last nine years.
Speaker 4: We are proud of the significant progress we've made over the last nine years and believe the future opportunity remains attractive.
And believe the future opportunity remains attractive.
Speaker 4: At the same time, we have compelling investment opportunities in design automation and design IT with much higher expected growth and return profiles. Following our...
At the same time we.
We have compelling investment opportunities in design automation in design IP with much higher expected growth and return profiles.
Following our strategic portfolio review.
Speaker 4: and in consultation with the company's board of directors.
In consultation with the Companys board of directors.
We have decided to explore strategic alternatives for the software integrity business.
Speaker 4: We have decided to explore strategic alternatives for the software integrity business.
As part of this process, we're considering full range of strategic opportunities.
Speaker 4: As part of this process, we're considering full range of strategic opportunities.
We will provide an update after we conclude that process.
Speaker 4: We would provide an update after we conclude that process.
Speaker 4: Based on these market and technology trends, and with high confidence in our business, here are our 2020...
Based on these market and technology trends and with high confidence in our business.
Our 2024 guidance targets.
Speaker 4: We expect 2024 revenue between $6.57 and $6.63 billion.
We expect 2020 for revenue between 657 and $6 $63 billion.
We expect to deliver 37% non-GAAP operating margin.
Speaker 4: We expect to deliver 37% non-GAAP operating margin, a 200 basis point improvement versus last year,
A 200 basis point improvement versus last year.
We expect full year non-GAAP EPS between $13 33.
Speaker 4: we expect full year non-GAAP EPS between $13.33 and $13.41. Nina will discuss
And $13 41.
Sheila will discuss the financials in more detail.
Now I'll share some segment highlights starting with design automation.
Speaker 4: Now I'll share some segment highlights starting with design automation.
This quarter synopsis that AI was selected by Aspen core.
Speaker 4: This quarter, Synopsys.ai was selected by Aspen Core to receive the World Electronics Achievement Award for EDA Software of the Year. We're proud to announce that the EDA Software of the Year.
To receive the award Electronics Achievement Award for <unk>, a software of the year.
We're proud of the recognition.
Speaker 4: but even more excited by the strong customer adoption for Synopsys.ai across the design flow.
But even more excited by the strong customer adoption for Synopsys up AI across the design flow.
A major north American Hyperscale or made a major commitment to use DSO that AI after demonstrating PPA.
Speaker 4: A major North American hyperscaler made a major commitment to use DSO.ai after demonstrating PPA and productivity benefits on consecutive HPC projects.
And productivity benefits on consecutive HBC projects.
In verification.
Speaker 4: We engaged with over 20 customers in Q4.
We engaged with over 20 customers in Q4.
Speaker 4: demonstrating up to 10x faster turnaround time.
Demonstrating up to Tenex faster turnaround time.
Speaker 4: While in test, we added eight new customer engagements with Tiochia publicly highlighting more than 50% pattern reduction.
<unk> and <unk>.
We added eight new customer engagements with key akshay publicly highlighting more than 50% pattern reduction.
Finally.
Speaker 4: We at TSMC announced that our analog migration flow through Synopsys.ai is enabled across TSMC's advanced process technology.
We and TSMC announced that our analog migration flow through synopsis that AI is enabled of course tsmc's advanced process technologies.
We are also seeing great results, the deploying synopsis that AI internally with our IP teams.
Speaker 4: We are also seeing great results deploying Synopsys.ai internally with our IP team.
Speaker 4: Internal IP teams are seeing 10x turnaround time improvements in time to target verification coverage and have deployed analog design migration flows for TSMC2 nanometers.
Internal IP teams are seeing 10 X turnaround time improvements in time to target verification coverage and have deployed analog design migration flows for TSMC 10 nanometer.
Fusion compiler continues to win key designs, including the leading edge or mobile quarter for the industry's first implementation for a gate all around based mobile Src.
Speaker 4: Fusion compiler continues to win key designs including the leading edge ARM Mobile Core for the industry's first implementation for a gate all-around based mobile SoC.
Speaker 4: In combination with DSO.ai, Fusion Compiler also delivered 10% better power on gate all-around base mobile GPU and modem designs. We saw conti-
In combination with DSO that AI using.
Fusion compiler also delivered 10% better power on gate, all around based mobile GPU and modem designs.
We saw continued momentum in sign off.
Speaker 4: delivered by our leadership family of prime tools.
Delivered by our leadership family of Prime tools we.
Speaker 4: We won multiple engagements with Prime Time, Prime Closure, and Prime Shield and saw the world's top three data center providers adopt Prime Closure to get the fastest ECO closure time for five 3-nanometer SOCs.
We won multiple engagements with prime time claim closure and climb shield and solve the worlds top three data center providers adopt plant closure.
Get the fastest EC or closure time 453 nanometer src's.
Expanding our multi die ecosystem, we received the prestigious leadership award from TSMC.
Speaker 4: Expanding our multi-dye ecosystem, we received the prestigious leadership award from TSMC.
For 2023 partner of the year.
Speaker 4: OIP 2023 Partner of the Year for developing the indices first.
For developing the industry's first.
Speaker 4: 3D IC design prototyping solution, supporting the new industry standard 3D block.
<unk> IC design prototyping solution.
Supporting the new industry standard <unk> blocks.
Verification product momentum also remained strong.
Speaker 4: Verification, product momentum also remains strong. This quarter, we announced our AI-driven next generation Verdi solution, which continues its lead in functional debug with deployment already at more than 10 top semiconductor companies.
This quarter, we announced our AI driven next generation Verde solution.
Which continues its lead in functional debug with deployment already at more than 10 top semiconductor companies.
Speaker 4: In hardware-assisted verification, we delivered another record year. In case you have a question, please
And hardware assisted verification, we delivered another record year.
And Keith Q4 <unk>.
Speaker 4: Zibu won against competition at two large North American hyperscalers and we expanded our Haps footprint with a large North American systems company and a large Asian semiconductor company.
<unk> won against competition at two large north American Hyperscale orders.
And we expanded our <unk> footprint with a large north American systems company, and a large Asian semiconductor company.
Now turning to design IP.
Speaker 4: This quarter, we won our first 2nm interface IP engagement with a leading mobile company.
This quarter, we won our first two nanometer interface IP engagement with a leading mobile company.
Speaker 4: and are now in production at 3 nanometer with Foundation IP for a high volume PC chip.
And are now in production at three nanometer with foundation IP for a high volume PC chip.
We delivered a key multi die proof point in concert with Intel and TSMC.
Speaker 4: We delivered a key multi-dive proof point in concert with Intel and TSMC on UCIE interoperability.
On UC I E and profitability.
Speaker 4: The demonstration at Intel Innovation should die to die, interconnect over UCIe between Synopsis IP on TSMC and CRE, and Intel Foundry Silicon.
