Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Cadence fourth quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. Thank you. I would now like to turn the call over to Alan Lindstrom, Senior Group Director of Investor Relations for Cadence. Please go ahead. Thank you, Rob. I would like to welcome everyone to our fourth quarter 2020 earnings conference call. I am joined today by Lip-Bu Tan, Chief Executive Officer, Anirudh Devgan, President, and John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call is available through our website, cadence.com, and will be archived through March 19th, 2021. A copy of today's prepared remarks will also be available on our website at the conclusion of today's call. Please note that the discussion today will contain forward-looking statements, and that actual results may differ materially from those expectations. For information on factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include Cadence's most recent reports on Form 10-K and Form 10-Q, including the company's future filings and the cautionary comments regarding forward-looking statements in the earnings press release we issued today. In addition to financial results prepared in accordance with generally accepted accounting principles or GAAP, we will also present certain non-GAAP financial measures today. Cadence management believes that in addition to using GAAP results in evaluating our business, it can also be useful to review results using certain non-GAAP financial measures. Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures with their most direct comparable GAAP financial results. The reconciliations are available at the investor relations section of cadence.com. Copies of today's press release, dated February 22nd, 2021, for the quarter and year-end of January 2nd, 2021, related financial tables, and the CFO commentary are also available on our website. Note that again today, we are conducting the earnings call from our respective remote. We need to observe a limit of one question and one follow-up. You may re-queue if you would like to ask additional questions and time permits. Now I will turn the call over to Lip-Bu. Good afternoon, everyone. Thank you for joining us today. In the year of unprecedented macro challenges, I am pleased to report that Cadence achieved outstanding financial results for both the fourth quarter and 2020. For the year, we achieved 15% revenue growth and 35% on GAAP operating margin, with strength across the board and all segments growing by double digits. In a moment, John will present more information for Q4 results and our 2021 outlook. The acceleration of digitization due to the pandemic, coupled with exciting generational trends like 5G, AI, ML, data analytics, and hyperscale computing, continue to drive strong semiconductor demand. Leading hyperscaler mobile AI companies continue to aggressively pursue Moore's Law, while 5G wireless, industrial, and automotive verticals are leading the charge on the More than Moore's front. Our intelligence system design strategy triples our TAM and our broad compelling portfolio of chip, package, board, and system design solution uniquely positions us to realize these exciting opportunities. In 2020, we accelerated our momentum at marquee accounts while expanding our system portfolio through compelling acquisitions, enabling us to win new customers in our targeted vertical segments. Of particular note was the strength of our aerospace and defense business as the digital transformation in this vertical continues, and we expanded and deepened our relationship with Northrop Grumman, which includes the use of our custom analog and digital full flow. Additionally, we are especially excited by the momentum we have with the hyperscalers as they are accelerating their chip and system design activity. Our engagements with the system companies have steadily deepened over the past few years, and revenue from system companies is now closer to 45% of our total revenue. It was a great year for our Cadence Cloud, which now has more than 175 customers, and we further strengthened our partnership with cloud infrastructure and foundry partners. Let us review Q4 highlights. Design excellence is a foundational layer of our strategy and includes our core EDA chip design platforms and IP portfolio. Our digital sign-off solutions offering superior quality of results and faster convergence continue proliferating at market-shaping customers. We engaged in well over 100 projects at five nanometer and below process technologies. We are in early collaborations on the two nanometer nodes. Deployment of our full flow accelerated as more than 45 customers adopted our Cadence digital full flow at the most advanced nodes during the year, including MediaTek, Samsung, Micron, NUVIA, and a global marquee customer. Based on the superior quality of results, the market-shaping hyperscaler significantly increased their usage of our digital solutions. Earlier in the year, a market-shaping automotive semiconductor customer committed to Cadence as its primary EDA vendor for digital design. Customers are faced with mounting challenges in system verification and software bring-up, and is benefiting from our verification full flow solutions that deliver industry-leading verification throughput. Momentum continued on Xcelium, our digital simulator, with several competitive replacements underway, as well as expansions and new customer wins. Our hardware family of Palladium for emulation and Protium for regressions and earlier software development had a strong quarter to finish our best ever year for hardware. For the year, Palladium Z1 had 24 new customers and 34 expansions, while Protium had 13 new customers and 14 expansions. Demand was particularly strong at AI and hyperscaler customers. Ericsson renewed their commitment to Cadence verification hardware, including both Palladium and Protium. A unique differentiator of the Protium X1 is the common front-end compiler with the Palladium Z1 that enables significantly faster bring-up and about 40% of our hardware business during the year included both Z1 and X1. Our IP business had a strong year, as our focus strategy and