Cadence Design Systems Inc at RBC Global Technology, Internet, Media and Telecommunications Conference (Virtual) Transcript

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

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : Okay. I don't even recall the last time because it didn't put up as being raised. So it's been quite a long time. So very consistent results for you guys. Now before I turn on my questions, FYI for anybody listening, you can type in your questions into the system we have, and I'll try to put them in as we get them. But just you're talking about the product side, we'll start there. I think that's probably a good spot. Digital has been a very topical point for the last 3 or 4 years. Can you maybe talk about the traction you guys are getting there? How to think about it? What the market opportunity is? And how Cadence is trying to enter that subsector?

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : And so to kind of build off that, maybe we should talk about the different type of growth rates you got in the other subsegments. So let's go digital, analog and mixed signal, you guys have done a very good job there. You have been market leader for a long time. And then functional verification. So do you think there's going to be any disparate growth rates there or how sure about those 3 kind of major buckets? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 18, 2020 / 8:20PM, CDNS.OQ - Cadence Design Systems Inc at RBC Global Technology, Internet, Media and Telecommunications Conference (Virtual)

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : Perfect. And then just one extra one. I mean, you guys have started entering a 3D Clarity product, right, that recently came out. I try to ask about it like every other conference call or so, it's because I feel like you guys have the best-in-class product there, 10x better than your competitors. But I mean, is there anything you can do to just kind of help us understand how that should ramp? I mean, should there be a time when suddenly it's generating $50 million or $100 million for you? I mean, I'm just trying to understand how that should ramp for you guys going forward? Any sort of key logos or customers you've won over the last year or so? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 18, 2020 / 8:20PM, CDNS.OQ - Cadence Design Systems Inc at RBC Global Technology, Internet, Media and Telecommunications Conference (Virtual)

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : Yes. Maybe just add one, just to clarify, maybe this would be more for John, he's the numbers guy, but I guess what I'm trying to drive at, is there going to be any time like the next couple of years, where you're going to say, look, we did $100 million or $50 million of revenue because it feels like it's just kind of be put within the buckets of the overall business? So is there anything like that you could give us in terms of what you think that it's going to, I don't know what the right phrase is, a substantial portion of revenue or material enough to call out on a call? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 18, 2020 / 8:20PM, CDNS.OQ - Cadence Design Systems Inc at RBC Global Technology, Internet, Media and Telecommunications Conference (Virtual)

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : Okay. Perfect. I got one for the Q&A here. Just to clarify the verification side you mentioned earlier, that's probably one of the most difficult things that the customers are having issues with? Can you maybe unpack that a bit? And under -- help us understand why verification is so critical right now? What's happening that's causing that to be a stick point for customers?

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : Yes, that's wonderful. I have a simple guy to really make it at the point simple. It's kind of like FPGAs, GPUs, CPUs, all the stuff are kind of working closer and closer together, that just makes the room for error smaller and smaller. You have to get them all to connect very quickly, right? That's kind of like the quick summary. Maybe I just flip this over again to John, really quick. I feel like we need to flag this. So you've had a strange year, to say the least. I mean, probably benefiting a bit from COVID on the OpEx side. You had an extra week, arguably, some people believe you had some pulling in China. I think that, that was a pretty significant quarter in Q3. Can you talk to -- talk about the financial model, at least, for the year and how we should think about it

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : Yes. So outside of the moving parts on the revenue side, which I think you've done a good job explaining just now. Can you maybe talk about also the cost savings you guys got from COVID? And what do you guys think you can do going forward in terms of generating kind of that Rule of 40 and getting closer there?

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : Okay. Again, drilling out kind of what I did before, it sounds like there's a lot of moving parts you guys can take a look at our model, what we kind of try to highlight that's going on, but we are moving around. But in the end, you think you're still going to drive kind of 50% plus incremental

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : The next one I want to talk about really quick, just the systems versus semis companies. About 5 years ago, you see that systems companies were kind of high 30s percent, kind of close to 40%. Now it seems that they're becoming more and more closer to the low 40s and getting bigger. Can you talk about what's happening in terms of your customer mix and systems versus standard semiconductor companies? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 18, 2020 / 8:20PM, CDNS.OQ - Cadence Design Systems Inc at RBC Global Technology, Internet, Media and Telecommunications Conference (Virtual)

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : Okay. Perfect. We have a couple of minutes here. So I'll just put both one. Capital allocation in terms of what you guys are going to do with the cash flow you're generating. It seems like dividends, just we talked about 3 years ago, if you guys remember, but now that's kind of died. And it sounds like you guys are going to be focused on more buybacks. Maybe talk about just what the plan is for use of cash? And then the last like 30 seconds, anything else you think that investors need to know about the Cadence story before we sign off?

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : Yes. Thank you very much for your time... REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 18, 2020 / 8:20PM, CDNS.OQ - Cadence Design Systems Inc at RBC Global Technology, Internet, Media and Telecommunications Conference (Virtual)

Question: Mitchell Toshiro Steves - RBC Capital Markets, Research Division - Analyst : Yes. Okay. Perfect. So I think that went very well, and thank you for your time, and have a wonderful day.