Synopsys, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Synopsis Earnings Conference Call for the first quarter of fiscal year 2021. 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, you may press star 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, and at this time, I would like to turn the conference over to Lisa Eubank, Vice President of Investor Relations. Please go ahead.

Thank you, Lori. Good afternoon, everyone. With us today are Arch DeGias, Chairman and Co-CEO of Synopsys, and Track Farm 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 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 synopsis.com. In addition, the prepared remarks will be posted on the site at the conclusion of the call. Finally, we are again all participating from different locations today. Please forgive any delays, technology glitches, or awkward handoffs in the Q&A session. that occur as a result. Thank you very much for that. With that, I'll turn the call over to Art Tagia.

Good afternoon. Q1 was a very good start to the year as we met or exceeded all of our guidance targets. Revenue was $970 million with gap earnings per share of $1.03 and non-gap earnings above our target range at $1.52. Business was strong across all geographies and product groups. And for the year, we are reaffirming our guidance with low to mid-teens non-GAAP EPS growth, revenues surpassing the $4 billion milestone, non-GAAP operating margin of 29% to 30%, and more than $1 billion in operating cash flow. Meanwhile, our markets are strong. Wherever one looks, be it at AI and machine learning, hyperscale-enabled cloud computing, 5G, next-generation automotive, massively connected IoT, or software-enhanced medical devices, all require more chips and software. Chips to store and move huge amounts of IoT data through the cloud. Chips for massive general compute and AI-driven smarts in every vertical and markets. Still more chips to tie these huge hardware and software systems seamlessly together and make them both secure and safe. And the escalating need for ever more secure software, whether embedded on an electronic system or in the enterprise software space. This is the center of gravity for Synopsys. With our product portfolio that not only excels in advanced system-on-chip design, but reaches down into the critical foundation of silicon manufacturing and up to the intensifying needs of smart software, we are uniquely positioned at the heart of this opportunity space. It's quite rewarding to see the adoption and business momentum of the innovations we've introduced over the past several years and the enthusiasm around our further expansions into brand-new domains through our next wave of technology disruptions. Let me share some highlights, beginning with EDA. Our groundbreaking Fusion design platform continues to drive proliferation and competitive displacements, supporting strong revenue growth. This includes major expansions and evaluations at historical competitor strongholds. Customers clearly recognize our leadership at the most advanced nodes, now down to 5 and 3 nanometer. Our fusion compiler product specifically delivers superior performance, power, and area results. With numerous competitive wins and wide deployments with influential, high-impact semi and systems companies around the world, we see growing business momentum. Integral to our sustainable differentiation is native integration of our golden sign-off products, which guarantees the most accurate and timely results. Our deep collaboration with foundries ensures that our mutual customers can access the most advanced technologies with well-honed design flows. This quarter, for example, we announced a collaboration with Samsung Foundry to deliver the fastest design closure and sign-off for 5 and 3 nanometers. We continue to also see good growth in momentum in custom. We again added several new custom compiler customers, including two in the wireless communication segment. Also further inroads with memory companies who are adopting our complete end-to-end custom solutions. A never-ending challenge in today's complex designs is verification, not only of the chips, but also the intersection of the chips with the software that runs on top of them. Our verification continuum platform is uniquely powerful in this sweet spot of modern design and is driving strong growth. Adoptions are expanding rapidly at influential customers, ranging from leading hyperscalers to automotive to the most sophisticated global semis and systems companies. For example, AWS, which utilizes our verification software to accelerate the development of data center chips and automotive supplier automotive for its autonomous driving application. Strong demand continues for our market-leading hardware solutions. Just this quarter, we added 10 new customers and have 45 repeat orders. The power of our comprehensive design plus verification solution is evident in full portfolio adoptions. This quarter, it included a global design services leader who adopted both fusion and verification platforms for highly complex designs, replacing their legacy tools. Now to IP, where we again delivered strong double-digit revenue growth. Outsourcing of sophisticated IP blocks continues unabated. Our track record of innovation, reliability, and advanced node leadership have led to our number one position in interface, embedded memory, and foundry-specific IP. We provide the broadest portfolio by far, accelerating time to market and reducing risk for our customers. This quarter, we continue to show strong momentum across multiple applications and products. In high-performance compute, which is one of the most dynamic segments today, Our comprehensive IP portfolio has driven more than 450 wins in 7 nanometer and over 100 in 5 nanometer. We achieved silicon proof of our 112 gigabit Ethernet PHY on 5 nanometer, driving the leading edge in this key product area. With the tremendous growth in Internet