Q2 2025 Synopsys Inc Earnings Call
Okay.
[music].
Speaker Change: Ladies and gentlemen, and welcome to the Synopsys earnings Conference call for the second quarter fiscal year 2025.
Unknown Attendee: Ladies and gentlemen, welcome to the Synopsys Earnings Conference call for the second quarter fiscal year 2025. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you would like to ask a question at that time, please press star one on your telephone keypad. To remove yourself from that queue, it is star one again. If you should require assistance during the call, please press star zero and an operator will assist you. Today's call will last one hour. As a reminder, today's call is being recorded.
Speaker Change: At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. If he would like to ask a question at that time. Please press star one on your telephone keypad to remove yourself from that Q. It is star one again.
If you should require assistance during the call. Please press star zero and an operator will assist you.
Speaker Change: Today's call will last one hour as a reminder, today's call is being recorded at this time I would like to turn the conference over to Trey Campbell Senior Vice President Investor Relations. Please go ahead Sir.
Trey Campbell: At this time, I would like to turn the conference over to Trey Campbell, Senior Vice President, Investor Relations. Please go ahead, sir. Good afternoon, everyone.
Speaker Change: Good afternoon, everyone with us today are <unk>, president and CEO of Synopsys and shield Glaser CFO before we begin I'd like to remind everyone. During the course of this conference call Synopsys will discuss forecasts targets and other forward looking statements regarding the company and its financial results.
Trey Campbell: With us today are Sassine Ghazi, president and CEO of Synopsys, and Shelagh Glaser, CFO. Before we begin, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts, targets, and other forward-looking statements regarding the company and its financial results. With these statements, while these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that we highlight during the call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release.
Speaker Change: With these statements while these statements represent our best current judgment about future results and performance as of today. Our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect in addition to any risks that we highlight during the call important factors that may affect our future result.
Speaker Change: <unk> are described in our most recent SEC reports and today's earnings press release.
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 we 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, we will refer to certain non-GAAP financial measures during the discussion reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release financial supplement and 8-K that we released earlier today all of these items plus the most recent investor.
Speaker Change: <unk> are available on our website at Www Dot Synopsys Dot Com. In addition, the prepared remarks will be posted on our website at the conclusion of the call with that I'll turn the call over to sustain.
Trey Campbell: In addition, the prepared remarks will be posted on our website at the conclusion of the call.
Sassine Ghazi: With that, I'll turn the call over to Sassine. Good afternoon. We had a strong second quarter with revenue up 10% year-over-year, exceeding the midpoint of our guidance, and non-GAAP EPS was above our guided range.
Sustain: Good afternoon, we had a strong second quarter with revenue up 10% year over year.
Speaker Change: <unk> the midpoint of our guidance and non-GAAP EPS was above our guided range. We are reiterating our revenue guidance for the full year as these results demonstrate the strength of our products, which are mission critical to our customers' innovation.
Sassine Ghazi: We are reiterating our revenue guidance for the full year as these results demonstrate the strength of our products, which are mission critical to our customers' innovation, the resiliency of our business, and relentless execution by our global I'll provide more details about the quarter and then Shelagh will delve deeper into the financials. At the macro level, the tale of two markets persisted in Q2. Despite market fluctuations, the AI and HPC sectors remained robust. And while we're seeing signs of stabilization in industrial and automotive, non-AI and market demand remains subdued. For Synopsys, a slowdown in China was offset by strong demand from customers in other regions.
Speaker Change: The resiliency of our business and relentless execution by our global team.
Speaker Change: I'll provide more details about the quarter.
Speaker Change: And then Sheila will delve deeper into the financials.
Speaker Change: At the macro level the tale of two markets persisted in Q2, despite market fluctuations.
Speaker Change: I and HBC sectors remains robust and while we're seeing signs of stabilization in industrial and automotive, none AI and market demand remains subdued.
Speaker Change: For Synopsys is slowdown in China was offset by strong demand from customers in other regions.
Sassine Ghazi: The megatrends of AI, software-defined systems, and silicon proliferation continue to drive our growth. These trends are increasing design complexity and cost. while also increasing compute performance and energy demand. Synopsys benefits as a mission critical partner in addressing these challenges and as the industry leader in applying AI to help customers innovate faster. Our pending acquisition of ENSYS will address the need for new AI-powered silicon-to-systems design solutions integrating electronics and multi-physics. We have regulatory clearances in all jurisdictions, other than China. We are working cooperatively and actively negotiating with SAMR to secure China regulatory clearance. And we continue to anticipate closing in the first half of this year.
Speaker Change: The Mega trends of AI software defined systems, and Silicon proliferation continues to drive our growth.
Speaker Change: These trends are increasing design complexity and costs, while also increasing compute performance and energy demands.
Speaker Change: Synopsys benefits as a mission critical partner.
Speaker Change: Addressing these challenges and as the industry leader in applying AI to help customers innovate faster.
Speaker Change: Our pending acquisition of emphasis will address the need for new AI powered silicon to systems design solutions, integrating electronics and multi physics.
Speaker Change: We have regulatory clearances in all jurisdictions other than China, we are working cooperatively and actively negotiating with summer to secure China regulatory clearance and we continue to anticipate closing in the first half of this year.
Sassine Ghazi: Now, let's move on to the business highlights. Design automation demonstrated resilience with revenue up 6% year over year. Our new hardware-assisted verification products, HAPS 200 and ZEBU 200, are off to a strong start. These systems offer the highest performance and ultimate flexibility between prototyping and emulation. In EDA, the industry's growing adoption of multi-die architecture plays to our strength and leadership position. In Q2, we supported multiple active production deployments with a leading HPC AI chip maker, including delivering what we consider the most complex 3D heterogeneous integrated design with over 40 chiplets and advanced packaging technology. We also displaced manual high bandwidth memory layout with Synopsys automated 3D IC compiler, implementation at the top tier, Asian semiconductor customer.
Speaker Change: Now, let's move on to the business highlights.
Speaker Change: Design automation demonstrated resilience with revenue up 6% year over year.
Speaker Change: Our new hardware assisted verification products have 200, and zebu 200 are off to a strong start.
Speaker Change: These systems offer the highest performance and ultimate flexibility between prototyping and emulation.
Speaker Change: In EMEA, the industry's growing adoption of multi die architecture plays to our strengths and leadership position.
Speaker Change: In Q2.
Speaker Change: We supported multiple active production deployments with a leading HBC AI chipmaker, including delivering what we consider the most complex three D. Heterogeneous integrated design with over 40 chipsets and advanced packaging technology we.
Speaker Change: Also displaced manual high bandwidth memory lay outflows with Synopsys automated <unk> IC compiler implementation at the top tier Asian semiconductor customer.
Sassine Ghazi: Achieving best-in-class productivity and quality of results improvement. The race for performance is driving adoption of leading edge process nodes, and Synopsys is proud to help usher in the Angstrom era with our Foundry partners. In Q2, we enabled the industry's first 2-nanometer-based HPC design and delivered multiple successful test chips across sub-2-nanometer process technology. And the leading AI capabilities we've pioneered across the full stack are generating wins among both semiconductor and systems customers. In Q2, DSO.AI momentum continued, driving multiple design wins for flagship CPU and GPU cores. while a major AI infrastructure customer began large-scale deployment of VSO.AI across five projects.
Speaker Change: <unk> best in class productivity and quality of results improvements.
Speaker Change: The race for performance is driving adoption of leading edge process nodes and Synopsys is proud to help usher in the angstrom era with our foundry partners.
Speaker Change: In Q2.
Speaker Change: We enabled the industry's first two nanometer based HBC design and delivered multiple successful test chips across sub two nanometer process technologies.
Speaker Change: And the leading AI capabilities, we've pioneered across the full stack are generating wins, among both semiconductor and systems customers.
Speaker Change: In Q2.
Speaker Change: <unk> that AI momentum continued driving multiple design wins for flagship CPU and GPU cores.
Speaker Change: While our major AI infrastructure customer began large scale deployment of <unk> AI across five projects.
Sassine Ghazi: Additionally, our AI capabilities are winning analog designs with major automotive tier one in Japan, adopting Synopsys ASO.AI after extensive evaluation.
Speaker Change: Additionally, our AI capabilities are winning analog designs with major automotive tier one in Japan, adopting synopsys <unk> AI after extensive evaluation.
Speaker Change: Turning to design IP.
Sassine Ghazi: Turning to design, I... where revenue increased 21% year over year as customers rely on Synopsys IP to minimize integration risk and speed time to market. Our leading foundation and interface IP also expedites customer adoption of the latest protocols and leading edge process nodes. driven by AI and the need to transport more data faster. We're seeing strong demand for high-speed SerDes IP, with Synopsys 224 gig PHY securing multiple competitive wins in Q2. AI accelerators and GPUs necessitate ultra-efficient networking infrastructure. And Synopsys is the first mover in PCIe 7.0 with seven unique customer wins. and a clear leader in UA-Link with over 20 customer engagements.
Speaker Change: Revenue increased 21% year over year as customers rely on Synopsys IP.
Speaker Change: To minimize integration risk and speed time to market.
Speaker Change: Our leading foundation in interface IP also expedites customer adoption of the latest protocols and leading edge process nodes.
Speaker Change: Driven by AI and the need to transport more data faster.
Speaker Change: We're seeing strong demand for high speed <unk> IP.
Speaker Change: Synopsys to 'twenty four gig phy.
Speaker Change: During multiple competitive wins in Q2.
Speaker Change: AI accelerators, and Gpus necessitate ultra efficient networking infrastructure and Synopsys is the first mover and PCI E. Seven points, all with seven unique customer wins and the clear leader in UA link with over 20 customers.
