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 2022. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session. 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 conference 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, Eric. Good afternoon, everyone. With us today are Art DeGias, Chairman and Co-CEO of Synopsys, and Trak Pham, Chief Financial Officer. Before we begin, I'd like to remind everyone that during the course of the 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 8 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 the call over to Art DiGio.

Good afternoon. Q1 was an excellent start to the year. Building on the strength and momentum from 2021, we met or exceeded all of our key guidance targets with strength across all product groups and geographies. Revenue was $1.27 billion with GAAP earnings per share of $1.99 and non-GAAP earnings at the high end of our target range at $2.40. As a result of this solid start and confidence in our business, we are raising our full year revenue and earnings guidance. We're also executing well on the long-term accelerated revenue growth and margin expansion objectives we communicated to you in December. The Exxon's results can be attributed to three reasons. Strong semiconductor market, strong technology with increasing differentiation, strong execution by our teams and adoption of new products. Truck will provide more financial details. Assessing the landscape, our market is very sound and growing in a way that is positive for Synopsys. As the power and impact of massive amounts of big data are increasingly realized, demand for smart everything continues to intensify. As a result, customers ranging from traditional semiconductor companies to AI startups, hyperscalers, and vertical system houses are all investing heavily and prioritizing design activity. Rapidly escalating technical complexity as big data and AI software are brought together in increasingly advanced ways means that today's products require highly complex chips, systems of chips, and more security and safety. As a result, customer investments are increasing across all market segments. Synopsys has invested heavily over the past five years in a wave of unique innovations targeted at and ideally suited for this new era. These investments are yielding excellent technical differentiation and business results. At the center of enabling the smart everything era sits the power of AI to develop more complex chips better and faster. Our solutions have featured machine learning technology for many years. About a year and a half ago though, after a multi-year development effort, we released a groundbreaking new AI-driven solution that directs not just individual tools, but greatly impacts results and productivity on major segments of the design flow. Our award-winning DSO.AI solution is the first of its kind and the only one proven in customer production environments today. DSO.AI learns and autonomously drives our design tools in the design space to find the best combination of chips, performance, power, and area. This automation substantially accelerates the work of design teams while delivering better results than traditional design flows. Customers are seeing remarkable outcomes and are deploying quickly to production use. DSO.AI has already been adopted in production design by five of the top ten semiconductor leaders. In Q1, we saw multiple additional deployments across verticals, including mobile, data center, and processor designs. Samsung has completed multiple tape-outs in mobile, including a state-of-the-art high-performance design in their latest process technology. A leading hyperscaler boosted DSO.AI by using hundreds of CPUs on the cloud and achieved excellent results for advanced SOC. This breakthrough result demonstrates how DSO.AI can leverage abundant cloud compute for deep design space optimization. Critical to the success of DSO.AI are the powerful engines that sit underneath, the integrated fusion design platform. The overall solution is resulting in significant cross-selling opportunities and accelerating growth across our platform. Momentum is manifest across a wide spectrum of market verticals and manufacturing processes. During the quarter, We achieved multiple 3-nanometer design wins, including at the top processor provider, 100% plan of record adoption for a 3-nanometer flagship SoC at a leading mobile provider, and advanced node wins at the world's largest CPU providers. We're also achieving competitive wins at established nodes, including at the leading LCD driver provider. As a result of these high-value innovations, hyperscalers continue to expand their reliance on us throughout our portfolio, including multiple new designs using the Fusion platform. A critical aspect of enabling smart everything is tackling technical complexity across the entire system. The synopsis maxim, from silicon to software, is truly indicative of not only our longstanding focus on the system, but also our differentiating portfolio that puts us in a unique position to enable today's design. A bellwether of systems leadership is IP. Following a record 2021, we continued to deliver excellent results in Q1, and demand remains very high. Driven by tremendous complexity and time-to-market pressures, customers increasingly choose to jumpstart their designs by relying more and more on the market-leading IP portfolio we've built and honed for more than 20 years. In fact, a recent comprehensive IP market study performed by an independent