Synopsys, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Synopsis Earning Conference Call for the second quarter of fiscal year 2021. At this time, all participants are on a listen-only mode. They 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 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. If there's time, I'd like to turn the conference over to Lisa Umick, Vice President, Investor Relations. Please go ahead.

Thank you, Sean. Good afternoon, everyone. With us today are Arch DeGias, Chairman and Co-CEO of Synopsys, and Trak Fahm, 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 Synopsys.com. In addition, the prepared remarks will be posted on the site at the conclusion of the call. With that, I'll turn it over to Art DeGioia.

Good afternoon. I'm happy to report outstanding second quarter results exceeding all of our key guidance metrics. We delivered revenue of $1.024 billion with gap earnings per share of $1.24 and non-gap earnings of $1.70. Business was strong across all product groups and geographies. We continued to make good progress on our margin expansion goals and generated record operating cash flow of $526 million. As a result of our first-half strength and growing confidence in our year, we are raising guidance for revenue, non-GAAP ops margin, earnings, and cash flow. Chuck will discuss the financials in more detail. Before commenting on highlights, let me say a few words about the dire situation in South Asia. While parts of the world are progressing well with vaccinations, we are seeing an enormous challenge for the people of South Asia. Our top priority is the well-being of our employees, and we have taken many steps to support them and their families. Ranging from orchestrating oxygen concentrators to teaming up with vaccination clinics to ambulance services, food delivery, and family help, our objective is to maximally mitigate the impact of COVID and make sure that every employee can call on Synopsys as a beacon of care and solidarity. Despite the pandemic challenges, we are thankful that from a business perspective, we continue to ship our products and support our customers with no material disruptions, and our business is doing well. Looking at the overall market, demand for semiconductors is very strong. While some of the near-term demand can be attributed to segments such as automotive catching up after a year of COVID slowing, there is an undeniable new wave of growth on the horizon as every vertical market demands machine learning chips to harvest their big data for their specific needs. In other words, the early technical successes of machine learning in the cloud are now moving to the edge of attracted by the economic promise of smart everything. The technology push has grown into a vertical economic pull. All segments are impacted, and the race is on to provide smart solutions in automotive, health, consumer, 5G, and so on. This push-pull opens a whole new era for semiconductors and software, and with it, great opportunities for synopsis. First, The foundational building blocks are complex chips. Chips for data generation and sensors, for storage, for transport, and for compute. All needing IP blocks, speed, low power, and security. This is great for synopsis. Second, not just chips, systems of chips. While the complexity of a system on a chip continues to grow, the leading edge is moving to systems of chips. By abutting them seamlessly and stacking them on top of each other, massive transistor counts open the door to brand new functionality. This growing systemic complexity is great for synopsis. Third, chips differentiated by vertical market. Each vertical has its own needs. Automotive has safety requirements. Mobile requires extreme low power. Aerospace and industrial want built-in lifecycle diagnostics. High-powered new entrants, such as hyperscalers and AI, design their own chips for super performance. And everybody, be it medical and health markets, financial sector, communications or infrastructure, everybody needs much better security. All of these are disciplines that we have invested in for years. Great for synopsis. And lastly, software and silicon are tightly linked and must be tuned for each other. Software to be written to consume less power in the chips. Chips to be optimized for huge amounts of sensor data. Software to be debugged on prototypes of chips that have not been built yet to speed time to market. Chips to be optimized for blindingly fast computation. And always, software and chips must be secured together. These are all technologies we are leading in. Great for synopsis. So we're perfectly placed, and our mission is to catalyze the smart everything ambitions of our semiconductor partners and vertical customers by delivering a thousand X system performance in this decade. In that context, let me share some highlights, beginning with EDA, which delivered another strong quarter, both in design and verification. In digital design, proliferation and competitive displacement by our Fusion design platform again drove strong growth. In particular, strong momentum for Fusion Compiler. For example, ARM is leveraging Fusion Compiler on its next-generation NeoVerse D1 and M2 infrastructure cores. Fusion compiler was also selected for advanced mobile designs at Samsung, driven by superior throughput and performance per watt results. Our momentum in the most advanced three nanometer node is also evident with five new test chip tape outs as processor, graphics and mobile technology leaders, as well as next wave three nanometer adopters. We see strong innovation and market disruption with our custom design platform as well. In Q2, we announced our PrimeSIM continuum platform for analog mixed signal simulation. With the industry's brand-new graphics processor-based acceleration, it cuts time to results by 10x. Endorsed by Samsung Electronics, NVIDIA, and Kioxia, PrimeSIM delivers significant productivity gains at companies such as Narnia Technology, where it is deployed on DRAM design. In addition, we again secured multiple full-flow displacements in the quarter, including another large analog design company in Japan. In verification software, we had strong growth with our verification continuum platform, driven by adoption momentum with hyperscalers. Our hardware verification solutions drove excellent results as well, including 14 new logos and more than 50 repeat orders in Q2. fueling our ongoing strong growth in continuous innovation, including new turbocharged application-specific emulation systems, two of which went to