Speaker Change: <unk> engagements.
Sassine Ghazi: Our recently announced support of NVIDIA's NVLink Fusion ecosystem will further enhance scale-up optionality for AI factors.
Speaker Change: Our recently announced support of <unk> NV link fusion ecosystem will further enhance scale up optionality for AI factories.
Sassine Ghazi: Before wrapping up, I want to thank the many customers and partners who joined us for Snug Silicon Valley and our inaugural executive forum in March. There, we showcased our generative, AI-powered, assistive, and creative capabilities, which are unlocking new levels of efficiency for customers. For example, what previously took hours searching documentation or waiting for expert help can now take minutes with Synopsys.ai co-pilot assistive capability. And using Gen-AI to generate design collaterals, like RTL or test benches, is helping early access customers accelerate design and verification cycle times from days to hours and hours to minutes. Synopsys leading Gen-AI capabilities are necessary foundation for the paradigm shift that comes next.
Speaker Change: Before wrapping up I want to thank the many customers and partners, who joined us for Snug Silicon Valley.
Speaker Change: And our inaugural Executive Forum in March then we showcased our generative AI powered assistive and creative capabilities, which are unlocking new levels of efficiency for customers for example.
Speaker Change: Previously took hours searching documentation or waiting for expert help can now take minutes with Synopsys Doc AI co pilot assistant capabilities.
Speaker Change: And using Gen AI to generate design collateral like RTL or test benches.
Speaker Change: Is helping early access customers accelerate design and verification cycle times from days to hours and hours to minutes.
Speaker Change: Synopsys, leading gen AI capabilities are necessary foundation for the paradigm shift that comes next.
Sassine Ghazi: Egentic AI will transform engineering workflow. Allowing R&D teams to focus on important architecture and design decisions while tasking agent-engineered technology with implementation detail. It's an exciting time. Engineering is undergoing unprecedented transformation. And Synopsys is seizing the opportunity to re-engineer engineering.
Speaker Change: <unk> AI will transform engineering workflows.
Speaker Change: <unk> R&D teams to focus on important architecture and design decisions, whilst asking agent engineered technology with implementation details.
Speaker Change: It's an exciting time.
Speaker Change: Engineering is undergoing unprecedented transformation and synopsys is seizing the opportunity to reengineer engineering.
Sassine Ghazi: Few closing thoughts. Our business model is resilient, and our solutions are essential to our customers' innovation. We have steady momentum across the business, supported by growth trends. Synopsys is leading AI for chip design, and we are investing to maintain and extend this leadership position. Thank you to our employees, customers, and partners for a strong quarter and for your continued commitment.
Speaker Change: A few closing thoughts.
Speaker Change: Our business model is resilient and our solutions are essential to our customers innovation.
Speaker Change: We have steady momentum across the business supported by growth trends.
Speaker Change: Synopsys is leading AI for chip design, and we are investing to maintain and extend this leadership position.
Speaker Change: Thank you to our employees customers and partners for a strong quarter and for your continued commitment.
Shelagh Glaser: Now over to Shelagh. Thank you, Sassine. We delivered a strong Q2 with revenue of $1.6 billion, non-GAAP operating margin of 38%, and non-GAAP EPS of $3.67. Backlog came in at $8.1 billion, up $400 million quarter on quarter. These results reflect our leadership position, consistent execution, and resilient business model in a market fueled by the secular megatrends of AI, software-defined systems, and silicon proliferation. Despite a dynamic macro economic environment, we are reaffirming our full year 2025 targets for revenue and non-GAAP operating margin and updating our EPS and free cash flow guidance to account for our Q2 results and bond issu .
Sheila: Now over to Sheila.
Sheila: We delivered a strong Q2 with revenue of $1 6 billion non-GAAP operating margin of 38% and non-GAAP EPS of $3 67 sacks backlog came in at $8 1 billion.
Sheila: Up $400 million quarter on quarter.
Sheila: These results reflect our leadership position consistent execution and resilient business model and our market fueled by the secular megatrends of AI software defined systems and silicon proliferation.
Sheila: Despite a dynamic macro economic environment, we are reaffirming our full year 2025 targets for revenue and non-GAAP operating margin and updating our EPS and free cash flow guidance to account for our Q2 results and bond issuance.
Sheila: I will now review our second quarter results all comparisons are year over year, unless otherwise stated we generated total revenue of $1 6 billion up 10% with strong growth in design IP.
Shelagh Glaser: I'll now review our second quarter results. All comparisons are year over year, unless otherwise stated. We generated total revenue of $1.6 billion, up 10% with strong growth in design equity. Regionally, we saw strength in Europe and South Korea, offsetting China had Total GAAP costs and expenses were $1.23 billion, and total non-GAAP costs and expenses were $995 million, resulting in non-GAAP operating margin of 38%. Gap earnings per share were $2.24 and non-gap earnings per share were $3.67. Non-GAAP earnings included a $0.28 benefit from the sale of a building, as well as approximately $0.06 of net charges associated with the $10 billion bond issuance in Q2.
Sheila: Regionally, we saw strength in Europe, and South Korea, offsetting China headwinds total GAAP costs and expenses were $123 billion and total non-GAAP costs and expenses were $995 million, resulting in non-GAAP operating margin of 38%.
Sheila: GAAP earnings per share were $2 and 24.
Sheila: non-GAAP earnings per share were $3 67.
Sheila: non-GAAP earnings included a 28 benefit from the sale of a building as well as approximately six.
Sheila: Net charges associated with the $10 billion bond issuance in Q2. These items were not included in our prior guidance.
Shelagh Glaser: These items were not included in our prior guidance.
Shelagh Glaser: Now onto our segments. Design automation segment revenue was $1.12 billion, up 6%, against a strong compare. Design automation adjusted operating margin was 40.9%. Design IP segment revenue was $482 million, up 21%, with strong performance from interface IP. Design IP adjusted operating margin was 31.2%.
Sheila: Now onto our segment design automation segment revenue was $1, one 2 billion up 6% against the strong compare.
Sheila: Zine automation adjusted operating margin was 49%.
Sheila: Design IP segment revenue was $482 million up 21% with strong performance from interface IP design IP adjusted operating margin was 31, 2%.
Sheila: Moving to cash free cash flow was approximately $220 million, we ended the quarter with cash and short term investments of $14 $3 billion and debt of $10 1 billion.
Shelagh Glaser: Moving to cash, free cash flow was approximately $220 million. We ended the quarter with cash and short term investments of $14.3 billion and debt of $10.1 billion.
Shelagh Glaser: Now to guidance. Full year revenue and operating margin targets remained unchanged from the prior guidance. For fiscal year 2025, the full year targets are revenue of $6.745 to $6.805 billion Total gap costs and expenses between $5.01 and $5.07 billion. Total non-GAAP costs and expenses between $4.05 and $4.09 billion. Resolving a non-GAAP operating margin of 40% at the non-GAAP tax rate of 16%, GAAP earnings of $10.14 to $10.34 per share, non-GAAP earnings of $15.11 to $15.19. Our non-GAAP EPS targets have been increased from the prior guidance to reflect the Q2 outperformance, partly offset by net interest expenses associated with our bond issue.
Sheila: Now to guidance full year revenue and operating margin targets remained unchanged from the prior guidance for fiscal year 2025 for the full year targets are revenue of $6 seven for five to 680 5 billion.
Sheila: Total GAAP costs and expenses between five zero line and five point here of $7 billion.
Sheila: Total non-GAAP costs and expenses between $4 zero, five and $4.09 billion.
Sheila: Resulting in non-GAAP operating margin of 40% at the midpoint.
Sheila: non-GAAP tax rate of 16% gap.
Sheila: GAAP earnings of $10 14.
Sheila: To $10 34 per share non-GAAP earnings of $15 and <unk> 11 to.
Sheila: The $15 and 19 per share.
Sheila: Our non-GAAP EPS targets had an increase from the prior guidance to reflect the Q2 outperformance, partly offset by net interest expenses associated with our bond issuance.
Shelagh Glaser: Cash flow from operations of approximately $1.5 billion, and free cash flow of approximately $1.3 billion, lower than the prior guide due to financing and acquisition related costs.
Sheila: Cash flow from operations of approximately $1 $5 billion and free cash flow of approximately $1 3 billion lower than the prior guide due to financing and acquisition related cost.
Shelagh Glaser: NASA targets for the third quarter revenue between $1.755 and $1.785 billion. Total gap costs and expenses between $1.27 and $1.29 billion. Total non-GAAP costs and expenses between $1.06 and $1.07 billion. Gap earnings of $2.63 to $2.74 per share, and non-gap earnings of $3.82 to $3.87 per share, which includes a $0.13 impact from bond-related costs. Our press release and financial supplement include additional targets in GAAP to non-GAAP reconciliation.
Sheila: Now to target for the third quarter revenue between 170, <unk>, five and $1 785 billion.
Sheila: Total GAAP costs and expenses between 127 and $1 two 9 billion.
Sheila: Total non-GAAP costs and expenses between one point here of six and $1.07 billion.
Sheila: GAAP earnings of $2 63 to.
Sheila: <unk> to $2 74 per share.
Sheila: non-GAAP earnings of $3 82.
Sheila: To $3 87 per share, which includes a 13 impact from bond related costs.
Sheila: Our press release and financial supplement includes additional targets and GAAP to non-GAAP reconciliations.
Shelagh Glaser: In conclusion, we delivered a strong Q2, and are poised to deliver a strong second half. Our confidence reflects our relentless execution and leadership position to take advantage of the secular megatrends driving the semiconductor industry.
