Good afternoon. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence first quarter 2022 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 will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead. Thank you, operator. I would like to welcome everyone to our first quarter of fiscal year 2022 earnings conference call. I'm joined today by Anirudh Devgan, President and Chief Executive Officer, and John Wall, Senior Vice President and Chief Financial Officer. A webcast of this call and a copy of today's prepared remarks will be available on our website, cadence.com. Today's discussion will contain forward-looking statements, including our outlook on future business and operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussion. For information on factors that could cause actual results to differ, please refer to our SEC filings, including our most recent forms 10-K and 10-Q and today's earnings release. All forward-looking statements during this call are based on estimates and information available to us as of today, and we disclaim any obligation to update them. In addition, we'll present certain non-GAAP measures, which should not be considered in isolation from or as a substitute for GAAP results. Reconciliation of GAAP to non-GAAP measures are included in today's earnings release. Today's earnings release for the first quarter of fiscal 2022, related financial tables, and CFO commentary are also available on our website. For the Q&A session today, we would ask that you 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'll turn the call over to Anirudh. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report that Cadence delivered exceptional results for the first quarter of 2022, with broad-based demand for our innovative solutions driving solid double-digit growth across all business groups. In view of the strong start to the year and the continuing momentum of our business, we are raising our financial outlook for the year. John will provide more details on that in a moment. Generational trends such as hyperscale computing, 5G, autonomous driving, and AI/ML are creating an explosion of data that in turn is driving the need for next generation compute, connectivity, storage, and data analytics solutions. Along with accelerating digital transformation of multiple end markets, these trends continue to fuel robust design activity, creating rich market opportunities for our differentiated end-to-end EDA, IP, and system solutions. Now, let's talk about our key highlights for Q1. A key element of our approach has been to closely collaborate with our ecosystem partners and focus on market shaping customers. We are very excited to have built upon our successful engagement with a marquee U.S. semiconductor company, and in Q1 signed one of the largest contracts in company history to enable the broad proliferation of our EDA, hardware, and system solutions. Additionally, in Q1, we expanded our long-standing partnership with Arm, who is using a comprehensive set of Cadence EDA solutions, and Cadence, who is using Arm's latest IP to jointly provide implementation reference flows and optimized processor IP to accelerate customer innovation. Rapidly increasing challenges in system verification and software bring-up continued to be a strong pull for our verification business, which delivered 30% year-over-year revenue growth. On the heels of a record year, our hardware business has had its biggest quarter by far, with unabated demand for our best-in-class Palladium Z2 and Protium X2 hardware platforms. With 10 new customers and over 50 repeat customers, more than half the orders during the quarter included both the platforms. Demand for hardware was broad-based with particular strengths seen in hyperscale, 5G communication, and AI/ML segments. Our digital and sign-off business had another strong quarter with 23% year-over-year revenue growth. Deployment of our digital full flow, delivering industry-leading quality of results at the most advanced nodes, continued to accelerate with more than 15 new wins in Q1. Our innovative Cadence Cerebrus solution uses unique reinforcement learning ML technologies to explore the entire design space and intelligently optimize the digital full flow in a fully automated manner. Several market-shaping customers have successfully deployed Cadence Cerebrus and realized remarkable productivity and power performance and area benefits, including a marquee Asia Pacific system companies used Cadence Cerebrus to achieve 5x engineering productivity and nearly 10% power gains on a critical advanced node subsystem. A leading Asia Pacific hyperscaler used Cadence Cerebrus with our digital full flow to tape out a chip with nearly 2 billion instances, reducing power by 5% compared to the alternative flow. Our system design and analysis business, which is driving our expansion beyond EDA, continued its strong momentum in Q1, delivering 22% year-over-year revenue growth. There is growing interest in our Integrity 3D-IC solution, the industry's most advanced multi-die platform with tightly integrated system planning, implementation, and analysis technology. A large U.S. data infrastructure company successfully deployed Integrity to tape out their 2.5D IC. Lightelligence used Integrity 3D-IC with Celsius and Innovus in development