a compelling portfolio leveraged on the ongoing IP outsourcing trend. We continue expanding the footprint of our leadership DDR and PCIe IP and have several design wins at the 5 nm and lower process nodes. Several customers have adopted our 112G SerDes IP, including Xsight Labs, who has also demonstrated working silicon. Tensilica has strong royalties and significant wins at the key true wireless stereo and mobile application processor customers. Additionally, the automotive segment had good momentum, with wins in functional safety, radar, and digital radio, including an ADAS win at leading self-driving car company. In system innovation, we are very excited about our system design and analysis segment, which had a particularly strong year with greater than 25% revenue growth. Rising system complexity for advanced 5G, automotive, and HPC applications is driving the need for seamless platform solution across design, simulation, and analysis. AWR and Integrand delivered strong, great results in 2020, and there is a strong customer interest in our integrated Virtuoso, Innovus, Allegro, and AWR Microwave Office solutions with in-design analysis. In system analysis, we are executing to our strategy of building out our multi-physics portfolio, offering best-in-class solutions and delivering superior results compared to legacy industry solutions. Strong market adoption continue for our system analysis products, and we are particularly pleased with the growing number of repeat orders with customers, including STMicroelectronics, Virtex, and a market-shaping hyperscaler. We triple our system analysis TAM by adding computational fluid dynamics, CFD technology, through the pending NUMECA acquisition, which will bring leading CFD technology and deep domains expertise of Dr. Charles Hirsch and his team to Cadence. NUMECA has over 450 customers, including NASA, Honda, and Ford, across multiple verticals such as aerospace, automotive, industrial, and marine. For pervasive intelligence, we continue to incorporate machine learning technologies in various tools for improved PPA and faster convergence. Xcelium ML has a successful engagement with several market-shaping customers, delivering up to a five-time improvement in regressions throughput. We also progress on providing IP specifically tuned for AI machine learning applications, especially edge inferencing applications. Cadence continues to invest in fostering innovation and advancing education through endowments at top universities. Building upon previous endowments at Stanford, the University of California, Berkeley, and Carnegie Mellon University, we announced a $5 million endowment at MIT Schwarzman College of Computing to promote research in the fields of artificial intelligence, machine learning, and data analytics. Now, I will turn it over to John to go over the Q4 results and present our 2021 outlook. Thanks, Lip-Bu, and good afternoon, everyone. I'm pleased to report we exceeded all of our key operating metrics for the fourth quarter and fiscal year 2020. We achieved 50% on the Rule of 40 metric for the first time through a combination of 15% revenue growth and 35% non-GAAP operating margin. Consistent execution against our strategy and double-digit growth across all product categories helped us achieve this landmark, but we also had the benefit of some tailwinds during the fiscal year, which included a 53rd week, a strong second half in China, and the recovery of $26 million that we previously thought to be uncollectible. The pandemic brought many challenges, and I'm very proud of our Cadence team for their compassion and resilience in the face of adversity. Their focus on innovation and customer success resulted in continued acceleration of Cadence's three-year revenue growth CAGR, which is now into double digits. Let's go through the key results for the fourth quarter and the year, starting with the P&L. Total revenue was $760 million for the quarter and $2.683 billion for the year. Non-GAAP operating margin was approximately 37% for the quarter and approximately 35% for the year. GAAP EPS was $0.62 for the quarter and $2.11 for the year, and non-GAAP EPS was $0.83 for the quarter and $2.80 for the year. Next, turning to the balance sheet and cash flow. Our cash balance was $928 million at year-end, while the principal value of debt outstanding was $350 million. Operating cash flow in the fourth quarter was $136 million and $905 million for the full year. DSOs were 44 days, and we repurchased $380 million of Cadence shares during the year. Before I provide commentary for Q1 and fiscal 2021, I'd like to take a moment to share the assumptions embedded in our outlook. We expect strong revenue growth for the first half, followed by more muted second half growth as we lap some tough second half comps. Our outlook further assumes the pandemic restrictions will gradually ease across the globe this year, resulting in higher T&E expense in 2021 compared to 2020. We've included the expected impact of the pending NUMECA acquisition in our 2021 outlook. Finally, as usual, our outlook assumes that the export limitations that exist today for certain customers will remain in place for all of 2021. Embedding these assumptions into our outlook for fiscal 2021, we expect revenue in the range of $2.86 billion-$2.92 billion. Non-GAAP operating margin of 34.5%-36%. GAAP EPS in the range of $2.09-$2.19. Non-GAAP EPS in the range of $2.95-$3.05. Operating cash flow in the range of $900 million-$950 million. We expect to use approximately 50% of our free cash flow to repurchase Cadence shares in 2021. For Q1 2021, we expect revenue in the range of $710 million-$730 million. Non-GAAP operating margin of approximately 35%. GAAP EPS in the range of $0.55-$0.59, and non-GAAP EPS in the range of $0.72-$0.76. We expect to repurchase $110 million of Cadence shares in Q1. Our CFO commentary, which is available on our website, includes our outlook for additional items as well as further analysis and GAAP to non-GAAP reconciliations. In conclusion, Cadence delivered another year of strong operating results, achieving 50% on the Rule of 40 metric for the very first time. We remain focused on driving