Blair Abernethy: Thank you. Just a quick question on the multi-physics side of things, the system design. The growth, I think you called it, was around 27% year-over-year. Just want to clarify, was that including the acquisitions, or is that organic? And then, secondly, just on the multi-physics side of things, how are you doing in terms of your go-to-market strategy and scaling the business up? It looks like it’s getting close to a $500 million run rate. Just want to see how you’re doing in the go-to-market side of things.
Anirudh Devgan: Yes, absolutely. The growth rate is a combination of organic and inorganic, right, the acquisitions we made in the past. And in terms of go-to-market, we have — of course, there is a lot of overlap with our current customers, too. And then, of course, some of the customers are new customers. So, we try to leverage both our existing channel, and then we also have set up a system kind of sales team that targeted new customers that we traditionally haven’t talked to. But one thing to remember in SD&A, as this overlap of system and semi companies, lot of the leading companies in SD&A are companies that Cadence already has a very deep relationships. So — and we are still selling to the engineering organizations and it’s just — so the good part is both the EDA and the SDA, our engineering software maybe different parts of the customers are engineering organization, but more and more coupled engineering organization with the combination of system and semi.
And then, when we go to SD&A side, we always look at a three-pronged approach in terms of go-to-market. So, one is direct sales, like we do for our EDA business. And that — we have great relationship with the top customers in the world, which are consuming both EDA and SDA. And then, I think in SD&A, there is a bigger portion of indirect or channel. So, we had a strong channel for our Allegro and OrCAD businesses, which is PCB and packaging, but we have expanded the channel to now include SD&A to bring our new channel partners throughout the world. And then, the third part of our go-to-market is using cloud and OnCloud, we announced last year. So go direct, especially for smaller customers who don’t want to have in their own IT department and especially in the systems space, they are much more amenable to direct SaaS kind of cloud offering.
So, overall, this is an ongoing progression. As you said now the business is getting to a good scale and especially in SD&A, we want this three-pronged approach of direct, indirect plus cloud. But one thing to remember is a lot of the top customers in SD&A are already existing EDA customers, and that really helps us as we go to go-to-market.
Blair Abernethy: That’s great. Thanks, Anirudh.
Operator: Your next question comes from the line of Ruben Roy with Stifel. Your line is now open.
Ruben Roy: Thank you. Thanks for taking my questions. John, I had a question on the commentary around renewals. And just thinking back to the pandemic and how you guys thoughtfully took into account some of your smaller customers and how that might impact some of your software renewals. Just wondering, given the state of the economy right now, and we’ve already seen some slowing in IT spending, do you think you might see some uncertainty given the soft macro and renewals in the second half? Are you calibrating that into your thinking for full year guidance at this point, or is that not something that you’re worried about?
John Wall: Yes, Ruben, I’m not really worried about that in the second half in terms of the renewals. The renewals are with really large very, very highly creditworthy customers. But we did see some softness in the lower creditworthy Tier of customers like start-ups in Q1. And we have already factored that into our guidance for the year — for both Q2 and for the year. But generally, at the high end with the big renewals are with like the strongest creditworthy customers in the industry.
Ruben Roy: Right. Got it. Thank you, John. And then, a quick follow-up for Anirudh on the hardware. It’s come up now a few times, Anirudh, on your call, which is nice to see that the take rate, or attach rate, I should say, of hardware continues to move up. The numbers have been quite strong, obviously. Is there a way to think about the percentage of your customers now that are on the new Palladium and Protium systems? Just wondering if there’s a continued refresh cycle coming around that relevant metric at all to think about kind of what the percentage of customers is. And that continues to go up, is 85-15 sort of the right way to think about the longer-term mix for the company?
Anirudh Devgan: I mean the good thing with the hardware is that, like we mentioned in the past, like it has become almost an essential part of the design process. So — and it’s almost — it’s virtually impossible to design these complex chips without use of the hardware platforms. So, I would say all the major customers, especially all the big major customers that drive most of our revenue are using hardware anyway. Now, there is — so there’s always room for refresh of that of the hardware they’re using. And also, as the chips — as they go to different nodes — I mean we are like 5-nanometer going to 3, to 2, to 1.4, to 1, so there is at least 10 years of node refresh ahead of us. So, every time we go to a new node, the size of the chip increases, the number of gates that are on chip increases.
So, you typically need more and more hardware. So, the capacity requirement for hardware increases. So that’s why I think that for long term, hardware is going to be in a secular growth period. Not only is it critical, but you need more and more and that’s going to last for at least for the next 10 years, if not more. And then sometimes, there’s opportunities for some of the smaller customers to add hardware, and we look at that also, and we have a variety of business models to help the smaller customers. But at this point, most of our big customers are using hardware, but still there is growth because the chip size increases, or if they’re using Palladium, they can use more Protium and vice versa.
John Wall: Yeah, I would just add to that, Ruben, that I think your question emanates from the fact that back in 2021, I think our recurring revenue to our upfront mix was 88-12. And of course, that grew the upfront. And hardware was so strong last year, it went to 85-15. And of course, we’re guiding to the year of 85-15 now. Without — with the caveat that we’re going to take another look in the summer, and we may take the second half up if we see continued hardware strength, because strength continued into Q1. And although we’re guiding 85-15 right now, I would take the over on the 15 rather than the under.
Ruben Roy: That’s really helpful, John. Thanks. I guess, just really quick, I know I’m only allowed one follow-up. But just on that point, have lead times normalized, would you say, or is there more work to be done on the production side?
