Q1 2024 Cadence Design Systems Inc Earnings Call

Regina: Good afternoon. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. Thank you. I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead.

Good afternoon. My name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the cadence first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. Thank you I will now turn the call over to Richard <unk>, Vice President of Investor Relations for cadence. Please go ahead.

Richard Gu: I'd like to welcome everyone to our first quarter of 2024 earnings conference call. I'm joined today by Anirudh Devgan, President and Chief Executive Officer, and John Wall, Senior Vice President and Chief Financial Officer.

Richard: Thank you operator.

Richard: I'd like to welcome everyone to our first quarter of 2024 earnings Conference call.

Richard: I'm joined today by honored Defcon press.

Richard: President and Chief Executive Officer, and John Wall.

Richard: Hey, Vice President and Chief Financial Officer.

Richard Gu: The webcast of this call and a copy of today's prepared remarks will be available on our website, cadence.com. Today's discussion will contain four forward-looking statements, including our outlook on future business and operating results. 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, including our most recent Forms 10-K and 10-Q, CFO Commentary, and today's earnings release.

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

Richard: Today's discussion will contain forward looking statements.

Richard: Including our outlook on future business and operating results.

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

Richard: For information on factors that could cause actual results to differ.

Richard: Please refer to our SEC filings, including our most recent forms 10-K and 10-Q CFO commentary in today's earnings release.

Richard Gu: All four 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 them. In addition, we'll present certain non-GAAP measures which should not be considered in isolation from, or as a substitute for, GAP results. Reconciliations of gap to non-gap measures are included in today's earnings release. 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.

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

Richard: And we disclaim any obligation to update them.

Richard: 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 Change: 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 <unk>.

Anirudh Devgan: Thank you, Richard. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report that Cadence had a strong start to the year, delivering solid results for the first quarter of 2024. We came in at the upper end of our guidance range on all key financial metrics and are raising our financial outlook for the year. We exited Q1 with a better-than-expected record backlog of $6 billion, which sets us up nicely for the year and beyond. John will provide more details in a moment.

Speaker Change: Thank you Jody good afternoon, everyone and thank you for joining us today.

Speaker Change: I'm pleased to report that cadence had a strong start to the year delivering solid results.

Speaker Change: For the first quarter of 2024.

Speaker Change: We came in at the upper end of our guidance range.

Speaker Change: On all key financial metrics.

Speaker Change: We are raising our financial outlook for the year.

Speaker Change: We exited Q1 with a better than expected record backlog of $6 billion.

Speaker Change: It sets us up nicely for the year and beyond.

Speaker Change: John will provide more details in a moment.

Anirudh Devgan: Long-term trends of hyperscale computing, autonomous driving, and 5G, all turbocharged by AI SuperCycle, are fueling strong broad-based design activities. We continue to execute our longstanding intelligent system design strategy as we systematically build out our portfolio to deliver differentiated end-to-end solutions to our growing customer base. Technology leadership is foundational to Cadence.

Speaker Change: Long term trends of Hyperscale computing autonomous driving and five G. All turbocharged by AI Super cycle are fueling strong broad based design activity.

Speaker Change: We continued to execute our long standing intelligent system design strategy.

Speaker Change: As we systematically build out our portfolio to deliver differentiated and doing dilutions.

Speaker Change: Growing customer base.

Speaker Change: Technology leadership is foundational debated.

Anirudh Devgan: And we are excited by the momentum of our product advancement over the last few years and the promise of our newly unveiled product. Generative AI is reshaping the entire chip and system development process. And our Cadence.ai portfolio provides customers with the most comprehensive and impactful solutions for chip-to-systems intelligent design acceleration, built upon AI-enhanced core design engines. Our Gen-AI solution, boosted by foundational LLM co-pilot, is delivering unparalleled productivity, quality of results, and time-to-market benefits for our customers.

Speaker Change: And we are excited by the momentum of our product advancements over the last few years.

Speaker Change: And the promise of a newly unveiled products.

Speaker Change: Generally there is reshaping the entire chip and system development prostate.

Speaker Change: And our cadence our AI portfolio provides customers with the most comprehensive and.

Speaker Change: And impactful solutions for chip just systems intelligent design acceleration.

Speaker Change: Built upon AI enhanced core design engine, our journey I solution boosted by foundational LLM co pilot.

Speaker Change: Delivering unparalleled productivity.

Speaker Change: Do you have resolved.

Speaker Change: And time to market benefit for our customers.

Anirudh Devgan: Last week at Cadence Live Silicon Valley, several customers, including Intel, Broadcom, Qualcomm, Juniper, and Arm, shared their remarkable successes with solutions in our Cadence.ai portfolio. Additionally, last week, we launched our third generation dynamic duo, the Palladium Z3 emulation and Proteum X3 prototyping platform, to address the insatiable demand for higher performance and increased capacity hardware-accelerated verification solutions, building upon the This new platform sets a new standard of excellence, delivering more than twice the capacity and 50% higher performance per rack than the previous generation. Palladium Z3 is powered by our next generation custom processor and was designed with Cadence AI tools and IP.

Speaker Change: Last week at cadence like Silicon Valley.

Speaker Change: Several customers, including Intel Broadcom Qualcomm join at birth and arm shared their remarkable successes it solutions and our cadence our AI portfolio.

Speaker Change: Last week, we launched our third generation dynamic duo the Palladium Z three emulation and Protium X three prototyping platform.

Speaker Change: Address the insatiable demand for high performance and increased capacity hardware accelerated verification solutions.

Speaker Change: Building upon the successes of the industry, leading Z two X two systems.

Speaker Change: This new platform set a new standard of excellence.

Speaker Change: Delivering more than twice the capacity and 50% higher performance for Iraq.

Speaker Change: And the previous generation.

Speaker Change: <unk> III is followed by our next generation custom processor.

Speaker Change: And was designed with cadence AI tools and IP.

Anirudh Devgan: The Z3 system is future-proofed with its massive 48 billion gate capacity, enabling emulation of the industry's largest designs for the next several generations. The Z3, X3 systems have been deployed at select customers and were endorsed by NVIDIA, ARM, and AMD at launch. We also introduced the Cadence Reality Digital Twin Platform, which virtualizes the entire data center and uses AI, high-performance computing, and physics-based simulation to significantly improve data center energy efficiency by up to 30 percent. Additionally, Cadence's cloud-native molecular design platform, Orion, will be supercharged with NVIDIA's BioNemo and NVIDIA Microservices for drug discovery to broaden therapeutic design capabilities and shorten time to trusted results.

Speaker Change: The Z system is future proof this massive 48 billion gate capacity.

Speaker Change: Enabling emulation of the industry's largest design for the next several generations.

Speaker Change: The <unk> III, a Z systems have been deployed at select customers and endorsed by Nvidia or AMD at lunch.

Speaker Change: We also introduced the cadence reality digital twin platform.

Speaker Change: Which virtualized as the entire data center.

Speaker Change: And uses AI high performance computing and physics based emulation to significantly improve data center energy efficiency.

Speaker Change: Up to 30%.

Speaker Change: Additionally, cadences cloud native molecular design platform Orion.

Speaker Change: We'll be supercharged with Nvidia bio Nemo and Nvidia micro services for drug discovery.

Speaker Change: Broadened therapeutic design capabilities and charter and time to trusted results.

Anirudh Devgan: In Q1, we expanded our footprint at several top-tier customers and furthered our relationship with key ecosystem partners. We deepened our partnership with IBM across our core EDA and systems portfolio, including a broad proliferation of our digital, analog, and verification software, and expansion of our 3D IC packaging and system analysis solution. We strengthen our collaboration with Global Foundry through a significant expansion of our EDA and system solutions that will enable GF to develop key digital, analog, RF, mmWave, and silicon photonics designs for aerospace and defense, IoT, and automotive end markets.

Speaker Change: In Q1, we expanded our footprint at several top tier customers and further our relationship with key ecosystem partners.

Speaker Change: We deepened our partnership with IBM across our core EDA and systems portfolio.

Including a broad proliferation of our digital analog and verification software.

Speaker Change: And expansion of our <unk> IC packaging and system analysis solutions.

Speaker Change: We strengthened our collaboration with global foundry.

Speaker Change: Through a significant expansion of our EDA and system solutions.

Speaker Change: I will enable <unk> to develop key digital analog RF, and Mems and silicon Photonics designed for aerospace and defense.

Speaker Change: D and automotive end markets.

Anirudh Devgan: We announced a collaboration with ARM to develop a chiplet-based reference design and software development platform to accelerate software-defined vehicle innovation. We also further extended our strategic partnership with Dassault Systems, integrating our AI-driven PCB solutions with Dassault's 3DEXPERIENCE Works Portfolio, enabling up to a 5x reduction in design turnaround time for solid work customers. Now, let's talk about our key highlights for Q1.

Speaker Change: We announced the collaboration with arm to develop a chip led based reference design and software development platform to accelerate software defined vehicle innovation.

Speaker Change: We also further extended our strategic partnership with <unk> systems.

Speaker Change: Integrating our AI driven PCB solution.

Speaker Change: With <unk> experience works portfolio.

Speaker Change: Enabling up to a five extra reduction in design turnaround time for solid work customers.

Speaker Change: Now, let's talk about our key highly.

Speaker Change: Highlights for Q1.

Anirudh Devgan: Increasing system complexity and growing hyperconvergence between the electrical, mechanical, and physical domains are driving the need for tightly integrated co-design and analysis solutions. Our system design and analysis business delivered steady growth as our AI-driven design optimization platform, integrated with our physics-based analysis solutions, continue delivering superior results across multiple end markets. Over the past six years, we have methodically built out our system analysis portfolio and, with the signing of the definitive agreement to acquire Beta CAE, are now extending it to structural analysis, thereby unlocking a multi-billion dollar TAM opportunity.

Speaker Change: Increasing system complexity and growing hyper convergence between the electrical mechanical and physical domain is driving the need for tightly integrated.

Speaker Change: Core design and analysis solutions.

Speaker Change: Our system design and analysis business delivered steady growth.

Speaker Change: Our AI driven design optimization platforms indeed.

Speaker Change: Integrated with our physics based analysis dilution.

Speaker Change: Continued delivering superior results across multiple end markets.

Speaker Change: Over the past six years.

Speaker Change: We have methodically built out our system analysis portfolio.

Speaker Change: And with the signing of the definitive agreement to acquire <unk> CA.

Speaker Change: I'd now extending it to structural analysis.

Speaker Change: Thereby unlocking a multibillion dollar Tam opportunity.

Anirudh Devgan: Beta CAA's leading solutions have a particularly strong footprint in the automotive and aerospace verticals, including customers such as Stellantis, General Motors, Renault, and Lockheed Martin. Our Millennium Supercomputing Platform, delivering phenomenal performance and scalability for High Fidelity Simulations, is ramping up nicely. In Q1, a leading automaker expanded its production deployment of Millennium to multiple groups after a successful early access program in which it realized tremendous performance benefits. Allegro X continued its momentum and is now deployed at well over 300 customers.

Speaker Change: <unk>, leading solution had a particularly strong footprint in.

Speaker Change: In the automotive and aerospace verticals.

Speaker Change: Including at customers suggest Atlanta.

General Motors Renault and Lockheed Martin.

Speaker Change: Our millennium Supercomputing platform <unk>.

Speaker Change: Delivering phenomenal performance and scalability.

Speaker Change: For high Fidelity simulation.

Speaker Change: Is ramping up nicely.

Speaker Change: In Q1.

Speaker Change: Leading automaker expanded its production deployment of millennium too.

Speaker Change: Multiple groups.

Speaker Change: After a successful early access program.

Speaker Change: And Richard realized tremendous performance benefits.

Speaker Change: <unk> continued its momentum and is now deployed at well over 300 customers.

Anirudh Devgan: While Allegro X AI, the industry's first fully automated PCB design engine, is enabling customers to realize significant 4 to 10X productivity gain. Samsung used Seltzer Studio to uncover early design and analysis insights to precise and rapid thermal simulation for 2.5D and 3D packages, attaining up to a 30% improvement in product development time, and a leading Asian mobile chip company use Optimality Intelligent System Explorer AI technology, and Clarity 3D Solver, obtaining more than 20x design productivity improvement, ever-increasing complexities in the system verification and software bring up, continue to propel the demand of our functional verification products.

Speaker Change: While our Allegro X AI the industry's first fully automated <unk>.

Speaker Change: Design engine is enabling customers to realize significant border tenex productivity gain.

