Q3 2024 Synopsys Inc Earnings Call

August 21, 2024

ladies and gentlemen welcome to the synnopsis earnings conference call for the third quarter fiscal year two thousand and twenty-four

Unknown Executive: for the third quarter fiscal year 2024.

Unknown Executive: for the third quarter Fiscal Year 2024.

Unknown Executive: At this time, all participants are in a listen only mode.

Unknown Executive: 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 the queue, it is again star one. 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. As a reminder, today's call is being recorded.

Unknown Executive: Hey guys, thanks for sneaking me in here.

Speaker Change: at this time allll participants are in a listeenomic 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 key pad to remove yourself from the que it is begagain star one

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 as a reminder today's call is being recorded

Unknown Executive: Later, we will conduct a question and answer session.

Trey Campbell: At this time, I would like to turn the conference over to Trey Campbell, Senior Vice President, Investor Relations. Please go ahead.

Unknown Executive: If you would like to ask a question at that time, please press star one on your telephone keypad.

Unknown Executive: I actually kind of want to, follow up on two questions I already asked already.

Speaker Change: at this time i would like to turn the conference over to tray campbell senior vice president investor relations please go ahead

Sassine Ghazi: Thank you and good afternoon, everyone. With us today are Sassine Ghazi, President and CEO of Synopsys, and Sheila Glazer, CFO.

Unknown Executive: To remove yourself from the queue, it is again star one.

Unknown Executive: The first one is a question about Intel's comments, but I kind of just want to ask it very straightforward and very clear.

Trey Campbell: thank you in good afternoon everyone

Unknown Executive: If you should require assistance during the call, please press star zero and an operator will assist you.

Speaker Change: with us today or sen gazi president and ceo synopsis and shila glazier cfo

Sassine Ghazi: 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. 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. It could cause actual results to differ materially from what we expect.

Unknown Executive: Today's call will last one hour. As a reminder, today's call is being recorded.

Speaker Change: before we begin i'd like to remind everyone that during the course of this conference call syoppsis will discuss forecasts targets and other forward-looking statements regarding the company in 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

Sassine Ghazi: In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release. In addition, we will refer to certain non-GAAP financial measures during the discussion. Reconciliation to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release financial supplement in 8-K that were released earlier today. All of these items, plus the most recent investor presentation, are available on our website at www. Synopsys.com.

Speaker Change: in addition to any risks that we highlight during this call important factors that may affect our future results are described in our most recent sec reports

Speaker Change: in today's earnings press release

Speaker Change: in addition we will refer to certain non-gaap financial measures during the discussion

Speaker Change: reconciliations to their most directly comparable gaap financial measures and supplemental financial information can be found in the earnings press release financial supplement in eight -k that were releasase earlier today

en: all of these items plus the most recent investor presentation are available on our website at w w w dots sonnopsis t com in addition the prepared remarks will be posted on our website at the conclusion of the call with that let's turn the call over to en

Sassine Ghazi: In addition, the prepared remarks will be posted on our website at the conclusion of the call.

Unknown Executive: At this time, I would like to turn the conference, over to Trey Campbell, Senior Vice President, Investor Relations.

Unknown Executive: And the question is, are there any changes in your forward growth expectations because of Intel's comments you know, laying people off, using IP more efficiently, using EDA vendors more efficiently?

Sassine Ghazi: With that, let's turn the call over to Sassine. Good afternoon. We delivered excellent results in the third quarter, exceeding the midpoint of all our guidance targets while setting another quarterly revenue record. We positioned the company's portfolio with one strategic end in mind, maximizing the value that we delivered to customers in the era of pervasive intelligence. Our focus is on leading innovation in EDA and IP, while deepening our differentiation and software-defined systems. Against this strategic backdrop, the Synopsys team continued a strong operational execution in the quarter, and commercial momentum remains robust. Revenue was up 13% year over year at the high end of our guided range.

Trey Campbell: Please go ahead.

Unknown Executive: And if not, what gives you the confidence that there is no change going forward?

Speaker Change: good afternoonwe delivered excellent results in the third quarterexceeding the midpoint of all our guidance targets while setting another quarterly revenue record

Trey Campbell: Thank you and good afternoon, everyone.

Unknown Executive: Yes.

Speaker Change: reposition the company's portfolio with one strategic and in mind maximizing the value that we deliver to customers in the era of pervasive intelligence

Trey Campbell: With us today are Sassine Ghazi, President and CEO of, Synopsys and Shelagh Glaser, CFO.

Trey Campbell: 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. While these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect.

Speaker Change: our focus is on leading innovation in ed a and ip while deepening our dedifferenftiation and software defined systems

Speaker Change: against the strategic backdrop the synopsis team continued the strong operational execution in the quarter and commercial momentum remains robust

Speaker Change: revenue was up thirteen percent year over year at the high end of our guided range

Sassine Ghazi: Non-GAAP operating margin was 40%, up 3.6% year over year. And non-GAAP EPS was up 27% year over year and above our guidance range. We continue to be confident in our guidance for industry-leading double-digit revenue growth.

Speaker Change: nongaap operating margin was forty percent up three point six points year over yearand nongaap e p s was up twenty seven percent year over year and above our guidance range

Operator: for the third quarter 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 the queue, it is again star one. 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. As a reminder, today's call is being recorded.

Speaker Change: we continue to be confident in our guidance for industry leading double-digit revenue growth ch i will discuss the financials in more detail

Sassine Ghazi: Sheila will discuss the financials in more detail. First, I'll give some context for our confidence, which is grounded in the continued strong execution of our Synopsys team and industry trends reinforced by our customers and partners. Since becoming Synopsys CEO in January, I've traveled to eight countries, participating in more than 140 meetings with over 80 customers and partners, discussing their challenges and understanding their priorities. The message in every meeting is loud and clear. Synopsys is mission critical to their innovation, which makes our business uniquely resilient. Our success is tied to technology innovation cycles, nut and market dynamics.

Unknown Executive: So when, we engage customers, we're engaging on programs that are multi-quarters type of investments we need to make before we see the needle moving in terms of impact on our business.

Speaker Change: first i'll give some context for our confidence which is grounded in the continued strong execution of our syno team and industryet trends reinforced by our customers and partners

Trey Campbell: 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 were released earlier today.

Unknown Executive: That's why when you think of our business, as we refer to it as resilient, because it's a multi-year type of commitment.

Trey Campbell: At this time, I would like to turn the conference over to Trey Campbell, Senior Vice President, Investor Relations. Please go ahead. Thank you and good afternoon everyone.

Synopsys CEO: since becoming syoppsa ce e o in january after travel to eight countries participating in more than one hundred and forty meetings with over eighty customers and partners

Trey Campbell: All of these items, plus the most recent investor presentation, are available on our website at www.synopsys.com.

Unknown Executive: And even if Intel were to move more IP, let's say to Synopsys, these are things you will not see the impact in terms of revenue until it takes us the cycle to build that IP, deliver it back, etc, etc.

Trey Campbell: In addition, the prepared remarks will be posted on our website at the conclusion of the call.

Trey Campbell: With us today are Sassine Ghazi, President and CEO of Synopsys and Sheila Glazer, CFO. Before we begin, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts, targets, and other forward looking statements regarding the company and its financial resources. 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.

Trey Campbell: With that, let's turn the call over to Sassane.

Unknown Executive: So that's why short term to midterm, we don't see an impact in the positive or the negative, just simply because of the way we structured our engagement.

Synopsys CEO: discussing their challenges and understanding their priorities

Sassine Ghazi: Good afternoon.

Unknown Executive: And that's unique to Intel.

Sassine Ghazi: We delivered excellent results, in the third quarter, exceeding the midpoint of all our guidance targets while setting another quarterly revenue record.

Synopsys CEO: the message in every meeting is loudand clear

Unknown Executive: This is just broadly, that's how we engage in IP build out.

Synopsys CEO: synois is mission critical to their innovation which makes our business uniquely resilient

Unknown Executive: And of course, EDA is more, straightforward.

Synopsys CEO: our success is tied to technology innovation cycles nut and market dynamics

Sassine Ghazi: In this era of pervasive intelligence, technology innovation is only accelerating. Fueled by the rise of artificial intelligence, silicon proliferation, and software defined systems. The evidence is all around us. Our silicon customers are racing to design the many components necessary to optimize AI infrastructure. Remarkably, design cycles are contracting despite mounting complexity, and we help make this possible. This combination of pace and complexity equals good news for synopsis. Artificial intelligence is driving incredible demand for high performance computing in data centers and new AI powered smartphones and PCs, which are poised for an exciting refresh thanks to silicon innovation.

Sassine Ghazi: We positioned the company's portfolio with one strategic end in mind, maximizing the value that we deliver to customers in the era of pervasive intelligence.

Unknown Executive: Your next question comes from the line of Jay Fleishauer with Griffin Securities.

Trey Campbell: In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release. In addition, we will refer to certain non-GAAP financial measures during the discussion. Reconciliation to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release financial supplement in 8K that were released earlier today. 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.

Synopsys CEO: in this era of pervasive intelligencetechnology innovation is only accelerating

Sassine Ghazi: Our focus is on leading innovation in EDA and IP while deepening our differentiation, in software-defined systems.

Unknown Executive: Your line is, open.

Synopsys CEO: fueled by the rise of artificial intelligence cysilicical proliferation and software defined systems

Unknown Executive: Thank you.

Synopsys CEO: the evidence is all around us

Synopsys CEO: our silicon customers are racing to design the many components necessary to optimize a i infrastructure

Synopsys CEO: remarkably design cycles are contracting despite mounting complexity

Speaker Change: and we help make this possible this combination of pace and complexity equals good news for synnopsis

Sassine Ghazi: With that, let's turn the call over to the same. Good afternoon. We delivered excellent results in the third quarter, exceeding the midpoint of all our guidance targets while setting another quarterly revenue record. We positioned the company's portfolio with one strategic end in mind, maximizing the value that we delivered to customers in the era of pervasive intelligence. Our focus is on leading innovation in EDA and IP while deepening our defenciation and software defined systems.

Sassine Ghazi: Non-GAAP operating margin was 40%, up 3.6 points year-over-year, and non-GAAP EPS was up 27% year-over-year and above our guidance range.

Unknown Executive: Fasim, with respect to your own product development of AI ML branded products, one, question I have is how does the development process or let's call it the intensity of development for AI products differ, if at all, from your conventional product developments?

Sassine Ghazi: We continue to be confident in our guidance for industry-leading double-digit revenue growth.

Speaker Change: artificial intelligence is driving incredible demand for high performance computing in data centers and new ai powered smartphones and pcs which are poised or an exciting refresh thanks to silicon innovation

Sassine Ghazi: Since becoming Synopsys CEO in January, I've traveled to 8 countries, participating in, more than 140 meetings with over 80 customers and partners, discussing their challenges and understanding their priorities.

Sassine Ghazi: Bottom line, AI needs more and more complex silicon. That is good for synopsis. Finally, silicon proliferation and AI chip innovation are driving the build-out of manufacturing capacity and accelerating the transition to new advanced nodes. Foundries count on our EDA and IP to enable each new process node again, good for Synopsys. These trends reinforce the resiliency of synopsis business. Additionally, our customer set is expanding as more companies in more industries define and optimize system performance at the silicon level. As a leading silicon to systems, design solutions company, Synopsys opportunity has never been greater. And our planned acquisition of ANSIS will expand our time and further our mission of empowering technology innovators everywhere.

Sassine Ghazi: The message in every meeting is loud and clear, Synopsys is mission critical to their innovation, which makes our business uniquely resilient.

Speaker Change: bottom line ai needs more and more complex silicon that is good for synosis

Sassine Ghazi: Our success is tied to technology innovation cycles, not end market dynamics. In this era of pervasive intelligence, technology innovation is only accelerating, fueled by, the rise of artificial intelligence, silicon proliferation, and software-defined systems.

Sassine Ghazi: Against this strategic backdrop, the Synopsys team continued a strong operational execution in the quarter and commercial momentum remains robust. Revenue was up 13% year over year at the high end of our guided range. NONGAAP operating margin was 40% up 3.6% year over year. And NONGAAP EPS was up 27% year over year and above our guidance range. We continue to be confident in our guidance for in the three leading double digit revenue growth.

Speaker Change: finally silicon proliferation and ai chip innovation is driving the buildout of manufacturing capacity and accelerating the transition to new advanced nodes

Speaker Change: foundoundaries count on our e d a and i p to enable each new process node again good forsynopsis

Synopsys CEO: these trends reinforce the resiliency of synois business

Synopsys CEO: additionally our customer set is expanding as more companies in more industries define and optimizede system performance at the silicon level

Sassine Ghazi: The evidence is all around us.

Unknown Executive: In other words, how do you measure your own AI development productivity or your readiness for GA of those products versus conventional EDA products?

Synopsys CEO: as a leading silicon to systems design solutions company synois opportunity has never been greater

Anis: and our planned acquisition of anis will expand our cam and further our mission of empowering technology innovators everywhere

Sassine Ghazi: The future of technology R&D requires system design solutions with a deeper integration of electronics and physics. That's what we can provide with ANSIS. And we're making good progress on closing this important transaction. The regulatory review is proceeding well. We are working cooperatively and constructively with the various regulatory agencies. We have completed all preliminary filings worldwide. Customers continue to express their overwhelming support. And we continue to expect the transaction to close in the first half of 2025.

Anis: the future of technology rnd requiire system design solutions with a deeper integration of electronics and physics

Anis: that's what we can provide with anis

Anis: and we're making good progress on closing this important transaction

Anis: the regulatory review is proceeding well we are working cooperatively and constructively with the various regulatory agencies

Sassine Ghazi: The message in every meeting is loud and clear. Synopsys is mission critical to their innovation, which makes our business unique. We are deeply resilient. Our success is tied to technology innovation cycles, nut and market dynamics. In this era of pervasive intelligence, technology innovation is only accelerating, fueled by the rise of artificial intelligence, silicon proliferation and software defined systems. The evidence is all around us. Our silicon customers are racing to design the many components necessary to optimize AI infrastructure.

Anis: we have completed all preliminary filings worldwidecustomers continue to express their overwhelming support and we continue to expect the transaction to close in the first half of two thousand andtwenty five

Sassine Ghazi: Our silicon customers are racing to design the many components necessary to optimize, AI infrastructure. Remarkably, design cycles are contracting despite mounting complexity, and we help make, this possible. This combination of pace and complexity equals good news for Synopsys.

Unknown Executive: Relatedly, at DAC two months ago, there was an interesting panel discussion in which Shankar participated regarding the evolution of EDA AI ML products and whether they remain separately branded products indefinitely, or whether inevitably they become subsumed as features within the core product. So maybe you can address some of that.

Sassine Ghazi: Let's move to segment business highlights, starting with design automation. Q3 design automation revenue was up 6% year over year versus a very strong prior Q3, as Synopsys design automation solutions are helping customers accelerate their innovation despite growing complexity. And we offer the most complete portfolio of solutions in the industry. Our next generation Verdi platform for advanced debug capabilities was adopted by a large US-based GPU company and a large US mobile SoC company, reducing failure debug from days to minutes. While our flagship verification tool VCS displays competition at a large US HPC customer, a large Chinese mobile customer, and a large Chinese hyperscaler.

Anis: let's move to segment business highlights starting with design automation

Sassine Ghazi: Artificial intelligence is driving incredible demand for high-performance computing in data, centers and new AI-powered smartphones and PCs, which are poised for an exciting refresh thanks to silicon innovation. Bottom line, AI needs more and more complex silicon. That is good for Synopsys.

Unknown Executive: And then my follow up will be about cost.

Anis: q three design automation revenue was up six percent year over year versus a very strong prior q three as synoiss design automation solutions are helping customers accelerate their innovation despite growing complexity

Sassine Ghazi: Finally, silicon proliferation and AI chip innovation is driving the build-out of manufacturing, capacity and accelerating the transition to new advanced nodes. Foundries count on our EDA and IP to enable each new process node, again, good for Synopsys.

Unknown Executive: Thank you, Jay, for the question.

Sassine Ghazi: These trends reinforce the resiliency of Synopsys business.

Unknown Executive: Actually, it's a very good question.

Sassine Ghazi: Additionally, our customer set is expanding as more companies in more industries define, and optimize system performance at the silicon level.

Unknown Executive: If you look back, at the rhythm of product releases, let's call it the traditional EDA software, were driven by foundry-specific PDK tuning, tweaking needed to do in order to make sure that the customer who's on the leading edge with that process node have the right tool that is enabling all the features that foundry has, etc.

Sassine Ghazi: As a leading silicon-to-systems design solutions company, Synopsys' opportunity has never been, greater, and our planned acquisition of ENSYS will expand our TAM and further our mission of empowering technology innovators everywhere.

Sassine Ghazi: The future of technology R&D requires system design solutions with a deeper integration, of electronics and physics.

Anis: growing systemic complexity has tuable charged the criticality of verification in chip design

Sassine Ghazi: That's what we can provide with ENSYS, and we're making good progress on closing this, important transaction.

Sassine Ghazi: The regulatory review is proceeding well. We are working cooperatively and constructively with the various regulatory agencies.

Sassine Ghazi: Remarkably, design cycles are contracting despite mounting complexity and we help make this possible. This combination of pace and complexity equals good news for synopsis. Artificial intelligence is driving incredible demand for high performance computing in data centers and new AI-powered smartphones and PCs, which are poised for an exciting refresh thanks to silicon innovation. Bottom line, AI needs more and more complex silicon that is good for synopsis. Finally, silicon proliferation and AI chip innovation is driving the build-out of manufacturing capacity and accelerating the transition to new advanced nodes.

Anis: and we offeer the most complete portfolio of solutions in the industry

Unknown Executive: So that's from a process technology.

Unknown Executive: From a customer architecture point of view, we did not have to do much different from a customer to a different customer. So they can use the same product, etc.

Unknown Executive: With AI, let's call it that sits inside the tool or around the tool, the optimization engine using AI that can accelerate the traditional engine of EDA, to some extent was very similar, where we just released it based on a release cycle of the product.

Anis: our next generation verue platform for advanced debu capabilities was adopted by a large u s based gpuu company and a large u s mobile soc company reducing failure debug from days two minutes

Unknown Executive: So with DSO.AI, same release as Fusion Compiler, VSO, same as VCS, Verde, etc.

Unknown Executive: With generative AI, not only the pace of which model to use, which customer environment to accept these models, because they may have their own preference in which they want to use Gen AI in the context of their own environment in which they're designing the chip.

Unknown Executive: So it's becoming at a different pace of releasing these technology, as well as, I want to say customer specific for some of these engagements and releases from the how to deal with it.

