Synopsys, Inc.

Ladies and gentlemen, welcome to the Synopsis Earnings Conference call for the fourth quarter of fiscal year 2022. At this time, all participants are in a listen-only mode. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question again, press star 1. If you should require assistance during the call, please press star followed by 0. Today's call will last one hour. And 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, Lisa. Good afternoon, everyone. Hosting the call today are Art DeGias, Chairman and CEO of Synopsys, and TrackFOM, 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 our website at the conclusion of the call. With that, I'll turn the call over to Art DeGias.

Good afternoon. I'm happy to report that Synopsys completed an outstanding year with sustained forward momentum. Since about four years ago, we communicated our dual objectives of accelerating growth and expanding margin. Synopsys has delivered on and in fact exceeded those expectations. This is visible through over 60% revenue growth since that point, 11 percentage points higher non-GAAP operating margin, and more than doubled EPS. This quarter, we also crossed the $5 billion annual revenue milestone. Simultaneously, we substantially evolved our product offering, expanded customer relationships, and increased competitive differentiation. Building on this, we delivered another record year in fiscal 22. Revenue grew 21% to 5.08 billion with double-digit growth in all product groups and across geographies. We further expanded non-GAAP operating margin to 33%, grew earnings by 30%, and generated record cash flow of 1.7 billion. While semiconductor industry revenue growth has moderated, design activity remains robust. In addition, our time-based business model with $7.1 billion of non-cancellable backlog and a diversified customer base, all provide stability, resilience, and forward momentum. While fully mindful of the macro dynamics around us, including the most recent U.S. government export restrictions, Synopsys is poised for strong results in fiscal 23. We intend to grow revenue 14% to 15%, continue to drive notable ops margin expansion, and aim for approximately 16% non-gap earnings per share growth. Trak will discuss the financials in more detail. Looking at the landscape around us, some of you have asked us why customers' design activity remains solid throughout waves of the business cycle. Two reasons. First, the macro quest for smart everything devices, and with it AI and big data infrastructure, is unrelenting, and expected to drive a decade of strong semiconductor growth. Second, semiconductor and systems companies, be it traditional or new entrants, prioritize design engineering throughout economic cycles precisely to be ready to field competitive new products when the market turns upward again. We've seen this dynamic consistently in past up-and-down markets and expect it to continue. Today, Synopsys aims to be a key engineering catalyst towards this smart everything world as our mission is to enable innovation at the critical interplay between semiconductors and software. Our customers are racing to differentiate along three axes. First, still higher complexity chips with massive compute capability. Second, super tightly integrated systems of chips optimized for the software that will run on them. And third, increasing focus on security and safety across both software and hardware in virtually all vertical segments. Synopsys is uniquely positioned to address these challenges as we provide the most advanced and complete design and verification solutions available today, the leading portfolio of highly valuable semiconductor IP blocks, and the broadest set of software security testing solutions. In the past few years, we've introduced some truly groundbreaking innovations, that radically advance how design is done. Let me begin the highlights with our DSO.AI artificial intelligence design solution. With already well over 100 commercial production designs, it continues to deliver amazing results. Applied simultaneously to multiple steps of the design flow, DSO.AI reduces efforts for months to now weeks, while also delivering superior performance and reduced power. Results reported by customers include 25% reduction in turnaround time and compute resources, and up to 30% power reduction. With customers such as Samsung, Renaissance, Intel, MediaTek, Sony, and many others reporting impressive achievements, customer adoptions have accelerated across a wide range of process nodes and market verticals. In FY22, the number of customers more than doubled. and we've already seen significant repeat orders and broadening proliferation. Seven of the top ten semiconductor companies have adopted DSO.AI for production design. Meanwhile, we're also extending machine learning capabilities across other EDA workloads, from verification to test to custom design. These next phase solutions are already in customers' hands, showing excellent impact and promise. Central to the impact of DSO.AI are the powerful digital design solution engines underpinning it, specifically our Fusion Compiler products. It drove numerous competitive wins with accelerated proliferation for a wide variety of customers. Key adoptions range from the largest processor firms to influential systems companies to major hyperscalers. Fusion Compiler is used in over 90% of advanced nodes down to 3 and 2 nanometer with a majority exclusively using Synopsys. In Q4, cumulative customer tape-outs surpassed 1,000, more than doubling the combined total of FY20 and 21. Our custom solutions also saw strong market momentum this year, continuing the drumbeat of competitive displacements. With options ranging from large semiconductor companies at advanced nodes to automotive to memory vendors, as we added more than 45 new logos this year, nearly one per week, with double-digit revenue growth. To address the highly advanced chip mentioned earlier, multi-die system design, sometimes also called chiplet-based design, is opening a whole new era of silicon complexity. Having forecasted this a number of years ago, Synopsys now provides a differentiated multi-die solution that enables architecture, analysis, design, and sign-off all integrated in one place. This includes our 3DIC compiler