Speaker Change: Samsung use Celsius studio to uncover early design and analysis insight too precise in rapid thermal stimulation for two and a half D and three D packages.

Speaker Change: Attaining up to a 30% improvement in product development time.

Speaker Change: And a leading Asian mobile chip company used optimality intelligence system explorer AI technology, and clarity <unk> solver, obtaining more than <unk> Dx design productivity improvement.

Speaker Change: Ever increasing complexity in the system verification and software bring up.

Anirudh Devgan: With hardware-accelerated verification, now a must-have part of the customer design flow, on the heels of a record year, our hardware products continue to proliferate at existing customers, while also gaining some notable competitive wins, including at a leading networking company and at a major automotive semiconductor supplier. Demand for hardware was broad-based, with a particular strength seen at hyperscalers, and over 85% of the orders during the quarter included both platforms. Our Veriseum platform leverages big data and AI to optimize verification workloads, boost coverage, and accelerate root cause analysis of bugs.

Speaker Change: Continued to propel the demand of our functional verification products.

Speaker Change: With hardware accelerated verification now a must have part of the customer design flow.

Speaker Change: On the heels of a record year at <unk>.

Speaker Change: Hardware products continued to proliferate at existing customers.

Speaker Change: While also gaining some notable competitive bid.

Speaker Change: Including.

Speaker Change: At a leading networking company.

Speaker Change: And at a major automotive semiconductor supplier.

Speaker Change: Demand for hardware was broad based with particular strength seen at Hyperscale.

Anirudh Devgan: See Accelerating Customer Adoption at Cadence Live Silicon Valley. Qualcomm said that they use Verisim Sim AI to increase total design coverage automatically while getting up to a 20x reduction in verification workload runtime. Our digital IT business had another solid quarter, as our digital full flow continued to proliferate at the most advanced nodes. We had strong growth at hyperscalers, and over 50 customers have deployed our digital solution at 3 nanometer and below design.

Speaker Change: And over 85% of the orders during the quarter included both platforms.

Speaker Change: Our very same platform that leverages big data and AI to optimize verification workloads boost coverage and accelerate root cause analysis of bug.

Saw accelerating customer adoption.

Speaker Change: At cadence lives Silicon Valley.

Speaker Change: <unk> said that they use very see them stay married to increase total design coverage automatically.

Anirudh Devgan: Cadence Cerebrus, which leverages Gen AI to intelligently optimize the digital full flow in a fully automatic manner, has now been used in well over 350 tape-outs, delivering best-in-class PPA and productivity benefits. It's fast becoming an integral part of the design flow at Markey customers, as well as in DTCO flows for new process nodes at multiple foundries. In the custom IC business, Virtuoso Studio, delivering AI-powered layout automation and optimization, continued to be extremely strong, and 18 of the top 20 semis have migrated to this new release in its first year.

Speaker Change: While getting up to a 20 extra reduction in verification workload runtime.

Speaker Change: Our digital IC business had another solid quarter.

Speaker Change: As our digital full flow continued to proliferate at the most advanced nodes.

Speaker Change: We had strong growth at Hyperscale and over 50 customers have deployed our digital solutions on three nanometer and below design.

Speaker Change: Cadence of regress, which leverages journey II to intelligently optimize the digital full flow in a fully automated manner now has been used in well over 350 tape outs.

Speaker Change: Cadence of regress, which leverages journey II to intelligently optimize the digital full flow in a fully automated manner now has been used in well over 350 tape outs.

Anirudh Devgan: Our IP business continues to benefit from market opportunities offered by AI and multi-chiplet-based architectures. We are seeing strong momentum in interface IPs that are essential to AI use cases, especially HBM, DDR, UCIE, and PCIE at leading edge nodes. In Q1, we partnered with Intel Foundry to provide design software and leading IP solutions at multiple Intel Advanced Nodes. Additionally, our Tensilica business reached a major milestone of 200 software partners in the HiFi ecosystem, the de facto standard for automotive infotainment and home entertainment.

Speaker Change: Delivering best in class PPA and productivity benefits.

Speaker Change: It's fast becoming an integral part of the design flaw at marquee customers.

Speaker Change: As well as in DTC or flows for new process nodes at multiple foundries.

Speaker Change: In custom IC business virtuoso studio delivering AI powered lay out automation and optimization.

Speaker Change: Continued ramp lease strongly.

Anirudh Devgan: And we extended our partnership with one of the top hyperscalers in its custom silicon SoC design with our Extensa NX controller. In summary, I'm pleased with our Q1 results and the continuing momentum of our business. Firelink chip and system design complexity and the tremendous potential of AI-driven automation offer massive opportunities for a computational software to help customers realize these benefits. In addition to our strong business results, I'm proud of our high-performance, inclusive culture and thrilled that Cadence was named by Fortune and Great Place to Work as one of the 2024's 100 best companies to work for, ranking number nine. Now, I will turn it over to John to provide more details on the Q and results and our updated 2024 forecast.

Speaker Change: 18 of the top 20 semi.

Speaker Change: Have migrated to this new release in its first year.

Speaker Change: Our IP business continued to benefit from market opportunities offered by AI.

Speaker Change: And multi chip led based architecture.

Speaker Change: We are seeing strong momentum in interface IP.

Speaker Change: That are essential to AI use cases.

Speaker Change: Especially H B M DDR, UCI and pcie at leading edge nodes.

Speaker Change: In Q1, we partnered with the Intel foundry to provide design software and leading IP solutions and multiple in the advanced nodes.

Speaker Change: Our silica business reached a major milestone of 200 software partners.

Speaker Change: And the Hi Fi ecosystem, the de facto standard for automotive infotainment and home entertainment.

John M. Wall: Thanks, Anirudh, and good afternoon, everyone. I am pleased to report that Cadence delivered strong results for the first quarter of 2025. First quarter bookings were a record for Q1, and we achieved a record Q1 backlog of approximately $6 billion. A good start to the year, coupled with some impressive new product launches, sets us up for strong growth momentum in the second half of 2024. Here are some of the financial highlights from the first quarter, starting with the P&L.

Speaker Change: And we extended our partnership one of the top hyper scaler and as custom Silicon Soc design without it extends our Nx controller.

Speaker Change: In summary, I'm pleased with our Q1 results.

Speaker Change: The continuing momentum of our business.

Violin chip and system design complexity and the tremendous potential of AI driven automation offer massive opportunities for our computational software to help customers realize these benefits.

Speaker Change: In addition to our strong business results I'm proud of our high performance inclusive culture and thrilled that cadence was named by Fortune and great place to work as one of the 2024 100 best companies to work for.

John M. Wall: Total revenue was $1,009,000,000. Gap operating margin was 24.8%, and non-gap operating margin was 37.8%. Gap EPS was $0.91, and non-gap EPS was $1.17. Next, turning to the balance sheet and cash flow. The cash balance at quarter end was $1,012,000,000, while the principal value of debt outstanding was $650,000,000.

Speaker Change: Ranking number nine.

Speaker Change: Now I will turn it over to Jon to provide more detail on the Q1 results and our updated 2020 for outlook.

Jon: Thanks, <unk> and good afternoon, everyone.

John M. Wall: Operating cash flow was $253 million, DSOs were 36 days, and we used $125 million to repurchase Cadence shares in Q1. Before I provide our updated outlook, I'd like to share some assumptions that are embedded in our outlook. Given the recent launch of our new hardware systems, we expect the shape of hardware revenue in 2024 to weigh more toward the second half as our team works to build inventory of the new systems. Our updated outlook does not include the impact of our pending Beta CAE acquisition, and it contains the usual assumption that export control regulations that exist today will remain substantially similar for the remainder of time.

Jon: I am pleased to report that cadence delivered strong results for the first quarter of 2024.

Jon: First quarter bookings were a record for Q1, and we achieved record Q1 backlog of approximately $6 billion.

Jon: A good start to the year, coupled with some impressive new product launches sets us up for strong growth momentum in the second half of 2024.

Speaker Change: Here are some of the financial highlights from the first quarter, starting with the P&L.

Speaker Change: Total revenue was $1 billion and $9 million.

Speaker Change: GAAP operating margin was 24, 8% and non-GAAP operating margin was 37, 8%.

Speaker Change: GAAP EPS was <unk> 91.

Speaker Change: Our non-GAAP EPS was $1.17.

John M. Wall: Our updated outlook for fiscal 2024 is revenue in the range of $4.56 to $4.62 billion, gap operating margin in the range of 31 to 32 percent, and non-gas operating margin in the range of 42 to 43 percent. Gap EPS is in the range of $4.04 to $4.14, non-GAAP EPS is in the range of $5.88 to $5.98, operating cash flow is in the range of 1.35 to 1.45 billion dollars, and we expect to use at least 50% of our annual free cash flow to repurchase Cadence shares.

Speaker Change: Next turning to the balance sheet and cash flow.

Speaker Change: Cash balance at quarter end was $1 billion and $12 million, while the principal value of debt outstanding was $650 million.

Speaker Change: Operating cash flow was $253 million.

Speaker Change: Dsos were 36 days, and we used $125 million to repurchase cadence shares in Q1.

Speaker Change: Before I provide our updated outlook I'd like to share some assumptions that are embedded in our outlook.

Speaker Change: Given the recent launch of our new hardware systems, we expect the shape of hardware revenue in 2024 to weigh more towards the second half as our team works to build inventory of the new system.

John M. Wall: With that in mind, for Q2, we expect revenue in the range of $1,030,000,000 to $1,050,000,000. Gap operating margin in the range of 26.5 to 27.5%, and non-gap operating margin in the range of 38.5 to 39.5%. GAP EPS in the range of $0.73 to $0.77, and non-GAP EPS in the range of $1.20 to $1.24. And, 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.

Speaker Change: Our updated outlook does not include the impact of our pending beta CAE acquisition.

Speaker Change: And it contains the usual assumption that export control regulations that exist today remains substantially similar for the remainder of the year.

Speaker Change: Our updated outlook for fiscal 2024 is revenue in the range of 456 to $4 six 2 billion.

Speaker Change: GAAP operating margin in the range of 31% to 32%.

Speaker Change: non-GAAP operating margin in the range of <unk>, 42% to 43%.

Speaker Change: GAAP EPS in the range of $4 in <unk>.

Speaker Change: To $4 14.

Speaker Change: non-GAAP EPS in the range of $5 88.

John M. Wall: In summary, Cadence continues to lead with innovation and is on track for a strong 2024 as we execute on our intelligent system design strategy. I'd like to close by thanking our customers, partners, and our employees for their continued support. And with that, operator, we will now take questions.

Speaker Change: The $5.98.

Speaker Change: Operating cash flow in the range of $1 $35 billion to $145 billion.

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

Speaker Change: With that in mind for Q2, we expect revenue in the range of $1 billion and $30 million to $1 billion and $50 million.

Regina: 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. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Joe Vruwink with Baird. Please go ahead.

Speaker Change: GAAP operating margin in the range of $26 five to 27, 5%.

Speaker Change: non-GAAP operating margin in the range of $38 five to 39, 5%.

Speaker Change: GAAP EPS in the range of 73 to 77.

Speaker Change: non-GAAP EPS in the range of $1 20.

Joseph D. Vruwink: Great. Hi everyone. Thanks for taking my questions.

Speaker Change: Two $1 24.

Joseph D. Vruwink: Maybe just to start with your outlook for the year, can you perhaps provide your second half assumption before this quarter versus where it stands today in terms of just recalibrating around delivery schedules and maybe a good way to frame it? Is that still the right range? But if it is the right range, you can obviously see more is going to end up landing in the second half. And so that kind of feet to your original views, or how is that, I guess, skewed relative to what might have been the expectation a quarter ago?

Speaker Change: And as usual, we published a 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 Change: In summary, cadence continues to lead with innovation and is on track for a strong 2024, as we execute to our intelligence system design strategy.

Speaker Change: I'd like to close by thanking our customers partners and our employees for their continued support and.

Speaker Change: And with that operator, we will now take questions.

John M. Wall: That's a great question, Joe, and I think you've hit on the main point there, that upfront revenue is driving a lot of the quarter-over-quarter trends this year. But when I look at last year, you recall that we had a large backlog of hardware orders, and we dedicated 100% of the hardware production in Q1 to deliver that hardware in Q1.

Speaker Change: At this time I would like to remind everyone who wants to ask a question. 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 we'll pause for a moment to compile the Q&A roster.

<unk>: Your first question comes from the line of <unk> with Baird. Please go ahead.

