Q2 2024 Synopsys Inc Earnings Call
Operator: Ladies and gentlemen, welcome to the Synopsys earnings conference call for the second quarter of fiscal year 2024. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. To remove yourself from that queue, it is star one again. If you should require assistance during the call, please press star zero, and an operator will assist you. Today's call will last for one hour. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Trey Campbell, Senior Vice President, Investor Relations. Please go ahead.
Ladies and gentlemen, welcome to the Synopsys earnings conference call for the second quarter fiscal year 2024.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: Later, we will conduct a question and answer session. If you would like to ask a question at that time. Please press star one on your telephone keypad to remove yourself from that.
Speaker Change: Is it star one again.
Speaker Change: If you should require assistance during the call. Please press star zero and an operator will assist you today's call will last one hour.
Speaker Change: As a reminder, today's call is being recorded.
Speaker Change: At this time I would like to turn the conference over to Trey Campbell Senior Vice President Investor Relations. Please go ahead.
Trey Campbell: Good afternoon, everyone. With us today are Sassine Ghazi, President and CEO of Synopsys, and Shelagh Glaser, CFO. Before we begin, I'd like to remind everyone that during the course of this conference, Synopsys will discuss forecasts, targets, and other forward-looking statements regarding the company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect.
Sarah: Sarah Good afternoon, everyone with us today are <unk>, president and CEO of Synopsys and Sheila Glaser CFO.
Trey Campbell: In addition to any risks that we might highlight during this call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press reports. In addition, we will refer to certain non-GAAP financial measures during the discussion. Reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release, financial supplement, and 8K that we released earlier today.
Speaker Change: Before we begin I'd like to remind everyone that during the course of this conference call Synopsys will discuss forecasts targets and other forward looking statements regarding the company and its financial results.
Speaker Change: While these statements represent our best current judgment about future results and performance as of today. Our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect in addition to any risks that we might highlight during this call important factors that may affect our future results are described in our most recent.
Speaker Change: SEC reports and today's earnings press release. In addition, we will refer to certain non-GAAP financial measures during the discussion reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release financial supplement and 8-K that we released earlier today all.
Trey Campbell: All of these items plus the most recent investor presentation are available on our website at www.synopsys.com. In addition, the prepared remarks will be posted on our website at the conclusion of the call. With that, I'll turn the call over to Sassine. Thanks.
Speaker Change: These items plus the most recent investor presentation are available on our website at www Dot Synopsys dotcom.
Speaker Change: In addition, the prepared remarks will be posted on our website at the conclusion of the call with that I'll turn the call over to sustain.
Sassine Ghazi: Thanks, Trey. Good afternoon.
Speaker Change: Thanks good.
Speaker Change: Good afternoon. Thank.
Sassine Ghazi: In Q2, we continued our strong execution and momentum. Semiconductor and systems companies continue to invest in Synopsys solutions to maximize their R&D capabilities and productivity. Revenue was up 15% year over year and at the high end of our guided range. Nungap's operating margin was 37.3%, up approximately three points year over year, and Nungap EPS was up 26% year over year and above guidance. Given our momentum and continued confidence in our business, we are again raising our full-year revenue and non-GAAP EPS guidance. Shelagh will discuss the financials in more detail.
Speaker Change: In Q2, we continued our strong execution and momentum.
Speaker Change: Semiconductor and systems companies continue to invest in synopsis solutions to maximize their R&D capabilities and productivity.
Speaker Change: Revenue was up 15% year over year and at the high end of our guided range non.
Speaker Change: non-GAAP operating margin was 37, 3%.
Speaker Change: Approximately three points year over year.
Speaker Change: And non-GAAP EPS was up 26% year over year and above guidance.
Speaker Change: Given our momentum and continued confidence in our business.
Are again, raising our full year revenue and non-GAAP EPS guidance.
Speaker Change: Sheila will discuss the financials in more detail.
Sassine Ghazi: First, I'll give some context for our confidence and share some business highlights from the quarter. We are in an era of pervasive intelligence. Fueled by the rise of Artificial Intelligence, Silicon Proliferation, and Software-Defined Systems, these trends are driving systemic complexity for technology R&D, which in turn drives unprecedented opportunity for Synopsys. Our silicon customers are racing to design and manufacture complex, purpose-built silicon. And our customer set is expanding, as system companies are also either designing their own chips or defining and optimizing their system performance at the silicon level. In March, many of our semiconductor and systems customers attended SNUG, our yearly Synopsys user group conference in Silicon Valley.
Speaker Change: First I'll give some context for our confidence and share some business highlights from the quarter.
Speaker Change: We are in an era of pervasive intelligence fueled by the rise of artificial intelligence silicon proliferation and software defined systems <unk>.
Speaker Change: These trends are driving systemic complexity for technology R&D.
Speaker Change: Which in turn drives unprecedented opportunity for Synopsys.
Speaker Change: Our silicon customers are racing to design and manufacture complex purpose built silicon.
Speaker Change: Our customer set is expanding as systems companies are also either designing their own chips or defining and optimizing the system performance at the silicon level.
Speaker Change: In March many of our semiconductor and systems customers attended snug, our yearly Synopsys user group conference in Silicon Valley.
Sassine Ghazi: Thousands of passionate design engineers shared best practices and learned about the innovations we're driving. And we were honored to have a dozen key customers, including Nvidia, Intel, AMD, AWS, Tesla, and others, contribute their perspective regarding the mission-critical role Synopsys plays in their innovation as a leading silicon to systems design solutions company. The Synopsys opportunity has never been greater.
Speaker Change: Thousands of passionate design engineers shared best practices and learn about the innovations we are driving.
Speaker Change: And we were honored to have a dozen key customers, including Nvidia Intel AMD, AWS Tesla and others contribute their perspective regarding the mission critical role Synopsys plays in their innovation.
As a leading silicon to systems design solutions company Synopsys opportunity has never been greater.
Sassine Ghazi: Today, we have best-in-class EDA tools and the broadest portfolio of silicon IT. Our planned acquisition of ANSYS will expand our reach and further our mission of empowering technology innovators everywhere. Let me provide a brief update on this important transaction.
Speaker Change: Today, we have best in class EDA tools, and the broadest portfolio of Silicon IP.
Speaker Change: Our planned acquisition of <unk> This will expand our Tam and further our mission of empowering technology innovators everywhere.
Speaker Change: Let me provide a brief update on this important transaction.
Sassine Ghazi: Our customers have overwhelmingly told us that they see tremendous potential for the combination to accelerate their innovation and address their rapidly increasing need for system design solutions that provide a deeper integration between electronics and physics. We're pleased to announce that Ansys stockholders approved the transaction this morning. Synopsys and Ansys are making progress towards securing the necessary regulatory approvals, and we remain confident in the regulatory review process given the clear and compelling benefits of this combination for customers and partners. We continue to expect the transaction to close in the first half of 2025.
Speaker Change: Our customers have overwhelmingly told us that they see tremendous potential for the combination to accelerate their innovation.
And address the rapidly increasing need for system design solutions that provide a deeper integration between electronics and physics.
Speaker Change: We're pleased to announce that <unk> stockholders approved the transaction this morning.
Speaker Change: Synopsys answers are making progress towards securing the necessary regulatory approvals and we remain confident in the regulatory review process, given the clear and compelling benefits of this combination for customers and partners.
Speaker Change: We continue to expect the transaction to close in the first half of 2025.
Sassine Ghazi: Let's move to segment business highlights, starting with design automation. Q2 design automation revenue was up 14% year over year, with strength across the business and continued rapid adoption of synopsys.ai. Customers realize impressive gains in performance, power, and area. In analog and mixed signal design, customers are looking to synopsys as they modernize their flows and move to more advanced process nodes.
Speaker Change: Let's move to segment business highlights starting with design automation.
Speaker Change: Q2 design automation revenue was up 14% year over year with strength across the business and continued rapid adoption of Synopsys duct AI.
Speaker Change: Customers realize impressive gains in performance power and area.
Speaker Change: In analog and mixed signal design customers are looking to synopsys as they modernize their flows and move to more advanced process nodes.
Speaker Change: We saw 10 displacement design wins in the quarter.
Sassine Ghazi: We saw 10 displacement design wins in the quarter, and now we have 20 displacements through the first half of the year. In Q2, we delivered a marquee win for full-flow displacement at a leading U.S. systems company, while a leading Asian memory company chose our analog design environment for their next generation memory design. Our Synopsys.ai engine for analog, ASO.ai, allows analog customers to harness the power of AI to simplify node migration. A high-speed connectivity customer recently reported a 10x productivity gain using ASO.ai. Transitioning to digital, where we continue to expand our leadership across advanced node design flows In Q2, Fusion Compiler continued to push boundaries in performance and power efficiency optimization.
Speaker Change: And now have 20 displacements through the first half of the year.
Speaker Change: In Q2, we delivered a marquee win for full floor displacement at a leading U S systems company.
Speaker Change: While a leading Asian memory company chose our analog design environment for their next generation memory designs.
Speaker Change: Our synopsis does AI engine for analog aes or that AI allows analog customers to harness the power of AI to simplify node migration.
Speaker Change: A high speed connectivity customer recently reported a 10 X productivity gain using <unk> AI.
Speaker Change: Transitioning to digital where.
Speaker Change: We continue to expand our leadership across advanced node design flows.
In Q2.
Speaker Change: Fusion compiler continued to push boundaries and performance and power efficiency optimization.
Speaker Change: Demonstrating 8% better power on a two nanometer based CPU at the use CPU company.