The demonstration at Intel innovation.
<unk> die to die interconnect over UC I E between Synopsys IP on TSMC and <unk> E and.
And Intel foundry silicon.
Speaker 4: We saw two other key technology proof points this quarter. We demonstrated interoperability for our 224 gig ethernet PHY IP and PCIe 6.0 IP. But I could see why some of these Founder sphere breaker sometimes
We saw two other key technology proof points this quarter.
We demonstrated interoperability for our $2 24 gig Ethernet Phy IP.
And Pcie six all IP.
Industry firsts.
Speaker 4: On the processor IP side, we announced a new addition to the ARC processor IP portfolio. The RISC-V, ARC-V, and the RISC-V RBC-V.
On the processor IP side, we announced a new addition to the Arctic processor IP portfolio.
The risk five arc five processor IP.
This product allows customers to choose from a broad range of flexible extensible processor options that deliver optimal power performance efficiency for the target applications.
Speaker 4: This product allows customers to choose from a broad range of flexible, extensible processor options that deliver optimal power performance efficiency for their target application.
Finally, we delivered a significant win in automotive displacing competition at a marquee customer and a multi generation multiple project agreement.
Speaker 4: Finally, we delivered a significant win in automotive, displacing competition at a marquee customer in a multi-generation, multiple project agreement.
Now to the software integrity segment, which delivered solid growth against the backdrop of continued macro headwinds for enterprise software.
Speaker 4: Now to the software integrity segment, which delivered solid growth against the backdrop of continued macro headwinds for enterprise software.
In Q4.
Speaker 4: We saw over 50% year-over-year growth in our Polaris software integrity platform.
We saw over 50% year over year growth in our Polaris software integrity platform.
Speaker 4: Polaris is a SaaS-based application security testing solution optimized for the needs of development and DevSecOps team.
<unk> is a SaaS based application security testing solution optimized for the needs of development and Dev ops teams.
We were also recently recognized as the leader in the Forrester wave for software composition analysis.
Speaker 4: We were also recently recognized as a leader in the Forrester Wave for software composition analysis.
Speaker 4: This was based on an evaluation of Black Duck, our software composition analysis solution.
This was based on an evaluation of black Duck, our software composition.
Analysis solution.
In summary.
Speaker 4: We had an outstanding Q4 and FY 2023 financial results and operational execution and take tremendous forward momentum into 2024.
We had an outstanding Q4, and FY 2023 financial results and operational execution and take tremendous forward momentum into 2024.
We have a resilient business model.
Speaker 4: We have a resilient business model, and our customers continue to prioritize investments in the chips and systems that position them for future growth.
And our customers continue to prioritize investments in the chips and systems that position them for future growth.
We are aligning our portfolio investment with the greatest return potential to accelerate our growth.
Speaker 4: We are aligning our portfolio investment with the greatest return potential to accelerate our growth.
Speaker 4: deepest thanks to our employees, partners, and customers for their passion and commitment. With that, I'll turn.
<unk>, thanks to our employees partners and customers for their passion and commitment.
With that I'll turn it over to Sheila.
Speaker 5: Thank you, Sistine. 2023 was an excellent year highlighted by record revenue, record non-GAAP operating margin, and record earnings.
Thank you Christine 2023 was an excellent year highlighted by record revenue record non-GAAP operating margin and record earnings.
Speaker 5: We continue our strong execution with financial discipline and are confident in our business heading into 2024, driven by our execution and leadership position across our segment, robust chip and system design activity by our customers who continue to invest through semiconductor cycles, and with $8.6 billion in non-cancelled backlog, the stability and resilience of our time-based business model.
We continue our strong execution with financial discipline and are confident in our business heading into 2024, driven by our execution and leadership position across our segments robust chip and system design activity by our customers, who continue to invest for semiconductor cycle.
With eight $6 billion of noncancelable backlog stability and resilience of our time based business model.
As a result.
Speaker 5: As a result, while the macro environment is uncertain, we expect to grow revenue 12.4 to 13.5%, expand non-GAAP operating margin by approximately 2 percentage points, and drive non-GAAP PPS growth of 19 to 20% in 2024.
The environment is uncertain, we expect to grow revenue 12, four to 13, 5%.
Expand non-GAAP operating margin by approximately two percentage points and drive non-GAAP EPS growth of 19% to 20% in 2024.
Let me provide some highlights of our full year 2023 result.
Speaker 5: Let me provide some highlights of our full year 2023 results.
Speaker 5: We generated total revenue of $5.84 billion, up 15% over the prior year, with double-digit growth across all key products and geographies.
We generated total revenue of $5 eight 4 billion up 15% over the prior year with double digit growth across all key products and geographies.
Total GAAP costs and expenses were $4 6 billion and total non-GAAP costs and expenses were $3 $8 billion, resulting in non-GAAP operating margin of 35, 1%.
Speaker 5: Total GAAP cost and expenses were $4.6 billion, and total non-GAAP cost and expenses were $3.8 billion, resulting in non-GAAP operating margin of 35.1%.
GAAP earnings per share were $7.92 and non-GAAP earnings per share were $11 and making up 26% year over year.
Speaker 5: Gap earnings per share were $7.92 and non-gap earnings per share were $11.19, up 26% year over year.
Speaker 5: Now onto our segment. Design automation segment revenue was $3.78 billion, up 14%, driven by strength in EDA software and hardware. Design automation adjusted operating margin was 38.1%.
Now onto our segment.
Design automation segment revenue was $3 $78 billion.
Up 14% driven by strength in EMEA software and hardware.
Design automation adjusted operating margin was 38, 1%.
Speaker 5: Design IP segment revenue was $1.54 billion, up 17%, driven by broad-based strengths. Design IP adjusted operating margin was $34.55.
Design IP segment revenue was $154 billion.
Up 17% driven by broad based strength.
Adjusted operating margin was 34 five.
Speaker 5: Software integrity revenue was $525 million, up 13%, and adjusted operating margin was 14.5.
Software integrity revenue was $525 million up 13% and adjusted operating margin was 14 five.
Turning to cash operating cash flow for the year was $1 7 billion.
Speaker 5: Turning to cash. Operating cash flow for the year was $1.7 billion. We ended the year with cash and short-term investment of $1.59 billion and total debt of $18 million.
We ended the year with cash and short term investments of $1, five 9 billion and total debt of $18 million.
Speaker 5: During the year, we completed buybacks of $1.2 billion for 80% of free time.
During the year, we completed buybacks of $1 2 billion.
80% of free cash flow.
Now to target, which reflects the impact from export control regulation and assumes no further changes for the year.
Speaker 5: Now to targets, which reflect the impact from export control regulation and assume no further changes for the year. Based on our current assessment of timing of hardware and IP delivery, we expect the first half, second half split of approximately 48% to 52% for revenue and non-GAAP EPS.