of their fully integrated optical computer system. In system analysis, we continued executing to our strategy of building out our multi-physics platform, offering best-in-class engines, delivering superior results compared to legacy solutions. We are pleased with the new wins and growing repeat orders for our organically developed Clarity and Celsius products, as well as our recently acquired CFD technologies. Over the past year, our CFD solutions have continued to proliferate, especially in the aerospace and defense arena, with market-shaping customers such as Lockheed Martin. In Q1, Juniper Networks renewed their commitment to Cadence technology, including comprehensive access to our systems portfolio across PCB, packaging, and system analysis solutions. Last week, we introduced Fidelity CFD, a comprehensive CFD platform that includes enhanced meshing technologies, as well as a next generation massively parallel high order solver that dramatically improves the performance and accuracy of complex CFD application across multiple vertical end markets. Fidelity CFD software meshing capabilities have been used by Toyota Motor Europe as their standard workflow for CFD preprocessing. The winning America's Cup team Emirates Team New Zealand relies on Fidelity Marine Solver for their hull hydrodynamic modeling. Lastly, in addition to our outstanding business results, I'm also proud of our high-performance inclusive culture and thrilled that we have been selected by Fortune and Great Place to Work as one of the 2022 100 Best Companies to Work For for the eighth consecutive year. Now I will turn it over to John to provide more details on the Q1 results and our updated 2022 outlook. Thanks, Anirudh, and good afternoon, everyone. I am pleased with the results we achieved for the first quarter of 2022, driven by broad-based strengths across our technology portfolio and record demand for our leading hardware products. We continue to execute to our intelligent system design strategy, making further significant strides with our innovation roadmap, and most importantly, we continue to delight our customers. Here are some of the financial highlights from the first quarter. Total revenue was $902 million. GAAP operating margin was 35%, and non-GAAP operating margin was 44%. GAAP EPS was $0.85, and non-GAAP EPS was $1.17. Cash balance was $1.135 billion. Operating cash flow was $337 million, and we repurchased $250 million of Cadence shares. Before we provide our updated outlook for fiscal 2022, I'd like to highlight that it contains our usual assumption that the export limitations that exist today remain in place for the remainder of the year. With that in mind, our updated outlook for fiscal 2022 is revenue in the range of $3.395 billion-$3.435 billion. GAAP operating margin in the range of 28.5%-30%. Non-GAAP operating margin in the range of 38.5%-40%. GAAP EPS in the range of $2.51-$2.59. Non-GAAP EPS in the range of $3.89-$3.97. Operating cash flow in the range of $1.19 billion-$1.29 billion. We expect to use at least 50% of our free cash flow to repurchase Cadence shares in 2022. For Q2, we expect revenue in the range of $825 million-$845 million. GAAP operating margin in the range of 29%-30%. Non-GAAP operating margin of 39%-40%. GAAP EPS in the range of $0.59-$0.63. Non-GAAP EPS in the range of $0.95-$0.99. We expect to repurchase at least $200 million of Cadence shares in Q2. 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, all our businesses had a strong start to the year. I am pleased that revenue growth and profitability continue to accelerate. We are on track to exceed 50% incremental margin for 2022, which contributes to our continued operating margin expansion. Also, with the increase in our outlook at the midpoint, we now expect revenue growth for the year to exceed 14%, driving acceleration in our three-year revenue CAGR to over 13%. As always, I'd like to close by thanking our customers, partners, and our employees for their continued support. With that, operator, we will now take questions. At this time, I would like to remind everyone who wants to ask a question, please press star, then the number one on your telephone keypad. We do please ask that you limit yourself to one question and one follow-up question. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Gary Mobley with Wells Fargo Securities. Hey, guys. Thanks for taking my question, and let me extend my congratulations to a strong start to the fiscal year. I wanted to start out by asking about backlog. You had roughly a 16% sequential increase, and I was wondering, you know, to what extent has emulation and prototyping hardware tools contributed to that increase as well as IP? I wanted to as well ask you about the diversity of the backlog increase. Was it largely driven by that marquee customer win that you highlight in your prepared remarks? Yeah. Gary, great question. This is John. Yeah, we're very pleased that backlog is now up to over $5.1 billion, and it mainly came from broad-based strength across all of the different business groups. There was a substantial uptick in terms of hardware demand, and you saw some of that come through in the revenue number in the quarter. But also I think you referred to, we had a large recurring contract with a marquee U.S. semiconductor