Cadence Design Systems, Inc.

Good afternoon. My name is Gigi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence fourth quarter 2018 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star, then the number one on your telephone keypad. Thank you. I will now turn the call over to Alan Lindstrom, Senior Group Director of Investor Relations for Cadence. Please go ahead.

Thank you, Gigi. And I would like to welcome everyone to our fourth quarter 2018 earnings conference call. I am joined today by Lipu Tan, CEO, and John Wall, Senior Vice President and CFO. The webcast of this call is available through our website, www.cadence.com, and will be archived through March 15, 2019. A copy of today's prepared remarks will also be available on our website at the conclusion of today's call. Please note that today's discussion will contain forward-looking statements and that actual results may differ materially from those expectations. For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include Cadence's most recent reports on Form 10-K and Form 10-Q, including the company's future filings and the cautionary comments regarding forward-looking statements in the earnings press release we issued today. In addition to financial results prepared in accordance with generally accepted accounting principles, or GAAP, we will also present certain non-GAAP financial measures today. Cadence Management believes that in addition to using GAAP results in evaluating our business, it can also be useful to review financial results using certain non-GAAP financial measures. Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures with their most direct comparable GAAP financial results. The reconciliations are available at the investor relations section of cadence.com. Copies of today's press release dated February 19th, 2019 for the quarter ended December 29th 2018 related financial tables and the CFO commentary are also available on our website. And now I'll turn the call over to Lipu.

Good afternoon, everyone, and thank you for joining us today. We are pleased to report that Cadence achieved excellent operating results for 2018, delivering 10% year-over-year revenue growth and 30% non-gap operating margin with broad-based strength across our product lines. While the overall macro environment remains mixed, we remain confident in the technology trends, including AI, machine learning, cloud data center, and 5G that continue to drive strong design activity. Our system design enablement strategy is to continue growing our core EDA and IP business, broaden our reach in system companies and targeted verticals, and importantly, expand into newer adjacent areas. I am delighted to report that we have continued to make significant progress in all these areas. We achieved strong growth across our product lines, in our core business, which included a breakthrough while wide-ranging win with a marquee US semiconductor company. In Q4, we expanded our relationship with Samsung through their broader adoption of our digital, custom, and verification products. We expanded our long-term partnership with analog devices for their development of mixed signal solutions for IoT, automotive, medical, and industrial applications, including the adoption of several of our new digital and verification products. We've made good progress in vertical segments, such as the data center cloud, automotive, and particularly in aerospace and defense. We have won business with some of the top companies in this space, including GE Aviation and BAE Systems. And we finished the year with major core EDA and IP contract with a major aerospace and defense contractor. Earlier in the year, We won a significant research contract with DARPA and have made very good progress developing advanced machine learning technologies to enhance automation and productivity. And as we look at expanding beyond EDA, I'm very excited about our new strategic partnership with Green Hills Software. Cadence invested about $150 million in Green Hills, representing an ownership interest of approximately 16%. Our investment is important because safety and security are some of the greatest concerns in the increasingly hyper-connected world, especially in the critical industries such as aerospace and defense, automotive, and medical. Green Hills is the leading player in the embedded safety and security software space, with its Integrity 178B real-time operating system having been certified to EAL6+, the highest common criteria security level achieved for an operating system. Green Hills products are broadly deployed across multiple application domains, particularly in aerospace and defense, with customers include Boeing and Rocky Martin, and in automotive with many top OEM and tier one customers, including Toyota and Ford. We expect to leverage the strength of both companies to drive embedded system security and safety, open up new market opportunities, and accelerate growth for both companies. I will now reveal other highlights for Q4 and 2018, beginning with functional verification, which remains the fastest growing challenge for our customers. Cadence Verification Suite had a good 2018, with revenue growth in the high teens, led by strong demand for Palladium Z1. Palladium Z1 won 22 new customers during the year, with significant expansions at several existing customers. And Proteum, our FPGA-based prototyping solution, also grew steadily. Growing adoptions of our Exilium simulator was highlighted by several market-shaping customers, expanding their commitment to our technology during the year. The IP outsourcing trend continued, and strong execution of our refined IP strategy delivered double-digit growth for our IP business in 2018. Tensilica has a good year with strong loyalty growth and we maintain our lead in audio applications with growing adoption in vision and key wins in automotive surveillance and augmented reality applications. We have engaged with several customers for our new Tensilica DNA100 processor which is ideal for embedded inferencing applications and will be generally available to customers in the first half of the year. For the cloud data center market, earlier in the year, we announced the first DDR5 test chip, and in Q4, we began selling our new 112-gig ROM-rich 30IP in 7-nanometer technology. On digital and sign-off, we are particularly pleased with the growing proliferation of our solutions at the most advanced nodes with market-shaping customers. We grew our relationship with MediaTek to include the full digital flow from synthesis through sign-off. Customers taped out more than 80 7-nanometer designs in 2018. using our digital solutions, and we had 23 full-flow wins. We are actively engaged with very early adopter customers on their 5 nanometer designs, and we delivered two 3 nanometer test chips in 2018. On the custom analog front, we have growing adoptions of both our Virtuoso RF and Photonic solutions. And one of the very last remaining large customers that was not using our flagship Virtuoso layout solution committed to adopting it. Last June, we introduced Cadence Cloud in collaboration with major cloud industry players Amazon Web Services, Microsoft Azure, and Google Cloud. We are pleased with the adoption momentum as we continue to lead the industry transition to the cloud. Now, before turning it over to John, let me quickly summarize my comments. Continued execution of our system design enablement strategy led to a broad strength across our product lines, and particularly in aerospace and defense vertical. I'm very excited about our new strategic partnership with Green Hills Software, the leader in embedded safety and security software. And it was a good year for our verification suite products, and as well as our IP business. With that, I will now turn the call over to John to review the financial results and provide our outlook.