On our current assessment of timing of hardware and IP deliveries, we expect the first half second half split of approximately 48%, 52% for revenue and non-GAAP EPS.
Speaker 5: For fiscal year 2024, the full year targets are revenue of $6.57 to $6.63 billion, total gap costing expenses between $5.0 and $5.05 billion.
Our fiscal year 2020 for the full year targets are revenue of $6 five seven to $6 $63 billion.
Total GAAP costs and expenses between 5.0 and $5.05 billion.
Speaker 5: Total non-GAAP costs and expenses between $4.14 and $4.18 billion, resulting in non-GAAP operating margin improvement of roughly 2%
Total non-GAAP costs and expenses between 414, <unk>, one $8 billion.
The resulting in non-GAAP operating margin improvement of roughly two percentage points.
non-GAAP tax rate of 15% GAAP.
Speaker 5: non-GAAP tax rate of 15%, GAAP earnings of $9.07 to $9.25 per share. non-GAAP earnings of $13.33 to $13.41.
GAAP earnings of $9 seven.
$9 25 per share non-GAAP earnings of $13 33.
The $13 41.
Cash flow from operations of approximately 1.4.
Speaker 5: Cash flow from operations of approximately $1.4 billion, which includes an impact of approximately $200 million of 2023 taxes that we will pay in 24, and approximately $400 million of higher cash taxes due to the amortization of R&D.
$4 billion.
Which includes an impact of approximately $200 million of.
2023 taxes that we will pay in 'twenty, four and approximately $400 million.
A higher cash taxes due to the amortization of R&D expense.
Following 2024, we expect ash tax growth rate to be approximately in line with operating income growth over a multiyear period.
Speaker 5: Following 2024, we expect cash tax growth rate to be approximately in line with operating income growth over a multi-year period.
Speaker 5: Now to targets for the first quarter, which includes an extra week compared to the first quarter of fiscal 2023. Revenue between $1.63 and $1.66 billion, which includes approximately $70 million from the extra week.
Now to targets for the first quarter, which includes an extra week compared to the first quarter of fiscal 2023.
Revenue between $1 63, and $1 six $6 billion, which includes approximately $70 million from the extra week.
Speaker 5: Total gap costs and expenses between $1.22 and $1.24 billion. Total non-gap costs and expenses between $1.02 and $1.03 billion. Gap earnings of $2.40 to $2.50 per share.
Total GAAP costs and expenses between one to two and $1 billion to $4 billion.
Total non-GAAP costs and expenses between 1.02 and $1 <unk> $3 billion.
GAAP earnings of $2 40.
To $2 50 per share.
Speaker 5: non-GAAP earnings of $3.40 to $3.45 per share, including approximately 14 cents from the extra week.
non-GAAP earnings of $3 40.
To $3 45 per share, including approximately <unk> 14 from the extra week.
Speaker 5: Our press release and financial supplement include additional targets and GAAP to non-GAAP reconciliation.
Our press release and financial supplement included additional target and GAAP to non-GAAP reconciliation.
I also want to highlight that we will be hosting our investor day on March 20th which will be held in conjunction with our Synopsys user group event in Santa Clara, We look forward to seeing many of you there.
Speaker 5: I also want to highlight that we will be hosting our investor day on March 20, which will be held in conjunction with our Synopsys User's Group event in Santa Clara. We look forward to seeing many of you there.
In conclusion, we entered 2024 with momentum and confidence, reflecting our leadership position across our segments.
Speaker 5: In conclusion, we entered 2024 with momentum and confidence, reflecting our leadership position across our segment, robust design activity by our customers who continue to invest through semiconductor cycles and the stability and resiliency of our time-based business. With that, I'll turn it over to the operator for questions.
Robust design activity by our customers, who continue to invest for semiconductor cycles, and the stability and resiliency of our time basis.
With that I'll turn it over to the operator for questions.
Thank you.
Speaker 1: Before we begin the Q&A session, I would like to ask everyone to please limit yourself to one question and one brief follow-up to allow us to accommodate all participants. If you do have additional questions, please re-enter the queue and we'll take as many as time permits. With that, I would like to remind everyone to press star 1 on your telephone keypad to queue up and it is star 1 to remove yourself from that queue.
Before we begin the Q&A session I would like to ask everyone to please limit yourself to one question and one brief follow up to allow us to accommodate all participants. If you do have additional questions. Please reenter the queue and we'll take as many as time permits with that I would like to remind everyone. Please press star one on your telephone.
Had to queue up and it is star one to remove yourself from that Q.
Speaker 1: We'll take our first question from Harland Sore with J.P. Morgan.
We'll take our first question from Harlan sur with J P. Morgan.
Okay.
Speaker 6: Good afternoon and congratulations on the strong execution and fiscal 24 guidance.
Good afternoon, and congratulations on the strong execution in fiscal 2000 and for guidance.
Thank you.
Speaker 6: Thank you. Yeah, you're welcome. Hardware verification emulation prototyping, this has been a big contributor to your double digits revenue growth profile over the past number of years. Lots of customers focusing on verification on these very complex.
Yeah, you're welcome no hardware verification emulation prototyping I mean, this has been a big contributor to your double digit revenue growth profile over the past number of years.
Lots of customers focusing on verification on these very complex chip design, rather than wanting to get a head start on the embedded and application software development is the team anticipating another strong year next year for hardware will it will it be growing at a double digit sort of growth rate within your fiscal 'twenty four.
Speaker 6: chip design, a lot of them wanting to get a head start on the embedded and application software development. Is the team anticipating another strong year next year for hardware? Will it be growing at a double-digit sort of growth rate within your fiscal 24 guidance? And if I look at inventories, right, they're up 53% year over year to kind of record levels, which I think is a good indicator of a strong hardware pipeline, but wanted to get your approval later or maybe to lose closes within each group. So I think it's going to be a job that the team has, and I think that hopefully, there will be a dove projecting anywhere from you. I think the reason we're talking about real-time technical
<unk>.
And if I look at inventories right, there up 53% year over year to kind of record levels, which I think is a good indicator of our strong hardware pipeline, but wanted to get your views.
Speaker 4: Thanks for the question. In terms of the need, exactly the way you highlighted it, the requirement to develop software early.
Yeah. Thanks for the question in terms of the need.
Exactly the way you have highlighted.
Our requirements to develop software early and having a hardware assisted verification to enable that process and the process.
Speaker 4: and having a hardware assistance verification to enable that step in the process.
Speaker 4: is not only continuing, it's accelerating with many system companies are trying to design their chip or even if they're getting a chip from a
He is not only continuing is accelerating with many system companies are trying to design their chip or even if they are getting it shipped from.
A.
A semiconductor company they want to start their software development and verification of the system early.
