Good afternoon. My name is Brianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Third Quarter 2024 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, sir. Thank you, operator. I would like to welcome everyone to our third quarter of twenty twenty-four 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. The 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, CFO commentary, 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, all financial measures discussed on this call are non-GAAP, unless otherwise specified. The non-GAAP measures should not be considered in isolation from, or as a substitute for, GAAP results. Reconciliations of GAAP to non-GAAP measures are included in today's earnings release. For the Q&A session today, we would ask that you observe a limit of one question and one follow-up. Now, I'll turn the call over to Anirudh. Thank you, Richard. Good afternoon, everyone, and thank you for joining us today. Cadence delivered exceptional results for the third quarter of twenty twenty-four, with broad-based strength across our product portfolio. We are on track for a strong second half, and we are pleased to raise our full-year EPS outlook. John will provide more details on our financials in a moment. Generational trends such as hyperscale computing, autonomous driving, and 5G, all accelerated by the AI super cycle, continue to fuel strong design activity across multiple verticals, especially in data center and automotive. Our cutting-edge chip-to-system platforms empower customers to drive unprecedented innovation as they race to develop next-gen AI and agentic AI products while navigating escalating design complexities. We continue steadily executing to our Intelligent System Design strategy that triples our TAM opportunity while significantly expanding our portfolio across core EDA, IP, and system design and analysis. I'm excited about AI's incredible promise and how rapidly it is becoming an integral part of the design workflow, with customers steadily increasing their investments in AI-driven automation. Our Cadence.AI portfolio, powered by GenAI agents, AI-driven optimization, and big data analytics JedAI platform, saw sales nearly triple over the last year, as it continued delivering unparalleled quality of results and productivity benefits. We continue partnering with NVIDIA to accelerate AI innovation and are using their latest NeMo and NIM microservices to build customized GenAI applications, delivering enhanced optimization and productivity. In Q3, we deepened our partnership with Arm through a broad expansion of our IP, hardware, and AI-driven design enablement solutions to help deliver Arm's next-generation AI technologies and advance Arm Compute Subsystems across multiple markets. We expanded our long-standing partnership with TSMC, with AI-optimized design flows certified for TSMC's N3 and N2P technologies. We are also collaborating on innovative solutions for next-generation technologies like TSMC A16 and 3D blox, that are paving the way for the AI factories of tomorrow. Demand for our industry-leading Integrity 3D-IC solution that enables system-level PPA optimization continues to grow, with accelerating adoption by hyperscalers, OSATs, and foundries. We introduced the industry's first auto router for both die-to-die and die-to-substrate connectivity, and that was showcased at TSMC's 3D Fabric Alliance Workshop. High-speed multilayer PCB designs require increasing levels of miniaturization, advanced simulation, and AI-driven automation. Allegro X, with its tight integration with our analysis technology and expanded collaboration platform, is ramping strongly and drove over 40% of our PCB sales this year. The transition to OrCAD X, our new mainstream PCB solution, accelerated in Q3, with a third of our OrCAD customers converting to this new cloud-enabled solution. Cadence OnCloud is a key go-to-market platform to reach the long tail of smaller system customers, and is seeing strong traction with over four hundred customers, tens of thousands of online users, and orders doubling over the past year. We recently launched the Cadence OnCloud Marketplace and announced Cadence Online Support through OnCloud, which uses GenAI technology to provide insightful, contextual, and accurate answers to customer queries. As the digital transformation in aerospace and defense accelerates, we saw continued strength in this vertical as the U.S. Air Force and U.S. Army expanded their commitment to Cadence's solution, spanning from chips to boards to systems. Our hardware-accurate digital twins have been successfully used by Northrop Grumman in taping out several ASICs, helping accelerate schedule by over two years. In Q3, we substantially grew our footprint at several marquee hyperscalers through a broad proliferation of our best-in-class hardware systems, IP, and software portfolio. Our system design and analysis business continued to outpace the market, delivering impressive results with over 40% year-over-year revenue growth in Q3. We are pleased with the strong growth of our multiphysics portfolio that couples our expertise in physics-based modeling with AI-driven optimization to deliver superior results to customers. Clarity and Celsius both grew strongly with competitive wins, while our newly acquired BETA CAE products that round out our system analysis portfolio outperformed our expectations as we signed large deals with major EV companies. Our AI-driven Optimality solution was adopted by several leading customers, and Voltus InsightAI was used by a top hyperscaler to successfully achieve an 80% IR drop reduction in their designs. Our IP business continued its strong momentum in Q3, delivering over 50% year-over-year revenue growth as we executed to our profitable and scalable growth strategy. Increasing complexity of interconnect protocols, along with the growing outsourcing trend and new foundry opportunities, are providing strong tailwinds to our IP business. AI, HPC, and chiplet use cases were the primary drivers for the adoption of our differentiated HBM, PCIe, UCIe, DDR, and high-speed SerDes solutions in design ranging from seven nanometer down to the most advanced gate-all-around nodes. Our AI-assisted Tensilica audio DSP scored multiple design wins, with marquee global customers across HPC, mobile, and automotive use cases. Our core EDA business, comprised of our custom, digital, and functional verification businesses, delivered 9% year-over-year revenue growth in Q3. Our new groundbreaking hardware systems, offering industry's leading performance, capacity, and scalability, experienced strong demand, especially at AI, hyperscale, and automotive companies. Verisium, our AI-driven verification platform, continued seeing rapid customer adoption, with several leading customers successfully using Verisium SimAI for highly efficient coverage maximization. Proliferation of our digital full flow at the most advanced nodes accelerated, with over thirty new full-flow logos added over the past year. With nearly four hundred and fifty tapeouts, customers are increasingly deploying