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.

Thanks, Art. Good afternoon, everyone. First quarter results reflect good momentum across the company. We delivered a very strong start to the year with significant revenue growth across all product groups and geographies, expanding non-gap-locking margin, non-GAAP earnings at the high end of our target range and solid operating cash flow. Driving these results is a compelling combination of unprecedented market opportunities, accelerating customer adoptions of our groundbreaking new products and our excellent execution. Our confidence in our business is strong and we are raising our full year 2022 targets. I'll now review our first quarter results All comparisons are year-over-year unless otherwise stated. We generated total revenue of $1.27 billion, up 31% over the prior year. As expected, the quarter reflected strength in EDA software as well as outstanding demand for IP and hardware. Total gap costs and expenses were $923 million. Total non-gap costs and expenses were $811 million. resulting in a non-GAAP operating margin of 36.2%. GAAP earnings per share were $1.99. Non-GAAP earnings per share were $2.40, up 58% over the prior year. Semiconductor and system design segment revenue was $1.16 billion, with both EDA and IP performing well. software integrity segment revenue was $108 million, a better than expected start to the year. We are on track to reaching our 15% to 20% growth objective for software integrity with expanded adjusted operating margin in 2022. Turning to cash, we generated $156 million in operating cash flow, higher than planned, primarily due to early collections. We used $250 million of our cash for stock buybacks, and ended the quarter with cash and short-term investments of $1.27 billion, with total debt of $24 million. Now to guidance. We are raising our full-year outlook for revenue, earnings, and cash flow. For fiscal year 2022, the full-year targets are the revenue of $4.775 to $4.825 billion, representing 14% to 15% growth, Total GAAP costs and expenses between 3.809 and 3.856 billion. Total non-GAAP costs and expenses between 3.255 and 3.285 billion. Resulting in a non-GAAP operating margin improvement of more than 100 basis points. Non-GAAP tax rate of 18%. GAAP earnings of $5.53 to $5.72 per share. Non-GAAP earnings of $7.85 to $7.92 per share, representing 15 to 16% growth. Cash flow from operations of 1.45 to 1.5 billion. Now to the targets for the second quarter. Revenue between 1.24 and 1.27 billion. Total GAAP costs and expenses between 931 and 951 billion. total non-GAAP costs and expenses between $800 and $810 million, GAAP earnings of $1.67 to $1.78 per share, and non-GAAP earnings of $2.35 to $2.40 per share. We continue to anticipate revenue for Q3 and Q4 to be roughly evenly distributed with expenses Q to Q4. As we announced in December, our long-term financial objectives are to deliver annual double-digit revenue growth, non-GAAP operating margin expansion of more than 100 basis points a year, and non-GAAP EPS growth in the mid-teens range. In conclusion, we delivered a very good start to the year and are raising our 2022 outlook. Our longstanding commitment to managing the business for enduring long-term growth has not only generated the most compelling product portfolio we've ever had, but also positions us uniquely well for the current dynamic market landscape. As a result, we remain confident in the accelerated long-term financial targets we communicated to you in December. With that, I'll turn it over to the operator for questions.

Ladies and gentlemen, if you wish to ask a question, please press 1 then 0 on your touchtone phone. You may remove yourself from the queue at any time by pressing 1, 0 again. If you're using a speakerphone, please pick up the handset before pressing the numbers. And before we begin the Q&A session, I would like to ask everyone to please limit yourself to one question and one brief follow-up to allow us to accommodate all participants. If you have additional questions, please re-enter the queue, and we'll take as many as time permits. And we'll start questions. from the line of Joe Berwink from Bayard. Please go ahead.

Great. Hello, everyone. I was hoping maybe to get a bit more detail on the product areas or geographies driving the $50 million increase in revenue guidance for the full year. And then in thinking about the sequencing of quarters this year since one queue finish within the guidance range. Is it fair that most of this upside is maybe coming in two queue, just thinking about maybe your original expectations?