Speaker 4: And this is where our HAPS and Zebu platform comes in to enable that part of the solution. We're anticipating that to continue into 2024. As you saw as well, we had a record year for our hardware assistance verification in 23, and we don't anticipate anything different that will change going into 2024.
This is where our haps and zebu.
That form comes in to enable that.
That part of the solution, we're anticipating that to continue into 2024.
As you saw as well we had a record year for our hardware assisted verification in 'twenty, three and we don't anticipate anything different definitely change going into 2024.
Speaker 5: As for the inventory comment, I'll turn it to Sheila for comments. Sure. As the team said, we had a record in 2023. We expect another record in 2024 and we're building inventory to be able to fulfill our customer demand.
As for the inventory comment I'll turn it to Sheila.
Sure.
Being said, we had a record in 2023 and we expect another record in 2024, and we are building inventory to be able to fulfill our customer demands.
Perfect and maybe maybe a similar question on your IP business strong growth last year right up 17%.
Speaker 6: Perfect. And maybe, maybe a similar question in your IP business, strong growth last year, right? Up 17%.
Speaker 6: going forward, I mean, just continued tailwinds, right? Chip design complexity, driving more reliance on off-the-shelf IP licensing. And just as importantly, there's some pretty big transitions.
Going forward I mean, just continued tailwind right chip design complexity driving more reliance on off the shelf IP licensing and just as importantly, right. There are some pretty big transitions on the interface and connectivity side Pcie Gen five <unk> five <unk>.
Speaker 6: on the interface and connectivity side, PCIe Gen 5, CXL, DDR5, HBM3E. Looking at your pipeline backlog customer programs, will the IP business be growing slower, faster, in line with the fiscal 24 total revenue profile?
Looking at your pipeline backlog customer programs will the IP business be growing slower faster in line with the fiscal 'twenty four sort of total revenue profile.
So.
Speaker 4: So again, exactly the way you're outlining the requirement, there is two vectors. There's the complexity, and then there is the different methods of designing an SOC or a chip. With multi-die, it's opening up the door for new protocols. UCIE, the PCIE, the CXL, the one that you've listed.
Again exactly the way you are outlining the requirement that is two factors.
<unk>.
And then there is the different methods of designing and <unk>.
C chip.
With multi die is opening up the door for new protocol.
I E. The PCI E. The CX out was the one that you've listed.
Speaker 4: There are different protocols for various markets for automotive as they expand their sophistication in developing the electronic system. It requires different requirements for the interface IP for an automotive application.
They are different protocols for various markets for automotive as they expand their.
Sophistication and developing the electronic system it requires different requirements for the IP interface IP for an automotive application.
Speaker 4: What we outlined in the script as well is today we are the leading supplier for TSMC, Samsung and Intel's Soundre business.
What we outlined in the script as well is today, we are the leading supplier for.
TSMC, Samsung and Intel foundry business and Thats puts us in a great position because most of these complex chip developments on these advanced foundries and today, we are in a very fortunate position to be the partner and the leader in providing the IP for that business. So we expect that.
Speaker 7: And that puts us in a great position, because most of these complex chip developments are on these advanced foundries. And today, we are in a very fortunate position to be the partner and the leader in providing the IP for that business. So we expect that growth to continue, given the market demand for these sophisticated chips will continue. Great insights. Thank you. Thank you.
Growth to continue given the market.
Demand for these sophisticated chips will continue.
Yes.
Great insights thank you.
Thank you.
We will take our next question from Joe <unk> with Baird.
Speaker 8: Uh, great. Hi everyone. Um, I maybe wanted to start by parsing out some of the demand commentary. So first there was a big step up in backlog.
Great Hi, everyone.
I, maybe wanted to start parsing out some of the demand commentary so far.
Or is there is a big step up in backlog.
Speaker 8: You know, I'd imagine that goes well for 2024 and 2025 positive for revenue. At the same time, you know, maybe the incremental moderation you're signaling in China.
I'd imagine that bodes well for 2024 and 2025 positive for revenue.
At the same time, maybe the incremental.
Moderation you're signaling in China.
Speaker 8: As I think about just the last 12 months, I think China contributed about two points worth of revenue growth, just the incremental revenue contribution from China. So, in arriving at the 13% growth guidance, are you really seeing kind of good strength, you know, something better than 13% and then China's maybe just a more neutral factor in your output?
As I think about just the last 12 months I think China contributed about two points worth of revenue growth just the incremental revenue contribution from China.
In arriving at the 13% growth guidance are you really seeing kind of good strength, we have something better than 13% and then China is maybe just more neutral factor in your outlook.
We really took a balanced approach as we look at the guidance and our forecast for FY 'twenty. Four we took into account some of the headwinds that we're seeing and of course the number of the tailwind that we are observing in the market.
Speaker 4: We really took a balanced approach as we look at the guidance and the forecast for FY24. We took into account some of the headwinds that we're seeing and of course the number of the tailwinds that we are observing in the model.
Speaker 4: A couple of the headwinds that we mentioned, one of them is China and the two factors, one is the continued export restrictions.
All of the headwinds we mentioned one of them is China and the.
Two factors one is the continued export restrictions.
Speaker 4: And the other one that I'm sure all of you are observing, which is the macro economy inside China.
The other one that I.
I'm sure all of you are observing which is the macro economy inside China.
Speaker 4: The other headwind we took into account is the continued stress and pressure from enterprise software spending that does impact our software integrity business.
Other headwinds we took into account is the continued stress and pressure from.
Enterprise software spending that does impact our software integrity business.
Some tailwind and this is where we get excited about is exactly what we are seeing the AI as a mega trend is driving amazing silicon demand.
Speaker 4: From Tailwinds, and this is where we get excited about, is exactly what we're seeing. The AI as a mega trend is driving amazing silicon demand. And that silicon demand is complex. It's on the most advanced known.
Silicon demand is complex on the most advanced nodes and it's giving us an amazing opportunity for our design automation and design IP. So as we took into account the both headwinds and the tailwind we came with a.
Speaker 4: and it's giving us an amazing opportunity for our design automation and design IP. So as we took into account both headwinds and the tailwinds, we came with a balanced view of the guidance around 13% midpoint for FY21.
Balanced view of the guidance around 14% midpoint for FY 'twenty four.
Okay. That's clear thank you and then just on the topic.
Speaker 8: Okay, that's clear. Thank you. And then just on the topic of generative AI, I did want to maybe get your take if it's possible to contrast.
Shannon generally today I did want to maybe get your take.
It is possible that contrast, Jos.
Speaker 8: the pace of product development and incorporating such a technology relative to what you've done in the past and I guess the context for this question as I think back to Dak and Jules.
Pace of product development, and incorporating such a technology relative to what you've done in the past and I guess the context for those question.
As I think back to DAC in July they were <unk>.
