Q3 2024 Cadence Design Systems Inc Earnings Call
Brianna: Good afternoon. My name is Brianna and I will be your conference operator today. At this time, I would like to welcome everyone to the cadence third quarter, twenty twenty four earnings conference call.
Brianna: All lines have them placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Brianna: If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. Thank you. I'll now turn the call over to Richard Gu by President of Investor Relations for Cadence. Please go ahead, sir.
Richard Gu: Thank you, operator. I would like to welcome everyone to our third quarter of 2024 earnings conference call.
Richard Gu: I'm joined today by Anirudh Devgan.
Richard Gu: President and Chief Executive Officer, and John Wall, Senior Vice President and Chief Financial Officer.
Richard Gu: The webcast of this call and a copy of today's prepare remarks will be available on a website kdens.com
Richard Gu: Police discussion will contain four looking statements.
Richard Gu: and including our outlook on future business and operating results.
Richard Gu: Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussion.
Richard Gu: For information on factors that could cause actual results to differ, please refer to our SEC filings, including our most recent Forms 10-K and 10-Q, CFO Commentary, and today's earnings release.
Richard Gu: All four looking statements during this call are based on estimates and information available to us as of today, and we disclaim any obligation to update them.
Richard Gu: In addition, all financial measures discussed on this call are non-GAAP, unless otherwise specified.
Richard Gu: The non-gap measures should not be considered in isolation from, or as a substitute for, gap results.
Richard Gu: Reconciliations of Gap to Non-Gap Measures are included in today's earnings release.
Speaker Change: For the Q&A session today, we would ask that you observe a limit of one question and one follow-up. Now, I'll turn the call over to Anirudh.
Anirudh Devgan: Thank You Richard, good afternoon everyone and thank you for joining us today.
Anirudh Devgan: Cadence delivered exceptional results for the third quarter of 2024.
Anirudh Devgan: with broad-based strength across our product portfolio.
Anirudh Devgan: We are on track for a strong second half, and we are pleased to raise our full-year EPS outlook.
Speaker Change: John will provide more details on our financials in a moment.
Speaker Change: Generational trends such as hyperscale computing, autonomous driving,
Speaker Change: and 5G, all accelerated by the AI super cycle.
Speaker Change: continue to fuel strong design activity across multiple verticals.
Speaker Change: especially in data center and automotive.
Speaker Change: Our cutting-edge chip-to-system platforms empower customers to drive unprecedented innovation as they race to develop next-gen AI and agentic AI products while navigating escalating design complexities.
Speaker Change: We continue steadily executing to our intelligent system design strategy that triples our TAM opportunity, while significantly expanding our portfolio across core EDA, IP, and system design and analysis.
Speaker Change: I'm excited about AI's incredible promise and how rapidly it is becoming an integral part of the design workflow.
Speaker Change: with customers steadily increasing their investments in AI-driven automation.
Speaker Change: Our Cadence.ai portfolio powered by GenAI Agents, AI-Driven Optimization, and Big Data Analytics Jedi Platform.
Speaker Change: saw sales nearly triple over the last year.
Speaker Change: as it continued delivering unparalleled quality of results and productivity benefits.
Speaker Change: We continue partnering with NVIDIA to accelerate AI innovation.
Speaker Change: and are using their latest NEMO and NIM microservices to build customized Gen-AI applications, delivering enhanced optimization and productivity.
Speaker Change: In Q3, we deepened our partnership with ARM through a broad expansion of our IP, hardware, and AI-driven design enablement solutions.
Speaker Change: to help deliver ARM's next-generation AI technologies and advance ARM compute subsystems across multiple markets.
Speaker Change: We expanded our long-standing partnership with TSMC.
Speaker Change: with AI-optimized design flows certified for TSMC's N3 and N2P technologies.
Speaker Change: We are also collaborating on innovative solutions for next generation technologies.
Speaker Change: like TSMC, A16, and 3D blocks.
Speaker Change: that are paving the way for the AI factories of tomorrow.
Speaker Change: Demand for our industry-leading integrity 3D IC solution.
Speaker Change: that enables system-level PPA optimization continues to grow.
Speaker Change: with accelerating adoption by hyperscalers, OSAT, and foundries.
Speaker Change: We introduce the industry's first auto router for both die-to-die and die-to-substrate connectivity.
Speaker Change: And that was showcased at TSMC's 3D Fabric Alliance Workshop.
Speaker Change: High-speed multi-layer PCB designs require increasing levels of miniaturization.
Speaker Change: Advanced Simulation and AI-Driven Automation.
Speaker Change: Allegro X.
Speaker Change: is ramping strongly and drove over 40% of our PCB sales this year.
Speaker Change: The transition to ORCAD-X
Speaker Change: our new mainstream PCB solution accelerated in Q3.
Speaker Change: with a third of our ORCAT customers converting to this new cloud-enabled solution.
Speaker Change: Terence OnCloud is a key go-to-market platform.
Speaker Change: to reach the long tail of smaller system customers.
Speaker Change: and is seeing strong traction with over 400 customers.
Speaker Change: Tens of thousands of online users and orders doubling over the past year.
Speaker Change: We recently launched the Cadence OnCloud Marketplace.
Speaker Change: and announced Cadence Online Support through OnCloud, which uses GenAI technology to provide insightful, contextual, and accurate answers to customer queries.
Speaker Change: As the digital transformation in aerospace and defense accelerates, we saw continued strength in this vertical as the U.S. Air Force and Army expanded their commitment to cadences solutions spanning from chips to boards to systems.
Speaker Change: Our hardware-accurate digital twins have been successfully used by Northrop Grumman in taping out several ASICs.
Speaker Change: helping accelerate schedule by over two years.
Speaker Change: In Q3, we substantially grew our footprint at several marquee hyperscalers.
Speaker Change: through a broad proliferation of our best-in-class hardware systems, IP, and software portfolio.
Speaker Change: Our system design and analysis business.
Speaker Change: continued to outpace the market.
Speaker Change: delivering impressive results with over 40% year-over-year revenue growth in Q3.
Speaker Change: Clarity and Celsius both grew strongly with competitive wins.
Speaker Change: While our newly acquired Beta CAE products that round out our system analysis portfolio outperformed our expectations as we signed large deals with major EV companies.
Speaker Change: Our AI-driven optimality solution was adopted by several leading customers and Voltas Insight AI were used by top hyperscalers to successfully achieve an 80% IR drop reduction in their designs.