Let me start with the first part and maybe Trak can do the second part. Our strength has been really very much across the board. We can certainly say that the IP continues to stand out as growing very well, but some of the new capabilities that we see at the EDA tools really are showing more and more opportunity going forward. Now, you heard about the software integrity group. They continue on an excellent path. Last year was really a return to good growth, and now we are improving the growth there as well. And lastly, the systems area, which is sort of at the intersection between, we like to call it at the intersection between silicon and software, is an area that will continue to grow because most of the systems get now optimized to make the software run as well as possible on the hardware, and the hardware be as responsive as possible to the software, all the way to trying to optimize even the power consumption. So these things are very linked, and our hardware and prototyping solutions are extremely well suited for that and have been strong.

Hi, Joe. Let me check the second part. I wouldn't characterize the upside for the year, the raise of $50 million, as simply a Q2 upside. We delivered Q1 largely as planned. It was the biggest quarter of the year. The business that we booked in Q1, we saw very strong growth in EDA software, which should give us a nice trajectory, not only for this year, but going forward. And then we continue to see very strong demand in IP and hardware. The momentum that we saw through last year continued in Q1 in terms of results for revenue, but also just the overall demand as Art highlighted. And traditionally we don't raise the full year at this point. at this early point of the year, but just given the visibility we have, not only in Q2, but for the rest of the year, we have the confidence to raise the overall guidance.

Okay, that's helpful. Thank you. And then I just wanted to focus in a bit more, given it came up in the prepared remarks, just the recent attention around open source vulnerability. I'm curious if you've seen a bit of a lift for Black Duck within the portfolio, maybe an acceleration in interest that could end up benefiting growth for software integrity as we move through the year.

Well, you know, I think in general the software integrity group is doing better and better because it is managed really well and is executing well. But what you have said still bears truth because there have been in the past year a number of moments of high visibility of hacking on also open source capabilities. Even the U.S. government has made some mandates saying you have to pay more attention to this in their systems. And so I think in general there's a high degree of recognition, and that helps Black Doc because the capabilities that we have there and also our consulting capabilities is precisely what customers need.

Great. Thank you very much.

You're welcome.

Next, we'll move the line of Jackson Adder with JP Morgan. Please go ahead.

Great. Thanks for taking my questions, guys. The first one is on that hyperscaler that you mentioned, the deployed BSO.AI in the cloud. And I'm curious, I guess, number one, the deployment, was it in an office's cloud, other cloud, the customer's private cloud, and then the follow-up being, depending on where the customer chooses to kind of run those, I think you said hundreds of CPUs, is there any kind of you know, revenue leakage if the customer chooses to do something in their private cloud versus maybe the Synopsys cloud?

Well, let me start at the end. No, there's no leakage. They have to use licenses like any other licenses. Pretty much all the hyperscalers do have large clouds themselves. Some are also commercial cloud providers, obviously. And it doesn't matter if it's a private cloud or a commercial cloud. if you have both, it is the same result. In this case, these are people that are extremely competent on managing clouds, and so consider it a commercial cloud.

Okay.

Jeff, I would just add that we do see cloud as a very strong incremental growth opportunity, and that is independent of whether or not they're using Synopsys cloud or a third-party cloud. We can support other scenarios. but the goal is to gain that business overall.

Yeah, I mean, you know, the point of the question, right, is just to see if the customer would say, hey, thanks for dso.ai. Now I'm going to take my ball and go play over here with it, right, you know, and maybe try and gain the licenses. But no, that answers that. Thank you. And then the second question is actually around the labor market. Is there anything that you might see in a tight labor market that might suggest a slowdown in the hiring of engineers at your more traditional maybe semiconductor companies?

I think there is certainly no slowdown at attempting to hire. As you well know, throughout most industries, there's an increase in turnover. A lot of people have been sitting at home for a few years and are looking for fresh air. And so the entire semiconductor industry right now is looking for people. And we ourselves have had a bit of that, actually not that much negative turnover, but we have hired substantial amounts of people. And so I think that this will continue because there's no end in sight to the need, and the opportunity space, I think, is very, very fertile. So these things tend to last for a year, year and a half, and then they gradually equalize again.

All right. Thank you.

You're welcome.