company that we booked in Q1. This was a big extension and expansion to replace an existing deal, that was expected to expire at the end of 2022. That contributed significantly to backlog growth as well. Great. Thank you. Thank you, John. I wanted to ask you about the disclosure in your SEC filings about the subpoena that you received from the U.S. Department of Commerce or BIS. I was wondering if you can give us any update on what that entity is asking for and perhaps what it relates to and your take on what specifically is motivating them to ask you for more information. Yeah. Gary, well, yeah, we mentioned previously that this is an administrative subpoena. The focus of the subpoena is information about sales to certain Chinese entities. Our response to the subpoena at this stage is mostly complete, and Cadence is in compliance with all export control regulations. Other than that, I really don't have anything else to say. Okay. All right. Well, thank you, guys. Your next question comes from the line of Charles Shi with Needham & Company. Hi. Good afternoon. Thank you for taking my question. Maybe the first question, I wanna follow up quickly on the U.S. marquee semiconductor customer. I wonder, you mentioned about record contract you signed. Is that a reflection of expanded scope of a collaboration with that customer or a, I mean, a longer contract duration with this particular customer, or maybe a combination of both? Can you give us some color on that? Yeah. Hi, Charles. Thank you for the question. This is Anirudh. Like we mentioned, you know, a key element of our strategy is to focus on, you know, market-shaping customers. You know, I'm very happy with this new arrangement with the marquee U.S. semiconductor company. You may know we have been working with this particular customer for a while, and now we are excited to build upon these successes with this new contract. It's a broad-ranging contract, like we mentioned, so it includes our EDA solutions. It also includes our hardware platforms and our new system solutions. It's a fairly comprehensive arrangement, and we look forward to continuing deployment with this very important customer. To give you example, I think last time we also mentioned, for example, in EDA, you know, we have a lot of successful engagement on our digital full flow. You know, for example, Cerebras gave very good results at several key blocks on a recent tape out and about 5x productivity improvement. At the same time, we also have engagements in analog with Virtuoso ADE, and of course, verification with the key element with hardware and then system solutions. Overall, you know, we are happy with the progress, you know, and we look forward to wider deployment as we go forward. Thanks, Anirudh. Anirudh, so maybe a second question I want to follow up on China. I understand you don't have any new news on the subpoena front, but your competitor recently, I mean, maybe not recently, they received a subpoena and made news with a lot of the press there. I'm just not really asking you to provide more legal comments on that, but from a business standpoint, are you seeing any changes in terms of behavior among your Chinese customers who are not really subject to the export control measures, but may see what's the new development as a sign of potential escalation between U.S. and China on the semiconductor? I just want to point out that your China revenue did see a little bit tick up in the first quarter. Maybe I'm not making the wrong correlation here, but any color on this front would be great. Thank you. Yeah. Thank you, Charles. We are pretty pleased with our business in China. You know, I think you may know we had some tough comp in 2021 versus 2022, you know, fiscal 2021 versus fiscal 2020. You know, that's behind us now. I think we expect China business to be strong and to continue to grow, and we're seeing that strength across our product portfolio. John, you want to comment? Yeah, I would add that, yeah, I mean, we're seeing customer demand is strong, and it continues to present a growing opportunity for us out in China. One thing that benefited us in China in Q1 was we did pick up some software revenue in custom IC and digital IC from some license compliance transactions, and they benefited us in Q1, as well as the strong hardware in the quarter. Thank you very much. Your next question comes from the line of Joe Vruwink with Baird. Great. Hi, everyone. Maybe just going back to the backlog development. When you think about how your involvement with the marquee U.S. semiconductor company has evolved, do you think that is emblematic of kind of how your relationships across your broader customer base are evolving? Maybe at a strategic level, can we just discuss, you know, how that scope of involvement is changing? Related to that, you know, you introduced quite a few new products over the past 12 months. You've been talking about some today. Are you starting to see those factor into larger ACVs or deal sizes? Yeah, Joe, that's a good point. We, you know, what I would say is that we are pretty happy with our product portfolio and, you know, we always start, we focus on the important customers, focus on benchmarking, focus on adoption, proliferation that leads to booking and revenue. Overall, I think we feel confident of our product