Sheila: In conclusion, we delivered a strong Q2 and are poised to deliver a strong second half our confidence reflects our relentless execution and leadership position to take advantage of the secular mega trends driving the semiconductor industry with that I'll turn it over to the operator for questions.
Unknown Attendee: With that, I'll turn it over to the operator for questions. Thank you.
Sheila: Thank you and everyone. If you have any question today. Please press star one on your telephone keypad.
Unknown Attendee: And everyone, if you have a question today, please press star one on your telephone keypad.
Unknown Attendee: Before we begin the Q&A session, I would like to ask everyone to please limit yourself to one question and one brief follow up to allow us to accommodate all participants. If you have additional questions, please reenter the queue and we'll take as many as time permits.
Sheila: 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.
Sheila: If you have additional questions. Please reenter the queue and we'll take as many as time permits.
Lee Simpson: Our first question today comes from Lee Simpson from Morgan Stanley.
Speaker Change: Our first question today comes from Lee Simpson from Morgan Stanley.
Sassine Ghazi: Hey, operator, before you turn it to questions, I would like to make a quick comment because I'm sure it's on everyone's top of mind. I want to acknowledge that we are aware of the reporting and speculation. But Synopsys has not received a notice from BIS. So our guidance that we are reiterating for the full year reflects our current understanding of BIS export restrictions, as well as our expectations for year over year decline in China. So I want to put this up front as we go through the questions. And given the news happened in the last few hours, just to acknowledge that we have not received the letter, as well as our guidance that we shared with you reflects the current.
Speaker Change: Hey, operator before you turn it to questions I would like to make a quick comment because I'm sure. It's on every one top of mind.
Speaker Change: But acknowledge that we are aware of the reporting and speculations.
Speaker Change: Synopsys has not received notice from Pis.
Sheila: Our guidance that we are reiterating for the full year reflects our current understanding of B I S export restrictions as well as our expectations for year over year decline in China. So I want to put this upfront as we go through the questions and given the news happened in the <unk>.
Sheila: Few hours just to acknowledge that.
Sheila: We have not received the letter as.
Sheila: As well as our guidance that we shared with you.
Sheila: Flex the current.
Lee Simpson: Understanding of BIS Export Control, and with that, please open it up for questions. Thank you, Sassine.
Sheila: Understanding of.
Sheila: Export control and.
Sheila: With that please open it up for questions.
Sheila: Thank you can seen and we will go to Lee Simpson from Morgan Stanley.
Lee Simpson: And we'll go to Lee Simpson from Morgan Stanley. Great, thanks for that. And Sassine, thanks for the colour at the end there. Maybe just just vectoring off of what you said there at the end. You know, we know that China sales now are 10% of the mix, I think 12 and Q1. And you're now talking about decline in China for the for the year. So are we to see this as, you know, probably a high single digit percent in the mix? And I think the added question here, I suppose, is if that's the sales portion, do we think there's a group average similar margin for the China business?
Lee Simpson: Great. Thanks, a lot and thanks for the color and there maybe just just a veteran off of what you said.
Lee Simpson:
Lee Simpson: We note that Chinese change now, we're 10% of the mix I think 12 in Q1.
Lee Simpson: And you're not talking about decline in China for the for the year. So are we are we see this.
Lee Simpson: There'll be a high single digit percentage of the mix and I think that the.
Lee Simpson: The other question here I suppose is you've got your sales portion, we think Theres a group average similar margin for the for the China business in other words the impact bottom line could be the same if indeed.
Sassine Ghazi: In other words, the impact bottom line could be the same if indeed the rumours of a BIS change in export controls come through. Thanks. Yeah, thank you, Lee, for the question. Recall, as we started, sometimes in FY24, communicating that we are seeing both a cumulative impact of the restrictions in China, as well as the macro situation inside China, have caused us to continue on communicating that this deceleration will continue and that headwind has gotten stronger as we go through each quarter over the last year, year and a half. Now halfway through our fiscal year, by us reiterating the year, we are taking into account that China will be declining year over year.
Lee Simpson: The rumors of a b I guess.
Lee Simpson: Change in export controls.
Lee Simpson: Thanks.
Lee Simpson: Yeah. Thank you Lee for the question.
Lee Simpson: Recall as we started sometimes in FY 'twenty for communicating that we are seeing both a cumulative impact of the restrictions in China as well as the macro situation inside China.
Lee Simpson: Have caused us to continue on communicating that this deceleration.
Lee Simpson: We'll continue and that headwind has gotten stronger as we go through each.
Lee Simpson: Each quarter over the last year year and a half.
Lee Simpson: Now halfway through our fiscal year by us reiterating the year, we are taking into account that China will be declining year over year. So FY 'twenty five to FY 'twenty four there will be a decline in China's revenue. Despite the decline we are re iterating the full year.
Lee Simpson: So FY25 to FY24, there will be a decline in China's revenue. But despite that decline, we are reiterating the full year guidance. And that's due to great execution in other regions and strength in the portfolio that we feel confident with reiterating the full year guidance. As far as the other part of your question regarding impact on operating margin, et cetera, et cetera, we cannot speculate about any potential impact to a notice that we have not received. Okay, that's pretty clear.
Lee Simpson: Guidance.
Lee Simpson: That's due to great execution in other regions and strength in the portfolio that we feel confident with reiterating the full year guidance.
Lee Simpson: As far as the other part of your question regarding.
Lee Simpson: <unk> on the operating margin et cetera, et cetera, we cannot speculate about.
Lee Simpson: Any potential.
Lee Simpson: The impact to notice that we have not received.
Speaker Change: Okay, that's pretty clear and maybe just a quick clarification question.
Shelagh Glaser: Maybe just a quick clarification question, maybe for Shelagh. Obviously, we've seen 10 billion waves, and I think it's part of that your first payment appears 1st of October of this year. But I suppose, rather than being a clean semi-annual coupon, it may include some of the catch-up for the first half month, because the bond was settled on March 17th, but we didn't make the payment on the 1st of April. So, it would be six and a half months payment, if that's the right way to look at this. Yes, it's a bit of a catch up and then we'll get into the regular rhythm of the biennial.
Lee Simpson: Maybe four for Sheila obviously between $10 billion.
Lee Simpson: And I think as part of that first payment appears.
Lee Simpson: First of October of this year.
Lee Simpson: But I suppose rather than being a clean semiannually coupon.
Lee Simpson: It may include some of the catch up for that.
Lee Simpson: For the first half month, because the barn settled in March 17th.
Lee Simpson: But we didn't make the payment on the first of April so it would be six and a half months payment. If that's the right way to look at this.
Lee Simpson: Yes, it's a bit of a catch up and then we'll get into the regular rhythm of the biannual payment.
Lee Simpson: Great that's very clear thank you.
Lee Simpson: That's very clear. Thank you. Thanks Lee.
Speaker Change: Thanks Lee.
Jason Celino: And the next question comes from Jason Celino, KeyBank Capital Markets. Hey, thanks for taking my question. And thank you, Sassine, for the clarification up front. If it's okay, just a few prodding type of questions. Maybe one as it relates to your revenues in China. Are you able to speak to the mix? You know, how much is software, how much is IP, and how much is hardware?
Speaker Change: The next question comes from Jason Selena Keybanc capital markets.
Jason Selena: Hey, Thanks for taking my question and thank you for a fee for the clarification upfront.
Lee Simpson: Okay.
Lee Simpson: A few prodding type of questions.
Lee Simpson: Maybe one as it relates to your to your revenues in China are you able to speak to the mix.
Lee Simpson: How much is software how much is IP and how much is hardware.
Lee Simpson:
Sassine Ghazi: You know, we don't split per region the revenue, but you can say it's similar to what we have in the rest of the world. And then secondly, you know, in 2019, when we had the original, you know, ban on Huawei, you know, there was no, you know, expense impact, as I imagine whatever, you know, variable expenses you had were redeployed to other, you know, customers. Is there any way to conceptualize, you know, the how variable your expense base is? kind of a poorly worded question, but that on like the overall business, you know, not specific to Jason, it's difficult really to do that, because as you know, we have the global operations, our team, not only in China, around the world is a mix of R&D field, etc.
Lee Simpson: Yes.
Speaker Change: We don't split per region. The revenue, but you can say, it's similar to what we have in the rest of the world.
Speaker Change: Okay.
Speaker Change: And then secondly.
Lee Simpson: And in 2019, when we had the.
Lee Simpson: The original ban on Huawei, there was no.
Lee Simpson: Expense impact because I imagine whatever variable expenses, you had were redeployed to other.
Lee Simpson: Customers is there any way to.
Lee Simpson: Conceptualize.
Lee Simpson: Hum.
Lee Simpson: Uh huh.
Lee Simpson: How variable your expense base is.
Lee Simpson: Kind of a poorly worded question, but.
Lee Simpson: Hum.
Lee Simpson: Add on like the overall business not specific to a region.
Lee Simpson: Jason it's difficult really to do that because as you know we have the global operations.
Lee Simpson: Our team not only in China around the world as a mix of R&D field et cetera, and at this point that are.
Jason Celino: And at this point, there are No changes per se to our operations anywhere, not only in China, so it's difficult to really answer that question. Okay, I understand.
Lee Simpson:
Lee Simpson: No changes per se to our operations anywhere not only in China.
Lee Simpson: China, So it's difficult to really answer that question.
Lee Simpson: Okay.
Lee Simpson: I understand thank you.
Jason Celino: Thank Thank you, Jason.
Lee Simpson: Thank you Jason.
Vivek Arya: The next question is from Vivek Arya from Native America.
Speaker Change: The next question is from Vivek Arya from Bank of America.
Speaker Change: Hi, This is Liam for orphan black. Thank you so much for taking my questions.