profitable revenue growth, at the midpoint of our outlook for fiscal 2021, I'm pleased that we are on track to grow our annual revenue by over $1 billion since 2016, with more than $0.50 of every dollar of revenue growth dropping through to non-GAAP operating margin over that period. I would like to close by thanking our customers, partners, and our hardworking employees for all that they do, I'd like to remind them all that their health and safety continue to be our first priority. With that operator, we'll now take questions. At this time, I would like to remind everyone who wants to ask a question to please press star, then the one on your telephone keypad now. As a reminder, we ask that you please limit yourself to one question and one follow-up. We will pause for a moment to compile the Q&A roster. Your first question comes from the line of Gary Mobley from Wells Fargo Securities. Your line is open. Good afternoon, everybody. Thanks for taking my question. Let me extend my congratulations to a strong start to the fiscal year and a strong execution relative to your Rule of 40, exceeding that by 10 percentage points. That leads me to my question, John. Could you help us level set what that 35% operating margin in 2020 may have been if you didn't have, I guess, the reversal of the bad debt reserve or bad collectible reserve, the fact that you weren't able to bring on employees at a fast enough rate, and then as well, the extra week. How does that 35.25% operating margin guide in fiscal year 2021 compare to a level set fiscal year 2020? Okay. Thanks for the question, Gary. I guess in terms of the collections, we had a collections windfall of $26 million in the second half, most of which came in Q4, and some of those invoices were very ill, which meant that $22 million of the $26 million was recognized in revenue before the end of the year. That was in relation to, if you recall, in the middle of the year during the pandemic, we had some smaller customers that weren't able to pay us, and we reserved for those. We helped them out, our engineers and team at Cadence were determined to help them out whether they were paying us or not. Some of those customers turned around and managed to survive, and we weren't sure if they would. That collections windfall kind of distorted maybe some of the revenue timing in the quarters during the year, that $26 million didn't really impact the year because originally we had it in the year, then we took it out in the middle of the year, and then that $22 million of that $26 million that got collected got recognized. In relation to the extra week, we thought that was going to be $45 million, and it was. The extra week, of course, was a 2% tailwind in terms of helping us achieve 50% on the Rule of 40 in 2020. What was a 2% tailwind in 2020 is a 2% headwind now in 2021 when we go from a 53-week year to a 52-week year. I guess we had a really strong second half in China. When I step back from individual quarters and halves, I would say that our business is very strong in all regions and across all of the product categories. The three-year revenue CAGRs, they're up to 11% now in 2020, and at the midpoint of our outlook for 2021, that's at 11% too. We're already off to a very strong start as well in the first half of 2021, but it's too early really to say if that's sustainable in the longer term. The second half, we have kind of muted revenue guidance. When I looked at the second half of 2020 in China, what I noticed was that we had a higher than normal proportion of upfront revenue in our recurring revenue mix for the region in China. For our outlook in 2021, I've assumed we return to our usual recurring revenue mix in the region. That, along with the fact that we have one less week in the second half in 2021 versus 2020, that's what contributes to the conservative revenue growth outlook for the second half. Okay. That's very helpful, John. I wanted to ask you about the materiality of the systems analysis product group, including NUMECA. I guess there's perhaps various documentation that NUMECA had roughly $30 million in annual revenue. Is that a pretty good approximation? For the overall systems analysis category, how material is this now? Is it somewhere in the ballpark of what? 1% or 2% of revenue now, and how much is it contributing to your overall growth? Thank you. System analysis business is doing great. Bookings and revenue grew strongly in 2020. The operating margin profile there is better than EDA, which allows us to invest in the business while we're generating strong incremental margins that improve our overall operating leverage. In relation to NUMECA, when we issued the original press release, we highlighted that the impact to 2021 is pretty immaterial. It's pending. We expect it to close. It's imminent in terms of close. I would expect it to close this week. As usual, of course, we'd expect purchase accounting rules to initially limit the revenue that we can recognize on NUMECA in the first year. We expect that to be temporarily dilutive to earnings in 2021, and that's already embedded in our outlook. From that perspective, we don't have anywhere near as much revenue in 2021 as you're expecting. Appreciate it. Thanks. Your next question comes from the line of Mitch Steves from RBC Capital Markets. Your line is open. Hey, guys. Can you hear me? Yes. Yes. Loud and clear. The first one is just on the 45% systems exposure now. I'm just a little curious about why that's trending up so quickly. About three years ago, I think it was closer to low 40s or 40%, which kind of metric, but now we're suddenly at 45, and it sounds like that might even go higher. Maybe can you help us understand what exactly is going on with that business that's causing it to spike up? Secondarily, regarding your 50% flow-through in the operating margin, clearly that's what you've been doing, but is there any difference between the systems and semis onboarding in terms of profitability for you guys? Those are my two questions. Thank you. Yeah, Mitch, maybe I can answer the first question first about the system company. We provide this end-to-end EDA portfolio, and also with our intelligent system design, we are