Speaker 8: There were actually members of the Microsoft verification team speaking about how they wanted more robust tools from their EDA vendors that incorporated Gen AI.
Members of the Microsoft verification teams speaking about how they wanted more robust tools from their EDA vendors that incorporate a gen II.
Speaker 8: And we're not very far from July and here you are with a product in conjunction with Microsoft and now Microsoft Verification is using this in their, in their workflows. So it seems like a very quick turnaround. Is it that much quicker than maybe what Synopsys was able to do in the past?
We're not very far from July and here you are with a product in conjunction with Microsoft and now Microsoft verification is using thats in there and their workflows. So it seems like a very quick turnaround is it that much quicker than maybe what synopsys was able to do in the past.
Speaker 9: Maybe we made it look too easy Joe, but there was a lot of work that started well ahead of the DAC timeframe.
Maybe we made it look too easy Joe that there was a lot of work that started well ahead of that timeframe.
If I think a quick step back when we talked about the Synopsys about AI there are four pillars under it.
Speaker 4: If I take a quick step back, when we talk about Synopsys.ai, there are really four pillars under it. The first one we introduced was dso.ai in the 2020 timeframe.
One that we are the first one we introduced was.
<unk> dot AI into 2020 timeframe.
Speaker 4: that was focused mostly on optimizing our product and using every opportunity to leverage machine learning and AI in the product and around the product.
That was focused mostly on optimizing our.
Our product.
And using every opportunity to leverage machine learning and AI in the product and around the product.
The second pillar, which is what we're calling.
Speaker 9: The second pillar, which is what we're calling a collaborative capability using Gen AI, and that's what we announced with Microsoft, which is using a co-pilot approach for supporting our users for knowledge-based or workflow-based or results co-pilot and assist.
A collaborative capability using gen AI.
And Thats, what we announced with Microsoft which is using a co pilot.
<unk> for supporting our users for knowledge based or workflow based on our results.
The co pilot assistance.
Speaker 4: And that's in our announcement where AMD, Intel, Microsoft were some of the early users of that technology.
And that's in our announcement where AMD.
Microsoft.
Who are some of the early users of this technology that we've talked a little bit about what's coming down the path which is.
Speaker 9: Then we talked a little bit about what's coming down the path, which is around both generative and autonomous capability using JetAI and natural language.
Both generative and autonomous capability using Gen AI and natural language.
Speaker 4: We're super excited actually about the early results we're seeing with the co-pilot in terms of productivity of our customers and users.
We're super excited actually about the early results, we're seeing with the co pilot in terms of productivity of our customers and users.
Great. Thank you very much thanks, Joe.
Speaker 1: We'll take our next question from Vivek Arya with Bank of America.
We will take our next question from Vivek Arya with Bank of America Securities.
Speaker 10: Thank you for taking my question. If I remove the, I think you said about 17 million or so impact of the extra week, you're guiding to roughly 12% sales growth.
Thank you for taking my question.
If I remove the I think you said about 17 million or so impact of the extra week youre guiding to roughly 12% sales growth.
Speaker 10: which seems to be very conservative relative to the strong backlog that you have built up.
Right, but it seems to be very conservative relative to the strong backlog.
So im curious Athena I think you mentioned the impact of China in enterprise software and AI is kind of neutral, but then when I look at the 12% growth that is lower than what you had in the last three years, even though there is all this AI excitement that thats starting now.
Speaker 10: I'm curious, I think you mentioned the impact of China and enterprise software and AI is kind of neutral. But then when I look at the 12% growth that is lower than what you had in the last three years, even though there is all this AI excitement that's starting now.
Speaker 10: So is it conservative? You know, how should we kind of put this 12% in the context of the kind of growth rates we have? You know, we are used to seeing from synopsis over the last three.
Is it conservative.
How should we kind of put this 12% in the context of the kind of growth rates we have.
We are used to seeing from synopsys over the last three years.
Speaker 5: So, Vech, thanks for the question. This is Sheila. I'll jump in on that. So, we're...
So thanks.
Thanks for the question. This is Sheila I'll jump in on that so.
<unk>.
Speaker 5: Obviously, taking a balanced stance, as Sistine had talked about, at the midpoint, we're at a 13% growth year over year. And we're seeing design automation, design IP have incredibly strong momentum. You mentioned the $8.6 billion backlog. We're seeing that growth in line with our long-term targets. And we're seeing AI as a catalyst, but it's in its early innings. So we think it's a long-term growth catalyst.
Taking a balanced stance of sustained had talked about.
At the midpoint, we're at 13% growth year over year, and we're seeing design automation design IP have incredibly strong momentum you mentioned the $8 $6 billion backlog, we're seeing that growth in line with our long term targets and we're seeing AI as a catalyst, but it's in its early innings. So we think it's a long term growth catalyst.
Speaker 5: And we're looking forward to having it be able to help drive our business over the horizon.
And we're.
We're looking forward to having it be able to help drive our business separate horizon, but the two headwinds are China as we've talked about the macro.
Speaker 5: But the two headwinds are China, as we've talked about, the macro situation in China and the restrictions that have been imposed on China are having some dampening effect. We expect China to grow in 24, but at a lesser rate than it grew in 23. And the other
Situation in China, and the restrictions that have been imposed on China are having some dampening effect, we expect China to grow in 'twenty, four but at a lesser rate than it grew in 'twenty three and the other.
Speaker 5: A headwind that we have is we are expecting a muted environment for enterprise software spend to impact our software integrity business. And we're assuming that that business will be single digit growth in 2024. So it's the combination of those headwinds and tailwinds that's leading to our 13% growth rate at the midpoint.
A headwind that we have is we are expecting a muted environment for enterprise software spend will impact our software integrity business and we're assuming that that business will be single digit growth in 2024. So it's the combination of those headwinds and tailwind that's leading to our 13% <unk>.
Right at the midpoint.
Got it and for my follow up the AI copilot seems like a very interesting new.
Speaker 10: And from my follow up, the AI co-pilot seems like a very, you know, interesting new product. I'm curious, what is the right way to track how you are able to monetize it? Are you selling it as incremental feature? Are you selling it as a separate tool? Right, what is the right way to just kind of track how successful you are with this capability?
Product I'm curious.
What is the right way to track how you were able to monetize it are you setting. It does incremental feature of are you selling it as a separate.
<unk>.
Greg what is the right way to just kind of track how successful you are with this.
Capability.
So the way we are thinking than we expected.
Speaker 9: So the way we're thinking and we expressed it over the last few calls, which is AI will be offered to our customers through a subscription like.
Over the last few calls which is AI will be offered to our customers a few a subscription license.
Speaker 4: Meaning, if a customer wants to use an AI capability, be it a DSO.AI or VSO.AI, it will be offered as an incremental spend for the customer to get access to that technology.
Meaning.