Sassine Ghazi: Demonstrating 8% better power on a two nanometer base CPU at a US CPU company, and higher performance versus competition for the flagship mobile CPU at Samsung. Clearly better PPA results such as these also led to Fusion Compiler wins at a large US hyperscaler and a top US mobile CPU competition. While the customer results from Fusion are exceptional, we believe the combination of Fusion and AI-based optimization is game-changing.
Speaker Change: And higher performance versus competition for our flagship mobile CPU at Samsung.
Speaker Change: The most notably better PPA results such as these also led to fusion compiler wins at a large U S hyperscale or.
And the top U S mobile CPU company.
Speaker Change: While the customer results from fusion are exceptional.
Speaker Change: We believe the combination of fusion and AI based optimization is game changing.
Sassine Ghazi: In Q2, multiple Asian design services firms exceeded maximum frequency targets with DSO.AI, and a leading US GPU company deployed DSO.AI for improved productivity and Verification. Our flagship VCS product delivered 15 competitive displacements in the quarter, led by wins at an Asian systems company, a leading U.S. hyperscaler, and a top US GPU company. The Synopsys.ai optimization engine that partners with VCS, VSO.ai, saw significant adoption as well. We are now engaged with over 30 customers, demonstrating up to 10x fast turnaround time and double-digit coverage increase. Shifting to Hardware Assisted Verification. Demand exceeded our expectations for the quarter with four new customer wins and over 50 repeat customer wins.
Speaker Change: In Q2.
Speaker Change: <unk> Asian design services firms exceeded maximum frequency targets with DS or that AI and a leading U S. GPU company deploy DSO adopt AI for improved productivity.
Speaker Change: And verification.
Speaker Change: Our flagship Vcs product delivered 15 competitive displacements in the quarter led by wins at an Asian systems Company.
Speaker Change: A leading U S hyperscale or.
Speaker Change: And the top U S GPU company.
Speaker Change: The Synopsys dot AI optimization engine that partners with Vcs.
Speaker Change: <unk> AI.
Speaker Change: Significant adoption as well.
Speaker Change: Are now engaged with over 30 customers demonstrating up to Tenex fast turnaround time and double digit increase in coverage.
Speaker Change: Shifting to hardware assisted verification.
Speaker Change: Demand exceeded our expectations for the quarter with four new customer wins and over 50 repeat customer wins.
Sassine Ghazi: At SNUG, we announced ZEBU EP2 and saw the first sales to a large Asian mobile SOC company in a competitive win for full SOC verification. We also saw significant customer pull for HAP, including at a large U.S. mobile company, which deployed multi-die designs on HAPs and reduced bring-up time by approximately 40%. On to design IP, which delivered 19% revenue growth as the IP supplier of choice for leading HPC, AI, automotive, and mobile chips at advanced nodes. Q2 was a particularly strong quarter for automotive wins.
Speaker Change: At Snug, we announced zebu EP too.
Speaker Change: And saw the first sales to a large Asian mobile S. C company in a competitive win or full Src verification.
Speaker Change: We also saw significant customer pull for haps.
Speaker Change: Including at a large U S mobile company, which deployed multi die designs on haps and reduce bring uptime by approximately 40%.
Onto design IP.
Speaker Change: Which delivered 19% revenue growth as the IP supplier of choice.
Speaker Change: Our leading HBC AI automotive and mobile chips at advanced nodes.
Speaker Change: Q2 was particularly strong quarter for automotive wins.
Sassine Ghazi: Electrification, Infotainment, and ADAS features continue to drive strong demand for our comprehensive automotive portfolio. However, chip-level security continues to be a concern to chip designers. In Q2, we announced the acquisition of Intrinsic ID to add Physical Unclonable Functions, or PUF, technology to our extensive IP portfolio. More broadly, we gained over 10 secure interface IP wins in the quarter, including five new customers. Demand for interface IP for AI and data center applications is growing at a blistering pace.
Speaker Change: Electrification infotainment and Adas features continue to drive strong demand for our comprehensive automotive portfolio.
Speaker Change: Chip level security continues to be a concern to chip designers.
Speaker Change: In Q2, we announced the acquisition of intrinsic I'd.
Speaker Change: To add physical <unk> functions or <unk> technology to our extensive IP portfolio.
Speaker Change: More broadly we gained over 10 secure interface IP wins in the quarter, including five new customers.
Speaker Change: Demand for interface IP for AI and data center applications is growing at a blistering pace.
Sassine Ghazi: In the quarter, we launched the industry's first 1.6 terabyte Ethernet solution to meet the high bandwidth needs of AI and hyperscaler chips, securing design wins at two leading high-speed Ethernet customers. Additionally, we secured more than 10 design wins for PCIe 6.0 and CXL 3.0 solutions. We also have the industry's most expensive IP library for multi-die, starting with the standard for die-to-die interconnect, UCIE. We won five UCIE IP licenses in the quarter across end markets from memory to mobile to HPC. With these wins, we now have 50 lifetime wins for die to die connectivity.
Speaker Change: In the quarter, we launched the industry's first <unk>.
Speaker Change: One six terabyte Ethernet solution to meet the high bandwidth needs of AI and Hyperscale or chips.
Speaker Change: Securing design wins at two leading high speed Ethernet customers.
Speaker Change: Additionally, we secured more than 10 design wins for Pcie six points and.
Speaker Change: <unk> three point also <unk>.
Speaker Change: We also have the industry's most expansive IP library for multi die starting was the standard for die to die interconnect UC I E.
Speaker Change: We won five new Cie IP licenses in the quarter.
Speaker Change: <unk> end markets from memory to mobile to HBC.
Speaker Change: With these wins, we now have 50 lifetime wins for die to die connectivity.
Sassine Ghazi: As silicon becomes foundational to innovation in nearly every industry, we've seen an infusion of government support and funding for chip manufacturing around the world. Synopsys plays a mission-critical role as an on-ramp to the world's foundries, enabling manufacturing success for our mutual customers. In Q2, we want to have a significant enablement engagement with the emerging, leading-edge Japanese foundry, Rapidus Corporation, involving our leadership 2-nanometer interface IP. This builds on a major Rapidess design win for... Foundation.
Speaker Change: Our silicon becomes foundational to innovation in nearly every industry.
We've seen an infusion of government support and funding for chip manufacturing around the world.
Speaker Change: Synopsys plays a mission critical role as an on ramp to the world's foundries.
Speaker Change: Enabling manufacturing success for our mutual customers.
Speaker Change: In Q2, we won a significant enablement engagement with the emerging leading edge Japanese foundry rapid desk corporation involving our leadership two nanometer interface IP.
This builds on a major rapid this design win.
Sassine Ghazi: Having a portfolio of trusted IP is a requirement for every world-class foundry. As the leading provider of interface and foundation IP, Synopsys is often the first stop for foundry enablement. Synopsys IP provides a path for mutual customers to bring Rapidest manufactured chips to market faster and with lower risk. The Design and Manufacturing of Semiconductors are inextricably linked, and we engage deeply with all the major foundries. At the TSMC Symposium, we announced TSMC N2IP development and demonstrated silicon proof points for N3E and N3P IP.
Speaker Change: Foundation, having a portfolio of trusted IP as a requirement for every world class foundry.
As the leading provider of interface and foundation IP Synopsys is often the first stop for foundry enablement.
Speaker Change: Synopsys IP provides a path for mutual customers to bring rapid this manufacturer chips to market faster and with lower risk.
Speaker Change: The design and manufacturing of semiconductors.
Semiconductors is.
Speaker Change: Is inextricably linked and we engaged deeply with all the major foundries.
Speaker Change: At TSMC Symposium, we announced TSMC and two IP development and demonstrated silicon proof points for <unk> III E and Sleepy IP.
Sassine Ghazi: At Samsung, we secured multiple IP wins, enabling customers to confidently adopt Samsung's leading processes for AI, storage, automotive, and other applications. We also partnered with Intel Foundry to accelerate advanced chip designs with Synopsys IP and certified EDA flows for their 18A process. This quarter also marked another transformative milestone as we accelerate our Silicon2Systems strategy and prioritize growth investments in our core EDA and IP businesses. We recently announced the definitive agreement to sell the software integrity business to ClearLake Capital and Francisco Partners.
Speaker Change: At Samsung, we secured multiple IP wins, enabling customers to confidently adopt samsung's leading processes for AI storage automotive and other applications.
Speaker Change: We also partnered with Intel foundry to accelerate advanced chip designs with Synopsys IP and certified EBITDA flows for their 18 a process.
Speaker Change: This quarter also marked another transformative milestone as we accelerate our silicon to systems strategy and prioritize growth investments in our core EDA and IP businesses.
Sassine Ghazi: This transaction, valued at up to 2.1 billion dollars, will establish SIG as a newly independent leading application security testing software provider and is expected to close in the second half of 2024, subject to customary closing conditions and regulatory approval.
Speaker Change: We recently announced the definite agreement to sell the software integrity business to Clearlake capital and Francisco partners.
Speaker Change: This transaction.
Speaker Change: Valued at up to $2 1 billion.
Speaker Change: We'll establish Sig as a newly independent leading application security testing software provider.
Speaker Change: It is expected to close in the second half of 2024.
Speaker Change: Subject to customary closing conditions and regulatory approval.
Sassine Ghazi: This agreement fulfilled the key priorities we had for the sale: find our team and our customers, great new owners who can care about nurturing and investing in the business to deliver to its full potential, focus on speed and certainty to close, and deliver financial value and a smooth transition for Synopsys. We are proud to have started the business, grown it to be the application and security testing leader, and will partner with the new owners to ensure a seamless transition.
Speaker Change: This agreement fulfilled the key priorities, we had for this sale.