Speaker Change: Our IP business continued its strong momentum in Q3, delivering over 50% year-over-year revenue growth.
Speaker Change: Increasing complexity of interconnect protocols along with the growing outsourcing trend and new foundry opportunities are providing strong tail winds to our IP business.
Speaker Change: AI
Speaker Change: HPC, and chiplet use cases were the primary drivers for the adoption of our differentiated HBM, PCIe, UCIe, DDR, and high-speed SERTI solutions in design ranging from 7 nanometer down to the most advanced gate all-around nodes.
Speaker Change: Our AI-assisted Tensilica Audio DSP scored multiple design wins.
Speaker Change: with marquee global customers across HPC, mobile, and automotive use cases.
Speaker Change: Our core EDA business, comprised of our custom, digital, and functional verification businesses,
Speaker Change: delivered 9% year-over-year revenue growth in Q3.
Speaker Change: Our new groundbreaking hardware systems offering industry's leading performance, capacity, and scalability experience strong demand, especially at AI, hyperscale, and automotive companies.
Speaker Change: Verisium, our AI-driven verification platform, continued seeing rapid customer adoption, with several leading customers successfully using Verisium SIM AI.
Speaker Change: for highly efficient coverage maximization.
Speaker Change: Proliferation of a digital full flow at the most advanced nodes accelerated.
Speaker Change: with over 30 new Full Flow logos added over the past year.
Speaker Change: With nearly 450 tape-outs, customers are increasingly deploying cadence cerebrus AI solutions.
Speaker Change: as it continues to deliver unparalleled PPA and productivity benefits on a broad spectrum of designs.
Speaker Change: Our AI-driven Virtuoso Studio leverages the capabilities of our flagship Virtuoso platform.
Speaker Change: while seamlessly integrating with other Cadence cutting-edge technologies to drive significant productivity benefits for analog, RF, and mixed-signal designers.
Speaker Change: for this Gen AI Driven Automated Design Migration.
Speaker Change: and New Layout Placement and Routing Technologies.
Speaker Change: Customers are rapidly adopting Virtuoso Studio and it won 30 new logos in Q3.
Speaker Change: In summary, I am pleased with our Q3 results and the continuing momentum of our business.
Speaker Change: The AI-driven automation era offers massive opportunities.
Speaker Change: and the co-optimization of our comprehensive EDA, SDA, and IP portfolio with accelerated compute and AI orchestration uniquely positions us to provide disruptive solutions to multiple verticals.
Speaker Change: Now, I will turn it over to John to provide more details on the Q3 results and our updated 2024 outlook.
John Wall: Thanks, Anirudh, and good afternoon, everyone.
John Wall: I'm pleased to report that Cadence delivered strong Q3 results with total revenue of over $1.2 billion.
John Wall: We achieved 19% year-over-year growth.
John Wall: Our Q3 recurring revenue growth returned to low teams on a year-over-year basis.
John Wall: Our intelligent system design strategy is paying off.
John Wall: with our system design and analysis business delivering strong growth and we continue to see robust demand for our emulation and prototyping systems.
John Wall: Here are some of the financial highlights from the third quarter, starting with the P&L.
John Wall: Total revenue was $1,215,000,000.
John Wall: Gap operating margin was 28.8%, and non-gap operating margin was 44.8%.
John Wall: And GAAP EPS was 87 cents, with non-GAAP EPS of $1.64.
John Wall: Next, turning to the balance sheet and cash flow.
John Wall: We had a 2.5 billion dollar senior notes offering in Q3 that was well received by the market.
John Wall: We have used the majority of the net proceeds to retire maturing notes and prepaid term loans, as well as for other general corporate purposes.
John Wall: Cash balance at quarter end was $2,786,000,000 While the principal value of debt outstanding was $2,850,000,000
John Wall: Operating cash flow was $410 million.
John Wall: DSOs were 44 days.
John Wall: And we used $150 million to repurchase Caden Chairs.
John Wall: Before I provide our updated outlook, I'd like to highlight that it contains the usual assumption that export control regulations that exist today remain substantially similar for the remainder of the year.
John Wall: Our updated outlook for 2024 is revenue in the range of 4.61 to $4.65 billion.
John Wall: gap operating margin in the range of 29 to 30 percent.
John Wall: non-GAAP operating margin in the range of 42 to 43 percent.
John Wall: Gap EPS in the range of $3.70 to $3.76.
John Wall: non-GAAP EPS in the range of $5.87 to $5.93.
John Wall: operating cash flow in the range of 1 to 1.2 billion dollars.
John Wall: And we expect to use approximately 50% of our annual free cash flow to repurchase Cadence shares.
John Wall: With that in mind, for Q4, we expect revenue in the range of $1,325,000,000 to $1,365,000,000.
John Wall: Gap operating margin in the range of 33.2 to 34.2%.
John Wall: non-GAAP operating margin in the range of 45.2 to 46.2 percent.
John Wall: Gap EPS in the range of $1.09 to $1.15.
John Wall: and non-GAP EPS in the range of $1.78 to $1.84.
John Wall: And as usual, we published a CFO commentary document on our Investor Relations website, which includes our outlook for additional items, as well as further analysis and gap to non-gap reconciliations.
John Wall: In conclusion, I'm pleased with our Q3 results.
John Wall: Our Q4 bookings pipeline looks exceptionally strong, and we are well positioned to deliver a strong 2024.
John Wall: As always, I'd like to close by thanking our customers, partners, and our employees for their continued support. And with that, Operator, we will now take questions.
Speaker Change: At this time, I would like to remind everyone who wants to ask a question to please press star then the number one on your telephone keypad now.
Speaker Change: We ask that you please limit yourself to one question and one follow-up.
Speaker Change: Your first question comes from Joe Verwink with Baird.
Speaker Change: Thank you.
Speaker Change: Thank you for joining us. Thank you.
Joe Verwink: Great, hi everyone. I appreciate the nature of your relationships with customers means you typically know well in advance what product roadmaps might be.
Joe Verwink: You're typically not learning new information off of public calls, but just given the number of headlines of late around advanced foundry efforts or maybe demand from China.
Joe Verwink: I wanted to ask, have you learned anything over the past three months or so that you would point out as maybe being something worth considering, either good or bad, as investors think about the 2025 opportunity for Cadence?
Joe Verwink: Thank you.
Anirudh Devgan: Yeah, hi Joe, this is Anirudh. That's a good question.
Anirudh Devgan: Well, I would say that, I mean, as you know already, that the importance of semiconductor to the overall global economy is increasing and is more well recognized now.