John M. Wall: As a result, in Q1 2023, 20% of our Q1 2023 revenue was from upfront revenue sources. But in contrast, this year, only 10% of the total revenue for this Q1 is coming from upfront revenue. But again, last year, and to reflect on where we thought we were this time last quarter, that we still expect that upfront revenue will probably be 15% to 20%. I'm in and around the midpoint, which is 17.5% for upfront revenue this year, and a midpoint of, say, 82.5% for recurring revenue. That's still the same as what we thought this time last quarter.

Baird: Alright, great.

Baird: Thanks for taking my questions.

Baird: Maybe just to start with your outlook for the year.

Speaker Change: Can you.

Speaker Change: Perhaps provide maybe of your search.

Speaker Change: Half the assumption.

Speaker Change: Before this quarter versus where it stands today in terms of just recalibrating around delivery schedules and maybe again way to frame that I think in the past you gave a share out of this year's revenue that was going to come from upfront products.

Speaker Change: Is that still the right range, but if it is the right range. So you can obviously see more is going to end up landing in the second half and so that kind of puts to your.

Speaker Change: Original views or how is that I guess skewed relative to what might have been the expectation a quarter ago.

Anirudh Devgan: But that contrast with last year was, I think, 16% of our revenue was upfront last year. And to put dollar terms on it, last year $650 million of our revenue was up front. This year we're expecting roughly $800 million to be up front. But the first half versus the first half, last year we had $350 in the first half and $300 in the second half because we had prioritized all those shipments in hardware, and it skewed the numbers toward the first half last year.

Speaker Change: No. That's a great question, Joe and I think you've hit on the main point, there that upfront revenue driving a lot of the.

Speaker Change: Quarter over quarter trends this.

Speaker Change: This year that's.

Speaker Change: When I look at loss last year, you'll recall that we had a large backlog of hardware orders and we.

Speaker Change: Dedicated 100% of the production hardware production in Q1 to deliver.

Speaker Change: Hardware in Q1 2023 as a result in Q1 2023, 20% of our Q1 'twenty three revenue.

Anirudh Devgan: So $350 and $300, ending with $650 of upfront revenue last year. This year, it looks more like $250 and $550 at the back end. But I know that's largely as a result of we had a record backlog or record bookings quarter in Q1. We've got a substantial backlog in IP that we're scaling up to deliver. A lot of that revenue falls into the second half. And we also launched these new hardware systems last week.

Speaker Change: Was from upfront revenue sources that are in contrast, Q1 this year.

Speaker Change: It's only 10% of the of the total revenue for this Q1 is coming from upfront revenue, but.

Speaker Change: Again last year and two to reflect on where we where we thought we were this time last quarter, but we still expect that upfront revenue will probably be 15% to 20%.

Speaker Change: I'm in and around the midpoint, there was 17, 5% and expectation for upfront revenue this year.

Anirudh Devgan: Hardware revenue is expected to be more second half weighted now because, based on what we've heard, and I'll let Anirudh chime in here on the technical aspects of their new hardware systems, but we expect them to be so popular that a lot of demand will shift to those new hardware systems, and we'll have to ramp up production to be able to deliver that demand. So it shifts some of the upfront revenue to the second half. So I think upfront revenue is really driving a lot of the skewed metrics. Anirudh, do you want to talk about Z3? Yeah, absolutely.

Speaker Change: And the midpoint of say 82, 5% for recurring revenue that's still the same as what we thought this time last quarter that's.

Speaker Change: That contrasts with last year. It was I think 16% of our revenue was upfront last year and put dollar terms on it.

Speaker Change: Last year's $650 million of our revenue was upfronts. This year, we're expecting roughly $800 million.

Speaker Change: To be upfront, but what Q or the first half versus first half last year, we had a $3 50 in the first half and 300 in the second half because we hedge.

Anirudh Devgan: Yeah, absolutely. So we are very proud of the new systems we launched. As you know, we are a leader in hardware-based emulation with Z2X2. And last time we launched them was in 2021. So that was like a six-year cycle, you know, Z1, X1 was 2015. And then Z2, X2 was 21.

Speaker Change: Prioritized all of those shipments in hardware and it skews the numbers towards the first half last year, So $3 50, and 300 ending with the 650 of upfront revenue last year.

Speaker Change: This year it looks more like $2 50, and $5 50 at the backend, but that's largely as a result of we had a record backlog a record bookings quarter in Q1, we've got a substantial backlog in IP that we're scaling up to deliver a lot of that revenue falls into the second half and also we launched these new hardware.

Anirudh Devgan: So what I'm particularly pleased about is we have a major, major refresh. It's a game-changing product, but it was also developed in only three years. So in 2024, you know, we have a new refresh, and it's a significant leap in terms of capacity, and you know, even last week at our Cadence Live conference, NVIDIA and Jensen talked about how they use Z2 to design their latest chip, Blackwell, and it's also used by all the major Silicon companies and system companies to design their chips.

Speaker Change: Systems last week.

Hardware revenue is expected to be more second half weighted now because.

Speaker Change: Based on what we've heard and I'll, let Andrew chime in here on the on the technical aspects of their new hardware systems, but we expect them to be so popular that a lot of demand will will shift to those new hardware systems, and we will have to ramp up production to be able to deliver that demand. So it shifts some of the upfront revenue to the second half.

Speaker Change: So I think all of our revenue is really driving a lot of the skewed metrics. Andrew do you want to talk about G. III.

Andrew: Yeah, absolutely. So we are very proud of the new systems, we launched as you know.

Anirudh Devgan: But what is truly exciting about Z3 and X3 is there's a big leap, you know, Z3 is, you know, four or five times more capacity than Z2. It's a much higher performance. So it sets us up nicely for the next several years to be able to design the, you know, several generations of the world's largest. So that's the right thing to learn.

Andrew: We are a leader in the hardware based emulation the two X two.

Andrew: And last time.

Andrew: We launched them was in 2021, so that was like a six year cycle, you know <unk> X. One was 2015 and then <unk> was 21.

Andrew: What I'm, particularly pleased about is we have a major major refresh.

Joseph D. Vruwink: The reason we can do it in three years versus six years is because, you know, we use our own design internally, in Cadence, for TSMC Advanced Node. So we're using all our latest tools, all the latest AI tools. We are using all our IP, so it's a very good validation of our own capabilities that we can accelerate our design process, but it really sets up hardware verification and the overall verification flow for using the new systems.

Andrew: Game changing product, but it was also developed in only three years. So in 2024, you know we have a new refresh.

Andrew: And it's a significant leap in terms of capacity and even last week at our cadence life conference.

Andrew: Nvidia and gender and talked about how they use the tool.

Andrew: To design the latest chip like like Blackwell and is also used by all the major you know.

Andrew: Silicon companies and system companies to design the chips, but what is truly exciting about <unk> is there's a big leap like <unk> III as you know.

Joseph D. Vruwink: Now, as a result, normally, there is a transition period when you have a new system, and we went through that twice already in the last, you know, 10 years. And the customers naturally will go to the new systems, and then we build them over, you know, the next one or two quarters. But that is the right thing to do for the business long term, you know, the time, it's good to accelerate it because these AI chips are getting bigger and bigger, right?

Andrew: Four to five times more capacity than too much higher performance.

Andrew: So it sets us up nicely for next several years.

Andrew: To be able to design the several generations of the world's largest ships. Okay. So that's the right thing during the reason we can do it in three years versus six years is.

Andrew: We use our own new this is design internally.

Andrew: In Gaydon for TSMC advanced node. So we're using all the latest tools are the latest AI tools, we are using all of our IP.

Joseph D. Vruwink: So the demand for emulation is getting bigger and bigger. And I can give you more stats later. So we felt that it was important to accelerate the development of the next generation system to get ready for this coming AI wave for the next several years, and we are very well positioned. As a result, it does have some impact on quarter to quarter, but that's well worth it in the long run.

Andrew: There's a very good validation of our own capabilities that we can accelerate our design process, but really sets up hardware verification and overall verification flow.

Andrew: For using the new systems now as a result normally there is a transition period. When you have a new system and we went through that twice already in the last 10 years.

Andrew: And the customers naturally will go to the new system and then we build them or you know makes one or two quarters.

Joseph D. Vruwink: That's all very helpful. Thank you.

Joseph D. Vruwink: Second question, I wanted to ask how some of the things you just spoke of, but also AI, start to change the frequency of customers engaging with you, how they approach renewals. So you just brought up how the Harbor platforms, the velocity there has improved from, you know, first generation to next six years; now we're down to a three-year new product cycle. When I listened to your customers last week talk about AI, they're not just generating ML models that can be reused, but then, of course, each run becomes better if you're incorporating prior feedback.

Andrew: That is the right thing to do for the business long term you know the timing is.

Andrew: Good to accelerate the because these AI chips are getting bigger and bigger right. So the demand for emulation is getting bigger and bigger and I could give you more stats later, so we felt it was important to accelerate the development of the next generation system.

Andrew: Get ready for this coming <unk>.

Andrew: The next several years and we are very well positioned as a result, it does have some impact on quarter to quarter, but that's that's that's well worth it in the long run.

Speaker Change: That's all very helpful. Thank you.

Speaker Change: Second question I wanted to ask out some of the things you just spoke of but also AI.

Joseph D. Vruwink: So it would just seem like AI itself not only creates stickiness, but there would be an incentive to deploy it maybe more broadly than a customer traditionally would think about deploying new products. Does that mean the average run rate of a renewal ends up becoming much bigger, and we'll start to see that flow in the backlog?

Speaker Change: To change the frequency of customers engaging with you or how do they approach renewals. So you just brought up how hardware platforms.

Speaker Change: <unk> there has improved from <unk>.

Anirudh Devgan: Yeah, that's a correct observation. You know, like, what we have, as you know, what we have said before, AI has a lot of profound impact on Cadence, a lot of benefit to our customers. So there are three main areas. One is, you know, the build out of the AI infrastructure, you know, whether it's NVIDIA or AMD or all the hyperscalers, and we are fortunate to be working with all the leading AI companies. So that's the first part.

Speaker Change: First generation <unk> now, we're down to a three year new product cycle.

Speaker Change: When I listen to our customers last week talk about AI, they're not just generating ml models that can be a three years, but then of course <unk>.

Speaker Change: Each run.

Speaker Change: Comes better if youre incorporating prior feedback so it would just seem like AI itself not only creates stickiness, but there would be an incentive to deploy it maybe more broadly than a customer traditionally would think about deploying new products does that mean, the average run rate.

Anirudh Devgan: And in that part, as they design bigger and bigger chips, because the big thing in AI systems is that they are parallel, so they need to be bigger and bigger chips. So the tools have to be more efficient, the hardware platform has to support that, and that's why the new systems.

Speaker Change: Although renewal ends up becoming much bigger and we will start to see that flow into backlog.

Speaker Change: Yeah.

Speaker Change: Yeah, that's a correct observation.

Speaker Change: Ovation.

Anirudh Devgan: Now, the second part of AI is applying AI to our own products, which is the cadence.ai portfolio. And like you mentioned last week, we had several customers talking about success with that portfolio, including Intel. You know, like I mentioned, Intel, Broadcom, Qualcomm, Juniper, Arm, and the results are significant. You know, so we are no longer in kind of a trial phase of whether these things will work. Now we're getting, you know, pretty significant improvements. You know, like we mentioned, MediaTek got like a 6% power improvement. And one of the hyperscale companies got 8 to 10% power improvement. These are significant numbers.

Speaker Change: Yes, you know what we have said before AI has a lot of profound.

Speaker Change: In fact to get into a lot of benefit to our customers. So there are three main areas. One is you know.

Speaker Change: Build out of the AI infrastructure, whether it's nvidia or AMD or all the Hyperscale is.

Speaker Change: And we are we are fortunate to be working with all the all the leading AG companies. So that's the first part.

Speaker Change: And in that part you know as the design bigger and bigger chips, because the big thing in AI systems of their paddles or they need to be bigger and bigger chips. So the tools have to be more efficient in the hardware platform have to support that and that's why the new systems now the second part of AI is applying AI to our own products, which is the cadence of our AI portfolio.

Anirudh Devgan: So it is leading to the deployment of our AI portfolio. And I think we mentioned the AI, you know, run rate, you know, on a trailing, you know, 12 month basis is up 3x. And I think the design process already was well automated, you know, EDI has a history of automating design over the last 30 years. So AI is in a unique position, because you need the base process to be somewhat automated to apply AI, you know. We were already well automated.

