Cadence Design Systems, Inc.

Good afternoon. My name is Brianna and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence fourth quarter and fiscal year 2023 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 will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead, sir.

Thank you, operator. I'd like to welcome everyone to our fourth quarter of 2023 earnings conference call. I'm joined today by Anur Devgn, President and Chief Executive Officer, and John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call and a copy of today's prepared remarks will be available on our website, cadence.com. Today's discussion will contain forward-looking statements, including our outlook on future business and operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussion. For information on factors that could cause actual results to differ, please refer to our SEC filings, including our most recent Forms 10-K and 10-Q, CFO Commentary, and today's earnings release. All forward-looking statements during this call are based on estimates and information available to us as of today, and we disclaim any obligation to update them. In addition, we will present certain non-GAAP measures which should not be considered in isolation from or as a substitute for GAAP results. Reconciliation of GAAP to non-GAAP measures are included in today's earnings release. For the Q&A session today, we would ask that you observe a limit of one question and one follow-up. Now I'll turn the call over to Anirudh.

Thank you, Richard. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report that Cadence delivered an outstanding Q4, wrapping up a record 2023, achieving 15% revenue growth, 42% non-GAAP operating margin, and over 20% non-GAAP EPS growth for the year. We exited 2023 with a record backlog of $6 billion as customers increasingly committed to our chip-to-system integrated design and analysis platforms. We expect our innovative solutions to continue driving broad-based business momentum in 2024. John will provide more details in a moment. Secular trends of digital transformation, hyperscale computing, and autonomous driving, all boasted by an AI supercycle, continue to fuel strong broad-based design activity. We continue successfully executing to our intelligent system design strategy that triples our time opportunity while greatly expanding our portfolio. Our innovative engine delivered several significant products, including most recently the revolutionary Millennium M1 platform, the industry's first accelerated multi-physics supercomputing platform. The platform tightly integrates our fidelity CFD software with high-performance GPUs and combines AI, HPC, and digital twin technology to deliver an unprecedented 20x energy efficiency and up to 100x design impact. We were honored to have customers including Honda, Boeing, and GE as speakers at our launch event. We substantially grew our footprint at market shaping customers and expanded our relationships with key ecosystem partners. We further our partnership with Intel Foundry through a strategic multi-year agreement on providing design software and leading IP at multiple Intel advanced nodes, thereby advancing Intel's IDM 2.0 strategy and accelerating mutual customer success. Cadence is at the forefront of the AI revolution, closely partnering with marquee companies on their trail-based AI design for training and inference from cloud to the edge. NVIDIA and Cadence have collaborated closely over several years. And in Q4, we deepened our partnership through a meaningful expansion of our hardware solutions and EDS software. Earlier in the quarter, we announced our work on Cadence.ai with NVIDIA's NEMO Retriever. And now, we are thrilled to deepen our partnership and extend it to the new Millennium Multiphysics Supercomputer and SAS solution, which is co-optimized with NVIDIA's accelerated computing and AI platform. And as the exclusive EDA partner of Arm Total Design, Cadence and Arm are closely collaborating to accelerate the development of custom SOCs based on the Neoverse compute subsystem. Over the year, we have continued building out our generated Cadence.ai portfolio, the industry's broadest AI offering, spanning chip to board to system and delivering exceptional optimization and productivity benefits. Earlier in Q2, we introduced Virtuoso Studio and Allegro XAI, bringing AI to custom analog and PCB designs. And in Q4, we added Voltus Insight AI for automatically addressing voltage drop violations. We also pioneered bringing LLM capabilities to chip design, successfully helping Renaissance accelerate functional specification to final design. Accelerating momentum of our Cadence.ai portfolio has led to an almost tenfold increase in the number of customers adopting our Gen AI solutions in 2023. As customers embrace the technology to develop optimized products much more efficiently. Now let's talk about some of the product highlights for Q4 and 2023. Rising system complexity and challenges stemming from the growing hyperconvergence of the electrical, mechanical, and physical worlds are driving the need for a seamless platform solution across design, packaging, simulation, and analysis. We made this a core tenant of our intelligent