Anirudh Devgan: And, you know, I did visit several countries over the last quarter, and there is more and more kind of commitment.
Anirudh Devgan: to build that out.
Anirudh Devgan: and you're seeing that, you know, in different countries and also...
Anirudh Devgan: Like we highlighted even earlier in the year, you know, of course TSMC is leading Foundry, but...
Anirudh Devgan: Our own relationship with Samsung and Intel in this area has improved.
Anirudh Devgan: and Global also, we have worked for several years. So I would like to say that in general, we do see this continued investment in newer foundries, you know, whether it's Intel, Samsung, and even like Rapidas in Japan.
Anirudh Devgan: and other countries.
Anirudh Devgan: So, we continue to partner closely with the leading players like TSMC and ARM, as we highlighted in this report, but it's good to see more investments being made in other areas.
Speaker Change: Okay, thanks for that.
Speaker Change: John, you don't normally give backlog guidance, but you did comment on Booking's pipeline and 4Q and that stands out. Are you maybe able to go into a bit more color on what you might expect or what you would be looking for as kind of the forerunner to your 2025 performance?
John Wall: Yeah, I mean, thanks for picking up on that Joe. I mean, obviously we're not giving any outlook on 2025 yet But it's we're a very very strong pipeline
John Wall: right now for Q4. I think it's the biggest I've ever seen.
John Wall: for Q4 Pipeline. It reminds me a little bit, it's kind of similar to how we finished 2021 if you recall in 2021 we had a really strong pickup in bookings in Q4 and 21.
John Wall: about 40% of our annual bookings came in in Q4 of 21 and this year the second half seems to be setting up the same way But it's an exceptionally strong pipeline and we're seeing strong design activity everywhere
John Wall: Thank you.
Speaker Change: Great, thank you very much.
Speaker Change: Your next question comes from Jason Salino with KeyBank Capital Markets.
Jason Salino: Hey, thanks for taking my questions. Maybe just following up on.
Jason Salino: Joe's backlog question. So understand that the pipeline looks quite large. Is it fair to say that the composition of that pipeline is mostly being hardware-driven? I guess curious what you're saying from a new order pipeline perspective on kind of the Z3, X3.
Speaker Change: Hi Jason, thanks for the opportunity to clarify that I mean it's broad-based right across the board, across all of our businesses.
Speaker Change: and all the businesses are performing really, really well.
Speaker Change: I mean, when I look at our forecast for the remainder of the year, on a three-year cargo basis, I mean, all business groups are on track for strong growth from low double-digit growth on the core EDA software side right through to kind of mid-team growth, right up to almost 30% growth for like IP, functional verification, which hardware is part of, and system design analysis.
Speaker Change: Okay, perfect. And then just one really quick one on China. I think last quarter...
Speaker Change: I think you were trying to de-risk some of your assumptions. Obviously this quarter there were some incremental worries.
Speaker Change: that the region might be taking another leg down. But obviously, Cadence and EDA, a few very different purchasing habits and demand drivers from Semicap and some of the smaller point pollution providers. But do you still expect to see 13% of your revenues come from China this year? I guess, what else can you tell us about the overall demand environment there?
Speaker Change: Yeah, great question again, Jason. I mean, you're reading my mind. I mean, myself and my team, we're looking through China. We went back.
Speaker Change: You know, we're data-driven. We went back 25 years.
Speaker Change: to have a look at our China revenue and...
Speaker Change: because, I mean, we're expecting China revenue to be lower this year than last year. That's only happened three times in the last 25 years. First time was 2008. Obviously, there were macro things going on back in 2008, and it took until 2011 for us to reach a new high in China revenue, but it recovered immediately in 2009. It dipped in 2021, recovered immediately to a new high in 2022, and it looks like it's dipping in 2024, but I'm very, very pleased that Q2 was stronger than Q1 on a dollar basis. Q3 was stronger than Q2, and China seems to be recovering well with strong design activity.
Speaker Change: Okay, thank you very much.
Speaker Change: Our next question comes from Gianmarco Conti with Deutsche Bank.
Gianmarco Conti: Yeah, hi, thank you very much for taking my questions and congrats again for a great quarter.
Gianmarco Conti: Maybe, perhaps, if you could touch a little bit on the cadence.ed.ai suite.
Gianmarco Conti: If you're seeing incremental appetite there, and is it going to be material for 2025 growth? If you could give us any data points or qualitative anecdotes, that would be amazing. Thank you.
Speaker Change: Yeah, absolutely. I mean, we are pretty pleased with how our Cadence.ai portfolio is doing.
Speaker Change: And like mentioned earlier, I mean, right now I think it is used by all our top customers. So, you know, now some of them are, you know, the amount of proliferation is different at each customer. But right now we are engaged in all of our top customers with our AI solutions.
Speaker Change: And as you may know, we have five major AI platforms, you know, all the analog, digital, verification.
Speaker Change: you know, PCBN package and system analysis. So it's a pretty, you know, rich portfolio.
Speaker Change: And the customers are routinely seeing, you know, anywhere from 5 to 20% improvement in PPA.
Speaker Change: which is significant. You know, I think the value of AI is not just productivity, which is huge. I mean, we have a history of productivity improvements in EDA, but the value of AI is when it can give a better result, you know.
Speaker Change: And we also design our own chips as well, as you know, Palladium.
Speaker Change: internally as well. So these are like true comparisons of you know AI versus non AI solutions. So even in the latest Palladium Z3 chip
Speaker Change: We saw like 15% improvement in power using cadence cerebris.
Speaker Change: And in the latest, you know, AI IP, we designed, we saw anywhere from 13 to 20% improvement in our IP group using our own cadence.ai solutions, which is very consistent with what we see with top customers.
Speaker Change: So overall we are pleased with the benefit we are getting, especially with the improvement in PPA.
Speaker Change: And productivity improvements can be, you know, anywhere between 5 to 10x, but the PPA benefits are truly remarkable and almost equivalent to one kind of node, you know, one process node migration typically get, you know, 15 to 20% PPA improvement, and we can get that with AI.
Speaker Change: And then the last thing I would like to highlight with AI, you know, is our Cadence on cloud offering. So we do have a Cadence customer support portal, and we are applying Gen AI in there to give, you know, better response to our customers.
Speaker Change: And this is another big trend of applying AI to give better customer support.
Speaker Change: So, overall, you know, applying Cadence, AI, of course, working with all our top customers across all five major platforms.