research firm ranked Synopsys number one for the best IP, highest quality IP, and best support compared to other providers in the industry. We're seeing great momentum across key market segments, including automotive, high-performance compute, mobile, and consumer. In automotive, for example, Infineon announced at the Consumer Electronics Show the next generation Oryx TC4X microcontroller family, which utilizes Synopsys IP and virtualization technology. Securing their data center is a top priority for our customers. We see strong demand for our integrity and data encryption security IP with 20 plus designs wins to date on a rapidly growing number of active opportunities. Given the skyrocketing data requirements, storage is an important market for us as well. We continue to gain wide adoption of our PCI Express, ARC processors, and next generation mobile storage protocol IP. Let me talk a bit about some of the innovative system solutions driving our results. First, at the intersection of hardware and software, system verification is a synopsis strong suit. Adjacent to our longstanding market leadership with chip simulation, static analysis, and debug technology, we are early innovators in software and hardware-based prototyping, now a critical enabler of complex systems. Building on another record year in 2021, we continue to see excellent growth in hardware with both our Zibu emulation and HAPS prototyping products. Demand is very strong as our solutions with the fastest engines, highest capacity and lowest cost of ownership are especially compelling for today's sweet spot of software bring up. This quarter we achieved major expansions with our newest Zibu and HAPS 100 hardware at several of the largest semiconductor systems and hyperscaler companies in the world. This included noteworthy wins over the newest solutions from our competition. Second, 3D IC design. This is a new generation of system design that uses tightly abutting or stacking multiple die on a specialized connection chip in order to enable massively more compute, storage, and data management. Our 3D-IC compiler platform is a single, unified design environment that combines exploration, construction, and sign-off analysis. It showcases significant performance, capacity, and ease of use differentiation over much older competitor solutions. In the quarter, 3D-IC continued its strong momentum, deployed on production tape-outs at a leading US hyperscaler and a large networking systems company. Our 3DIC platform was recognized by winning TSMC's Customer Choice Award for leadership in 3DIC design and analysis. And third, we have leveraged our expertise in design, manufacturing, and IP to develop an innovative approach that expands and redefines what's possible in terms of optimizing an entire electronic system. Our silicon lifecycle management platform allows customers to monitor, analyze, and optimize systems as they are designed, manufactured, tested, and deployed in the field. We are seeing strong customer traction and growing adoptions of key elements, including by AI pioneer Cerebras, who used our embedded monitors to understand on-chip dynamic thermal and voltage conditions in order to optimize power and performance. The growing complexity of systems greatly expands security and safety requirements across the spectrum from chips all the way up to the application software. Our software integrity business attacks this very challenge with the industry-leading portfolio of security testing products and services. Software integrity had a very good start to the year, crossing the 400 million trailing 12-month revenue threshold with strong growth across product groups, consulting, and geographies. Companies from a wide range of verticals, including hyperscalers, financial services, mill arrow and industrial, continue to grapple with the challenge of bolstering their security posture. Security vulnerabilities for the entire software supply chain, including open source software, are top of mind for developers, reinforced by government directives and recent publicized breaches. Our strategic consulting services are not only becoming more vital to customers, They're also driving increasing product sales, adoptions, and longer-term engagements. In Q1, this was particularly evident in the financial services space. In DevOps, we see increased customer traction with our solutions, including intelligent orchestration to integrate application security testing into DevOps workflows, and CodeDX to correlate and prioritize findings to help developers efficiently address remediation while maintaining development velocity. In addition, the progress of our indirect partner strategy is very encouraging. Even in the early stages, the program is resulting in many new company adoptions around the globe and business that is ahead of plan. In summary, Q1 was an excellent start to the year. We delivered strong financial results and are raising our outlook for fiscal 22. Our significant game-changing innovations are driving outstanding technical and business results. The market we serve is strong with intensifying customer investment in critical chips, systems designs, and immense amounts of software. Lastly, we will publish our third annual corporate social responsibility report in which we share the solid progress we've made and the goals we've set in the areas of environmental stewardship, including achieving our third year of carbon neutrality, social solidarity, and corporate governance. With that, I'll turn it over to Trak.