Vivek Arya: Hi, this is Liam Farr answering back. questions. On your largest customer, they've been reducing R&D spend. Is that still a growth area for you? And how do you see market share evolve at that larger Peers, and are there any areas that are more open to competition versus others? Yes, I'm assuming you're talking about Intel in this case. As we have communicated, again, that Intel has a mix of EDA software, IP, and hardware. These are multi-year committed agreements. And same as with other customers, as their roadmap may be fluctuating or there are some rethinking about the roadmap, it does not impact generally the EDA software.
Speaker Change: On your largest customer there had been reducing our R&D spend is that still a growth area for you and how do you see market share evolves that largest customer versus peers and are there any areas that are more open to competition versus others. Thank you.
Speaker Change: Yeah.
Speaker Change: [laughter], yes, I'm, assuming you're talking about <unk>.
Speaker Change: This case.
Speaker Change: The.
Speaker Change: As we have communicated again that Intel has a mix of a software IP and hardware. These are multi year committed agreements.
Speaker Change: And same as with other customers as their roadmap.
Speaker Change: Maybe influx fluctuating or there are some rethinking about the roadmap.
Speaker Change: It does not impact generally the Eda's software.
Sassine Ghazi: There might be some impact on hardware and IP pulldown, even though those agreements are committed, non-cancellable. There might be quarter-over-quarter fluctuation, but that's really about it at this stage.
Speaker Change: There might be some impact on hardware and IP pull down even though those agreements of committed noncancelable, there might be quarter over quarter fluctuation, but that's really about it at this stage.
Speaker Change: Thank you and then just a quick follow up.
Vivek Arya: Thank you.
Vivek Arya: And then just a quick follow up on the ANSYS.
Speaker Change: On the answers.
Speaker Change: Deal are still pending.
Vivek Arya: deal is still pending. is in the scenario that the deal gets pushed out or doesn't.
Speaker Change: And the scenario that the deal gets pushed out it doesn't close.
Sassine Ghazi: What's the plan B and how do we address the need to have more of a system designed to do those organically? Fair to your peers, Cadence, that's kind of been developing now for the last couple of years since you announced that dancers acquisition.
Speaker Change: What's the plan B and how you address the need to have more of a systems argue those organically.
Lee Simpson: To your peers.
Speaker Change: So it's kind of been developing module last couple of years since you announced that dancers acquisition.
Sassine Ghazi: Yeah, this transaction, as we have communicated, is so consequential not only for Synopsys and Ansys, but also for the industry. The support we got from our customers in related to this transaction directly to regulators that it's a great opportunity to accelerate innovation is something that is essential for us and for our customers and the industry to focus on the completion of this transaction as the really the only scenario we are considering and assessing at this stage. And the reason the confidence is high that this is the scenario for us to consider is if you look at the approvals we have received across all jurisdictions and currently, as I mentioned in my prepared remarks, we are in active negotiation with SAMR as well as anticipating closure in the first half of this year.
Lee Simpson: Yes, it does.
Lee Simpson: Transaction as we have communicated is so consequential not only for synopsys and emphasis but also for the industry. The support we got from our customers in.
Speaker Change: Added to this transaction directly to regulators that it's.
Lee Simpson:
Lee Simpson: A great opportunity to accelerate innovation.
Lee Simpson: Is something.
Lee Simpson: That is essential for us and for our customers and the industry to focus on the completion of this transaction is the really the only scenario.
Lee Simpson: We are considering and assessing at this stage and the reason the confidence is high that this is the scenario for us to consider is if you look at the approvals. We have received across all jurisdictions and currently as I mentioned in my prepared remarks, we are in active negotiation with Sandler.
Lee Simpson:
Lee Simpson: As well as anticipating closure in the first half of this year. This is really the option we're focused on at this stage.
Sassine Ghazi: This is really the option we're focused on at this stage.
Lee Simpson: Thank you.
Speaker Change: <unk> from Mizuho is up next.
Sitikantha Panigrahi: CT Panigrahi from Mizzou, who was up next? Oh, thank you.
Speaker Change: Thank you Melanie switch back to the design activity you talked about strong demand on that.
Sassine Ghazi: Now let's switch back to the design activity. You talked about strong demand on the AI side. So I'm wondering what kind of design activity you're seeing on the non AI customer base, especially have you seen any kind of changes there? Yeah, thank you, Siti. Good question. As we have been communicating the tale of two markets, on one hand, you have, and I'm talking in particular, semiconductor customers, the AI HPC infrastructure build out remains very strong. For a while, anything industrial automotive was declining in terms of roadmap at our customer, even though their R&D is stable, but the new chips or accelerating design has been muted for a while.
Speaker Change: So I'm wondering what kind of design activity, you're seeing on the <unk>.
Lee Simpson: Hi.
Lee Simpson: Customer base, especially every chance seen any kind of changes there.
Speaker Change: Thank you <unk> good question.
Lee Simpson: As we have been communicating the tale of two markets on one hand, you have.
Lee Simpson: And I'm talking in particular semiconductor customers.
Lee Simpson: AI HBC infrastructure build outs remains very strong for a while anything industrial automotive was declining in terms of.
Lee Simpson: The roadmap at our customer, even though that R&D is stable, but the new chips or accelerating design has been muted for a while now in industrial and automotive, we actually see more stabilization and.
Sassine Ghazi: Now, in industrial and automotive, we actually see more stabilization and new energy and vitality happening in that market. And where we see it first is in our IP portfolio, because typically, this is when the customers are thinking about the next chip, next customer. They come to us to talk about, here's what I'm designing for this particular foundry, for this particular application. And we're seeing that pickup in industrial and automotive, which is a very good sign.
Lee Simpson: New energy and vitality happening.
Lee Simpson: In that market and where do we see it first is in our IP portfolio. Because typically this is when the customers are thinking about the next chip next customer they come to us to talk about here's what I'm designing for this particular foundry for this particular application and we're seeing that pick up.
Lee Simpson: In industrial and automotive automotive, which is which is a very good sign.
Speaker Change: Okay. Thank you for that and quickly when do you think all the AI customer that slowly looking at building their custom chips. So when do you think they will come to the level of what do you say hyper scaler.
Sassine Ghazi: Okay, thank you for that.
Sassine Ghazi: And quickly, when do you think all the AI customer that's slowly looking at building their custom chips, when do you think they will come to the level of what you say, hyperscaler? You're talking about hyperscalers building their own chip. or even the AI companies? Or do you see ever them come building their own chips? Do you see that as an opportunity, basically expanding design beyond hyperscalers? Absolutely. Yes, yes, absolutely.
Speaker Change: You are talking about Hyperscale is building their own chips.
Lee Simpson: Even the AI companies.
Lee Simpson: Or do you see them come in building their own chips do you see that as an opportunity basically expanding design be on hyperscale.
Lee Simpson: Yes, yes, absolutely it's been a fantastic opportunity actually because there are there are think of them as three categories. The first one.
Sassine Ghazi: It's been a fantastic opportunity, actually, because there are there are think of them as three categories. The first one You're building a data center, you get a merchant ship, you know who to go get it from. There is a category two, which is driving a significant ASIC model type of business. They define an architecture, and to some level, they have an investment in designing the ship. And with multi-die, by the way, there are many, many options there. They may design the AI accelerators themselves, but they get the GPU, CPU, the IO somewhere else. So think of that as the ASIC opportunity.
Lee Simpson: You are building a data center, you've got the merchant ship, you know who to go get it from there as a category category too, which is driving a significant a sick model type of business, they define and architecture and to some level. They have an investment in designing the chip and with multi die by the way there are many many options.
Lee Simpson: They made design.
Lee Simpson: <unk>.
Lee Simpson: The AI accelerators themselves, but they get the Gpus Cpus or somewhere else. So think of that as the AC opportunity. Then there is the third one and it's a different stages of maturity is designing the whole AI.
Sassine Ghazi: Then there's the third one, and it's at different stages of maturity, is designing the whole AI system themselves. For all three of them, it's a great opportunity for Synopsys, because you buy a mix for all of the above, for EDA, IP, and hardware. The opportunity for hardware there is fairly significant, because even if you're not designing your own chip and you're using an ASIC model, you still need to verify that chip in the context of your software. And this is where Synopsys has a sweet spot with HAPS 200 and ZEBU 200, which is performance-based to bring the software up before the chip is available.
Lee Simpson: Our system.
Lee Simpson: Sells for.
Lee Simpson: For all three of them is a great opportunity for Synopsys, because your mix for all of the above four <unk> IP and hardware.
Lee Simpson: The opportunity for hardware there is fairly significant.
Lee Simpson: Even if you're not designing your own chip and you're using an <unk> model you still need to verify that chip in the context of your software and this is where synopsys has a sweet spot with our haps 200 M Zebu 200.
Lee Simpson: Which is performance base to bring the software up.
Lee Simpson: Before the chip is available so absolutely is an opportunity for Synopsys city.
Sassine Ghazi: So absolutely, it's an opportunity for Synopsys.
Sassine Ghazi: Thanks, Joseph.
Joseph: Thanks Joseph.
Joseph: Thank you.
Joseph: Gianni content has the next question from Deutsche Bank.
Gianni Conti: Gianni Conti has the next question from Deutsche Bank. Yes, thank you for taking my question. So the first one would be, could you share any colour at this stage, looking ahead to the next renewal date, on whether you're seeing more of an increased opportunity or a potential risk from the Intel overweight? Have there been any recent developments that point to a more optimistic scenario where R&D spend increases or concentrates more towards EDA tools versus people? I guess not just for Intel, but broadly even across customers and across the region, in fact. Yeah, Gianni, remember, where does Synopsys see an opportunity?