portfolio that includes EDA and IP, and then expansion of that product portfolio into system design and analysis. As you see, that also grew pretty well in Q1. Then the use of AI to, you know, further differentiate our solutions, whether they are in EDA or in systems. At this point, I think, you know, we feel good where we are and also, you know, we are, as you know, in a golden era of semiconductors and electronic systems. The market is also growing, and we feel we are in a strong position. Together, you know, it's a good tailwind for our solutions and our company. Yeah. I would just add there, Joe, that we're very excited about the growth opportunity that this expansion brings us over the next several years. Okay. Okay, that's great. Then specifically on your hardware platforms, a quarter ago, you discussed how verification had really good visibility, and this was informing your view on a strong 1Q forecast at that time and also a strong first half, but that you weren't necessarily extrapolating the strength in the first half into the second half. You were maybe gonna wait and see a bit more. With the updated forecast you're providing today, can you just give an update on kind of where your thinking and forecasting stands with your verification hardware? Yeah. Let me go talk about verification first, and I think John can comment more about the outlook for the year. I think verification, as you know, is a key differentiator for our customers. I think to really be a state-of-the-art kind of design company or a system semiconductor company. You know, your ability to do good verification is critical. You know, and that is what can lead to, you know, rapid cadence of your products and also how fast, you know, from silicon tape-out to product release, right? I think importance of verification becomes critical. The importance of hardware platforms, especially driven by Palladium and Protium, to do not just, you know, RTL verification, but also software bring-up is critical. We are seeing a strong demand across both the semiconductor companies, but also the system companies, which inherently have software to our verification products. We had a, you know, record quarter following a record year last year. Now, in terms of going forward, I would like John to comment on the rest of the year results. Yeah. Joe, I mean, we're seeing significant demand for all of our hardware products. As we said in our year-end call just a few weeks ago, that we weren't comfortable with providing an outlook or extrapolating that demand into the second half of the year, until we saw the pipeline kind of closer to the summer. That's, we kind of retained that position for this guide. Okay. Understood. Thank you very much. Your next question comes from the line of Blair Abernethy with Rosenblatt Securities. Thanks very much, and nice quarter, guys. Just wondering if we could talk a little more about the multi-physics simulation side of things. Just wanted to get an update on how your channel partner programs are developing, whether they're getting traction to the overall business. Just perhaps on the multi-physics simulation, sort of what would you classify or what do you view as areas where you've got some competitive strengths? Yeah, that's a great question. First of all, as you saw, we are growing pretty well in System Design and Analysis. You know, also just to remind you that we take all our revenue, you know, ratably, even in this segment, you know, compared to some other companies. Whenever you have ratable revenue, then, you know, the bookings are, you know, growing faster than revenues. Overall, we are pretty happy with System Design and Analysis, and especially, you know, the System Analysis portion that is becoming bigger portion of Cadence business. Our key strength is our computational software expertise. You know, in EDA over the last 20, 30 years, you know, we have a lot of experience doing very large systems, you know, efficiently and accurately. We apply that computational software expertise to system analysis, so our solutions can be order of magnitude better than what has been these legacy solutions in this space. Okay. We first always focus on, you know, key customers, you know, the top customers. The top customers in that space are similar to our traditional top customers. These are big system and semi companies, also our top customers in system analysis, because you wanna make sure your product is differentiated, and I think that's ongoing, and you see the strength in Clarity and Celsius, and now with the introduction of Fidelity. Now beyond that, to your point, I think we also work on channel expansion. I think we have mentioned in the past that, you know, we are expanding our partner network, and also expanding more and more of these solutions to be available on the cloud, which also naturally reaches more and more customers. So we always wanna first focus on the product, focus on the top customers and the big customers, and then systematically build out a framework to expand the deployment and go to market. So overall, we are pleased with our progress and, you know, it is also very synergistic with our overall EDA position and overall intelligent system design strategy. That's great. Thanks very much. Your next question comes from the line of Pradeep