Synopsys, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Synopsys Earnings Conference Call for fourth quarter and fiscal year 2020. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session, and you can place yourself into that queue by pressing 1 then 0 on your telephone keypad. If you should require assistance during the call, please press star followed by 0. 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.

Thank you, Rich. Good afternoon, everyone. Hosting the call today are Arch DeGias, Chairman and Co-CEO of Synopsys, and Trach Pham, 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, so please forgive any delays or technology glitches or awkward handoffs in the Q&A session.

that occur as a result and with that i will turn the call over to arts to gia good afternoon i'm pleased to report another outstanding year for synopsis despite unprecedented macro challenges we build considerable financial technology and customer momentum we substantially exceeded our original plan with business strengthening through the year We grew revenue nearly 10% to 3.685 billion, led by EDA software and IP, expanded non-GAAP operating margin by three percentage points, delivered more than 20% non-GAAP earnings growth, and record cash flow of 991 million. Contributing to these very positive results were the new EDA and IP products we've introduced over the past few years. We expect to further build on this momentum with several groundbreaking technologies that we launched this year. In addition, our re-energized software integrity business is on its way to scaling to the next level and re-accelerating growth. About two years ago, we communicated a three-year financial plan to drive double-digit, non-gap earnings growth through a combination of top-line growth and operating margin expansion to the high 20s by 2021. We achieved our initial ops margin target a year early and have consistently delivered high single-digit revenue growth. As we enter 2021, we expect to surpass $4 billion in revenue with non-GAAP operating margins of 29% to 30%, low to mid-teens non-GAAP EPS growth, and more than $1 billion in operating cash flow. Beyond 2021, We will raise our ambition to a rule of 45 as we drive revenue growth and further operating margin expansion. Trak will discuss the financials in more detail. Meanwhile, design activity remains strong across the board. Opportunities in key end markets such as AI and machine learning, high-performance computing and cloud, 5G and automotive are massive. as all drive increasing adoption of our advanced solutions at a time that Synopsys enjoys particularly strong differentiation. This includes ambitious companies such as AI startups and cloud hyperscalers, as they position themselves to leverage big data generated by the billions of cloud-connected IoT devices. They need a trusted partner who not only has the most advanced high-impact products today, but complete solutions capable of scaling well beyond the traditional demands of Moore's Law into the powerful intersection of hardware and software. Let me provide some highlights. In EDA, our unrelenting innovation push in digital design has strengthened our long-standing market leadership. More than 95% of advanced designs today rely on our fusion design platform, and over the past year, revenue growth has accelerated. In particular, we continue to see strong adoption momentum for our Fusion Compiler product, the industry's premier digital design solution. Fusion Compiler significantly exceeded its orders target, increasing 140% in 2020. The progression from technical benchmarks to competitive wins to growing orders and production proliferation is trending even better than we anticipated. We've seen widespread adoptions from customers ranging from the largest global communications processor and graphics firms to high-impact cloud hyperscalers to influential system houses and AI startups. For our customers, production deployment yielded excellent results, as evidenced by five times the number of tape-outs in FY20 compared to last year, and for us, a rapidly growing pipeline across many market segments. The Fusion Technology Foundation also dovetails exceptionally well with the challenges inherent in the next wave of chip and system design. Specifically, Synopsys is addressing new TAM opportunities in AI-driven design flows, in 3D multi-chip design, and in the new area of silicon lifecycle management. Let me start with our DSO.AI product, where DSO stands for Design Space Optimization. Our combination of fusion and AI learns and automatically adjusts and optimizes design exploration for both better results and faster time to market. With it, design teams can also tackle larger blocks and more projects, thus focusing on more value-added tasks. Even in this early stage, the power and potential of DSO.AI is being widely recognized as it received a 2020 World Electronics Achievement Award for Innovative Product of the Year. Next is our extremely timely 3D IC compiler solution with disruptive technology that enables the design and analysis of multiple dye together on a chip. At the very moment that system architects are augmenting traditional chip complexity by connecting multiple chips very tightly together, our 3D IC product provides far better performance and capacity than conventional disaggregated chip-in package approaches. Finally, we launched the industry's first silicon lifecycle management platform just last month. On-chip sensors and monitors feed into data analytics engines integrated with leading test and yield management. This provides visibility into critical performance, reliability, and security issues for the entirety of a chip's lifespan, from design to in-field operation. Early customer