market in the quarter. The Zibu Empower emulation system lets customers perform power analysis earlier in the design cycle, dramatically reducing power-related risks. Also, just last week, we launched Zibu EP1, the industry's first ultra-fast 10 MHz emulation system, It targets high-performance compute for 5G, GPU, AI, and automotive, handling designs up to 2 billion gates. We also shipped the latest generation of prototyping, HAPS 100. With the fastest performance and unmatched enterprise scalability, it accelerates software development, system validation, and verification. Customers like NVIDIA and Furiosa are already relying on HAPS 100 for their most demanding projects. Now to IP, which again achieved excellent revenue growth driven by technical leadership and strong market dynamics. In Q2, we extended our advantage in the high-performance compute market. We acquired more than IP and its 400-gig, 800-gig Ethernet controllers. Combined with our existing 112-gig Ethernet 5, we now offer a full Ethernet solution for high-performance data center applications. Advancing our lead in next-generation PCI Express interfaces, we delivered the industry's first complete PCI Express 6.0 IP solution. Needed for huge bandwidth demands, we see strong market traction with leading customers. And in addition to the EDA adoption I referenced earlier, we announced a strategic collaboration with ARM to closely align our product roadmaps and enhance our interface IP solutions with specific features for the Arm NeoVerse platform. Our interface and foundation IP are also gaining broad industry adoption on the advanced five nanometer FinFET process, driven by vertical segments such as high performance compute, automotive, and AI. More than 20 leading semiconductor companies use our five nanometer IP with multiple first pass silicon successes, attesting to the robustness and reliability of our portfolio. Lastly, to address the above-mentioned safety and security requirements for automotive, we launched a new DesignWare hardware secure module and our safety and security processor IP solutions with integrated functional safety features. Let me now turn to two exciting and disruptive technologies we recently introduced. First is DSO.AI, our award-winning AI-powered design system that hits right at the foundation of the new growth era, very complex chips. DSO.AI autonomously searches the vast design space for optimal solutions in terms of chip performance, power, and area. It does this using very sophisticated machine learning. This not only substantially accelerates the schedule of human design teams, but it enables them to push the technology envelope towards better solutions. The improvements and results over the last two quarters have been extraordinary. One example is a very large influential U.S. company who reported what I like to call a productivity world record. On a leading-edge chip, a single engineer using DSO.AI was able to achieve in weeks what typically takes an entire team months to complete. Another global leader recently highlighted unprecedented 3X designer productivity and meeting timing specs weeks ahead of schedule. Results like these are driving notable adoptions. For example, Renaissance now uses DSO.AI for its advanced automotive chip design environments. The other innovation push is our Silicon Lifecycle Management Platform, or SLM for short. This end-to-end solution monitors, analyzes, and optimizes chips as they are designed, manufactured, tested, and deployed in the field. SLM leverages our long-standing unique expertise to give customers visibility into performance, reliability, safety, and security issues for a chip's entire lifespan. We're actively engaged with multiple customers at 5 and 3 nanometer that seek to use SLM to optimize their design flow with data collected during tests. The vertical market pool by hyperscalers, for example, is a strong driver of important adoptions. In Q2, 10 new customers adopted a variety of SLM capabilities. Several of them, having adopted one element of our portfolio, are already broadening to other aspects of our platform. Stay tuned as we continue to roll out new capabilities. Now to software integrity, which had another very solid quarter towards meeting its financial 21 goals and accelerating growth. Revenue was ahead of plan in every region, reflecting strong orders momentum. We're seeing good results from the changes we've made in our go-to-market strategy and execution. In Q2, we added 100 new logos and retention exceeded our targets. The services business was particularly strong and is driving comprehensive service plus product engagements. A great example is an important multi-million dollar new business win with a large transportation company who replaced incumbent products with synopsis for the end-to-end value we provide. We also launched our channel partner program to expand our reach into geographies and verticals not currently touched through direct sales. The benefits are apparent. For example, we closed a multi-million dollar new adoption in South America where we didn't have any selling capability six months ago. On the technology front, we delivered a significant enhancement to our Polaris platform, intelligent orchestration. It's a set of processes within Polaris that run parallel to our customers' DevOps pipelines. Intelligent orchestration communicates and automates security testing in synchronization with each company's specific protocols and is built for easier and efficient integration into their development pipelines. The opportunity in this space is vast and we're encouraged by the steady progress the team is making. In summary, we delivered an outstanding Q2 and are raising our outlook for fiscal 21. Our markets are strong, reflecting extensive customer investments in critical chip and system designs with an increasing need for safety and security. As we look beyond this year's $4 billion revenue milestone, we see a new era at the intersection of silicon and software that will deliver smart everything to all vertical market segments. We see technology challenges that demand the cooperation and teamwork around many complex disciplines, disciplines we are strong in. And we see Synopsys in the midst of this vision as a well-equipped catalyst to our customers' and partners' success. Finally, I want to recognize the efforts of our global team, who over the past year and a half have adapted and succeeded despite upheaval and uncertainty. Thank you all for your solidarity and hard work. With that, I'll turn it over to Trak.