A customer wants to use and AI capability at the DSO that AI or.
AI.
It will be offered as an incremental spend.
For the.
To get access to that technology.
Speaker 4: And in some early adopter cases where they're still not ready to make the long-term commitment, we're offering it as well in terms of consumption.
<unk>.
And.
And some early adopter cases, where theyre still at that 30 to make long term commitments, we're offering it as well in terms of consumption base.
Speaker 11: They may be looking for one project to use this exception. And the for pilots in particular case, it's still very early, very, very early stage in terms of us to talk about monetization and how is it concentrating overall. But those are the flexibility tools per se were providing the customer to get access to it. Thank you.
They may be looking for one project for you the successor and.
The co pilot and.
Okay.
<unk> early <unk> early stage in terms of us to talk about monetization and how is it contributing overall.
Those are the flexibility tools per se, we're providing the customer to get access to it.
Thank you.
Thank you for that.
We will take our next question from Jason <unk> with Keybanc.
Okay.
Great. Thanks for taking my question.
Speaker 12: Great, thanks for taking my question. You know, the backlog number, you know, it's quite impressive. You know, looking back at the last couple of years, it looks like it's sequentially the biggest quarter over quarter increase we've ever seen, you know, up 20% year over year. You know, just wanted to check how much of this has been driven just from the AI design activity or the AI tool revenue. Sounds like it was more broad based, but just wanted to check.
The backlog number.
Quite impressive looking back at the last couple of years, it looks like sequentially the biggest quarter over quarter increase we've ever seen.
20% year over year.
Just wanted to check how much of this has been driven just from the AI design activity or the actual revenue. It sounds like it was more broad based but I just wanted to check.
Yes.
Speaker 4: You know with AI we communicated last quarter that what we're observing on average and that's average and I'm emphasizing the average because in some cases we were seeing a much bigger number or a lesser number about 20 percent contract over contract growth when a customer is renewing their PDA agreement and asking for the AI capability to be added.
You know with AI, we communicated last quarter with what we are observing on average and Thats average.
And in fact, I think the average because in some cases, we are seeing a much bigger number or lesser number and about 20%.
Contract over contract.
When a customer is renewing the <unk> agreement and asking for that.
AI capabilities to be added.
Speaker 4: The other points that I made earlier with his act, I'd like to emphasize as well.
The other point that I made earlier was in fact I'd like to emphasize as well.
Speaker 4: that we are in early stages of that monetization with AI. We still have customers that they are in early adoption, meaning if they have X number of projects, they may be using it on one or two projects, and other customers, they started early and they're going more aggressively. But to give you a sense, it's roughly 20% on the EDA side, contact over contact growth will observe.
We are in early stages of that monetization with AI.
We still have customers that they are.
In early adoption, meaning.
If they have X number of projects they may be using it on one or two projects and other customers. They started early and they're going more aggressively but to give you a sense, it's roughly 20% on the EPA side contract over contract growth we're observing.
Okay interesting. Thank you.
Speaker 12: Okay, interesting, thank you. And then one question on the OCF guidance. It'll be down next year. Are you saying that there's a 600 million headwind from OCF guidance?
And then one question on the OCC guidance.
It will be down next year are you, saying that theres, a 600 million headwind from.
Cash taxes, and then additional amortization.
Speaker 12: cash taxes and then additional amortization.
And then are you, saying, it's going to grow just in line with with net income growth that you are asking yes.
Can you clarify yes, Jason Thanks for the question so.
Speaker 5: The total impact from taxes is 600 million, as we're moving to the new tax guidance where R&D is capitalized.
The total impact from taxes of 600 million as we're moving to the new tax guidance, where R&D is capitalized out of that $600 million $200 million of it is pay was payable in November we've already paid it which was for 2023, and then 400 of that $600 million.
Speaker 5: out of that $600 million, $200 million of it.
Speaker 5: was payable in November , we've already paid it, which was for 2023. And then 400 of that 600 million is for 2024. And again, both of those are impacted by the amortization of R&D. As we move forward, as we move into 2025 and beyond, we anticipate that the growth of the cash tax rate
As for 2024 and again both of those are impacted by.
The amortization of R&D as we move forward as we move into 2025 and beyond we anticipate that the growth of the cash tax rate will align with the growth the growth of our operating income. So there is a bit of a big step up this year we.
Speaker 1: will align with the growth of our operating income. So there's a bit of a big step up this year. We do not anticipate that same level step up as we move forward.
Do not anticipate that same level of step up as we move forward.
But this is the new base level.
Yeah.
Speaker 5: It is because we're now going forward for the foreseeable future. We will be amortizing R&D. For us, about half of our R&D is in the US and about half of our R&D is outside the US. That new scheme is with us for the foreseeable future. Gotcha. Okay.
It is because we're now.
Going forward for the foreseeable future, we will be amortizing R&D and for us about half of our R&D is in the U S and about half of our R&D is outside the U S. So that new scheme is with us for the foreseeable future.
Got you okay, great. Thank you.
Thank you thank you Jason.
Speaker 1: We'll take our next question from Jay Bleeshour with Griffin Security.
We will take our next question from Jay <unk> with Griffin Securities.
Thank you good evening.
Speaker 6: Thank you. Good evening. For Arden Sessin first, then a natural follow-up for Sheila. For Arden Sessin, one of the tailwinds that you've had for the last number of years, and we've spoken about this often, is what you refer to as domain-specific architectures on the part of your customers or specialty chips.
Art and assessing first then a natural follow up from Sheila.
For art in 15, one of the tailwind that you've had for the last number of years and we've spoken about this often.
Is what you referred to as domain specific architectures on the part of your customers with specialty chips.
Speaker 13: And AI is probably a very special case of that. The question is, how do you think the whole phenomenon of domain-specific design at either the chip or system level is going to be fundamentally altered by the AI phenomenon? And in turn, what does it mean for any additional investments you need to make outside of R&D, for example, in AE capacity services, et cetera?
And AI.
It's probably a very special case of that the question is.
How do you think the whole phenomenon.
The main specific design I would argue the chip or system level is going to be fundamentally altered.
By the AI phenomenon and in turn what does it mean for any additional investments you need to make outside of R&D for example in.
Heat capacity services et cetera.
Yeah. Thank you Jay for the question you're right.
Speaker 9: Yeah, thank you, Jay, for the question. You're right. The whole domain-specific architecture, I wanna say about six, seven years ago, we started seeing a number of customers investing in it, mostly hyperscalers. And you can argue before that, couple of the mobile companies started optimizing based on their own system software, optimizing their silicon.
Whole domain specific architecture.
I want to say about six seven years ago, we started seeing.
Number of customers investing in a mostly hyperscale orders and you can argue before that couple of the mobile companies start with optimizing based on their own.
The system software optimizing their silicon.