Cadence Cerebrus AI solution, as it continues to deliver unparalleled PPA and productivity benefits on a broad spectrum of designs. Our AI-driven Virtuoso Studio leverages the capabilities of our flagship Virtuoso platform while seamlessly integrating with other Cadence cutting-edge technologies to drive significant productivity benefits for analog, RF, and mixed-signal designers. With this GenAI-driven automated design migration and new layout placement and routing technologies... Customers are rapidly adopting Virtuoso Studio, and it won thirty new logos in Q3. In summary, I'm pleased with our Q3 results and the continuing momentum of our business. The AI-driven automation era offers massive opportunities, and the co-optimization of our comprehensive EDA, SD&A, and IP portfolio with accelerated compute and AI orchestration, uniquely positions us to provide disruptive solutions to multiple verticals. Now, I will turn it over to John to provide more details on the Q3 results and our updated 2024 outlook. Thanks, Anirudh, and good afternoon, everyone. I'm pleased to report that Cadence delivered strong Q3 results with total revenue of over $1.2 billion. We achieved 19% year-over-year growth. Our Q3 recurring revenue growth returned to low teens on a year-over-year basis. Our Intelligent System Design strategy is paying off, with our system design and analysis business delivering strong growth, and we continue to see robust demand for our emulation and prototyping systems. Here are some of the financial highlights from the third quarter, starting with the P&L. Total revenue was $1.215 billion. GAAP operating margin was 28.8%, and non-GAAP operating margin was 44.8%, and GAAP EPS was $0.87, with non-GAAP EPS of $1.64. Next, turning to the balance sheet and cash flow. We had a $2.5 billion senior notes offering in Q3 that was well-received by the market. We have used the majority of the net proceeds to retire maturing notes and prepaid term loans, as well as for other general corporate purposes. Cash balance at quarter end was $2.786 billion, while the principal value of debt outstanding was $2.85 billion. Operating cash flow was $410 million. DSOs were 44 days, and we used $150 million to repurchase Cadence shares. Before I provide our updated outlook, I'd like to highlight that it contains the usual assumption that export control regulations that exist today remain substantially similar for the remainder of the year. Our updated outlook for 2024 is revenue in the range of $4.61-$4.65 billion. GAAP operating margin in the range of 29%-30%. Non-GAAP operating margin in the range of 42%-43%. GAAP EPS in the range of $3.70-$3.76. Non-GAAP EPS in the range of $5.87-$5.93. Operating cash flow in the range of $1-$1.2 billion, and we expect to use approximately 50% of our annual free cash flow to repurchase Cadence shares. With that in mind, for Q4, we expect revenue in the range of $1.325 billion-$1.365 billion. GAAP operating margin in the range of 33.2%-34.2%. Non-GAAP operating margin in the range of 45.2%-46.2%. GAAP EPS in the range of $1.09-$1.15, and non-GAAP EPS in the range of $1.78-$1.84. And as usual, we published a CFO commentary document on our investor relations website, which includes our outlook for additional items, as well as further analysis and GAAP to non-GAAP reconciliations. In conclusion, I'm pleased with our Q3 results. Our Q4 bookings pipeline looks exceptionally strong, and we are well positioned to deliver a strong 2024. As always, I'd like to close by thanking our customers, partners, and our employees for their continued support. And with that, operator, we will now take questions. At this time, I would like to remind everyone who wants to ask a question to please press star, then the number one on your telephone keypad now. 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 Joe Vruwink with Baird. Great. Hi, everyone. I appreciate the nature of your relationships with customers means you typically know well in advance what product roadmaps might be. You're typically not learning new information off of public calls, but just given the number of headlines of late around advanced foundry efforts or maybe demand from China, I wanted to ask, have you learned anything over the past three months or so that you would point out as maybe being something worth considering, either good or bad, as investors think about the twenty twenty-five opportunity for Cadence? ... Yeah. Hi, Joe, this is Anirudh. That's a good question. Well, I would say that, I mean, as you know already, that the importance of semiconductor to the overall global economy is increasing and is more, more well-recognized now. And, you know, I did visit several countries over the last quarter, and there is more and more kind of commitment to build that out. And you're seeing that, you know, in different countries. And also, like we highlighted even earlier in the year, you know, of course, TSMC is leading foundry, but our own relationship with Samsung and Intel in this area has improved. And Global also, we have worked for several years. So I would like to say that in general, we do see this continued investment in newer foundries, you know, whether it's Intel, Samsung, and even like Rapidus in Japan and other countries. So when we continue to partner closely with the leading players like TSMC and Arm, as we highlighted in this report, but it's good to see more investments being made in other areas. Okay, thanks for that. And then, John, you don't normally give backlog guidance, but you did comment on bookings pipeline in Q4, and that stands out. Are you maybe able to go into a bit more color on what you might expect or what you would be looking for as kind of the forerunner to your 2025 performance? Yeah, I mean, thanks for picking up on that, Joe. I mean, obviously, we're not giving any outlook on 2025 yet, but we have a very, very strong pipeline right now for Q4. I think it's the biggest I've ever seen for Q4 pipeline. It reminds me a little bit, it's kind of similar to how we finished 2021. If you recall, in 2021, we had a really strong pickup in bookings in Q4 in 2021. About 40% of our annual bookings came in Q4 of 2021. And this year, the second half seems to be setting up the same way, but it's a exceptionally strong pipeline, and we're seeing strong design activity everywhere. Great. Thank you very much. Your next question comes from Jason Celino with KeyBanc Capital Markets. Hey, thanks for taking my questions. Maybe just following up on Joe's backlog question. So understand that the pipeline looks quite large. Is it fair to say that the composition of that pipeline is mostly being hardware-driven? I guess, curious what you're seeing from a new order pipeline perspective on kind of the Z3, X3. Hi, Jason. Thanks for the opportunity to clarify. I mean, it's broad-based right across the board, across all of our businesses, and all our businesses are performing really, really well. I mean, when I look at our forecast out for the remainder of the year on a three-year CAGR basis, I mean, all business groups are on track for strong