solution and our industry-leading portfolio of state-of-the-art die-to-die interface IP. Today, we're already tracking more than 100 multi-die designs for a range of applications, including high-performance compute, data centers, and automotive, seeing strong adoption of our broad solution. A notable example is achieving plan of record for multiple 3D stack designs at a very large high-performance computing company, as well as expanded deployment at a leading mobile customer. Meanwhile, the recently introduced UCIE protocol, short for Universal Chiplet Interconnect Express, has become the interconnect of choice for multi-die systems. Both our UCIE interface IP and HBM3 memory IP are at the forefront of enabling multi-die designs with multiple wins at tier one customers. More broadly, third party IP is a must have for designs across the board. Our market leading IP portfolio, by far the broadest in the industry, continues to drive significant adoptions and growth. In fiscal 22, our IP business delivered another record year with more than 20% growth. We continue to see particularly strong demand in key markets, such as high performance compute, automotive and mobile, where the systems are driven by smart everything, high-speed secure connectivity, and advanced process geometries. While maintaining technical leadership in IP for advanced process technologies, we delivered multiple IP products in the most advanced 3- and 4-nanometer process nodes to our customers in high-end mobile and HPC applications. Very strong adoption also of our automotive-grade IP solutions as cars are being re-architected towards both electrification and autonomous driving. The acceleration of car electrification, driven by urgent climate considerations, notably drives a slew of new sensor, actuator, and control chip designs. Our automotive solutions had outstanding growth. Today, we have engaged with hundreds of designs from more than 30 leading semiconductor providers, more than 10 OEMs, and three of the top four tier one suppliers. At the core of these systems is the intersection of hardware and software. To optimize the system, our customers must verify both the software in the context of the hardware and the hardware in context of the software. While verification is fundamentally an unbounded problem, our state of the art simulation, emulation, and prototyping products tackle these tough verification challenges at unparalleled speed with the fastest engine, highest capacity, and lowest cost of ownership. Specifically, our hardware-based products delivered a record year with competitive momentum, adding more than 30 new logos and over 200 repeat orders. Moving now to software security, the critical nature of which continues to grow, as management teams and boards are keenly focused on ways to protect their companies and their customers from destructive cyberattacks. Our software integrity solution enables organizations to manage the security and quality of software across a wide range of industry verticals, from semiconductor and systems to financial services, automotive, industrial, health, and more. Industry groups such as Gardner and Forrester recognize Synopsys' leadership. Gardner positions us at the top and farthest right of its magic quadrant, rating us highly for technology depth, breadth, consulting capabilities, and vision. While this is the one area where we did see some impact from the macro environment in the quarter, revenue growth for the year accelerated over FY21. Notably, we saw good progress with the go-to-market and product initiative introduced last year. Our indirect channel partner business, for example, continues to ramp well by expanding our reach, into customer groups and geographies that we hadn't connected with in the past. We are building momentum with the goal of another significant increase in indirect sales in FY23. On the product side, we expanded our offerings by launching two new SaaS services for static analysis and open source analysis integrated into our Polaris platform. We expect these SaaS capabilities to accelerate adoption and consumption of our solutions as they are particularly well-suited to growth in the mid-market. Early customer reception has been quite positive. Our continually evolving and strengthening platform also provides more and more valuable insights to help companies drive increasingly robust top-down software risk management. In summary, Synopsys exceeded beginning-of-year targets and delivered a record fiscal 22 across all metrics, with the additional spark of passing the 5 billion milestone. We enter FY23 with excellent momentum and a resilient business model that provides stability and wherewithal to navigate market cycles. Notwithstanding some economic uncertainty, our customers are continuing to prioritize their chip system and software development investments to be ready with differentiated products at the next upturn. On our side, many game-changing innovations across our portfolio position as well to catalyze a decade of semiconductor importance and impact. Finally, our execution and operational management continue to drive growth and margin expansion, and we're particularly thankful to our employees around the world for their vitality and diligence throughout the year. One more comment. As you may have seen, yesterday we announced the appointment of Sheila Glaser to become our new CFO on December 2nd. She is here with us today, listening in, as we prepare to pass the torch from Trak in a few days. Before I pass the microphone to Trak for his review of Fiscal 22, it's wonderful to say a heartfelt thank you for his contributions that helped build the company we are today. With 16 years on our team, eight as Synopsys CFO, Trak is a cornerstone architect and execution leader of the strong results of the past year. During his tenure, he strengthened our fiscal discipline and acumen, engineered trusting and effective relationships with the other parts of the company, and most importantly, assembled and grew a great team that we will continue to build on. So it is all the more meaningful to voice our gratitude to TRAC at the very moment that we passed this unique revenue milestone. Thank you, TRAC. And now, one more time, please give us your perspective on the state of Synopsys.