Ramani with UBS Securities. Hi, thanks for taking my question. I just had a couple of questions on the marquee customer win that you're talking about. Should we think about that as a competitive displacement from your side or should we think about it more as similar scope or maybe expanded scope, but larger contract values? How do you think about that? Yeah. I would profile it as an expansion of the proliferation of our technology with that customer. I think that customer has seen the value in the products that we've provided over the last number of years and is ready to take the next step. I mean, typically when we're proliferating with a customer like this, it starts with them using our technology in a number of individual designs, and then based on the success of those designs, they proliferate and expand into other multiple designs. They may also continue to use other technology, but it's certainly, you know, it has us very excited about the growth opportunity that this expansion means for us for the next number of years. Great. As a follow-up, your IP business is sort of accelerating, if you look at the last few quarters. Do you still feel good about, you know, the low teens sort of type of growth rate for the year or should we be thinking about something that's much higher than that? Well, over the last three years or so, I think they've been growing around mid-teens%. We put in the outlook low teens%. It's in the outlook at 13%. We haven't changed that from the end of last year. You might have noticed that they achieved 17% in Q1. What we find is that, you know, when we give them a target for low teens%, they focus on the most profitable IP business and generally overperform. The current outlook just represents 13%. There may be upsides to that. Okay, thank you. Your next question comes from the line of Jay Vleeschhouwer with Griffin Securities. Got it. Thank you. Good evening, Anirudh and John. Question number one. Anirudh, we've spoken over the last few months of how your semiconductor customers are becoming increasingly like systems customers, systems customers are becoming more like semi customers. With that in mind, though, in what way are the two halves of the customer base still different? I mean, even though they're becoming more alike, what are the important differences that remain in terms of their process or their mix of product from a company like yours? And in any case, given the overall rising tide of your business, given the strength of the end markets, how are you seeing the kinds of services and support requirements that you're having to invest in and expand for your customer base? Second question, going back to the marquee customer. If it's who we all think it is, that company is already by far the largest spender on commercial EDA. They, like many other semi companies, have been materially expanding their R&D budget, inflecting higher substantially over the last number of quarters. The question is, could you foresee that particular customer becoming a more than 5% customer for you, or even perhaps 10%, and thereby increasing your overall customer concentration? Thanks. Yeah. Hey, Jay. You know, let me start with the, you know, your first question. Like you said, you know, system companies are doing more semiconductor design, and semiconductor companies are becoming more system companies, and this is great for Cadence and the industry, you know. There are similarities there, but you asked about the differences. Some of the differences, of course, first thing is, you know, that's one of the reasons we expanded into system design and analysis. Naturally, to system companies, we are not just engaging with our EDA and IP products, which are silicon-centric. We're also engaging with system design and analysis products, you know, whether it's 3D IC or PCB design or simulation. That's a natural synergy of our strategy and a natural synergy of what is happening in the customer base. That's one big difference. I think the second big difference is that the system companies naturally, as you know, have software content. You know, that's why they're a system company. The need for hardware platforms, especially both Palladium and Protium, and software bring-up, is always critical, but is even more critical for these system companies that are doing semiconductors. I think I would say these are probably the two big things. Then the third thing that always helps is, you know, a lot of times these system companies are new at or sometimes are engaging in new activities in semiconductors, so there is no legacy there. That always helps us because without legacy, with the strength of our portfolio, we typically do well in the market. Now. Now with respect to your second question, you know, like you said, we are pretty happy with our engagement with the marquee U.S. semiconductor company. You know, there is a lot of opportunities to grow there over the years in multiple aspects, EDA, you know, hardware, and the system solutions. Yeah, Jay, we have a very diverse customer base, as you know. I mean, we're very, very happy that this opportunity means that this particular customer is likely to spend a higher percentage of their dollars with us over the next few years, and it sets us up to grow well in that account over the next few years. We expect to