Synopsys, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Synopsis Earnings Conference Call for the third quarter of fiscal year 2020. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If you should require assistance during the call, please press start followed by zero. Today's call will last one hour. Five minutes prior to the end of the call, we will announce the amount of time remaining in the conference. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Lisa Eubank, Vice President of Investor Relations. Please go ahead.

Lisa Eubank Thank you, Moses. Good afternoon, everyone. Hosting the call today are Art DeGias, Chairman and Co-CEO of Synopsys, and Track Fung, Chief Financial Officer. Before we begin, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts, targets, and other forward-looking statements regarding the company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results and performance are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that we highlight during the call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release. In addition, we will refer to non-GAAP financial measures during the discussion. Reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release financial supplement and 8K that we released earlier today. All of these items, plus the most recent investor presentation, are available on our website at Synopsys.com. In addition, the prepared remarks will be posted on the site at the conclusion of the call. Finally, we are all again participating from different locations today. Please forgive any delays or technology glitches or awkward handoffs in the Q&A session that might occur as a result. With that, I'll turn the call over to Art Tagia.

Good afternoon. Synopsys continues to execute very well and delivered record revenue, non-GAAP earnings, and cash flow in the third quarter. Revenue was $964 million. with gap earnings per share of $1.62, non-gap earnings per share of $1.74, and $399 million of operating cash flow. Revenue growth was strong across all product groups and geographies. Orders were greater than our internal plan, with particular strength in EDA software. We also continued to make excellent progress on our margin expansion goals. As a result of this overachievement and broad-based strength, we are raising fiscal 2020 revenue, operating margin, non-GAAP earnings, and cash flow targets. Trak will discuss the financials in more detail. Our excellent results and confidence reflect product differentiation and technical strength bolstered by an intense multi-year innovation push and high demand for our advanced solutions. We're progressing rapidly towards crossing the $4 billion revenue milestone while simultaneously increasing bottom-line value through continued operating margin expansion. Even as the world navigates through the pandemic, a slowing economy, and geopolitical uncertainty, the market in which we operate remains robust. Global design activity and customer engagements are flourishing, driven by unrelenting complexity of chip and system design under both fabless and vertically integrated strategies. Growing segments such as AI, 5G, high-performance compute, cloud, and the proliferation of smart everything are especially strong for Synopsys. As a result of extensive technology investments, our product platforms are the best they've ever been. Take AI, for example. In addition to being a leading provider to this market, we ourselves apply AI and machine learning throughout our portfolio. The results are excellent. Our new dso.ai product announced last quarter is just the latest example of machine learning directly benefiting our customers' time to market. With that backdrop, let me provide some highlights from the quarter, beginning with EDA. We deliver double-digit revenue growth driven by both design and verification software. In digital design, our intense multi-year innovation push is bearing fruit with accelerated product adoption and revenue growth across our Fusion design platform. Most notably, our Fusion compiler product continues to win benchmarks and drive increased competitive displacements that solidify plan of record status. When we announced this groundbreaking new solution about 18 months ago, we expected it to be highly differentiating and deliver great results. Quarter by quarter, this has proven to be true, as customers are consistently realizing the best results with lowest runtime. Consequently, the adoption rate in production design is accelerating, especially in new projects and for the most advanced process nodes that require this high level of integration. In this quarter alone, we literally saw a doubling of tape-outs. Proliferation momentum is broad across many different markets, ranging from very large global semis specializing in automotive and communication chips to promising AI startups and notably a microprocessor leader who is expanding Fusion compiler usage as plan of record across next-generation projects. The Fusion vision and impact extend well beyond Fusion compiler. For example, our industry gold standard sign-off, which is used in approximately 95% of all advanced designs today, is highly integrated with Fusion Compiler and throughout the entire flow. Another dimension of continuous innovation is cloud enablement. Our collaboration with industry leaders Microsoft and TSMC has delivered cloud-enabled sign-off products, showing dramatically higher throughput and 2x savings on cloud computing resources. Let me now turn to custom design, which again grew by double digits. We continue to secure full flow competitive displacements with multiple high profile advanced customers choosing Synopsys. Panasonic, for example, adopted our full flow custom design platform for its analog, mixed signal, and RF designs. We also have a record number of new evaluations underway. These include several traditional analog companies, as well as the advanced node customers we have historically been close to. Moving now to our verification continuum platform, where significant technology innovation sustains our market share leadership. Verification software growth continues unabated, reflecting tight integration of the fastest engines on the market, infused with multi-core machine learning and cloud technologies. Contributing substantially to this growth are large influential cloud hyperscalers, and global systems companies. The power of ECS performance and throughput also led to key competitive displacements in the AI and security