Speaker Change: Yes. Thank you for taking my question so the system.
Speaker Change: Could you shed any color on that.
Speaker Change: Stage looking ahead to the next renewal date on whether Youll see more of an increased opportunity or potential risks from into overweight has there been any recent developments that point to a more optimistic scenario, where R&D spend increases or concentrates more towards <unk> versus people I guess not just for Intel.
Speaker Change: Even across customers.
Lee Simpson: Across the region incentives.
Lee Simpson: Yeah John.
John: Remember, we have where does synopsys see an opportunity we see an opportunity when customer is pushing their roadmap designing more complex systems and chips because the more you are pushing that limit.
Sassine Ghazi: We see an opportunity when customer is pushing their roadmap, designing more complex systems and chips, because the more you're pushing that limit, It opens up an opportunity to sell new stuff to the customers. If a customer has a stagnant roadmap is one thing. They still when the renewal comes up, there is always an opportunity to to increase the run rate for that customer for various reasons. But when a customer is investing by going to the next technology node, by developing a new chip for a new market, by adopting a new methodology, multi-die, et cetera. That's a new opportunity for Synopsys to say, to sell the new EDA software, IP to connect these chips together or to serve these new markets, and of course, the hardware.
John: It opens up an opportunity to sell new stuff to the customers. If a customer has a stagnant toward map is one thing.
John: Still when the renewal comes up there is always an opportunity to increase the run rate for that customer for various reasons, but when a customer is investing.
Lee Simpson: By going to the next technology node by developing a new chip for a new market.
Lee Simpson: Bye.
Lee Simpson: Adopting a new methodology multi dye et cetera, that's a new opportunity for synopsys to say it to sell the new DDA software IP to connect these chips together or to serve these new markets and of course, the hardware so anytime a customer.
Sassine Ghazi: So anytime a customer continually investing in their R&D to serve these roadmap items is an opportunity, and that's what deliver to the resiliency of our business.
Lee Simpson: Continually investing in their R&D to serve.
Lee Simpson: This roadmap items is is an opportunity and thats what deliver.
Lee Simpson: To the resiliency of our business.
Gianni Conti: Okay, that makes sense. Just a quick follow up. Sorry to reiterate this question, but I wonder if you could share a few more words on what exactly is giving the confidence in closing the anti-steel and H1, given that your only roadblock is China? I mean, can China simply not reply and keep this going on for quite some time in a similar fashion to the NSPI? I'm just curious because we're about a month away from the deadline. You know, of course, everyone agrees that this is a fantastic opportunity for synopsis. So there's no overlap, of course.
Speaker Change: Okay that makes sense and just a quick follow up.
Speaker Change: So to reiterate this question.
Speaker Change: Wonder if you could do more with what exactly has given the confidence in closing this deal on H, one given that you're only roadblock with China.
Speaker Change: <unk> not refi.
Speaker Change: Keep this going on for quite some quite some time and a similar function to begin Spi I'm just I'm.
Speaker Change: I'm just curious because.
Speaker Change: We're about a month away from the deadline.
Speaker Change: Of course, everyone agrees that this is a fantastic opportunity for Synopsys. So there's no overlap of course.
Sassine Ghazi: I'm just curious to hear, you know, you seem very confident, and it's great. So I just wanted to hear, you know, your cuts and takes on that. Yeah, Gianni, the best way to answer it is because we're in the middle of it, meaning we're in the middle of the discussions, the negotiation, and you just simply look at Synopsys clearing other jurisdictions in a phase one approval due to the merits of the deal. It's no different in our discussions with SAMR and in China. The back and forth in our negotiation with SAMR is giving us the confidence that we are committing to the first half closure based on purely the merits and the current conversations we're having.
Speaker Change: I'm just curious to hear you seem very confident that's great. So two months here.
Speaker Change: Thanks, Bob.
Speaker Change: Gianni the best way to answer it is because we're in the middle of it meaning we are in the middle of the discussions the negotiation and the <unk>.
Speaker Change: Would you just simply look at Synopsys clearing.
Speaker Change: Other jurisdictions and a phase one approval due to the merits of the deal.
Speaker Change: It's no different in our discussions with Sandler and in China.
Speaker Change: The back and forth and our negotiation with Sandler is giving us the confidence.
Speaker Change: We are committing to the first half closure.
Speaker Change: Based on purely the merits and the current conversations we're having.
Speaker Change: The next question today comes from James Lee Shower at Griffin Securities.
Jay Vleeschhouwer: The next question today comes from Jay Vleeschhouwer, Griffin Security. Thank you. Good evening.
Speaker Change: Oh. Thank you good evening, Sheila let me start with you.
Shelagh Glaser: Sheila, let me start with you. Taking the numbers from the Q for RPO and current RPO, it looks like your current RPO increased by about $100 million or so, maybe more, sequentially, implying roughly high single-digit year-over-year versus mid-single coming out of Q1. So that sounds reasonable. And do you think that high single-digit current RPO growth is sustainable or perhaps something we can even improve further upon? Sure. So I think as you as we talked about, even in my prepared remarks, we're, you know, we built significant backlog, we're at 400 million, quarter over quarter. So as Sassine was outlining what we're seeing in the industry, that's really why we're seeing the strength in the business and continuing to build the backlog, part of which is in the shorter term duration that you're talking about.
Speaker Change: Taking the numbers from the Q4 <unk> and current <unk>. It looks like your current <unk> increased by about 100 million or so maybe more sequentially.
Speaker Change: Implying roughly high single digit year over year.
Speaker Change: Year over year versus mid single coming out of Q1, So does that sound reasonable and do you think that high single digit <unk> growth.
Speaker Change: Sustainable or perhaps something you could even improve further upon the country processing.
Speaker Change: Sure.
Speaker Change: So I think as you as we talked about even in my prepared remarks.
Speaker Change: You know, we built significant backlog were up 400 million quarter over quarter. So it's the things I was outlining what we're seeing in the industry. That's really why we're seeing the strength in the business and continuing to build the backlog part of which is in the shorter term duration that you're talking about so we do see a strong.
Jay Vleeschhouwer: So we do see strong business environment that we're operating Okay, Sassine, referring back to a principal team of yours at the forum two months ago, you made some very interesting comments regarding the need for engineering workflows to change, and you alluded to six areas specifically. And it seems to me that for most, if not all of those areas, those would be so irrespective of AI, but perhaps you could talk about how you're thinking about the pace or impact of those six areas that you spoke of in terms of having to change, and what the implications would therefore be for you.
Speaker Change: Business environment that we're operating in.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Referring back to our principal team of yours outperform two months ago.
Speaker Change: You made some very interesting comments regarding the need for engineering workflows to change and you alluded to six areas specifically.
Speaker Change: And it seems to be that for most if not all of those areas those would be so irrespective, but perhaps you could talk about how youre thinking about the pace of impact of those six areas that you spoke of in terms of having to change and what the implications would therefore be for you.
Sassine Ghazi: And I think it'll make the question even more cumbersome. You've spoken of a tale of two markets, perhaps there's a tale of two AIs, AI to date has been largely about optimization, which is classical ADA productivity. But I'm wondering if with agentic AI, customers' considerations for managing that process will change significantly, and it's a whole new way of managing the design process, and perhaps it's a risk as much as an opportunity. Yeah, Jay, excellent. Thank you for the question.
Speaker Change: We continue to make the question even more cumbersome.
Speaker Change: You had spoken of a tale of two markets, perhaps as a tale of two <unk>.
Speaker Change: AI today has been largely about optimization, which is classical classical EDA productivity, but I'm wondering if with a gentle AI customers considerations for managing that process will change.
Speaker Change: And Lee and its.
Speaker Change: A whole new way of managing the design process and perhaps.
Speaker Change: At the risk as much as an opportunity.
Speaker Change: Yes excellent. Thank you for the question.
Sassine Ghazi: We really covered two concepts at SNUG. One is the re-engineering engineering, and the second one is the move to what we call agent engineer solution. For re-engineering engineering, it applies at multiple levels in both the two tails of the semiconductor market or system companies. And there, if you take a multi-die advanced package system, There, the challenge is not only electronics, as you know very well. The challenge becomes how do you take into account the thermal structure, fluid to cool it off, et cetera, during the design phase. And this is a new approach that our customers need to adopt a new methodology to ensure that they're designing the system right the first time, not running into issues after the system is in the field, et cetera.
Speaker Change: We really covered two concepts one is the re engineering engineering and the second one is the move to what we call agents engineers solutions or.
Speaker Change: Our technology.
Speaker Change: For reengineering engineering it applies at multiple level in both the two tails of the semiconductor market were system companies.
Speaker Change: And then if you take a multi die advanced package system.
Speaker Change: The challenge is not only electronics as you know very well the challenge becomes how do you take into account the thermal structure fluid to cool it off et cetera. During the design phase and this is a new approach that our customers need to adopt and Uma technology too.
Speaker Change: Ensure that they're designing the system right. The first time not running into issues. After the system is in the field et cetera.
Sassine Ghazi: You're designing a car, a drone, a robot. How do you bring the multiple aspects of physics with electronics to engineer that end product? There, the complexity, the pace, the cost, it's really the opportunity that we see to deliver that digital twin of the future of these products. That's the re-engineering engineering. The next aspect is around how to simplify that complexity to our customers. And you're absolutely right. The first wave of AI was focused on optimization. And this is not only unique to Synopsys. If you look at any company that is delivering an AI solution for a different application, the first wave of AI is how do I optimize and provide a modern, simplified way to interact with the product.
Speaker Change: Designing the car a drone.