moving up into the system analysis and area, and then also the packaging side. As you can tell, this generation wave in the 5G and also the hyperscale and then autonomous driving, and really the system company starting to engage quite actively with us because we're providing a suite of solution that they're looking for. I think it's kind of a accumulation of the last 12 years, continue working on it. We are delighted getting closer to the 45% of the revenue. For them, clearly the system, the packaging, not just the silicon development is critical for them, and we can provide an integrated solution for them, so that they can design a complex system that they're looking for. We are excited about this opportunity and our strategy. We are now investing and behind it, and so we are glad to see the performance. Yeah, Mitch, to the second part of your question there that, like you say, there's a higher-than-normal profitability, I think, for us in the system analysis business, and it's been growing really fast for us. If I look at incremental margins, I called out in my prepared remarks this. At the midpoint of our outlook for 2021, we're expecting our non-GAAP operating margin to grow by about $550 million over the five-year period since 2016. That's about 51% of the revenue growth if you calculate the revenue growth over that period of time. Then, when I compare the midpoint of outlook for 2021 against 2019, I did the same exercise, and I got 51% again before the impact of NUMECA. With NUMECA, it kind of takes it just down under 50%. That's perfect. Just to clarify, make sure I understand this correctly. System analysis, it sounds to me, and maybe I'm reading too much into this, you're seeing like a step function in your 3D Clarity business, or am I reading too much into this? More than- Well- Yeah, more than that. Oh, sorry. I think we also have all these hyperscale guys and then some of the system company service provider. They are quietly also building up their semiconductor custom silicon design. Our entire suite from the design excellence from the EDA IP, plus our system analysis, plus our acquisition we make in AWR and Integrand, they're providing a lot of system for the 5G and also the industrial group. Very helpful. Very impressive quarter. Thank you. Thank you. Thanks. Your next question comes from the line of Pradeep Ramani from UBS. Your line is open. Hi. Thanks for taking my question. Congratulations on a great quarter and a very solid guide. I just had a couple of questions. Maybe I'll ask one and then have a follow-up. How are you thinking in terms of the mix you're seeing coming out of China versus the rest of the world? Last quarter, it felt a little bit more towards IP and hardware, but it feels like your growth is now increasingly becoming more broad-based in China and driven by EDA and software as well. Is that a correct read? Yeah. Let me answer that. This is Lip-Bu. Clearly, APAC is a strong growth region for us. We've done well in China in Q3 and Q4. As you know, China is heavily investing in semiconductor industry. In some way, we have broad portfolio of EDA tool, IP, and even the system analysis and some of the packaging, the 3D packaging. It become critical for them. I think overall, we support the customer globally. China is especially strong. We will continue to comply with all the export control requirements. Meanwhile, so far, knock on wood, we see strong momentum over there. Pradeep, if I could add there that if you step back from looking at any individual quarter or half, and you look at the three-year CAGRs, I think our growth is accelerating across all regions in our outlook for 2021. Great. For my follow-up, you had a very strong year on IP. How do we think about the sustainability of growth in IP going forward given, of course, there's longer-term drivers, but just coming off of such a strong year? I think it's a good question. IP tends to be lumpy. So far, we like this IP outsourcing trend, and we have a strong portfolio in terms of DDR, PCIe, and also the SerDes is a must-have for the hyperscale. Some of the Tensilica in terms of audio and also the automotive sector. Overall, we are delighted. Last year is a strong year. As you know, it's very lumpy upfront, we now will continue to focus on that. Thank you. Your next question comes from the line of Jason Celino from KeyBanc Capital Markets. Your line is open. Your question comes from the line of Jason Celino. Your line is open. Hi, sorry about that. Sorry, I was on mute. The first question, the NUMECA acquisition. I know it's pending, but maybe can you speak to what is so attractive about that business? I know CFD is a pillar physics part of the market. Make versus buy there. I mean, what factors went into acquiring versus just building in? Anirudh, do you want to take this one? Yeah, definitely. Yeah, that's a good question. As you know, we are pretty excited about our move into system analysis, which is driven by our expertise in computation software, numerical mathematical software. We have a lot of expertise in that organically, as we saw in the development of Clarity, which is the 3D EM solver, and that has been generating a lot of good results. The second thing we are excited about is the customer synergy. A lot of customers, as we discussed, we have a lot more system companies, and they are asking for the system analysis capability. Okay. The question becomes whether to organically develop or to acquire. We look at the space, and in terms of system analysis, CFD is a very critical area. It's one of the largest market segments with lot of vertical application. NUMECA has very good technology with more than 450 customers. We are pleased to welcome them to Cadence with this pending acquisition. I think that can be used as a basis to expand further. Expand more in R&D with our computation software strength and expand more with our customer base. We are very happy to use them with their expertise in CFD to expand into this very exciting area for us. Okay. My quick follow-up with this is, I think you mentioned that it was a 3x10 expansion with the acquisition in the CFD. Does that 3x10 expansion also include other physics, like structurals, or