grow well in many, many of our accounts, if not all of our accounts over the next few years. Yeah, I'm not expecting a 10% customer. Thanks. Yeah. Another thing, Jay, to probably know already to highlight is, you know, as we do more of these AI-based solutions, you know, Cerebrus, and you'll see more from us going forward, it's an opportunity to provide much more productivity to our customers, you know, whether they're a semiconductor company or system company. What we are hoping is that because, as you know, the labor market is tight and, you know, need for talent is always growing, there is more and more need for automation and higher level automation. I think there is opportunity for us to do well in variety of customers, especially, you know, moving to more towards automation and less towards hiring. You know, they will still hire more people, but there's an opportunity for EDA and IP to be a bigger percentage of wallet as we provide more automation in our solutions. Understood. Thank you. Your next question comes from Vivek Arya with Bank of America Securities. Thanks for taking my question. Anirudh, if you look at the growth acceleration over the last few years, has it come from a wider customer base or is it more revenue per customer? And that, you know, if I kind of carry that question forward for the next 3-4 years, you know, what do you think is going to be a more important factor in driving the growth? Is it a wider customer base or is it more revenue per customer? Yeah, that's a good question. What I would say is there are three big trends that are helping us. First trend is, as you know, we are in golden age semiconductors and it's expected to grow, continue to grow for next, you know, 5-10 years. Our core business can do well with the semiconductor companies. I think the second thing is, like was mentioned earlier, the system companies are doing more silicon, so that adds like new kind of opportunities to engage with system companies. That I think is going to continue for the next 5 or 10 years because there are systemic reasons for system companies want to do silicon for customization, for differentiation. The third big trend is we are also expanding our portfolio into system design and analysis, which is a growing tack for us and also, you know, the, it expands and it's a growing market, it's a profitable area. That these three trends, which is one, the core semiconductor business is going to do well, that helps our EDA and IP. Second, you know, system companies are going to do more silicon. Third, our portfolio itself is expanding to system design and analysis. All these three things can be helped with AI and more automation. I don't see that changing in the next, you know, 5, 10 years. I think these are fundamental trends for a while that can help us. Got it. I know this is probably, you know, it might be apples and oranges, but when I look at semiconductor companies, you know, they are benefiting from raising prices and we see across the board their margins are getting better. Are you benefiting at all from raising prices on a like-to-like basis? Or is that not a factor when you look at the stronger growth and the acceleration this year? Like is there a level of price inflation that is benefiting you in some ways also? Yeah, Vivek, our revenue increase always comes from a combination of volume and pricing increases. You see that happen over time on all of the accounts. Yeah, I don't know what else to say to you in terms of that. You know, everything has been, you know, or we just focus on continuing to provide more and more value to customers, and they continue to provide more and more share of the wallet to us. All right. I guess, John, my question is the price increase this year different than what you have had historically? We have increased prices this year, but similar to prior years. Okay. Thank you. Your next question comes from the line of Ruben Roy with WestPark Capital. Hi. Thanks. Anirudh, I just wanted to follow up on sort of the discussion around the core segments and, you know, certainly off to a fast start in some of the other areas this year. Just wondering, you know, when you look at the, especially the custom IC design, are you thinking that that's, you know, an area of your business that is going to sort of get back to sort of the corporate type of growth rates or maybe underperform a little bit relative to some of these newer areas, whether it's verification tools, you know, system design and analysis tools, et cetera? Just wondering, you know, I hear you, the core business is still, you know, growing along with the semiconductor area, but it seems like some of your other businesses are set up to grow at a faster pace. Am I thinking about that correctly? Yes. I think your question is on the analog, the custom- Yeah. Analog signal business. You know, if you look back several years, you know, that business has performed very well, you know, and continues to grow because as we go to newer nodes, it's not just the digital, but, you know, I mean the analog has to go to these advanced nodes. Now we have a pretty good position in the market there and, you know, so, I mean that has grown I think slightly slower than maybe digital verification, but still has done pretty well over the last few years. I expect that to