Speaker Change: And like you mentioned last week, we had several customers talking about success, you know with that portfolio, including the Intel you know like I mentioned, Intel Broadcom Qualcomm Juniper arm.

Speaker Change: And the results are significant so we're no longer in kind of a trial phase of whether these things will work now that you're getting you know pretty significant improvements you know like we mentioned media tagged at like 6% power improvement and one of them.

Speaker Change: Hyperscale companies are 8% to 10% power improvement. These are significant numbers. So it is leading to deployment of our AI portfolio.

Anirudh Devgan: And now AI can take you to the next level of automation. So that's the second part of AI, which I'm pretty pleased about, you know, it's applying to our own product. And then the third part of AI proliferation is new markets that open up, you know, which things like, you know, data center design with reality that we announced or, you know, Millennium, which is designing, you know, systems with acceleration or digital biology, you know, those are like a little, you know, they take a little longer to ramp up, but we have these three kind of impact of AI, the first being direct design of AI chips and systems, second, applying AI to our own product, and third being, you know, new applications of AI.

And I think we mentioned like the run rate on a trailing 12 month basis is up three eight okay and.

Speaker Change: And I think design process already was well automated EDI is a history of automating design over the last 30 years. So AI is in a unique position because you need the based process to be somewhat automated to apply AI. So we were already well automated and now I can take it to the next level of automation.

Speaker Change: So that's the second part of AI, which I'm really pleased about is applying to our own products and then the third part of AI proliferation as new markets that open up you know with things like data Center design with.

Joseph D. Vruwink: That's great. Thank you very much.

Speaker Change: With the reality that we announce our.

Charles Shee: Your next question will come from the line of Charles Shee with Needleman Company. Please go ahead.

Speaker Change: Millennium, which is designing.

Speaker Change: Our systems with the acceleration of our digital biology.

Charles Shee: Thanks. Good afternoon.

Speaker Change: Those are like a little you know they take a little longer to ramp up but we have these three kind of a impact.

Charles Shee: I just want to ask about the China revenue in Q1. It looks pretty light. I just wonder whether that's part of the reason that's weighing on your Q2. I understand you mentioned that you're going through that second-gen to third-gen hardware transition right now. Maybe that's another factor, but from a geographical standpoint, what's the outlook for China for the rest of the year and specifically Q2? Thanks.

Speaker Change: And by the way I, the first being direct design of AI chips and systems, they get and applying AI to our own products and third being in a new new applications up here.

Speaker Change: That's great. Thank you very much.

Speaker Change: Your next question will come from the line of Charles <unk> with Needham <unk> Company. Please go ahead.

Charles: Hi, Thanks, Good afternoon, I just wanted to ask about.

Speaker Change: About.

Charles: The China revenue in Q1 it looks.

John M. Wall: Hi Charles. That's a great observation. If you recall this time last year, we were talking about a very strong Q1 for China in terms of functional verification and for upfront revenue. I think those three things are often linked. But you contracted with this year, China is down at 12%, and upfront revenue is lower at 10% compared to 20%. And functional verification, of course, is lapping those really tough comps when we dedicate 100% production to deliveries.

Charles: Appreciate light yeah.

Charles: I just wanted to.

Whether that's.

Charles: Part of the reason that's weighing on your Q2 I understand you you mentioned that that youre going to use that.

Charles: Second Gen to third Gen hardware transition right now maybe that's another factor, but that problem Joe.

Charles: Graphical standpoint.

Speaker Change: What's the outlook for China for the rest of the year.

Speaker Change: Typically Q2 effects.

Speaker Change: Hi, Charles that's a great observation. If you recall this time last year, we were talking about a very strong Q1 for China for functional verification and for upfront revenue I think those things those three things are often linked but you're contracted with this year China's down at 12%.

John M. Wall: I think when you look at China, we're blessed that we have the geographical diversification that we have across our business. But what we're seeing in China is strong design activity. And while the percentage of revenue dropped to 12%, it pretty much goes in line with a lower hardware, lower functional verification, and lower upfront revenue quarter would generally lead to a lower China percentage quarter. But we have good diversification. And while China is coming down, we could see other Asia increasing, and our customer base is really mobile. That geographical mix of revenue is based on consumption and where the products are used. But as we do more upfront revenue in the second half, we'd expect the China percentage to increase.

Upfront revenues is lower at 10% compared to 20%.

Speaker Change: And functional verification of course is lapping those really tough comps when we when we dedicated 100% production two to deliveries.

Speaker Change: I think when you look at China.

We're blessed that we have the.

Speaker Change: Graphical.

Speaker Change: The diversification that we have across our business, but.

Speaker Change: What we're seeing in China is strong design activity and while the the percentage of revenue dropped to 12% it pretty much goes in line with our lower hardware lower functional verification.

Speaker Change: Lower upfront revenue quarter would generally lead to a lower China percentage quarter.

Speaker Change: We have good diversification and while China's coming down we could see our their Asia increasing.

Charles Shee: Thanks. I want to ask another question about the upcoming ramp-up of the third-generation hardware. What exactly is the nature of the demand? Is it replacement demand, like your customers replacing your Z2, X2 with the Z3, X3, or do you expect a lot more greenfield customers adopting Z3, X3? And more importantly, I think you mentioned about four to five times the capacity increase. They can design larger, much larger chips with a lot more transistors. How much of an ASP uplift are you expecting from the Z3, X3 versus the Z2, X2?

Speaker Change: Customer basis is really mobile that the geographical mix of revenue is based on consumption and where the products are used.

Speaker Change:

Speaker Change: As we do more upfront revenue in the second half, we would expect to China percentage to increase.

Speaker Change: Thanks Manav.

Speaker Change: Another question about.

Speaker Change: The upcoming ramp up that third generation of hardware what exactly is the nature of the demand is that the replacement demand like Kosmos, replacing a two X two or three X three or expect that lot more greenfield customers.

Anirudh Devgan: Yeah, Charles, all good, observer.

Anirudh Devgan: Charles, all good observations. So, let me try to answer them one by one. So I mean, in terms of your last point, you know, we, we, you know, normally, if the system has more capacity, like this one has, it can do more. So it produces, you know, it gives more value to our customers. So we are able to get more value back. Typically, newer systems are better in that way for us and better for the customer. And to give you an example, I mean, these things are pretty complicated.

Speaker Change: Adopting as we grow.

Speaker Change: At three <unk>.

Speaker Change: More importantly, I think.

Speaker Change: You mentioned about four to five times, our capacity increase they can design a larger much larger chips with a lot more channels, how much of a key uplift you're expecting from the weekly expiry.

Speaker Change: Two.

Speaker Change: Yeah, Charles all good observation, so let me try to answer them one by one so.

Speaker Change: I mean in terms of your last point.

Speaker Change: We normally have this system has more capacity like this one has it can do more so it produces it gives more value to our customers. So we are able to get more value back, but typically newest systems R. R.

Anirudh Devgan: So, you know, we'll just take Z3 for example. So Z3, you know, we designed this advanced TSMC chip ourselves. And this is one of the biggest chips that TSMC makes. And one rack will have like..., you know, more than 100 of these chips. And then we can connect up to 16 racks together.

Speaker Change: Better that way for us and better for the customer.

Speaker Change: And to give you. An example, I mean these things are pretty complicated so let's.

Speaker Change: Let's take <unk> III for example, <unk> cell <unk>.

Speaker Change: Zions is advanced TSMC chip by ourselves and this is one of the biggest chips that TSMC makes and one rag will have like.

Anirudh Devgan: So if you do that, you have 1000s of full radical chips emulating, you know, that's, and these are all liquid cooled, you know, connected by optical and infinite band interconnect. So this is like, truly, a multi-rack supercomputer. And what it can do is just emulate very, very large systems very, very large. So even Z2, like NVIDIA talked about it last week, even Blackwell, which is the biggest chip in the world right now with 200 billion transistors, was emulated on fewer acts of Z2.

Speaker Change: More than 100 of these chips and then we can connect like up to 16 racks to that so if you do that you have thousands of our full radical chips emulating.

Speaker Change: And these are all liquid cooled connected by optical and Infiniband interconnect. So this is like a truly multi Iraq supercomputer and what it can do is just emulate very very large systems very very efficient.

Speaker Change: So even the tube.

Speaker Change: Like Nvidia talked about it last week, even black oil, which is the biggest chip in the world right now with 200 billion transistors.

Speaker Change: Was emulated on fewer acts of the two okay. So now with 16 Laggards Z three we can emulate chips, which are like five times bigger than black oil, which is already the biggest chips in the world right. So that gives a lot of run way for our customers because of the AI. The key thing is that the capacity of the chip needs to key.

Anirudh Devgan: So now, with 16 racks of Z3, we can emulate chips that are like five times bigger than Blackwell, which is already the biggest chips in the world, right? So that gives a lot of runway for our customers because with AI, the key thing is that the capacity of the chip needs to keep going up, not just a single chip. Look at Blackwell; they have two full radical chips on a package.

Speaker Change: Going up not just a single chip you know look at Blackberry. They have two full reticle chips on a package. So as you know you will see more and more not just big chips.

Anirudh Devgan: So, as you know, you will see more and more not just big chips on a single node, but multiple chips in a package for this AI workload and also 3D stacking of those. So what this allows is not just emulating a single large chip but multiple chips, which is super critical for AI. OK, so I think this is what I feel that this puts us in a very good position for all this AI boom that is happening, not just with our partners like NVIDIA and AMD but also all the hyperscaler companies.

Speaker Change: On a single node, but multiple chips in a package for this AI AR.

Speaker Change: Workload and also <unk> <unk> stacking of those chips.

Speaker Change: What this allows us not just emulating a single larger but multiple chips, which is supercritical four okay. So I think this is what I feel that this puts us in a very good position for all this AI boom that is happening not just with the with our partners like like Nvidia in AMD, but also all the hyperscale companies Okay.

Anirudh Devgan: And so that will be the primary demand; more capacity chips require more hardware, and then X3 will go for that with software prototyping, which is used on FPGAs. And then we have some unique workload capabilities, apart from the size of these big systems being the capacity being much better in performance. There are new features for low power, and for analog emulation that help in the mobile market. So we talked about Samsung working with us, especially on this four-state emulation, which is a new capability in emulation in the last 10 years.

Speaker Change: And so that will be the primary demand as more capacity chips require more heartburn, Okay, and then X three will go for that with software prototyping, which is used an FPGA.

Speaker Change: And then we have some unique workload capabilities apart from size of these big systems being the capacity being much better in performance. There are new features for low power for analog of emulation that helps in the.

Speaker Change: The mobile market, so we talk about <unk>.

Speaker Change: So you know.

Speaker Change: Working with us, especially on this four straight emulation, which is a new capability in emulation over the life.

Speaker Change: 10 years.

Anirudh Devgan: So I think it's just a combination of new customers, a combination of competitive, but also continuing to lead in terms of the biggest chips in the world, which are required for AI processing now and, you know, years from now. I think the size of these chips, as you know, is only going to get bigger in the next few years. And we feel that Z3X3 is already set up for that.

Speaker Change: So I think it just is a combination of new customers is a combination of competitive wins, but also continuing to lead in terms of the biggest chips in the world, which are required for AI processing now and you know years from now I think the size of these ships as you know is only going to get bigger in the next few years and we feel that <unk> is already setup for that.

Speaker Change: Thanks.

Lee John Simpson: Your next question will come from the line of Lee Simpson with Morgan Stanley. Please go ahead.

Speaker Change: Your next question will come from the line of Lee Simpson with Morgan Stanley. Please go ahead.

Lee John Simpson: Great, thanks. And thanks very much for squeezing me on.

Lee Simpson: Great. Thanks.

Lee Simpson: Thanks, very much for squeezing me on and just.

Anirudh Devgan: And just wanted to go back to what you said last quarter, if I could, it did seem as though you were saying that there was an element of exclusivity around your partnership with Arm, your EDA partnership around Arm Total Design. I wondered how that was developing, if indeed you're collaborating to accelerate the development of custom SOCs using Neoverse. It looks as though it's pulled in quite a lot of work or continues to pull in quite a lot of work around functional verification.

Lee Simpson: I just wanted to go back to what you'd said last quarter, if I could it did seem as though you were saying that there was an element of exclusivity.

Lee Simpson: Around your partnership with arm.

Lee Simpson: A partnership around arm total design.

I wondered how that was developing it if indeed, you you're collaborating to accelerate development of custom <unk> and <unk>.

Lee Simpson: Using new Vars, it looks as though it's pulled in quite a lot of work or continues to prudent quite a lot of work around functional verification.