is that just CFD alone? Thank you. In terms of system analysis, that's a pretty big segment, and it's about $6 billion, we estimate. The other good thing about it is that it is growing rapidly. There is always more need for more and more simulation. What we estimate is Clarity and Celsius is about $800 million in addressable market, which is EM and thermal, and CFD is about $1.6 billion. CFD triples our TAM from $800 million to about $2.4 billion. Your next question comes from a line of Jackson Ader from JP Morgan. Your line is open. Great. Thanks for taking my questions, guys. The first question is on the 175 cloud customers. What does that mix in terms of systems versus semiconductor companies look like? We don't have a breakdown on that. Clearly, we are very excited in our customer. Clearly, our solution provide that flexibility and also different use models, and either it's a Cadence managed. Overall, we're providing EDA software and Palladium platform. The most important is providing the productivity and scalability. I think, overall, we are excited of 175 customers. We didn't break down in terms of semiconductor or system company, but overall, both are strong for us. Okay. John, you mentioned that not expecting China to be as active in upfront revenue in 2021. Any particular reason? I mean, was it politically driven why that particular geography had a bigger mix of hardware and IP in 2020? No. When we have more hardware in any one quarter, in any one region, you're going to have a higher mix of upfront revenue, in that region, in that quarter. We saw that with a strong Q3 in the functional verification space and a lot of that strength within China. I was looking for signs of a pull-in in Q3 and to try and figure out was there some acceleration of purchasing that came out at 2021, or did it come out of Q4? Were people just preparing with the pandemic, were they just trying to get their hardware delivered earlier for fears of delays due to the pandemic? What we looked at, I was waiting for a view of the pipeline. Pipeline for 2021 is very strong. When I look at that, and compared it to what had happened, what was different about the second half of 2020 for China, what I did notice is because of that hardware, that we had a higher mix of upfront revenue in the region in the second half than we would normally see. I'm not sure if that's sustainable. It looks like we're off to a strong start again in Q1. For the purposes of determining an outlook for 2021, I thought it was safest to assume a return to our usual recurring revenue mix, which could prove to be conservative for the second half. I'd rather go out with the outlook, assuming that we return to the usual recurring revenue mix than assume that that growth that we saw in the second half of 2020 continues. If it does, when we have increased visibility into revenue in the second half, we can update our outlook at that time when we see it. I didn't want to go out with too strong a second half right now until I have a clearer visibility into the pipeline in the second half. Sure. Okay. Thank you. Your next question comes from the line of Joe Vruwink from Baird. Your line is open. Great. Hi, everyone. John, you've been referring to the tables in the release. I'm interested in the one that breaks it down three-year CAGR, adjusted for the extra week by product group. If you think into 2021, and again, just adjusting for the week comparison, would you expect kind of similar dynamics between the product segments where IP and system design should remain kind of the fastest growers? Are there any new developments at a product level to consider as 2021 goes on that might influence some of the trends you've seen? Good question. We're not guiding by individual product category. If you look at the three-year CAGR for 2018, 2019, and 2020 on that table, you see they don't change dramatically year-over-year, particularly on the three-year CAGR view. The ones you call the IP and system design and analysis are kind of the smaller dollar values, so they have the benefit of growing from smaller numbers and in the past, we've seen those grow faster. In relation to new products, I think the amount of innovation that we've seen, the new product releases and preparation that we've seen from the R&D group, and they haven't slowed down at all. If anything, they're accelerating in their new product development, even through the pandemic, which has been fantastic. Typically, on an earnings release, we wouldn't announce any new products. You'll see those at CDNLives, which probably start around late March, April time. Okay. Great. This next question might be product development related, but if I heard Anirudh correctly, systems design is maybe a $6 billion total opportunity, and given the solvers you've introduced or the new CFD being acquired, you're up to $2.4 billion. Are there other categories or additional things that you have in mind that we can maybe expect you growing into over the next few years? Yeah, that's a good point. First of all, I want to highlight that we are building out this multi-physics platform, and CFD is a pretty big segment of that market. We started with finite element and electromagnetics, and then now go to CFD, and there's a lot of commonalities there. I believe that itself presents a lot of opportunities to us, like we mentioned, tripling our addressable market. There might be more in the future. We always look for that. At the same time, the current electromagnetics and CFD already has a large market segment that we're busy addressing. The answer is yes, if some opportunities come, we will systematically expand, but already that's a good opportunity for us. Okay. I'll leave it there. Thank you. Your next question comes from the line of John Pitzer from Credit Suisse. Your line is open. Yeah, good afternoon, guys. Thanks for letting me ask questions. Congrats on the solid results. John, as you rightfully pointed out in your preamble, if you adjust for the extra week and some of the unexpected revenue in 2020, your initial guide for 2021 is already embedding sort of double-digit growth. I know you said that it's too early to say if that's the new norm, but