Cadence Design Systems, Inc.

Good afternoon. My name is Josh, and I will be your conference operator today. At this time, I would like to welcome everyone to Cadence's third quarter 2019 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'd like to ask a question during this time, simply press 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, Josh, and I would like to welcome everyone to our third quarter 2019 earnings conference call. I am joined today by Lip Bhutan, CEO, and John Wall, Senior Vice President and CFO. The webcast of this call is available through our website, cadence.com, and will be archived through the 13th of December, 2019. A copy of today's prepared remarks will also be available on our website at the conclusion of the call today. Please note that the discussion today will contain forward-looking statements and that actual results may differ materially from those expectations. For more 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 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 October 21st, 2019, or the quarter ended September 28th, 2019, 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. I'm pleased to report that Cadence achieved excellent operating results for the third quarter of 2019, delivering 9% year-over-year revenue growth. Based on our strong execution and strength of our technology and business, we are again raising our outlook for the year. Given the uncertainty of the ongoing trade situations with China, our outlook assumes current export limitations remain in place for the rest of the year. John will provide more detail on our outlook shortly. While global economy and geopolitical uncertainty continues, long-term trends such as AI, 5G, cloud, and IoT continues to drive strong design activity. The move to domain-specific computing and system companies building custom silicon, as well as a host of innovative silicon startups, are all pushing the technology envelope and driving the need for high-performance, low-power computing, high-bandwidth connectivity, and high-density storage. Our intelligent system design strategy position us well to maximize the resulting opportunities through building out our portfolio and providing more capabilities and value to our customers. The foundation of our strategy is the design excellence segment, which comprise of our core EDA and IP business. I will now provide some of the key quarterly highlights in this area. A key element of our approach has been to closely collaborate with our ecosystem partners and focus on market shipping customers. In Q3, we deepened our partnership with Samsung through a comprehensive agreement across our digital, custom, and verification product portfolio. Early this year, we had reported a breakthrough wide-ranging win with a marquee US semiconductor company. I am particularly pleased that we augmented that partnership with our largest ever IP order that included our 10-silica processor family and our design IP portfolio, including ultra-high-speed 30s. At its recent Open Innovation Platform event, TSMC recognized Cadence with four Partners of the Year awards, including an award for joint development of six nanometer design infrastructure and one for joint delivery of cloud-based productivity solution. Our Cadence cloud portfolio has great momentum, with over 50 customers using our solution in the cloud. Kadant cloud-ready products and close collaboration with our cloud infrastructure and foundry partners are enabling our customers to realize meaningful scalability, performance, and flexibility benefits from using the cloud. Our cloud-based model is used for hybrid cloud infrastructures where customers want to augment their on-premise infrastructure with bus capacity from the public cloud to address peak load. Continuing strong proliferation of our digital and sign-off solutions, especially with market shipping customers at the most advanced nodes, have driven share gains and double-digit year-to-date revenue growth. In addition to numerous 7-nanometer tape-outs, There are more than 15 customer engagements at five and three nanometer using our digital flow. MediaTek has deployed our digital full flow in production for their seven nanometer designs. At Mennanox, a leader in data connectivity solutions, Innoverse replaced the incumbent solution for all of their production 7 nanometer designs. We also had a digital full-flow competitive win for 7 nanometer design with a leading Japanese imaging company. UNDA used Cadence digital full-flow, which is based on common engines and includes Janus, Innovus, Tempus, and Pegasus to achieve the best quality of results and the fastest conversion of their highly innovative and completely integrated first digital automotive radar on chip. Next, I will discuss highlights of our system design and verification solutions. Our Palladium Z1 emulator and the recently introduced Proteum X1 FPGA-based prototyping platform now provide a comprehensive solution across IP and SOC verification, hardware software regressions, and earlier software development. Growing system design complexity and the high cost of failure continues to drive strong demand for our Palladium Z1. In Q3, the Z1 added eight new customers, and I have eight key expansions. Rounding off our hardware family is a Proteum X1, which is a perfect complement to our Palladium Z1. I'm excited by the strong customer interest in Proteum X1. A global marquee customer significantly expanded their existing hardware footprint with the additional Z1 capacity and Proteum X1 as well, making it one of the largest hardware orders ever for Cadence. We had several full verification suite wins in Q3, including a major customer in Asia and an automotive semiconductor company in EMEA. In IP, Our focused strategy and strong portfolio have enabled us to benefit from the continuing IP outsourcing trend. In Q3, we had our best-ever quarter for IP with year-over-year revenue growth exceeding 20%. It was an especially strong quarter for our 10 silica products with additional wins in audio, imaging, computer vision, and machine learning. In system innovation segments of our intelligent system design strategy, we introduced the Celsius thermal solver, which joins the QWERTY 3D EM solver in a growing suite of our system analysis products. Celsius is the industry's first complete electro-thermal co-simulation solution for the electronic systems from ICs to system or to physical enclosures. Based on the proven massively parallel architecture that delivers up to 10x faster performance with full accuracy, Celsius enables design teams to mitigate thermal issues at an earlier stage. thereby reducing system development iterations. Bosch and Arm have both endorsed these exciting new products and were in the midst of earlier discussion with several other customers. Clarity, which was announced earlier this year, continued its strong momentum with four competitive wins during the quarter. and more than 30 active customer engagements underway. With that, I will now turn the call over to John to review the financial results and provide our updated outlook.