Anirudh Devgan: And I guess as we look at now third-generation tool sets for Palladium and Proteum, leaving aside some of the rack-scale development that we're seeing out there, whether or not ARM's total design, a... I guess development work is pulling in or is likely to pull in some of that second half business. And that means not just hyperscalers but perhaps AI PCs and beyond. Thanks.

As we look at now third generation tool sets for Palladium and protium, leaving aside some of the rack scale development that we're seeing out there whether or not arms total design.

Lee Simpson: Hey.

Lee Simpson: Development work is pulling in or it is likely to pull in some of that second half business and that means not just hyper scaler, but perhaps in AIP season and beyond.

Lee Simpson: Yeah.

Lee John Simpson: Yeah, thank you for the question. I mean, we are proud to have a very strong partnership with Arm and with our joint customers, you know, Arm and Cadence customers. I think we have had a very strong partnership over the last 10 years, and I would like to say it's getting better and better.

Speaker Change: Yes. Thank you for the question I mean, we are proud to have a very strong partnership with arm and with our with our joint customers no arm and cadence customers.

Speaker Change: I think we have had a very strong partnership over the last 10 years I would like to say and it's getting better and better.

Anirudh Devgan: And yes, we talked about our new partnership on Total Compute. Also, I think this quarter we talked about our partnership with Arm in the automotive industry. Because what is interesting to see, which, of course, you know this already, but Arm continues to do well in mobile, but also now in some kind of HPC, server, and automotive end market. So we are pleased with that partnership, you know, and they are also doing more subsystems and, and, you know, higher order development, and that requires more partnership with, with, with cadence in terms of the back end, you know, us and digital flow and also verification with hardware platforms and other verification too.

Speaker Change: And yes, we talked about our new partnership with total debuted also I think this quarter, we talked about a pause.

Speaker Change: Our initiative with arm on automotive.

Speaker Change: Because what is interesting to see which you know of course.

Speaker Change: You know this already but continues to do well in mobile but also now.

Speaker Change: In and kind of HBC server and automotive end markets.

Speaker Change: So we're pleased with that partnership and they're also doing more subsystems and and you know.

Speaker Change: Our hired order development and that requires more partnership with the cadence in terms of the back end.

Speaker Change: In digital flow and also verification that hardware platforms and other verification tools.

Lee John Simpson: Great. Maybe as a quick follow-up, you know, we've seen quite a bit of M&A activity from yourselves of late, including the IP house acquisition of Invicus, you've had Rambus bought, you've now acquired Beta in the computer-aided emulation space for the car, and there's been quite a lot of speculation in the market about the possibility of a transformative deal being done. And I guess, given that we have you on the mic here, maybe if you could get a sense from yourself, what would be the sort of thing that a business like Cadence could look for?

Speaker Change: Great maybe just a quick follow up we've seen quite a bit of M&A activity.

Yourselves of late you know, including the IP hugs acquisition of invest.

Speaker Change: And Vikas, you've had rambus bunch, you've now acquired data in the computer aided emulation space for the car.

Speaker Change: Being quite a lot of speculation in the market about the <unk>.

Speaker Change: Possibility of a transformative deal being done and I guess given that we have you on the mic here, maybe if you get a sense from yourselves.

Speaker Change: What would be the sort of things that a business like cadence could look forward would you look for high value in a contiguous vertical to what you've already addressed let's see in automotive or would it be something more waterfront.

Lee John Simpson: Would you look for a high value and a contiguous vertical to what you've already addressed, let's say, in automotive? Or would it be something more waterfront, you know, a business that spans several verticals, maybe being more relevant across the industrial software space? Could that be the sort of ambition that Cadence would have given the silicon to systems opportunities that are emerging? Thanks.

Speaker Change: Our business has spanned several verticals, maybe being more relevant across the industrial software space.

Speaker Change: Could that be the sort of ambitions.

Speaker Change: <unk> would have given.

Speaker Change: The silicon to systems and opportunities that our margin. Thanks.

Anirudh Devgan: Well, thank you for the question. And you know, a lot of times there are a lot of reports. And we don't normally comment on these reports, and people get very creative with these reports.

Speaker Change: Well. Thank you for the question and you know a lot of time there are a lot of reports and we don't normally don't comment on these reports and people get very creative on this reporting, but what I would like to say is that our strategy hasnt changed its the same strategy from.

Anirudh Devgan: But what I would like to say is that our strategy hasn't changed. It's the same strategy we used in 2018. You know, first of all, I want to make sure you know that we are focused on our core business, which is EDA and IP. And, and yes, I launched this whole initiative on systems, and it's super critical, you know, chips, silicon to systems. But one thing that I even mentioned last time, what is different from 2018 to now, is that EDN IP is much more valuable to the industry.

Speaker Change: 2018.

Speaker Change: First of all I want to make sure you know that we are focused in our core business, which is EDA and IP and and ESI Airlines. This whole initiative on systems and is supercritical chips silicon into systems.

Speaker Change: But what is one thing that I, even mentioned last time, what is different from 2018 to now is that EDA and IP is much more valuable to the industry. Our core business itself has become much more valuable.

Anirudh Devgan: You know, our core business has become much more valuable because of AI. So our first focus is on our core business. We are leaders in our core business. Our first focus is on organic development. That's what we like. We always say that's the best way forward.

Speaker Change: The of AI, Okay. So our first focus is in our core business.

Speaker Change: We are leading in our core business. Our first focus is on organic development. Okay. That's what we like we always say that.

Speaker Change: That's the best way forward now.

Anirudh Devgan: Now, along with that, we have done, like you mentioned, some opportunistic M&A, which is usually, I would like to say, a tuck-in M&A in the past. And that adds to our portfolio. It helped us with system analysis.

Speaker Change: Along with that we will do some you know we have done like you mentioned, some opportunistic M&A, which as you know usually I would like to say that tuck in M&A in the past and that adds to our portfolio you know it helped us and system analysis.

Anirudh Devgan: We also did it in IP because I'm very optimistic about IP growth this year, and we talked about our new partnership with Intel Foundry in Q1. Also, you know, we acquired Rambus IP assets, which are HBM, and HBM is, of course, a critical technology in AI. And we are seeing a lot of growth in HBM this year. Now, we have booked that business, and the deliveries will happen towards the second half of the year, as John was saying earlier. But so that's the thing.

Speaker Change: Also did it in IP, because I'm very optimistic about IP growth this year, and we talked about our new partnership with Intel foundry in Q1.

Speaker Change: Also we acquired Rambus Ips assets, which are <unk> and HBM is of course, a critical technology and AI and we are seeing lot of growth in <unk>. This year.

Speaker Change: We are booked that business the deliveries will happen towards the second half of the year as John was saying earlier.

Speaker Change: But so that's that's the thing now in terms of beta it made sense because it is a it's.

Anirudh Devgan: Now, in terms of beta, you know, it made sense because it is a very good technology, you know, it's the right size for us, you know, and we are focused on, you know, finishing that acquisition, also, you know, integrating that that will take some time. So that's our primary focus in terms of M&A. And it's a very good technology; they have a very good footprint in the automotive and aerospace verticals. So, just to clarify, you know, we have the same strategy from 18. And that's working as well primarily organic, with very synergistic computational software, you know, mostly Tuckinac.

Speaker Change: Very good technology, it's the right size for US you know and we are focused on on.

Speaker Change: Uh huh.

Speaker Change: Finishing that acquisition also indeed.

Speaker Change: Integrating that that will take some time. So that's our primary focus in terms of M&A and it's a very good technology. They have very good footprint in automotive.

Speaker Change: And aerospace verticals. So so just to clarify we have the same strategy.

Speaker Change: From a DNA, that's doing working as well as primarily our organic with very synergistic computational software.

Speaker Change: Mostly tuck in acquisitions.

Speaker Change: That's great. Thank you.

Ruben Roy: Your next question comes from the line of Ruben Roy with Stiefel. Please go ahead.

Speaker Change: Your next question comes from the line of Ruben Roy with Stifel. Please go ahead.

Ruben Roy: Thank you. Anirudh, I had a follow-up on the Z3, X3 commentary that you had, and one of the things I was thinking about, especially as you talked about the InfiniBand low-latency network across the multiple racks of Z3, you had mentioned that you're up to 85% attached rate on both systems with Z2, X2. I would imagine that it would continue to go up, and if you can comment on whether the new systems incorporate InfiniBand across Z3 and X3, and if so, do you expect that to be sort of a selling point for your customers that are designing these big chips, which in many cases these days have software development attached to the design process? Do you think that the attached rates will continue to move higher?

Ruben Roy: Thank you I had a follow up on the <unk> commentary that you had and.

Ruben Roy: One of the things I was thinking about it, especially as you talked about the Infiniband low right now.

Ruben Roy: Let's say network across the multiple racks of Z. Three you had mentioned that you're up to 85% attach rate on both systems with <unk>.

Ruben Roy: I imagine that would continue to go up and if you can comment on if the new systems incorporate infiniband across.

Ruben Roy: These three and X ray and if so do you.

Ruben Roy: Do you expect that to be sort of.

Ruben Roy: Selling point for your customers that are designing these big shifts which in many cases these days.

Ruben Roy: Software development attached to the design process do you think that the attach rates from Canadian was higher.

Ruben Roy: For both systems.

Anirudh Devgan: Yes, absolutely. I think I started this in, I forget now, 16, I think, you know, dynamic duo or 15 and 16, which is, you know, we have a custom processor for, for palladium, and we use FPGA for proteome. So this is what we call the dynamic duo because Palladium is best in class for chip verification and RTL design, and Proteum is best in class for software bring-up, and with the common front end.

Speaker Change: Yes, absolutely I think.

Speaker Change: I think I started this thing I forget about 16, I think the dynamic duo or 15, and 16, which which as you know we have a custom processor for for Palladium and we use FPGA for protein. Okay. So this is what we call dynamic deal. Because then palladium is best in class for chip verification and <unk>.

Speaker Change: And Protium is best in class for software bring up okay.

Speaker Change: And with the common front and so as a result over the years.

Anirudh Devgan: So, as a result, over the years, this has become the right approach, okay, and our customers are fully, you know, embracing both these systems, as they invariably do, you know, both chip development and software development.

Speaker Change: This has become the right approach okay.

Speaker Change: And our customers are fully embracing both the systems as.

Speaker Change: They invariably do you know.

Speaker Change: Both chip development and software development I mean, a perfect example is of course in our long term development partner in video and video is no longer doing just chip development. They have a massive software stack and that's true for all the Hyperscale is.

Anirudh Devgan: I mean, a perfect example is, of course, you know, our long-term development partner, NVIDIA. I mean, NVIDIA is no longer doing just chip development. They have a massive software stack, and that's true for all the hyperscalers. So, we see that trend continuing, and now we do use, you know, NVIDIA's products like InfiniBand in our systems on Z3. To answer your question, which is because Z3 is a very unique architecture, so it requires a very, very high-speed interconnect.

Speaker Change: So we see that trend continuing and now we do use.

Speaker Change: Nvidia <unk> infiniband in our systems on <unk> III to your question, which is because <unk> is a very unique architecture. So it requires very very high speed interconnect.

Anirudh Devgan: So, it's almost like a supercomputer. So, then it requires optical and InfiniBand in Z3. Now, in X3, we are using AMD FPGAs, which are fabulous, but they do not require that tight interconnect speed. So, InfiniBand is more used in Z3 versus X3, but X3 is a great system, too. We're using the latest AMD FPGAs. You know, it has 8X higher capacity than X2, and all kinds of innovation on the software side as well.

Speaker Change: So it's almost like a like a supercomputer. So so then it requires optical in Infiniband in D. Three now in extra you are using AMD, FPGA, which are which are fabulous, but it does not require that tight interconnect speeds. So infiniband is more used in <unk> III versus equity, but actually there's a great system.

Speaker Change: Do we are using the latest <unk>.

Speaker Change: It has a higher capacity than X two and all kinds of innovation on the software side as well. So we are very pleased I'm very confident that we have true leadership in these hardware platforms, both palladium and protium and we're also pleased like I said earlier that we were able to refresh it you know.

Anirudh Devgan: So, we are very pleased. I'm very confident that we have true leadership in these hardware platforms, both Palladium and Proteum, and we are also pleased, like I said earlier, that we are able to refresh them, you know, much sooner than the market expected given our track record together going forward.

Speaker Change: Much sooner than the market expected given our track record and then we are seeing a lot of demand for both of these systems together going forward.