Speaker Change: Applying AI internally to improve our own, you know, designs, whether it's in hardware group or IP, and then applying AI for customer support can make us much more efficient.
Speaker Change: Amazing. If I could just ask a quick follow-up. Is it fair to say that in Q4 we should see the air pocket of hardware kind of closing out?
Speaker Change: And if you could share sort of any commentary around 2025 visibility, particularly from your overordering of the FPGAs and the raw materials. I'm just kind of curious how does that translate into backlogs? I know you've made them specifically guide and backlog, but obviously backlog was a little bit down sequentially. And so any commentary there, that'll be amazing. Thank you.
Speaker Change: Yes, Gail and Marco, I certainly wouldn't categorize our ordering of FPGAs as over-ordering. We're ordering to fit the demand that we see, we're seeing very robust demand. The pipeline is super strong, but like I said, I haven't seen it as strong as this in any previous Q4 that I've been here.
Speaker Change: So we're set up for a tremendous Q4. At this time of the year, it's always difficult to give any indication as to what next year looks like. And particularly in years like this, when you expect such a strong bookings quarter in Q4, we kind of have to get that landed and look at the quality of that before we give any indication as to what next year looks like. But I'm very, very pleased with the hardware demand.
Speaker Change: with the performance of the business and they're ramping up production all the time to meet the demand.
Speaker Change: Thank you very much.
Speaker Change: Our next question comes from Leigh Simpson with Morgan Stanley.
Leigh Simpson: Good evening, everyone. So a couple of quick ones from me, actually, just looking at the Millennium Platform.
Leigh Simpson: Following on from the last question there.
Leigh Simpson: Could you maybe characterize what is the interest beyond NVIDIA?
Leigh Simpson: you know, when, who, and how big do we think the demand will be for that platform.
Leigh Simpson: Maybe it's a follow-on question. I'm just interested on the
Leigh Simpson: the timing of the impact from the new collaboration with ARM on CSS. Does that have any specific vertical to it? Is that autos or is it maybe the aerospace stuff that you were talking about there? Thanks.
Speaker Change: Yeah, good question Lee. So first in terms of ARM, I mean we have a pretty broad partnership with ARM over the years, I mean going back like 10 years.
Speaker Change: and especially in their, you know, IP development, you know, CPUs and GPUs.
Speaker Change: And this latest collaboration which we highlighted is also expanding to, you know, compute subsystems and total design, which is ARM doing more, as you know, more chiplets and, you know, more droplets.
Speaker Change: and and this is broad-based but I think they are you know this is more a question for arm but they are seeing a lot of strength in in in multiple work markets including you know HPC and automotive
Speaker Change: But this is an expansion of as Arm kind of morphs their strategy, our relationship with Arm gets even stronger, not just in IP development, but also for total compute.
Speaker Change: And in terms of your other questions on Millennium...
Speaker Change: on combination of CPUs and GPUs.
Speaker Change: Okay, and millennium is a perfect example and the reason for that is I mean, of course we can accelerate EDA, you know We got like fabulous results
Speaker Change: inspector, you know, we are the leading provider of circuit simulation which Spectre is the leading platform.
Speaker Change: And, you know, with these latest systems, we are able to accelerate, you know, circuit simulation by 5 to 10x by these CPU-GPU acceleration platforms.
Speaker Change: but also on system design and analysis, which is Millennium is a perfect example for that. And the reason for that is that system design and analysis, by nature, you know, the algorithms involved
Speaker Change: does lot of matrix multiply, you know, like CFD is essentially a matrix multiply.
Speaker Change: operation. And, you know, the other thing that is largely a matrix multiply is, of course, AI. So, and, you know, these systems are well tuned for AI or matrix multiply operation. So they're very naturally tuned for
Speaker Change: SDNA kind of application. So I'm pretty optimistic that, you know, because we're getting tremendous results.
Speaker Change: And we are seeing that, you know, CFD...
Speaker Change: and especially with the aerospace and automotive companies okay because this is typically you know they have been limited by how much simulation they can provide and I think we highlighted you know like for example Honda is a great kind of early development partner for Millennium
Speaker Change: And in general, you know, as these platforms get more sophisticated, the CPU, GPU platforms, I think we can apply this acceleration to a broader portfolio, and you'll see that, you know, going forward.
Speaker Change: That's great. Thanks so much.
Speaker Change: Our next question comes from Charles Shih with Needham.
Charles Shih: Good afternoon, Anirudh and John. I want to ask another question about Intel and the Samsung, but from another perspective. I mean, despite all the headlines, which were not so positive,
Charles Shih: We know that those two customers will wear your market share historically as being a little bit underrepresented, but largely because they are still using internal EDA tools.
Charles Shih: I mean, given all the challenges those two customers seem to be facing, although it doesn't sound like you are seeing any immediate changes.
Speaker Change: Is it possible that it can be a net positive for you guys, and if there is a more dependence?
Speaker Change: of those two customers on the commercial EDA tools, meaning more of the EDA development work being quote-unquote outsourced to the merchant EDA companies like Cadence.
Speaker Change: Well, I want to get some thoughts on that and what could be, let's say, an inflection point for that to happen, if it happens. Thanks.
Speaker Change: Yeah, hi Charles, that's a great observation. I mean, as you know, we are very strong in the, historically strong over the last five, 10 years in the TSMC ecosystem with partnership with TSMC and ARM and historically not as strong.
Speaker Change: with Samsung and Intel, though I think that is beginning to change, you know, especially last year and this year.
Speaker Change: And to me, you know, there's always, you know, every company goes through ups and downs, as you know, and whenever, I mean, both Intel and Samsung are great companies, and when they're going through...
Speaker Change: more challenges is typically is more opportunities for us. You know, we always lead with products. We believe we have the best solution. So, and we are seeing that, you know, we saw with Intel, you know, we mentioned our IP partnership.
Speaker Change: also the strength of our new hardware platforms across, we are working with both these companies on our new systems and then AI enabled software. So, typically these things will take time, so, but in general, whenever there is a...
Speaker Change: A competitive situation with some of these big customers, typically we have done well historically in those situations.
Speaker Change: Dava, thanks.
Speaker Change: Maybe the other question I want to ask is, hopefully you can clarify, because it has been in the news that Cadence may be acquiring, or may be looking to acquire a pair of engineering systems. Mind if you provide some comments here?
Speaker Change: Yeah, I mean...
Speaker Change: As you know, we don't comment on specific rumors, but...
Speaker Change: I mean, as we have said before, I mean, we are very pleased with our strategy, we are very pleased.