And next we'll go to the line of Gary Mobley with Wells Fargo Securities. Please go ahead.

Good afternoon, everybody. Thanks for taking my question. Congratulations to a strong start to the fiscal year. I wanted to pick up on the last question and ask more so about wage inflation, which is debated whether it's transitory or structural in nature, but I think it's probably fair to say that wage inflation or at least higher wages are here to stay. And so my question for you is, Is are you able to pass this law pass this along in the way you're pricing license deals? And might there be a period of time in a labor intensive business that you're in where you've got a mismatch in the way deals are priced versus wage inflation?

It's an excellent question because obviously, especially in the conjunction with the question Jackson had, whenever there is movement, there tends to be some increase in wages because otherwise people wouldn't necessarily move. And we see the same. Fortunately, we have had the good fortune that our business continues to grow very well. And it tends to be a little bit more stable in terms of change because we have many multi-year transactions. But many of the transactions are becoming larger because customers want more tools, need more capabilities. And so we are more gradual in how we pass these costs along. Having said that, and Track can emphasize it from the ops margin perspective, but we are staying on track with not only growing the business, but also continuing to improve the profitability of it. So all of these things have been taken into account as we project forward.

I would add, Gary, that it's not – in effect, we're able to manage the wage inflation and still drive margins up. The way we do that, obviously we factor those costs and the incremental costs into our expense, and that's reflected in our guidance and our expectations for improving margins this year. The best way to deal with it is really continue to invest in the business twofold. One is over the last several years, we've continued to invest in innovation and new technology to drive value in our products. And that has helped us extract more value in the negotiations. And that certainly has helped the accelerated growth in the business. Secondly, we've also been on a path over the last few years of redeploying and being really critical about where we deploy resources in order to get the best return. And so the combination of those things really is helping us manage wage inflation in that way.

Got it. Appreciate the call. And then I wanted to ask a specific question about the RPOs or backlogs. If you can't give us the amount, can you give us at least a sense of whether you built on that record high you published at the end of the fiscal year, and to what degree has a longer average license duration factored in? I know you don't give that metric anymore, but are we moving higher on that front as well?

Backluck remained at $6.9 billion.

Got it. And average license duration, could you say it either In the normal range.

In that normal range that we traditionally manage to. Nothing unusual. Appreciate it. Yeah. Thank you.

And next, we'll go to the line of Jay Fleashour with Griffin Securities.

Please go ahead. Thank you. Good evening. Art, for you first, you've spoken often, of course, about the intersection of hardware and software as a center of gravity of your business, which is perhaps another way of saying that semiconductor companies are becoming more like systems companies and systems companies are becoming more like semiconductor companies. The question is with respect to the support implications for your business, that is to say the support you have to provide to customers given the growing complexity, the growth of the contracts and so forth. and perhaps you could just talk about that in general how the profile of what you need to do on behalf of customers is evolving vis-a-vis your evolution of your of your contracts and the portfolio for instance over the last year we've seen that there's been a more than 140 increase in your openings for application engineers even more than the increase in r d openings over the last year so perhaps perhaps tying to the earlier questions on hiring, what the AE environment looks like specifically as a critical component of supporting your customers. And then the second question for track, when you look at your segment results, if we strip out from the IT and systems integration segment, what we think your hardware business may have been, it looks like your annualized run rate for IP in Q1 was well in the work of 1.5 billion as compared to the 1.1, 1.2 billion coming out of Q4. Clearly a substantial increase in the ARR, so to say, of IP. And that looks like it was fairly well correlated to the increase in China in the quarter. So perhaps you could talk about those correlations within the IP business.