IP verticals. Hardware-based verification continues to perform well. Differentiated by unmatched speed, high reliability, easy installation and maintenance, and lower cost of ownership, we're the solution of choice for complex hardware software designs. In Q3 alone, we continue to broaden our customer base adding 11 new hardware customers and more than 25 repeat orders, ranging from the largest systems and semiconductor companies in the world to high-impact AI chip designers, hyperscalers, and automotive suppliers. One example is Fuji's Aerox, where our Zebu emulation accelerated development of an advanced multifunction printer chip by two months. We expect to deliver another strong year for hardware. Be it in design or in verification, the completeness and strength of our EDA portfolio is key to many important ecosystem partnerships and collaborations. During the quarter, we extended our strategic teamwork with ARM to help accelerate design and verification of ARM-based designs for our mutual customers. Also, Synopsys was selected as a prime contractor for the government's DARPA Automatic Implementation of Secure Silicon program. Synopsys will collaborate with researchers from commercial, academic, and defense leaders to increase security of the semiconductor supply chain. Now to IP, which again delivered outstanding results with record revenue in the quarter, contributing to what we expect will be another year of excellent growth. Our success is driven by high market demand and an unrivaled portfolio. Specifically, Synopsys has the broadest set of critical IP for today's most dynamic verticals, a long-standing track record of high reliability and quality, and early availability of titles as the key advanced manufacturing processes. This quarter, we saw especially strong momentum in both interface and foundation IP. Bolstering our market-leading interface portfolio, we introduced the industry's first complete USB4 IP solution, production-ready for advanced 5-nanometer processes. With a record orders quarter, we also further extended our lead in foundation IP, which includes critical embedded memories and advanced logic libraries. In the automotive space, which continues its design investments, even during the current revenue downturn, our years of investment are driving continued success with our arc processors. Perhaps the hottest vertical in the current COVID era is high-performance compute. Widespread work-from-home environments mean greater need for huge amounts of servers, GPUs, AI accelerators, data centers, and enterprise storage. For Synopsys, it drives significant IP demand for protocols such as PCI Express, 112-gig Ethernet, and DDR. NVIDIA, for example, selected our advanced DDR5 IP for its high-performance cloud computing networking chips for multiple processes, including 7 nanometer. We had multiple design wins for our new 112 gig high-speed SerDes offerings. And meanwhile, we taped out our full IP portfolio for high-performance compute in the 5 nanometer process. Which brings me to software integrity, which delivered double-digit revenue growth in the quarter. Orders remain softer than planned as we navigate COVID-related delays and our ongoing field adjustments. Our long-term value proposition and market opportunity are very compelling. The need for security and quality testing is high, as the impact of a breach is immense. The breadth and roadmap of our portfolio are well-suited for evolving DevSecOps requirements. We have the broadest portfolio of key products that we are integrating onto a cloud-native platform. while our strategic consulting services are an important differentiator to enable high-level value-added engagements. This business has grown to roughly $350 million in annual revenue, with expanding profitability. As we've mentioned in the past several quarters, our ambition is to now scale to our next objective of $500 to $1 billion. We've made good progress, ramping up consulting sales and support to better serve large enterprise companies, and upgrading our systems to enable faster, more nimble engagements. In Q3, we saw an increasing number of customers who want to move from a desperate collection of individual tools to vendors who can deliver multiple products. We signed nine new Polaris platform agreements this quarter, and we saw customers replacing incumbent point tools. For example, an expanded agreement with a large U.S. software provider and a new engagement with a global hospitality company. Two weeks ago, we also welcomed our new general manager, Jason Schmitz, to help drive the business to the next level of impact. In his 20-plus years of security industry experience, Jason has scaled or managed sizable security businesses, both inside a large organization and most recently as CEO of a successful startup. Jason has hit the ground running and has begun to implement his 90-day plan. Our team is eager to move into this next phase. As we head into the final quarter of this eventful year, we're already planning for next year and beyond. A key element of that planning is another announcement we made today, We are promoting Sassine Ghazi to Chief Operating Officer. As most of you know, Sassine has led the design group for the past three and a half years. During that time, he has made a great impact on our innovation focus and capabilities, accelerating development of market-changing new products that are now seeing excellent momentum and revenue growth. With experience that spans R&D, customer support, sales management, and corporate leadership, He is the right person at the right time with the right team to help solidify and increase our momentum even more. With accelerated innovation across the board, complemented by execution excellence, we look forward to growing Synopsys well beyond $4 billion in revenue while further expanding profitability. In summary, our compelling new product and strong execution resulted in outstanding and record third quarter results. We are raising our annual guidance for revenue, operating margin, non-GAAP earnings per share, and operating cash flow. Design activity is robust and expected to remain so for the foreseeable future. The momentum of our technology innovation is palpable and resonating very well with customers, and we are well on track to reaching the financial objectives we communicated last year. We thank all of our employees for an outstanding quarter under challenging global conditions. Jack will now highlight the financial perspective.