Speaker Change: Find our team and our customers great new owners that can cared about nurturing and investing in the business to deliver to its full potential.
Speaker Change: Focus on speed and certainty to close and delivered financial value and smooth transition for Synopsys.
Speaker Change: We are proud to have started the business grown it to be the application and security testing leader and will partner with the new owners to ensure a seamless transition.
Sassine Ghazi: We have strong continuing momentum across the business supported by multiple secular growth drivers. We have a resilient business model, and our customers continue to prioritize investments in silicon and systems that position them for future growth. We are aligning our portfolio investment with the greatest return potential to accelerate our growth. Thank you to our employees, partners, and customers for their passion and commitment. With that, I'll turn it over to Shelagh.
Speaker Change: We have strong continuing momentum across the business supported by multiple secular growth drivers.
Speaker Change: We have a resilient business model and our customers continue to prioritize investments in the silicon and systems that position them for future growth.
Speaker Change: We are aligning our portfolio investment with the greatest return potential to accelerate our growth.
Speaker Change: Thank you to our employees.
Speaker Change: Partners and customers for their passion and commitment.
Speaker Change: With that I'll turn it over to Sheila.
Shelagh Glaser: Thank you, Sassine. We continued our strong momentum in Q2 with revenue at the high end of our guided range, a non-GAAP operating margin of 37.3%, and non-GAAP earnings above the high end of our guidance. Our Q2 results are driven by our relentless focus on execution, leading technology that is mission-critical to our customers, and a resilient and stable business model with $7.9 billion in non-cancellable back-ups. We remain confident in our business, and after raising guidance at our Investor Day in March, we are again raising our full-year targets for revenue and non-GAAP EPS. As Sissy noted, we entered into an agreement to sell our software integrity.
Sheila: Thank you Justine we continued our strong momentum in Q2 with revenue at the high end of our guided range non-GAAP operating margin of 37, 3% and non-GAAP earnings above the high end of our guidance.
Sheila: Our Q2 results are driven by our relentless focus on execution.
Sheila: Leading technology that is mission critical to our customers and our resilient and stable business model with $7 $9 billion in non <unk> backlog.
Sheila: We remain confident in our business and after raising guidance at our Investor day in March we are again, raising our full year targets for revenue and non-GAAP EPS.
Speaker Change: As <unk> noted we entered into an agreement to sell our software integrity business.
Shelagh Glaser: Unless otherwise noted, our software integrity business has been presented as a discontinued operation, and our consolidated financial statements for all periods presented. I'll now review our second quarter results, which are presented on a continuing operations basis. All comparisons are year-over-year, unless otherwise stated.
Speaker Change: Unless otherwise noted our software integrity business has been presented as a discontinued operation in our consolidated financial statements for all periods presented.
Speaker Change: I will now review, our second quarter results, which are presented on a continuing operations basis.
Speaker Change: All comparisons are year over year, unless otherwise stated.
Shelagh Glaser: We generated total revenue of $1.45 billion, up 15%. Total GAAP costs and expenses were $1.12 billion. Total non-GAAP costs and expenses were $911.7 million, resulting in a non-GAAP operating margin of 37.3%. Gap earnings per share were $1.92, and non-gap earnings per share were $3.00. Now on to our segment.
Speaker Change: We generated total revenue of $1 4 billion.
Speaker Change: Up 15%.
Speaker Change: Total GAAP costs and expenses were $1, one $2 billion total non-GAAP costs and expenses were $911 $7 million, resulting in non-GAAP operating margin at 37, 3%.
Speaker Change: GAAP earnings per share were $1 92, and non-GAAP earnings per share were $3.
Speaker Change: Now onto our segment.
Shelagh Glaser: Design Automation Segment revenue was $1.05 billion, up 14%, driven by strength in EDA software and hardware. Design Automation Adjusted Operating Margin was 39.6%. Design IP segment revenue was $399.8 million, up 19%, driven by broad-based strength.
Speaker Change: <unk> animation segment revenue was $1.05 billion.
Speaker Change: Up 14% driven by strength in EDA software and hardware design animation adjusted operating margin was 39, 6%.
Speaker Change: Design IP segment revenue was $399 $8 million up 19% driven by broad base strength design.
Shelagh Glaser: Design IP's Adjusted Operating Margin was 31.2%. Operating cash flow, including discontinued operations, was $477 million for the quarter, and free cash flow, including discontinued operations, was $438 million. We ended the quarter with cash and short-term investments of $1.66 billion.
Speaker Change: Design IP adjusted operating margin was 31, 2%.
Speaker Change: Operating cash flow, including discontinued operations was $477 million for the quarter and free cash flow, including discontinued operations was $438 million we.
Ended the quarter with cash and short term investments of $1 6 billion.
Shelagh Glaser: Now to Guidance presented on a continuing operations basis, For fiscal year 2024, the full-year targets are revenue of $6.09 to $6.15 billion, and total Gap Costs and Expenses between $4.56 and $4.61 billion. Total non-GAAP costs and expenses between $3.77 and $3.81 billion, resulting in a non-GAAP operating margin improvement of approximately two percentage points at the mid-Non-Gap Tax Rate of 15%, Gap Earnings of $9.14 to $9.36 per share, Non-Gap Earnings of $12.90 to $12.98 per share, cash flow from operations of approximately $1.3 billion, and free cash flow of Now to targets for the third quarter.
Speaker Change: Now to guidance presented on a continuing operations basis.
Speaker Change: For fiscal year 2020 for the full year targets are revenue of $6.09615 billion.
Total GAAP costs and expenses between 456 and $4 six $1 billion.
Speaker Change: Total non-GAAP costs and expenses between $3 77, and $3 eight $1 billion, resulting in non-GAAP operating margin improvement of approximately two percentage points at the midpoint.
Speaker Change: non-GAAP tax rate of 15% GAAP earnings of $9 14.
Speaker Change: The $9 36 per share non-GAAP earnings of $12 90.
Speaker Change: The $12 98 per share.
Speaker Change: Cash flow from operations of approximately $1 $3 billion free cash flow of approximately $1 1 billion.
Shelagh Glaser: Revenue between $1.505 and $1.535 billion. Total gap cost and expenses between $1.10 and $1.12 billion. Total non-gap cost and expenses between $920 and $930 million. Gap earnings of $2.22 to $2.35 per share and non-gap earnings of $3.25 to $3.30 per share. Our press release and financial supplement include additional targets and gaps to non-gap reconciliations, as well as historical, financial, and operating metrics presented on a continuing operations basis. In conclusion, we are on track to achieve revenue growth of 14.5 to 15.6%, approximately two percentage points of non-GAAP operating margin improvement, and 22% to 23% non-GAAP EPS growth in 2024. Our confidence reflects our leadership position across our segment, mission-critical products to enable our customers' robust design activity, and a stable and resilient business model. With that, I'll turn it over to the operator for questions.
Speaker Change: Now to targets for the third quarter.
Speaker Change: Revenue between 1505, and 153 5 billion.
Speaker Change: Total GAAP costs and expenses between 110 and $112 billion total.
Speaker Change: Total non-GAAP costs and expenses between 920 and $930 million.
Speaker Change: GAAP earnings of $2 and 22.
The $2 35 per share and non-GAAP earnings of $3 and 25 to.
Speaker Change: The $3 30 per share.
Speaker Change: Our press release and financial supplement includes additional targets and GAAP to non-GAAP reconciliation as well as historical financial and operating metrics presented on a continuing operations basis.
Speaker Change: In conclusion, we are on track to achieve revenue growth of 14, five to 15, 6% approximately.
Speaker Change: Percentage points of non-GAAP operating margin improvement.
Speaker Change: <unk>, 22% to 23% non-GAAP EPS growth in 2024.
Speaker Change: Our confidence reflects our leadership position across our segments.
Speaker Change: Mission critical products to enable our customers robust design activity and our stable and resilient business model with that I'll turn it over to the operator for questions.
Operator: Thank you. If you have dialed in and would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question, please ensure that your phone is not on mute when asking your question. Before we begin the Q&A session, I would like to ask everyone to please limit themselves to one question and one brief follow-up. If you have additional questions, please re-enter the queue, and we'll take as many as we can. Your first question comes from the line of Joseph Vruwink with FAIRS. Your line is open.
Speaker Change: Thank you if you have dialed in and I would like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw your question simply press Star. One again, if you are called upon to ask your questions. Please ensure that your phone is not on mute when asking your question.
Speaker Change: We begin the Q&A session I would like to ask everyone to please limit yourself to one question and one brief follow up if you have additional questions. Please reenter the queue and welcome.
Speaker Change: Matt.
Speaker Change: Your first question comes from the line of Joseph <unk> with Baird. Your line is open.
Joseph D. Vruwink: Great. Hi everyone. I wanted to start it.
Joseph: Great Hi, everyone I wanted to start it sounds like the analog and verification AI products are really gaining a nice foothold at customers. So theres, probably a bit more of a baseline financial experience.
Sassine Ghazi: It sounds like analog and verification AI products are really gaining a nice foothold with customers, so there's probably a bit more of a baseline financial experience. Is it possible to say just what the uplift around ACV tends to be with these customers adopting the newer AI products? I think the 20% uplift upon renewal figure you provided last year was more driven by DSO.AI. I'm just wondering how the newer AI products are maybe starting to change and factor into the model.
Joseph: It's possible to say, what the uplift around ACB tends to be with these customers adopting the newer AI product site.
Speaker Change: 20% uplift upon renewal figure you provided last year was more driven by DSO Dot AI I'm, just wondering how the newer AI products or maybe its starting to change and factor into the model.