Okay, Jay, the question you asked will only take about half an hour. You touched pretty much on everything we have to do. Let me phrase it like this. A number of years ago, we put the silicon to software under our logo. It was aspirational at that time because it meant moving to where the center of gravity was moving. I am now absolutely convinced that the center of gravity for everything that will impact smart everything, big data, automation in various ways, is actually the intersection of those two. And so let me first go downwards from the hardware, and there clearly one trend continues, still smaller, more sophisticated devices, that's technology evolution. The second trend that is complementing that is multi-chip or chip-led, And that is because at some point in time, you want 100 times more transistors, but that is technically not feasible. And so you split it up, and we'll see more of that. And the third trend is that many of the chips become specialized architecture for just a limited set of tasks. And this is not new because with graphical processors already 20 years ago, they were essentially accelerators to manage pixels. Now, of course, there's a lot of that goes in the AI direction or data management direction and so on. So then we move to the other side of the equation, which is the software. And the software, of course, has one ambition, which is do applications that add a lot of value in every domain you can think of, including many of the automation domains, the big data slash machine learning domains. And so the software needs to be matched to the hardware, and the hardware needs to be matched to the software. And that is where this prototyping is effective from both perspectives. And we're seeing rapid growth. And just like anything else, people wish the prototype would be another 10 times faster, because then they could do 10 times more. And so I think that will continue for quite a while. Now, in regards to the different supports, you're absolutely correct that in the semiconductor area, There, or the hardware down, it is more an evolution of what we've done for the last 35 years. And AI is very important because it's now taking on much more complex multi-step tasks. And so that's where we give a lot of support. Whereas if you look upwards, there the system houses in the past only a few really have invested substantially in chip design or electronic system design. And now because the software is so much closer to the realization, they are investing. But these are also the type of companies that if they can buy partially finished solutions like big IP blocks, that is where they start. And so we increasingly look at our IP as reaching into that middle. And then the last comment is for each of the verticals, there are often additional needs. And automotive is a prime example of that because safety matters. And security is a subcategory for safety in that case. Security, of course, applies to many, many places. So long story short, our opportunity is that we touch all of these players and become increasingly a catalyst between multiple players to make something successful. And therein lies the big opportunity for Synopsys.

Hi, Jay. take the second part of your question. So you're right, Q1 was a very strong quarter for IP in addition to the other products. But at a high level, the IP business is strong in all areas, all geographies, and across a very diverse customer base. And so tying that connection to China would be misleading. And in fact, in China, we're doing very well across all of our product categories. You know, we had very good growth in EDA software. Hardware did well in addition to IP. So trying to make that connection at the top level of the results, I think, would give you a misleading conclusion. Thank you very much. You're welcome.

Next, we go to the line of Jason Salino with KeyBank Capital Markets. Please go ahead.

Great. Thanks for taking my questions. Maybe first one for TRAC. You know, the SEMI and design margins in the quarter were really impressive, you know, 38%. You know, that's the highest we've ever seen them. How much of that strength is just mainly from the upfront nature of, you know, the IP and hardware strengths?

I'd characterize it more as the corporatization of the results, Jason, right? Because remember, when we talked to you in December, we described expenses as being relatively flat throughout the year, but the mix of revenue and the timing of revenues would skew margins to the front end. But overall, I think margins are doing very well, and we do expect that over a multi-year period, we'll continue to improve margins.

Okay. Perfect. Interesting. And then, Art, you know, I thought it was interesting how you mentioned hyperscalers, you know, with your SIG business comments. You know, I didn't think strength with the hyperscalers was levered at all to the SIG business. So my question is, do these hyperscalers typically purchase the EDA and the SIG products separately, or do they have opportunities to bundle them together? Thanks.

In general, we sell these things relatively separately. They're often very different buyers in the company that are looking at that. And we have proactively kept it somewhat separate. It's a better business practice than you know, negotiating everything to the lowest common denominator. And so, but of course, these hyperscalers have absolutely big needs in security. And so, we are collaborating well with them.

Excellent. Thank you.

You're welcome.

And next, we go to wine of Pradeep Rahmani with UBS. Please go ahead.

Thanks for being my question. I have a couple of thoughts. Your deferred revenue saw a big pop, I think. What is driving that? Is that, first of all, is it from a product standpoint broad-based or sort of concentrated amongst either IP or ADA or hardware? Sorry, IP or ADA. And in terms of just geographical or customer concentration that sort of drove that delta, if you could expand upon that, that would be helpful as well.