growth, from, you know, low double-digit growth on the core EDA software side, right through to kind of mid-teen growth, right up to almost 30% growth for, like, IP functional verification, which hardware is part of, and system design analysis. Okay, perfect. And then just one really quick one on China. I think last quarter, I think you were trying to de-risk some of your assumptions. Obviously this quarter, there were some incremental worries that the region might be taking another leg down. But obviously, Cadence and EDA see very different purchasing habits and demand drivers from SemiCap and some of the smaller point solution providers. But do you still expect to see 13% of your revenues come from China this year? I guess, what else can you tell us about the overall demand environment there? Yeah, great question again, Jason. I mean, you're reading my mind. I mean, myself and my team, we're looking through China. We went back, you know, we're data-driven. We went back twenty-five years to have a look at our China revenue. And because, I mean, we're expecting China revenue to be lower this year than last year. That's only happened three times in the last twenty-five years. First time was two thousand and eight. Obviously, there were macro things had gone on back in two thousand and eight, and it took until twenty eleven for us to reach a new high in China revenue. But it recovered immediately in two thousand and nine. It dipped in twenty twenty-one, recovered immediately to a new high in twenty twenty-two, and it looks like it's dipping in twenty twenty-four. But I'm very, very pleased that Q2 was stronger than Q1 on a dollar basis. Q3 was stronger than Q2, and China seems to be recovering well with strong design activity. Okay. Thank you very much. Our next question comes from Gianmarco Conti with Deutsche Bank. Yeah, hi. Thank you very much for taking my questions, and congrats again for a great quarter. Maybe perhaps if you could touch a little bit on the Cadence.AI suite, if you're seeing incremental appetite there, and is it going to be material for twenty twenty-five growth? If you could give us any data points or qualitative anecdotes, that'd be amazing. Thank you. Yeah, absolutely. I mean, we are pretty pleased with how our Cadence.AI portfolio is doing. And like mentioned earlier, I mean, right now, I think it is used by all our top customers. So you know, now some of them are. You know, the amount of proliferation is different at each customer, but right now we are engaged in all of our top customers with our AI solutions. And as you may know, we have five major AI platforms, you know, all in analog, digital, verification, you know, PCB and package and system analysis. So, so it's a pretty, you know, rich portfolio, and the customers are routinely seeing, you know, anywhere from five to 20% improvement in PPA, which is significant. You know, I think the value of AI is not just productivity, which is huge. I mean, we have a history of productivity improvement in EDA, but the value of AI is when it can give a better result, you know? So that's where I think the real value and monetization can happen if the result is better. And we also design our own chips as well. As you know, Palladium, we design our own chip, one of the most complicated chips that is made by TSMC, and we design our own IP, right, in our IP group. So we are also applying our own solutions internally as well. So to give you, these are like true comparisons of, you know, AI versus non-AI solutions. So even in the latest Palladium Z3 chip, we saw, like, 15% improvement in power using Cadence Cerebrus. And in the latest, you know, AI IP we designed, we saw anywhere from 13%-20% improvement in our IP group using our own Cadence.AI solutions, which is very consistent with what we see with top customers. So overall, we are pleased with the benefit we are getting, especially with the improvement in PPA. And productivity improvements can be, you know, anywhere between 5-10X, but the PPA benefits are truly remarkable and almost equivalent to one kind of node. You know, one process node migration typically get, you know, 15%-20% PPA improvement, and we can get that with AI. And then the last thing I would like to highlight with AI, you know, is our Cadence OnCloud offering. So we do have a Cadence customer support portal, and we are applying GenAI in there to give, you know, better kind of response to our customers. And this is another big trend of applying AI to give better customer support. So overall, you know, applying Cadence AI, of course, working with all our top customers across all five major platforms, applying AI internally to improve our own, you know, designs, whether it's in hardware group or IP, and then applying AI for customer support can make us much more efficient. Amazing. If I could just ask a quick follow-up. Is it safe to say that in Q4, we should see the air pocket of the hardware kind of closing out? And if you could share sort of any commentary around 2025 visibility, particularly from your over ordering of the FPGAs and the raw materials. I'm just kinda curious, how does that translate into backlogs? I know you, they don't specifically guide on backlog, but obviously backlog was a little bit down sequentially. And so any commentary there, that'll be amazing. Thank you. Yes, Gianmarco, I certainly wouldn't categorize our ordering of FPGAs as over ordering. We're ordering to fit the demand that we see. We're seeing very robust demand. The pipeline is super strong. But like I said, I haven't seen it as strong as this in any previous Q4 that I've been here. So we're set up for a tremendous Q4. At this time of the year, it's always difficult to give any indication as to what next year looks like, and particularly in years like this, when you expect such a strong bookings quarter in Q4. We kinda have to get that landed and look at the quality of that before we give any indication as to what next year looks like. But I'm very, very pleased with the hardware demand, with the performance of the business, and they're ramping up production all the time to meet the demand. Okay, thank you very much. Our next question comes from Lee Simpson with Morgan Stanley. Great. Good evening, everyone. So a couple of quick ones from me, actually. Just looking at the Millennium platform, following on from the last question there, could you maybe characterize what is the interest beyond NVIDIA? You know, when, who, and how big do we think the demand will be for that platform? And maybe as a follow-on question, I'm just interested on the timing of the impact from the new collaboration with Arm on CSS. Does that have any specific vertical to it? Is that autos, or is it maybe the aerospace stuff that you were talking about there? Thanks. Yeah, good question, Lee. So first, in terms of Arm, I mean, we have a pretty broad partnership with Arm over the years, I mean, going back like ten years, and especially in their, you know, IP development, you know, CPUs and GPUs. And this latest collaboration, which we highlighted, is also expanding to, you