Anis: while our flagship verification tool vcs displac competition at a large u s hpc customer a large chinese mobile customer and a large chinese hyperscalar

Sassine Ghazi: Our AI verification product VSO.AI is also ramping aggressively, demonstrating up to 10X faster turnaround time. Double digit increases in verification coverage, significant reductions in verification, computer requirements, and better verification quality. A marquee US GPU company deployed VSO.AI across multiple IPs with turnaround time improvements of 2 to 7X and coverage improvements up to 33%. Our hardware assisted verification business had an excellent quarter as customers upgraded from HAPS 100 to our ZBOO EP product line to leverage one hardware platform for both emulation and prototyping. In Q3, we saw a significant ZBOO hardware expansion at a large US hyperscaler in a direct win versus competition.

Anis: our a verification product

Anis: v s o that a i is also ramping aggressively

Anis: demonstrating up to ten axs faster turn around time double digit increases in verification coverage significant reductions in verification compute requirements and better verification quality

Sassine Ghazi: Foundries count on our EDA and IP to enable each new process node, again good for synopsis. These trends reinforce the resiliency of synopsis business. Additionally, our customer set is expanding as more companies in more industries define and optimize system performance at the silicon level.

Anis: a mar quy u s g p u company deployed v s o that a i acrossst multiple i ps would turn around time improvements of two to seven x and coverage improvements up to thirty three percent

Sassine Ghazi: As a leading silicon to systems design solutions company, synopsis opportunity has never been greater and our planned acquisition of answers will expand our time and further our mission of empowering technology innovators everywhere. The future of technology R&D requires system design solutions with a deeper integration of electronics and physics. That's what we can provide with NCIS and we're making good progress on closing this important transaction. The regulatory review is proceeding well. We are working cooperatively and constructively with the various regulatory agencies. We have completed all preliminary filings worldwide.

Speaker Change: our hardware assisted verification business had an excellent quarter as customers upgraded from haps one hundred to our zbo ep product line to leveraged one hardware platform for both emulation and prototyping

Speaker Change: in q three we saw a significant zebo hardware expansion at a large u s hyperscalar in a direct winind versus competition

Sassine Ghazi: We also increased ZBOO adoption at a large European IP provider and two large US HPC companies. Increasing demands for high performance emulation with the opportunity for large capacity expansion for drivers in these wins. We also worked with several large US systems and hyperscaler customers on successful software bring-up workloads with our HAPS product line. Physical verification was also a point of strength in the quarter. We continued to win new designs on ICV with 20 tapouts in Q3. Four of these tapouts were on TSMCN3 and one on IFS 18A, where engagements are increasing rapidly.

Sassine Ghazi: Customers continue to express their overwhelming support and we continue to expect the transaction to close in the first half of 2025.

Speaker Change: we also increase bo adoption at a large european ip provider and two large u shpc companies

Speaker Change: increasing demands for high performance emmoulation with the opportunity for large capacity expansion were drivers in these wins

Speaker Change: we also worked with several large u s systems and hyperscalar customers on successful software bringup workloads with our haps product line

Speaker Change: physical verification was also a point of strength in the quarter

Sassine Ghazi: Let's move to segment business highlights starting with design automation. Q3 design automation revenue was up 6% year over year versus a very strong prior Q3 as synopsys design automation solutions are helping customers accelerate their innovation despite growing complexity. Criticality of verification and chip design and we offer the most complete portfolio of solutions in the industry. Our next generation worthy platform for advanced debug capabilities was adopted by a large US based GPU company and a large US mobile SOSC company reducing failure debug from days to minutes.

Speaker Change: we continue to win new designs on i c v with twenty touts in q three

Speaker Change: four of these staouts were on t s m c and three and one on i fs eighteen a were engagements or increasing rapidly

Unknown Executive: So we're not having a special product for each customer is from an engineering development point of view, what are the layers that we can have as common and what's the layer that we can customize at a fast pace without throwing away the investment that we have at the infrastructure level.

Sassine Ghazi: Lee. Turning to analog design, where our competitive displacements continued in Q3. We now have more than 30 displacements for the year. This quarter, we completed analog full flow winds at a leading European Tier 1 supplier, a North American IP provider, and an Asian SOC vendor. And we displaced competition in analog simulation at two US AI accelerator companies and a global analog chip company. Like in verification, our analog customers are looking to Synopsys as a scale multiplier to modernize their flows and unleash the power of AI to move to more advanced process nodes. Our synopsis.ai engine for analog, ASO.ai now has more than 15 customers in evaluation.

Speaker Change: turning to analog design where our competitive displacements continued in q threewe now have more than thirty displacements for the year

Unknown Executive: So that's what's changing in terms of there's the optimization AI, there's the Gen AI and the traditional EDA.

Unknown Executive: As to the point that Shankar made, I agree.

Speaker Change: this quarter we completed analoged full flo wins at a leading european here one supplier

Speaker Change: a north american ip provider and in asian s oc vendor and we displac competition and analog simulation at two u s a i accelerate companies and a global analogue chip company

Sassine Ghazi: While our flagship verification tool VCS displays competition at a large US HPC customer, a large Chinese mobile customer and a large Chinese hyperscaler. Our AI verification product VSO.AI is also ramping aggressively demonstrating up to 10X faster turnaround time, double digit increases in verification coverage, significant reductions in verification computer requirements and better verification quality. A marquee US GPU company deployed VSO.AI across multiple IPs with turnaround time improvements of 2 to 7X and coverage improvements up to 33%.

Speaker Change: like in verification

Speaker Change: our analog customers are looking to synois as a scale multiplier to modernize their flows and unleash the power of ai to move to more advanced process nodes

Speaker Change: our syaps up a i engine for analogue a s o that a i now has more than fifteen customers in evaluation

Sassine Ghazi: Transitioning to digital, where we continue to expand our leadership in digital EVA across advanced node design flows. Fusion compiler delivered the world's first mobile SoC tapout on Samsung's 2 nanometer GAA process. This quarter, along with a number of customers' first tapouts at TSMC N2, N3E, NN5. Augmenting Fusion compiler with our AI engine, DSO.ai creates a powerhouse capability for customers. We are now seeing customer adoption spread to the automotive vertical where a leading Asian automotive silicon company demonstrated a 30% power reduction in a design with DSO.ai. Onto design IP, which delivered 32% revenue growth as the IP supplier of choice for leading HPC, AI, automotive, and mobile chips at advanced nodes.

Speaker Change: transitioning to digital where we continue to expand our leadership in digital ea across advance no design flows

Speaker Change: fusion compiler delivered the world's first mobile soc tapeout on samsungs two nanometer ga process

Unknown Executive: In our current engagement with customers, especially on the advanced, most complex chips, customers is not differentiating, will I use AI with Fusion Compiler or not?

Speaker Change: this quarter along with a number of customer first stepouts at tsmc and two n threee and and five

Sassine Ghazi: Our hardware assisted verification business had an excellent quarter as customers upgraded from apps 100 to our ZBOO EP product line to leverage one hardware platform for both emulation and prototyping. In Q3, we saw a significant ZBOO hardware expansion at a large US hyperscaler in a direct win versus competition. We also increased ZBOO adoption at a large European IP provider and two large US HPC companies. Increasing demands for high performance emulation with the opportunity for large capacity expansion for drivers in these wins. We also worked with several large US systems and hyperscaler customers on successful software bring up workloads with our HAPS product line.

Speaker Change: augmenting fusion compiler with our a i engine d s o that a i creates a power house capability for customers

Unknown Executive: They will just use it.

Unknown Executive: It's part of the expectation is I need, to use everything you give me in order to achieve my target.

Speaker Change: we are now seeing customer adoption spread to the automotive vertical were a leading asian automotive silicon company demonstrated thirty percentpower reduction in a design with d s o thatt a i

Speaker Change: onto design ip

Speaker Change: which delivered thirty-two percent revenue growth as the ip supplier of choice for leading hpc ai automotive and mobile ships at advanced nodes

Sassine Ghazi: Driven by AI bandwidth requirements, hyperscalers are pushing consortiums to pull in specification timelines for interface protocols, creating faster innovation cycles and increased opportunity for us and our customers. And we are matching the space with our operational execution. In Q3, we announced the world's first PCIe 7.0 IP solution to enable fast and secure data transfers. We are also seeing increasing momentum in AI edge devices for mobile optimized platforms. We secured two major smartphone customers on leading nodes to enable our efficient mobile devices with Gen AI capabilities, while our ARC neural processing unit and DSP processors were adopted into five edge applications, including two new customers.

Speaker Change: driven by a i bandwth requirement

Speaker Change: hyperscalers are pushing conortium to puin specification timelines for interface protocols creating faster innovation cycles and increased opportunity for us and our customers

Sassine Ghazi: Physical verification was also a point of strength in the quarter. We continued to win new designs on ICV with 20 tapouts in Q3. Four of these tapouts were on TSMCN3 and one on IFS18A where engagements are increasing rapidly.

Speaker Change: and we are matching the space with our operational execution

Speaker Change: in q three we announced the world's first pcie seven point o ip solution to enable fast and secure data transfers

Speaker Change: we are also seeing increasing momentum in a i edge devices for mobile optimiz platforms

Sassine Ghazi: Lee. Turning to analog design, where our competitive displacements continued in Q3. We now have more than 30 displacements for the year. This quarter, we completed analog full flow winds at the leading European Tier 1 supplier, a North American IP provider, and an Asian SOC vendor. And we displaced competition in analog simulation at two US AI accelerator companies, and a global analog chip company. Like in verification, our analog customers are looking to synopsis as a scale multiplier to modernize their flows and unleash the power of AI to move to more advanced process nodes. Our synopsis.ai engine for analog, ASO.ai now has more than 15 customers in evaluation.

Speaker Change: we secured two major smartphone customers on leading nodes to enable our efficient mobile devices with j ai capabilities

Speaker Change: one our arc neural processing unit and dp processors were adopted into five edge applications including two new customers

Sassine Ghazi: Partners, turning to Multi-Di, where we have an outstanding lineup of products in the IP and the EDA space for our customers. We continue to broaden our multi-diportfolio, launching 3DIO Foundation IP, which is a specialized IO for 3D multi-dio integration. In EDA, 3DIC compiler, momentum continued with the tape-out of multi-dye design for an automotive application based on a COASR inter-poser and deployment at a major US hyperscaler. We also announced Intel Foundry E-MED, a reference flow for multi-dye enabled by 3DIC compiler to accelerate multi-dye designs at all stages from silicon to systems. As the on-ramp for the world's foundry, we achieved silicon success on Samsung's SF2 and SF4X processes for a range of interface IP.

Speaker Change: turning to multid will we have an outstanding lineup of products in the ip and the eda space for our customers

Speaker Change: we continue to broaden our multi portfolio launching three dio foundation ip which is a specialized i o for three d multi integration

Speaker Change: in edd a

Speaker Change: three d ic compiler momentum continued with the tapeout of multi design for an automotive application based on a coas are interpossure and deployment at a major u s hyperscalar

Sassine Ghazi: Transitioning to digital, where we continue to expand our leadership in digital EDA across advanced node design flows. Fusion compiler delivered the world's first mobile SOC tapout on Samsung's 2 nanometer GAA process. This quarter, along with a number of customers first tapouts at TSMC N2, N3E, N5. Augmenting Fusion compiler with our AI engine, DSO.ai creates a powerhouse capability for customers. We are now seeing customer adoption spread to the automotive vertical where a leading Asian automotive silicon company demonstrated 30% power reduction in a design with DSO.ai.

Speaker Change: we also announced intelfoundry ema a refereners reference flow for muliddye enabled by cdic compiliner to accelerate multi designs at all stages from silicon to systems

Speaker Change: as the on ramp for the world's foundry we achieved silicon success on samsungs s f two and s f four x processes for a range of interface ip

Sassine Ghazi: We also demonstrated the industry's first HBM3 operating at 9.6 gigabits per second in TSMC's advanced 3 nanometer processes and partnered with global foundries to develop new memory compilers for the 22 FDX process technology targeting edge AI acceleration and automotive and industrial microcontrollers.

Speaker Change: we also demonstrated the industry's first h b m three operating at nine point six gigabits per second

Speaker Change: in tsm c's advanced three nanoometer processes and partnered with global foundaries to develop

Speaker Change: new memory compilers for the twenty-two fdx process technology targeting edgeai acceleration in automotive and industrial microcontrollers

Sassine Ghazi: Onto design IP, which delivered 32% revenue growth as the IP supplier of choice for leading HPC, AI, automotive, and mobile chips at advanced nodes. Driven by AI bandwidth requirements, hyperscalers are pushing consortiums to pull in specification timelines for interface protocols, creating faster innovation cycles, and increased opportunity for us and our customers. And we are matching the space with our operational execution. In Q3, we announced the world's first PCIe 7.0 IP solution to enable fast and secure data transfers.

Sassine Ghazi: A couple of closing comments before we transition to Sheila's remarks. We are working through final closing conditions for the sale of our software integrity business and continue to expect that will complete that transaction in the second half of 2024.

Speaker Change: a couple of closing comments before we transition to sheal as remarks

Unknown Executive: So as we start moving forward, will we keep thinking of AI in and around EDA as a separate or as part of the solution?

Speaker Change: we are working through final closing concondvitions or the sale of our software integrity business

Unknown Executive: You know, where, how we see it is absolutely will become an expected part of the solution.

Speaker Change: and continue to expect that will complete that transaction in the second half of two thousand and twenty four

Sassine Ghazi: And before closing, I want to recognize a monumental award to someone I deeply admire and am proud to call both a mentor and a friend. Synopsis founder and exact share are the GS. Art was selected to receive the semiconductor industry's highest honor, the 2024 Robert Noyce Award. We look forward to celebrating his leadership and outstanding contributions to our industry at the awards ceremony in November.

Unknown Executive: Okay, for my follow up on custom, which you've now referred to the last several conference calls, what is your ambition for how large a business that can be?

Speaker Change: and before clolasing

Speaker Change: i want to recognize a monumental award to someone i deeply admire and i'm proud to call both a mentor and a friend

Unknown Executive: When we look at the industry data, things having to do with analog mix signal layout and analysis are roughly a mid-teens percent of EDA, excluding IT. So in other words, mid-teens percent of design automation.

Renee James: synois founder and exact chair are the gs

Unknown Executive: A lot of that obviously is skewed towards Cadence and Ansys, but would it be your ambition that, your analog mix signal business could ultimately be about a mid-teens percent of your design automation business, if not more?

Speaker Change: art was selected to receive the sumiconductor industries's highest honor the two thousand and twenty four robert noise award

Sassine Ghazi: We are also seeing increasing momentum in AI edge devices for mobile optimized platforms. We secured two major smartphone customers on leading nodes to enable our efficient mobile devices with gen AI capabilities, while our ARC neural processing unit and DSP processors were adopted into five edge applications, including two new customers.

Unknown Executive: So Jay, we see this as an opportunity on two fronts.

Speaker Change: we look forward to celebrating his leadership and outstanding contributions to our industry at the awards ceremony in november

Sassine Ghazi: We have completed all preliminary filings worldwide.

Unknown Executive: When you think of analog, there are, two portions of analog design that we offer solution for.

Sassine Ghazi: In summary, we have strong continuing momentum across the business, supported by multiple secular growth drivers. We have a very resilient business model and our mission is critical to our customers' innovation. We are aligning our portfolio investment with the greatest return potential to accelerate our growth.

Speaker Change: in summary we have strong continuing momentum across the business supported by multiple secular growth drivers

Unknown Executive: One is the verification simulation of analog.

Speaker Change: we have a very resilient business model and our mission critical to our customers innovation

Sassine Ghazi: Partners, Turning to Multi-Di, where we have an outstanding lineup of products in the IP and the EDA space for our customers. We continue to broaden our multi-diportfolio launching 3D I.O Foundation IP, which is a specialized I.O, for 3D Multi-Di integration. In EDA, 3D I.C, compiler momentum continued with the tape-out of multi-dye design for an automotive application based on a COASR inter-poser and deployment at a major U.S, hyper-scaler. We also announced Intel Foundry E-MED, a reference flow for multi-dye enabled by 3D I.C, compiler to accelerate multi-dye designs at all stages from silicon to systems.

Speaker Change: we are aligning our portfolio investment with the greatest return potential to accelerate our growth

Sheila Glazer: Thank you to our employees for their passion and to our partners and customers for trusting us to ignite their future ingenuity with that alternative over to Sheila. Thank you to Seen. We had an excellent Q3 with record revenue, and non-GAAP EPS was above our guidance.

Speaker Change: thank you to our employees for their passion and to our partners and customers for trusting us to ignite their future ingenuity with that i'll turn it over to shila

Sassine Ghazi: Customers continue to express their overwhelming support, and we continue to expect the transaction, to close in the first half of 2025.

Unknown Executive: And there, as you know, we have a fairly strong portfolio, and so does our competitor.

Shila: thank you to scene we had an excellent q three with record revenue and non-gaap eps s was above our guideentry

Sassine Ghazi: Let's move to segment business highlights, starting with design automation. Q3 design automation revenue was up 6% year over year, versus a very strong prior Q3, as Synopsys design automation solutions are helping customers accelerate their innovation despite growing complexity.

Unknown Executive: Actually, they offer a very strong portfolio.

Sheila Glazer: Trade. We continue to execute well, which is a testament to our strong momentum across the business, leading technology that is missing critical to our customers, and a resilient and stable business model.

Sassine Ghazi: Increasing systemic complexity has turbocharged the criticality of verification in chip design, and we offer the most complete portfolio of solutions in the industry.

Unknown Executive: Where we are a much smaller portion of the PAM is in the analog design environment.

Sassine Ghazi: Our next generation Verde platform for advanced debug capabilities was adopted by a large, U.S.-based GPU company and a large U.S. mobile SOC company, reducing failure debug from days to minutes, while our flagship verification tool, VCS, displaced competition at a large, U.S. HPC customer, a large Chinese mobile customer, and a large Chinese hyperscaler.

Unknown Executive: And in the analog design environment, these are the wins per se that we've been referring to in this earnings call, the previous earnings call.

Sassine Ghazi: Our AI verification product, VSO.AI, is also ramping aggressively, demonstrating up to, 10x faster turnaround time, double-digit increases in verification coverage, significant reductions in verification compute requirements, and better verification quality. A marquee U.S. GPU company deployed VSO.AI across multiple IPs, with turnaround time, improvements of 2 to 7x, and coverage improvements up to 33%.