Sassine Ghazi: Yeah, a very good question. So it's true. The 20% uplift is based on the DSO.ai incremental bookings and revenue we're able to capture and the baseline increase for Fusion Compiler. For ASO.ai and VSO.ai, we're still in the early stages. It's very difficult at this stage to give you what the average will be, so give us some time before we're able to capture more data points. But the one thing that we can confirm is as customers are using that technology in production, we're able to monetize it through the same approach, an uplift to get access to the technology and an uplift based on baseline consumption.
Speaker Change: Yes, very good questions. So it's true.
Speaker Change: 20% uplift is based on the DSO that AI incremental.
Speaker Change: Bookings and revenue were able to capture and the baseline increase for fusion compiler.
Speaker Change: On aes or that AI and <unk> AI, we're still in early stages, it's very difficult at this stage to give you.
Speaker Change: What will the average be so give us give us some time before we're able to capture more data points, but the one thing that that we can confirm is as customers customers are using that technology in production, we are able to monetize it through the same approach an uplift to get access for the technology.
Speaker Change: <unk>.
Speaker Change: And an uplift based on the consumption the baseline consumption.
Sassine Ghazi: Okay, that's great. And then, yeah, good, good to hear about the update on Ansys. Maybe anything you can say in terms of the financial performance of Ansys and just, you know, how you two are working together and kind of your expectations for the balance of the year as you approach joint customers and kind of think about the financial performance of Ansys as
Speaker Change: Okay, that's great and then.
Speaker Change: Yes, good good to hear about the update on answers maybe anything you can say in terms of financial performance of answers.
Speaker Change: Just how are you two are working together and kind of your expectations for the balance of the year.
Speaker Change: As you approach joint customers and kind of think about the financial performance of the answers business.
Sassine Ghazi: So two points on the ANSYS performance. One, as you know, we're operating as two separate companies, so my suggestion here is to refer you back to what they're communicating, which is their continued commitment to double-digit ACV and revenue growth for FY24. And the other point is, during our diligence process, we had a close insight in terms of the shape of the year, where it's tilted more for a second half performance compared to the first half. So really, that's the most we can say at this stage. But if you have any questions, refer back to the answers commentary.
Speaker Change: So two points.
Speaker Change: On the NCS performance one.
Speaker Change: As you know we're operating as two separate companies. So my suggestion here is to refer you back to what they're communicating which is their continued commitment for double digit <unk> and revenue growth for the FY 'twenty four.
And the other point is.
Speaker Change: During our due diligence process.
Speaker Change: We had a close insights in terms of the shape of the year, where is stilted more for the second half.
Speaker Change: Uh Huh performance.
Speaker Change: Compared to the first half in terms of shape.
Speaker Change: So really that's the.
The most we can say at this stage, but if you have any questions refer back to the NCS commentary.
Joseph D. Vruwink: Okay, thank you very much.
Speaker Change: Okay got it thank you very much.
Speaker Change: Thank you.
Operator: Your next question comes from Jason Celino with KeyBank. The line is open.
Speaker Change: Your next question comes.
Speaker Change: Jason <unk> with Keybanc Your line is open.
Jason Vincent Celino: Hey, great. Thanks for taking my questions.
Hey, great. Thanks for taking my questions.
Speaker Change: This quarter was a little unique in that we got basically an update 60 days ago at Snug and then I'll say.
Speaker Change: Nice to see the quarter came at the high end and raising the guide again, but curious like cycle.
Speaker Change: I don't see Synopsys as being like a very backend loaded company, but curious what exactly drove.
Speaker Change: The strength in.
Speaker Change: And the upside just just from that short period ago.
Speaker Change: So.
Speaker Change: Continued momentum in the core business I mean, what we're seeing is the.
Speaker Change: Ongoing demand for faster.
Speaker Change: Pute energy efficient compute Eva either by semiconductor companies or by Hyperscale is increasing the demand for the latest greatest technology as well as the demand for our IP portfolio.
Speaker Change: With that we have.
Speaker Change: In a fortunate position with our customers and our portfolio, that's driving that growth and I know Jeff.
Sassine Ghazi: You know, this quarter was a little unique in that we got basically an update, you know, 60 days ago at Snug and Analyst Day. Nice to see the quarter come at the high end and raise the guide again. But curious, like, I don't see Synopsys as being like a very back-end loaded company, but curious what exactly drove the strength and the upside just from that short period ago.
Speaker Change: Just 60 days ago, we updated to take the software integrity.
Speaker Change: Discontinued operation, but as we went through the quarter and we're looking at the rest of the year.
Speaker Change: It gave us confidence to raise the midpoint to 15%, which is roughly another $33 million raise for the year.
Unknown Executive: ...
Sassine Ghazi: Continued momentum in the core business. I mean, what we're seeing is the ongoing demand for faster compute, energy efficient compute, either by semiconductor companies or by hyperscalers is increasing the demand for the latest, greatest EDA technology as well as the demand for our IP portfolio. So with that, we are in a fortunate position with our customers and our portfolio that's driving that growth. And I know just 60 days ago, we updated to take the software integrity as a discontinued operation, but as we went through the quarter and we're looking at the rest of the year, it gave us confidence to raise the midpoint to 15%, which is roughly another $30 million increase for the year.
Speaker Change: Yeah, and the other thing I would add is I think as <unk> said in his prepared remarks, we outperformed that in hardware in this quarter. So is another nice quarter of execution by the hardware team.
Unknown Executive: Yeah, and the other thing I would add is, as Sassine said in his prepared remarks, we outperformed on hardware this quarter, so it was another nice quarter of execution on hardware.
Jason Vincent Celino: Okay, perfect. And then maybe just a quick one for Shelagh. I think you said a backlog of 7.9. Is that an ex-sig backlog number?
Speaker Change: Okay, Perfect and then maybe just a quick one for Sheila I think you said backlog of $7 nine is that ex Sig backlog number.
Shelagh Glaser: Absolutely, Jason. So thanks for the question. It's xsig because, of course, that's moved into discontinued operations. And just to give you some relevant comps, that'll come out later this week as you get the quarterly filing. Q1-24 on that same basis was 7.7. And then Q2-23 on that same basis was 6.8. So that's, you know, versus what I just shared, our Q2 Actuals were 7.
Jason: Absolutely Jason Thanks for the question.
Speaker Change: <unk> because of course, that's moved into discontinued operations and just to give you some relevant comps that'll come out later in this week as you get that.
Speaker Change: The quarterly filing Q1, 'twenty four on that same basis was $7 seven.
Speaker Change: And then Q2 'twenty three on that same basis was six eight.
Speaker Change: That perfect versus what I, just shared our Q2 actual seven nine.
Jason Vincent Celino: Okay. Excellent. Thank you.
Speaker Change: Okay excellent. Thank you.
Speaker Change: Thank you.
Operator: Your next question comes from the line of Charles Shee with Needham. Your line is open.
Speaker Change: Your next question comes from the line of Charles <unk> with Needham Your line is open.
Charles Shee: Hey, good afternoon. Congratulations on the solid results for the quarter. I have a question about the IT business. It seems like it takes a little bit of a pause in the April quarter, but your four-year guidance seems to suggest maybe IT will have a slightly higher run rate from the fiscal second quarter level into the third and into the fourth. I recall, like 90 days ago, you were talking about maybe IP is going to be a little bit the first half weighted.
Charles <unk>: Hi, good afternoon, congrats on the solid results for the quarter I.
Speaker Change: I have a question about the IP business. It seems like it takes a little bit of a pause.
Speaker Change: In April quarter back up at the.
Speaker Change: But your full year guidance seems to suggest that maybe you will have a slightly higher run rate from the fiscal second quarter level into the third and into the fourth.
Speaker Change: I recall like 90 days ago, you were talking about maybe IP is going to be a little bit. The first half weighted is that still the shape you're expecting.
Charles Shee: Is that still the shape you're expecting? And, if I may, is it more concentrated in Q4 because your Q3 guidance and the four-year guidance kind of implies another very strong sequential growth into the year end. I wonder if it's IP driven. Thanks.
Speaker Change: And if I may is that a more concentrated in Q4, because your Q3 guidance and our full year guidance kind of implies another very strong sequential growth into the year and wondering if thats IP driven.
Unknown Executive: Well, as you noted, IP tends to be lumpy for us, and so you saw us have about 53% IP growth in Q1. So Q2 is a bit muted from that, although we're still at 19% year-over-year, and we anticipate another strong year for IP. And the lumpiness is really about the timeline in which the customers need to ingest the IP into their design. And so, as you noted, that'll that'll continue through the year, and we expect continued growth throughout Q3 and Q4 with a strong
Speaker Change: Well as you noted IP tends to be lumpy for us and so you saw us have about 53% growth in Q1. So Q1 is Q2 is a bit muted from that although we're still up 19% year over year, and we anticipate another strong year for IP and the Lumpiness is really.
Speaker Change: <unk> about the timeline in which the customers need to ingest the IP into their design.
Speaker Change: And so as you noted that will that will continue through the year and we expect continued.
Speaker Change: Continued growth throughout Q3, and Q4 with a strong Q4.
Charles Shee: Thanks. May I ask again that the China revenue you guys were expecting contribution to be lower in fiscal 24 compared with 23, but dollar wise, it is still going to be a record. I mean, Echo is still going to grow on a year-on-year basis. Is that still the case? Yeah.
Speaker Change: May I ask again, the China revenue you guys were expecting contribution to be lower in fiscal 'twenty will compare with pointed three by the dollar wise still going to be on a run.
Speaker Change: I mean, our goal is still going to grow.