know, compute subsystems and total design, which is Arm doing more, as you know, more chiplets and, you know, more full chips. And this is broad-based, but I think they are. You know, this is more a question for Arm, but they are seeing a lot of strength in multiple end markets, including, you know, HPC and automotive. But this is an expansion of, as Arm kind of morphs their strategy, our relationship with Arm gets even stronger, not just in IP development, but also for total compute. And in terms of your other questions on Millennium, in general, you know, I'm optimistic, like I mentioned before, that with these new systems, we can accelerate a lot of our software on combination of CPUs and GPUs, okay? And Millennium is a perfect example. And the reason for that is, I mean, of course, we can accelerate EDA. You know, we got, like, fabulous results in Spectre. You know, we are the leading provider of circuit simulation. Spectre is the leading platform. And, you know, with these latest systems, we are able to accelerate, you know, circuit simulation by five to 10 X by these CPU, GPU acceleration platforms. But also on system design and analysis, which is. Millennium is a perfect example for that. And the reason for that is that system design and analysis by nature, you know, the algorithms involved does a lot of matrix multiply. You know, like CFD is essentially a matrix multiply operation. And, you know, the other thing that is largely a matrix multiply is, of course, AI. So, and, you know, these systems are well-tuned for AI or matrix multiply operations, so they are very naturally tuned for SD&A kind of applications. So I'm pretty optimistic that, you know, because we're getting tremendous results, and we are seeing that, you know, CFD and especially with the aerospace and automotive companies, okay? Because this is typically, you know, they have been limited by how much simulation they can provide. I think we highlighted, you know, like, for example, Honda is a great kind of early development partner for Millennium. In general, you know, as these platforms get more sophisticated, the CPU, GPU platforms, I think we can apply this acceleration to a broader portfolio, and you'll see that, you know, going forward. That's great. Thanks so much. Our next question comes from Charles Shi with Needham. Hey, good afternoon, Anirudh, and John. I wanna ask another question about the Intel and the Samsung, but from another perspective. I mean, despite all the headlines, which were not so positive, we note that those two customers were-- where your market share, historically, as being a little bit underrepresented, but largely because they are still using the internal EDA tools. So, I mean, given all the challenges, those two customers seems to be facing, although it doesn't sound like you are seeing any immediate changes, is it that-- is it possible that it can be a net positive for you guys? If there is a more dependence of those two customers on the commercial EDA tools, meaning more of the EDA development work being quote-unquote "outsourced" to the merchant EDA companies like Cadence. I want to get some thoughts on that, and what could be, let's say, an inflection point for that to happen, that if it happens? Thanks. Yeah. Hi, Charles. That's a great observation. I mean, as you know, we are very strong in the historically strong over the last five, 10 years in the TSMC ecosystem, with partnership with TSMC and Arm, and historically not as strong with Samsung and Intel. Though I think that is beginning to change, you know, especially last year and this year. And to me, you know, there's always, you know, every company goes through ups and downs, as you know, and whenever I mean, both Intel and Samsung are great companies, and when they're going through more challenges, it's typically is more opportunities for us. You know, we always lead with products. We believe we have the best solution. So, and we are seeing that. You know, we saw with Intel, you know, we mentioned our IP partnership, also the strength of our new hardware platforms, you know, across. You know, we are working with both these companies on our new systems on hardware, and then AI-enabled software. So, typically, these things will take time, you know, so but in general, whenever there is a competitive situation with some of these big customers, typically, we have done well historically in those situations. Got it. Thanks. Maybe the other question I wanna ask is, hopefully, you can clarify, because it has been in the news that Cadence may be acquiring Altair, or may be looking to acquire Altair Engineering. So maybe if you provide some comments here. Well, yeah, I mean, as you know, we don't comment on specific rumors, but, I mean, as we have said before, I mean, we are very pleased with our strategy. We are very pleased that most of our growth is organic, and sometimes, you know, we do some small tuck-in M&A, and that strategy has not changed, okay? So that's our plan going forward, and we are pretty happy with how we are positioned. Yeah. Thanks so much, Anirudh. Our next question comes from Jay Vleeschhouwer with Griffin Securities. Thank you. Good evening. Anirudh, you may recall that on the conference call a quarter ago, you spoke about various AI, ML use cases that you were beginning to see, and then separately, we also talked about how you might, over time, change your product packaging for different use cases or end markets, and maybe we can bring those two things together, and the question is, do you see a likelihood of for AI, ML applications, more and more vertical domain-specific packaging? I know you've got the branded apps right now. You're obviously selling into different verticals, but would you foresee taking any of those technologies and making them specifically packaged to specific end markets? Also, before I get to my follow-up, could you also talk a little bit about your AI, ML development roadmap? You know, you've had customers speak at Cadence LIVE about what they're looking for from you in that respect, and maybe you could talk about improvements you're going to be making in things like capacity, memory footprint, scenario proliferation, so on and so forth. Then I'll ask my follow-up. Yeah. Hi, Jay. That's, you know, that's all great observations. I mean, we have, of course, one of the highest investments in R&D, and we are very pleased with our kind of roadmap for AI and AI products. But we will unroll that over time, right? As you know, it's kind of. I don't want to, you know, preannounce anything here, but overall, I think we are investing heavily and, you know, as AI itself gets more powerful, you know, the three-layer cake that I always talk about, you know, the AI orchestration at the top, the middle layer of physical simulation, and optimization, and the bottom layer, like I mentioned earlier, with, you know, CPU, GPU, and custom silicon. So we are investing in all these three areas, and it may make sense for some verticalization like we did, you know, for Millennium, right? That is a vertical, you know, targeted at a