Unknown Executive: And they are driven by a discontinuity. And that discontinuity is those customers are dealing with the same challenge that we talked about for the traditional logic digital type of customers, which is an increased complexity, faster cycle time for the design.

Sassine Ghazi: Our hardware-assisted verification business had an excellent quarter, as customers upgraded, from HAPS 100 to our Zebu EP product line to leverage one hardware platform for both emulation and prototyping. In Q3, we saw a significant Zebu hardware expansion at a large U.S. hyperscaler in a, direct win versus competition.

Unknown Executive: So they are leveraging any new bells and whistles that the industry can offer, in this case, AI and a more modernized approach to do an analog chip.

Sassine Ghazi: We also increased Zebu adoption at a large European IP provider and two large U.S. HPC, companies.

Unknown Executive: So, of course, we have an aspiration, to grow into that PAM.

Shila: we continue to execute well which is a testament to our strong momentum across the business

Sassine Ghazi: Increasing demands for high-performance emulation, with the opportunity for large-capacity expansion, were drivers in these wins.

Sassine Ghazi: We also worked with several large U.S. systems and hyperscaler customers on successful software, bring-up workloads with our HAPS product line.

Shila: leading technology that is mission critical to our customers and a resilient and stable business model i'll now review our third quarter results which are presented on a continuing basis operations

Sheila Glazer: I'll now review our third quarter results, which are presented on a continuing basis operation. All comparisons are year-to-year unless otherwise stated. We generated total revenue of $1.53 billion, up to 13%, it has a high end of our guided range. Total gap costs in expenses were $1.17 billion; total non-gap costs in expenses were $915 million, resulting in non-gap operating margin of 40%. Gap earnings per share were $2.73; non-GAAP earnings per share were $3.43, and above our guided range.

Shila: all comparisons their yearover-year unless otherwise stated we generated total revenue of one point five three billion dollars up thirteen percent it is a high end of our guided range

Sassine Ghazi: As the on-ramp for the world's Foundry, we achieved silicon success on Samsung's SF2 and SF4X processes for a range of interface IP. We also demonstrated the industry's first HBM3 operating at 9.6 gigabits per second in TSMC's advanced 3 nanometer processes and partnered with global Foundry's to develop new memory compilers for the 22 FDX process technology targeting edge AI acceleration and automotive and industrial microcontrollers.

Shila: total gaap costs and expenses or one point one seven billion dollars total non-gaap cost expenses were nine hundred and fifteen million dollars resolving in non-gaap operating margin a forty percent

Shila: gaap earnings per share were two dollars and seventy-three cents non-gaap earnings per share were three dollars and forty-three cents and above our guided range

Sheila Glazer: Now on to our segments. Design Automation Segment Revenue was $1.06 billion, up 6%, compared to a very strong Q3 a year ago. Design Automation Adjusted Operating Margin was 41.5%. Design IP Segment Revenue was $463 million, up 32%, driven by strength in interface and foundation IP. Design IP adjusted operating margin was 36.7%. Operating cash flow including discontinued operations was $455 million for the quarter, and free cash flow including discontinued operations was $415 million. We ended the quarter with cash and short-term investment of approximately $2 billion.

Shila: now onto our segment design automation segment revenue was one point zero six billion dollars up six percent compared to a very strong q three a year ago design animation adjusted operating margin was forty one point five percent

Shila: design nine p segment revenue with four hundred sixty three million dollars up thirty two percent driven by strength in interface and foundation ip design ipp adjusted operating margin was thirty six point seven percent

Sassine Ghazi: Physical verification was also a point of strength in the quarter.

Unknown Executive: And we're excited about the offering and our customers' interest.

Shila: operating cash flow including discontinued operations was four hundred and fifty five million dollars for the quarter and free cash flow including discontinued operations with four hundred fifteen million dollars we ended the quarter with cash and short-term investments of approximately two billion dollars

Sheila Glazer: Now to guidance, except for cash flow metrics, all targets are presented on a continuing operation space. The full-year targets for 2024 are revenue of 6.105 to 6.135 billion dollars, total gap cost and expenses between $4.58 and $4.60 billion. Total non-GAAP cost and expenses between $3.76 and $3.77 billion, resulting in more than two points of non-GAAP operating margin improvement at the midpoint. Non-GAAP tax rate of 15%, GAAP earnings of $9.71 to $9.85 per share, non-GAAP earnings of $13.77 to $13.12 per share, cash flow from operations of approximately $1.3 billion, free cash flow of approximately $1.1 billion.

Shila: now to guidance except for cash flow metrics all targets are presented on a continuing operation space

Shila: the full year target for two thousand and twenty four are revenue of six point one zero five to six point one three five billion dollars

Sassine Ghazi: We look forward to celebrating his leadership and outstanding contributions to our industry at the awards ceremony in November.

Shila: total gaap cost expenses between four point five eight and fourloor point six zero billion dollars

Sassine Ghazi: In summary, we have strong continuing momentum across the business supported by multiple secular growth drivers. We have a very resilient business model and our mission critical to our customers innovation. We are aligning our portfolio investment with the greatest return potential to accelerate our growth.

Sassine Ghazi: We continued to win new designs on ICV with 20 tape-outs in Q3. Four of these tape-outs were on TSMC N3 and one on IFS 18A, where engagements are increasing, rapidly.

Unknown Executive: Thanks, Jay.

Shila: total non-gaap costution expenses between three point seven six and three point seven seven billion dollars resulting in more than two points of non-gaap operating margin improvement at the midpoint

Shila: non-gaap tax rate of fifteen percentgaap earnings of nine dollars in seventy one cent than nine dollars in eighty five sid per share

Shila: non-gaapearnings of thirteen dollars and seven cent to thirteen dollars and twelve cents per share cash flow from operations of approximately one point three billion dollarsfreecash flow of approximately one point one billion dollars

Sassine Ghazi: Thank you to our employees for their passion and to our partners and customers for trusting us to ignite their future ingenuity.

Sassine Ghazi: Turning to analog design, our competitive displacements continued in Q3.

Unknown Executive: Operator, let's go ahead and wrap up the call.

Sheila Glazer: Now to targets for the fourth quarter: revenue between 1.614 and 1.644 billion dollars, total gap cost and expenses between 1.21 and 1.23 billion dollars, total non-gap cost and expenses between 1.03 and 1.04 billion dollars, gap earnings of $2.25 to $2.39 per share, and non-gap earnings of $3.27 to $3. and $3.32 per share. Our press release and financial supplement include additional target and gap to non-gap reconciliation.

Sheila Glazer: With that, I'll turn it over to Sheila. Thank you to Seen. We had an excellent Q3 with record revenue and non-gap EPS was above our guidance.

Shila: now to targets for the fourth quarter revenue between one point six one four and one point six four four billion dollars

Sheila Glazer: Trade, We continue to execute well, which is a testament to our strong momentum across the business, leading technology that is missing critical to our customers, and a resilient and stable business model. I'll now review our third quarter results, which are presented on a continuing basis operation. All comparisons are year-to-year unless otherwise stated. We generated total revenue of $1.53 billion up to 13%, it has a high end of our guided range. Total gap costs in expenses were $1.17 billion, total non-gap costs in expenses were $915 million, resulting in non-gap operating margin of 40%. Gap earnings per share were $2.73, non-gap earnings per share were $3.43 and above our guided range.

Shila: total gap cross expenses between one point two one and one point two three billion dollars

Shila: to nongaap cross expenses between one point zero three and one point zero four billion dollars

Sassine Ghazi: We now have, more than 30 displacements for the year.

Sassine Ghazi: This quarter, we completed analog full-flow wins at a leading European Tier 1 supplier, a North American IP provider, and an Asian SOC vendor, and we displaced competition in analog simulation at two US AI accelerator companies and a global analog chip company.

Shila: gaap earnings of two dollars in twenty five percent the two dollars and thirty nine cents per share and nongaapperating to have three dollars and twenty seventh cent to three dollars and thirty two cents per share

Shila: our press release and financial supplement include additional targets and gaap to non-gaap reconciliation

Sheila Glazer: Consistent with prior years, we will provide additional comments and guidance for 2025 when we report next quarter. In conclusion, for 2024, we expect to achieve revenue growth of approximately 15%, non-GAAP operating margin improvement of more than two points, and approximately 24% non-GAAP EPS growth. We continue to see strong momentum in the business, reflecting our relentless execution and leadership position across our segments, mission critical products to enable our customers' innovation, and a stable and resilient business model.

Shila: consistent with prior years we will provide additional comments and guidance for two thousand and twenty-five when we report next quarter

Shila: inconclusion for two thousand and twenty four we expect to achieve revenue growth of approximately fifteen percent non-gaap operating margin improvement of more than two points and approximately twenty four percent non-gaap epss growth

Sassine Ghazi: Like in verification, our analog customers are looking to Synopsys as a scale multiplier to modernize their flows and unleash the power of AI to move to more advanced process nodes.

Unknown Executive: Thank you, everyone.

Sheila Glazer: Now onto our segment. Design Automation Segment Revenue was $1.06 billion up 6%, compared to a very strong Q3 a year ago. Design Automation Adjusted Operating Margin was 41.5%. Design IP segment revenue was $463 million up 32%, driven by strength in interface and foundation IP. Design IP adjusted operating margin was 36.7%. Operating cash flow including discontinued operations was $455 million for the quarter and free cash flow including discontinued operations was $415 million. We ended the quarter with cash and short term investments of approximately $2 billion.

Shila: we continue to see strong momentum in the business reflecting our relentless execution and leadership position across our segment

Sassine Ghazi: Our Synopsys.ai engine for analog, ASO.ai, now has more than 15 customers in evaluation.

Unknown Executive: Thank you.

Sassine Ghazi: Transitioning to digital, where we continue to expand our leadership in digital EDA across advanced node design flows. Fusion Compiler delivered the world's first mobile, SOC tapeout on Samsung's 2-nanometer GAA process this quarter, along with a number of customer-first tapeouts at TSMC N2, N3E, and N5.

Sassine Ghazi: Augmenting Fusion Compiler with our AI engine, DSO.ai, creates a powerhouse capability for customers. We are now seeing customer adoption spread to the automotive vertical, where a leading Asian automotive silicon company demonstrated 30% power reduction in a design with DSO.ai.

Sassine Ghazi: On to design IP, which delivered 32% revenue growth, as the IP supplier of choice for leading HPC, AI, automotive, and mobile chips at advanced nodes.

Sassine Ghazi: Driven by AI bandwidth requirements, hyperscalers are pushing consortiums to pull in specification, timelines for interface protocols, creating faster innovation cycles and increased opportunity for us and our customers.

Speaker Change: mission critical products to enable our customers' innovation and a stable and resilient business model with that i'll turn it over to the operator for quest

Unknown Executive: With that, I'll turn it over to the operator for questions. Thank you.

Sassine Ghazi: And we are matching the space with our operational execution.

Sassine Ghazi: In Q3, we announced the world's first PCIe 7.0 IP solution to enable fast and secure data transfers.

Sassine Ghazi: We are also seeing increasing momentum in AI edge devices for mobile-optimized platforms. We secured two major smartphone customers on leading nodes to enable power-efficient mobile, devices with Gen-AI capabilities, while our ARC neural processing unit and DSP processors were adopted into five edge applications, including two new customers.

Sassine Ghazi: Turning to Multi-Dai, where we have an outstanding, lineup of products in the IP and the EDA space for our customers.

Unknown Executive: Before we begin the Q&A session, I would like to ask everyone to please warm it yourself to one question and one brief follow-up to allow us to accommodate all participants. If you have additional questions, please re-enter the queue, and we'll take as many as time permits. As a reminder to ask a question, please press star one on your telephone keypad, and to withdraw your question, simply press star one again.

Speaker Change: thank you before we begin tothe q anda sessioni would like to ask everyone and to please limit yourself to one question and one brief follow up to allow us to accommodate all participants if you have additional questions please reenter the q and we'll take as many as time permits

Sassine Ghazi: We continue to broaden our Multi-Dai portfolio launching 3D I.O., Foundation IP, which is a specialized I.O.

Speaker Change: as a reminder to ask a question please press star one on your telephone keypod to withdraw your questions simply press star once again

Harlan Sur: Your first question comes from the line of Harlan Sir with J.P. Morgan. Your line is open.

harland sir: your first question comes from the line of harland sir with jp morgan your line is open

Sassine Ghazi: for 3D Multi-Dai, In EDA, 3D IC Compiler momentum continued with the tape out of Multi-Dai design for an automotive application based on a COAS-R interposer and deployment at a major U.S. hyperscaler.

Sheila Glazer: Now to guidance, except for cash flow metrics, all targets are presented on a continuing operation space. The full year targets for 2024 are revenue of 6.105 to 6.135 billion dollars, total gap cost and expenses between 4.58 and 4.60 billion dollars, total non-gap cost and expenses between 3.76 and 3.77 billion dollars, resulting in more than two points of non-gap operating margin improvement at the midpoint. Non-gap tax rate of 15%, gap earnings of $9.71 to $9.85 per share, non-gap earnings of $13.07 to $13.12 per share, cash flow from operations of approximately $1.3 billion, free cash flow of approximately $1.1 billion.

Sassine Ghazi: We also announced Intel Foundry eMIB, a reference flow for Multi-Dai enabled by 3D IC Compiler, to accelerate Multi-Dai designs at all stages from silicon to systems.

Sassine Ghazi: A couple of closing comments before we transition to Sheila's remarks.

Harlan Sur: Good afternoon. Thank you for taking my question and great execution in the quarter. So soon, as you mentioned, leading edge shift design activity continues to accelerate at the three-animate or two-animate of nodes, especially around AI and accelerated compute by both merchant, but also a significant amount of custom, basic chips that are ramping, whether coming to the market.

Sassine Ghazi: As the on-ramp for the world's foundry, we achieved silicon success on Samsung's SF2, and SF4X processes for a range of interface IP.

Sassine Ghazi: We are working through final closing conditions for the sale of our software integrity business, and continue to expect that we'll complete that transaction in the second half of 2024.

Sassine Ghazi: We also demonstrated the industry's first HBM3 operating at 9.6 gigabits per second in TSMC's advanced three nanometer processes and partnered with global foundries to develop new memory compilers for the 22 FDX process technology targeting edge AI acceleration in automotive and industrial, microcontrollers.

Sassine Ghazi: And before closing, I want to recognize a monumental award to someone I deeply admire, and I'm proud to call both a mentor and a friend, Synopsys founder and exec chair Art DeGioia. Art was selected to receive the semiconductor industry's highest honor, the 2024 Robert Noyce, Award. We look forward to celebrating his leadership and outstanding contributions to our industry at the awards ceremony in November.

Harland Sur: good afternoon thank you for taking my question and great execution in the quarter

Speaker Change: so same as you mentioned you know leading edge chip design activity continue to accelerate at the threeating eneem or two nan know especially around a i an accelerated compute by both merchant but also a significant amount of custom basic chips that are ramping weather coming to the market

Speaker Change: but despite all of this i mean we are coming off a pretty severe to me onductor their downturn and one of your large leading edge customers have recently announced a significant amount of laayoffs across their organization it did also talk about driving better efficiencies around ip and

Speaker Change: ea solution i interpreted this as

Speaker Change: they're going to do less of their own internal it development less of their own internal evia sware to development and potentially buy

Speaker Change: more merchant it and more core edi eight tools from syois and maybe some of your other competitors but i wanted to get your interpretation of just announcement and the need the mid-term impact if any on your bookings revenues or market share momentum at this customer

Sheila Glazer: Now to targets for the fourth quarter, revenue between 1.614 and 1.644 billion dollars, total gap cost and expenses between 1.21 and 1.23 billion dollars, total non-gap cost and expenses between 1.03 and 1.04 billion dollars, gap earnings of $2.25 to $2.39 per share, and non-gap earnings of $3.27 to $3.32 per share. Our press release and financial supplement include additional targets and gap to non-gap reconciliation.

Sassine Ghazi: Thank you, Harlan, for the question. I want to first comment on the first part of the statement you made, which is you're right. It's such an exciting time to be in our industry, where our silicon customers are racing forward to deliver to the opportunities in the AI, build out a bit in the data center or on edge or on device with the flavor of custom silicon, as well as system companies increasing their investment to differentiate along that stack from workload down to silicon. As far as our customer intel that you're referring to, it's not new to Intel, by the way, that they started looking at external EDA and IP.

Speaker Change: thank you harand for the question i want the first comment on the first part of the statement you made which is you right it's such an exciting time to be in our industry

Sassine Ghazi: In summary, we have strong continuing momentum across the business supported by multiple secular growth drivers.

Sassine Ghazi: We have a very resilient business model and are mission critical to our customers' innovation.

Speaker Change: where our silicon customers are rising forward to deliver to the opportunities in the ai build out bitit and in the data center or on edge or on device

Sassine Ghazi: We are aligning our portfolio investment with the greatest return potential to accelerate our growth.

Sassine Ghazi: Thank you to our employees for their passion and to our partners and customers for trusting us to ignite their future ingenuity.

Speaker Change: with a flavor of custom silicon as well as system companies increasing their investment to dedifferentiate along that stacks from workload down to silicon

Sassine Ghazi: With that, I'll turn it over to Sheila.

Sheila Glazer: Consistent with prior years, we will provide additional comments and guidance for 2025 when we report next quarter. In conclusion, for 2024, we expect to achieve revenue growth of approximately 15% non-gap operating margin improvement of more than two points and approximately 24% non-gap EPS growth. We continue to see strong momentum in the business, reflecting our relentless execution and leadership position across our segments, mission critical products to enable our customers innovation and a stable and resilient business model.

Shelagh Glaser: Thank you, Sasin.

Shelagh Glaser: We had an excellent Q3 with record revenue, and non-gap EPS was above our guidance. We continue to execute well, which is a testament to our strong momentum across the business, leading technology that is mission critical to our customers, and a resilient and stable business model.

Shelagh Glaser: I'll now review our third quarter results, which are presented on a continuing basis operation. Operating cash flow, including discontinued operations, was $455 million for the quarter, and free cash flow, including discontinued operations, was $415 million.

Shelagh Glaser: We ended the quarter with cash and short-term investments of approximately $2 billion, and $3.77 billion, resulting in more than two points of non-gap operating margin improvement at the midpoint. Non-gap tax rate of 15%, gap earnings of $9.71 to $9.85 per share, non-gap earnings of $13.07 to $13.12 per share, cash flow from operations of approximately $1.3 billion, free cash flow of approximately $1.1 billion.