Speaker Change: Year on year basis is that still the case.
Sassine Ghazi: As you recall, Charles, we communicated early in the year that we're a little bit cautious on China as we see macro challenges in the economy of China and some impact of the restrictions. We had a good first half. We are anticipating growth in China, but overall, we're taking a balanced approach to the overall macro environment.
Speaker Change: Yes.
Speaker Change: S.
Charles <unk>: As you'll recall Charles we communicated early in the year that were little bit cautious on China as we see macro.
Charles <unk>: The challenges in the economy in China, and some impact of the.
Charles <unk>: Restrictions.
Charles <unk>: We had a good first half we are anticipating growth in China.
Charles <unk>: But overall, we're taking a balanced approach for the overall macro.
Charles <unk>: Okay.
Charles <unk>: Thanks.
Speaker Change: Thanks, Charles welcome.
Operator: Your next question comes from the line of Josh Tilton with Wolf Research. Your line is open.
Speaker Change: Your next question comes from the line of Josh Tilton with Wolfe Research. Your line is open.
Joshua Alexander Tilton: Hey, guys can you hear me.
Joshua Alexander Tilton: I really appreciate the color on kind of tracking these displacements that you called out. I think you mentioned 20. I don't remember if that was this quarter or year to date, but could you maybe just give us a little bit more color on what's driving those, where they're coming from, and kind of how we should expect those displacements to trend for the rest of the year?
Speaker Change: Yes.
Speaker Change: Really appreciate the color on <unk>.
Speaker Change: Tracking these displacements that you called out I think you mentioned.
Speaker Change: <unk> I'm not I don't remember this.
Speaker Change: This quarter, our year to date, but can you maybe just give us a little bit more color on what's driving those where they're coming from and kind of how we should expect.
Speaker Change: The trend for the rest of the year.
Sassine Ghazi: Sure, you know, our customers are expecting analog design workflows and environment methodology, etc. to be more modernized. Think of it as feeling more like digital.
Speaker Change: Sure.
Our customers are.
Speaker Change: Expecting analog design.
Speaker Change: Workflows and environment methodology et cetera to be more modernized think of it feeling more like digital.
Sassine Ghazi: And this is a great opportunity for Synopsys, and we introduced a couple things. One is the AI for analog, which is ASO.AI. Our customers are using it primarily for migration from node-to-node or, in some cases, foundry-to-foundry. And the other aspect of the analog competitive wins that we've had is the full flow. When you look at the complete design environment, simulation, etc., and offering a modern, competitive platform for our customers, and we're actually very excited about the momentum that ASO.AI is driving and the overall workflow that we're putting together for our customers.
Speaker Change: And this is a great opportunity for Synopsys and we introduced a couple of things one is the AI for analog which is <unk> AI our customers are using it primarily for.
Speaker Change: The migration from a node to node or in some cases foundry to foundry.
Speaker Change: The other aspect of the analog.
Speaker Change:
Speaker Change: Competitive wins that we've had is the full flow when you look at the complete design environment simulation et cetera.
Speaker Change: And offering a modern.
<unk>.
Speaker Change: Competitive platform.
Speaker Change: For our customers and we are actually very excited about the momentum that <unk> AI is driving and the overall.
Speaker Change: Workflow that we're putting together for our customer.
Sassine Ghazi: Maybe, maybe just to follow up on that, I know you mentioned that you and Ansys are running separate businesses at the moment, but are you already seeing any changes in purchasing behavior? And what I mean by that is, are there any customers you can identify that maybe, you know, weren't as strong buyers or starting to go more all in, or maybe they weren't customers at all, but are now starting to buy Synopsys because of the future they see between you and Ansys that will exist as a combined business?
Speaker Change: Maybe just a follow up to that I know you mentioned that you were there because we're running a separate businesses at the moment, but are you already seeing any changes in purchasing behavior and what I mean by that.
Speaker Change: Are there any customer you can identify that maybe.
Speaker Change: Werent as strong buyers or starting to go more all in or maybe werent customers at all but are now starting to buy.
Speaker Change: This because of the future they see between you and answers that will exist as a combined business.
Sassine Ghazi: Yeah, remember Josh, we've had a partnership since 2017. So the customers that we Synopsys engage with in our core business, we already have that established go-to-market and established technology connections between the products that are relevant for that grouping of customers. So I won't say there is anything different in terms of customer behavior at this stage. Think of it as a continuation of what we started in 2017.
Joshua Alexander Tilton: Yes, remember Josh we've had a partnership since 2017, so the customers that we engage we synopsys engage with in our core business.
Joshua Alexander Tilton: We already have that established.
Joshua Alexander Tilton: Two market.
Joshua Alexander Tilton: And established.
Joshua Alexander Tilton: Technology connections.
Joshua Alexander Tilton: Between the.
Joshua Alexander Tilton: The products that are relevant for that.
Joshua Alexander Tilton: Grouping of customers. So I wont say there is anything different in terms of customer behavior. At this stage think of it as a continuation of what we started in 2017.
Joshua Alexander Tilton: Super helpful. Congratulations on a great quarter, guys. Thank you.
Super helpful. Congrats on a great quarter guys.
Operator: Your next question comes from the line of Gary Mobley with Wells Fargo Securities. Your line is open.
Speaker Change: Your next question comes from the line of Gary Mobley with Wells Fargo Securities. Your line is open.
Gary Wade Mobley: Hi everyone. Thanks for taking my question. I wanted to ask about the regulatory approval process for the ANSYS acquisition. And I guess what's been developed most recently was the China-SAMR approval. I presume that you always expected to file with China-SAMR, given the closed timeframe of the first half next year. Maybe you can just speak to your confidence in that approval process and any concessions you might be willing to make to get that across the finish line.
Gary Wade Mobley: Hi, everyone and thanks for taking my question.
Gary Wade Mobley: I wanted to ask about the regulatory approval process for the answer this acquisition and I guess, what's developed most recently was China same or approval I presume that you always expected to.
Gary Wade Mobley: To file which on the same or a.
Speaker Change: Given the close timeframe in the first half of next year, maybe you can just speak to your confidence in that approval process and any concessions you might be willing to make to get that across the finish line.
Sassine Ghazi: So Gary, a few things. One, from a regulatory process point of view, we had a really thorough roadmap on different jurisdictional filing and processes that we needed to With China, the first step we took was to communicate that our transaction was below the merger notification threshold. And that was confirmed last week in the letter, which is actually a positive confirmation. At the same time, it was communicated that they would desire to review the transaction, which at this stage, we're reviewing the notice, and we're evaluating the potential next steps.
Speaker Change: Sure.
Speaker Change: So get a few things one.
Speaker Change: From a regulatory process point of view, we had really.
Speaker Change: Total roadmap on different jurisdiction filing and processes that we needed to.
Speaker Change: Okay.
Speaker Change: With the China. The first step we took was to communicate that our.
Speaker Change: The transaction is below the merger notification threshold.
Speaker Change: And that was confirmed last week and the letter which is actually.
Speaker Change: A positive confirmation.
Speaker Change: At the same time.
Speaker Change: It was communicated that they will desire to review the transaction.
Speaker Change: At this stage, we are reviewing the notice we're evaluating the potential next steps and as we communicated to every jurisdiction is important to work collaboratively try to understand what are any customer competitive et cetera concerns that we need to take into account and were just following that process at.
Sassine Ghazi: And as we communicated to every jurisdiction, it's important to work collaboratively, try to understand what any customer, competitive, et cetera, concerns that we need to take into account. And we're just following that process at this stage.
Speaker Change: The stage.
Gary Wade Mobley: Okay, thank you. Sassine, as my follow up, you mentioned in your pair of remarks about a customer win with an Asian memory, you know, designer. And if I'm not mistaken, memory as a sub group of the semiconductor industry hasn't historically leaned heavily on commercial EDA. You know, maybe if you can just give us, you know, how that some insight and how that might be changing, and then in particular, you know, how HBM memory for data center might be, you know, factoring into some of the needs for needs for your tool. Yes.
Speaker Change: Okay. Thank you so as soon as my follow up.
Speaker Change: You mentioned in your prepared remarks about.
Speaker Change: Customer win with an Asian memory.
Speaker Change: Designer.
Speaker Change: And if I'm not mistaken memory as a subgroup of the semiconductor industry hasn't historically leaned heavily on commercial EDA.
Speaker Change: Yes.
Speaker Change: Maybe if you could just give us some insight in how that might be changing and then in particular.
Speaker Change: Now HBM.
Speaker Change: Memory for data center might be factoring into some of the need for needs for your tools.
Speaker Change: Yes.
Sassine Ghazi: There are a couple parts of the portfolio, actually, that are an incredible sweet spot for memory design. As you know, memory design is more a custom-structured custom design, where we have our leadership position in fast spice simulation, where you take a memory design, and you try to bring in acceleration in our fast spice simulation. And actually, over the last number of years, the memory market has been a sweet spot for growth for us in that space.
Okay.
Speaker Change: There are a couple of parts of the portfolio actually that they are.
Speaker Change: Incredible sweet spot for memory design as you know memory design is more a custom structured custom design, where we have.
Speaker Change: Our leadership position in fast Spice simulation.
Speaker Change: Where you take a memory design and you try to bring in an acceleration in our fast by simulation and there over the last number of years actually the memory market has been a sweet spot for growth for us in that space.
Speaker Change: We even introduced GPU acceleration for that fast by simulation that the memory customers were the leaders and early adopters of the technology in order to deal with the complexity as these memories, especially the HBM three and all flavors of <unk>.