I guess I'm kind of curious, what are you looking at to be able to make that call that this might be the new normalized growth rate? Lip-Bu, as you talk about potentially a double-digit secular growth rate, what do you think is driving that? Specific to Cadence and your strategy, do you think this is core EDA customers? Do you think it's the proliferation of customers into non-traditional areas like hyperscale systems and autos? If you can give us a little bit of help on that, it would be appreciated. John, I can take the first part of your question, then I'll pass it over to Lip-Bu. In relation to the strong first half guide and strong first quarter guide, most of our revenue is software and most of it's recurring revenue. We expect recurring revenue to make up 85%-90% of our revenue for the year. It's very predictable, and very predictable certainly in the near term. Where I had some difficulty was projecting what upfront revenue might be out in Q3 and Q4. The outlook for the second half is more conservative than... But the first half is very predictable in terms of great visibility into the pipeline. We're off to a really strong start in Q1 already on the upfront business. So much of that revenue is recurring in the first half that, yeah, we're seeing accelerating revenue growth. The challenge in the second half, of course, is we're lapping very tough comps against the second half of 2020. I just don't have the visibility into the upfront pipeline for Q3 and Q4 yet. Yeah, on the second question, let me describe. I think it's kind of exciting about this renaissance of semiconductor, with the five generation waves happening at the same time. The AI, machine learning, all about data. Data analytics, 5G, and then the cloud infrastructure had to change because all this massive data coming in, and then how do you address that network scaling and then storage disaggregation. It's a lot of changes to the infrastructure, and there's a lot of design activity. That's why we see a lot of design activity, not just from the semiconductor players, now the system player, and then the whole Industry 4.0, they all move into AI, machine learning, the digital transformation that drive a lot of semiconductors. Overall, the industry is moving in the right direction to us. Meanwhile, I think clearly Cadence with the intelligent system design strategy really tie in really well from the design excellence they're providing the tool and IP. Now we move to the next level of system innovation, and Anirudh will talk about the system analysis and of the CFD and the physics and the multi-physics model. The next thing is move up into the pervasive intelligence that's using AI, machine learning, data analytics, drive all the vertical industry that is major transformation going on. I think we are well-positioned to capture that opportunity. Guys, my second question is clearly when you look at China as a region from Q4 of 2019 to the back half of last year, it almost doubled as a percent of revenue. John, you clearly talked about potentially some one-times that came in in the back half of the year that you're not embedding sort of in the guide for 2021. I'm just kind of curious, as we think about currently China at about 17%, what's kind of core embedded as a percent of revenue in your 2021 guide, realizing that's subject to change. If you think longer term with China's aspiration, is this about the right level as a percent of revenue, or would you expect this on a secular basis to continue to grow over time? Well, again, individual quarters, I wouldn't focus too heavily on any one individual quarter or even half. It was a tremendous second half for us in China. 2020 was a strange year, with the pandemic, with the extra week in Q4. You'll see in Q3, we had a lot of strength in our functional verification group. In Q4, you'll see the software businesses performed really well. Of course, it had the benefit of the extra week with a 14th week in your normal 13-week quarter. We have one less week in the second half of 2021. We're very pleased with the growth we're seeing in China. It looks like it's continuing on. We're seeing that strength continue on into Q1. The pipeline's strong, seeing that in the first half. I just wanted to be conservative in the outlook for the second half until I have better visibility into second half upfront revenue pipeline. Thank you. Your next question comes from the line of Tom Diffely from D.A. Davidson. Your line is open. Yes, good afternoon. First, just a clarification for John. When you look at your expectations for 8% revenue growth and 8% OpEx growth and the lack of leverage there, did you say that was primarily due to just the NUMECA acquisition, the increased cost? No, it's certainly not primarily due to the NUMECA acquisition. I think, in terms of expense growth, our headcount is up 8%. Our headcount increased about 8% during 2020. We're investing heavily again in hiring in 2021. NUMECA will come into the mix, we hope the second half of Q1 and then the remainder of the year from an expense perspective. We expect the merit increases will be July again. You'll see a slight uptick there in expense in Q3 and Q4. The growth in expenses through the year that would typically come from that is being offset by some more efficient infrastructure spend that we have planned as the year progresses. If you look at our 10-K that we filed, you'll see that we initiated a restructuring plan in Q4 2020 to optimize our spend on infrastructure. The expense mix in 2021, I think if you compare 2021 versus 2020, you'll probably see in 2021, we're spending more on people and less on places than we were in 2020. That's driving some of the margin profile. Okay. That's very helpful. Then follow-up for Lip-Bu. When you look at the cloud, you talked about 175 customers. What do you think the long-term adoption is for EDA with the cloud, and do you think some of your really large customers will move a majority to the cloud at some point? If they do, what does that do to your cost structure? Very good questions. This is still at a very early stage. We are very encouraged with 175 customers. Clearly, we want to make sure that our initial product