Speaker Change: as far as our customer intel that you're referring to it's not newue to intel by the way that they started looking at external eda and ip that journey started and two thousand and seven

Sassine Ghazi: That journey started in 2007. As you recall, most of their EDA were internally developed and IP, and it's been a journey over the last number of years to transition externally. Now, with this company transformation they're going through, this is an opportunity to look deeper at what's core, what's context, and looking seriously at efficiency and where to target their resources, where they differentiate or they can pick up from the ecosystem. So, we do believe that there will be an opportunity for further ecosystem leverage for both EDA and IP. As far as short to mid-term impact, we don't see much impact, actually.

Speaker Change: as you recall most of their ea were internally developed an ip and it's been a journey over the last number of years to transition externally

Shelagh Glaser: Now to targets for the fourth quarter. Revenue between $1.614 and $1.644 billion, total gap costs and expenses between $1.21 and $1.23 billion, total non-gap costs and expenses between $1.03 and $1.04 billion, gap earnings of $2.25 to $2.39 per share, and non-gap earnings of $3.27 to $3.32 per share.

Shelagh Glaser: Our press release and financial supplement include additional targets in GAAP to non-GAAP, reconciliation.

Shelagh Glaser: Consistent with prior years, we will provide additional comment and guidance for 2025 when, we report next quarter.

Shelagh Glaser: In conclusion, for 2024, we expect to achieve revenue growth of approximately 15%, non-GAAP, operating margin improvement of more than 2 points, and approximately 24% non-GAAP EPS growth.

Speaker Change: now with this company transformation they're going through this is an opportunity to look deeper at what's called what's context and looking seriously at efficiency and where to target their resources where they keep differenfticiate or they can pick up from the ecosystem

Operator: With that, I'll turn it over to the operator for questions. Thank you.

Operator: Before we begin the Q&A session, I would like to ask everyone to please one at yourself to one question and one brief follow-up to allow us to accommodate all participants. If you have additional questions, please re-enter the queue and we'll take as many as time permits. As a reminder to ask a question, please press star one on your telephone keypad and to withdraw your question, simply press star one again.

Speaker Change: so we do believe that there will be an opportunity for further ecosystem leverage for both in the a and ip

Harlan Sur: Your first question comes from the line of Harlan Sir with JP Morgan. Your line is open. Good afternoon. Thank you for taking my question and great execution in the quarter. So soon as you mentioned leading edge chip design activity, continue to accelerate at the three-animate or two-animate of nodes, especially around AI and accelerated compute by both merchant, but also a significant amount of custom, basic chips that are ramping, whether coming to the market.

Speaker Change: as far as a short to mid-term impact we don't see much impact actually you know as you know our agreements are committed for long term and we continue on delivering high value and impact to that customerers so we don't see much in terms of a negative impact

Sassine Ghazi: As you know, our agreements are committed for the long term and we continue on delivering high value and impact to that customer. So, we don't see much in terms of a negative impact in the short or mid-term.

Shelagh Glaser: We continue to see strong momentum in the business, reflecting our relentless execution, and leadership position across our segment, mission-critical products to enable our customers' innovation, and a stable and resilient business model.

Shelagh Glaser: With that, I'll turn it over to the operator for questions.

Harlan Sur: Great, thank you for that. And, you know, just over the past 90 days, we've heard of many challenges your semi-conductor customers are facing as they sort of push the boundaries on leading edge shift designs, right? And these challenges don't revolve around actual performance of the chip itself.

Speaker Change: in the shortor meter

Speaker Change: great thank you for that and you know just over the past ninety days and we've heard of

Unknown Executive: Thank you.

Speaker Change: many challenges you're semicon their customers are facing as they sort of push the boundaries on leading edge shipip designs right and these challenges don't revolve around the actual performance of the chip itself the issu is that once you drop these chips

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

Harlan Sur: But despite all of this, I mean, we are coming off of a pretty severe semiconductor downturn. And, you know, one of your large leading edge customers has recently announced a significant amount of layoffs across the organization. It did also talk about driving better efficiencies around IT and EDA solutions. I interpreted this as they're going to do less of their own internal IT development, less of their own internal EDA software tool development and potentially buy more merchant IT and more core EDA tools from some offices and maybe some of your other competitors. But I wanted to get your interpretation of this announcement and the near the midterm impact if any on your bookings, revenues or market share momentum at this customer.

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

Unknown Executive: As a reminder, to ask a question, please press star 1 on your telephone keypad, and to withdraw, your question, simply press star 1 again.

Unknown Executive: Your first question comes from the line of Harlan Sur with JP Morgan.

Harlan Sur: The issue is that once you drop these chips into advanced packaging solutions, for example, the power dissipation of these chips is generating a significant amount of heat, causing thermal home, mechanical stress interactions with the packaging, causing a whole bunch of yield and reliability problems. And then on the flip side, we see more and more of your customers moving into the systems market, like AMD and their recent announcement to acquire ZT Systems, right, where AMD all of a sudden is going to be doing full-blown board, server, rack scale server design. It still seems like this is exactly where having ancestors, systems, analysis solutions is a part of the portfolio becomes a big advantage for the team.

Unknown Executive: Your line is open.

Speaker Change: into advanced packaging and solutions for example the power dissipation of these tips we've generatedating a significant amount of tea causing thermal mechanical stressing inter actions with the packaging causing a whole bunch of yield

Speaker Change: and reliability problems

Speaker Change: and then on the flip side we see more and more of your customers moving into the system's market like a am and their recent announcement acquire

Speaker Change: zt systems right where a deal of a sudden is going to be doing fullbblownon board server rock scale somever of guides still seems like this is exactly we're having ancess

Sassine Ghazi: Thank you, Harlan, for the question. I want to first comment on the first part of the statement you made, which is you're right. It's such an exciting time to be in our industry where our silicon customers are racing forward to deliver to the opportunities in the AI build out bit in the data center or on edge or on device with the flavor of custom silicon, as well as system companies increasing their investment to differentiate along that stack from workload down to silicon.

Speaker Change: systemsome analysis solut is a part of the portfolio becomes a big advantage for the team but given all of these dynamics i mean is the support from customers around that andit's just acquisition

Sassine Ghazi: But given all of these dynamics, I mean, is the support from customers around the some of these chip package and systems level challenges. I will start with a yes on the continued support from customers, and actually not only silicon customers, silicon and system customers in support of the transaction for the exact same reason you highlighted. You put them all together; the challenge is no longer electronics: it is electronics plus all the other attributes you mentioned, from structural fluid dynamics to thermal. How do you design them during the architecture phase that you know once you go into packaging manufacturing and packaging is going to work in the field.

Speaker Change: continuing to build positive momentum and then made mein the interim what is syopsis going to help customers with some of these chip package and systems level challenges

Unknown Executive: Good afternoon.

Speaker Change: i will start with yes yes on the continued support from customers

Speaker Change: and actually not only silicon customer silicon and system customers in support of the transaction for the exact same reason you highlighted

Sassine Ghazi: As far as our customer intel that you're referring to, it's not new to intel by the way that they started looking at external EDA and IP. That journey started in 2007, as you recall, most of their EDA were internally developed and IP. It's been a journey over the last number of years to transition externally. Now with this company transformation they're going through, this is an opportunity to look deeper at what's core, what's context and looking seriously at efficiency and where to target their resources where they differentiate or they can pick up from the ecosystem.

Speaker Change: if you look at an advanced silicon in an advanced package which has many dies

Speaker Change: and those are very advanced chplets as you know means chippleate by itself is a very complex die to design you put them altogether

Speaker Change: the challenge is no longer electronics if electronics plus all the other ad attributes you mentioned from structural fluid dynamics to thermal how do you design them

Speaker Change: during the architecture phase that you know once you go into packaging manufacturing and packaging is going to work in the field now you look at that as the chip system

Sassine Ghazi: Now you look at that as the chip system; that chip system to your AMD reference is going to sit on a board, is going to sit in some sort of a rack and cluster of racks. How are you designing based on that workload and that complexity at the system level to determine how to manage and design for the heat to manage and design for what type of cooling you want to put. What type of power supplies do you need, etc., etc., and we've been positioning our company as, you know, as a silicon to system design solution company, and I love the reference right now as I hear our customers talking about silicon to software to systems, which is exactly the solution and the partnership we're working with our customers on.

Sassine Ghazi: We do believe that there will be an opportunity for further ecosystem leverage for both EDA and IP. As far as short to mid-term impact, we don't see much impact actually. As you know, our agreements are committed for long term. We continue on delivering high value and impact to that customer so we don't see much in terms of a negative impact in the short or mid-term.

Speaker Change: that chip system to your emd efference is going to sit

Speaker Change: on a board is going to sit in some sort of a irrq

Speaker Change: and cluster of fracks how are you designing based on that workload and that complexity at the system level to determine

Speaker Change: how to manage and design for the heat to manage and design for what type of cooling you want to put

Speaker Change: what type of power supplies do you need etc etc

Speaker Change: and

Speaker Change: we've been positioning our company as you know as a silicon to system design solution company and i love the reference right now as i hear our customers talking about silicon to software to systems which is exactly the solution and the partnership we're working with our customers on

Sassine Ghazi: Great, thank you for that. And you know, just over the past 90 days, and we've heard of many challenges your semi-conductor customers are facing as they sort of push the boundaries on leading edge shift designs, right? And these challenges don't revolve around actual performance of the chip itself. The issue is that once you drop these chips into advanced packaging solutions, for example, the power dissipation of these chips is generating a significant amount of heat, causing thermals, mechanical stress interactions with the packaging, causing a whole bunch of yield and reliability problems.

Harlan Sur: Thank you.

Vivek Arya: Thank you, Harman. Your next question comes from the line of the VEC area with Bank of America; your line is open.

Speaker Change: thank you

Unknown Executive: Thank you for taking my question, and great execution in the quarter.

Sassine Ghazi: And then on the flip side, we see more and more of your customers moving into the systems market, like AMD and their recent announcement to acquire ZT systems right where AMD all of a sudden is going to be doing full-blown board, server, rock scale server design. It still seems like this is exactly we're having ancestors' analysis solutions as a part of the portfolio becomes a big advantage for the team. But given all of these dynamics, I mean, is the support from customers around the some of these chip package and systems level challenges.

Harman: thank you harman

Speaker Change: your next question comes from the line of the vc ar with have bank of america your remind is open

Unknown Executive: So, as you mentioned, leading-edge chip design activity continues to accelerate at the 3, nanometer, 2 nanometer nodes, especially around AI and accelerated compute by both merchant, but also a significant amount of custom ASIC chips that are ramping, that are coming to the market.

Vivek Arya: Thanks for taking my question. I think at the end of the day, you had suggested that Court EDA over time the growth could go from 12% to 14% from AI monetization. I'm curious where is an office in that journey? You know, what have been the early signs to drive this kind of acceleration in the business? Yes.

vc ar: thanks you my questionum

Speaker Change: but think i'd be amthest you had suggested that core ea over time the growth could growth from twelve percent to fourteen percent from a i monetization

Unknown Executive: But, despite all of this, I mean, we are coming off of a pretty severe semiconductor downturn, and, you know, one of your large leading-edge customers has recently announced a significant amount of layoffs across their organization.

Unknown Executive: They did also talk about driving better efficiencies around IT and EDA solutions.

Speaker Change: i'm curious where it' an office in that journey what i have been earready assigned to drive this benefits federation in the busy

Unknown Executive: I interpreted this as they're going to do less of their own internal IT development, less of their own internal EDA software tool development, and potentially buy more merchant, IT and more core EDA tools from Synopsys and maybe some of your other competitors.

Sassine Ghazi: So, Vivek, if you look back not too long ago, a best-case outcome for traditional EDA was in the upper single digits. The reason we've been able to grow in the double digits and what we talked about 12 to 14% is due to complexity of these systems, introduction of new technology to deal with that complexity, and we referenced AI. AI, from a journey point of view, we introduced first DSO.AI, which is the optimization engine on the digital portion of the design. As I mentioned in my prepared remarks, we have DSO.AI, which is in adoption and used by a number of customers at this stage and ramping, ASO.AI for analog.

Speaker Change: yes so the fact if you look back not too long ago a best case outcome for additional ea was in the upper single digit

Unknown Executive: But I wanted to get your interpretation of this announcement and the near-to-midterm, impact, if any, on your bookings, revenues, or market share momentum at this customer.

Speaker Change: the reason we've been able to grow in the double digits and what we talked about twelve to fourteen percent is due to complexity of these systems

Unknown Executive: Thank you, Harlan, for the question.

Sassine Ghazi: I will start with a yes on the continued support from customers, and actually not only silicon customers, silicon and system customers in support of the transaction for the exact same reason you highlighted. You put them all together that challenge is no longer electronics is electronics plus all the other attributes you mentioned from structural fluid dynamics to thermal. How do you design them during the architecture phase that you know once you go into packaging manufacturing and packaging is going to work in the field.

Speaker Change: in roduction of new technology to deal with that complexity and we referenced ai ai from a journey point of view we introduce first d that ai which is the optimization engine on the digital portion of the design

Unknown Executive: I want to first comment on the first part of the statement you made, which is, you're, right.

Unknown Executive: This is an exciting time to be in our industry, where our silicon customers are racing forward, to deliver to the opportunities in the AI build-out, be it in the data center or on edge or on device, with the flavor of custom silicon, as well as system companies increasing their investment to differentiate along that stack from workload down to silicon.

Unknown Executive: As far as our customer, Intel, that you're referring to, it's nothing new to Intel, by the way, that they started looking at external EDA and IP. That journey started in 2007.

Speaker Change: as i mentioned in line prepared remarks we have vso that ai which is in adoption and used by number of customers at this stage and ramping

Unknown Executive: As you recall, most of their EDA were internally developed in IP, and it's been a journey, over the last number of years to transition externally.

Unknown Executive: Now, with this company transformation they're going through, this is an opportunity to look, deeper at what's core, what's context, and looking seriously at efficiency and where to target their resources, where they differentiate or they can pick up from the ecosystem.

Unknown Executive: We do believe that there will be an opportunity for further ecosystem leverage for both EDA, and IP.

Unknown Executive: As far as short to mid-term impact, we don't see much impact, actually. As you know, our agreements are committed for long-term, and we continue on delivering, high value and impact to that customer, so we don't see much in terms of negative impact in the short or mid-term.

Unknown Executive: Great, thank you for that.

Sassine Ghazi: And the part I did not mention in this script itself, we talked about generative AI. We're using LLM for knowledge assistant and generation of portion of the chip itself. So, where are we in monetization and maturity? With DSO.AI, we've been selling it for about four years now. We're capturing, on average, about 20% uplift from the baseline of that portion of the contract. For VSO, and it's still an early stage within an early monetization stage, but we don't have enough data points to share with you yet with it. Will it be at the similar 20% higher lower were not there yet?

Unknown Executive: And you know, just over the past 90 days, we've heard of, many challenges your semiconductor customers are facing as they sort of push the boundaries on leading edge chip designs, right?

Unknown Executive: And these challenges don't revolve around the actual performance of the chip itself. The issue is that once you drop these chips into advanced packaging solutions, for example, the power dissipation of these chips is generating a significant amount of heat, causing thermal, mechanical stress interactions with the packaging and causing a whole bunch of yield and reliability problems.

Speaker Change: a s or dot a i for analogue and the part i did not mention in this script itself we talked about generative ai were using l l m for knowledge assistant and generation of portion of the chip itself

Unknown Executive: And then on the flip side, we see more and more of your customers moving into the systems market like AMD and their recent announcement to acquire ZT Systems, right, where AMD all of a sudden is going to be doing full blown board server, rack scale server design.

Unknown Executive: It still seems like this is exactly where having ANSYS systems analysis solutions as a part of the portfolio becomes a big advantage for the team.

Unknown Executive: But given all of these dynamics, I mean, is the support from customers around the ANSYS acquisition continuing to build positive momentum?

Unknown Executive: And then maybe in the interim, what is Synopsys doing to help customers with some of these chip package and systems level challenges?

Speaker Change: so where are we in the monetization and maturity with d so that a i would been selling it for about four years now we're capturing on average about twenty percent uplift from the baseline of that portion of the contract

Sassine Ghazi: Now you look at that as the chip system that chip system to your AMD reference is going to sit on a board is going to sit in some sort of a rack and cluster of racks. How are you designing based on that workload and that complexity at the system level to determine how to manage and design for the heat to manage and design for what type of cooling you want to put.

Speaker Change: for vso and is still in early stage with in an early monetization stage but we don't have enough data point

Speaker Change: to share with you yet with it will it be at the similar twenty percent higheror lower were not there at as forward in an evil phase what it means is in customer validation

Sassine Ghazi: ASO in an evil phase, what it means is in customer validation. And so, similar to the generative AI, we have number of customers across five products we have currently that offer a knowledge assistant at that stage. So, 12 to the 14%; that's why we did not specify a time frame.

Speaker Change: and so similar to the generative ai

Speaker Change: we have number of customers across five products we have currently

Sassine Ghazi: What type of power supplies do you need etc etc and we've been positioning our company as you know as a silicon to system design solution company and I love the reference right now as I hear our customers talking about silicon to software to systems, which is exactly the solution and the partnership we're working with our customers on.

Speaker Change: that offer knowledge assistant at that stage so the twelve to the fourteen percent that's why we did not specify at timeframe

Sassine Ghazi: But what is absolutely clear is that the value we're delivering will be able to and the impact will be able to justify a monetization to support that 2% growth we communicated.

Speaker Change: but what is absolutely clear is that value weof delivering will be able to and the impact will be able to justify a monetization to support that two percent growth we communicated

Vivek Arya: Thanks again. And for my follow-up, kind of more near term, the EDA growth so far this fiscal year has been up about 9% or so. I understand last year was a tough year for the semiconductor industry, so you're probably feeling the effect of that. But what do you see going into next year's conceptually?

Harlan Sur: Thank you.

Speaker Change: thank i again and for my follow up kind of more near term

Operator: Thank you Harman.

Vivek Arya: Your next question comes from the line of the VEC area with Bank of America your line is open. Thanks for taking my question. I think at the end of the day, you had suggested that court EDA over time the growth could go from 12% to 14% from AI monetization. I'm curious where is synopsis in that journey? What have been the early signs to drive this kind of acceleration in the business? Yes, so Vivek, if you look back, not too long ago, a best-case outcome for traditional EDA was in the upper single digit.