Sassine Ghazi: We even introduced GPU acceleration for that fast spice simulation. The memory customers were the leaders and early adopters of that technology in order to deal with the complexity of these memories, especially the HBM3, and all flavors of new memory design. It drove a nice opportunity for us to continue expanding those engagements. So it's true, while memory companies were more a custom type of design flows, over the last number of years, they've been leaning quite heavily to adopt the latest technology to deal with that complexity.
Speaker Change: A new memory design.
Speaker Change: It drove nice.
The opportunity for us to continue on expanding those engagements. So it's true while memory companies were more a custom type of design flows over the last number of years, they've been leading leaning quite heavily to adopt latest technology to deal with that complexity.
Speaker Change: That's good color. Thank you.
Speaker Change: Youre welcome.
Operator: Your next question comes from the line of Lee Simpson with Morgan Stanley. Your line is open.
Speaker Change: Your next question comes from the line of Lee Simpson with Morgan Stanley. Your line is open.
Lee John Simpson: Great, thanks so much. I just wanted to ask an IP question. And really, just in relation to a new node being stood up at TSMC. So I think, as many of us know, there's the end to capacity being built probably around mid 2025. I just want to get an understanding of when you think that would impact on your business, particularly from the foundational IP perspective. And maybe more broadly, as a last caller was asking right about, you know, how much it might pull in things like HBM, and so forth as well. Thanks. Yes.
Lee John Simpson: Great. Thanks, so much I just wanted to ask on the IP question.
Lee John Simpson: Really just in relation to you know being stood up but TSMC. So I think as many of US know there and two capacity is being stood up probably around mid 2025, I was just trying to get an understanding of when you thought that would impact on your business, particularly from the foundational IP perspective, and maybe more broadly.
Speaker Change: He is a last caller was asking around about.
Speaker Change: It might pull in things like HBM.
Speaker Change: And so for us as well thanks.
Sassine Ghazi: Yeah, so, so, um... When a new node comes online, we engage in the 0.1, and in some cases, like foundation IP, we even engage before a 0.1 PDK. And the reason we engage that early is in order to deliver what's called the node entitlement to get a sense of what the power, the performance, the area of that node will be. And that's a very deep in the trenches collaboration with, in this case, TSMC, but it applies to Samsung, Intel, many other foundries.
Speaker Change: Yes.
Speaker Change: When a new node comes online we engage in the <unk>, one and in some cases like foundation IP, even we engaged before <unk> PDK and the reason we engage that early is.
Speaker Change: In order to deliver what's called the.
Speaker Change: The node entitlement to get a sense of what's the power of the performance the area of that node and that's a very deep.
Speaker Change: In the trenches collaboration with in this case TSMC, but it applies to Samsung Intel many other foundries.
Sassine Ghazi: So the first is with our foundation IP, then shortly after, it's followed by the interface IP, where we are on a number of the test chip shuttles that they have for internal validation of their process technology, and those come way before the customer is buying the IP from us. So by the time the customer is ready at the 0.5 PDK, and in some cases, as you know, they wait for 0.9 PDK, et cetera, that's when they start pulling the IP from us. So the engagement starts, in some cases, a year, a year plus before we see a customer ready to pull the IP.
Speaker Change: So the first is with our foundation IP then shortly after its follows its followed by the interface IP, where we are a number of the test chip shuttles that they have for internal validation of their process technology and those come way before the customers.
The IP from us so by the time the customer is ready to at that 0.5, PDK and in some cases as you know they they wait for nine PDK et cetera.
Speaker Change: When they start pulling the IP from us so the engagement starts in some cases.
Speaker Change: Year, a year plus before we see a customer ready to pull the IP.
Lee John Simpson: Great, that's, that's really clear. Maybe just a quick follow up.
Speaker Change: Great.
Speaker Change: Its really clear maybe just a quick follow up.
Speaker Change: I noticed quite a lot of color around infusion.
Speaker Change: The AI based optimization doing quite well over the last quarter at least in some good callout wins at two nanometers.
Speaker Change: I think also with a fly flagship mobile chip.
Speaker Change: Samsung.
Sassine Ghazi: I noticed quite a lot of color around fusion and the AI-based optimization doing quite well over the last quarter, at least some good call-out wins at two nanometers. And I think also with a flagship mobile chip at Samsung. I guess where I'm really going with this is, I think the way that Fusion could work with RedHawk going forward and some of the built-in features that you've got as a stack around Fusion, which looks quite interesting.
Speaker Change: Yes.
Speaker Change: Where I'm really going with this is I think.
Speaker Change: The way that fusion could work with with Red Hawk going forwards.
Speaker Change: Some of the build around that you've got as a stock around infusion, which looks quite interesting.
Sassine Ghazi: Is it too much to make the leap to say that interoperability in EDA might become a thing of the past and that there will be no interest in making the various stages of design flow interoperable with other people's offerings? Not at all.
Speaker Change: Is it too much to make the leap to say that interoperability and EDA might become a thing of the past and that there'll be no interest to make this the various stages of design flow interoperable with.
Speaker Change: Other people's offerings. Thanks.
Sassine Ghazi: Not at all. Interoperability is so essential for the workflows. So essential. As far as I can go back and remember in EDA, you have customers who are using mixed flows, mixed environments, very well alive and thriving in terms of customers using this mixed environment for many reasons. Many times, the customer wants to introduce their special sauce into the flow, and they want to have these handshakes in an industry-standard, interoperable way. And we've been doing it with Ansys, we've been doing it with our competitors, etc., and I don't see anything changing there.
Speaker Change: Not at all interoperability is so essential for the workflows so essential.
Speaker Change: As far as I can go back and remember in EMEA you have customers that they are using mixed slows mixed environments.
It's very well alive and thriving in terms of customers using this.
Speaker Change: Mixed environment for many reasons many times the customer wants to introduce their special sauce inside the flow and they want to have these handshakes and an industry standard and tolerable ways and we've been doing it with <unk>, who had been <unk>.
Speaker Change: The wing it with our competitors et cetera and.
Speaker Change: I don't see anything changing there.
Lee John Simpson: The one thing that you hear when we talk about fusion is that there is absolutely value when you integrate deeper. The technology into your platform, the value of it to our customers is a predictable outcome where step one is correlated with step two, correlated with step three, etc. But that, too, can be achieved through an interoperable mixed environment. So I absolutely see that continuing, and you absolutely need an ecosystem in order to deal with the complexity of the future. It cannot be, in my mind, one platform that is sufficient to close the gap of complexity.
Speaker Change: One thing that you hear when we talk about fusion is there is absolutely value when you integrate deeper.
Speaker Change: The technology into your platform.
Speaker Change: Value of it to our customer is a predictable outcome.
Speaker Change: The step one is correlated to step two correlated with step three et cetera.
Speaker Change: But that as well can be achieved through an interoperable mix.
Speaker Change: Environment so.
Speaker Change: I, absolutely see that will continuing and you absolutely need the ecosystem.
Speaker Change: In order to deal with the complexity of the future it cannot be in my mind.
Speaker Change: A one platform that is.
Speaker Change: Sufficient.
Speaker Change: To close the gap of complexity.
Operator: Great response; thank you very much.
Speaker Change: Great response, thank you very much.
Speaker Change: Thank you Lee.
Jay Vleeschhouwer: Your next question comes from the line of Jay Vleeschhouwer with Griffin Securities. Your line is open. Thank you. Good evening.
Speaker Change: Your next question comes from the line of Jay <unk> with Griffin Securities. Your line is open.
Jay Vleeschhouwer: Thank you. Good evening.
Sassine Ghazi: Starting with an AI question, you noted some adoption of some of your branded products I've seen, but perhaps a two-part question. Number one, what are you seeing in terms of the relative adoption of AI, your branded AI, by SEMI versus systems customers? And over time, would you be indifferent to the economics of supporting those two classes of customers with AI, in other words, with your ACV, your margin structure, et cetera, would you be indifferent to that mix with respect to AI adoption? And are you also beginning to see any signs of customers taking two or more solutions at this point with AI-branded products? And then my follow-up.
Speaker Change: Thank you and good evening.
Speaker Change: <unk> with the NII question.
Speaker Change: You noted some adoption of some of your branded products have seen but.
Speaker Change: Perhaps a two part question number one.
Speaker Change: What are you seeing in terms of the relative adoption of AI your branded AI by semi versus systems customers and over time would you be indifferent to the economics of supporting.
Speaker Change: Those two classes of customers with AI and other words with your.
Speaker Change: ACD your margin structure et cetera.
Speaker Change: Difference to that mix.
Speaker Change: With respect to AI adoption in.
Speaker Change: Are you also beginning to see any signs of customers, taking two or more solutions at this point.
Speaker Change: <unk> branded products and then my follow up.
Speaker Change: Okay.
Sassine Ghazi: Actually, it's an interesting question regarding the mix. The advantage, I want to say, of a system company is typically they're starting from scratch, meaning they don't have the legacy CAD teams, the legacy workflows, etc. So the adoption of new technology is typically faster. That's what we observe.
Speaker Change: Actually it's an interesting question regarding the mix.
Speaker Change: The advantage I want to say of a system company is typically they're starting from scratch, meaning they don't have the legacy.
Speaker Change: Cat teams the legacy workflows et cetera, so the adoption of new technology is typically faster that's what we observed so when we introduce a new technology.
Sassine Ghazi: So when we introduce a new technology, the rate of adoption is faster. But now, as I look back, for example, at DSO.ai or even the new technology, ASO, and VSO.ai, we have a mix of adoption at the classic semis and hyperscalers as well. And the second part of your question, if I understood it correctly, are we seeing customers who are using two or more of the AI technologies? The answer is yes, absolutely.