interest in all of these new solutions is very high. Turning to custom design, momentum for our custom compiler product accelerated with more than 30 new logos and 15-plus full-flow competitive displacements during the year. This resulted in over 50% revenue growth. Having seen the power of our innovations targeting advanced FinFET designs, a number of the highest impact semiconductor and systems companies are putting their trust in us. Let me now move to our verification continuum platform. which combines market-leading anchor products into a seamless, high-efficiency solution. With the complexity increase of intersecting chips, systems, and software, the need for verification continues to rise. Our number one market share position in both software and hardware puts us at the center of this wave. As we continue to innovate aggressively in state-of-the-art native integration of the fastest engines, Contributing to our solid growth on the software side are influential high-profile customers ranging from hyperscalers to AI to automotive and mobile. Our hardware-based verification products are totally focused on unmatched speed, highest capacity, lowest cost of ownership, and lowest power consumption for high complexity designs. Building on our record here in 2019, In 2020, we again expanded our customer base, adding more than 50 new customers and well over 100 repeat orders. This includes major expansions at some of the world's largest semiconductor and systems companies. Now to IP, where strong market demand for our rich portfolio drove another record year, growing approximately 20% to more than $900 million in revenue. Our strength is broad-based across all regions and key market segments, particularly high-performance compute, cloud and networking, AI, and automotive. In automotive, momentum continued in 2020 as we have achieved more than 400 wins on advanced processes across more than 30 major semiconductor companies. An area of particular automotive strength is our arc processor. This year, we extended our lead in automotive qualified titles by delivering the industry's first processor certified for full ISO 26262 automotive safety integrity level D compliance. We also broadened our portfolio, introducing DSPs, higher performance embedded vision, and a 64-bit processor family. As the undisputed leader in interface IP, we continue to see very strong adoption of generation upon generation of important titles, including PCI Express, memory interfaces, and MIPI, which had an exceptional year. In USB, we extended our leadership by introducing the industry's first USB4 IP. We also saw continued traction in very high speed 30s with multiple 56 and 112 gig wins. Building on our lead in foundation IP, we expanded our portfolio to include specialty memories used in AI and cloud compute and general purpose IOs, which had an excellent year. Finally, our track record of being first to market with IP and advanced process nodes continues and is highly valued by our customers. We announced a full portfolio of 5-nanometer IP with multiple silicon-proof points, including our industry-leading PCIe 5.0 and USB4 solutions. With already more than 50 5-nanometer design wins, we started development of next-generation 3-nanometer products, targeting high-end mobile and high-performance commutes. Now to software integrity, testing software code for security vulnerabilities and quality issues. This area contributed approximately 10% of our revenue. The market opportunity is vast, with the need to address critical security challenges steadily increasing in importance. As the industry leader with the broadest portfolio of products and services available today, we're well positioned to serve this growing space. Over the past several years, we have successfully expanded our customer base with enterprise companies now representing about 75% of revenue. In 2020, we saw an increasing number of customers adopting multiple products and services, leveraging our broad portfolio. An important example is the Fortune 100 technology industrial and aerospace conglomerates. The depth and breadth of our products and services allow them to consolidate from multiple vendors to Synopsys while significantly expanding their investment and user base. Having said that, software integrity is the one area that saw an impact from COVID as well as some near-term operational transitions. Our new general manager hit the ground running a little over three months ago and has already made significant enhancements in three areas. First, we evolved our go-to-market strategy and customer success organization to better address and serve new and existing customers. This includes timing our sales coverage and building an indirect sales channel. Second, we are bolstering our strategic consulting capabilities. And third, we are evolving our product roadmap to capitalize on security trends in DevOps and cloud adoption. The recent moves are encouraging. and we expect to see continuous progress towards ending the year with reaccelerated growth. We're very optimistic about the long-term opportunity as we work to scale past the half-billion-dollar mark next. In summary, we're entering 2021 with significant momentum. Market demand is strong, fueled by complex technologies and a multitude of high-profile verticals. Our innovation engine continues to deliver advanced capabilities as our product offering is increasing in differentiation while seeing strong adoption. Financially, we're executing very well and raising our long-term ambition. Thank you to our dedicated employees who quickly and effectively adapted to unprecedented challenges this year and to our customers and partners for their commitment and support. With that, I'll turn it over to Trak.