Ruben Roy: That's helpful. Thank you, Anirudh. And then a follow-up for John. Anirudh mentioned HBM, the IP business booked, and shipping in the second half. I was wondering if you can kind of give us a bigger picture update on how you're viewing IP in general in terms of bookings relative to the sort of ramps of those IP sales. Is it sort of the entire segment sort of a second half, second half ramping at a heavier weight than first half, or any update there would be helpful?

Speaker Change: That's helpful. Thank you Amit and then a follow up for John 100 mentioned HBM.

Speaker Change: <unk> booked in shipping in second half I was wondering if you can kind of give us.

Speaker Change: Bigger picture.

John M. Wall: Update on how youre viewing it in general in terms of.

John M. Wall: Bookings relative to sort of ramps of those IP sales and that sort of the entire.

John M. Wall: Segment sort of a second half or anything on a second half ramping.

John M. Wall: At a heavier weight than first half or any update there would be helpful.

Speaker Change: Yes, Thanks, Ruben I mean Q1 IP performance in bookings were ahead of our expectations.

John M. Wall: and everything remains on track there for a very strong growth year for 2024 for the IP business. Of course, the timing of revenue recognition depends on the timing of deliveries, but we had a tremendous bookings quarter in Q1, and we're preparing to scale for a number of deliveries in the second half, but we expect the IP business to have a very strong year this year. We're pleased with the overall business momentum, but we need to scale up some headcounts to prepare to deliver on some of the larger backlog orders. Yeah, one thing is that

Speaker Change: Everything remains on track there for a very strong growth year for 2024 for the IP business of course, the timing of revenue recognition depends on.

Speaker Change: On the timing of deliveries, but we had a tremendous bookings quarter in Q1 and were preparing to scale for for a number of deliveries of IP in the second half, but we expect the IP to them a very strong year. This year, we're pleased with the overall business momentum but.

Speaker Change: But we need to scale up some head counts to prepare to deliver on some of the larger backlog orders.

Anirudh Devgan: Yeah, one thing I want to highlight, I think you may have seen this, I just want to highlight our partnership with Intel and IFS. Okay, that was concluded in Q1.

Speaker Change: Yeah, one thing I want to highlight I think you may have seen this I just want to highlight our partnership with Intel in Iff's. Okay that was concluded in Q1.

Anirudh Devgan: And so it's really good to see, you know, Pat and Intel investing more in the foundry business and also working more closely with us. So that's also a key contributor to IP. But like John said, we have to, you know, hire the people, you know, do the, we need to port our portfolio to the Intel process. OK, and that takes some time. So that's more will come towards the end of the year and next year. But we are, we are, we are pleased with that new partnership on IP.

Speaker Change: And so it's really good to see bad and Intel investing more in the foundry business and also working more closely with us so.

Speaker Change: So that also.

Speaker Change: A key contributor to IP, but like John said, we have to hire the people to do the we need the board our portfolio to the Intel process, Okay and that takes some time. So that's more will come towards the end of the year and next year.

Speaker Change: But we are we are we are pleased with the new partnership with Nike.

Speaker Change: Very helpful. Thanks, guys.

Jay Vleeschhouwer: Your next question comes from the line of Jay Vleeschhouwer with Griffin Securities. Please go ahead.

Your next question comes from the line of Jay Bray shower with Griffin Securities. Please go ahead.

Jay Vleeschhouwer: Thank you. For you, John, first, and then Anirudh. So, John, thinking back to a recent conversation we had, could you comment, as a measure of EVA market health or dynamics, on what you're seeing or expecting in terms of intra-contract new or expansion business? You know, this is an ongoing phenomenon in EVA. Maybe talk about what you're seeing in that kind of business beyond the customary renewals schedule. And then, relatedly, how are you thinking about pricing for this year, given that EVA generally has substantially better pricing capacity than you might have had in years past? And then my follow-up for Anirudh.

Jay Bray: Thank you for your for you John person and on the road.

Jay Bray: For John.

Jay Bray: Looking back to a recent conversation we had could you comment as a measure of <unk>.

Jay Bray: EBITDA market help or dynamics.

Jay Bray: Whats youre seeing or expecting in terms of intra contracts new or expansion business.

Jay Bray: This is an ongoing phenomenon and Eva maybe talk about what youre seeing in that kind of business beyond the the customary renewals schedule and then Relatedly. How are you thinking about pricing for this year given that.

Jay Bray: Generally has substantially better pricing capacity than you might have had in years past.

Speaker Change: And then my follow up for Auto Road.

John M. Wall: Sure. Thanks, Jay.

Speaker Change: Yeah.

Eva: Sure. Thanks, Joe Great question.

John M. Wall: Great question. Yeah, I think what you're getting at there is what we would call add-ons. Typically, we have a very predictable software renewal business. And you'll see in the recurring revenue part of our business, I think we're at double-digit revenue growth. But over the past few years, I think that's been in the low teens.

Eva: I think what you're getting at there is what we would call add ons.

Speaker Change: Typically we have the very predictable software renewal business.

Auto Road: Youll see in the recurring revenue part of our business I think we're at double digit revenue growth, but over the past few years I think that's been at low teens, but.

John M. Wall: But we're seeing that a number of customers that have adopted AI tools are maybe not coming back and purchasing add-ons as frequently. But right now, we're focused on proliferating those AI tools into accounts. I think there's an opportunity to increase pricing there, but maybe now is not the right time. I think we have such strong momentum in the upfront revenue business. We're preparing for scale into the second half of the year there, but we'll have plenty of revenue growth in the second half of the year.

Auto Road: We're seeing that a number of customers that have adopted AI tools or maybe not coming back and purchasing add ons as frequently but right now we're focused on proliferating those AI tools into accounts.

Auto Road: I think there is an opportunity to increase pricing there, but maybe now is not the right time I think we have such strong momentum on the upfront revenue business. We are preparing for scale into the second half there, but we'll have plenty of revenue growth in the second half of the year. We can continue to focus on proliferating, our AI tools and technology into accounts.

John M. Wall: We can continue to focus on proliferating our AI tools and technology into accounts. And pricing is something certainly we can focus on more intently in future years. But right now, the focus is on proliferation. I don't know, Anirudh, if you have anything to add to that.

Auto Road: And pricing is something certainly we can we can focus on more intensely in future years, but right now the focus is on proliferation.

Auto Road: No.

Speaker Change: Yes, Okay. So auto route thank you back to.

John M. Wall: Okay, so Anirudh, thinking back to your conference last week, particularly the Gen AI track, it was interesting, of course, to hear the adoption presentations by Renaissance, Intel, and so forth, but what seemed to be taking place was a heavy focus on Cerebris, which makes sense, it's the longest in the market, so perhaps you could talk about how you're thinking about the adoption curve for the other brands aside from Cerebris, We hear a lot about implementation, analog, and verification, but we don't hear a lot about AIs being applicable to synthesis, for example, so maybe we should talk about those areas where AI makes a lot of sense and those where, perhaps, it will remain more or less conventional technology.

Speaker Change: Your conference last week, particularly the jet Air I track. It was interesting and of course to hear the adoption presentations by Renaissance Intel and so forth, but we're seem to be taking place is a heavy focus on <unk>, which makes sense for you. If the one longest end market. So perhaps you could talk about how you're thinking about the.

Speaker Change: Adoption curve for the other brands aside funds to reimburse.

Speaker Change: And are there any critical.

Speaker Change: Critical parts of the design flow that might not necessarily be amenable to <unk>.

Speaker Change: Our enablement, we hear a lot about implementation analog verification, but we don't hear a lot about AI as being applicable to synthesis. For example, so maybe talk about those areas, where it makes a lot of sense and those where perhaps it will remain more or less conventional technology.

Anirudh Devgan: Yeah, thanks, Jay, for the question. So, as you know, we have five major AI platforms, with Cerebrus and digital implementation being the one that has been out the longest, and Cerebrus is doing, you know, quite well, like you noted, and we also commented on more than 350 tape-outs, a lot of PPA improvement. But all the other ones are doing well, too. Sometimes we have too many products. We don't talk enough about the others.

Speaker Change: Yes, Thanks, Jay for the question. So as you know we <unk>.

Five major AI platforms with cerebral and digital implementation being the one that has been out the longest and cerebral is doing.

Speaker Change: Right well like you noted and we also commented on more than 350 <unk> lot of BPA improvement.

Speaker Change: But the other all the other ones are doing well do it sometimes we have too many products. We don't we don't talk enough about the others, but like verification like what <unk> is doing quite well and I mentioned Qualcomm last week talked about pretty impressive results because verification. As you know is the exponential problem because as the chips get bigger the verification.

Anirudh Devgan: But verification, like Verisium, is doing quite well, and I mentioned Qualcomm last week talked about pretty impressive results. Because verification, as you know, is an exponential problem.

Anirudh Devgan: Because as the chips get bigger, the verification task gets exponentially bigger. So the benefit of AI can be significant in verification, in a few quarters and years, verification will be as important as implementation in terms of the benefits of AI. And then the other area I would like to highlight is PCB and Allegro and packaging, because that area hasn't seen that much automation in PCB. And Allegro is a leading platform for packaging and PCB, but I'm really proud of Allegro XAI.

Speaker Change: <unk> basket exponentially bigger so.

Speaker Change: So the benefit of AI can be significant and verification. So I think you will see that in the next you know.

Speaker Change: Few quarters and years that verification will be as important as as implementation in terms of benefits of AI. Okay. And then the other area I would like to highlight as BCB and Allegro and packaging.

Because of that area hasn't seen that much in automation.

Speaker Change: PCB and Allegro is a leading platform for packaging in PCB, we're really proud of Allegro X AI and we talked about several customers, including Intel last week talked about four to 10 X improvement using X AI in PCB. So apart from digital I think the the next two one I feel our verification.

Anirudh Devgan: And we talked about several customers, including Intel last week talking about 4 to 10x improvement using XAI and PCB. So apart from digital, I think the next two ones, I feel, are verification and Allegro and PCB. And then the areas that haven't done as well, I mean, are more not in design optimization are like design generation, you know, and I think these LLM-based models do provide a lot of promise.

Speaker Change: And Allegro in PCB.

Speaker Change: And then the areas that havent done as well is more not in design optimization is like design generation you know.

Speaker Change: And I think there are this L. L. M based models do provide Florida promise. So historically, we haven't done as much design generation, which is this is like almost pre RTL rate going from spec to RTL. That's the agenda. That's the truly the creative part of the design process and then once you have ideal is more optimization.

Anirudh Devgan: So historically, we haven't done as much design generation, which is this is like almost pre-RTL, right going from spec to RTL that's the generation that's the truly creative part of the design process, and then once you have RTL, it's more the optimization part in digital and verification. So I think that's where we have to see, but you know, some initial results, which we haven't talked about, I think I mentioned last week, but we work with a, but we have to see it in the early phases, but we work with one or two customers where we took like a 40, 50 page spec document, this English document, and were able to automatically generate RTLs, and the RTL quality is pretty good.

Speaker Change: <unk> and digital and verification. So I think that's where we have to see but you know there's some initial results, which we haven't Doug.

Speaker Change: I think mentioned last week, but we work with but we have to see is still in early stages, but we work with one or two customers in which we took like a $40 50 page spec document this English document and able to automatically generate RTL from it okay and RTL quantity is is pretty good.

Anirudh Devgan: So again, we have to see how that goes, but that requires really advanced LLM capabilities. So that's something to be seen. But if that works, well, that could be another kind of very interesting application of Gen AI.

Speaker Change: So again, we have to see how that goes but that requires the Israeli advance LLM capabilities.

Speaker Change: So that's something to be seen but if that works well that could be another kind of very interesting.

Speaker Change: Kind of application of <unk>.

Gary Wade Mobley: Your next question comes from the line at Gary Mobley with Wells Fargo Securities. Please go ahead.

Speaker Change: Okay.

Speaker Change: Great. Thank you.

Speaker Change: Yeah.

Your next question comes from the line of Gary Mobley with Wells Fargo Securities. Please go ahead.

Gary Wade Mobley: Hey guys, thanks so much for taking my questions. John, I appreciate the fact that China revenue in the first quarter was down against a tough year-ago comp on the hardware verification side as you worked on backlog, and I assume that you still expect China to be crucial to overall company growth in the fiscal year. Could you speak to whether or not you're starting to see, you know, U.S. export controls begin to impact your ability to do business there, whether that be a function of restrictions around gate all around or certain Chinese customers added to the entity?