in terms of system analysis, we can be cloud-native because we start from scratch. Some of the EDA tools, we have different stages of moving to cloud native. Really the holy grail is basically drive the productivity efficiency for our customer. Our partnership with the hyperscale partners and then infrastructure partners and also the foundry partners are critical in this effort. Right now we have across small, medium, large customer embracing on cloud. Truly, I think if you can imagine, you have unlimited usage of machine server at your disposal, and then so that you can really drive the performance, the productivity significantly. I think, that is a trend. We're just in the beginning, early stage, but we are very encouraged with the customer support. In order to continue to grow, clearly our partnership with the hyperscale partners and also the foundry partners are critical, because of their PDK, all the different solutions they have. We want to make sure that we work with them together and support our customer and also addressing the needs of customers. Okay. Thank you. Thank you. Your next question comes from the line of Gal Munda from Berenberg Capital. Your line is open. Hi. Thanks for taking my question. The first one, I just wanted to follow up briefly on NUMECA and more generally on your ambitions within the kind of mechanical simulation space. If you think about the convergence that's happening with NUMECA now, you said you have a CFD, you have a finite element analysis as well. How far do you think your portfolio is, based on what you have, to be able to take it where you want to be in R&D terms versus potentially doing more of those tuck-ins in the CAE space? Yeah, that's a good question. Let me take that. This is Anirudh. Like I mentioned, this move is driven by three factors, right? Our strength in computation software. Our customers are asking for more and more system analysis, system design capabilities like Lip-Bu mentioned, and the overall need for simulation. I think we are still in the early innings, but we feel confident about this space, as demonstrated by our results in Clarity and other products. CFD is a pretty important area, and it's I think one of the biggest segments in system analysis. The good thing about CFD, it has a lot of vertical applications, all the way from automotive, aero and defense, all the way to medical. I think that's a pretty significant expansion of our platform. We are happy with this progress. We are patient and, like John mentioned, this segment is profitable. We will continue building across this, and keep providing the best solution to our customers. Thanks. Thank you. Just as a follow-up, maybe just expanding a little bit on the growth drivers of the businesses. Lip-Bu, you mentioned there's Moore's Law pace growth, at the leading-edge customers, and there's more than Moore's Law which is kind of the system side. Considering the investment you're making in the system side, can you just comment a little bit on the growth, maybe 2020, how it corresponded between the leading edge and the systems companies, in terms of that contribution to get you on whatever we want to say, 30% or 15%, depending on which number we're looking at. Thank you. I think we are very well-positioned to able to do both. Clearly, the hyperscale mobile and they are driving a lot into the Moore's Law. As I mentioned that we are very delighted. We have more than 100 projects on five nanometer and below process node development with our customers, and we have earlier collaborations on two nanometer process. I think this is a very advanced, and we are delighted, and we are very honored to work with the marquee customers. They are pushing the envelope, and we are really excited about that development. On the other hand, we are so well positioned in our custom mixed signal analog and packaging and like the 5G, the wireless industrial group, they are really moving into this mixed signal and clearly the Moore's and more. There we are very well-positioned, and we double down with some of this AWR and then the Integrand acquisition, driving some of the RF microwave requirement, especially in the antenna side of some of these 5G integrations. We have really good solution for that, and customers see the benefit of working with us. I think we are very well-positioned on both sides. That's why we highlight that from our portfolio point of view, and both engines are really taking off, and we are very excited engaging with all the best companies to work with us. That's great. Thank you so much. Thank you. Your next question comes from the line of Rich Valera from Needham. Your line is open. Thank you. Let me add my congratulations on the Rule of 50 last year. Question, I think it's for Anirudh on the system analysis go-to-market. Just wondering, to date, have you been doing that through the standard sales channel? Do you have any overlay sales and/or specialized applications for system, and how are you thinking about scaling up any kind of dedicated system resources as you scale up that business? Yeah, thanks, Rich. That's a great question. Of course, one is developing great products and the other is go-to-market or helping our customers deploy those products. The second part is as important as the first part. Especially for the system business, there are multiple facets to this. In the semiconductor business or the big, large system companies, we operate mostly through a direct channel. Okay. If you remember, we also have our Allegro business, which is our packaging business. We do quite well in PCB and packaging with Allegro. Allegro, already we do have an indirect channel. Like Lip-Bu mentioned earlier, cloud is important going forward. For the system business, I envision three channels. We are building three channels. One is the direct channel, because a lot of the big companies and big systems, semi companies, anyway want system tools, like we mentioned. Expanding our indirect channel, like we have for Allegro, and expanding it to overall system design and analysis. Then a SaaS channel or cloud-based channel, especially for smaller companies that don't have a lot of data centers and are more attractive