Speaker Change: to edda growth so far this fiscaler has been up about nine percent or so i understand last year was a stoughff year for the semicter ctor renicry 're probably seing the effect you know off that

Sassine Ghazi: Do you think the seeds are being laid to help drive a kind of return back to your trendline growth in EDA, or is it too early to make that kind of improvement? So, for design automation, it's double-digit growth, and please measure it based on a trailing 12 months, not quarter over quarter because sometimes you have, like in this particular quarter, we had an outstanding Q323. This does not mean that there is anything alarming, but the comparison quarter over quarter may be misleading. As you look at the trailing 12 months, we still feel strongly it's a double digit growth.

Speaker Change: but what do you see going into next year and setory doyou think the seeds are being laid to help drive kind of a return back keyour sunline growth in edia or is it too early to make that kind of concluion

Speaker Change: so for design automation its double digit growth and please measure it based on a trailing twelve months n quarter overquarter because you know sometimes you have like in this particular quarter we had an outstanding q three andtwenty three

Vivek Arya: The reason we've been able to grow in the double digits and what we talked about 12 to 14% is due to complexity of these systems introduction of new technology to deal with that complexity and we referenced AI. AI, from a journey point of view, we introduced first DSO.AI which is the optimization engine on the digital portion of the design. As I mentioned in my prepared remarks, we have DSO.AI which is in adoption and used by a number of customers at this stage and ramping, ASO.AI for analog.

Speaker Change: does not mean that there is any anything alarming but the comparison quarter -over-quarter may be misleading as you look at the trailing twelve months we still feel strongly it's a double-digit growth

Sheila Glazer: And within design automation, the mix is changing. You know, you have the traditional, rateable software; you have the hardware, which is more up front, and then you have an increasing portion becoming an FSA for the software, where the customer wants that flexibility. For example, that's how they get access to cloud, is through that flexible spending account. That's why quarter-over-quarter comparison, I'll caution you around it; look more at the trailing 12 months. Yeah, and I would just add that our TTM is 10%. And just as you see in references, Q3 of last year was 23%; so 6% on top of 23% is obviously tremendous growth.

Speaker Change: and withdone within design automation the mix is changing you have the traditional rateatable software

Speaker Change: you have the hardware which is more upfront

Speaker Change: and then you have increasing portion becoming an fsa for the software

Speaker Change: where customer wants that flexibility for example that's how they get access to cloud is through that flexible spending account that's why quarter over quarter comparison i'll caution you around the look more at the triling twelve months

Vivek Arya: And the part I did not mention in this script itself, we talked about generative AI. We're using LLM for knowledge assistant and generation of portion of the chip itself. So where are we in monetization and maturity? With DSO.AI, we've been selling it for about four years now, we're capturing on average about 20% uplift from the baseline of that portion of the contract. For VSO and it's still an early stage within an early monetization stage, but we don't have enough data point to share with you yet with it.

Speaker Change: yeah and i would just add that our t t m as ten percent and just as soci see in references q three of last year was twenty three percent six percent on top of twenty three percent is obviously tremendous growth and q three of lastyear didn't some expiring contracts so obviously that notmary occurring

Vivek Arya: And Q3 of last year didn't lose some expiring contract, so obviously that's not reaffirming. Thanks, Vivek.

Joe Vruwink: Your next question comes from the line of Joe Vruwink with Baird. Your line is open.

Speaker Change: thanks thanks for that

joe ruin: your next question comes from the line of joe ruin with bears your line is open

Joe Vruwink: Great.

Joe Vruwink: Thanks, everyone. IP is with a very strong revenue growth in the quarter, but up to one product, even stronger growth in the quarter.

Speaker Change: great looks everyone with a very strong revenue growth in the quarter but upfront product even stronger growth in the quarter

Vivek Arya: Will it be at the similar 20% higher lower? We're not there yet. ASO in an evil phase, what it means is in customer validation. And so it's similar to the generative AI. We have number of customers across five products we have currently that offer knowledge assistant at that stage.

Sassine Ghazi: I'm wondering if the latest generation of harbor assistive verification is showing up. And that's the incremental contributor here. And, relatedly, I've wanted to ask how order flow for the new harbor products compares, maybe if you compare it to the launch of EP1 a couple of years ago. Yes, so on the hardware itself, we actually are selling our existing product. We introduce the EP system, which you need to think of it that sits between prototyping and emulation, which is a sweet use case. But we have a very competitive system in number of use cases. The use case that is sweet for synopsis is software bring up because of the performance, our system is able to deliver.

joe ruin: i'm wondering if the latest generation of harborassis of verification is showing up and that's the incremental contributor here and

joe ruin: relatedly i wanted to ask how order flow for the new hardware products compares maybe you compare it to the launch of eq one a couple of years ago

Sassine Ghazi: So 12 to the 14%, that's why we did not specify a time frame, but what is absolutely clear is that value we're delivering will be able to, and the impact will be able to justify a monetization to support that 2% growth we communicated. Thanks again. And for my follow-up kind of more near term, the EDA growth so far, this clear has been up about 9% or so. I understand last year was a tough year for the semiconductor industry, so you're probably feeling the effect off that.

Unknown Executive: I will start with a yes.

Speaker Change: yes so on the hardware itself we actually are selling our existing product we introduce

Unknown Executive: Yes, on the continued support from customers and actually not only, silicon customers, silicon and system customers in support of the transaction for the exact same reason you highlighted.

Unknown Executive: If you look at an advanced silicon in an advanced package, which has many dies, and those are very advanced chiplets, as you know, each chiplet by itself is a very complex die to design.

Unknown Executive: You put them all together, the challenge is no longer electronics.

Unknown Executive: It's electronics plus all the other attributes you mentioned from structural fluid dynamics, to thermal.

Unknown Executive: How do you design them during the architecture phase that you know once you go into packaging, manufacturing and packaging, it's going to work in the field?

Speaker Change: the ep system which need to think of it thats sit between the prototyping and emolation which is a sweet use case

Unknown Executive: Now, you look at that as the chip system. That chip system to your AMD reference is going to sit on a board, is going to sit in some sort of a rack and cluster of racks.

Unknown Executive: How are you designing based on that workload and that complexity at the system level to determine how to manage and design for the heat, to manage and design for what type of cooling you want to put, what type of power supplies do you need, etc.

Unknown Executive: We've been positioning our company, as you know, as a silicon to system design solution company.

Unknown Executive: I love the reference right now as I hear our customers talking about silicon to software to systems, which is exactly the, solution and the partnership we're working with our customers on.

Unknown Executive: Thank you.

Speaker Change: but we have a very competitive system a number of use cases the use case that is a sweet

Unknown Executive: Thank you, Harlan.

Speaker Change: for synois is software bringup because of the performance our system is able to deliver we'are seeing actually a very nice adoption and puin not woman like a requirements from the customer to adopt

Unknown Executive: Your next question comes from the line of Vivek Arya with Bank of America.

Sassine Ghazi: We are seeing actually a very nice adoption and pull in, not pull in like a requirement from the customer to adopt those systems for software bring up. The other use case that we identify the wall back as an area we need to make sure we have a competitive solution is simulation acceleration. That's a use case that typically or historically, synopsis did not compete as strongly in that use case. We had couple of wins in the quarter where customers are looking for the same hardware, same compile that they can use it as a continuum from their prototyping to their emulation.

Sassine Ghazi: But what do you see going into next year's conceptually? Do you think the seeds are being laid to help drive kind of a return vaccine trendline growth in EDA, or is it too early to make that kind of conclusion? So for design automation, it's double digit growth, and please measure it based on a trailing 12 months, not quarter over quarter, because sometimes you have, like in this particular quarter, we had an outstanding Q323, does not mean that there is anything alarming, but the comparison quarter over quarter may be misleading.

Unknown Executive: Your line, is open.

Speaker Change: those systems for software bring up

Speaker Change: the other use case that we identify the wback as an area we need to make sure we have a competitive solution is a simulation acceleration

Speaker Change: that's the use case that typically or historically synapis did not compete

Speaker Change: as strongly in that use case we had couple wins in the quarter where customers are looking for the same hardware same compile that they can use it as a continuum from their prototyping to their emolation

Sassine Ghazi: As you look at the trailing 12 months, we still feel strongly it's a double digit growth. And within design automation, the mix is changing. You have the traditional, rateable software, you have the hardware which is more upfront, and then you have increasing portion becoming an FSA for the software, where customer wants that flexibility. For example, that's how they get access to cloud, is through that flexible spending account. That's why quarter over quarter comparison I'll caution you around it, look more at the trailing 12 months.

Sassine Ghazi: That's why, Joe, you see a strong hardware momentum, and we don't see it slowing down given the complexity. And the other upfront component I would add is IP, and we had an exceptionally strong IP quarter. And to the extent that that IP is already available and a customer is ready to consume, that can happen pretty quickly.

Speaker Change: that's why joe you see a strong hardware momentum and we don't see it slowing down given the complexity

Joe: and the other upfront component i would add as ip and we had an exceptionally strong ip quder and to the extent that that ip is already available and a customer'is ready to consume than that that can happen pretty quickly

Joe Vruwink: Okay, that's all very helpful then.

Sassine Ghazi: The common was made that commercial momentum remains robust. I'm wondering if that's just evident in backlog developments. If you can give an update there, and then any they don't like to give forward guidance on backlog, but how the pipeline looks into your end and maybe the initial part of next fiscal year. Thank you. Sure, thanks, Joe. So backlog for the quarter was 7.9 billion dollars, and to give you a reference on continuing operations last Q3, so Q3 of 23, XIG, that was 6.5 billion. So it's a very nicely year-on-year as we're continuing to race ahead to support the customers and all the complexity that they're dealing with.

Speaker Change: okay that's all very helpful and then

Speaker Change: the comment was made that commercial momentum remains robust i'm wondering if that's just evident in backlog developments of you can

Sassine Ghazi: Yeah, and I would just add that our TTM is 10%. And just as you see in references, Q3 of last year was 23%, so 6% on top of 23%. It's obviously tremendous growth. And Q3 of last year didn't lose some expiring contracts, so obviously that's not reaffirming. Thanks, Vivek.

Speaker Change: givenan update there and and then any they don't like to give forward guidance on backlog but how the pipeline looks into youryear-end and maybe the initial part of ne fiscal year thank you

Speaker Change: sure thanks joe so backlog for the quarter was seven point nine billion dollars and to give you a reference on continuing operations last q three so q three of twenty three x sig that was six point five billion

Joe Vruwink: Your next question comes from the line of Joe Vruwink with Baird. Your line is open. Great. Thanks, everyone. IP is with a very strong revenue growth in the quarter, but up to run product, even stronger growth in the quarter. I'm wondering if the latest generation of harbor assistive verification is showing up. And that's the incremental contributor here. And, relatedly, I've wanted to ask how order flow for the new harbor products compares, maybe you compare it to the launch of EP1 a couple of years ago.

Speaker Change: so it's a very nicely year on year as we're continuing to race ahead to support the customers and all the complexity that they're dealing with and you know that number does have in flow as we build and burn was relatively flat though quarter on quarter

Sassine Ghazi: And that number does have been flow as we build and burn with relatively flat-out quartering. Porter.

Unknown Executive: Thanks, show. Thank you.

Jason Celino: Your next question comes from the line of Jason Celino with KeyBank. Your line is open.

Joe: thanks show

Joe: thank you

jason selalino: your next question comes from the line of jason selalino with key bank your line is open

Unknown Executive: Thanks for taking my question.

Jason Celino: Hey, thanks for taking my questions. Maybe my first one just on the guide for the year. It looks like you're narrowing the revenue range as much as I'd like you to raise every quarter. I think we've already seen you raise two to three times this year. So I think we'll give you the ask. But curious if there were any areas that could have outperformed more or any areas down to that offset some of the strength you did see curious there. Thanks.

Joe Vruwink: Yes, so on the hardware itself, we actually are selling our existing product. We introduce the EP system, which you need to think of it that sits between prototyping and emulation, which is a sweet use case. But we have a very competitive system in number of use cases. The use case that is sweet for synopsis is software bring up. Because of the performance, our system is able to deliver. We're seeing actually a very nice adoption and pull in, not pull in like a requirement from the customer to adopt those systems for software bring up.

jason selalino: hey thanks for taking my questions maybe my first one just on the guidance for the year it looks like you're narrowing the revenue range

Unknown Executive: Does it have to be understood that you had suggested that for EDA, over time, the growth, could go from 12% to 14% from AI monetization?

Speaker Change: as much as i'd like you to raise every quarter i think we've already seen raised two to three times this year so i think we'll give you the past but curious if there were any are as that that could have ever per from more or an areas downtick that offset some ofthe strength you did see

Unknown Executive: I'm curious, where is Synopsys in that journey?

Sheila Glazer: Well, Jason, as you said, we've raised several times this year. So the confidence of the Q3 results really allowed us to narrow our guidance to give 15% as the midpoint. And I would say we're seeing, you know, that strength is seeing this talking about in the industry. We're seeing that across our product line. So good engagement with customers really across the board as they accelerate their role maps to meet the robust demand. We did raise non-GAAP operating margin and non-GAAP EPS because, again, as she talked about, you know, we're being very, very deliberate in our investment and our expenses and making sure that we're, we're onboarding some of the things we're talking about doing with customers with AI and efficient.

Speaker Change: curious therethanks

Unknown Executive: You know, what have been the early signs to drive this kind of acceleration in the business?

Unknown Executive: Yes, so, Vivek, if you look back not too long ago, a best case outcome for traditional EDA, was in the upper single digit.

Unknown Executive: The reason we've been able to grow in the double digits and what we talked about 12% to 14% is due to complexity of these systems, introduction of new technology to deal with that complexity, and we referenced AI.

Speaker Change: wellason as you said we've raised several times this year so the confidence the q three results really allowed us to narrow our guidance to give fifteen percent as the midpoint and i would say we're seeing you know that strength that seeing this talking about in the industry we're seeing that across our product line so good engagement with customers really across the board as they accelerate their role maps to meet the robust i demand we did raise non gaap operating margin and on gaap because again te talked about knowwe're being very very deliberate in our investment andour

Unknown Executive: AI, from a journey point of view, we introduced first VSO.AI, which is the optimization engine, on the digital portion of the design. As I mentioned in my prepared remarks, we have VSO.AI, which is in adoption and used, by a number of customers at this stage and ramping.

Unknown Executive: ASO.AI for analog.

Unknown Executive: And the part I did not mention in this script itself, we talked about generative AI.

Unknown Executive: We're using LLM for knowledge assistance and generation of a portion of the chip itself.

Joe Vruwink: The other use case that we identify the wall back as an area we need to make sure we have a competitive solution is simulation acceleration. That's a use case that typically or historically synopsis did not compete. As strongly in that use case, we had couple of wins in the quarter where customers are looking for the same hardware, same compile that they can use it as a continuum from their prototyping to their emulation.

Unknown Executive: So, where are we in the monetization and maturity?

Unknown Executive: With VSO.AI, we've been selling it for about four years now. We're capturing, on average, about 20% uplift from the baseline of that portion of the contract.

Unknown Executive: For VSO, it's still in early stage.

Unknown Executive: We're in an early monetization stage, but we don't have enough data point to share with, you yet.

Unknown Executive: Where is it?

Unknown Executive: Will it be at the similar 20%, higher, lower?

Unknown Executive: We're not there yet.

Speaker Change: expenses and making sure that we're we're onboardingsome of the things we're talking about doing with customers with ai and ffefficientcy and so you saw improve on both of those metricics

Sheila Glazer: And so you saw us improve on both those metrics.

Jason Celino: Excellent. And then one quick one on China; it looks like it was down 8% in the quarter, but still up 8% for the year. Maybe just compared to last quarter, I guess, how are you feeling about the demand environment in that region? Yeah, that's why Jason, at the beginning of the year, we talked about taking a pragmatic approach on China for two factors. One is the continued impact of the Entity List, technology restrictions. And then the second is the macro environment in China. Now, all of that being said, we're still executing well in China. We're growing in China, and it's excellent to see when you look at the rest of the regions; we're performing incredibly well.

Speaker Change: excellent and then listeningum

Joe Vruwink: That's why Joe, you see a strong hardware momentum and we don't see it slowing down given the complexity. And the other upfront component I would add is IP and we had an exceptionally strong IP quarter and to the extent that that IP is already available and a customer is ready to consume it, then that can happen pretty quickly. That's all very helpful. The comment was made that commercial momentum remains robust. I'm wondering if that's just evident in backlog developments.

Speaker Change: and then one quick one on china it looks like it was down eight percent the quarter but stillill up eight percent for the year maybe just compared to the last quarter i ess how are you feeling about the demand demand environment in that region

Unknown Executive: ASO, we're in an eval phase.

Unknown Executive: What it means is in customer validation.

Unknown Executive: And so, it's similar to the generative AI.

Speaker Change: yes that's why jason at the beginning of the year we we talked about taking a pragmatic approach on china for two factors one

Unknown Executive: We have a number of customers across five products we have currently that offer knowledge, assistance at that stage.

Unknown Executive: So, the 12 to the 14%, that's why we did not specify a timeframe.

Speaker Change: is the continued impact of the entity less technology restrictions

Speaker Change: and then the second is the macro environment in china

Joe Vruwink: You can give an update there and then any, and they don't like to give forward guidance on backlog, but how the pipeline looks into your end and maybe the initial part of next fiscal year. Thank you. Sure, thanks, Joe. So backlog for the quarter was $7.9 billion and to give you a reference on continuing operations last Q3, so Q3 of 23, XIG, that was $6.5 billion. So it's a very nicely year on year as we're continuing to race ahead to support the customers and all the complexity that they're dealing with. And that number does have been flow as we build and burn was relatively flat, though, quartering. Order. Thanks, show.

Speaker Change: now all of that being saided we're still executing well in china we're growing in china and it's it's excellent to see when you look at the rest of the regions

Sassine Ghazi: So we continue to take a balanced approach on China, given those two factors.

Speaker Change: we'are performing incredibly well so we continue to take a balanced approach on china given those two factors

Jason Celino: Perfect.

Unknown Executive: Thanks, Athena. You're welcome.

Lee Simpson: Your next question comes from the line of Lee Simpson with Morgan Stanley. Your line is open.

Speaker Change: thanksising

Speaker Change: you d welcome

Speaker Change: your next question comes from the line of lease simpson with morgan famleily your line is open

Lee Simpson: Great. Thanks for fitting me in, and great quarter, guys. Just wanted to ask an R&D question; I care. So, if you look at the numbers, it looks as though R&D was slightly ahead of some people's expectations out there. And I think, to be fair, there's been quite a build around new product updates, particularly hardware, but obviously around IP interfaces, maybe foundational IP as well.