continue, and there are a few things that are helping it also, apart from the traditional analog design. I mean, there is more and more RF design, so our recent move into RF with acquisition of AWR, you know, that is well integrated with Virtuoso. with 3D IC and more and more, you know, there's a lot of activity still at mainstream nodes. I think overall we are pretty pleased with that business and it still has a very healthy growth rate and continues to be also fairly profitable business for us. Okay. Understood. As a quick follow-up, Anirudh, you know, given what's going on, it's great to hear, you know, sort of the traction at marquee customers and large deals, et cetera. Is there an update on how to think about your cloud? You know, the kind of the move to the cloud for some of your products, or whether or not you're seeing, you know, some of your customers move to even a hybrid cloud situation? Or do you think, you know, as we get more of these larger customers, is it still gonna be, you know, the vast majority of your business is gonna be on-prem? I'm just trying to figure out if that's still a big initiative for the company, you know, as you look out over the next several years. Oh, absolutely. I mean, cloud is a key initiative, and I think we have done this for several years. I think we're probably the first company to really invest heavily in the cloud and both from a customer-managed cloud or a Cadence-managed cloud. And also variety of business models, right? So, you know, because primarily cloud allows more flexibility to our customers in terms of usage and business models. So, you know, we have done this for several years, and we are open to all kinds of possibilities. You know, it's important to give choices to our customers and in some cases, you know, they use their own cloud platform, some cases they use our kind of cloud platform that we work with our partners in more of a SaaS offering. In some cases, like you said, they use hybrid. You know, especially really big customers, if they have already a good data centers internally, then they use a hybrid cloud for like peak utilization. Whereas some of the smaller customers or the newer startups may completely go to the cloud. I think we'll see how the market evolves, but we are ready with all kinds of solutions and business models and how the customers use those solutions. I do see that the smaller or the newer companies go more towards full cloud and more of the traditional companies go towards hybrid cloud. In any case, we are set up to service all these models for our customers. Makes sense. Okay. Thank you. We also have partnership with multiple kind of cloud providers, you know, to provide a best solution to our customer base. Yeah. Our final question comes from Devin Au with KeyBanc Capital Markets. Hi, John. Hi, Anirudh. Thanks for taking my questions. Yeah, just wanna double-click on verification in China. Did you see any of the strength in these areas was maybe due to customers trying to buy ahead of any price increases or perceived inflation, just given the whole current macro backdrop? Yeah. I mean, there was very strong demand, but we have such strong demand that, there's a waiting list right now for our hardware. We're building the hardware as quickly as we can. So the hardware that we delivered in China in Q1, many of those orders were pre-Q1. They were from last year. We have many more orders that we booked in Q1 that we'll deliver later in the year. But we're flat out trying to build those systems as quickly as we can right now. Demand continues to outstrip our ability to supply. Got it, John. Maybe just one more for you. Nice raise to the operating margin for the full year. When you look at first half margin, if I'm right, it's around 40, 41% range. The guidance suggests operating margins moving a little bit lower in the second half. Can you remind us on what's mainly driving the mix shift there? Is it mainly due to timing of investments or maybe hiring that's more back-end loaded? Yeah. I would characterize the second half guidance as prudent. You know, there's lots of external factors playing out at the moment and we're very confident in that second half outlook. At the start of the year, we highlighted that, you know, we expected a strong start to the year with hardware. We didn't want to extrapolate that into the second half of the year until we saw the pipeline sometime in the summer. You know, we're delivering those hardware systems as quickly as we can. We'll take a look at the second half outlook in the summer when we have a better visibility into the pipeline. Got it. Got it. No, thank you. That's super helpful. Thanks. I'd now like to turn the call back over to Cadence for closing remarks. Thank you all for joining us this afternoon. It's an exciting time for Cadence with strong business momentum and a thriving semiconductor and systems industry offering tremendous market opportunities. We are proud of the innovative and inclusive culture we have built at Cadence. On behalf of our employees and our board of directors, we thank our customers and partners for their continued trust and confidence in Cadence. Thank you. Thank you for participating in today's Cadence first quarter 2022 earnings conference call. This concludes today's call. You may now disconnect.