to use on the cloud. As we go to the system design and analysis, we do have to build out these three facets of our go-to-market, and we are working all of them in different stages. The strength of our direct channel helps us with our big customers, and then indirect and SaaS can help us with some of the smaller long-tail customers. That's a very important part of the overall go-to-market strategy. Understood. Thanks for those details. John, follow-up for you. You'd given a backlog reserve number last quarter of $58 million, which I think had come down from $70 million originally. I'm assuming that came down materially in the fourth quarter. Can you tell us where that is today? Yes, of course, Rich. We had a collections win for $26 million in the second half out of that $70 million. I think the majority of the balance of the $70 million is lost. I mean, many of those customers have closed their doors. I think we're in single digits and millions in terms of the ones we're left tracking that could potentially be recoverable. Right now, in my outlook, I'm assuming it's not recoverable. You're talking maybe $9 million, $10 million left out of that $70 million that could possibly be recovered. Like I say, right now, I'm assuming it doesn't get recovered. We recovered $26 million of the other $60 million. Got it. Okay. Thanks very much, John. Your final question comes from the line of Jay Vleeschhouwer from Griffin Securities. Your line is open. All right. Thank you. I'd like to direct both of my questions to Anirudh. First, we've heard for years, of course, from the EDA companies of ongoing design activity among your customers, that's remained robust. We've also heard of the general direction of design style or types from general purpose chips more to specialty kinds of designs. What we don't often hear about is how customers' design methodology may be evolving. I'm wondering if there are any issues that you might want to talk about regarding, for example, hierarchical versus flat, which has been a consideration for chip design now for two decades or more. Are there any new implications or issues for that as it might pertain to or affect any of your EDA tools or new technologies such as iSpatial or Design Space Exploration? Relatedly, there were a number of questions this evening already regarding system analysis and your broader ambitions in computational software. One thing we see on the other side of engineering software, the world you're encroaching towards, are unified data platforms and common platforms for data management and the like, which you don't really seem to have. You do have multiple stacks for your various functional areas. Could you talk about how you're thinking about unifying or moving to a more common platform of that kind? Yes, Jay, these are great questions. First of all, we want to make sure that we have best-in-class products, right? Whether that's digital design or verification and system analysis. As we know, this is technology business, best product wins, and at the same time have a unified platform to go with it. This is how we did digital implementation. This is how we did verification. Both parts are important to have best-in-class products, whether that's in finite element electromagnetics or CFD. There are opportunities to combine them in a much more unified way, especially around data, like you mentioned. I completely agree that the need for unification, but we also, at the same time, want to make sure first that the products are best in class. You want a unified team, but each player has to be a strong player. There are a lot of opportunities for data platforms and analytics, like Lip-Bu also mentioned earlier. In terms of your first question of new methodologies, there are several things happening. If I have to pick one or two key things that are happening, what we see with the customers. One big trend, which you probably already know, is this move to 3D IC. I think this is going to be significant the next several years, and it just changed a lot of methodologies in our customer base, and this is multiple high-end digital chips or even analog RF chips on a package. That, I think, is driving a lot of change, especially in the cloud, hyperscaler companies, all the way to consumer companies. We do have historically a lot of strength in packaging with Allegro because we have a leadership platform and advanced node with Innovus, and then now the analysis tools with Clarity and Celsius, because thermal is a big thing for 3D IC. I think this whole methodology of 3D IC integration is one significant change that we do see in the customer base. We are very excited about that because I think Cadence is in a unique position because of historical strength in analog and packaging, and digital, and then new strength in system analysis. Hierarchical, you mentioned, I think that's always a big thing as things get bigger. If you look at 3D IC, this is another way to do hierarchical because if you have four chips on a package, you don't have to redesign all four of them. This is reused at a much higher level. I do think 3D IC is a significant trend that is going to happen, and we are well positioned for it. Thanks, Anirudh. Yeah. Thanks. I will now turn the call over to Mr. Lip-Bu Tan for some closing remarks. Thank you all for joining us this afternoon. I'm very excited about the growing market opportunities and the business momentum going into 2021. Our intelligent system design strategy is playing out very nicely as we benefit from new opportunities in design excellence, system innovation, and pervasive intelligence, and an expanded total addressable market. We excelled in the challenging year, thanks to the deep partnership with our customers and our partners, and the strong commitment of the outstanding Cadence team. Lastly, on behalf of all our employees and the board of directors, we give a heartfelt thanks to those on the front lines who continue to work tirelessly in their effort to put this pandemic behind us. Thank you all for joining us this afternoon. Thank you for participating in today's Cadence fourth quarter 2020 earnings conference call. This concludes today's call. You may now disconnect.