Speaker 4: With the hyperscaners, initially the target was...
With the Hyperscale dealers.
Initially the target was.
Speaker 4: can they, based on the workload, on a specific workload, can they develop a chip that is more effective for power, performance, cost, et cetera? And the answer is yes, and they made a number of these impacts.
Can they.
Based on the workload on our specific workload.
Can they develop the chip.
That is more effective for power performance cost et cetera, and the answer is yes, and they've made a number of these investments.
Speaker 9: Now you're seeing another wave of expanded investment around AI and how can they train the models that they're creating for, again, their specific applications. And I'm sure you've noticed in the last couple weeks, almost the top three hyperscalers announced their own Silicon investment and chips for AI specific training.
Now youre seeing another wave of expenses investments.
<unk> AI and how can they train the models that they're creating for their specific applications.
And I'm sure you've noticed in the last couple of weeks almost the top three hyperscale has announced they're on.
Silicon investments and chips for AI specific training.
Speaker 4: to drive more optimization and efficiency for their workload.
To drive more optimization and efficiency for their workloads, what that means for Synopsys is not only its another shift that our customer base is investing in which drives both EDA and IP.
Speaker 4: What that means for Synopsys is not only it's another chip that our customer base is investing in, which drives both EDA and IP, but typically they are on the most advanced node.
Typically there are the most advanced node.
Speaker 9: And different methodology in many cases. They're pushing towards multi-dye end chiplets, which opens up the door for IP and the comments I made earlier.
And.
Different methodology in many cases, they're pushing.
Towards multi die and chocolates, which opens up the door for IP and the comments I made earlier.
From our solution point of view, yes, we're expanding distribution offering too.
Speaker 9: From our solution point of view, yes, we're expanding the solution offering to enable our customers to design these complex.
To enable our customers to design these complex chips on it.
Speaker 4: On IP, I would say it's fairly straightforward. You deliver to standards to connect these chips. But the work is not straightforward, but the roadmap is fairly straightforward, what you need to do.
I want to see is fairly straightforward can you deliver to standards to connect these chips, but the work is not straightforward, but the roadmap is fairly straightforward what you need to do.
Speaker 4: On the EDA side, we have a number of those customers using 3D IC compilers.
On the <unk> side.
<unk>.
<unk> has a number of those customers using <unk> IC compiler.
Which gives them the ability to architect that chip or that system in that case.
Speaker 4: which gives them the ability to architect that shift or that system in that case.
Speaker 4: SLM, the Silicon Lifecycle Management, to give them the ability to trace the health and the connectivity of these dives into the system and all the way in the field or in the hyperscale of case is as it sits into the data center and it's up and running.
The silicon lifecycle management to give them the ability to place the health and the connectivity of this ties into the system and all the way in the field or in the Hyperscale of case is as it fits into their data center.
Speaker 4: So we have a number of extensions in our portfolio in order to support these opportunities and that's why we are bullish and excited about the opportunity to continue the growth for design automation and design IT.
So we have no growth expansions in our portfolio in order to support these opportunities and Thats why we are.
Bullish and excited about the opportunity to continue the growth for design automation in design IP.
Okay.
Speaker 13: For Sheila, one of the largest components of your backlog has been FSAs.
For Sheila one of the largest components of your backlog has been FSA is.
Speaker 13: which are, I would assume, largely related to IP.
Which are I would assume largely related to IP is there any reason to believe that in future.
Speaker 13: Is there any reason to believe that in future the pull down of FSA's for IP consumption would be faster or larger than has been the case to date? And for that matter, were FSA's a large component of the billion and a half sequential increase in backlog that you noted?
The pull down of Fsa's for IP consumption would be faster or larger than has been the case to date for.
For that matter.
<unk> is a large component of the $1 billion of have sequential increase in backlog that you noted.
Speaker 14: There's not a, I wouldn't know it a different percent of FSAs. It's certainly something that many of our customers who are purchasing IP prefer that model, but there's not a different mix.
There's not a I wouldn't note a different percent of FSA and certainly something that many of our customers who are purchasing IP.
Prefer that model, but theres not a different mix.
Yes.
Thanks, Jay Thank you Jay.
We will take our next question from Charles <unk> with Needham.
Okay.
Okay.
Speaker 6: Hi, good afternoon. I'll congrats on the very strong results guidance and the backlog number. I want to ask a little bit, I think a little bit more into the backlog number because. You have relatively consistent.
Hi, good afternoon, congrats on the very strong results guidance and in the backlog number.
I wanted to ask.
A little bit I think a little bit more into the backlog number because.
You have relatively consistent.
Speaker 15: I mean ratios in terms of how much backlog goes into RPO, how much RPO goes into current RPO, and how much the current RPO covers next year's revenue. With that as the same ratio as in the past few years, I thought you would have guided a little bit higher given that 8.6 billion backlog.
Sales in terms of how much backlog goes into <unk>, how much goes into the current IPO.
How much the current IPO Congress next year's revenue with the same ratio as in the past few years I thought you would have died down a little bit higher given that eight 6 billion backlog.
Speaker 15: So how should we consult this? Is it something like a big time, the average contract duration is a little bit longer within that 8.6 billion backlog, or there's some conservatism around what you want to guide for 24.back.
So how should I reconcile this or is it something like a coupon the average contract duration is a little bit longer we think that the eight six.
Early on backlog or are there some conservatism around where you want the guide for Q4. Thanks.
Speaker 5: Yeah, thanks for the question. So the backlog was broad-based. It was across multiple customers and as Sisim said, some of them was larger renewals and new deals that we booked. There's no change in the duration in our contracts. So there's no change from our typical duration. As we were putting the forecast together for the year, we were really balancing the headwinds and tailwinds that we're seeing in the business and we're seeing, because of the backlog, we're seeing very strong momentum in the core business in design automation and design IP.
Yes. Thanks for the question. So the backlog was broad based it was across multiple customers and assessing sentiment larger renewals and new deals that we book. There was note. There is no change in the duration in our contracts. So there is no change from our typical duration as we were.
Putting our forecast together for the year, we are really balancing the headwinds and tailwind that we're seeing in the business and we're seeing because of the backlog, we're seeing very strong momentum in the core business and design automation in design IP, where we're seeing on.
Speaker 5: where we're seeing the headwinds is on China in particular, which obviously has been a large growth driver for us for the last several years. We're seeing that growth rate slow.
The headwind is on China in particular, which obviously has been a large growth driver for us for the last several years, we're seeing that growth rate slower and then the other one is segue, which.
Speaker 5: And then the other one is SIG, which the software integrity business is still, we anticipate, going to be impacted by a difficult software enterprise purchasing environment. And so that's why we've got that business forecast at single digit growth.
Our integrity business is still we anticipate going to be impacted by.
A difficult software enterprise.
