Synopsys, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the synopsis earnings conference call for the second quarter of fiscal year 2022. At this time, all participants are in a listen only mode. To ask a question on today's call, you may press one and then zero on your phone. If you should require assistance during the call, you may press star followed by zero. Today's call will last one hour. 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, Carolyn. Good afternoon, everyone. Here today are Art DeGias, Chairman and CEO of Synopsys, and Trak Fahm, 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 our website at the conclusion of the call. With that, I'll turn the call over to Art DeGias.

Good afternoon. We delivered an outstanding second quarter, exceeding all of our guidance targets and reaching record revenue, operating margin, earnings per share, and cash flow. Revenue for the quarter was $1.28 billion. Business was very strong across all product areas and geographies. Backlogs grew to $7.3 billion. GAAP earnings per share were $1.89, with non-GAAP earnings of $2.50 and non-GAAP ops margin of 37%. We generated $750 million of operating cash flow. With our significant first-half strength and high confidence in our business, we are raising guidance substantially for the year. We expect to grow annual revenue approximately 20% to pass the $5 billion milestone, drive further ups margin expansion, and grow earnings per share by more than 25% while generating approximately $1.6 billion in operating cash flow. Jack will discuss the financials in more detail. Our financial momentum builds on three drivers. an unmatched product portfolio with groundbreaking new innovations, robust semiconductor and electronics market demand, and excellent operational execution. The backdrop for our outlook sits at the intersection of massively growing amounts of data and the demand for smart everything empowered by machine learning and AI. This is synonymous to stating that in both consumer and business application, the need for electronics and chips is relentless. CHEPs for data capture and IoTs, for data transmission, for data storage, and, of course, for faster high bandwidth and dedicated computation, plus a huge and intensifying need for more security and safety. All of this means escalating opportunities for synopsis. We've seen growing demand, not only from our traditional semi and systems customers, but also from impactful new entrants such as hyperscalers, a mounting number of startups, and non-traditional systems companies across vertical markets. Notwithstanding macroeconomic choppiness in an uncertain geopolitical environment, these companies are investing heavily in highly complex chips, systems of chips and chiplets, and security initiatives. Synopsys is a catalyst in enabling this new smart everything era, as many customers race forward to invent and deliver highly creative and optimized chips and systems. Our innovations, particularly in AI-driven design flows and at the intersection of hardware and software, are crucial for our customers and have fueled our accelerating momentum. In addition, our IP focus, particularly in high-speed connectivity and advanced interfaces supporting multi-chip design, is second to none and yielding excellent business growth. Let me begin this quarter's highlights with AI as we continue to deliver groundbreaking results and as machine learning is revolutionizing chip design. Our DSO.AI solution, which learns and automates a substantial portion of the design flow, is seeing rapid adoption for production use. Many of the largest, highest-profile semiconductor companies are reporting tremendous productivity benefits using DSO.AI in production today. At our users' conference in March, MediaTek, Intel, Samsung, and Sony shared with fellow engineers their impressive achievements using our DSO.AI. The reported results were truly remarkable. As much as 20x productivity improvement, 7 to 25% lower power, and a dramatic reduction in turnaround time, with a single engineer completing four design blocks in half the time that had previously took four engineers. Critical to the high impact of DSO.AI is our powerful digital design solution, resulting in significant cross-selling opportunities and competitive wins at cornerstone semiconductor and systems customers. Orders were well ahead of plan, contributing to our backlog growth. In Q2, two major hyperscalers, Selective Synopsys highly differentiated Fusion compiler products for multiple advanced designs. We also significantly expanded our share at a top U.S. communication semiconductor company. In aggregate, the trailing 12-month revenue for Fusion compiler more than doubled. At our user conference, I had the opportunity to highlight not only some of the exciting capabilities to come, such as using AI in verification, but also how Synopsys overall is technically helping to transform EDA design more broadly. Our custom design solutions, for example, are seeing strong market disruptions as well, including 19 full-flow competitive displacements year-to-date. Over the past year, revenue grew double-digit in this area with adoptions ranging from large semiconductor companies designing at advanced nodes to automotive to memory vendors. With advanced chips, while advanced chips are the