particular vertical with aerospace and automotive. But overall, we are pretty pleased with that, and you know, I also believe that. I mean, AI itself is a very big topic, but, you know, there are two parts of it. You know, the initial phase is horizontal, and we also have a lot of horizontal technologies. But over time, I think the AI monetization will have to be more and more vertical. And I've talked about this publicly, you know, the three phases of AI. So we are right now in what I would call infrastructure AI, you know, starting with data centers and then going into, you know, edge devices like laptops and phones. And even in data centers, we have more vertical solutions now with, you know, thermal management and things like that. But that's the Horizon One, which is in infrastructure AI. Horizon Two, in my mind, is physical AI. You know, things like self-driving, you know, drones, robots. And even though the auto market is weak right now, but in terms of design, it's not weak, okay? As you see, a lot of the reporting on semiconductor autos is weak, but in terms of design activity, there's a lot of design activity for what is there to come. And this is what I saw like a few years ago in data center, is we are seeing in automotive. And a lot of the chips that are required for automotives are very similar to what are required for drones and robots, okay? So to me, that's like the second phase of AI, which is physical AI. And then the third phase of AI, which is Horizon Three, which is further out from the physical AI, is what I would call sciences AI, and the biggest application will be life sciences, okay? And that's why the investment in OpenEye two years ago. So that's how we look at it: infrastructure AI, followed by physical AI, followed by sciences AI. And we will have, of course, horizontal solutions, you know, because our business is, is fundamentally horizontal for multiple end markets. But as these markets evolve, we will also have some vertical solutions that are tuned to, especially these mega trends of infrastructure, physical AI, and and sciences AI. But exciting times and- Okay, thanks. Go ahead. Thank you. Sorry about that. So you noted the strength in SD&A generally, including some upside for the first full quarter with BETA CAE. But from a larger perspective, the fact is, since you did your first acquisitions for the ISD strategy, you've done seven or eight acquisitions, over $2.1 billion of cumulative value. But you're still very much the challenger in that market, with a fraction of market share, relative to the market leaders. So maybe you could talk about how you're thinking about more tightly coupling across the various applications you have in CFD and SD&A, and talk about how you're thinking about ramping up in go-to-market especially, which is also something that I think you need to do to supplement what you've done on the BETA CAE acquisition side. Yes, Jay, that's a great observation. So first of all, you know, especially like we mentioned earlier with the BETA acquisition, and which is doing pretty well, we feel that our portfolio is fairly complete, okay? So whether it is, you know, electromagnetics or thermal, and now with CFD and then structural, so. And the key thing that I watch, and you can see in our results, is the growth rate, okay? Not just, you know, how complete the portfolio is, but how well it's performing in the market. And we are pretty pleased to see that the growth rate is good, and I believe much better than the overall market. Part of it is now that, you know, one part is, of course, the products have to be good, and I believe our products are best in class, whether it's Clarity, which is routinely like five to 10 times faster, you know, Celsius, the only unique solution that can do thermal, both finite element and CFD for 3D-IC and general applications with BETA CAE Systems, with Millennium, but also go to market. So I think we have highlighted before, and especially, you know, this quarter, it really went into full effect, is we want to go to market in three big ways. So one way is direct, right? Which is Cadence direct. You know, working with the top customers in our history, especially in EDA, is, of course, working directly with the world's best companies. So we are doing that in SD&A as well, and that's where we were focused last few years was, and we still are with the top companies. But we need to augment that with two other parts of the strategy, which the other system design companies do anyway. So the second part, apart from direct channel, is what we would call indirect channel, through channel partners and. And then the third part of go-to-market is, you know, e-commerce and, you know, cloud offerings. Okay. So I think at this point, especially in Q3, I feel that we are hitting our stride in this go-to-market. And for example, apart from the top customers where we go direct, with our channel partner or indirect channel, we have now more than 100 partners, okay? Which is a significant increase from earlier. And also OnCloud itself, which is the e-commerce direct channel, we have tens of thousands of users. And what we are also doing is we are all our channel partners are also going to market through OnCloud. So whether the customer directly buys through e-commerce or buys in a traditional way, all the data is captured in this online platform. So which is great for cross-selling, it's great for lead generation. So I really feel that, you know, we'll see how it progresses in the future, but especially, you know, this year, we are, you know, go-to-market has improved. Now that our products are in good shape, we need to focus on go-to-market, especially indirect channel and direct customer sales. And if I could add to that as well, Jade, it's way more than just BETA. I mean, BETA is fantastic in that we're getting more pull-through revenue, especially in automotive, as a result of BETA rounding out our multi-physics platform. But we're also getting strong momentum in A&D. Do you wanna talk more about the A&D? Oh, yeah, absolutely. I mean, A&D, like we highlighted this time, I mean, not just the traditional. See, what is exciting about A&D to me is not just the traditional DIBs, like Northrop Grumman, which we have a long history of working with, you know, both on the silicon side and the system side, but also we are now directly working with, like, we highlighted the U.S. Air Force and U.S. Army. So, and, you know, in terms of SD&A, you know, there's three big markets. There's the traditional markets of high tech or electronics. Anyway, that's where we're traditionally strong in. And the two other markets are aerospace and automotive. So, apart from BETA helping us in automotive, I think aerospace, our own history with Northrop and other, and the strength of our portfolio, so we feel that we are well positioned in these three big markets. Great. Thanks very much. Our next question comes from Vivek Arya with Bank of America Securities. Thanks for taking my question. So Anirudh, despite all the secular drivers, the stock has underperformed this year, because