Speaker Change: Robot, how do you bring the multiple aspects of physics with electronics to engineer that end product. They have the complexity the pace the cost it's really the opportunity that we see to deliver that digital twin of the future of these products.
Speaker Change: That's the reengineering engineering.
Speaker Change: Next aspect is around how to simplify that complexity to our customers and you're absolutely right. The.
Speaker Change: The first wave of AI was focused on optimization and this is not only unique to synopsys. If you look at any company that is delivering an AI solution or a different applications. The first wave of AI is how do I optimize and provide a modern simplified.
Speaker Change: Way to interact with the product and the 88 place given it's all about optimization, we've made great progress with fantastic customer adoption of the DSO, the VSO et cetera adopt AI products, because it's always deliver better results.
Sassine Ghazi: And in the EDA place, given it's all about optimization, we've made great progress with fantastic customer adoption of the DSO, the VSO, et cetera, dot AI products because it always deliver better results faster. where we are right now with agent engineer technology. We're seeing some great opportunities for specific tasks, say RTL, formal verification, etc., that the human engineer will define a target, a goal, and you can pass it to an agent to deliver on an outcome. Now once these agents, the next phase we see these agents communicated, learning from one another, having an orchestration layer, planning layer, decision making layer, and that's where we see the opportunity in terms of changing the workflow, which will give us an opportunity to change the monetization from the traditional EDA to a new opportunity as we deliver that value to our Long answer, but it was a big question.
Speaker Change: Mr.
Speaker Change: Where we are right now with.
Speaker Change: The agent engineered technology.
Speaker Change: We're seeing some great opportunities for specific tasks say RTL formal verification et cetera that the human engineer will define the target goal and you can pass it to an agent to deliver on an outcome.
Speaker Change: Now once these agents the next phase we see these agents.
Speaker Change: Communicated learning from one another having been orchestration layer planning layer decision, making layer.
Speaker Change: And that's where we see the opportunity in terms of changing the workflow, which will give us an opportunity to change the monetization from the traditional <unk> to a new opportunity and deliver that value to our customers long answer but it was.
Speaker Change: It's a big question.
Speaker Change: Yeah.
Speaker Change: We'll take our next question for today from Nathan <unk> from Bern Berg.
Nay Naing: We'll take the next question for today from Nay Soe Naing from Barenburg. Hi, thank you for taking my questions. I've got two, if I may. If I could start with the China performance, please. I think you mentioned that you're now expecting revenue from China this year to be down year on year. If I remember correctly, I think you started the year with growth in China to be at corporate average, then you take that down to below group average. So I was wondering if there have been any changes In the business environment in China, anything that's changed in the last three months?
Nathan: Hi, Thanks for taking my questions have come too if I may if I can start with the China performance since.
Speaker Change: Thank you you mentioned that you're now expecting revenues from China, this year, but down year on year.
Speaker Change: Remember correctly I think you started the year with a growth in China to be at.
Speaker Change: Our corporate average and you take that down to below group average. So I was wondering if there's any changes.
Speaker Change:
Speaker Change: And the business environment in China.
Speaker Change: Anything that's changed in the last three last three months that.
Speaker Change: That would be great and my second question is around the recurring revenue Q2 come in a little bit soft I think it was similar.
Sassine Ghazi: Great. And my second question is around the recurring revenue in Q2 coming in a little bit soft. I think it was similar . I was wondering if there's any color, additional color that you could provide along the current revenue. development and maybe if you could also comment a little bit on your pricing power with your customer Yeah, thank you for the question. You are correct. We, as I said, in FY 24, at the beginning of 24, we started communicating the deceleration we're seeing in China, due to two factors. One is the macro inside China, and two, the cumulative impact of restrictions in China.
Speaker Change: Alex in Q1 as well I was wondering if there's any any color additional color you could provide around cutting revenue.
Speaker Change: Development and maybe if you could also comment a bit on your pricing.
Speaker Change: Power.
Speaker Change: With your customer base today in place.
Speaker Change: Thank you for the question.
Speaker Change: You are correct.
Speaker Change: As I said in FY 'twenty for at the beginning of 'twenty forward, we started communicating the deceleration we're seeing in China due to two factors one is the macro inside China and to the cumulative impact of restrictions.
Speaker Change:
Speaker Change: In China.
Sassine Ghazi: So . Halfway through this year, in FY25, we could see clearer that these headwinds will not only bring China below the corporate average. What we're factoring into our guidance is a decline in China year over year. And despite that decline, we are reiterating the full year. So there is nothing per se different happened in China. But the that cumulative effect, we thought it's prudent for us as we look at the full year guidance to say, can we reiterate that guidance with the decline happening in China? The answer is yes.
Speaker Change: No.
Speaker Change: Halfway through this year in FY 'twenty five we could.
Speaker Change: See clearer.
Speaker Change: That these headwinds will not only bring China below the corporate average what we're factoring into our guidance is it declined in China year over year.
Speaker Change: And despite that decline we are reiterating the full year. So there is nothing per se different happened in China, but the cumulative effect, we thought it's prudent for us as we look at the full year guidance to say can we reiterate that guidance with the decline happening in China. The answer is yes.
Speaker Change: Now we think into the next part of your question.
Sassine Ghazi: Now, weaving into the next part of your question. That's due to the strength that we are seeing and have seen in other regions as well in the complete part of the portfolio. Recall, we announced our hardware systems, and very well received by our customers, strong momentum. And we have always planned the year in a 45-55 fashion, 45% the first half, 55% the second half. And the reason the shape is that way is with the anticipation of a bigger second half as we continue on rolling out our hardware system, and of course having visibility over renewals and our IP demands and EDA software based on our knowledge and insights with customers' roadmap.
Speaker Change: That's due to the strength that we are seeing and have seen in other regions as well in the complete.
Speaker Change: Out of the portfolio.
Speaker Change: Recall, we announced our hardware systems.
Speaker Change: And very well received by our customers strong momentum and we have always planned a year and a $45 55 fashion 40, 45% first half 55% in the second half.
Speaker Change: And the reason the shape is that way is with the anticipation of a bigger second half as we continue on rolling out our hardware system and of course, having visibility over renewables and our IP.
Speaker Change: <unk> and Eda's software.
Speaker Change: Based on our knowledge and insights with customers' roadmap.
Speaker Change: And when you. The point you made regarding Q1 Q2, we actually were at or above the <unk>.
Sassine Ghazi: And the point you made regarding Q1, Q2, we actually were at or above the midpoint of guidance, so there were no surprises. We delivered to exactly what we said we're going to deliver, and that's the expectation for the second half. Lastly, on pricing, we always approach pricing based on the value and impact we deliver to customers. As the challenges are higher for our customers to design these chips, it's absolutely an opportunity to improve on our run rate, either at the time of the renewal or when the customer is looking for new technology in order to address these challenges.
Speaker Change: Midpoint of guidance. So there were no surprises we delivered to exactly what we said we're going to deliver.
Speaker Change: Thats the expectation for the second half lastly.
Speaker Change: Lastly on the pricing.
Speaker Change: We always approach pricing based on the value and impact to be delivered to customers as the challenges are.
Speaker Change: Higher for our customers to design. These chips, it's absolutely an opportunity to improve.
Speaker Change: On our run rates either at the time of the renewal or when the customer is looking for new technology in order to address these challenges.
Shelagh Glaser: Yeah, and just one add that I would have for Sassine's answer is, if your comment was about the percent of recurring revenue in Q2, just to help kind of put some color on that, that's really normal based on timing. And obviously, our IP business is becoming a bigger and bigger part of the business. And so that tends to have an up front. So as you saw, that was up 21%. I would say it's just a normal part of the business, that it's going to fluctuate quarter on quarter, and particularly when you see a strong IP.
Speaker Change: And just wanted to add that I would have.
Speaker Change: <unk> answer is if your comment was about the percent of recurring revenue and Q2 just to.
Speaker Change: I hope help kind of put some color on that that's really normal based on timing and obviously, our IP business is becoming a bigger and bigger part of the business and so that tends to have an upfront and you saw that was up 21% I would say, it's just ignore them a part of the business.
Speaker Change: It's going to fluctuate quarter on quarter, and particularly when you see a strong IP corner okay.
Nay Naing: Thank you. That's really helpful. Thank you very much. Thank you.
Speaker Change: Thank you that's really helpful. Thank you very much.
Speaker Change: Thank you will.
Joe Vruwink: We'll go next to Joe Vruwink from Baird. Great, thanks for taking my questions.
Speaker Change: Well go next to Joe <unk> from Baird.
Speaker Change: Yeah.
Speaker Change: Great. Thanks, Thanks for taking my question.
Joe Vruwink: Maybe on the topic of China, if the Commerce Department was nearing a point of restricting, you know, a broader swath of your sales into China, do you think you would have heard about it by now or received evidence before today? Because in the past, I think the EDA vendors have actually had pretty good foresight on commerce deliberations. And what we're now learning today seems a bit different, I suppose. You know, Jill... Based on history, we had different flavors of either having insights, having heads up or not. The reason I wanted to address that point up front, because I saw the reporting and the swirling of the speculations, and all I can say at this stage is we have not received anything from BIS.
Speaker Change: Maybe on the topic of <unk>.
Speaker Change: China.
Speaker Change: If the Commerce Department was nearing a point of restricting.
Speaker Change: Yes.
Speaker Change: A broader swath of your sales into China do you think you would've heard about it by an hour received evidence before it today because in the past I think the EDA vendors have actually had pretty good foresight on commerce deliberations and.
Speaker Change: What we're now learning today seems a bit different I suppose.
Speaker Change: Joe.
Speaker Change: Based on history, we had different flavors of either having insights, having a heads up or not.
Speaker Change: <unk>.
