Cadence Design Systems Inc at Berenberg Thematic Software Days Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : How do you balance all that within the business when you kind of think about allocating the management's time, allocating the priorities and stuff, thinking about staying on the right track long term but also dealing with all these little things that kind of pop up and that kind of gives you puts and takes to it? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 15, 2021 / 3:00PM, CDNS.OQ - Cadence Design Systems Inc at Berenberg Thematic Software Days Conference

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Of course.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : It's interesting because, what you referred to, kind of data and then transforming it into a piece of information, you're at the center of -- basically, if you think about even the analog chip and, like, collecting the data from the real world and then transmitting it into an actionable piece of information, which effectively means that there is a process or there's something around it and, like, the whole device and everything, and you really try to address the whole system. And that's kind of the full vision that you've had for a while.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : And of course, all these trends, like you said, are accelerating. They're not subsiding, right? If you think about the adoption of data and the amount of data that's going to be generated. And sometimes, in the past, we referred to data as the new oil not from a dirty non-ESG perspective but from a perspective of strategic importance and what it does to businesses and what it enables. And I guess to that analogy, you help extract the data, refine it and deliver somewhere else, right? So it's like it touches many points and, like, you enable that flow, if that makes sense. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 15, 2021 / 3:00PM, CDNS.OQ - Cadence Design Systems Inc at Berenberg Thematic Software Days Conference

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : That makes sense. And in the past, you've seen some of those environments, right? Like, if I think about the design activity, in the past, it was limited to a few super cycles, right? Like, the personal computers moving onto the smartphone cycle, which has been a very powerful activity for you. And that moved the needle itself, right? Now we're talking about many different tenets, like I said, autonomous vehicles, electric vehicles. On the other side, you have, like we said, the data and the hyperscalers and the analysis around that. And there's only so many new spaces that the hyperscalers can acquire and put more of the same stuff in. They need to also change what is in the real estate that they're acquiring, right, and building. And that has to do with innovation, and it comes right from the design side, right?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : That's helpful. And when we're thinking about these end customers, like you said, there is a wide selection of them and probably more than you've ever had in your history. Especially when you look at the addressable market, there's new customers popping up, and maybe one of them is not material, but there is a trend of expanding horizon, right? On that note, you've talked in the past about kind of exposure to the core, let's call them, leading-edge customers versus the systems companies and even the start-ups and everything else. How has that changed? And most importantly, like kind of remind us like what the exposure is. And then maybe kind of as a secondary thought there would be, did it change your go-to-market strategy or anything as you had to kind of think about addressing those opportunities effectively when you don't have a customer that's 10% of revenue, whatever, 5% or whatever, but you have a lot of customers that are smaller proportion of it?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Because it's lower compared to... REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 15, 2021 / 3:00PM, CDNS.OQ - Cadence Design Systems Inc at Berenberg Thematic Software Days Conference

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Yes. That's interesting. It's also -- the way we look at the market in the past has always been -- the core customers, the leading-edge customers, they're continuing to innovate. They're continuing to have their own R&D cycles, which go up and down, obviously, as we know. And recently, maybe there's more growth expected. But through the cycle, we've always said that kind of your high single digit or maybe mid- to high single-digit growth rates, right, that you can generate. But you have been running over the last couple of years and you normalized your growth rate at a higher rate than that. So I guess the way to see that is that systems company is kind of adding a few percentage points of growth to the overall business because of the fact that it's kind of adding. It's not that the core isn't growing or it's growing faster and slower, it's just this has been an adjacency that's kind of contributed incrementally to your growth rate.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : You touched on a topic that I definitely wanted to address, and it's mainly the fact that, in addition to the EDA, you've expanded -- first, within the EDA, you've expanded into the digital, like you said. But then in addition to EDA, IP has been a very, very good success story for you, more recently also on the systems and specifically on the physics side of things where you're kind of starting to merge the digital and the form factor, if we want to call it, the real world, right, and thinking about that not just for the packaging but also for the actual performance because those things interact, right, the cooling impacts, the performance of a chip and things like that. So on one side, maybe just if we go into IP first, IP is kind of often seen as a building block to a bigger system, right? And oftentimes, I guess it doesn't make sense for your customers to continue to innovate on the things that could be standardized and focus their R&D dollars, as you said, on things that they can differentiate themselves. So what are some of the examples of your kind of successful products of the IP portfolio that you've kind of developed over the last few years that you can kind of point to as being a real success story? And like what would be that, like -- in terms of the areas maybe now?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : And what's important that you said, to kind of maybe wrap up on that point, but I want to highlight the fact that this is an outsourced R&D function as sometimes either some of the vendors are happy to accept that this isn't a services business, there is a case -- and you've been very, very disciplined around what kind of project makes sense because you're not developing it for a customer, you're developing it for a market, so a set of customers. And that ultimately then improves profitability, which impacts the overall profitability of the business and the way you see it. And you mentioned the disciplined approach to potentially even saying no to some things, right?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Right. Sure. So shifting gears a little bit down the portfolio chain as well, and your most recent kind of focus has been around bridging, like I said, the physics and the electronics side of things. And you've announced a couple of important acquisitions in the space since the beginning of the year effectively. You've also have a focus on more of the finance element analysis over the last couple of years, releasing a host of products for especially verification and stuff. So how are you thinking about this market and why today is a good time to kind of think about, let's call it, computer-aided engineering and think about the convergence of CAE and EDA in a sense? What makes you believe that the market is ripe for it and what kind of opportunities you're seeing in that market?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Yes. It's interesting because there's a lot of companies in the world that could be utilizing similar aspects of what's done in chip design, which is fully virtual prototyping, if you think about it, right, development. And there's no prototypes physical that exists before the factories basically because you have to verify the whole design and the performance and everything where sometimes, even if we think -- you mentioned marine, aerospace, even auto. Those areas still utilize a lot of physical prototype in the processes. So I guess what you're seeing there is the attractiveness of the market today, what you said, $6 billion, $8 billion, whatever it is, but also the fact that these companies spend hundreds of billions of dollars on R&D, and they will continue to reallocate it from physical to software, I guess.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : All right. Awesome. One other thing that I really wanted to touch on is, again, the part of the portfolio that you've had over the years and it's been very successful to you, and it's on the packaging side, PCB specifically. It's an area that over the last couple of weeks, you've released -- effectively announced your platform, Allegro X. And in terms of other news flow, obviously, Autodesk-Altium is kind of an interesting tie-up that potentially might happen, might not, it doesn't matter, but it just kind of shows that there is a focus -- continued focus on the market on the PCB itself. Siemens also acquired Mentor clearly. What is -- if we just kind of zoom out a little bit and you think about the dynamics of the PCB market today and some of the drivers that you're seeing and how does that kind of compare to the other parts of the portfolio that you have, specifically versus chip design or the IP or something like that?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Awesome. And thank you so much. That makes a lot of sense. And checking my clock, we have ran out of time, which always happens with us. And it's a great discussion to be had. We could continue for another hour or so, but we're going to break here today. I would invite any investors to, obviously, reach out to us or yourself. You've been very generous with your time as well. But I'm really excited to continue, learning about the space and hosting you and seeing how the whole vision continues to unfold over the next couple of years, but thank you so much.