traffic, security is a big concern in protecting the data transfer in hyperscale cloud centers. This quarter, we launched the industry's first security IP modules for PCI Express 5.0 and CXL communication interfaces. We have already secured the first design win with a drawing pipeline. Building on our lead in advanced technology, we released the first phases of our 3-nanometer foundation IP offerings. Building on our innovation and momentum in EDA and IP, we have invested in unique and breakthrough solutions to next-generation challenges that our customers face. We do this in close collaboration with ecosystem partners through a combination of R&D and technology acquisitions. While we have a number of these in our innovation pipeline, let me highlight three that we recently announced. One, 3D multi-die design. Two, AI-driven design flows. And three, silicon lifecycle management. Starting with 3D multi-die design. Think of it as combining and stacking multiple dies together, not on a board, but on a specialized large chip. This leads to extremely tight configuration with much higher data speed and bandwidth than with a traditional board and packages approach. Our new 3D IC compiler product enables the design and analysis of these complex 3D systems, taking full advantage of our technical breadth by leveraging both Fusion Compiler and our sign-off tools. Early momentum is building rapidly with expanding evaluations and adoptions. Designers are seeing the performance and capacity benefits of a single environment and are beginning to move away from older mix-and-match solutions. For example, 3DIC Compiler helped a large Asian semiconductor company complete a highly advanced test chip in record time, saving weeks of design time. With this, we also combine our high bandwidth memory and die-to-die IP that enables interconnecting these complex systems. Moving next to AI-driven design, we have a breakthrough and already award-winning new solution, DSO.AI. DSO stands for Design Space Optimization. While maximizing the contribution of engineering teams, DSO.AI leverages machine learning techniques and computation to explore the design space for still better solutions in terms of chip performance, power, and area. This autonomous search substantially accelerates the work of the human design team. Indeed, in Q1, customers using DSO.AI reported remarkable productivity improvements, consistently realizing better results in a fraction of the time and effort typically required. On top of that, multiple production takeouts have recently been completed. Our customers are already heralding DSO.AI as an anchor product and are beginning to deploy it across their organizations. Finally, silicon lifecycle management, a new platform to monitor, analyze, and optimize chips as they are designed, manufactured, tested, and deployed in the field. Synopsys is uniquely well-equipped to provide a comprehensive solution to our long-standing expertise in design, manufacturing, and IP. We add sensors, monitors, and data analytics on-chip to provide insights to test, yield, and reliability management tools. This gives smart visibility into critical performance, reliability, safety, and security issues for a chip's entire lifespan. In Q1, we expanded our capabilities with the acquisition of MoreTech, which provides leading-edge process, voltage, and temperature sensors. Initial interests and activity are strong and expanding. We're in talks with a number of leading IDM and Fabless customers. We're also engaged with major cloud service providers to deploy aspects of our solution into their platforms. These new innovation areas create not only new business growth opportunities, they also leverage strong cross-disciplinary expertise in synopsis from design to manufacturing to IP. Now to software integrity, testing software code for security vulnerabilities and quality issues. we delivered a solid beginning to the year and are on track towards meeting our fiscal 21 goals to re-accelerate growth. As I mentioned in December, we have implemented several important enhancements, all showing encouraging progress. First, evolving our go-to-market strategy and customer success organization, including tuning our sales coverage and building an indirect channel program. Second, bolstering our strategic consulting capabilities to better serve growing market needs. And third, evolving our product roadmap to capitalize on the latest security trends. These improvements are beginning to show in our results. All geographies delivered at or above plan. We have numerous multi-million dollar new agreements and sizable expansions with customers ranging from industrials and airspace electronic and financial services. The trend towards adoption of multiple products continues. Customer interest in a consulting-led approach to software security is growing. Recent publicized security breaches only underscore that need. Our expanded team is ramping up, and we see very good long-term opportunity. In addition, industry analysts continue to recognize the quality and breadth of our portfolio. Synopsys was again named a leader in the Forrester wave for static application security testing. To summarize, Q1 was a very good start to the year. We delivered strong financial results and are reaffirming our outlook for fiscal 21. Our markets are healthy as customer investment in critical chip and system design as well as immense amounts of software remains very strong. Our differentiated portfolio of solutions, including exciting innovations in brand-new areas of technology disruption, is generating high demand and strong growth. Lastly, keep an eye out for our second annual Corporate Social Responsibility Report to be published in the next few weeks. We're proud of the progress we've made in the areas of environmental stewardship, social solidarity, and corporate governance. We look forward to sharing with you our metrics and future objectives. With that, I'll turn it over to Trak.