Gary Wade Mobley: Hey, guys. Thanks, so much for taking my questions John.

Gary Wade Mobley: John I appreciate the.

Gary Wade Mobley: Fact that China revenue in the first quarter was down against a tough year ago comp on the hardware verification side as you work down backlog and I assume that you still expect China to be dilutive to overall company growth in the fiscal year.

Gary Wade Mobley: Could you speak to whether or not you are starting to see U S. Export controls begin to impact your ability to do business, there whether that be a function of restrictions around gate all around or.

Gary Wade Mobley: Certain China customers added to the entity list.

Gary Wade Mobley: Right.

John M. Wall: Hi Gary, thanks for the question. And just to clarify, I think last quarter I said I expected China revenue to be flattened down this year. I think we still expect that, but that's because last year was such a strong year. And there was a lot of There was kind of an oversized portion of that hardware catch-up that we had that was delivered to China. So I think it skewed the Chinese number higher last year. So we're lapping pretty tough competitions.

Speaker Change: Hi, Gary Thanks for the question.

Speaker Change: Just to clarify I think last quarter, I said I expected, China revenue to be flat to down this year I think we still expect that.

Speaker Change: And that's because last year was such a strong year and there was a lot of that was kind of an oversized portion of that hardware catch up that we had that was delivered to China. So I think it's skewed the China number higher last year, So we're lapping pretty tough comps.

Gary Wade Mobley: But design activity in China remains very strong, though, and we have a lot of diversification; there's strength in other parts of the world. But we're very comfortable with the 2024 outlook. And we factored all the impact of geopolitical risk in there to the best we could and try to de-risk China as much as we can in our guise.

Speaker Change: Design activity in China remains very strong though.

Speaker Change: And we're.

Speaker Change: We have a lot of diversification.

Speaker Change: Breast vacation theres strength in other parts of the world, but we're very comfortable with the 2024 outlook and we factored in factored all the <unk>.

Speaker Change: Impact of geopolitical risk in there to the best we can and.

Speaker Change: Tried to Derisk, China as much we can in our guidance.

Gary Wade Mobley: The follow-up question I wanted to ask about booking trends for the balance of the year. You obviously highlighted better-than-seasonal Q1 booking trends. How would you expect the bookings to play out for the balance of the year, and to what extent will Z3 and X3 factor into that for the balance of the year?

Speaker Change: Okay.

Speaker Change: Follow up I wanted to ask about bookings trends for the balance of the year.

Speaker Change: You, obviously highlighted better than seasonal Q1 booking trends how would you expect the bookings to play out for the balance of the year and to what extent.

Speaker Change: Will the <unk> factor into that for the balance of the year. Thank you.

John M. Wall: Thank you. Yeah, I mean, it's

John M. Wall: Yeah, I mean, it's hard to predict in terms of Z3 and X3, but we definitely need another quarter to see that. I expect, I mean, we expect strong demand and we expect strong revenue growth into the second half, like we're preparing for scale into the second half on the hardware side, but we need to at least see another quarter of demand. And normally, with hardware, I don't like taking up the year for hardware until I see the pipeline in the summer. So we're trying to be conservative there, but generally, on the hardware side, yeah, we're basically preparing for scale. We're trying to build we'll build those systems as quickly as possible. We expect strong demand there.

Speaker Change: Yes, I mean, it's hard to predict in terms of <unk> three.

Speaker Change: We definitely need another quarter or two to see that.

Speaker Change: I expect I mean, we expect strong demand and we expect strong revenue growth into the that we're preparing for scaling through the second half on the hardware side, but but we need to at least another quarter of demand in a normally with hardware I don't like taking up the year for hardware until I see the pipeline in the summer but.

Speaker Change: So we're trying to be conservative there.

Speaker Change: <unk>.

Speaker Change: But generally on the hardware side.

Speaker Change: The yes, we are.

Speaker Change: Basically preparing for scale, we're trying to build we will build our systems as quickly as possible, we expect strong demand there.

Jason Vincent Celino: Your next question comes from the line of Jason Celino with KeyBank Capital Markets. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Jason <unk> with Keybanc capital markets. Please go ahead.

Jason Vincent Celino: Hey, thanks for fitting me in. And Anirudh, congrats to your R&D team. You know, it is impressive that they reduced the cycle there, you know, all while designing that M1 box too, right? So, maybe first, just how many of the Z3 and X3 do you think will become available in Q3? I guess, when can customers start putting orders in?

Jason: Hey, Thanks for fitting me in and Andrew Congrats to your R&D team. It is impressive that they reduce the cycle theyre, all while designing that I'm on box too right. So.

Jason: Maybe first just how many of the.

Jason: So the Z three next three does it become available in Q3, I guess linking customers start putting orders in for that.

Speaker Change: Yeah first of all thanks, and yes, they become available.

Anirudh Devgan: they'll ramp in, but it will ramp up in Q3 and then Q4. But we already have them running at several early customers.

Speaker Change: Now okay.

Speaker Change: And they'll ramp in but it will ramp Q3, and then Q4.

Speaker Change: But we already have them running at several early customers.

Anirudh Devgan: I mean, normally, when we announce something, as you know, at one of our lead partners, they'll be running for three months already and very stable. But in general, it will be, you know, more Q3 and then Q4 in terms of because, normally, in any system, there's like a three to six month kind of overlap. So we will still sell Z2, X2, and then move to Z3, X3. So that's a natural part.

Speaker Change: When you when we announce something as you know and one of our lead partner they have been running for three months already in very stable, but in general it will be more Q3, and then Q4 in terms of because normally in any system. There is like a three to six month kind of.

Speaker Change: Overlap so we will still sell the two X two and then move to the <unk>. So that's a natural part.

John M. Wall: And that's also, you know, contributing to this quarter by quarter variation a little bit, but it will ramp up, and Q3 will be bigger, and then Q4 should be bigger than that. Yeah, we've got it. We tried to leverage the guide for with the assumption that there's going to be strong demand for the newer systems, but it'll give us the opportunity to put some of the older systems into the cloud because we have a large underserved community that wants to use our emulation capacity.

Speaker Change: And that's also contributing to this quarter by quarter variation, a little bit, but it will ramp in Q3 will be bigger and then Q4 should be begin to say, yes, we've kind of tried to flourish the guidance.

Speaker Change: With the assumption that there's going to be strong demand for the newer systems, but it will give us the opportunity to put some of the older systems into the cloud because we have a we have a large underserved community but.

Speaker Change: That want to use our emulation capacity, but we've.

John M. Wall: But we haven't had a lot of capacity to share with them through our cloud offering. To the extent we do that, that will lead to rateable revenue, though, because I think when it's used in the cloud, you get revenue over time, whereas when we deliver and they use it on premises, we take revenue up front. Yeah. So the demand is going to take like one to two quarters.

Speaker Change: Havent had a lot of capacity to share with them through our cloud offering.

Speaker Change: To the extent, we do that that will lead to a ratable revenue, though because I think when its using the cloud you get revenue over time, whereas when we deliver and they use it on Prem we take revenue upfront.

Speaker Change: Yes.

Speaker Change: But the demand is yes.

Speaker Change: One to two quarters to ramp.

Jason Vincent Celino: Yes, yeah. Okay.

Speaker Change: Okay, Yeah, because that's kind of what I was going to ask Max's I think last time in 2021, you're at like a six month period, where you're selling both.

Jason Vincent Celino: Yeah, because that's kind of what I was going to ask next. I think last time in 2021, you had like a six month period where you were selling both, and I think you were trying to clear inventory for the Z1 and X1. Doesn't sound like you'll be trying to do that again. Because when I think about this Q2 air pocket, is it a function of customers waiting for Z3, X3? Or is it a function of, you know, they might not want to buy the older version?

Speaker Change: And you I think you were trying to clear inventory in front of US. He won the next one.

Doesn't sound like you'll be trying to do that again.

Speaker Change: When I think about this Q2 air pocket is it a function of customers waiting for <unk> or is it a function of that.

Speaker Change: You might not want to buy the older version.

Speaker Change: What was the guide we've Derisked the guide on the assumption that many customers might wait, but we intend to sell them side by side.

Speaker Change: But to the extent the customer's waste it will shift some hardware revenue into the second half of the year and we've anticipated that so thats within the guide.

Speaker Change: To the extent that customers continue to buy.

John M. Wall: Well, the guide We've given the guide on the assumption that many customers might wait, and that will trigger a lot of demand for it.

Speaker Change: Two.

Speaker Change: We're not putting those into the cloud, but selling those outright as well.

Speaker Change: <unk> will then that will that will change the profile of the shape of revenue probably expect this new system. The strength of this new system will.

Jason Vincent Celino: Okay, perfect. Thank you both.

Vivek Arya: Your next question comes from the line of Vivek Arya with Bank of America Securities. Please go ahead.

Speaker Change: Trigger a lot of demand for it.

Speaker Change: Okay perfect. Thank you both.

Speaker Change: And your next question comes from the line of Vivek Arya with Bank of America Securities. Please go ahead.

Vivek Arya: Thank you for taking my question. I think you mentioned second-half growth will be driven a lot more by hardware. Do you think you will see all the benefits of the hardware refresh within this year? You know, will it be done?

Vivek Arya: Thank you for taking my question.

Vivek Arya: You mentioned second half growth will be driven a lot more by hardware.

Vivek Arya: You will see all the benefits of the hardware refresh within this year will it be done will it continue into 'twenty five I guess my bigger question really is that if I exclude the upfront benefit from last year and this year. Your recurring business is expected to grow about 10% and.

Anirudh Devgan: Will it continue into 2025? I guess my bigger question really is that if I exclude the upfront benefits from last year and this year, your recurring business is expected to grow about 10%. And I'm curious, Anirudh, is that in line with the kind of recurring revenue growth, you know, you are expecting or we should be expecting going forward, right, along with periodic hardware refreshes? Or is that not the right way to interpret, you know, your core recurring part of your business?

Vivek Arya: And I am curious on it or is that in line with the kind of recurring revenue growth.

Vivek Arya: You are expecting or we should be expecting going forward, along with periodic hardware refreshes or is that not the right way to interpret.

Vivek Arya: Our core recurring.

Vivek Arya: Part of your business.

Vivek Arya: A very good question. First of all, in non-recurring revenue, it's not just hardware, but it's also IP in terms of the second half. Because, like we mentioned, we have new IP business driven by, you know, HBM and AI and also Intel IFS. So that is, you know, also back-end loaded along with hardware.

Speaker Change: Well good question.

Speaker Change: First of all in nonrecurring is it's not just hardware, but it's also IP in terms of the second half because there's like we mentioned we have new IP business driven by.

Speaker Change: HP M&A and also Intel RFS, so that that is.

Speaker Change: So back end loaded along with hardware and then hardware.

Anirudh Devgan: And then hardware. You know, hardware, normally when we launch a new system, it takes, you know, one or two years for it to fully mature. So even though we are not commenting about next year, I'd be surprised if this time it's only a, you know, six month impact. So I expect, you know, these things are built for to be used in design for the next, you know, five, seven years.

Speaker Change: Hardware normally when we launch a new system. It takes you know one or two years for it to fully so even though we are not commenting about next year right.

Speaker Change: I'd be surprised if this time, it's only.

Speaker Change: Six month impact so I expect like these things is built for to be used in design for next you know five seven years. So the impact will be also not just this year, but following years.

Anirudh Devgan: So the impact will also be not just this year but the following years. And in terms of recurring revenue, I think the best way, like we have said, is to look at it on a three-year calendar basis because there could be some fluctuation and all, and overall, we are pleased with, you know, the recurring revenue growth, and we go from there. Yeah, and Vivek, if I could, I'd like to kind of carry on some of Gary's questions earlier that I don't think I addressed because he was asking about the bookings profile for the year.

Speaker Change: And in terms of recurring revenue I think the best way like we have said is to look at it to your guys' basis, because there could be some fluctuation in oil and overall we are pleased with.

Speaker Change: The recurring revenue growth then.

Speaker Change: And we go from there and Rebecca if I could I'd like to kind of.

Rebecca: Carrying some of Gary's question earlier that I don't think I addressed because he was asking about the bookings profile for the year Q2 for software renewals I think is our latest software renewals quarter.

Anirudh Devgan: Q2 for software renewals I think is our lightest software renewals quarter for the year, but I think we explained last quarter that we expect the weighting of bookings first half and the second half to be about 40-60 this year, but the recurring revenue right now in the guide is about double digits, about 10%, and in the past, it's been about 13%. Now we're not really anticipating a huge number of add-ons, but to grow that above 10% to the extent that that comes through, it'll be upside for the guys that what we try to do when we do the guide is to mitigate the risks that we can see.