foundation of continued scale complexity, electronic systems now increasingly grow systemic complexity by tightly connecting many chips and the software to drive them. Synopsys excels at this. An ideal example of systems leadership and impact is our IP product line. Here, too, business momentum continued with another excellent quarter as demand remains very high, especially in the AI, high-performance compute, and automotive markets. In Q2, we enhanced our comprehensive AI IP portfolio with the introduction of the industry's highest-performance neural processor IP. Simultaneously, we extended our lead in the most advanced commercial processes. We can report significant traction with our interface and foundation IP, achieving more than 33 nanometer design wins for high-performance compute and networking, as well as notable wins in mobile applications. In automotive, our decade-plus investments, safety certifications, and market engagements are not only generating continued momentum with leading semiconductor suppliers, but also with OEMs and Tier 1s now developing their own chips. We count among our customers the top 12 leading automotive semiconductor suppliers, 10 automotive OEMs, and 12 Tier 1 companies worldwide. For IP, we have close to 600 automotive design wins in advanced nodes, demonstrating the strength of our portfolio. At the hub of the system is the intersection of hardware and software. This is precisely where our verification solutions are targeted. Let me highlight three success drivers. First, there is high demand for our market-leading emulation and prototyping hardware products. Demand is high, and we're heading towards another record here. Fueling this are our new powerful application-specific Zebu emulation and HAPS 100 prototyping systems. While demand is broad-based across customers and geographies, we continue to see significant growth and usage expansion at many of the largest hyperscalers in the world. Second, Multi-die, sometimes called chiplet-based system design, is driving a strong need for innovation. Synopsys is uniquely differentiated with our 3D IC compiler solution and the industry's leading portfolio of die-to-die interface IP, both of which are essential. Our focus and execution are driving adoption momentum with engagements across multiple market segments, including AI servers, automotive, telecom, and aerospace. And third, Cloud-enabled design. One of the challenges for chip designers is access to sufficient yet flexible compute power. Of course, our EDA customers have been using cloud compute for years, but true flexibility hasn't been available until now. In Q2, we expanded our cloud offering with the industry's first broad-scale cloud SaaS solution. It offers unique flexibility in both access and business model. Synopsys now offers three cloud approaches usable for peak demand to full deployment. One, bring your own cloud with pay-per-use access on the customer's choice of third-party cloud provider. Two, a SaaS model with tools, flows, and Microsoft Azure-based compute. Three, hardware-based verification with Zibu Cloud. Initial customer reception has been excellent, ranging from very small startups to large companies seeking peak compute flexibility. Now to software integrity, which is both enabling and benefiting from intensifying demand for security and safety across all market verticals. Also by momentum of products and consulting, as well as broadening geography strength, we delivered another strong quarter with 20% year-over-year growth, exceeding our internal plan. Internationally, we had our best quarter ever, reaching 10 new countries that we've never sold to before through our channel partners. We also continue to make good progress improving our renewal rates and new logo engagement metrics. From a product perspective, our broad portfolio is unique in the market as our three-pronged approach provides differentiated value for all stakeholders, the developers, the DevOps group, and the corporate security team. Over the past year, we've launched significant new products in each of these areas, and customer response has been excellent. Industry analysts continue to recognize Synopsys' strength. For the fifth year in a row, we were named a leader in the Gartner Magic Quadrant for application security testing, and for the fourth straight year, we were rated the farthest up and to the right. Finally, a few weeks ago, we announced a definitive agreement to acquire White Hat Security, a leading provider of SaaS-based dynamic application security testing, or DAST technology. This acquisition will further expand our portfolio and accelerate the build-out of our SaaS solutions. We look forward to welcoming the White Hat team after the close, which we currently expect to be in our third fiscal quarter. In summary, We delivered a high momentum quarter and are substantially raising our outlook for fiscal 22. Building on a wave of technology innovations fueling growth, strong and resilient markets, and excellent operational and financial execution, we're poised to cross the $5 billion mark revenue milestone this fiscal year. These results are not possible without the unwavering commitment and diligence of our employee teams. We thank you all. With that, I'll turn it over to Trak. Thanks, Art. Good afternoon, everyone.