Speaker Change: The reason I wanted to address that point upfront because I saw the reporting and the swirling off.
Speaker Change: The speculations and all I can say at this stages, we have not received anything from <unk> and <unk>.
Sassine Ghazi: And I cannot speculate why, why not, et cetera, but there is nothing at this stage that Synopsys has received. Fair enough.
Speaker Change: I cannot speculate why why not et cetera.
Speaker Change: And there's nothing at this stage that Synopsys has received.
Speaker Change: Okay fair enough.
Sassine Ghazi: You know, the early signs of pickup in auto and industrial and I think last quarter, you were already seeing pickup and like PC and mobile. Maybe I'll frame this question as outside of China. But when you think across all the different subcategories of chip R&D, it does seem like you're seeing outright improvement or maybe the potential for improvement. Do you think the overall R&D landscape is maybe getting close to what you saw in the 2021-2022 timeframe? Because obviously, that was a very strong period for your and revenue growth. And it maybe seems directionally, we're heading back to something similar.
Speaker Change: The early signs of pickup in auto and industrial and I think last quarter, you are already seeing pick up in like PC and mobile.
Speaker Change: Maybe I'll frame those question.
Speaker Change: Outside of China, but when you think across all of the different subcategories of chip RMB. It does seem like you're seeing outright improvements or maybe.
Speaker Change: The potential for improvement do you think the overall R&D landscape is maybe getting close to what you saw in the 2021 2022 time frame because obviously that was a very strong period for your bookings and revenue rather than it may be a seamless <unk>.
Speaker Change: So in a way, where we're heading back to something similar.
Speaker Change: Yes.
Sassine Ghazi: Yeah, in in the non AI part of the semiconductor, what is what we're clearly observing in the last quarter, quarter plus is a pickup in automotive industrial. And by the way, when I talk about industrial, we put robotics type of application, etc. in that category. And those early signals, we see them in with those same set of customers. What they are contemplating when it comes to their R&D investment and their roadmap is how much AI do they need to have for these chips that they're building and the applications they're building. So it's not necessarily the same chip or derivative of the chip that they were applying for the same market.
Speaker Change: The AI part of the semiconductor what is.
Speaker Change: What were clearly observing in the last quarter quarter plus.
Speaker Change: Is a pick up in <unk>.
Speaker Change: Promotive industrial and by the way when I talk about industrial we put robotics type of application et cetera in that category.
Speaker Change: Those early signals, we see them in IP with.
Speaker Change: With those same the same set of customers.
Speaker Change: What they are.
Speaker Change: Uh huh.
Speaker Change: Contemplating when it comes to their R&D investment and their roadmap.
Speaker Change: How much do they need to have for these ships that they are building and the applications. They are building. So it's not necessarily the same.
Speaker Change: Chip or derivative of the chip that they were applying for the same market is a more sophisticated type of chip they're building therefore.
Sassine Ghazi: It's a more sophisticated type of chip they're building. Therefore, it's expected that their R&D investment will either get modified to make sure they have the right skills to deliver on these chips or increase overall, which is, again, if you're in these customers' shoes, that's the opportunity that they need to thrive towards in order to compete and have an opportunity to grow in the new opportunity of AI being everywhere.
Speaker Change: It's expected that that R&D investment will either get modified to make sure. They have the right skills to deliver on these chips or increase overall, which is again.
Speaker Change: If you are in.
Speaker Change: This customer's shoes.
Speaker Change: The opportunity that they need to strive towards in order to compete and.
Speaker Change: And have an opportunity to grow in the new opportunity of.
Speaker Change: AI been everywhere.
Gary Mobley: Your next question today comes from Gary Mobley from Loop Capital.
Speaker Change: Your next question today comes from Gary Mobley from loop capital.
Gary Mobley: Hi, everybody. Thanks, so much for taking my question <unk> seen I think you would agree with this that your customers do see some benefit as you shift more of your EDA tools to GPU based compute and away from retrieval based compute and I guess the benefit there would be coming up with this solution.
Gary Mobley: Hi, everybody. Thanks so much for taking my question. Sassine, I think you would agree with this that your customers do see some benefit as you shift more of your EDA tools to GPU-based compute and away from retrieval-based compute. And I guess the benefit there would be coming up with a solution on the fly for that accelerated compute. So my question to you is, you know, what is the pricing benefit? And do you feel like you're pricing that product correctly? And is there a cost consequence as well? Presumably that's, you know, that type of compute hosted in the cloud.
Gary Mobley: <unk> on the fly for that accelerated compute. So my question to you is you know what.
Gary Mobley: What is the pricing benefit and do you feel like you're pricing that product correctly.
Gary Mobley: Is there a cost consequence as well.
Gary Mobley: Presumably that's that type of computes hosted in the cloud environment.
Sassine Ghazi: Yeah, that's an excellent question, Gary. The one product actually that was introduced first and has been talked about regarding the GPU acceleration is Proteus, which is an OPC product in manufacturing, where it's a very, very heavy compute step in the process development. And we're talking about thousands of CPUs for every run in order to deal with the complexity of computation. There with GPU, and again, this is what we talked about at Snug, etc. 15x plus speed up using a GPU. So it's not a percentage speed up, it's multiple factors of speed up. And we absolutely price it based on the total cost of ownership that our customer is seeing by moving from a CPU to a GPU in that case.
Gary Mobley: Yes, that's excellent question Gary the the one product actually that has the was introduced first and.
Gary Mobley: It has been talked about regarding the GPU acceleration is Proteus, which is an OTC product is in manufacturing.
Gary Mobley: It's a very very high.
Gary Mobley: Heavy compute.
Gary Mobley: The step.
Gary Mobley: In the process development and we're talking about thousands of Cpus for every for every one in order to deal with the complexity of computation.
Gary Mobley: Is there with GPU.
Gary Mobley: And again. This is this is what we talked about at snug et cetera.
Gary Mobley: <unk> X plus speed up using a GPU. So it's not a percentage speed up is multiple factors of speed up and we absolutely price. It based on the total cost of ownership that our customer is seeing by moving from a CPU or GPU in that case.
Gary Mobley: And we're actually very happy with.
Sassine Ghazi: And we're actually very happy with the pricing delta that we're able to get due to GPU acceleration. Very similarly, as we look at the rest of the portfolio, where are the compute-heavy applications? Verification, sign-off when it comes to timing, et cetera. Those are massive machines, big compute requirement, and we have the pricing associated with that value based on the customer-perceived TCO and overall benefit that they're seeing. And I believe the other part of your question, are we seeing, or do we believe there's a downside for an acceleration? I don't believe so, because the complexity is so high, and when you have the right pricing model, it's an upside.
Gary Mobley: The pricing Delta that we're able to get you to GPU acceleration.
Gary Mobley: Very similarly, as we look at the rest of the portfolio where are the compute heavy applications verification sign off when it comes to timing et cetera, those are massive machines big compute requirement.
Gary Mobley: And we have the pricing.
Gary Mobley: Associated with that value based on the customer perceived T C O N.
Gary Mobley: And overall benefit that we're seeing.
Gary Mobley: And I believe the other part of your question are we seeing or do we believe there is a downside for an acceleration I don't believe so because of the complexity is so high and when you have the right pricing model.
Gary Mobley: It's an upside.
Gary Mobley: Okay. Thank you for that just a quick follow up.
Gary Mobley: for that.
Shelagh Glaser: Just a quick follow up. As we look into the second half of the year, you know, with a high percentage of revenue coming from ZBOO and HAPS 200, do you have any supply chain constraint considerations, whether it be a supply chain constraint or a supply chain constraint? Yeah. Chip Partners, or from your EMS partner.
Gary Mobley: As we look into the second half of the year.
Gary Mobley: A high percentage of revenue coming from zebu and Haps 202.
Gary Mobley: You have any supply chain constraint considerations, whether it be from your chip partners or from your E&S partners.
Shelagh Glaser: Yeah, Gary, this is Sheila. No, we don't. The you know, the truth is that we would like to have more right now. But we're able to fulfill customer demand. And as you kind of see in the shape of the year, we have a better supply situation in Q4 than we do at any other time of the year.
Gary Mobley: Yeah, Gary This is Sheila no we don't.
Speaker Change: The truth is that we would like to have more right now.
Speaker Change: We're able to fulfill customer demand and as you kind of see in the shape of the year, we have a better supply situation in Q4 than we do in any other time in years, that's a bit of that.
Joshua Tilton: So that's a bit of the heavy Q4 The next question today is from Joshua Tilton from Wolf Research. Hey, guys. Thanks for sneaking in here. I have two. The first one is more of a clarification. And I guess what I'm trying to understand is somebody else already kind of walked you guys through the timeline of, you know, what you're expecting for China going into the year and how you kind of, you know, walk that back a little for the last two quarters. And I guess what I'm trying to reconcile is you still hit numbers this quarter.
Gary Mobley: Q4 waiting.
Speaker Change: The next question today is from Joshua Tilton from Wolfe Research.
Joshua Tilton: Hey, guys.
Speaker Change: Thanks for sneaking me in here.
Speaker Change: Have to do.
Speaker Change: The first one is more of a clarification and I guess, what I'm trying to understand is.
Gary Mobley: Somebody else already kind of walk you guys through the timeline of what Youre expecting for China going into the year and how you kind of walk that back a little for the last two quarters and I guess, what I'm trying to reconcile is you still hit numbers this quarter.
Joshua Tilton: So was the China revenue in 2Q in line with expectations? Or was that below what you guys thought you were going to do? And that's why you now think that China is going to be worse than you thought it would be 90 days ago?