Speaker Change: Rate of adoption is faster, but now as I look back for example, at a DSO that AI or even the new technology <unk> AI, we have a mix of adoption at the classic semis.
Speaker Change: And hyperscale as well.
Speaker Change: Okay.
Speaker Change: And the second part of your question if I understood. It correctly are we seeing customers that they are using two or more of the AI technology. The answer is yes, absolutely.
Sassine Ghazi: What is different now, Jay, compared to 2020 when we introduced DSO.AI? AI was such a foreign new concept for even Synopsys engineers supporting it in the field and the customers adopting it. They were trying to prove, can I trust it? How do I use it? What's the computing requirement to use it? Now it's a completely different discussion. Our customers, executives are pushing their teams to leverage any AI productivity booster that they can get. And it's absolutely giving us an acceleration of adoption compared to what we witnessed in 2020.
Speaker Change: Is different Jay now comp.
Speaker Change: Compared to 2020, when we introduce DSO that AI.
Speaker Change: I was such a phone a new concept for even Synopsys engineers supporting it in the field and the customer adopting it they were trying to prove can I trusted.
Speaker Change: I use it what's the compute requirement to use it.
Speaker Change: <unk> is a completely different discussion our customers executives are pushing their teams to leverage any AI productivity booster.
Speaker Change: They can get and it's it's absolutely, giving an acceleration of adoption compared to what we witnessed in 2020.
Jay Vleeschhouwer: Okay, now, you know, the strength of hardware. This is the follow-up. And hardware, of course, for you and your peers has been a substantial growth category for a decade. The latest data shows that, including your numbers, it's well over a billion dollars to the total revenue for the category. The question is, where do you still see pockets of underutilization or under automation, vis-a-vis, you know, EDA hardware? I mean, you know, do you foresee this, including yourselves, growing to be, for example, a $2 billion category, the way IT has grown into a $2 billion category?
Speaker Change: Okay.
Speaker Change: You noted the strength of hardware. This is a follow up at.
Speaker Change #100: In hardware of course for you and your peers has been a substantial growth category for a decade. The latest data shows that included in your numbers, it's well over $1 billion to a total revenue for the category.
Speaker Change #101: The question is where do you still see.
Speaker Change #101: Pockets of Underutilization of our under automation.
Speaker Change #102: Vis vis <unk>.
Speaker Change #103: EDA hardware I mean.
Speaker Change #103: Do you foresee this including yourselves growing to be for example, a $2 billion category. The way IP has grown into a 2 billion dollar category.
Sassine Ghazi: So if you step back and ask why customers use hardware, there are really two use cases. One is the whole verification acceleration. Can I get the verification done faster?
Speaker Change #103: So.
Speaker Change #104: If you step back and ask why do customers use hardware. There are really two use cases, one that is the whole verification acceleration can I get the verification done faster.
Sassine Ghazi: And two, software bring up. [inaudible] I don't think we will debate the fact that there's going to be more software content. Customers are going to have to bring up as much as possible of the software before the silicon is ready, and for both use cases. But we're, I want to say, biased that the software bring up use case is going to have a bigger opportunity for adoption for the reasons I just described.
Speaker Change #104: And two software bring up.
Speaker Change #105: I don't think.
Speaker Change #105: We will debate the fact that they are going to be more software content customers are going to have.
Speaker Change #105: Have to.
Speaker Change #105: Bring up as much as possible the software before the silicon is ready.
Speaker Change #105: And for both use cases, but where I want to say biased that the software bring up use case.
Speaker Change #105: Is going to have a bigger.
Speaker Change #105: Opportunity of adoption forward for the reasons I just described and as you know we are more suited with our solution to a software bring up use case.
Sassine Ghazi: And as you know, we are more suited with our solution to a software bring up use case, given the architecture of our hardware system. And those are the areas where I don't believe there will be any slowdown or direct change in direction when it comes to the hardware-assisted verification use cases.
Speaker Change #105: Given the architecture of our hardware system.
Speaker Change #105: And those are the areas that I don't believe there will be any slowdown or direct change in direction.
Speaker Change #105: When it comes to.
Speaker Change #105: The hardware assisted verification use cases.
Jay Vleeschhouwer: Okay. Thank you, Sassine. Thank you.
Speaker Change #106: Okay. Thank you Susan.
Jay: Thank you Jay.
Operator: Your next question comes from the line of Gianmarco Conti with Deutsche Bank. Your line is open.
Speaker Change #108: Your next question comes from the line of Michael Conti with Deutsche Bank. Your line is open.
Gianmarco Paolo Conti: Hi, Sassine, and Shelagh, thanks for taking my questions and congrats on another great quarter. So perhaps the first one will be around AI. In your remarks, you spoke about a leading American GP designer deploying DSO. Could you perhaps talk a little bit more about the penetration rates and any relevant APIs here? Are you starting to see more material revenue generation from the broader XSO.AI suite? And how much is it currently included in the backlog? I'll ask them to follow up. Okay.
Jay: Okay.
Speaker Change #109: Hi, Sheila Thanks for taking my questions and congrats on another great quarter.
Speaker Change #109: So perhaps the first one would be around AI.
Remarks, you spoke about a leading American GP designer.
Speaker Change #110: Deploying DSO.
Speaker Change #110: Could you, perhaps talk a little bit more about the penetration rates and any relevant kpis here.
Speaker Change #110: Are you starting to see more material revenue generation from the board.
Speaker Change #110: Excellent.
Speaker Change #111: And how much is it current included in the backlog.
Speaker Change #112: Hello, Thank you.
Sassine Ghazi: Okay, yes, for dso.ai, what we communicated during Investor Day is that if you look at the TAM for the dso.ai use cases, you can take advantage of that technology. We're still in the early stages.
Speaker Change #113: Okay, Yes for.
Speaker Change #114: DSO that AI.
Speaker Change #114: What we communicated actually during Investor day that if you look at the Tam for the DSO that AI.
Speaker Change #114: Use.
Speaker Change #114: Use cases that you can take.
Speaker Change #114: Take advantage of that technology, we're still in early stages.
Sassine Ghazi: We're in roughly 20% of the TAM from an adoption point of view for dso.ai, so there's plenty of opportunity to continue expanding. And within that 20%, we are roughly at the 15-ish percent mark in terms of adoption.
Speaker Change #114: Roughly 20% of the Tam.
Speaker Change #114: From a adoption point of view for DSO that AI. So there's plenty of opportunity to continue on expanding and within that 20%. We are roughly at the 15 ish percent in terms of adoption.
Sassine Ghazi: And the reason for that, not because customers are pushing back or they're not seeing value, but there's a rhythm of adoption where you have to finish the tape out, go into the next project, and broaden that deployment across more, we call them blocks, meaning partitions of the design. So that's dso.ai. On VSO.ai, we anticipate the adoption to be faster, and the ramp to be faster than VSO.ai because what it does, it looks at your verification cycles, and it improves the coverage by not having to go back and run and verify something you already verified in the previous run.
Speaker Change #114: Adoption and the reason for that not because customers are pushing back or they are not seeing value.
Speaker Change #114: There's a rhythm of adoption, where you have to finish the tape out.
Speaker Change #114: Go into the next.
Speaker Change #114: Project and broader that deployment.
Speaker Change #114: Across more we call them blocks, meaning partitions of the design.
Speaker Change #114: So thats DSO that AI.
Speaker Change #114: On <unk> Dot AI, we anticipate the adoption to be faster and the ramp to be faster than DSO that AI because what it does it looks at your verification cycles.
Speaker Change #114: And it improves the coverage by not having to go back and run and verify something you already verified in the previous one so it's smarter approach to improve coverage, while reducing the time.
Sassine Ghazi: So it's a smarter approach to improve coverage while reducing the time and the need to just waste more verification cycles. And what the customer, the way they're looking at it, is a TCO reduction because it impacts their hardware utilization where they're running that software on in order to get higher coverage and speed. As I mentioned on aso.ai, it's all about modernizing the workflow, and in the early use cases, we're seeing a node migration.
Speaker Change #114: And the need to just waste more verification cycles and what the customer the way they are looking at it is.
Speaker Change #114: Is the Tc or reduction.
Speaker Change #114: Because it impacts there.
Speaker Change #114: Hardware utilization, where they're running that software on in order to get a higher coverage and speed up as I mentioned on aes or that AI, it's all about modernization of the workflow.
Speaker Change #114: And in the early use cases, we're seeing is a node migration to automate accelerate.
Sassine Ghazi: So to automate, accelerate the customer experience of moving from node A to node B, where do they stand in terms of power performance area? And it's not only a digital thing you need, because you need the whole SOC to go through this entitlement exercise.
Speaker Change #114: The customer field.
Speaker Change #114: Moving from node to node B, where do they stand in terms of power performance area and it's not only a digital frame you need.
Speaker Change #114: You need the whole.
Speaker Change #114: S O C to go through.
Speaker Change #114: This entitlement exercise.
Gianmarco Paolo Conti: Understood. And I have a second one to follow up for perhaps Sheila.
Speaker Change #114: Understood.
Speaker Change #115: I have a second one follow up for Pat Sheila.
Speaker Change #116: R&D expenses grew well above revenue in the quarter.
Shelagh Glaser: I know your R&D expenses grew well above revenue in the quarter. Could you perhaps talk about where you are directing most of your investments? Are you pouring more into the whole AI development, or is more budget being allocated to the setup of what would be the product integration development post-asset acquisition? Any color would be great, thank you.
