Cadence Design Systems, Inc.

Good afternoon. My name is Jesse, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Cadence fourth quarter 2019 conference call. All lines set in place on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer time. If you'd like to ask a question during this time, simply press star number one on your telephone keypad. Thank you. I'd now like to turn the call over to Alan Lynch, the group director of investor relations for Cadence. Go ahead.

Thank you, Jesse, and I would like to welcome everyone to our fourth quarter 2019 earnings conference call. I am joined today by Lipu Tan, Chief Executive Officer, and John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call is available through our website, cadence.com, and will be archived through March 13, 2020. 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 the 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 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 February 12th, 2020 for the quarter ended December 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. Thank you for joining us today. I'm pleased to report that Cadence delivered a strong Q4, achieved excellent operating results for the year. For 2019, amid environmental headwinds, we delivered 9% year-over-year revenue growth, and 32% non-GAAP operating margin, with strength across our product lines. John will provide more details shortly. Macro uncertainty and geopolitical headwinds persist into 2020, but strong design activity continues at both advanced nodes as well as more-than-more fronts. This is being driven by generational technology drivers, 5G, AI and machine learning, hyperscale computing, industrial IoT, and autonomous vehicles, which all have semiconductors at their foundation and are propelling the need for next-generation computing, connectivity, and storage. I believe these trends in addition to system companies developing custom silicon, domain-specific processing, computing, silicon startups, and digital transformation of vertical segments like industrial and aerospace and defense, will continue to fuel silicon renaissance over the next few years. In 2019, we unveiled our intelligent system design strategy that will enable us to maximize these opportunities while tripling our TAM through proliferation in foundational design excellence segment and expanding beyond EDA into system innovation and pervasive intelligence. We achieved strong growth in design excellence which is comprised of core EDA and IP, fueled by the launch of several innovative products, as well as wide-ranging expansion of our solutions, particularly at market shipping customers. Our digital and sign-off business achieved double-digit revenue growth for the year, as strong proliferation continued. driven by customer demand for solutions offering best-in-class performance power area and time-to-market capabilities. A market-shaping global mobile company expanded their partnership with us through a large and comprehensive EDA software booking, which included a significant expansion of our digital footprint. Building upon successful 7-nanometer designs, Cadence and Broadcom expanded their collaborations to include the creation of 5-nanometer designs using Cadence digital implementation solutions. We have about 50 new full-flow wins in 2019, including a recent full-flow competitive win for new advanced node designs with a leading maker of FPGA chips. During the year, we announced successes in our digital business with customers such as MediaTek, Samsung, SocialNet, Innovium, Mennonauts, and Unda. Verification is one of the top challenges of our customers. and our verification suite had several wins across multiple vertical segments in 2019. Our Exelium parallel simulator with its innovative Rocket Tech technology continues to proliferate and recently had a noteworthy win at the leading US computing company. Our hardware family comprised of Palladium Z1 emulator and recently introduced Proteum X1 FPGA-based prototyping platform, provide a comprehensive solution across IP and SOC verification, hardware software regressions, and earlier software development. Due to a common front-end compiler, these complementary platforms, when working in tandem, deliver even more compelling value to our customers. And we are getting strong attractions with Proteum X1 being deployed at Palladium accounts. Hardware had a record year with significant expansion at several customers, while adding 19 new Z1 and 11 new X1 customers over the year. including a global marquee customer that placed one of the largest hardware orders ever for Cadence. 2019 was an outstanding year for our IP business with 16% year-over-year revenue growth. As our focus strategy and strong portfolio leveraged, the continuing IP outsourcing trend while enabling customers to accelerate their innovation and time to market. It was an especially strong quarter and year for our Tensilica products, with wins in audio, imaging, computer vision, and machine learning. Loyalty growth was strong, particularly in the audio market, where Tensilica's Wi-Fi Hi-Fi DSP processor are increasingly proliferating in true wireless studio-based earbuds and in the next generation smart speakers. Design IP had a great year as well, with strength in DDR, PCIe, and our 112 gig 30 products. As we proliferate with customers, in AI, 5G, and cloud computing. Early in the year, we augmented our partnership with a marquee US semiconductor company through our largest IP agreements, arrangements ever, which included 10-silica processor IP, 112-gig-30 IP, as well as additional memory and interface IP products. Now let us move on to the system innovation segment of our intelligent system design strategy. In 2019, we enter the system analysis market and estimated $5 billion TAM opportunity by introducing two exciting new products. The security 3D solver, the next generation solution, for electromagnetic field simulations, and Celsius ThermoSolver, the industry's first complete electro-thermal cold simulation solution. Increasing system complexity and time-to-market pressures are driving the need for far more engineering simulations, while underscoring the significant performance and capacity limitation of existing industry solutions. Both Clarity and Celsius are based on proven massive parallel architecture that delivers up to 10 times faster performance while maintaining gold standard accuracy. We are extremely pleased with the ramp of these innovative products with well over 90 evaluations underway, and more than 20 customers to date, including Micron, STMicro, Kyosha, Realtek, and Ambarella. Generational industry trends are driving the need for increased heterogeneous integration, coupled with the slowing down of Moore's Law drove strong demand for our advanced packaging solutions. leading to double-digit year-over-year growth. There are growing challenges in designing products for complex, high-frequency RF applications, especially in the 5G wireless, aerospace and defense, and automotive segments. To that end, we acquired AWR, a leader in high-frequency RF solution. We also acquire integrant software, which provide a leading RF solution for analysis and abstraction. Integrating these technologies with our virtuoso and allegro platforms will enable us to offer a comprehensive platform for RF millimeter wave products. from initial design to simulation, implementation, verification, and manufacturing. We enter into strategic alliance agreement with national instruments, which is focused on the design to test flow, enabling customers to improve quality and reduce time to market. Lastly, we extended our cloud leadership in EDA providing customers with compelling productivity, flexibility, and scalability benefits. Adoption of our cloud portfolio accelerated, and we passed the 100 customer mark. TSMC partnered with Cadence and Microsoft on the first TSMC IC layout contest. Cadence delivered cloud-based Azure environment that allowed several hundreds of students to simultaneously compete using cadence layout tools. With that, I will now turn the call over to John to review the financial result and provide our updated outlook.