of revenue lumpiness and, you know, we have seen the core EDA growth, slip below 10%. I know you're not guiding to 25%, but do you think investors should be prepared for a smoother year, you know, or are there other lumpy effects in IP or hardware or anything else that we should keep in mind? And if I had to, you know, try to quantify it, if I look at this $1.3-ish billion, kinda exiting run rate from Q4, is this sort of the trend line for next year? Just how would you suggest investors get a handle for 2025? Because I think this lumpiness has really impacted the stock this year. Yeah, Vivek, all I would say is that, I mean, first two quarters were not atypical for Cadence. You know, we have highlighted before, like Q1 and Q2 because of certain kind of one-time things. But I do believe Q3 is more back to normal, but John can comment more. No, I agree. It's certainly Q3 feels like our back to normal quarter. I think Q4 has a lot of upfront revenue in it and unusual again in terms of Q4. And we've got that massive pipeline that we have to convert. We have a lot of work to do there before we can talk about 2025. But when I look at 2025, I kind of view Q3 as a more normal quarter for Cadence. Okay. And for my follow-up, I saw in the CFO commentary that, you know, you have something now called core EDA. And, you know, you have always given the different segment sales, but, if I'm not mistaken, you took SD&A out, and you have something called core EDA. I'm curious why you chose to do that, and do you have a system design and analysis kind of growth CAGR in mind beyond just a generic kind of, you know, double digit? What is the organic growth rate that you think your SD&A business can achieve over the next number of years? Oh, and like sort of asking about 25 again, Vivek. Nice try. The, but look, the when we, when we talk about core EDA, we were talking about, basically you have core EDA software, and you have the, like, functional verification group and hardware. When we talk about core EDA, we talk about those three groups combined. The system design analysis, we typically talk about separately, and then, of course, we have the IP business. The IP business and system design analysis business are growing really, really strongly right now. But, the launch of the new hardware products has resulted in, in functional verification growing really strongly. But, often when hardware is bundled alongside core EDA software, that there's an allocation methodology to apply value between the software and the hardware. So often internally, we look at core EDA, the three of them combined. If you look at core EDA software, by the end of the year, we're on track to achieve double digits revenue growth on a three-year CAGR basis, which is the way we track things. But on the functional verification side of things, it'll be looks like it's on track for, like, high teen growth on a three-year CAGR basis, like mid to high teen growth. But IP, again, looks very, very strong, and SD&A is the strongest of all. And I think it's all those things that Anirudh just spoke to. ... Thank you. Our next question comes from Clarke Jeffries with Piper Sandler. Hello. Thank you for taking the question. I wanted to more focus on fiscal 2024 with my questioning around specifically what happened in the quarter versus the full year guide. I mean, there was great momentum in the IP business, 59% growth. I was wondering what if you could level set what you're expecting in terms of Q4 IP contribution. I know last quarter we talked a lot about IP and systems leading the upfront revenue in the second half, and verification maybe being in the high single digits. Is that still fair or true? Just to the broader question of, you know, tightened full year range, but a beat on Q3, what was happening behind the scenes that revenue landed differently than expected? And then one follow-up. Yeah, sure, Clarke. I don't think revenue landed differently to expect. I mean, basically, we were prudent with our guide in Q3, and it's we feel our team always does their best business when they're not chasing. And I think we were rewarded for that with Q3 business. But, similarly, we're being prudent for Q4. IP has great momentum. I expect that momentum to carry on into the fourth quarter, as well as SD&A. I think all businesses are performing really, really well now. Anything to add there, Anirudh? Yeah, just some more comments on the IP business. I mean, of course, Q3 is strong, and we expect good growth in Q4, but like any business, we look at it over multiple quarters and multiple years, right? So if you look at IP on a two-year CAGR, I think it's I would say in the 30%, which is still good. But Q3, I mean, there's you know only focus on what you know each quarter separately. But the key thing in IP growing at let's say 30% on a two-year CAGR basis, I think we are doing. Finally, we are in a very good position in IP. This is the way I feel. I mean, EDA, we have done historically very well. We are well-recognized as the leader in EDA. But if you look back, like, last three years, you know, we have not done as well in IP as we could have. But I finally feel that now our IP business is the strongest position it has been, okay? And there's multiple reasons for that. I mean, one key reason is that we always focused on advanced node, especially with our leading kind of TSMC advanced node. And now at three nanometer, five nanometer, our PPA is finally industry-leading in the IPs we deliver, and they are for these kind of enterprise application, and that whole area is taking off, as you know. So I think that's the first main reason. The second reason is that we are now working with other foundries like we have highlighted, and there's more and more IP development needed for kind of onshoring or friendshoring activities throughout the world. And then the third reason is this disaggregation. You know, this 3D IC, you know, even, not just in HPC, but now in laptops and automotive, this disaggregation trend and need for IP like UCIe and all the other memory interface IPs. So I do feel that, we have a good portfolio and IP group is in a very good position, not just for Q3, but on a multiple year CAGR basis. Perfect. And just to clarify or follow up on that, you know, just I think the number one question we're gonna get from investors are, are there gonna be remaining execution thresholds with some of the IP business you had anticipated in the second half? Does more of that come in Q4, or did some of it land in Q3? And then just final point around, you know, margin outperformance. You know, how would you attribute the margin outperformance that happened in the quarter? Certainly, IP revenue may benefit the sort of optics of incremental margin, but anything to call out in terms of maybe how OpEx discipline came in compared to your expectations? Thank you. Yep, sure, Clarke. Again, more great questions. On the IP side, I think we've, like I said, we've got great momentum there. You're probably referring to the contract. You know, we did a large contract at the start of the year with milestones