Lees Simpson: great thanks fitting me in and great quarter guys

Lease Simpson: just to ask king to r deequestion if i car it so if you look at the numbers it looks as still rd was maybe slightly ahead of some people's expectations are there

Speaker Change: i think to be fair there's been quite a build around new product updates particularly hardware but obviously around ip intointerfaces maybe foundational ip as well

Joe Vruwink: Thank you. Your next question comes from the line of Jason Celino with Keybank. Your line is open.

Sassine Ghazi: So I wondered if there was scope as we go through the end of this year and into next for you to maybe flatten some of that R&D. And just to help with that out performance on the earnings line, or maybe the pace of part innovation is unlikely to let you do that. I just wanted to understand the balance between those two positions. Yeah, so certainly the pace of the industry and, you know, what I've seen talked about, even the pace of new standards and IP, is accelerating. So we have to, we almost have to be a step ahead of our customers.

Jason Celino: Hey, thanks for taking my questions. Maybe my first one just on the guide for the year. It looks like you're narrowing the revenue range as much as I'd like you to raise every quarter. I think we've already seen you raise two to three times this year, so I think we'll give you the ask, but curious if there were any areas that could have outperformed more or any areas down tick that offsets on the strength you did see.

Speaker Change: so i wondered if there was scope as we go through the end of this year and inter next for you to maybe fflatten some of the r andd

Speaker Change: and just to help with that ouroutperformance on the earnings line or maybe the pace of product innovation is unlikely to let you do that i just wanted to understand the balance between those two positions

Speaker Change: yeah so certainly the pace of the industry and you know was seeen talked about even the piece of new standard and ip is accelerating so we have to we almost have to be a step of the head of our customers so continue to invest in that is incredibly important and then continuing to invest in building out both our hardware romup that you're talked about and then continuing and evolve our

Jason Celino: Curious there. Thanks. Well, Jason, as you said, we've raised several times this year. So the confidence of the Q3 results really allowed us to narrow our guidance to give 15% as the midpoint. And I would say we're seeing, you know, that strength that is seeing us talking about in the industry. We're seeing that across our product line. So good engagement with customers really across the board as they accelerate their role maps to meet the robust API demand.

Sassine Ghazi: So continuing to invest in that is incredibly important. And then continuing to invest in building out both our hardware, Roma that you talked about, and then continuing to evolve our EDA capabilities is really top of our priority when we think about our investment. So I don't see R&D investment as an area of savings for us, really, anytime soon. Obviously, a lot of the benefits and efficiencies that we're driving there, we think about reinvesting those in building further product innovation.

Speaker Change: d a capabilities is really top of our priority when we think about our investment so i don't see r n d investment as an area of

Jason Celino: We did raise non-gap operating margin and non-gap EPS because again, as she talked about, you know, we're being very, very deliberate in our investment and our expenses and making sure that we're onboarding some of the things we're talking about doing with customers with AI and efficient. And so you saw us improve on both those metrics.

Speaker Change: stving for us really anytime soon obviously a lot of the benefits and efficiencies that we're driving there we think about reinvesting those in building further product innovation

Lee Simpson: Great, very clear.

Lee Simpson: Maybe just to follow up, I wanted to ask an end market question, maybe on automotive.

Speaker Change: great very clear maybe just just follow up i wanted to ask and endmarket question maybe an automotive

Lee Simpson: I think in the past, you've noted the growing focus on automotive and to see some of your comments seem to talk, call that out. You know, we are seeing a pivot to software-defined vehicles; we are seeing custom silicon coming into view. So just trying to understand, you know, what proportion of growth would you say is sensible for us to assume over the next couple of years, coming out of automotive, giving all the work, including some big microprocessors and going into the car.

Jason Celino: Excellent. And then one quick one on China. It looks like it was down 8% in the quarter, but still up 8% for the year. Maybe just compared to the last quarter. I guess how are you feeling about the demand environment in that region? Yeah, that's why Jason, at the beginning of the year, we talked about taking a pragmatic approach on China for two factors. One is the continued impact of the entity list, technology restrictions.

Speaker Change: i think in the past you've noted that 're going focus automotive and and so seen some of your comments seem to talk call that out

Speaker Change: we are seeing a pvo to software defined vehicles we are seeing custom silicon coming into view so just want to understand what proportion of growth would you say is sensible for us to assumable thenext couple of years coming out of automotive giving all the work

Jason Celino: And then the second is the macro environment in China. Now, all of that being said, we're still executing well in China. We're growing in China. And it's excellent to see when you look at the rest of the regions, we're performing incredibly well. So we continue to take a balanced approach on China given those two factors.

Sassine Ghazi: Thanks. Thank you, Lee, for the question. Automotive has been a very exciting segment. I want to say over the last three to four years, and a couple of things were driving it, is the home push towards delivering a smarter car, meaning more sophisticated silicon, and the same exact challenge at the system level that we talk about often in the hyperscaler context applies to automotive. A number of the automotive OEMs started; some are already doing it, others are starting to consider building their own silicon. But what is absolutely happening, even if they're not building their own silicon, they're investing in the electronics system, meaning as they're architecting the system of the car, the electronic system of the car, and they're working with their tier one, tier two suppliers. How do they communicate the spec of these chips that fits within the software and the overall system requirements for synopsis?

Speaker Change: including some big micro processes and going into the car thanks

Operator: Perfect. Thanks, Acy.

Speaker Change: thank you leave for the question automotive has been a very exciting segment i want to say over the last three to four years and

Speaker Change: a couple of things we' driving it is the homepush towards delivering a smarter car meaning more sophisticated silicon

Speaker Change: and this same exact challenge at the system level that we talk about often and the hyper-scale of context

Speaker Change: applies to automotive

Speaker Change: number of the automotive oemams started

Lee Simpson: You're welcome. Your next question comes from the line of Lee Simpson with Morgan Stanley. Your line is open. Great. Thanks for fitting me in and great quarter, guys. Just wanted to ask an R&D question. I care. So if you look at the numbers, it looks as though R&D was slightly ahead of some people's expectations out there. And I think to be fair, there's been quite a build around new product updates, particularly hardware, but obviously around IP interfaces, maybe foundational IP as well.

Speaker Change: some are already doing it other are starting to consider building their own silicon that what is absolutely happening even if they're not building their own silicon they're investing in the electronics

Unknown Executive: But what is absolutely clear is that value we're delivering will be able to, and the, impact will be able to justify a monetization to support that 2% growth we communicated.

Unknown Executive: Thanks, Haseem.

Unknown Executive: And for my follow-up, kind of more near term, so EDA growth so far this fiscal year has, been up about 9% or so.

Unknown Executive: I understand last year was a tough year for the semiconductor industry, so you're probably, feeling the effects of that.

Speaker Change: a system meaning

Unknown Executive: But what do you see going into next year conceptually?

Speaker Change: as they're architecting the system of the carard the electronic system of the car and they're working with their per oney of two suppliers

Speaker Change: how do they communicate the spec of these chips that fits within the software and the overall system requirements

Lee Simpson: So I wondered if there was scope as we go through the end of this year and into next for you to maybe flatten some of that R&D. And just to help with that outperformance on the earnings line, or maybe the pace of part innovation is unlikely to let you do that. I just wanted to understand the balance between those two positions. Yeah, so certainly the pace of the industry and, you know, was seen talked about even the pace of new standards and IP is accelerating.

Unknown Executive: Do you think the seeds are being laid to help drive kind of a return back to your trendline, growth in EDA?

Sassine Ghazi: That's an opportunity where we sell what we call our virtualization solution, where we work with both the semiconductor companies to virtualize their chip. Then we work with the automotive OEMs to define that architecture for the electronics based on these virtualization and virtual models. You can think of it as a digital twin for electronics, and that's contributing to an acceleration in the sales of some of our solutions and products that were not generated necessarily for the automotive market. But right now, that's a new market that is adopting these solutions. We do anticipate that the market will continue on growing given those systems, those cars are going to be more intelligent, more connected, which is a great opportunity.

Synopsys CEO: for four synnopsis that's an opportunity where we sell what we call our virtualization solution where we work with both the semiconductor companies to virtualize their chip then we work with the automotive oems to define

Unknown Executive: Or is it too early to make that kind of conclusion?

Unknown Executive: So, for design automation, it's double-digit growth.

Synopsys CEO: that architecture for the electronics based on these virtualization and virtual models

Unknown Executive: And please measure it based on a trailing 12 months, not quarter over quarter.

Synopsys CEO: you can think of it as digital twin four electronics

Synopsys CEO: and that's contributing for an acceleration in the sales of some of our

Lee Simpson: So we have to, we almost have to be a step of ahead of our customers. So continuing to invest in that is incredibly important and then continuing to invest in building out both our hardware, Roma that you talked about and then continuing to evolve our EDA capabilities is really top of our priority when we think about our investment.

Synopsys CEO: solutions and products that were not generate an a saleily for the automotive market but right now that's a new market that are adopting these solutions

Synopsys CEO: we do anticipate that that market will continue on growing given those systems those cars are going to be more intelligent more connected

Lee Simpson: So I don't see R&D investment as an area of savings for us really anytime soon. Obviously, a lot of the benefits and efficiencies that we're driving there, we think about reinvesting those in building further product innovation. Great, very clear.

Sassine Ghazi: I cannot go further than that Lee in terms of what percentage of the overall growth, et cetera, et cetera, because that's not how we report, per se, by market segments.

Synopsys CEO: which is a great opportunity i cannot go further land thatly in terms of what percentage of the overall growth etc etc because that's not how we report per se by market segments

Unknown Executive: Because, you know, sometimes you have, like in this particular quarter, we had an outstanding, Q3 23.

Lee Simpson: Maybe just to follow up, I wanted to ask an end market question, maybe on automotive. I think in the past, you've noted the great focus on automotive and and to see some of your comments seem to talk, call that out. You know, we are seeing a pivot to software defined vehicles, we are seeing custom silicon coming into view.

Ruben Roy: Thanks for the call, so you're welcome. Your next question comes from the line of Ruben Roy of Stiefel.

Speaker Change: understood thanks for the color so

Synopsys CEO: you' look up

Ruben Roy: your next question comes from the line of ruben roy of steephle your line is open

Ruben Roy: Your line is open. Thank you. To see, hi, I wanted to go back to something you mentioned in your prepared remarks regarding design cycles contracting, and you mentioned that, you know, that's in the face of increasing chip complexity. And I think some of that, at least, it may seem like it's a relatively new development. And wondering how we should think about that as a maybe longer-term impact your business. I'm thinking about this; you know, obviously there's AI and your tools, you know, helping with those design cycle accelerations. But are there other, you know, sort of areas that your customers are asking you for as they try to accelerate their designs?

Unknown Executive: It does not mean that there is anything alarming, but the comparison quarter over quarter may, be misleading. As you look at the trailing 12 months, we still feel strongly it's a double-digit growth.

Unknown Executive: And within design automation, the mix is changing.

Ruben Roy: thank you soseeing hi i wanted to go back to something you you mentioned in your preppriared remarks regarding design cycles contracting and you mentioned that that's in the face of increasing chip complexity and i think

Sassine Ghazi: So just trying to understand, you know, what proportion of growth would you say essential for us to assume over the next couple of years, coming out of automotive, giving all the work, including some big microprocessors and going into the car. Thanks. Thank you, Lee, for the question. Automotive has been a very exciting segment. I want to say over the last three to four years and a couple of things were driving it is the home push towards delivering a smarter car, meaning more sophisticated silicon and the same exact challenge at the system level that we talk about often in the hyperscaler context applies to automotive.

Ruben Roy: some of that at least to me seems like it's a relatively new development and wondering how we should think about that as it maybe longer term impact your business

Sassine Ghazi: The number of the automotive OEMs started some are already doing it other are starting to consider building their own silicon, but what is absolutely happening, even if they're not building their own silicon, they're investing in the electronics system, meaning as they're architecting the system of the car, the electronic system of the car. And they're working with their tier one, tier two suppliers. How do they communicate the spec of these chips that fits within the software and the overall system requirements for for synopsis.

Speaker Change: i'm thinking about this obviously there's ai and i your tools helping with those design cycle accelerations but are there other sort of

Speaker Change: areas that your customers are asking you for as they try to accelerate their designs and really i guess the longer-term question here is

Ruben Roy: And really, I guess the longer term question here is it's happening at the leading edge. It's happening with the most complex designs. But do you think that that is a trend that could, you know, sort of move across the systems and IC industry as you continue to develop on your end?

Speaker Change: it's happening at the leading ed it's happening with the most complex design but do you think that that is a trend that could sort of move across the systems and i see industry as you continue to develop on your end

Sassine Ghazi: Yeah, excellent question, Ruben. If you look back at the last, I don't know, two, three decades, the entire industry had a rhythm of the next product, and it was Moore's law. And not every company just moved with the latest Moore's Law offering. You move to it when you need from a performance, power, cost, et cetera, to move to it. Right now, when you look at the number of customers that they're talking about, a reduced design cycle from what it used to be three, three years, 18 months down to possibly one year. We cannot look at it as the traditional way of designing a chip.

Unknown Executive: You know, you have the traditional rateable software.

Unknown Executive: You have the hardware, which is more upfront.

Unknown Executive: And then you have increasing portion becoming an FSA for the software, where customer wants, that flexibility.

Unknown Executive: Yeah, and I would just add that our TTM is 10%.

Unknown Executive: For example, that's how they get access to cloud, is through that flexible spending account.

Unknown Executive: And just to see in references, Q3 of last year was 23%.

Unknown Executive: That's why quarter over quarter comparison, I'll caution you around it, look more at the, trailing 12 months.

Speaker Change: yes excellent question ruben if you look back at the last i don't know two three decades the entire industry had a rhythm of the next product and it was mores law

Unknown Executive: So, 6% on top of 23% is obviously tremendous growth.

Unknown Executive: And Q3 of last year did include some expiring contracts.

Unknown Executive: So, obviously, that's not reoccurring.

Unknown Executive: Thank you, guys.

Unknown Executive: Thanks, Vivek.

Speaker Change: that and not every company just moved with the latest more law offering you move to it when you need from a performance power cost etca to move to it

Speaker Change: right now when you look at number of customers that they are talking about a reduced design cycle from what it used to be three three years eighteen months down to possibly one year

Speaker Change: it's we cannot look at it as the traditional way of designing a chip those will be definitely multiidd systems

Sassine Ghazi: Those will be definitely multi-die systems with optionality in that advanced package to target a new product in their roadmap to serve a certain customer set. How fast do I see the rest of the market moving in that direction? Not too many customers can afford and have this skill, and the market for them to move in that direction because it's very complex. So it's both the cycle time of the design is shrinking with a significantly increasing complexity. For us as an industry, that's great news because from EDA for design automation at the chiplet level and the advanced package level, you need to use the latest technology with the AI capabilities, et cetera.

Speaker Change: with optionality in that advanced package to target a new product in their roadmap to to serve a certain customer set

Speaker Change: how fast do i see the rest of the market moving in that direction not too many customers can afford

Sassine Ghazi: But right now, that's a new market that are adopting these solutions. We do anticipate that that market will continue on growing given those systems, those cars are going to be more intelligent, more connected, which is a great opportunity.

Speaker Change: and have this sille and the market for them to move in that direction because it's very complex so it ' both the the cycle time of the design is shrinking with a significantly increasing complexity

Ruben Roy: I cannot go further than that Lee in terms of what percentage of the overall growth, et cetera, et cetera, because that's not how we report per se by market segments. Thanks for the call, so you're welcome.

Speaker Change: for for us as an industry that's great news because from eba for design automation at the chpleatet level and the advanced package level you need to use the latest technology with the ai capabilities etc

Sassine Ghazi: For IP, it's requiring, as I mentioned as well in my prepared remarks, for these protocols to shrink from designing them over two, three-year set of requirements to much shorter cycle and even customer adopting it before the spec is even finalized. Then, on the hardware verification side, you need, of course, the ability to verify and validate all of this. Now, as you look at this whole dynamic, while it's very exciting, we need to wait and see how many customers will have the ability, from resources, skills, investment, to pace with that acceleration.

Ruben Roy: Your next question comes from the line of Ruben Roy of Stiefel. Your line is open. Thank you. Seeing, hi, I wanted to go back to something you mentioned in your prepared remarks regarding design cycles contracting, and you mentioned that, you know, some of that, at least to me, seems like it's a relatively new development, and wondering how we should think about that as a maybe longer term impact your business. I'm thinking about this, you know, obviously there's AI and your tools, you know, helping with those design cycle accelerations, but are there other, you know, sort of areas that your customers are asking you for as they try to accelerate their designs, and really, I guess the longer term question here is, it's happening at the leading edge, it's happening with the most complex designs, but do you think that that is a, you know, trend that could, you know, sort of move across the systems in IC industry, as you continue to develop, you know, on your end. Yeah, excellent question, Ruben.

Speaker Change: for i p it's requiring as i mentioned as well in my prepared remarks for these protocols to shrink

Speaker Change: from designing them over to three year set of requirements

Charles Shi: If you look back at the last, I don't know, two, three decades, the entire industry had a rhythm of the next product, and it was Moore's Law, and not every company just moved with the latest Moore's Law offering, you move to it when you need from a performance power cost, et cetera, to move to it. Right now, when you look at number of customers that they're talking about a reduced design cycle from what it used to be three, three years, 18 months down to possibly one year, it's, we cannot look at it as the traditional way of designing a chip.

Speaker Change: to much shorter cycle and even customer adopting it before the speckers even finalized then on the hardware verification side you need of course the ability to verify validate all of

Speaker Change: now

Speaker Change: as you look at this home dynamic while it's very exciting we need to wait and see how many customers will have the ability from resources skills investment to pace with that acceleration

Charles Shi: Those will be definitely multi-die systems with optionality in that advanced package to target a new product in their roadmap to it to serve a certain customer set. How fast do I see the rest of the market moving in that direction? Not too many customers can afford and have the skill and the market for them to move in that direction because it's very complex. So it's both the cycle time of the design is shrinking with a significantly increasing complexity.

Unknown Executive: Your next question comes from the line of Joe Vruwink with Baird.

Charles Shee: Your next question comes from the line of Charles Shee with Needhaman Company. Your line is open.

Charles She: your next question comes from the line of charles she with natomman company your line is open

Unknown Executive: Your line is open.

Unknown Executive: Great.

Unknown Executive: Thanks, everyone.

Charles Shee: Good afternoon. I have a question about China. I think at the beginning of the year, I think for two reasons. Restrictions and macro, you were sort of expecting maybe China doesn't grow as fast as the corporate, which kind of implies maybe the percentage of China revenue probably going to be lower, but you also said a dollar wise, probably going to be still going to be higher young year for the full year. But the first of three quarters of the fiscal year looks like you may be ahead of that plan, meaning that the contribution wise, you may actually get ahead of last year, 16% contribution from China.