Speaker Change: that most of our growth is organic and sometimes you know we do some small tuck-in M&A and that strategy has not changed.
Speaker Change: Okay, so that's our plan going forward, and we are pretty happy with how we are positioned.
Speaker Change: Thanks so much, Anirudh.
Speaker Change: Our next question comes from Jave Leishauer with Griffin Securities.
Jave Leishauer: Thank you, good evening. Anirudh, you may recall that on the conference call a quarter ago...
Jave Leishauer: You spoke about various AIML use cases that you were beginning to see.
Jave Leishauer: And then separately, we also talked about how you might, over time, change your product packaging.
Jave Leishauer: for different use cases or end markets. Maybe we can bring those two things together.
Jave Leishauer: And the question is, do you see a likelihood of, for AI ML applications, more and more vertical domain-specific packaging? I know you've got the branded apps right now.
Jave Leishauer: You're obviously selling into different verticals, but would you foresee taking any of those technologies and making them specifically packaged?
Speaker Change: to specific end markets. And also, before I get to my follow-up, could you also talk a little bit about...
Speaker Change: your AI ML Development Roadmap.
Speaker Change: You've had customers speak at Cadence Live about what they're looking for from you in that respect. And maybe you could talk about improvements you're going to be making in things like capacity, memory footprint, scenario proliferation, and so on and so forth. Then I'll ask my follow-up.
Speaker Change: Yeah, hi Jay, that's all great observations. I mean we have of course one of the highest investments in R&D and we are very pleased with our kind of roadmap for AI and AI products.
Speaker Change: But we will unroll that over time, right, as you know, it's kind of, I don't want to, you know, pre-announce anything here. But overall, I think we are investing heavily and, you know, as AI itself gets more powerful.
Speaker Change: you know, the three-layer cake that I always talk about, you know, the AI orchestration at the top, the middle layer of principle simulation and optimization, and the bottom layer like I mentioned earlier with, you know, CPU, GPU, and custom silicon. So we are investing in all these three areas.
Speaker Change: But overall we are we are pretty pleased with that and and like we you know I also believe that I mean AI itself is a very big topic but
Speaker Change: You know, there are two parts of it, you know, the initial phase is horizontal and we are also, we have a lot of horizontal technologies. But over time, I think the AI monetization will have to be more and more vertical.
Speaker Change: And I've talked about this publicly, you know, the three phases of AI. So we are right now in what I would call infrastructure AI, you know, starting with data centers.
Speaker Change: and then going into, you know, edge devices like, you know, laptops and phones.
Speaker Change: And even in data centers, we have more vertical solutions now with, you know, thermal management and things like that. But that's the horizon one, which is infrastructure AI. Horizon two, in my mind, is physical AI, you know, things like self-driving, you know, drones, robots.
Speaker Change: And even though the auto market is weak right now, but in terms of design, it's not weak, okay? As you've seen, a lot of the reporting on semiconductor autos is weak, but in terms of design activity, there's a lot of design activity for what is there to come.
Speaker Change: And this is what I saw like few years ago in data center is we are seeing in automotive and a lot of the chips that are required for automotives are very similar to what are required for drones and robots. Okay, so to me, that's like the second phase of AI.
Speaker Change: which is physical AI, and then the third phase of AI, which is Horizon 3, which is further out from the physical AI, is what I would call sciences AI, and the biggest application will be life sciences.
Speaker Change: Okay, and that's why the investment in open AI two years ago. So that's how we look at it. Infrastructure AI followed by physical AI followed by...
Speaker Change: It's fundamentally horizontal for multiple end markets, but as these markets evolve, we will also have some vertical solutions that are tuned to especially these mega-trends of infrastructure, physical AI, and sciences AI.
Speaker Change: but exciting times and yeah...
Speaker Change: Okay, thanks. Thank you.
Speaker Change: Sorry about that. So you noted the strength in SDNA generally, including some upside for the first full quarter with beta-CAE.
Speaker Change: But from a larger perspective, the fact is, since you did your first acquisitions for the ISD strategy, you've done seven or eight acquisitions, over 2.1 billion dollars of cumulative value, but you're still very much
Speaker Change: the challenger in that market with a fraction of market share.
Speaker Change: relative to the market leaders.
Speaker Change: So maybe you could talk about...
Speaker Change: how you're thinking about more tightly coupling across the various applications you have in CFD and SDNA and talk about how you're thinking about ramping up in go-to-market especially, which is also something that I think you need to do to supplement what you've done on the code acquisition side.
Speaker Change: Yes, Jay, that's a great observation. So, first of all, you know, especially like we mentioned earlier with the beta acquisition...
Speaker Change: and which is going pretty well, we feel that our portfolio is fairly complete. Okay, so whether it is...
Speaker Change: You know electromagnetics or thermal and now with CFD and then structural so
Speaker Change: And the key thing that I watch, and you can see in our results, is the growth rate, okay? Not just, you know, how complete the portfolio is, but how well it's performing in the market. And we are pretty pleased to see that the growth rate...
Speaker Change: is good and, I believe, much better than the overall market.
Speaker Change: And part of it is now that, you know, one part is, of course, the products have to be good. And I believe our products are best in class, whether it's clarity for...
Speaker Change: is routinely like five to ten times faster, you know, Celsius, the only unique solution that can do thermal, both finite element and CFD for 3D IC in general applications, with beta, with millennium.
Speaker Change: But also go to market. So I think we have highlighted before and especially, you know
Speaker Change: This quarter it really went into full effect. We want to go to market in three big ways. So one way is direct, right, which is cadence trend, you know, working with the top customers. In our history, especially in EDA, is of course working directly.
Speaker Change: with the world's best companies. So we are doing that in SDA as well. And that's where we were focused last few years was.
Speaker Change: was, and we still are, with the top companies. But we need to augment that with two other parts of the strategy, which the other system design companies do anyway. So the second part, apart from direct channel, is what we would call indirect channel, through channel partners.
Speaker Change: Thank you.
Speaker Change: So I think at this point, especially in Q3, I feel that we are hitting a stride in this go-to market.
Speaker Change: And, for example, apart from the top customers where we go direct, with a channel partner or indirect channel, we have now more than 100 partners.
Speaker Change: Okay, which is a significant increase from earlier.
Speaker Change: and also on cloud itself, which is the e-commerce direct channel. We have tens of thousands of users. And what we are also doing is we are making... all our channel partners are also...