that were in the second half of the year, and some of those kicked in, of course, in Q3 and triggered revenue. There are more that will trigger revenue in Q4, but that's a multi-year contract that will, that momentum will should continue on into next year. And then on the margin side, I mean, Cadence is, I mean, it's a tremendous business. I mean, the core EDA business is a great foundation for margins and profitable, sustainable revenue business. That and growth is, we scale really well. You know, as we grow in these other areas, a lot of the growth just flows down. Nice to hear you talking about incremental margin. Typically, it just, a lot of that revenue growth just flows into operating margin, and you can see when the growth comes through, the impact it has on operating margin is incredible. Thank you very much. Our next question comes from Harlan Sur with JP Morgan. Hey, good afternoon. Thanks for taking my question. Your inventories are up 70% sequentially. That's an all-time high. I think it's implying a very strong demand profile and backlog for your new Z3 and X3 hardware systems. Is demand exceeding your near-term supply and manufacturing capabilities? In other words, is the Q4 shipment profile for your hardware system supply or manufacturing constraint? I'm just trying to get a sense on how many quarters the strong upgrade cycle can extend into next year. Yes, Harlan, the demand is very strong for our hardware, but in terms of inventory growth, that's really come as a result of us buying a multi-year contract with a key supplier. We mentioned that on last quarter's call. That's also impacting our operating cash this year, but it was in and around the kind of low- to mid-$100 million kind of level in terms of purchases for hardware inventory for the next three years. Perfect. Okay, thank you for that. And then back to the China business. So if you think about 2025 and a new era in a more normalized business environment for your China business here, there's a lot of puts and takes, right? You've got the hardware upgrade cycle, you've got the potential direct or indirect headwinds from maybe more U.S. regulatory actions. You've got the macro environment, which in extreme cases, maybe does impact design activity. So kind of lots of moving pieces, right? But I think that the best leading indicator over the next few quarters on growth is design starts and planned design starts, right? So, Anirudh, as you track design starts in China, you track some of their upcoming programs, how does the design activity funnel look? Is it increasing? Is it staying flat? When you overlay your hardware upgrade cycle on top of this, what's the early sort of qualitative view on China as you look into next year? Would you expect continued acceleration in year-over-year comps? Well, Harlan, that's a good question. I mean, first overall, and then specifically on China. I mean, like we mentioned, that China has improved last two quarters. I mean, it's difficult to forecast that, you know, into next year. But I do think that there is, you know, improvement in China overall, and, and also now with our more richer portfolio is also with the, especially with the, with the auto sector. I mean, what is interesting to me is, of course, China, you know, we, we, you know, we have luxury of, like in China and other parts, you know, work on multiple end markets, and, you know, we participate in all the markets that the customers are designing chips for. But what is interesting for me to see in China is how well they're doing in automotive, and almost all of those major auto companies are also now. Mm-hmm D esigning chips. I mean, this is well known now, and so we are, we are glad to work with them both on the SD&A, but also the EDA side, with the silicon part. So I think we just have to see how it progresses into twenty-five. But overall, I think, you know, design activity is strong in China and elsewhere, especially driven by this, you know, AI super cycle and, you know, amount of activity we are seeing with the hyperscalers, both in China and, of course, in the US, and the demand of AI, you know, for next several years. So we'll see. We'll continue to monitor that. Yeah, and Harlan, although, I mean, obviously, we can't predict what 2025 is going to bring. We did go back and backtest the last 25 years. It's only the third year- Mm-hmm That we've seen a down year in China revenue- Yes O n a dollar basis, and we've never seen two down years in a row. And I'm pleased- Yeah T o see that Q2 was stronger than Q1 this year. Q3 is stronger than Q2 this year. Pipeline looks strong. Anecdotally, from the team out in China, they're seeing a lot of design activity strength out there. So, you know, we wouldn't expect a second down year based on that history, but it's just very hard to predict 2025. No, I appreciate that. Thank you for the insights. Our next question comes from Ruben Roy with Stifel. Thank you. John, I wanted to ask a quick question, returning to the bookings pipeline and the strength there. Great to hear that, but I know you said it was broad-based. Just wondering if we could drill into the hardware part of it just a little bit more. I think historically, you've said that hardware visibility is a little limited relative to the rest of your business. I'm just wondering, given that you have this new ramp, has that changed at all? Is your visibility on, you know, kind of hardware bookings extending at this point, or is it kind of similar to, you know, the previous systems? No, typically, you've got, like, a two. Yeah. Yeah, no, great question. I mean, typically on the hardware side, you've kind of got a two-quarter view of the pipeline. Opportunities tend to turn up in the pipeline about two quarters, at most, in advance of when the customer plans to put the hardware into production. 'Cause often it's based on design projects that the customers are starting, and then they might need a hardware emulation system for that project, and they know the project will be, like, this quarter or next quarter. But, so typically we have kind of a six-month view. Now, at this time of the year, a six-month view is tremendous because there's a lot that happens in Q4 every year. Q4 is always a strong bookings quarter for us. You know, by the time, well, obviously, with a strong pipeline and everything, we've got to convert a bunch of that, but we have a great history of converting that. But we'd like you to just let us convert that now in Q4, and we'll come back to you as soon as we close Q4 and give you an outlook on 2025. Understood. Thanks, John. And then a quick one, I hope, for Anirudh. Just kind of thinking through, what you said on, some of the new AI, you know, kind of, areas that you're working on. You mentioned NVIDIA and then the NeMo, and I think your competitors talked a little bit about that. I imagine you would characterize that as a later phase, AI revenue opportunity, but just wondering if you could maybe, you know, talk through how we should think about timing of when we might see, you know, some of those types of products hit the