Gary Mobley: So was the China revenue in <unk> in line with expectations or was that below what you guys thought you were going to do and that's why you now think that China is going to be worse than you thought it would be 90 days ago. That's my first question yes.
Sassine Ghazi: Yeah, Josh, as you zoom out, and you think about how do we forecast and therefore guide. There are the puts and takes that we have in place, and what we have hit in Q1 and Q2 for China was in line with what we forecasted internally. As we look at the rest of the year, and some of the, let me call them tailwinds, that we have in the first half, and we look at the entire year, we felt confident to reiterate the overall guidance with an assumption that even if China is a decline year over year, we feel confident that we will hit the overall company's growth that we have guided initially.
Speaker Change: Yes, Josh as you zoom out and you think about how do we.
Gary Mobley: Forecast and therefore died.
Gary Mobley: There are the puts and takes that we have in place and what.
Gary Mobley: What we have hit in Q1 and Q2 for China.
Gary Mobley: In line with what we forecasted internally.
Gary Mobley: As we look at the rest of the year and some of the let me call them tailwind that we have in the first half and we look at the entire year, we felt confident.
Gary Mobley: To reiterate the overall guidance with an assumption that even if China is a decline year over year.
Gary Mobley: We feel confident that we will hit the overall company's growth that we have guided initially.
Gary Mobley: I guess, maybe just.
Speaker Change: Sorry to clarify the overtime. So is it fair to assume updated guidance, which now includes China to decline year over year. It would imply that you need to see trying to get worse from where it was for the first half of the year.
Joshua Tilton: Is it fair to assume the updated guidance, which now includes China's decline year-over-year, it would imply that you need to see China get worse from where it was for the first half of the year? No, what we're saying is no, there is the first half assumption in China that was lower than the second half assumption in China. So the first half, if I'm not mistaken, it's a minus 28% in China. We're not assuming that the second half is going to continue declining at that level, because when we forecasted the entire China growth, we knew that the first half is going to be tougher than the second half.
Gary Mobley: No.
Gary Mobley: We're seeing it no.
Gary Mobley: That is the first half assumption in China that was lower than the second half assumption in China. So the first half if I'm not mistaken, it's a minus 28% in China.
Gary Mobley: Hmm.
Gary Mobley: We're not assuming that the second half is going to continue declining at that level, because when we forecast the entire China growth. We knew that the first half is going to be tougher than the second half what we wanted to communicate clearly is our reiteration of the guidance.
Sassine Ghazi: What we wanted to communicate clearly is our reiteration of the guidance. is affirming that guidance with an assumption that if China is declining year over year below the FY24 finish, we still feel confident about hitting the overall company's revenue target.
Gary Mobley: Is affirming that guidance with an assumption that if China is declining year over year below the FY 'twenty four finish.
Gary Mobley: Still feel confident about hitting the overall companies.
Gary Mobley: Revenue target.
Joshua Tilton: And maybe just a quick follow up to that is, you know, you guys put out the financial supplement every quarter. In there, there's a nice little line that says, you know, your long term multi-year objectives are industry leading double digit revenue growth. And I understand that things are happening on the fly, and you guys haven't received the letter yet.
Gary Mobley: And then maybe just my quick follow up to that is.
Gary Mobley: You know you guys put out the financial supplement every quarter and there there's a there's a nice little line that says.
Gary Mobley: Your your long term multiyear objectives are industry, leading double digit revenue growth.
Gary Mobley: And I understand that things are happening on the fly and you guys haven't received the letter yet.
Gary Mobley: But as investors kind of contemplating all the potential scenarios in the future.
Sassine Ghazi: But as investors kind of contemplating all the potential scenarios in the future, are you guys just as confident in being able to deliver that industry leading double digit revenue growth, even if for some reason, you know, sales to China have to be halted? Put the sales to China being halted because that that's something we I'll be speculating. I have no idea what will be halted, what will not be. So put that aside. We're absolutely confident with an industry leading double digit growth. at company level for design automation, double-digit for IT, mid-teams. And that's what we've been delivering to.
Gary Mobley: Are you guys just as confident in being able to deliver that industry, leading double digit revenue growth. Even if some reason sales to China has to be halted.
Gary Mobley: Okay.
Gary Mobley: Put the sales to China being halted because that's something we.
Gary Mobley: I'd be speculating I have no idea.
Gary Mobley: What will be halted but will not be so put that aside we're absolutely confident with an industry leading double digit growth.
Gary Mobley: At company level or design automation double digit or mid teens.
Gary Mobley: And that's what we've been delivering to and that's organic growth. It's important to emphasize that's an organic execution, we have been able to deliver to these numbers.
Sassine Ghazi: And that's organic growth. It's important to emphasize that's an organic execution we have been able to deliver to these numbers.
Speaker Change: And our final question today comes from Blair Abernethy from Rosenblatt.
Blair Abernethy: And our final question today comes from Blair Abernethy from Rosenblatt. Squeezing me in. Two quick ones. On your AI portfolio, so your DSO AI and other optimization products have done very well.
Blair Abernethy: Thanks for squeezing me in two.
Gary Mobley: Two quick ones just.
Speaker Change: On your AI.
Speaker Change: AI portfolio, so your DSO AI and.
Speaker Change: Other optimization products have done very well in the last four years.
Sassine Ghazi: Um, you haven't spoken a lot about design. I speak to the adopt... Transcripts provided by Transcription Outsourcing, LLC. Yeah, Blair, thank you for the question. Absolutely correct. Our .AI products with our flagship early introduction of DSO.AI, followed by VSO, ASO, etc., a great traction by the customers. And I want to say it's becoming an easier go-to market and engagement with customers because the customers are pulling us into these engagements and finding an opportunity for every one of those .AI technologies. As far as the .da, you're right, we may need to do a better job communicating what we are seeing in terms of customer adoption.
Speaker Change: You haven't spoken a lot about design Dod.
Speaker Change: And silicon DAA in fab could you speak to the adoption of those customers.
Speaker Change: Customers that have taken up the optimization products and then secondly, do you have.
Speaker Change: Any sense of time line that you'd like to share with us in terms of.
Speaker Change: Rolling out of Gentex.
Speaker Change: EBITDA.
Speaker Change: Yes. Thank you for the question.
Speaker Change: Absolutely correct, our AI products with our flagship early introduction of DSO Dot AI, followed by VSO ASO et cetera.
Speaker Change: Great traction by the customers and I want to say it's.
Speaker Change: It's becoming an easy your go to market.
Speaker Change: Engagement with customers because the customers are pulling us into these engagements in finding an opportunity for every one of those about AI technologies as far as the <unk>, you're right. We may need to do a better job communicating what we are.
Speaker Change: Seeing in terms of customer adoption, but think of the dossier as an infrastructure to tie up it's like a continuum of data where you provide insights.
Sassine Ghazi: But think of the .da as an infrastructure step to tie up. It's like a continuum of data where you provide insight. from step two back into step one, moving to step four, et cetera, in the entire design flow. Fab.da, for example, is limited to fewer customers because that's limited to companies that they typically have their manufacturing capability in-house. But think of it as an infrastructure step that makes our optimization product even stronger and better because it provides infrastructure.
Speaker Change: Step two back into step one moving to step four et cetera.
Speaker Change: A design flaw.
Speaker Change: <unk> for example is limited to a few were customers because that's limited to companies that they are they typically have their manufacturing.
Speaker Change: Our capability in house.
Speaker Change:
Speaker Change: But think of it as an infrastructure step that makes our optimization product, even stronger and better because it provides insights.
Sassine Ghazi: As far as the agentic roadmap. Today, we have a number of engagements with a limited set of partners to provide feedback on the application. And when you think agents, you have to be very specific to a customer workflow. Because each customer, they have different ways in bringing up that agent engineer, based on their environment, their data, et cetera, et cetera. At Snug, we communicated L1 through L5, same analogy for automotive. And what we said today, we are in the L2 and L3 phase. It doesn't mean when you move to L4 that you stop in L2.
Speaker Change: As far as the agenda.
Speaker Change: Roadmap.
Speaker Change: Today, we have number of engagements with the limited set of partners to provide feedback on the application.
Speaker Change: And when you think agents you have to.
Speaker Change: To be very specific to a customer workflow.
Speaker Change: Because each customer they have different ways.
Speaker Change: Bringing up that agent engineer based on data environment data et cetera et cetera.
Speaker Change: At Snug, we communicated our one through five same analogy for automotive and what we said today, we are in the our two and three phase. It doesn't mean when you move to afford that you stop in <unk>, We continue building those tasks agents.
Sassine Ghazi: We continue building those task agents in the L2 phase as we move to the L3, which is the orchestration between the agents. We'll make sure to continue on communicating our progress there because it's super exciting.
Speaker Change: In the hour two phase as we move through the L. C, which is the orchestration between the agents.
Speaker Change: We'll we'll we'll make sure to continue on communicating our progress there because it's a super exciting.
Speaker Change: Thanks.
Unknown Attendee: Thanks so much for everybody who joined our call, and Lisa, thank you for shepherding us through the call, and with that, we look forward to talking to you soon. Thank you all. Thank you.
Speaker Change: Thank you Blair. Thanks, so much for everybody, who joined our call and Lisa. Thank you for shepherding it through the call and with that so we look forward to talking to you through the quarter.
Speaker Change: Thank you all thank you.
Unknown Attendee: And once again, ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation today.
Speaker Change: And once again, ladies and gentlemen that does conclude today's conference we would like to thank you all for your participation today you may now disconnect.
Unknown Attendee: You may now disconnect.
Speaker Change:
Speaker Change:
Speaker Change:
Speaker Change:
Speaker Change:
Speaker Change: Yeah.
Speaker Change: Yeah.