Speaker Change: going to market through on cloud. So whether the customer directly buys through e-commerce or buys in a traditional way, all the data is captured in this online platform, so which is great for cross-selling. It's great for lead generation.
Speaker Change: So, I really feel that, you know, we'll see how it progresses in the future, but especially, you know, this year, we are...
Speaker Change: You know, go-to-market has improved. Now that our products are in good shape, we need to focus on go-to-market, especially indirect channel and direct customer sales.
Speaker Change: And if I could add to that as well, Jade, it's way more than just beta, I mean beta is fantastic in that we're getting more pull through revenue, especially in automotive as a result of beta rounding out our multiphysics platform, but we're also getting strong momentum in A&D, do you want to talk more about A&D?
Jade: Oh yeah, absolutely. I mean, A&E, like we highlighted this time...
Speaker Change: We'd like to highlight the U.S. Air Force and U.S. Army.
Speaker Change: So, in terms of SDNA, you know, there's three big markets. There's the traditional markets of high-tech or electronics. Anyway, that's where we are traditionally strong in. And the two other markets are aerospace and automotive.
Speaker Change: So, apart from Beta helping us in automotive, I think aerospace, our own history with Northrop and other, and the strength of our portfolio. So we feel that we are well positioned in these three big markets.
Speaker Change: Great. Thanks very much.
Speaker Change: Our next question comes from Vivek Arya with Bank of America Securities.
Vivek Arya: Thanks for taking my question. So, Anirudh, despite all the secular drivers, this talk has underperformed this year because of revenue lumpiness and, you know, we have seen the core EDA growth.
Vivek Arya: a slip below 10%.
Vivek Arya: I know you're not guiding to 25, but do you think investors should be prepared for a smoother year? Or are there other lumpy effects in IT or hardware or anything else that we should keep in mind? And if I had to try to quantify it, if I look at this $1.3 billion exiting,
Vivek Arya: run rate from Q4. Is this sort of the trend line for next year? Just how would you suggest investors get a handle for 2025 because I think this lumpiness has really impacted the stock this year.
Speaker Change: Yeah, Vivek, all I would say is that, I mean, first two quarters were not, were atypical for cadence. You know, we have highlighted before like Q1 and Q2 because of certain kind of one-time things.
John Wall: But I do believe Q3 is more back to normal, but John can comment more. No, I agree. It's certainly Q3 feels like our back to normal quarter. I think Q4 has a lot of...
John Wall: up front revenue in it. It's unusual again, in terms of Q4. And we've got that massive pipeline that we have to convert. We have a lot of work to do there before we can talk about 2025. But when I look at 2025,
John Wall: I kind of view Q3 as a more normal quarter for cadence.
John Wall: Okay.
Speaker Change: And for my follow-up, I saw in the CFO commentary that, you know, you have something now called Core EDA. You know, you have always given the different segment sales, but...
Speaker Change: If I'm not mistaken, you took SDA out and you have something called core EDA. I'm curious why you chose to do that and do you have
Speaker Change: system design and analysis kind of growth Kager in mind beyond just a generic kind of you know double-digit what what is the organic growth rate that you think your SDA business can achieve over the next number of years?
Speaker Change: Oh
Speaker Change: And nice way of asking about 25 again Vivek, nice try. But look, when we talk about Core EDA, we were talking about basically you have Core EDA software and you have the like functional verification group and hardware. We talk about Core EDA, we talk about those three groups combined.
Speaker Change: The system design analysis we typically talk about separately and then of course we have the IP business. The IP business and system design analysis business are growing really, really strongly right now. The launch of new hardware products has resulted in functional verification growing really strongly.
Speaker Change: that on the functional verification.
Speaker Change: side of things. It looks like it's on track for high team growth on a three-year cargo basis, like mid to high team growth. IP, again, looks very, very strong, and SDNA is the strongest of all. I think it's all those things that Anirudh just spoke to.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Clark Jeffries with Piper Fandler.
Clark Jeffries: Hello, thank you for taking the question. I wanted to more focus on Fiscal 24 with my questioning around
Clark Jeffries: Specifically, what happened in the quarter versus the full year guide, I mean, there was great momentum in the IP business, 59% growth. I was wondering if you could level set what you're expecting in terms of Q4 IP contribution. I know last quarter we talked a lot about
Clark Jeffries: IP and systems leading the upfront revenue in the second half and verification maybe being in the high single digits. Is that still fair or true? Just to the broader question of, you know,
Clark Jeffries: Titan to folio range, but a beat on Q3 what was happening behind the scenes that the revenue landed differently than expected and then more follow-up
Speaker Change: Yeah, sure Clark. I don't think revenue landed differently to expect. I mean basically we were prudent with our guide in Q3 And it's we feel our team always does its best business when they're not chasing
Speaker Change: and I think we were rewarded for that with Q3 Business.
Speaker Change: But similarly, we're being prudent for Q4. IP has great momentum. I expect that momentum to carry on into...
Speaker Change: into the fourth quarter as well as SD&A. I think all businesses are performing really really well now. Anything to add there, Anirudh?
Anirudh Devgan: Yeah, just some more comments on the IP business. I mean, of course, Q3 is strong.
Anirudh Devgan: And we expect good growth in Q4, but like any business, we look at it over multiple quarters and multiple years, right? So if you look at IP on a two-year CAGR, I think it's, I would say, in the 30%.
Anirudh Devgan: which is still good.
Anirudh Devgan: But Q3, I mean, there's, you know, only focus on what, you know, each quarter separately, but the key thing in IP
Anirudh Devgan: growing at, let's say, 30% on a two-year CAGR basis. I think we are doing, finally, we are in a very good position in IP. This is the way I feel. I mean, EDA, we have done historically very well. We are well recognized as the leader in EDA.
Anirudh Devgan: But if you look back like last three years, you know, we have not done as well in IP as we could have. But I finally feel that now our IP business is in its strongest position it has been.
Anirudh Devgan: And there's multiple reasons for that. I mean, one key reason is that we always focused on advanced node, especially with our leading kind of TSMC advanced node. And now at 3 nanometer, 5 nanometer, our PPA.
Anirudh Devgan: is finally industry leading in the IPs we deliver. And they are for these kind of enterprise application and that whole area is taking off as you know. So I think that's the first main reason.
Anirudh Devgan: The second reason is that we are now working with other foundries like we have highlighted and there is more and more IP development needed for kind of on-shoring or friend-shoring activities throughout the world.
