Cadence Design Systems, Inc.

Good afternoon. My name is Ralph and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence fourth quarter 2020 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 star then the number one on your telephone keypad. Thank you. I would now like to turn the call over to Alan Lindstrom, Senior Group Director of Investor Relations for Cadence. Please go ahead.

Thank you, Rob. I would like to welcome everyone to our fourth quarter 2020 earnings conference call. I am joined today by Lipu Tan, Chief Executive Officer, Anirudh Devgn, President, 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 19th, 2021. A copy of today's prepared remarks will also be available on our website at the conclusion of today's call. Please note that the discussion today will contain forward-looking statements and that actual results may differ materially from those expectations. For information on 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 February 22, 2021, For the quarter and year-end of January 2, 2021, related financial tables and the CFO commentary are also available on our website. Note that again today we are conducting the earnings call from our respective remote locations. For the Q&A session today, we would like to ask you to observe a limit of one question and one follow-up. You may re-queue if you would like to ask additional questions and time permits. And now I will turn the call over to Lipu.

Good afternoon, everyone, and thank you for joining us today. In the year of unprecedented macro challenges, I'm pleased to report that Cadence achieved outstanding financial results for both the fourth quarter and 2020. For the year, we achieved 15% revenue growth and 35% on GAAP operating margin with strength across the board and all segments growing by double digits. In a moment, John will present more information for Q4 results and our 2021 outlook. The acceleration of digitization due to the pandemic coupled with exciting generational trends like 5G AI, ML, data analytics, and hyperscale computing continue to drive strong semiconductor demand. Leading hyperscaler mobile AI companies continue to aggressively pursue Moore's Law, while 5G wireless, industrial, and automotive verticals are leading the charge on the more than Moore's Fund. Our intelligent system design strategy triples our M, and our broad, compelling portfolio of chip, package, board, and system design solutions uniquely positions us to realize these exciting opportunities. In 2020, we accelerated our momentum and marquee accounts. while expanding our system portfolio through compelling acquisitions, enabling us to win new customers in our targeted vertical segments. Of particular note was the strength of our aerospace and defense business, as the digital transformation in this vertical continues. And we expanded and deepened our leadership chip with Northrop Grumman which includes the use of our custom analog and digital full flow. Additionally, we are especially excited by the momentum we have with the hyperscalers as they accelerate their chip and system design activity. Our engagements with the system companies have steadily deepened over the past few years, and revenue from system companies is now closer to 45% of our total revenue. It was a great year for our Cadence Cloud, which now has more than 175 customers. And we further strengthened our partnership with Cloud Infrastructure and Foundry Partners. Now let us review Q4 highlights. Design Excellence is a foundational layer of our strategy and includes our core EDA chip design platforms and IP portfolio. Our digital sign-off solutions offering superior quality of results and faster convergence continue proof rating at market shipping customers. We engage in well over 100 projects at 5 nanometer and below process technologies. And we are in earlier collaborations on the 2 nanometer nodes. Deployment of our full flow accelerated as more than 45 customers adopted our cadence digital full flow at the most advanced nodes during the year, including MediaTek, Samsung, Micron, Nuvia, and a global marquee customer. Based on the superior quality of results, a market-shaping hyperscaler significantly increased the usage of our digital solutions. Earlier in the year, a market-shaping automotive semiconductor customer committed to Cadence as its primary EDA vendor for digital design. Customers are faced with mounting challenges in system verification and software bring-up, and it's benefiting from our verification full-flow solutions that deliver industry-leading verification throughput. Momentum continued on Exilium, our digital simulator, with several competitive replacements underway, as well as expansions and new customer wins. Our hardware family of Palladium for emulation and Proteum for regression and earlier software development had a strong order to finish our best ever year for hardware. For the year, Palladium Z1 had 24 new customers and 34 expansions. Our Proteum had 13 new customers and 14 expansion. Iman was particularly strong at AI and hyperscaler customers. Ericsson renewed their commitment to cadence verification hardware, including both Palladium and Protium. A unique differentiator of the Protium X1 is the common front-end compiler with the Palladium Z1 that enabled significant faster bring-up. And about 40% of our hardware business during the year included both D1 and X1. Our IP business had a strong year as our focus strategy and a compelling portfolio leveraged on the ongoing IP outsourcing trend. We continue expanding the footprint of our leadership EDR and PCIe IP and have several design wins at the 5 nanometer and lower process nodes. High-speed SIRDI is a critical component of hyperscaler infrastructure. And several customers have adopted our 112 gig SIRDI IP, including Exide Labs, who has also demonstrated working silicon. Tensilica has strong loyalties and significant wins at the key-through wireless stereo and mobile application processor customers. Additionally, the automotive segment has a strong, ever-good momentum, which wins in functional safety, radar, and digital radio, including an ADAS win at leading self-driving car company. In system innovation, we are very excited about our system design and analysis segment, which had a particularly strong year with greater than 25% revenue growth. Rising system complexity for advanced 5G automotive and HPC applications is driving the needs for seamless platform solution across design, simulation, and analysis. AWR and Integrin deliver strong great results in 2020, and there is a strong customer interest in our integrated virtuoso, innovis, Allegro, and AWR microwave office solutions. with in-design analysis. In system analysis, we are executing to our strategy of building out our multi-physics portfolio, offering best-in-class solutions and delivering superior results compared to legacy industry solutions. Strong market adoption continue for our system analysis products. And we are particularly pleased with the growing number of repeat orders with customers, including ST microelectronics, Realtek, and a market-shipping hyperscaler. We triple our system analysis TAM by adding computational fluid dynamic CFD technology to the pending Numerica acquisition. which will bring leading CFD technology and deep domain expertise of Dr. Charles Hirsch and his team to Cadence. Numeca has over 450 customers, including NASA, Honda, and Ford, across multiple verticals, such as aerospace, automotive, industrial, and marine. For pervasive intelligence, we continue to incorporate machine learning technologies in various tools for improved PPA and faster convergence. Exilium ML has a successful engagement with several market-shaping customers, delivering up to a five-time improvement in regression throughput. We also progress. on providing IP specifically tuned for AI machine learning applications, especially edge-influencing applications. Cadence continues to invest in fostering innovation and advancing education through endowments at top universities. Building upon previous endowments at Stanford, the University of California at Berkeley, and Carnegie Mellon University. We announced a $5 million endowment at MIT's Schwarzman College of Computing to promote research in the fields of artificial intelligence, machine learning, and data analytics. Now I will turn it over to John to go over the Q4 results and present our 2021 outlook.