<unk> environment and so that's that's why we've got that business forecast at single single digit growth. So it's really the balancing of those things, but we are seeing design automation in design IP aligned with our long term goals for those businesses.
Speaker 5: So it's really the balancing of those things. But we are seeing design automation and design IP aligned with our long term goals for those businesses.
Okay.
Got it. Thank you another question follow up on.
Speaker 15: Yeah, maybe a quick follow up on the on the half of a half a profile for next year.
Maybe a quick follow up on the on the half over half our profile for next year.
<unk>.
Speaker 15: I mean, I would think that UDA revenue, I mean, because of its time-based nature and you guys keep us assigning bigger contracts, you tend to be like up to the right kind of profile through the year, but your relatively flat-ish half-over-half profile seems to suggest that the IT, maybe some of the hardware is going to be a little bit front-half loaded. Is that the case, and why is that?
I mean, I would think that uba.
I mean because of the time based in nature.
Assigning bigger contracts tend to be like after the right kind of profile through the year, but.
But were relatively flattish half over half profile seems to suggest.
Maybe some of the hot wheels.
Is going to be a little bit front half loaded is that the case and why is that thanks.
Speaker 5: Yeah, it's really just the balance of how we see the customers wanting to ingest our hardware in our IP business. So it's fairly aligned also with what we saw in 23 and fairly aligned with what we saw in 21. Maybe Charles, if I'll add a couple.
Yes, it's really just a balance of how we see the customers wanting to ingest our hardware and our IP business. So it's it's fairly aligned also with what we saw in 'twenty, three and fairly aligned with what we saw in 'twenty one.
Maybe Charles.
A couple of comments to achieve just that.
Speaker 9: Prof numbers, our design automation is about 65% of our business and then design IP, 25% and the software is 10% and the 8.6 billion is mostly those agreements in EDA and IP.
But rough numbers, our design automation is about 65% of our business and then design IP, 25%.
Software.
10%.
And the $8 6 billion is mostly.
Das agreements in EMEA in IP.
Speaker 4: And given the large percentage of the overall revenue we have, which is 25%, is ideal.
And given the large percentage of the overall revenue, we have which is 25% is IP.
Speaker 9: There's a different...
There is a different.
Pull down and development of the IP, especially on the advanced nodes when we're talking about with developing our IP portfolio on the most advanced foundries.
Speaker 4: pull down and development of the IP, especially on the advanced nodes. When we're talking about developing our IP portfolio on the most advanced found...
Speaker 4: From the day you sign an agreement to the day you deliver, there's a time lapse by when that you deliver the IP and you get the pull-down.
From the day, you signed an agreement to the day you deliver there is.
A time lapse by win that you deliver the IP and you get the pull down so while the backlog number to $8 6 billion as large we need to get used to.
Speaker 11: So while the backlog number, the 8.6 billion is large, we need to get, I would say used to, that the consumption for EDA and IP would be very different across that backlog number.
That the consumption for EDA and IP would be very different the cost of that backlog number.
And the timing of it anyway.
Okay.
Thanks Charles.
Speaker 2: Thanks, Charles. Let's do one more question, and then if you could turn it back over to Meedlisa.
One more question and then if you could turn it back over to MS. Lisa.
Thank you we'll take our next question from John Marco <unk> with Deutsche Bank.
Speaker 1: Thank you. We'll take our next question from John Marco Conte with Deutsche Bank.
Hi, there guys. Thank you for taking my question.
Speaker 16: Hi there, thank you for taking my question. So I guess the first thing would be how should we think about the recurring revenue rate into 2024? Is it fair to assume that given that we're expecting another record hardware year into 2024 it will inch closer to 80%?
So I guess the first one would be how should we be thinking about the recurring revenue rate into 2024.
Is it fair to assume that given that we're expecting another record hardware.
<unk> and.
Inch closer to 80% effective could you provide some more color on the strategic initiatives that you're considering.
Speaker 4: And secondly, could you provide some more color on the SIG strategic initiatives that you're considering? Maybe I'll talk about the SIG initiative and Sheila will comment on the backlog. What we've said in the remarks that we went through a strategic portfolio review. Just to put some context around what we went through.
Maybe OPEC talks about the <unk>.
E initiative, and Sheila will comment on the.
With the backlog.
What we've said.
Remarks that we went through a strategic portfolio review just to put some context around what we went through.
As I stated earlier, we have the three business segments and we are truly fortunate that we have a leading position in each one of those segments.
Speaker 4: As I stated earlier, we have the three business segments, and we are truly fortunate that we have a leading position in each one of those segments.
Speaker 4: As we look at the opportunities over the next five to 10 years of these market segments, I cannot express how excited we are about the opportunities we have in design automation and design IT.
As we look at the opportunities over the next five to 10 years of these market segments I cannot express how excited we are.
But the opportunities we have in design automation in design IP and the more we can expand our portfolio within these market segments. So that led us to.
Speaker 4: and the more we can expand our portfolio within these market segments.
Speaker 4: So that led us to discuss and make a decision to explore the strategic alternatives for software integrity.
Discuss and make a decision to explore strategic alternatives.
For software integrity.
To put priority of where to make our investments and what we believe is a higher ROI.
For the investments based on the 90% of our portfolio between the design automation and design IP.
Business segments. So that's really the process that we went through.
In order to get to that point, yes, and I would add that on the recurring revenue question, we're not expecting a substantial change in that.
Had a record hardware year end 'twenty, two and 'twenty three and we're expecting another one in 'twenty four but the overall business is growing too so it won't substantially changed the mix of recurring revenue.
Thank you for the question.
Thanks, Johnny.
Let me turn it over to art for some closing remarks. Thank you a couple of personal words enclosure here since.
Since the IPO in 1992. This is my 128 earnings call.
Not Miss a single one, but I suspect that literally only Jay. Please remember exactly what was said that each one of these calls so a big thank you to you Jay but really huge gratitude to all of you for your feedback you have write ups advocacy on the market.
But also for never giving up on asking questions, where you perfectly well know that we will never answered them.
So I really hope that you will keep that up with athene.
But more impulse importantly, gratitude for having been travel mates and family members in raising this fragile synopsys startup child into the strong worldwide market and technology leader that is today.
<unk>.
Now some CEO transitions are hard, but I think we're doing very well.
<unk> is the perfect choice for CEO. He already leads was ambition heart and smarts and of course has 25 years of experience at Synopsys is comprehended complemented I should say by great customer relationships and very importantly trust.
<unk> is my respect my enthusiasm and my full full sport. So please give them your support as well with that I look forward to from time to time touching base with you. So until then be well and thank you very much.
Thanks, everyone for joining the call Lisa can you close this out.
Thank you and that does conclude todays presentation. Thank you for your participation today you may now disconnect.
Okay.
Yeah.
So can you.