Rebecca: For the year, but we I.

Rebecca: I think we explained last last quarter that we expect.

Rebecca: The weighting of bookings first half to second half to be about 40 60 this year, but.

Rebecca: Recurring revenue right now in the guide is about.

Rebecca: Double digits above 10% and in the past it's been about 13% now we're.

Rebecca: We're not really anticipating a huge number of add ons to grow that above 10% is to the extent that that comes through it will be upside to the guide, but what we've tried to do when we do the guide is de risk to for the risks that we can see.

Vivek Arya: Thank you. For my follow-up question on incremental EBIT margin, do you think this greater mix of hardware is impacting the incremental EBIT margin? I think if I calculated correctly, the new guidance is still below the 50% incremental, right, or right about, which is lower than what you have had the last two, three years. Is that the right interpretation, and what can change that? Yeah, Vivek, I think we're

Speaker Change: Thank you.

Speaker Change: For my follow up question on incremental EBIT margin do you think the greater mix of hardware.

Speaker Change: Impacting the incremental EBIT margin I think if I calculated correctly, the new guidance is still below the 15% incremental hydro right about which is lower than what you have had the last two three years is that the right interpretation and what can change that.

Speaker Change: Yeah, Vivek I think what youre, referring to really is that I mean for what seven years in a row now we think we've been achieving over 50% incremental margins.

John M. Wall: Yeah, Vivek, I think what you're referring to really is that, I mean, for what, seven years in a row now, we think we've been achieving over 50% incremental margins. It's a matter of pride here.

Speaker Change: It's a matter of pride here, we try to achieve that every year, but it will certainly be trying to achieve that this year. I think we are in the high 40 is probably about 47% when you look at the Sky right now.

John M. Wall: We try to achieve that every year, but we'll certainly be trying to achieve that this year. I think we're in the high 40s, probably about 47% when you look at this guide right now. I think one of the biggest challenges with something like that is, you know, we do small talk in M&A, but I don't want to go over Lee Simpson or the answer Anirudh gave to Lee Simpson, but organic is delicious here at Cadence.

Speaker Change: I think one of the biggest challenges, but something like that as you know we do small tuck in M&A.

Speaker Change: I don't want to go over the Simpson the answer Andrew gift Lee Simpson, but organic is delicious here at cadence we focus on on.

John M. Wall: We focus on innovation and growing with organically driven products, and then with small talk in M&A. But to the extent that we do some larger M&A, and of course, we have beta CAE, which is apparently the gold standard in structural simulation. So that's a big acquisition for us. But now I think the size of that probably still qualifies as a small talk.

Speaker Change: Innovation.

Speaker Change: And growing with organically driven products and then with small tuck in M&A, but to the extent that we do some larger M&A in <unk>.

Speaker Change: Of course, we have beta CAE, which apparently is the gold standard in structural simulation. So so that's a big acquisition for us.

Speaker Change: No I think the size of that probably still qualifies as a small tuck in but when you do something like that.

John M. Wall: But when you do something like that, those M&A transactions typically are headwinds to that incremental margin calculation. In the short term, they'll be beneficial in the long term, but in the short term, M&A can be... was dilutive pretty much in the first year and then became accretive later. When we look at our incremental margin, that's a headwind, but we try to overcome that headwind because, normally, all we do is these small tuck-in M&As. So I haven't given up on 50% incremental margin for this year. It's a challenge, but we'll do our best to achieve it.

Speaker Change: Those M&A transactions typically are headwinds to that incremental margin calculation.

Speaker Change: In the short term there'll be beneficial in the long term, but in the short term M&A.

Speaker Change: Can be.

Speaker Change: With the dilution pretty much in the first year and then becomes accretive later.

Speaker Change: When we look at.

Speaker Change: Our incremental margin that that's a headwind, but we try to overcome that headwind because normally what we do is these small tuck in M&A, but I'm sorry I.

Speaker Change: I haven't given up on 50% incremental margin for this year, it's a challenge but.

Speaker Change: We'll do our best to achieve it.

Harlan Sur: Your final question will come from the line of Harlan Sur with JPMorgan. Please go ahead.

Speaker Change: Thank you.

Harlan Sur: Your final question will come from the line of Harlan sur with Jpmorgan. Please go ahead.

Harlan Sur: Good afternoon. Thanks for taking my question.

Harlan Sur: Good afternoon. Thanks for taking my question and after a strong 2023, <unk>, starting the year relatively flattish and down about 5% to 6% sequentially I think it's just.

John M. Wall: You know, after a strong 2023, SDA is starting the year relatively sladdish and down about 5 to 6% sequentially. I think it's in, feels like it's in an unusual starting point for SDA, especially given all of the drivers you guys have articulated. Is SDA expected to also be more second half loaded, and do you expect SDA, this is X beta CAE, but do you expect SDA to grow in line with or faster than your overall corporate growth target for the full year?

Harlan Sur: An unusual starting point for SBA, especially given all of the drivers.

Harlan Sur: You guys have articulated it <unk> expected to also be more second half loaded and you expect FCA. This is ex beta CAE, but do you expect SG&A to grow in line or faster than your overall corporate growth target for the full year.

Harlan Sur: Yeah, Harlan, that's a great question. And thanks for highlighting that, because I had that on my list of things to say.

Speaker Change: Yes, hard and that's that's a great question and thanks for highlighting that because I had that on my list of things to do.

John M. Wall: I think there's something funny going on with the rounding off when you kind of apply the growth rates for SEA for Q1 over Q1. The actual growth rate is probably in the high single digits, Q1 over Q1. Now, I know that's lapping top comps against Q1-23. But, I think if you look on a two-year CAGR basis, I think it's up about 17% per annum on a two-year CAGR basis for SDNA. But we're expecting strong SDNA growth again this year, and it'll be higher than the cadence average. That's our expectation.

Speaker Change: To say.

Speaker Change: There's something funny going on with the rounding on when you kind of apply the growth rates for FCA for Q1 over Q1, the actual growth rate is probably high single digits Q1 over Q1.

Speaker Change: Now I know, that's lapping tough comps against Q1 'twenty three I think if you look on a two year CAGR basis, I think it's up about 17%.

Speaker Change: Per annum on a on a two year CAGR basis for SG&A.

But we're expecting strong SG&A growth again, this year and it'll be higher than the cadence average that's our expectation.

Anirudh Devgan: And then, Anirudh, you know, lots of new accelerated compute AI SoC announcements, just even over the past few weeks, right? We saw the flagship Blackwell GPU announcement by one of your big customers, NVIDIA. But we've actually seen even more announcements by your cloud and hyperscale customers, bringing their own custom AI ASICs to the market, like Google with TPU v5, and Google with their ARM-based CPU ASIC, Meta Unveiled, their Gen 2 TPU AI processor chips. And in addition to that, their roadmaps seem to be accelerating.

Speaker Change: Great Thanks for that.

Speaker Change: And then I didn't really lots of new accelerated continue.

Speaker Change: <unk>, that's just even over the past few weeks, where we saw flagship Blackwell GPU announcements by one of your big customers in video, but we actually seeing even more announcements by your cloud and hyperscale customers, bringing their own custom AIA seems to the microwave Google with TCU, the five Google with their arm based CPU.

Speaker Change: <unk> net.

Speaker Change: Net unveiled their journey to GPU AI processor chips as well.

Speaker Change: In addition to that like their roadmaps seem to be accelerating can you give us an update on your systems and Hyperscale customers. I mean are you seeing the design activity accelerating within this customer base.

Anirudh Devgan: So can you give us an update on your systems and hyperscale customers? I mean, are you seeing design activity accelerating within this customer base? And is the contribution mix from these customers rising above that sort of roughly 45% level going forward?

Speaker Change: Is the contribution mix from these customers are rising above that sort of roughly 45% level going forward.

Anirudh Devgan: Yeah, Harlem, that's a very good observation. And you know, the pace of AI innovation, as you know, is increasing. And not just in the big semiconductor companies but, of course, in these system companies. And, and I think several announcements did come out, right, and including, you know, I think now that Meta is public that Meta is designing a lot of silicon for AI. And of course, Google, Microsoft, Amazon, so all the big hyperscaler companies along with, you know, Nvidia, AMD, you know, Qualcomm, all the other kinds of Samsung has an AI phone this year.

Speaker Change: Yeah, Harlan Thats, a very good observation and the peso.

Speaker Change: Innovation like you know is increasing and not just in the big semi companies, but of course in these system company then.

Speaker Change: And I think several announcements did come out right and including and I think now meta is public that meda is designing a lot of silicon for AI and of course, Google Microsoft Amazon. So all the big really Hyperscale companies, along with Nvidia AMD Qualcomm all the other kind of stuff.

Speaker Change: <unk> had a iPhone this year. So I mean, there is lot of acceleration both on the semi side and on the system side.

Anirudh Devgan: So I mean, there is a lot of acceleration both on the semi-side and on the system. And, you know, we are involved with, you know, all the major players there. And we're glad to provide our solutions.

Speaker Change: And we are we are involved with all.

Speaker Change: All the major players there and we glad to provide our solutions.

Anirudh Devgan: And I do think, and this is the other thesis we have talked about for years now, right, five, seven years, that the system companies will do silicon because of a lot of reasons, you know, for customization, for schedule and supply chain control, for cost benefits if there is enough scale. And I think the workload of AI, you know, like if you look at, I think, some of the big hyperscaler and social media companies, they're talking about using like 20,000, 24,000.

Speaker Change: And I do think that this is the other pieces, we have talked about for years now right by seven years that the system companies will do silicon.

Speaker Change: Because a lot of reasons for customization for schedule and supply chain control for cost benefits. If there is enough scale.

Speaker Change: And I think the the workload of AI you know like if you look at I think.

Speaker Change: Some of the Big Hyperscale.

Speaker Change: Hyper scaler in social media companies they are talking about using.

Speaker Change: By 2000 24000 GP.

Anirudh Devgan: GPUs to train these new models. I mean, this is an immense amount. And then the size of the models and the number of models increases, so that could go to a much, much higher number than right now that is required to train these models and, of course, to do inference on these models.

Speaker Change: <unk> used to train these new models I mean this is the immense amount and then the size of the model and the number of models increased so that could go to a much much higher number than right now.

Speaker Change: That is required to train these models and of course to do inference on these models. So I think they are still in the early innings in them. So.

Anirudh Devgan: So I think we are still in the early innings in terms of system companies developing their own chips and at the same time working with the semi-companies. So I expect that to grow, and those that do our business with those system companies doing silicon, I would like to say growing faster than the cadence average. But the good thing is the semi guys are also doing a lot of business. So I don't know if that 45% will, you know, because that's a combination of a lot of companies, but overall, the AI and hyperscalers are doing a lot more, and then so are the big semis.

Speaker Change: System companies developing their own chips and at the same time working with the semi companies.

Speaker Change: So I expect that to grow in those that hour.

Speaker Change: Our business with those system companies doing silicon I would like to say is growing faster than cadence average, but the good thing is the semi guys are also doing a lot of <unk>.

Speaker Change: So I don't know if that 45% will because that's the combination of a lot of companies, but overall the AIA in hyperscale as they are doing a lot more and then saw the big semi company.

Anirudh Devgan: I'll now turn it back over to Anirudh Devgan for a closing remark.

Speaker Change: Perfect. Thank you.

Speaker Change: Okay.

Speaker Change: I'll now turn it back over to Andrea <unk> for closing remarks.

Anirudh Devgan: Thank you all for joining us this afternoon. It's an exciting time for Cadence, as our broad portfolio and product leadership position us to maximize the growing opportunities in the semiconductor and systems industry. And on behalf of our employees and our board of directors, we thank our customers, partners, and investors for their continued trust and confidence in Cadence.

Andrea: Thank you all for joining us this afternoon.

Andrea: An exciting time for cadence as our broad portfolio and product leadership.

Andrea: Ideally positions us to maximize the growing opportunities in the semiconductor and systems industry.

Andrea: And on behalf of our employees and our board of directors, we thank our customers partners and investors for their continued trust and confidence in cadence.

Regina: Thank you for participating in today's Cadence First Quarter 2024 Earnings Conference Call. This concludes today's call, and you may now disconnect.

Speaker Change: Thank you for participating in today's cadence first quarter 2024 earnings Conference call. This concludes today's call and you may now disconnect.

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