I'm sorry. I'll start with the first question, Pradeep. The deferred is very broad-based across all product lines, and the variability of deferred from one quarter and X really just reflects the timing of when we bill and invoice our customers. I didn't hear clearly the second part of your question.

Yeah, it was more around whether any one customer or one geographic sort of drove the upside or the fall, or whether that was broad-based as well.

The overall growth was really broad-based. Yes, customers globally.

Okay. And for my follow-up, I guess you talk about DSO.AI SLM, how would you characterize just in terms of what percent of your semiconductor and system design revenue they are at right now? And how should we think about sort of the growth path going forward for these two contributors? Yeah.

Yeah, we're in the early stage, and typically we don't disclose for individual products, but both of these areas have the potential to certainly grow faster than the rest of the company because they're in the early stage, but also because they bring a whole set of new values to the customer. And back to an earlier question, I didn't mention that in both of those areas we also hire more people. in order to help our customers succeed and quickly get to the high value that these capabilities offer.

Thank you. You're welcome. And once again, as a reminder, if you wish to ask a question, please press 1 then 0 at this time. Next question comes from the line of Charles Shi with Needham & Company. Please go ahead.

Hi, good afternoon. Thank you for taking my question. Maybe the first question is for Art. You may be very well aware of the debate right now in semiconductors on semiconductor industry cycles. There's a debate about whether we're at the peak cycle or we are here stronger for longer. Given your probably 40-year experience in this industry, can you kind of give us a sense How does the cycle, what do you think about the current cycle? Is it the same as the previous ones you've seen or is this something different? And how do you think the cycle affect the EDA industry and specifically to your business and in one way or another? Thank you.

Okay, I'm very clear about this. I think that we are into a long-term great opportunity wave because the opportunity to change how the world operates with the combination of enormous amount of data combined with machine learning, ultimately AI and automation, has very, very big economic impact for every vertical. And so while one could argue that for many decades Moore's Law has sort of pushed technology forward and that always had new benefits, now there is simultaneously a pool from the end markets that all realize that, hey, they could potentially shave some economics out of their operations by just understanding the data better or even find better solutions. And I think that is so profound, that is as profound, I would say, as, you know, computation 35 years or 30 years ago impacting the world. Now, at the same time, we are all well aware that there are some shortage of certain, actually fairly limited set, but crucial set of parts. And I hesitate to call that a cycle. There have been interruptions in the supply chains due to global politics. There have been COVID that stopped people from ordering. There have been a lot of things. And it's mostly older parts. And so, yeah, there's some shortage there. There's some additional capacity being built in. Most of the capacity is being lined up for actually advanced nodes because of the earlier point I made, all these new opportunities. And so there will be always a little bit of a cycle of supply and providers alignment. But in general, I think that we're in for a decade of great opportunities in semiconductors. Oh, by the way, I should add, that includes us, of course. Yeah, that was maybe the end of the key part of the question for synopsis. Yeah, we're very much in the middle of that. And, you know, we love this term of being a catalyst because we interact with literally the deepest technology, with the design, with the system configuring, the optimization there, all the way into the software and the security. And so it puts us very much... in a position to interact with all the players that have to interact well for success. And that's where a big part of our enthusiasm comes from.

Thank you. Maybe a quick follow-up, maybe a question for Trak. In terms of your full-year guidance and your fiscal second quarter guidance, it does seem to imply there's a bit of a moderation of your revenue in the second half of your fiscal year. I have to think your time-based revenue has been quite linear, typically linear through the years, steadily growing. And maintenance service, I don't expect any unknown linear heritage there. I was kind of wondering if you're sort of expecting a little bit of moderation in upfront revenue there, either it's the hardware or the perpetual licenses or the IP contracts there going into the second half. Thank you.

Charles, the quarterization profile is a function of when the customer, when we expect the customers to pull down IP and hardware. So it's really those two items. Everything else, as you described, is quite linear. A little bumpy as well, but generally very linear. Yeah. Thank you. That's all from me. Thank you. You're welcome. A little bumpy as well, but generally very linear.

Yeah.

Thank you. That's all from me. Thank you. You're welcome.

And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation after using ATT teleconference. You may now disconnect.