Cadence Design Systems, Inc. (NASDAQ:CDNS) Q4 2022 Earnings Call Transcript

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But now even automotive chips are almost networking. Almost all kinds of chips will require the use of these hardware systems. And we are very well positioned to take advantage of that.

Harlan Sur: Perfect. And then my follow-up, the team has done a great job on integrating machine learning-based methods as a part of your customer’s digital SoC design and verification Although different but nevertheless, still needing many iterations around many variables, is your custom cell and IT design and analog simulation and verification, seems like the team could take advantage of your ML frameworks and apply it to your custom and analog franchise. Is the team working on integrating ML into Virtuoso also and other parts of the analog and custom portfolio?

Anirudh Devgan: That’s a very good point. So I mean, like I mentioned, we have more than 30 projects in all aspects of AI. AI inherently is computational software, right. It’s computer science plus math, which is what we’re very good at. So you can assume that we are working throughout our design flow. And then we announce products in a more conservative way now. We want to make sure they are working with several customers, with different end markets and then we announce them. So last year, the year before, we talked about digital implementation. Last year, we talked about JedAI and verification. And I think this year, you will hear more from us in other parts of the business. The analog custom business is ripe for more automation and packaging PCB. So please stay tuned. But you can be rest assured, we are applying AI wherever it is possible and it is possible to apply it everywhere.

Harlan Sur: Okay, insightful. Thank you.

Operator: Our next question comes from Joe Vruwink from Baird. Please go ahead. Your line is open.

Joe Vruwink: Hi Anirudh. Hi everyone. I wanted to go back quickly to the current RPO topic. So, fourth quarter was very good, finished north of 25% growth. And then even if I appreciate that probably has some hardware in it, John, as you said, that the trend growth is closer to a mid-teens type number now. Can you just help reconcile that mid-teens growth with the implied outlook for recurring revenue? I think it would be more like 12% or 14% growth. It does seem like starting visibility to come from backlog is higher than usual. And so is there an implicit bookings assumption in 2023 that’s factoring into this, or those conservatism, like it applies to hardware also may be applied to software bookings entering the year?

John Wall: Great question, Joe. I mean as Gary mentioned earlier, that he was asking about the number of customers, was there any big customer, there wasn’t one big customer in Q4. We just had a very strong finish to the year. Very strong finish across all lines of business and particularly hardware was very strong as we closed out the year in terms of bookings. I think our hardware systems are just not discretionary spend. As Anirudh said earlier, they have become indispensable part of our customer spend on the R&D side, and people wanted to get their orders in before the end of the year. So, we have a lot of visibility into the next year. And as you know, cRPO, from a quarter-to-quarter basis, can be lumpy in nature. And I think like if you want to reconcile between where the growth in cRPO, say, for the last year is probably up closer to 20%.

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