Anirudh Devgan: You know, even not just in HPC, but now in laptops and automotive, this aggregation trend and need for IP like UCIE and all the other memory interface IPs.
Anirudh Devgan: So, I do feel that we have a good portfolio and IP group is in a very good position, not just for Q3, but on a multiple year category basis.
Speaker Change: Perfect. And just to clarify or follow up on that.
Speaker Change: You know, just I think the number one question we're going to get from investors are, are there going to be remaining execution thresholds with some of the the IP business you had anticipated in the second half? Does more of that come in Q4 or did some of it land in Q3? And then just final point around.
Speaker Change: you know, margin outperformance.
Speaker Change: How would you attribute the margin outperformance that happened in the quarter? Certainly IP revenue may benefit the sort of optics of incremental margin, but anything to call out in terms of
Speaker Change: Maybe how OPEX discipline came in compared to your expectations. Thank you.
Speaker Change: Yep, short talk. Again, more great questions.
Speaker Change: I mean, on the IP side, I think, like I said, we've got great momentum there. You're probably referring to the, you know, we did a large contract at the start of the year with milestones that were in the second half of the year. And some of those kicked in, of course, in Q3 and triggered revenue. There are more that will trigger revenue in Q4, but that's a multi-year contract.
Speaker Change: That momentum should continue on into next year.
Speaker Change: And then on the margin side, I mean, Cadence is, I mean, it's a tremendous business. I mean, the core EDA business is a great foundation.
Speaker Change: for Margins and Profitable Sustainable Revenue Business.
Speaker Change: Gross is
Speaker Change: We scale really well, you know, as we grow in these other areas, a lot of the growth just flows down. Nice to hear you talking about incremental margin. Typically a lot of that revenue growth just flows into operating margin and you can see when the growth comes through, the impact it has on operating margin is incredible.
Speaker Change: Thank you very much.
Speaker Change: Our next question comes from Harlan Sir with J.P. Morgan.
Harlan Sir: Good afternoon, thanks for taking my question. Your inventories are up 70% sequentially. That's an all-time high.
Harlan Sir: I think it's implying a very strong demand profile and backlog for your new
Harlan Sir: Z3 and X3 hardware systems.
Harlan Sir: Is demand exceeding your near-term supply and manufacturing capabilities? In other words, is the Q4 shipment profile for your hardware system supply or manufacturing constraint? I'm just trying to get a sense on how many quarters the strong upgrade cycle can extend into next year.
Speaker Change: Yes, Harlan, the demand is very strong for our hardware, but in terms of inventory growth, that's really come as a result of us doing a multi-year contract.
Speaker Change: with a key supplier. We mentioned that on last quarter's call.
Speaker Change: That's also impacting our operating cash this year, but it was in and around the...
Speaker Change: kind of low to mid $100 million kind of level in terms of purchases for hardware inventory for the next three years.
Harlan Sir: Perfect. Okay, thank you for that. And then back to the China business. So if you think about 2025 and anniversary in a more normalized business environment for your China business here, there's a lot of puts and takes, right? You've got the hardware upgrade cycle, you've got the potential direct or indirect headwinds from maybe more US regulatory actions.
Harlan Sir: You've got the macro environment, which, in extreme cases, maybe does impact design activity. So, kind of lots of moving pieces, right? But I think that the best leaning indicator over the next few quarters on growth...
Harlan Sir: is design starts and plan design starts, right? So Anirudh, as you track design starts in China, you track some of their upcoming programs.
Vivek Arya: How does the design activity funnel look? Is it increasing, is it staying flat? And then when you overlay your hardware upgrade cycle on top of this, what's the early sort of qualitative view on China as you look into next year? Would you expect continued acceleration in year-over-year comps?
Speaker Change: That's a good question, first overall and then specifically on China.
Speaker Change: And also now with our more richer portfolio is also with the, especially with the auto sector. I mean, what is interesting to me is
Speaker Change: Of course, China, you know, we have luxury of, like in China and other parts, you know, work on multiple end markets.
Speaker Change: And, you know, we participate in all the markets that the customers are designing chips for.
Speaker Change: But what is interesting for me to see in China is how well they're doing in automotive and almost all of those major auto companies are also now designing chips. I mean, this is well known now. And so we are glad to work with them both on the SDA, but also the EDA side with the silicon part.
Speaker Change: So, I think we just have to see how it progresses into 2025.
Speaker Change: But overall, I think, you know, design activity is strong in China and elsewhere, especially driven by this, you know.
Speaker Change: AI super cycle and you know amount of activity we are seeing with the hyperscalers both in China and of course in the US and the demand of AI you know
Speaker Change: for next several years. So we'll see. We'll continue to monitor that. Yeah, and Harlan, although, I mean, obviously we can't predict what 2025 is going to bring, we did go back and back test the last 25 years. It's only the third year that we've seen a down year in China revenue on a dollar basis.
Speaker Change: And we've never seen two down years in a row. And I'm pleased to see that Q2 was stronger than Q1 this year. Q3 is stronger than Q2 this year. Pipeline looks strong. Anecdotally, from the team out in China, they're seeing a lot of design activity strength out there.
Speaker Change: So, you know, we wouldn't expect a second down year based on that history, but it's just very hard to predict 25.
Speaker Change: I appreciate that. Thank you for the insights.
Speaker Change: Our next question comes from Reuben Roy with Stiefel.
Reuben Roy: Thank you. John, I wanted to ask a quick question returning to the bookings pipeline. It's great to hear that.
Reuben Roy: But I know you said it was broad-based, just wondering if we could drill into the hardware part of it just a little bit more. I think historically you've said that
Reuben Roy: Hardware visibility is a little limited relative to the rest of your business. I'm just wondering, given that you have this new ramp, has that changed at all? Is your visibility on kind of hardware bookings extending at this point, or is it kind of similar to previous systems?
Speaker Change: No, typically you've got like a two...
Speaker Change: Yeah, great question. I mean, typically on the hardware side, you've kind of got a two-quarter view of the pipeline. Opportunities tend to turn up in the pipeline about two quarters, at most, in advance of when the customer plans to put the hardware into production. Because often it's based on design projects that customers are starting, and then they might need a hardware emulation system for that project, and they know the project will be like this quarter or next quarter. So typically we have kind of a six-month view. Now, at this time of the year, a six-month view is tremendous because there's a lot that happens in Q4 every year. Q4 is always a strong bookings quarter for us.
Speaker Change: John Wall, Richard Gu
Speaker Change: Understood. Thanks, John. And then a quick one, I hope, for Anirudh.