market. And also, you said that you're building custom applications. Are you getting inbound requests from your customers, like hyperscalers or otherwise, for, you know, that type of AI, feature set? One thing I would like to highlight is that, you know, is our JedAI platform. So it's a, you know, enterprise data and AI platform, and the way we go to market with that, and it supports, like, multiple, GenAI solutions. So it, you know, so we become almost like, like LLM agnostic. We can plug in different-- and different customers will want, like, different kind of engines in there. But the, it becomes like a, like a main, deployment vehicles, and it works with all our tools and all our major five AI platforms. So we gives that flexibility to us, but depending on which cust-- Some customers may want different kind of AI, solutions there. And then that platform can also be used to customize, you know, not just our solutions, but any customer-specific solutions can be deployed through JedAI. And JedAI also works both on the cloud and on-prem, because some customers, you know, some really big customers don't want the AI to go to the cloud. So in that case, we have it on-prem. I think JedAI, and we have worked on this JedAI for several years, gives a unique position to Cadence to deploy these, you know, AI solutions and multiple kind of LLMs and you know, ways to go to market. Thank you, Anirudh. Our next question comes from Siti Panigrahi with Mizuho. Thanks for squeezing me in, and Anirudh, it's good to be on the call. I just initiated coverage. So I want to keep it at a high level, and probably just in the interest of time, one question here. When I look at your three-year revenue CAGR trend, it has been accelerating from single-digit to now mid-teens. And Anirudh, you talked about so many growth drivers and even products, new products coming to market. I'm wondering, how would you rank order this growth opportunity and product when you think about the growth in the foreseeable future, and what gives you that confidence to sustain this kind of double-digit revenue growth? Thank you for the question, and also thank you for initiating coverage. I mean, as we have said before, I think one thing just want to highlight is we are always looking at, you know, revenue growth, which has improved, like you mentioned, through a lot of these systemic drivers, but always at the same time, profitability, which has also improved and continues to improve every year. So, and put that together, you know, that, of course, delivers results to our shareholders. And even in Q3, right, not only we did better on revenue, but also on profitability. So, I think there are a lot of drivers, you know, a lot of them driven by AI, and then AI moving to the edge, and our move into, you know, doing better in new areas like SD&A, but also IP. Like I mentioned, I'm optimistic about our IP business going forward, but at the same time, we put a focus on profitability, so we'll continue to manage that going forward. Great. Thank you. Our final question comes from Joshua Tilton with Wolfe Research. Hey, guys, thanks for squeezing mine in. I want to start with a bit of a nuanced question, although I think it is important. John, you talked to how previously you have seen down years in China, but you've never seen two down years in a row. And I guess, you know, you mentioned you're data-driven, you looked at the historical numbers, but can you give us any sense of what helped drive the recovery a year after you had a down year? And what I'm trying to get at is, do I have to believe in some type of, you know, bigger hardware demand or more upfront contribution or something, you know, along the lines of things that may not be recurring? Or is it just more a function of, you know, we had a weak year, and there was return to normal demand environment going forward? I guess I'm just trying to understand, outside of history, what is similar this year versus the previous years where you've seen down years, and why you don't expect to once again not see two down years in a row. Yeah, yeah. Okay, thanks for the opportunity to provide a little bit more color. Yeah, we went back. We looked back over the last twenty-five years, and we've seen, like, tremendous momentum and design activity amongst our customer base, a growing customer base, across China. There were only two previous years before this year, where we saw a downtick in China revenue on a year-over-year basis. 2008, I know 2008 has some of the idiosyncratic qualities to it, but 2008 was also a year that we changed from an upfront revenue model to a ratable revenue model. Mm-hmm. I think that's why it took a couple of years to get back to a new high in China. But then, since then, it's only 2021. 2021 dipped. China revenue dipped from 2020, but it recovered to a new high in 2022. Now, incidentally, that was, you know, we launched new hardware systems, and we do find that there is a correlation between hardware revenue and China revenue. Hardware revenue tends to pull through more China revenue for us on the software side. I think we're seeing a little bit of that this year in that the new hardware that's been launched is selling more and being delivered more outside of China. I would expect more of that to go to China next year, and it'll help improve our software revenue. Also, if you look at this year, you know, China, it dipped in Q1, but it's been recovering since Q2's been higher, Q3's been higher, and like I said, as hardware recovers out there, I think it'll pull through more software revenue. Super helpful. And then just maybe one very quick follow-up. Any updates on what you guys are... or just in general, what the contribution from BETA was in the quarter, and if you're still on track or expecting $40 million for the full year, or, or if we should expect more, from your original comment? We're seeing a big contribution with BETA when you include the pull-through revenue that we're getting across from all our automotive customers as a result of selling, you know, traditional Cadence technology alongside BETA. But it's a small tuck-in. We're not guiding BETA separately. Got it. Super helpful, guys. Thank you so much for squeezing me in. Great, thank you. I will now turn it back to Anirudh Devgan for closing remarks. Thank you all for joining us this afternoon. It's an exciting time for Cadence, with strong business momentum and growing opportunities with semiconductor and system customers. We launched the Fem.AI initiative and committed to an initial investment of $20 million to lead the gender equity revolution in the AI workspace. This is also led through our Cadence Giving Foundation. With a world-class employee base, we continue delivering to our innovative roadmap and working hard to delight our customers and partners. On behalf of our board of directors, we thank our customers, partners, and investors for their continued trust and confidence in Cadence. Thank you for participating in today's Cadence Third Quarter 2024 Earnings Conference Call. This concludes today's call. You may now disconnect.