Charles She: good afternoon i have a question about china i think at the beginning of the year i think for two reasons why restrictions and a macro you were

Unknown Executive: IP with very strong revenue growth in the quarter, but upfront, products, even stronger growth in the quarter.

Unknown Executive: I'm wondering if the latest generation of hardware-assisted verification is showing up, and that's the incremental contributor here.

Charles She: sort of expecting maybe china doesn't grow as fast as the corporate which kind of implies may be a percentage

Unknown Executive: Relatedly, I wanted to ask how order flow for the new hardware products compares maybe if you compare it to the launch of EP1 a couple of years ago.

Speaker Change: of china revenue probably going to be lower but the also set at dollarwise 'is probably going to be still going to be higher young year for the full year but

Unknown Executive: Yes.

Speaker Change: the first of three quarters of the fiscal year looks like you may be ahead of that plan meaning that the countrybutvision wise it may actually get ahead of last years sixteen percent contribution and fromon china

Charles Shee: And that which would also imply actually China may grow faster than the corporate that there's a chance you actually can grow that faster than the corporate.

Speaker Change: and that we you would also imply i actually china may growill faset and incorpor there's a chance you actually can grow that aset and incorporate

Sassine Ghazi: One of what what have changed and I specifically the two, three number from China is particularly strong and related to that, did you see any of the pull forward revenue from your Chinese customers for whatever reason, maybe for the future of some getting banned by any of the new export controls, mind if you provide some color there. So I'll start with the last part of the question. No, we're, we're, we're not seeing anything unusual in terms of pull ends or a different approach to engaging synopsis as far as what we communicated at the beginning of the year still holds true.

Speaker Change: wonder what has changed and i specifically the q three number from china is particularly strong and

Speaker Change: related to that that did you see any of the pull forward revenue from your chinese customers or whatever reason maybe for the fear of getting banned by any of the u exual controls mind if you provide some color there

Unknown Executive: On the hardware itself, we actually are selling our existing product.

Speaker Change: so i'll start with the last part of the question no we're

Unknown Executive: We introduced, the EP system, which you need to think of it as it sits between prototyping and emulation, which is a suite use case.

Unknown Executive: But we have a very competitive system in a number of use cases.

Unknown Executive: The use case that is the suite for Synopsys is software bring up.

Sassine Ghazi: The reason you may see quarter over quarter growth in a specific region is again based on the mix of the products that we have. It may be a very strong hardware or IP quarter or more FSA pull down; that's why you see it. But nothing changed from what we communicated at the onset of the year.

Speaker Change: the reason you may see quarter-overquarter growth in a specific region is again based on the mix of the products that we have

Charles Shi: For us as an industry, that's great news because from EDA for design automation at the chiplet level and the advanced package level, you need to use the latest technology with the AI capabilities, et cetera. For IP, it's requiring, as I mentioned as well in my prepared remarks, for these protocols to shrink from designing them over two, three year set of requirements to a much shorter cycle and even customer adopting it before the spec is even finalized. Then on the hardware verification side, you need of course the ability to verify, validate all of this.

Speaker Change: it may be a very strong hardware or ipak order or more f s apple down that's why that's why you see it that nothing changed from what we communicated the onset of the year

Unknown Executive: Your next question comes from the way operator. I think you may have had a follow-up. Sorry. Oh, yes, I do have a follow up. Yes.

Unknown Executive: Because of the performance, our system is able to deliver, we're seeing actually a very nice adoption and pull in – not pull in, like requirements from the customer to adopt those systems for software, bring up.

Unknown Executive: The other use case that we identified a while back as an area we need to make sure we have a competitive solution is simulation acceleration. That's a use case that typically or historically Synopsys did not compete as strongly in that use case.

Speaker Change: you next question comes from the way i think you may have

Unknown Executive: We had a couple wins in the quarter where customers are looking for the same hardware, same compile that they can use it as a continuum from their prototyping to their emulation.

Unknown Executive: That's why, Joe, you see a strong hardware momentum, and we don't see it slowing down given the complexity.

Sheila Glazer: The other question, maybe for Sheila, I think the non-GAAP expense looks like you are doing better. You're actually also ahead based on the numbers. I can see that the July quarter, you did the 10 million better compared with the what you planned as the total non-GAAP expense and for the full year 25 million less than what you expected. But wonder what's the change compared with the three months ago. Is there anything like the timing of the hiring, et cetera? Because I did remember some of the opax. A growth thing to the year and was for you to invest in some new opportunities like an IP like OGCIE, a EDA, et cetera, so what's driving the slightly lower opax expectation here.

Speaker Change: and

Speaker Change: right oh yes i do have a followall-up yes

Sheila: the other question i maybe for shila i think that non-gaap expense looks likea

Speaker Change #101: you are doing better you actually also had pa that the numbers can see that you like or you did the ten million better

Charles Shi: Now as you look at this whole dynamic while it's very exciting, we need to wait and see how many customers will have the ability from resources, skills, investment to pace with that acceleration.

Speaker Change #102: compared with what you planned as the total non-gaap expense and for the full year twenty five million

Speaker Change #103: less than than what you expected but wonder whats the change compared with a three months ago is there anything like

Speaker Change #104: the timing of the hiring iset c because i did to remember some of the opexs a girl thing to the year and was also four for youutto investing some new opportunity use like an i p like oh juc eda

Operator: Your next question comes from the line of Charles Shee with Needhaman Company. Your line is open. Good afternoon. I have a question about China. I think at the beginning of the year, I think for two reasons. So restrictions and macro, you were sort of expecting maybe China doesn't grow as fast as the corporate, which kind of implies maybe the percentage of China revenue probably going to be lower, but you also set a dollar wise, probably going to be still going to be higher young year for the full year.

Unknown Executive: The other upfront component, I would add, is IP.

Unknown Executive: We had an exceptionally strong IP quarter. To the extent that that IP is already available and a customer is ready to consume it, then, that can happen pretty quickly.

Operator: But the first of three quarters of the fiscal year looks like you may be ahead of that plan, meaning that the contribution wise, you may actually get ahead of last year, 16% contribution from China. And that we should also imply actually China may grow faster than the corporate that there's a chance you actually can grow that faster than the corporate. One of what what have changed and I specifically the two, three number from China is particularly strong and related to that, that did you see any of the poor forward revenue from your Chinese customers for whatever reason, maybe for the future of some getting banned by any of the new export controls mind if you provide some color there.

Speaker Change #105: is that a so what's driving the slightly lower opes expectation here

Unknown Executive: Okay.

Sheila Glazer: Thanks. Yeah, so we're continuing to invest. We talked about continuing to invest in building out the road map that we talked about in an investor day, continuing to invest building out IP titles. And it's really all about making sure that we're being intentional about where our overall investment. And so, while we're investing in things, we're also driving efficiencies in the business as we implement AI for ourselves and we implement digital transformation. So I would just say we're being really prudent about our expense structure, but we are investing in the new product innovations. And then we also had some good news on interest in other.

Speaker Change #106: yeah so we're continuing to invest we talked about continuing to invest in building out road map that we talked about an investor day continuue to invest building out ip p titles and it's really all about making sure that we're being your intentional about where our overall mus

Unknown Executive: That's all very helpful.

Unknown Executive: The comment was made that commercial momentum remains robust.

Unknown Executive: I'm wondering if that's just evident in backlog developments, if you can give an update there.

Unknown Executive: I know you don't like to give forward guidance on backlog, but how the pipeline looks into year-end and maybe the initial part of next fiscal year.

Unknown Executive: Thank you.

Speaker Change #106: and while we're investing in things we're also driving efficiencies in the business as we implement a i for ourselves and we implement digital transformation so i would just say we're being really prudent

Unknown Executive: Sure.

Unknown Executive: Thanks, Joe.

Speaker Change #106: about our expensestructure but we are investing in the new product innovations and then we also had some good news on interest other so both of those things being really disciplinedon our investments and then some good news on interest another with what's contributing to that upside

Sheila Glazer: So both of those things being really disciplined on our investments. And then some good news on interest in other is what's contributing to that upside.

Unknown Executive: Backlog for the quarter was $7.9 billion.

Unknown Executive: To give you a reference on continuing operations last Q3, so Q3 of 23, XSIG, that was $6.5 billion.

Unknown Executive: It's up very nicely year-on-year as we're continuing to, race ahead to support the customers and all the complexity that they're dealing with.

Unknown Executive: That number does ebb and flow as we build and burn.

Unknown Executive: It was relatively flat though quarter-on-quarter.

Unknown Executive: Thanks Joe.

Unknown Executive: Your next question.

Joshua Tilton: Your next question comes from the line of Joshua Tilton with Wolf Research. Your line is open.

Speaker Change #107: you are next question thank you for the tr

Unknown Executive: Thank you.

joshua telton: your next question comes from the line of joshua telton with wolfresearch your line is open

Sassine Ghazi: Hey, got a thing for you. Thanks for sneaking me in here. I actually kind of want to follow up on two questions already asked already. The first one is the question about Intel comments, but I kind of just want to ask you very straightforward and very clear. And the question is, are there any changes in your forward growth expectations because of Intel comments about, you know, laying people off, using IP more efficiently, using EDA vendors more efficiently. And if not, what gives you the confidence that there is no change going forward? Yes, so when we engage customers, we're engaging on programs that are multi-quarters type of investments we need to make before we see the needle moving in terms of impact on our business.

joshua telton: they got to think for think ' can be in here i actually kind of want to follow up a two questions do already asked ready the first one is the question about intel comments but i kind of just want to ask youa very straightforward and very clear and the question is

Unknown Executive: Your next question comes from the line of Jason Celino with KeyBank.

Operator: So I'll start with the last part of the question. No, we're we're we're not seeing anything unusual in terms of pull ends or a different approach to engaging synopsis as far as what we communicated at the beginning of the year still holds true. The reason you may see quarter over quarter growth in a specific region is again based on the mix of the products that we have it may be very strong hardware or IP quarter or more FSA pull down that's why that's why you see it, but nothing changed from what we communicated at the onset of the year.

Speaker Change #109: are there any changes in your forward growth of expectation because of intel comments about you know blame people off using iccan more efficiently using e d a vendors more efficiently and it's not what gives you the confidence that there is no change goinging forward

Speaker Change #110: yesso when we engage customers we're engaging on programs that are multi quarters type of investments we need to make before we see the needle moving in terms of impact on our business

Sassine Ghazi: That's why when you think of our business, when we refer to it as resilient, because it's a multi-year type of commitment. And even if Intel were to move more IP, let's say to Synopsys, these are things you will not see the impact in terms of revenue until it takes us the cycle to build that IP, deliver it back, etc., etc. So that's why, short term to mid term, we don't see an impact in the positive or the negative. Just simply because of the way we structured our engagement. And not unique to Intel. This is just broadly.

Speaker Change #110: that's why when you think of our business one as reallyreferred to it as resilient because it's a multiyear type of commitment

Operator: Your next question comes from the way operator, I think you may have had a follow up. Sorry. Oh, yes, I do have a follow up. Yes, the other question, maybe for Sheila, I think that non gap expense looks like you are doing better. You're actually also ahead based on the numbers. I can see that the July quarter, you did the 10 million better compared with the what you planned as the total non gap expense and for the full year 25 million less than what you expected.

Speaker Change #111: and even if intel were to move more ip p 'ssay to synopssis

Speaker Change #111: these are things you will not see the impact in terms of revenue until it takes us the cycle to build that ip deliver it back etcetc so that's why short term to midterm we don't see an impact in the positive or the negative

Speaker Change #111: just simply because of the way we struured our engagement

Sassine Ghazi: That's how we engage an IP build-out. And of course, EDA is more straightforward.

Operator: But wonder what's the change compared with a three months ago is there anything like the timing of the hiring, etc. Because I did remember some of the OPEX growth into the year and it was for you to invest in some new opportunities like an IP like OGCIE, a EDA, etc. So what's driving the slightly lower OPEX expectation here? Thanks. Yeah, so we're continuing to invest. We talked about continuing to invest in building out the road map that we talked about in an investor day, continuing to invest building out IP titles.

Speaker Change #111: and that you need to come this is just broadly that's how we engage ip bubuild out and of course eda is more straightforward

Jay Vleeschhouwer: Your next question comes from the line of great Please shower with Griffin Securities. Your line is open.

Unknown Executive: Your line is open.

Speaker Change #112: your next question comes the lives have g fa shower with griffin securities your line is open

Unknown Executive: Hey, thanks for taking my questions.

Jay Vleeschhouwer: Thank you for seeing with respect to your own product development of AI ML branded products. One question I have is how does the development process. So let's call it the intensity of development for AI products differ, if at all, from your conventional product development. In other words, how do you measure your own AI development productivity or your readiness for GA of those products versus conventional EVA products.

Speaker Change #113: thank you so seen with respect to your own product development of aiml branded products

Speaker Change #114: one question i have is how does the development process so let's call it the intensity

Speaker Change #115: of development for ai products differ if at all

Speaker Change #116: from your conventional product developments in other words how do you measure your own ai development productivity or your readiness for ga of those products versus conventional eda products

Operator: And it's really all about making sure that we're being intentional about where our overall investment. And so while we're investing in things, we're also driving efficiencies in the business as we implement AI for ourselves and we implement digital transformation. So I would just say we're being really prudent about our expense structure, but we are investing in the new product innovations. And then we also had some good news on interest in other. So both of those things, being really disciplined on our investments and then some good news on interest in other is what's contributing to that upside. Your next question.

Sassine Ghazi: Relatedly, at back two months ago, there was an interesting panel discussion in which Shankar participated regarding the evolution of EVA AI ML products and whether they remain separately branded products indefinitely or whether, inevitably, they become subsumed as features within the core product. So maybe you can address all of that, and then my follow-up will be about cost. Thank you, Jay, for the question. Actually, this is a very good question. If you look back at the rhythm of product releases, let's call it the traditional EDA software, were driven by a foundry-specific PDK tuning tweaking needed to do in order to make sure that the customer who's on the leading edge with that process node has the right tool that is enabling all the features that foundry has, etc.

Speaker Change #117: relatedly adacked two months ago there was an interesting panel discussion in which seancar participated regarding the evolution

Speaker Change #117: of eai andl products and whether they remain separately brand on products indefinitely or whether inevitably they've become subsumed as features within the core products so maybeyou can address home of that and then might follow will be about custom

Unknown Executive: Maybe my first one, just on, the guide for the year, it looks like you're narrowing the revenue range.

Operator: Your next question comes from the line of Joshua Talton with Wolf Research. Your line is open. Okay, got to thank for thanks for sneaking in here. I actually kind of want to follow up on two questions already asked already. The first one is the question about Intel comments, but I kind of just want to ask you very straight forward and very clear. And the question is, are there any changes in your forward growth of expectation because of Intel comments about, you know, laying people off using IP more efficiently using EDA vendors more efficiently.

Speaker Change #118: thank you j for the question actually 'is a very good question if you look back at the ym of product releases let's call it the traditional ea software were driven by foundry a specific

Unknown Executive: As much as I'd like you to raise every quarter, I think we've already seen you raise two to three times this year, so I think we'll give you the pass, but curious if there were any areas that could have outperformed more or any areas downtick that offset some of the strength you did see.

Unknown Executive: Curious there.

Unknown Executive: Thanks.

Unknown Executive: Well, Jason, as you said, we've raised several times this year, so the confidence of the Q3 results really allowed us to narrow our guidance to give 15% as the midpoint, and I would say we're seeing that strength that Sassine is talking about in the industry.

Speaker Change #119: the pdk tuning tweaking we needed to do in order to make sure that the customer who's on the leading edge with that process node

Unknown Executive: We're seeing that across our product line, so good engagement with customers really across the board as they accelerate their roadmaps to meet the robust demand.

Unknown Executive: We did raise non-GAAP operating margin and non-GAAP EPS because, again, as Sassine talked about, we're being very, very deliberate in our investment and our expenses, and making sure that we're onboarding some of the things we're talking about doing with customers with AI and efficiency, and so you saw us improve on both those metrics.

Speaker Change #119: have the right tool that is enabling all the features that foundry has etc so some process technology from a customer architecture point of view we did not have to do much different

Sassine Ghazi: So, there's from a process technology, from a customer architecture point of view, we did not have to do much different from a customer to a different customer, so they can use the same product, etc. With AI, let's call it that sits inside the tool or around the tool, the optimization engine using AI that can accelerate the traditional engine of EDA to some extent was very similar, where we just released it based on a release cycle of the products, so with DSO that AI, same release as Fusion Compiler, VSO, same as VCS, Verdi, etc. With generative AI, the not only the pace of which model to use, which customer environment to accept these models, because they may have their own preference in which they want to use Gen AI in the context of their own environment in which they're designing the chip, so it's becoming at a different pace of releasing these technology, as well as I want to say customer specific for some of these engagements and releases, from the how to deal with it, so we're not having a special product for each customer is from an engineering development point of view, what are the layers that we can have as common, and what's the layer that we can customize at a fast pace without a slowing away the investment that we have at the infrastructure level, so that's what's changing in terms of there's the optimization AI, there's the gen AI and the traditional EDA, as to the point that Shankar made, I agree, in our current engagement with customers, especially on the advanced most complex chips, customers is not differentiating, does it, will I use AI with fusion compiler or not?

Operator: And if not, what gives you the confidence that there is no change going forward? Yes, so when we engage customers, we're engaging on programs that are multi quarters type of investments we need to make before we see the needle moving in terms of impact on our business. That's why when you think of our business when as we refer to it as resilient because it's a multi year type of commitment. And even if Intel were to move more IP, let's say to synopsis, these are things you will not see the impact in terms of revenue until it takes us the cycle to build that IP delivered back, etc, etc.

Unknown Executive: Excellent.

Unknown Executive: Thanks, Jason.

Speaker Change #119: from a customer to a different customer so they can use the same product etc

Unknown Executive: And then one quick one on China.

Speaker Change #119: with ai

Speaker Change #119: let's call it that sits inside the tool or around the tool the optimization engine using a i that can accelerate the traditional engine of eda

Unknown Executive: It looks like it was down 8% in the quarter, but still up 8% for the year.

Unknown Executive: Maybe just compared to the last quarter, I guess, how are you feeling about the demand environment in that region?

Speaker Change #119: to some extent was very similar where we just releaseed that based on a release cycle of the products so with d s so that a i same release as fusion compiler v s same as v c s verd etc

Speaker Change #119: with generative ai

Speaker Change #120: they' not only the pace of which model to use

Operator: So that's why short term to mid term, we don't see an impact in the positive or the negative, just simply because of the way we structured our engagement. And not unique to Intel, this is just broadly, that's how we engage an IP build out and of course EDA is more straightforward.