Speaker Change: just kind of thinking through what you said on some of the new AI.
Speaker Change: you know, kind of areas that you're working on. You mentioned NVIDIA and NIMS and NEMO, and I think your competitors talked a little bit about that.
Speaker Change: I imagine you would characterize that as a later phase.
Speaker Change: I'm a senior AI revenue opportunity, but just wondering if you could maybe talk through how we should think about timing of when we might see some of those types of products hit the market.
Speaker Change: Also, you said that you're building custom applications, are you getting inbound requests?
Speaker Change: from customers like Hyperscalers or otherwise for that type of AI feature set.
Speaker Change: Well, one thing I would like to highlight is that, you know, is our JEDI platform. So it's a, you know, enterprise data and AI platform. And the way we go to market with that, and it supports like multiple gen AI solutions, so it, you know, so we become almost like
Speaker Change: Like LLM agnostic, we can plug in different and different customers will want like different kind of engines in there.
Speaker Change: but it becomes like a like a main deployment vehicle and it works with all our tools and all our major five AI platforms so we gives that flexibility to us.
Speaker Change: depending on which, some customers may want different kind of AI solutions there. And then that platform can also be used to customize, you know, not just our solutions, but any customer specific solutions can be deployed through Jedi.
Speaker Change: And JEDI also works both on the cloud and on-prem, because some customers, you know, some really big customers...
Speaker Change: don't want the AI to go.
Speaker Change: to the cloud, so in that case we have on-prem. So I think Jedi, and we have worked on this Jedi for several years, gives a unique position to Cadence to deploy these.
Speaker Change: you know, AI solutions and multiple kind of LLMs and, and, you know, ways to go to market.
Speaker Change: Thank you, Anirudh.
Speaker Change: Our next question comes from Siddhi Panagrahi with Mizuho.
Siddhi Panagrahi: Thanks for squeezing me in. Anirudh, it's good to be on the call. I just initiated coverage.
Siddhi Panagrahi: Just for interest of time, one question here. When I look at your three-year revenue cracker trend, it has been accelerating from single-digit to now mid-tens.
Siddhi Panagrahi: And Anirudh, you talked about so many growth drivers and even products.
Siddhi Panagrahi: new products coming to market. I'm wondering how do you rank order this growth opportunity and product when you think about the growth in the foreseeable future and what gives you that confidence to sustain this kind of double digit revenue growth?
Speaker Change: Thank you for the question and also thank you for initiating coverage.
Speaker Change: I mean as we have said before I think one thing just want to highlight is we are always looking at
Speaker Change: You know, revenue growth, which has improved, like you mentioned.
Speaker Change: through a lot of these systemic drivers.
Speaker Change: And put that together, you know, that of course delivers results to our shareholders and even in Q3, right?
Speaker Change: Not only we did better on revenue, but also on profitability.
Speaker Change: So I think there are a lot of drivers, you know, a lot of them driven by by AI and then AI moving to the edge and our move into, you know, doing better in in in new areas like SDNA, but also IP, like I mentioned, I'm optimistic about.
Speaker Change: please.
Speaker Change: Great, thank you.
Speaker Change: Our final question comes from Joshua Tilton with Wolf Research.
Joshua Tilton: Hey guys, thanks for squeezing my name. I wanna start with...
Joshua Tilton: A bit of a nuanced question, although I think it is important. John, you talked to how previously you have seen down years in China, but you've never seen two down years in a row. And I guess, you know, you mentioned you're data driven, you looked at the historical numbers, but can you give us any sense
Joshua Tilton: of what helped drive the recovery a year after you had a down year. And what I'm trying to get at is, do I have to believe in some type of, you know, bigger hardware demand or more upfront contribution or something, you know, along the lines of things that may not be recurring?
Joshua Tilton: Or is it just more a function of, you know, we had a weak year and there was a return to normal demand environment going forward? I guess I'm just trying to understand, outside of history, what is similar this year versus the previous years where you've seen down years? And why you don't expect to once again not see two down years in a row?
Speaker Change #101: Yeah, yeah, okay. Thanks for the opportunity to provide a little bit more color Yeah, we went back We look back over the last 25 years and we've seen like tremendous momentum and design activity amongst our customer base a growing customer base Across China there were only two previous years
Speaker Change #101: before this year, where we saw a downtick in China revenue on a year-over-year basis. 2008, I know 2008 has some of the idiosyncratic qualities to it, but 2008...
Speaker Change #101: was also a year that we changed from an upfront revenue model to a rateable revenue model. And I think that's why it took a couple of years to...
Speaker Change #101: to get back to a new high in China. But then since then, it's only 2021. 2021
Speaker Change #101: dipped, China revenue dipped from 2020 but it recovered to a new high in 2022. Now incidentally that was, you know, we launched new hardware systems and we do find that there is a correlation between hardware revenue and China revenue. Hardware revenue tends to pull through more China revenue for us on the software side and I think we're seeing a little bit of that this year in that the new hardware
Speaker Change #101: You know, China, it dipped in Q1, but it's been recovering since Q2's been higher, Q3's been higher. And like I say, as hardware recovers out there, I think it'll pull through more software revenue.
Speaker Change #102: Super helpful. And then just maybe one very quick follow-up. Any updates on what you guys are, or just in general, what the contribution from Beta was in the quarter, and if you're still on track or expecting $40 million for the full year, or if we should expect more?
Speaker Change #103: So we're seeing a big contribution with beta when you include the pull-through revenue that we're getting across for all our automotive customers as a result of selling traditional cadence technology alongside beta, but it's a small tuck-in, we're not guiding beta separately.
Speaker Change #104: Got it. Super helpful, guys. Thank you so much for including me.
Speaker Change #105: Thank you.
Speaker Change #106: I will now turn it back to Anirudh Devgan for closing remarks.
Anirudh Devgan: Thank you all for joining us this afternoon.
Anirudh Devgan: It's an exciting time for Cadence with strong business momentum and growing opportunities with semiconductor and system customers.
Speaker Change #107: We launched the FEM.AI initiative and committed to an initial investment of $20 million to lead the gender equity revolution in the AI workspace.
Speaker Change #107: This is also led through our Cadence Giving Foundation.
Speaker Change #107: With a world-class employee base, we continue delivering to our innovative roadmap.
Speaker Change #107: and working hard to delight our customers and partners.
Speaker Change #108: Thank you for participating in today's Cadence 3rd Quarter 2024 Earnings Conference Call. This concludes today's call. You may now disconnect.