system design growth strategy six years ago, and our system design and analysis business continued a strong momentum, delivering 18% year-over-year growth in Q4 and 22% growth for the year. PCB and advanced packaging are linchpin technologies that sit at the crucial intersection of mechanical and electrical domains, and Cadence's rich heritage in these areas remain a key strategic differentiator, especially in the emerging chiplet era. We continue advancing these technologies with Allegro X ai providing greater than 10x acceleration in pcb design and endorsed by schneider electric and kyosha at its launch our multi-physics analysis portfolio couples our expertise in physics-based modeling with ai driven optimization and is delivering superior results to customers across multiple vertical segments especially aerospace and defense and automotive Recently, we launched Celsius Studios, the industry's first complete AI thermal design and analysis solution for electronic systems, delivering up to a 10x performance benefit over legacy systems with endorsement by Samsung and BAE Systems. And Vistron, a leading technical services provider, use Optimality's AI-driven optimization technology and clarity for fast, accurate electromigration in design analysis, improving design reliability while realizing a 2x improvement in turnaround time. Our digital IT business finished another strong year with 22% revenue growth in Q4. As our solutions continued gaining share at market-shaping customers, especially at the most advanced nodes. Our digital software is proliferating in all top 20 semiconductor companies, and our digital full flow was adopted by 34 additional customers during the year. We are very pleased with the accelerating momentum of our flagship Cadence Cerebrus GenAI solution, whose transformative PPA and productivity benefits have led to its deployment in all our top 10 digital customers and used in well over 300 tape-outs. In Q4, Cadence Cerebras run rate more than quadrupled at several market-shaping customers, and it also drove significant digital full-flow expansions at two top-tier semi-customers. Our Integrity 3D-IC platform is the industry's only unified 3D-IC design and analysis platform and ties our best-in-class SOC and package design technologies with system-level planning and analysis. In Q4, GUC successfully used integrity to tape out a complex 3D stacked die design with a wafer-on-wafer structure on an advanced spin-fed node. Next, I will talk about our functional verification business. which had another remarkable year, delivering 11% year-over-year revenue growth in Q4 and 22% growth for the full year. Escalating system and software bring-up challenges, along with pressing need for first-pass silicon success, continue driving strong demand for our functional verification solutions. Our best-in-class dynamic duo of Palladium Z2 and Proteum X2 platform delivered another record year with strong momentum across AI, hyperscale, auto, and mobile. Virtually all of the top hyperscalers are Palladium customers, and the majority of them are also dynamic duo customers. Last month, we announced a new set of Palladium Z2 applications, that included the industry's first four-state emulation and mixed signal modeling capabilities that will significantly accelerate SOC verification. Marquee customers, including NVIDIA and Samsung, supported the announcement. Our hardware family added 26 new and over 110 repeat customers during the year, with the top three deals being with a global marquee system company, the leading AI system company, and the leading communication services company. Demand for the duo greatly exceeded our expectations with more than two-thirds of the orders in the year, including both platforms. Our custom IC Virtuoso Inspector franchise solutions tackle the most complex challenges in analog, mixed signal, RF design, and circuit simulation. and are increasingly crucial for our customers. Building on our market leadership, our custom IC revenue grew 16% year-over-year in Q4. Customer interest in our recently announced Virtuoso Studio is strong, with over 2,000 downloads so far, and adoption of our newer Spectre platform products continues to ramp. Virtuoso had a major win with a top global memory company, which replaced its internal tools with our technology. Our IP business drove a strong finish to the year, growing 36% year-over-year in Q4. We continue to sharpen our star IP strategy with a targeted acquisition such as Rambus Phi IP and Invicus, to capture market opportunities offered by AI and heterogeneous integration. Customer interest in the Rambus 5 assets, especially HBM and GDDR IP, have been extremely positive, which have already been instrumental in closing some strategic deals. Our Invikas acquisition is also highly synergistic to the strategy. adding a skilled engineering team with expertise in delivering custom solutions across design, product engineering, advanced packaging, and embedded software. In closing, we are pleased with our outstanding performance in 2023 and are excited by the business momentum and market opportunities in 2024. Now, I will turn it over to John to provide more details on the Q4 results and our 2024 outlook.