Speaker Change #120: which customer environment and to accept these models because they may have their own preference

Speaker Change #120: in which they want to use j ai in the context of their own environment in which they're designing the chip so it's becoming at a different pace of releasing these technology as well as i want to see customer specific

Jay Vleeschhouwer: Your next question comes from the line of great flea shower with Griffin securities, your line is open. Thank you for seeing with respect to your own product development of AI ML branded products. One question I have is how does the development process or let's call it the intensity of development for AI products differ. If at all, from your conventional product development. In other words, how do you measure your own AI development productivity or your readiness for GA of those products versus conventional EVA products.

Speaker Change #120: for some of these engagements and releases from how to deal with it so we're not having a special product for each customer is from an engineering development point of view what are the layers

Speaker Change #120: that we can have as common and what's the layyouer that we can customize at the fast phase without a slowing away the investment that we have at the infrastructure level

Speaker Change #121: so that's what's changing in terms of there's the optimization ai there's the jai and the traditional eda

Unknown Executive: Yeah, that's why, Jason, at the beginning of the year, we talked about taking a pragmatic approach on China for two factors.

Chanker: as to the point that chanker made i agree at in our current engagement with customers especially on the advanced most complex chips

Jay Vleeschhouwer: Relatedly at back two months ago, there was an interesting panel discussion in which Shankar participated regarding the evolution of EVA AI ML products and whether they remain separately branded products indefinitely or whether inevitably they become subsumed as features within the core product. So maybe you can address all of that and then my follow up will be about cost. Thank you, Jay for the question.

Unknown Executive: One is the continued impact of the entity list technology restrictions, and then the second is the macro environment in China.

Unknown Executive: Now, all of that being said, we're still executing well in China, we're growing in China, and it's excellent to see when you look at the rest of the regions, we are performing incredibly well.

Speaker Change #123: customers is not differentiating does will i use a i with fusion compiler or not they will just use it as part of the expectation is i need to use everything you give me in order to achieve my target

Unknown Executive: So we continue to take a balanced approach on China given those two factors.

Sassine Ghazi: They will just use it; it's part of the expectation. I need to use everything you give me in order to achieve my target. So, as we start moving forward, will we keep thinking of AI in and around EDA as a separate or as part of the solution? You know how we see it is absolutely become an expected part of the solution.

Unknown Executive: Perfect.

Unknown Executive: Thanks, Sassine.

Unknown Executive: You're welcome.

Speaker Change #123: so as we start moving forward

Unknown Executive: Your next question comes from the line of Lee Simpson with Morgan Stanley.

Speaker Change #124: will we keep thinking of a i in and around e d a as a separate or as part of the solution you know where how we see it is is absolutely will become an expected part of the solution

Jay Vleeschhouwer: Actually, this is a very good question. If you look back at the rhythm of product releases, let's call it the traditional EDA software, were driven by a foundry specific PDK tuning tweaking needed to do in order to make sure that the customer who's on the leading edge with that process node have the right tool that is enabling all the features that foundry has, etc. So, there's from a process technology, from a customer architecture point of view, we did not have to do much different from a customer to a different customer, so they can use the same product, etc.

Unknown Executive: Your line is open.

Unknown Executive: Great.

Unknown Executive: Thanks for fitting me in and great quarter, guys.

Unknown Executive: I just wanted to ask an R&D question if I could.

Sassine Ghazi: Okay, for my follow-up on custom, which you've now referred to the last several comfort calls, what is your ambition for how large a business that can be? When we look at the industry data, things having to do with analog mixed signal layout and analysis are roughly a mid-teens percent of EDA, excluding IP. In other words, mid-teens percent of design automation, a lot of that obviously is viewed towards Cadence and Answers. But would it be your ambition that your analog mixed signal business could ultimately be about a mid-teens percent of your design automation business, if not more?

Speaker Change #125: okay for my follow-up on custom which you now referred to be the last several conference calls

Unknown Executive: So if you look at the numbers, it looks as though R&D was maybe slightly ahead of some people's expectations out there.

Unknown Executive: And I think to be fair, there's been quite a build around new product updates, particularly hardware, but obviously around IP interfaces, maybe foundational IP as well.

Unknown Executive: So I wondered if there was scope as we go through the end of this year and into next for you to maybe flatten some of that R&D and just to help with that outperformance on the earnings line, or maybe the pace of product innovation is unlikely to let you do that.

Speaker Change #126: what is your hibition for how largelar business that can be

Speaker Change #127: when we look at the industry data things having to do analogmiced signal layout and analysis are roughly a mid-teams percent

Speaker Change #127: of eda excluding ipiece inother words the eightine percent of design automation

Speaker Change #128: a lot of that obviously your stew towards cadence and ansers but we it be your inambition that your' yed big civil business could ultimately be about midteams percent of your design automation business if not more

Jay Vleeschhouwer: With AI, let's call it that sits inside the tool or around the tool, the optimization engine using AI that can accelerate the traditional engine of EDA to some extent was very similar, where we just released it based on a release cycle of the product. So, with DSO that AI, same release as fusion but only the pace of which model to use, which customer environment to accept these models because they may have their own preference in which they want to use Gen AI in the context of their own environment in which they're designing the chip.

Unknown Executive: I just wanted to understand the balance between those two positions.

Unknown Executive: Yeah, so certainly the pace of the industry and, you know, as Sassine talked about, even, the pace of new standards and IP is accelerating.

Sassine Ghazi: So Jay, we see this as an opportunity on two fronts. When you think of analog, there are two portions of analog design that we offer solutions for. One is the verification simulation of analog. And there, as you know, we have a fairly strong portfolio. And so does our competitor; actually, they offer a very strong portfolio, where we are a much smaller. Another portion of the Pam is in the analog design environment, and in the analog design environment, these are the wins per se that we've been referring to in this earnings call, the previous earnings call, and they're driven by this continuity, and that this continuity is those customers are dealing with the same challenge that we talked about for the traditional logic, digital type of customers.

Unknown Executive: So we have to, we almost have to be a step ahead of our customers.

Unknown Executive: So continuing to invest in that is incredibly important.

Unknown Executive: And then continuing to invest in building out both our hardware roadmap that you talked, about, and then continuing to evolve our EDA capabilities is really top of our priority when we think about our investment.

Unknown Executive: So I don't see R&D investment as an area of savings for us really anytime soon.

Speaker Change #129: so j we see this as an opportunity on two fronts when you think of analog there are two portions

Unknown Executive: Obviously, a lot of the benefits and efficiencies that we're driving there, we think about reinvesting, those in building further product innovation.

Unknown Executive: Great.

Unknown Executive: Very clear.

Speaker Change #130: of analogue design that we offer solution for one is the verification simulation of analogue and there as you know we have a fairly strong portfolio and so does our competitor actually they offer a very strong portfolio

Unknown Executive: Maybe just as follow up, I wanted to ask an end market question, maybe on automotive.

Unknown Executive: I think in the past, you've noted the growing focus on automotive and Sassine, some of your, comments seem to call that out.

Unknown Executive: We are seeing a pivot to software-defined vehicles.

Unknown Executive: We are seeing custom silicon coming into view.

Unknown Executive: So just trying to understand what proportion of growth would you say is sensible for us, to assume over the next couple of years, coming out of automotive, giving all the work, including some big microprocessors, going into the car?

Unknown Executive: Thanks.

Unknown Executive: Thank you, Lee, for the question.

Unknown Executive: Automotive has been a very exciting segment, I want to say, over the last three to four, years. And a couple of things were driving it is the whole push towards delivering a smarter, car, meaning more sophisticated silicon.

Speaker Change #130: where we are a much smaller portion of the tam is in the analogue design environment

Speaker Change #131: and in the analogue design environment ge are the the wind per say that that we've been referring to in this earnings called the previous earnings call and they are driven by a discontinuity and that this continuity is

Jay Vleeschhouwer: So, it's becoming at a different pace of releasing these technology as well as I want to say customer specific for some of these engagements and releases, from the how to deal with it so we're not having a special product for each customer is from an engineering development point of view. What are the layers that we can have as common and what's the layer that we can customize at a fast pace without throwing away the investment that we have at the infrastructure level.

Unknown Executive: And the same exact challenge at the system level that we talk about often in the hyperscaler, context applies to automotive.

Unknown Executive: Number of the automotive OEMs started, some are already doing it, other are starting to, consider building their own silicon.

Unknown Executive: But what is absolutely happening, even if they're not building their own silicon, they're, investing in the electronics system, meaning as they're architecting the system of the car, the electronic system of the car, and they're working with their tier one, tier two suppliers, how do they communicate the spec of these chips that fits within the software and the overall system requirements?

Speaker Change #131: those customers

Unknown Executive: For Synopsys, that's an opportunity where we sell what we call our virtualization solution, where we work with both the semiconductor companies to virtualize their chip, then we work with the automotive OEMs to define that architecture for the electronics based on these virtualization and virtual models.

Unknown Executive: You can think of it as digital twin for electronics.

Speaker Change #131: are dealing with the same challenge that we talked about for the traditional logic digital type of customers

Unknown Executive: That's contributing for an acceleration in the sales of some of our solutions and products, that were not generated necessarily for the automotive market, but right now that's a new market that are adopting these solutions.

Unknown Executive: Your next question comes from the line of Ruben Roy of Stiefel.

Unknown Executive: We do anticipate that that market will continue on growing given those systems, those cars, are going to be more intelligent, more connected, which is a great opportunity.

Sassine Ghazi: Which is an increased complexity faster cycle time for the design. So they are leveraging any new bells and whistles that the industry can offer in this case, ASO.ai and a more modernized approach to do analog chip. So, of course, we have an aspiration to grow into that time, and we're excited about the offering and our customers' interest.

Unknown Executive: I cannot go further than that, Lee, in terms of what percentage of the overall growth, et cetera, et cetera, because that's not how we report per se by market segment.

Speaker Change #131: which is an increased complexity faster cycle time for the design so they're leveraging any mual bel and whistles that the industrywe can offer in this case k s or that ai and a more modernized

Unknown Executive: Your line is open.

Unknown Executive: Thank you.

Unknown Executive: Sassine, hi.

Unknown Executive: I wanted to go back to something you mentioned in your prepared remarks regarding design, cycles contracting, and you mentioned that that's in the face of increasing chip complexity.

Unknown Executive: And I think some of that, at least to me, seems like it's a relatively new development.

Unknown Executive: And wondering how we should think about that as a maybe longer term impact to your business.

Unknown Executive: I'm thinking about this, you know, obviously, there's AI and your tools, you know, helping, with those design cycle accelerations.

Unknown Executive: But are there other, you know, sort of areas that your customers are asking you for as, they try to accelerate their designs?

Unknown Executive: And really, I guess the longer term question here is, it's happening at the leading edge, it's happening with the most complex designs.

Speaker Change #131: approach to do analog chip so

Unknown Executive: But do you think that that is a, you know, trend that could, you know, sort of move across, the systems and IC industry as you continue to develop, you know, on your end?

Unknown Executive: Yeah, excellent question, Ruben. If you look back at the last, I don't know, two, three decades, the entire industry had, a rhythm of the next product, and it was Moore's Law.

Jay Vleeschhouwer: So, that's what's changing in terms of, there's the optimization AI, there's the Gen AI and the traditional EDA. As to the point that Shankar made, I agree that in our current engagement with customers, especially on the advanced, most complex chips, customers is not defentiating, does it, will I use AI with fusion compiler or not? They will just use it. It's part of the expectation is I need to use everything you give me in order to achieve my target. So, as we start moving forward, will we keep thinking of AI in and around EDA as a separate or as part of the solution?

Unknown Executive: And not every company just moved with the latest Moore's Law offering.

Unknown Executive: Your line, is open.

Unknown Executive: You move to it when you need from a performance, power, cost, et cetera, to move to it.

Unknown Executive: Hi, good afternoon.

Unknown Executive: Right now, when you look at number of customers that they are talking about a reduced design, cycle from what it used to be three years, 18 months, down to possibly one year, it's, we cannot look at it as the traditional way of designing a chip.

Unknown Executive: I have a question about China.

Speaker Change #131: of course we have an aspiration to grow into that tam and we're excited about the offering and our customers interest

Unknown Executive: This will be definitely multi-die systems with optionality in that advanced package, to target a new product in their roadmap to serve a certain customer set.

Unknown Executive: I think at the beginning of the year, I think for two reasons, right?

Unknown Executive: How fast do I see the rest of the market moving in that direction?

Unknown Executive: Restrictions and a macro, you were sort of expecting maybe China doesn't grow as fast as the corporate, which kind of implies maybe the percentage, of China revenue is probably going to be lower.

Unknown Executive: Not too many customers can afford and have the skill and the market for them to move, in that direction because it's very complex.

Unknown Executive: But you also said the dollar-wise is probably going to be still going to be higher year for the full year.

Unknown Executive: So it's both the cycle time of the design is shrinking with a significantly increasing, complexity.

Unknown Executive: But the first three quarters of the fiscal year looks like you may be ahead of that plan, meaning that the contribution-wise may actually get ahead of last year's 16% contribution from China, which would also imply actually China may grow faster than the corporate.

Unknown Executive: For us as an industry, that's great news because from EDA for design automation at the chiplet, level and the advanced package level, you need to use the latest technology with the, AI capabilities, et cetera.

Unknown Executive: There's a chance you actually can grow that faster than the corporate.

Unknown Executive: For IP, it's requiring, as I mentioned as well in my prepared remarks, for these protocols, to shrink from designing them over two, three-year set of requirements to a much shorter cycle and even customer adopting it before the spec is even finalized.

Unknown Executive: What has changed?

Unknown Executive: Then on the hardware verification side, you need, of course, the ability to verify, validate, all of this.

Unknown Executive: And specifically, the Q3 number from China is particularly strong.

Unknown Executive: Thanks, Jay, operator. Let's go ahead and wrap up the call. Thank you, everyone. Thank you.

Unknown Executive: Now, as you look at this whole dynamic, while it's very exciting, we need to wait and see, how many customers will have the ability from resources, skills, investment to pace with that acceleration.

Unknown Executive: And related to that, did you see any of the pull forward revenue from your Chinese customers, for whatever reason, maybe for the fear of them getting banned by any of the new export controls?

Unknown Executive: Your next question comes from the line of Charles Shi with Needham & Company.

Unknown Executive: Mind if you provide some color there?

Unknown Executive: So, I'll start with the last part of the question.

Unknown Executive: No, we're not seeing anything unusual, in terms of pull-ins or a different approach to engaging synopsis.

Speaker Change #132: thanks you operators let's go a head and wrap up the call thank you everyone

Unknown Executive: As far as what we communicated at the beginning of the year, still holds true.

Unknown Executive: Thanks.

Unknown Executive: The reason you may see quarter over quarter growth in a specific region is, again, based on the mix of the products that we have.

Unknown Executive: Yeah, so we're continuing to invest. We talked about continuing to invest in building out, the roadmap that we talked about in Investor Day, continuing to invest, building out IP titles, and it's really all about making sure that we're being intentional about where our overall investment is.

Unknown Executive: Your line is open.

Unknown Executive: It may be a very strong hardware or IT quarter or more FSA pull-down.

Unknown Executive: This concludes today's conference call. We thank you all for joining.

Unknown Executive: And so while we're investing in things, we're also driving efficiencies in the business as we implement AI for ourselves and we implement digital transformation.

Unknown Executive: That's why you see it.

Unknown Executive: So I would just say we're being really prudent about our expense structure, but we are investing in the new product innovations.

Unknown Executive: But, nothing changed from what we communicated at the onset of the year.

Speaker Change #132: thank you thank you this concludes today's conferencecall when you thank you all for joining you may now disconnect

Unknown Executive: And then we also had some good news on interest in other. So both of those things, being really disciplined on our investments and then some good news on interest in other is what's contributing to that upside.

Unknown Executive: Your next question comes from the line.

Unknown Executive: Your next question comes from the line of Joshua Tilton with Wolf Research.

Unknown Executive: You may now disconnect.

Unknown Executive: Operator, I think you may have had a follow-up, Charles.

Unknown Executive: Sorry?

Unknown Executive: Oh, yes.

Unknown Executive: I do have a follow-up.

Unknown Executive: Yes.

Unknown Executive: The other question, maybe for Sheila, I think that non-GAAP, expense looks like you are doing better.

Unknown Executive: You're actually also ahead based on the numbers. I can see that the July quarter, you did the $10 million better compared with what you planned as the total non-GAAP expense and for the full year, $25 million less than what you expected.

Unknown Executive: But what's the change compared with three months ago?

Unknown Executive: Is there anything like, a timing of the hiring, et cetera?

Unknown Executive: Because I did remember some of the OPEX growth into the year, and it was for you to invest in some new opportunities like in IP, like OGCIE, EDA, et cetera.

Unknown Executive: What's driving the slightly lower OPEX expectation here?

Sassine Ghazi: You know how we see it, is absolutely will become an expected part of the solution. Okay, from my follow up on custom, which you've now referred to the last several conference calls, what is your ambition for how large a business that can be? When we look at the industry data, things having to do with analog mixed signal layout and analysis are roughly a mid-teens percent of EDA excluding IP, in other words, mid-teens percent of design automation.

Sassine Ghazi: A lot of that obviously is viewed towards cadence and answers, but would it be your ambition that your analog mixed signal business could be altered? We'd be about a mid-teens percent of your design automation business if not more. So Jay, we see this as an opportunity on two fronts. When you think of analog, there are two portions of analog design that we offer solution for. One is the verification simulation of analog and there, as you know, we have a fairly strong portfolio and so does our competitor actually they offer a very strong portfolio where we are a much smaller.

Sassine Ghazi: Another portion of the PAM is in the analog design environment and in the analog design environment, these are the the wins per say that that we've been referring to in this earnings call, the previous earnings call and they're driven by this continuity and that this continuity is those customers are dealing with the same challenge that we talked about for the traditional logic digital type of customers. Which is an increased complexity faster cycle time for the design. So they are leveraging any new bells and whistles that the industry can offer in this case, ASO.ai and a more modernized approach to do analog chip.

Sassine Ghazi: So of course we have an aspiration to to grow into that time and we're excited about the offering and our customers interest.

Operator: Thanks Jay, operator, let's go ahead and wrap up the call. Thank you everyone. Thank you.

Operator: This concludes today's conference call. We thank you all for joining. You may now disconnect.

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