Speaker Change #117: Could you perhaps talk about where are you directing most of the investments are pouring more into the whole AI developmental was more budget being allocated and setup of what would be the product integration development post an acquisition any color would be great. Thank you.
Shelagh Glaser: Sure. So our main focus of our investment is obviously investing in both design automation and design IP. So I think, as we talked about yesterday, in the IP group, we're building out IP blocks for leading-edge technology. The standards are moving much more rapidly, especially driven by the insatiable needs of AI. So we're building out the standards in a more rapid fashion, and so that's a significant part of our R&D.
Shelagh Glaser: Sure, so our main focus is on our investment.
Speaker Change #118: Sure. So our main focus on our investment is obviously investing in both design automation and design IP.
Speaker Change #119: I think as we talked about it in Investor day, any IP group are building out.
Speaker Change #119: IP blocks for the leading edge technology.
Speaker Change #119: The standards are moving much more rapidly, especially driven by the Kennedy educational needs of AI. So we're building out.
Speaker Change #119: Standards at a more rapid fashion and so that.
Speaker Change #119: A significant part of our R&D and then in.
Shelagh Glaser: And then in the design automation group, in the EDA in particular, we're investing in building out all our Synopsys AI capabilities and continuing to further those, because even the ones that we've already launched. We're driving improvements in those. Those aren't just static, static investments.
Speaker Change #119: The EIA the design automation group in EMEA in particular, we're investing and building out all our synopsis study.
Speaker Change #119: AI capabilities, Okay, <unk> further those because even even the ones that we've already launched.
Speaker Change #119: We're driving improvements in those as arent just static static investment.
Speaker Change #120: Thank you. Thank you.
Operator: Your next question comes from the line of Clarke Jeffries with Piper Sandler. Your line is open.
Speaker Change #121: Your next question comes from the line of Kurt Clarke Jeffries with Piper Sandler Your line is open.
Clarke Jeffries: Hello, thank you for taking the question. First, for Sheila, I wanted to clarify that two percentage points of operating margin expansion is within continuing operations, not based off of the removal of SIG, and how do you think about that number for ongoing operating margin expansion for the core business going forward? And then one follow-up.
Speaker Change #122: Hello, Thank you for taking the question.
Speaker Change #123: First is for Sheila I wanted to clarify two percentage point of operating margin expansion is within continuing operations not based off of.
Speaker Change #124: The removal of Sig and how you think about that number for ongoing operating margin expansion for the core business going forward and then one follow up.
Shelagh Glaser: Correct. It's within the continuing operations. And thanks for the clarification.
Speaker Change #125: Correct, it's within continuing operations and thanks for the clarification I know Theres a lot of moving parts here with the move of <unk> to discontinued operations and the way we're thinking about it is.
Shelagh Glaser: I know there's a lot of moving parts here with the move of SIG to discontinued operations. And the way we're thinking about it is, as you know, we're scaling the business. How do we drive better leverage across the R&D? And then how do we drive better leverage across the core infrastructure of the company? And our long-term expectation, which we shared on Investor Day and when we did Ansys, is that our expectation is that we're going to drive operating margin to the mid 40s.
Speaker Change #125: As we.
We are scaling the business, how do we drive better leverage across the R&D and then how do we drive better leverage across the core infrastructure of the company and our long term expectation that we shared.
Speaker Change #125: An investor day, and when we did ask this is that our expectation is that we're going to drive operating margin into the mid 40. So we see continued expansion and its very much a part of how we're thinking about the growth of the company.
Shelagh Glaser: So we see continued expansion. And it's very much a part of how we're thinking about the growth of the company. And Sassine talked a lot about the AI that we're infusing into our customers. And if you will, we're eating at our own restaurant; we're infusing AI into everything we do inside the company to drive more modern ways of doing things. So that allows us to drive more innovation.
Speaker Change #126: So <unk> talked a lot about the AI that we're infusing and our customers.
Speaker Change #126: We're eating at our own restaurant, we're infusing AI into everything we do inside the company to drive more modern ways of doing things. So that allows us to drive more innovation.
Clarke Jeffries: Perfect. Just how should we think about net proceeds for the SIG sale? What to consider there, you know, absent of timing? I know there was a payable payment in cash, just any way to think about net proceeds as the deal closes? Thank you.
Speaker Change #126: Perfect.
Speaker Change #127: How should we think about net proceeds for the sale.
Speaker Change #128: What to consider there.
Speaker Change #129: Timing I know there was a payable payment in cash just any way to think about net proceeds as the deal closes. Thank you.
Shelagh Glaser: Certainly. So what we talked about with SIG is it's up to $2.1 billion in consideration, and the way that breaks out is in three distinct parts. So we'll have $1.5 billion payment at the close of the SIG transaction. And as we had noted, we expect that this transaction will close in the second half of 2024. So that would happen this year.
Speaker Change #130: Certainly so what we talked about with say gives us up to $2 1 billion in consideration and the way that breaks out is in three distinct parts. So we'll have one 5 billion payment at closing of the <unk> transaction. As we had noted we expect that this transaction will close in the second half.
24, so that would happen.
Speaker Change #130: Here.
Clarke Jeffries: And then over the subsequent five quarters, starting in Q1, our first fiscal quarter of 2025, there's a cumulative $125 million payment. So you can think about the cash that we'll get is 1.625. So think about that. And then the balance, the 475 is payable upon an agreed to specified rate of return that the sponsors would achieve. And then we would participate in that, that upside through potential liquidity transactions.
Speaker Change #130: And then over the subsequent five quarters starting in Q1.
Speaker Change #130: First.
Speaker Change #130: Fiscal quarter of 2025.
Speaker Change #130: There is a cumulative $125 million payment. So you can think about the cash that will get it.
Speaker Change #130: Is 165, so think about that and then.
Speaker Change #130: With the 475 is payable upon.
Speaker Change #130: <unk> Q specified rate of return that the sponsors when achieved and then we would participate in that.
Speaker Change #130: That upside through potential liquidity transaction.
Operator: Perfect, thank you very much. Thanks for the question. Your next question comes from the line of Blair Abernethy with Rosenblatt Securities. Your line is open.
Speaker Change #131: Perfect. Thank you very much.
Speaker Change #132: Thanks for the question.
Speaker Change #133: Your next question comes from the line of Blair Abernethy with Rosenblatt Securities. Your line is open.
Blair Harold Abernethy: Thank you, and a nice quarter, guys.
Blair Harold Abernethy: Thank you and nice quarter guys.
Blair Harold Abernethy: The thing I, just wanted to come back on the analog side of things.
Blair Harold Abernethy: And it seems like you've had a good performance here or are you seeing a shift in momentum in that part of the business for Synopsys and where do you see sort of the lowest hanging fruit or the best opportunities for you in analog.
Sassine Ghazi: So from a customer base point of view, there are the core analog companies that are truly trying to improve their productivity, improve the way they approach design. And what we are hearing from that cohort of customers is, "How can we digitize our analog workflows to be more efficient, more productive, take advantage of the latest technology, et cetera." So that's a grouping of customers. And for that group of customers, it's very exciting because we're engaging them based on new technology and a new approach, if you think about it, to designing their chip.
Speaker Change #135: So from a customer base point of view.
Speaker Change #136: There are the core analog companies that are truly trying to improve their productivity and improve the way. They approach design and what we are hearing from that cohort of customers is how can we digitize our.
Speaker Change #136: Analog workflows to be more.
Speaker Change #136: More efficient more productive take advantage of the latest technology et cetera, So, let's say a grouping of customers and for that grouping of customers is very exciting because we're engaging them based on.
Speaker Change #136: New technology.
Speaker Change #136: And.
Speaker Change #136: A new approach if you think about it for.
Speaker Change #136: Designing their chips.
Sassine Ghazi: Then there is the other grouping of customers where, as you know, customers always encourage and enjoy seeing a competitive, strong player to have alternatives for many other reasons. And that's part of it as well. So where we see competitive displacement and engagement in that space as well. So think of it as two buckets where we're seeing the momentum that
Speaker Change #136: And then there is the other grouping of customers, where as you know.
Speaker Change #136: Customers always encourage and enjoy to see a competitive.
Speaker Change #136: Strong.
Speaker Change #136: Player.
Speaker Change #136: To have alternatives to have poor for many other for many motivations and thats part of it as well so where we.
Speaker Change #136: We see a.
Speaker Change #136: A competitive displacement and engagement in that space as well so think of it as two buckets that we are seeing the momentum that we have.
Speaker Change #136: Yeah.
Speaker Change #137: Great. Thank you very much.
Speaker Change #138: Thank you.
Operator: Did you have a follow-up, did you have a follow-up, Blair, or is that it?
Speaker Change #139: Do you have a follow up did you have a follow up Blair or is that.
Speaker Change #138: Okay.
Blair Harold Abernethy: Thank you. All right. Thank you.
Blair Harold Abernethy: No I'm good. Thank you alright, thank you.
Speaker Change #138: Yeah.
Speaker Change #138: Yeah.
Speaker Change #138: Okay.
Operator: There are no further questions at this time.
Speaker Change #138: Operator.
Speaker Change #138: At this time.
Operator: Let's go ahead and close out the call. Thanks, Sarah.
Speaker Change #141: Let's go ahead and close out the call. Thanks, Sir.
Operator: Thank you. Thank you. This concludes today's conference call. We thank you for joining us. You may now disconnect your line.
Speaker Change #140: Thank you. Thank you.
Speaker Change #142: This concludes today's conference call. We thank you for joining you may now disconnect your lines.
Speaker Change #142: Okay.
Speaker Change #142:
Speaker Change #142: Yeah.
Speaker Change #142: Okay.