Cadence Design Systems Inc Q4 2024 Earnings Call Transcript

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

Question: Joseph Quatrochi - Wells Fargo Securities, LLC - Analyst : Yeah. Thanks for taking the question. I wanted to follow up on that note on the China piece. One, was there any change into the RPO balance from the export restrictions? And then two, I guess on that flat kind of expectation for 2025, should we assume that the hardware cycle specifically in China is maybe more of a 2026 driver then?

Question: Ruben Roy - Stifel, Nicolaus & Company - Analyst : John, I think I'll waste my one question on another follow-up on China. But I am getting this question from investors and just around the entity list. Wondering if there had been any changes. It seemed like there were additions to the entity list kind of going into the end of the year, and is that informing sort of your prudent view on China, or is it really just kind of coming off of that down year and kind of assessing renewals and kind of timing of hardware ramp, or has something changed, I guess, is a question around entity list? Thank you.

Question: Vivek Arya - BofA Global Research - Analyst : Thanks for taking my question. I'm trying to get a better handle on what's the right interpretation of the recurring revenue growth that is slowing down? I assume, obviously, China is one aspect of it. But if I were to just take the '24 recurring revenue, right, and then look at -- I think you were guiding 80% recurring revenue. So that does suggest a bit of a deceleration. Why is that when the market for AI and all these other products is improving so much. Why is the recurring revenue sales growth decelerating so much?

Question: Lee Simpson - Morgan Stanley - Analyst : Great. I really just wanted to ask around the chiplet reference designs that you've clearly done very well with in China with the EV makers. Is this the sole source of strength for the chiplet reference design? And maybe if we ex that business out of China for this year, what does that do for the size of the decline that we might see in China inferred in that flat number.

Question: Charles Shi - Needham & Company, LLC - Analyst : Hi. Good afternoon, Anirudh and John. I think I do want to ask a little bit about the core EDA. It looks like based on the segment information, the core EDA growth in '24 was somewhere in the high-single-digit range. It seems like it have been growing at more like double digit. But at the same time, as system design and analysis continued to grow at a very strong double-digit growth. I wonder if you can give us a little bit of your long-term view, is this going to be the new normal going forward, like in a more traditional EDA actually going to more like a high-single-digit grower, but SD&A is more like where that can contribute to Cadence's outperformance going forward? I want to get some long-term thoughts there. Thanks.

Question: Gianmarco Conti - Deutsche Bank - Analyst : Thanks for taking my questions. So firstly, congrats on another fantastic quarter. Perhaps just a follow-up question on hardware. Given again the impressive backlog number and the increase from revenue you saw this quarter, is it fair to assume that Z3 and X3 is being adopted at a faster pace REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 18, 2025 / 10:00PM, CDNS.OQ - Q4 2024 Cadence Design Systems Inc Earnings Call and that the mix of volume and pricing is what's driving a strong Q1 guide? And going forward, is it fair to assume an acceleration [also not from] revenue given the closing of the air pocket? I think like a [fair few] investor looking at strong harder rand, I'm wondering if there is much of it inside that $6.8 billion backlog number. Any color on that would be great. Thank you.

Question: Jay Vleeschhouwer - Griffin Securities - Analyst : Thank you, good evening. Anirudh, John, your backlog came in at about $0.5 billion above where we were for the quarter. So I assume that NVIDIA alone could certainly have accounted for a large portion of that. But your current RPO year-over-year growth progressively slowed over the course REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 18, 2025 / 10:00PM, CDNS.OQ - Q4 2024 Cadence Design Systems Inc Earnings Call of the year from 14% year over year in Q1, 11% and 7%, now, 6% year over year as of Q4. Maybe you could dissect that in terms of the composition of software versus hardware and IP. And then maybe on the geo side, what the current RPO growth might look like if you were to exclude China?

Question: Gary Mobley - Loop Capital Markets LLC - Analyst : Hi, guys. Thanks for taking my questions. John, you seem to imply that revenue will be split 48%, 52% first half versus second half of the year, but your OpEx guide or your operating margin guide seems to imply the opposite direction -- directional change for non-GAAP OpEx. Normally, you would see a second half increase versus first half. What's the dynamic there in the OpEx for the second half versus the first half?

Question: Harlan Sur - JPMorgan - Analyst : Thanks for taking my questions. On the full year guidance, if you drive within the upper range of the guidance for this year, your three-year revenue CAGR is going to drop below 15%, to be more specific, more like 13.5% for the first time in a number of years. And if I look at the environment, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 18, 2025 / 10:00PM, CDNS.OQ - Q4 2024 Cadence Design Systems Inc Earnings Call right, you've got AI leading-edge design starts and activity are at an all-time high. You're going through a strong upgrade cycle on your hardware business. I know you're taking a more conservative view on China, which I think is prudent, but outside of China, we know auto and industrial semiconductor trends are still fairly muted. We also know a couple of your large leading-edge IDM customers continue to face competitive difficulties. So outside of China, can you guys just help us understand like where else are you taking a more cautious view on the 2025 outlook?

Question: Siti Panigrahi - Mizuho Securities USA - Analyst : Thank for taking my question. Can you hear me?

Question: Siti Panigrahi - Mizuho Securities USA - Analyst : Okay, great. So Anirudh, you talked about some of your AI products, Cerebrus, SimAI, and Allegro getting traction. Help us understand how is that driving your ACV uplift right now? Are you seeing more impacts on which segment, like digital design, verification, any of that. And in the same context, also, could you talk about -- I know you talk about a design going into more edge devices as another area of growth, when do you think that's going to -- are you going to see that inflection point? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 18, 2025 / 10:00PM, CDNS.OQ - Q4 2024 Cadence Design Systems Inc Earnings Call

Question: Joshua Tilton - Wolfe Research, LLC - Analyst : Hi, guys. Thanks for sneaking me in. I'm just going to keep it to two quick clarifications. My first one is on China. I know there's been a lot of questions. But I guess, John, I'm just trying to understand, has anything changed since last quarter that's either increasing or decreasing your conviction that China won't have two down years in a row? And then on the hardware side, if I remember correctly, historically, you talked to how you tend to only guide for like six months of visibility, specifically for hardware. Are you taking a similar approach this year as you set the guidance for 2025?

Question: Joshua Tilton - Wolfe Research, LLC - Analyst : Has anything changed since last quarter that's either increasing or decreasing your conviction that China won't have two down years in a row?