Jay Vleeschhouwer: Thank you. John, for you first on RPO, according to the 10-Q, it looks like you had about $400 million sequential decline from the end of — from Q4, and also a sequential decline in the next 12 months expected revenue from RPO. And I know that can move around, of course, with hardware and contract timing and so forth, but maybe just talk about the magnitude of that sequential decline in RPO and perhaps any expectations for that for the remainder of the year? And then, my follow-up.
John Wall: Yeah, sure, Jay. The second half of this year is very heavily weighted for bookings for the total year. We’re very light in the first half of the year for software renewals. The second half of the year, Q3 and Q4, are very strong for software renewals this year. Unlike last year, last year, I think the first half was we had a number of big software renewals in the first half, we don’t have that this year. And when you look at the second half, of course, I mean any big renewal you have in Q3 — at the end of last year, we had like nine months in cRPO for that and now it’s only six months at the end of this quarter. So, it’s really just a function of renewal timing and the fact that the first half of the year is light for renewal timing.
I’d remind you as well this in terms of renewal timing, the Q1 and Q2 are the two quarters that’s kind of — are like three years after the breakout of the pandemic back in 2020. So, those were light for us anyway in terms of light renewals. So, the second half of the year, much more heavily weighted towards the second half of the year for software renewals, and you see that impact on the RPO and cRPO. To a lesser extent, there was some a drop off on hardware because we delivered so much hardware in Q1, but it’s mainly the timing of renewals.
Jay Vleeschhouwer: Okay, understood. Anirudh for you on AI, the product launches in the last couple of weeks, including last week, and the customer presentation was certainly very interesting. But just want to ask you about management comment at the conference last week that you were making “massive investments in AI.” And what was interesting about that is just some of the ad hoc conversations at the conference suggested that the AI development teams are relatively small, perhaps a few dozen per product or per group, but not necessarily very large percentage of your R&D headcount. So, when you say massive investments, in what other ways perhaps do you mean that?
Anirudh Devgan: Yeah, Jay, good question. So, I think first things I would like to say just to add on to what John was saying earlier, I mean, there could be some fluctuations in renewal timing. But the great thing about our business is we are not sensitive to that, right? I mean, it’s mostly ratable business and — but what I’m pleased to see is that both in system and semi companies that design activity is very strong, okay? Because a lot of these products are — I mean, we are resilient to the overall kind of macro environment. So, resilient because our products are critical and essential. And then, we are mostly ratable business. And then, we are very diversified, as you know, both geographically and markets. Now in terms of AI, I mean, this is having — of course, having a significant effect in terms of amount of automation we can provide and the increased automation we can provide.
So, we are embedding that, as we mentioned in our CadenceLIVE Conference last year in all products. And it will be pervasive throughout the product line. So, I’m actually pretty pleased to see not only our base kind of JedAI platform, which is you need a data analytics platform to really do AI in intelligent comprehensive way. But also, there are five big platforms on top of JedAI, so from chip to package to board to system. So we always had Cerebrus, which is doing phenomenal with more than 180 tapeouts; Verisium for verification; now Studio, Virtuoso Studio for analog with layout migration and design centering using AI; and then, X AI for Allegro, PCB and packaging, and Optimality for system design and analysis. So, it’s a very comprehensive portfolio.
And amount of R&D investment just depends on different products. And sometimes we have it within the product, sometimes we have outside, but it will be pervasive through the product portfolio. And like I have mentioned before, our strength in computational software naturally allows our regular — even regular R&D to do a lot of AI. We, of course, have AI specific R&D, but our regular R&D, given the rich history of EDA and competition software, we can embed that in our product. So, the real value is to really do it comprehensively and make a big difference in terms of productivity, in terms of automation, in terms of PPA benefit that we are delivering to the customers.
Jay Vleeschhouwer: Okay. Thank you, both.
Operator: Your next question comes from the line of Charles Shi with Needham & Company. Your line is now open.
Charles Shi: Good afternoon. Thank you for letting me ask a question or two. So, we really just want to go back to the second half EDA renewal, the expected strength. May I ask those expected renewals, are they already in the backlog or not? Or are they not in the backlog, you expect to sign the renewal in the second half of the year? That’s my first question.
John Wall: Yeah. So, Charles, yes, just for clarification, all of our renewals will be — already be backlog. But if there’s, let’s say, you have a renewal that’s coming up in September, you would have had nine months of backlog left on that renewal at the end of Q4 last year. Now, you have six months left in backlog. And then, when you get to September, you’ll have nothing left in backlog and then you have the renewal will come through.
Charles Shi: Okay. So, those renewal contracts are not yet in your current backlog, that’s what you’re saying?
John Wall: So, the new ones will not be until we do them in the second half of the year.
Charles Shi: Got it. So, may I ask — yeah, go ahead, please.
