Release Date: May 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased by 15% year-over-year, reaching the high end of the guided range.
- Non-GAAP operating margin improved to 37.3%, up approximately 3 percentage points year-over-year.
- Non-GAAP EPS increased by 26% year-over-year, exceeding guidance.
- Strong customer engagement and adoption of Synopsys.ai, leading to significant performance gains.
- The planned acquisition of ANSYS is progressing well, with stockholder approval and expected regulatory approvals.
Negative Points
- Analog and Mixed Signal Design adoption is still in early stages, making it difficult to quantify financial uplift.
- IP business experienced lumpiness, with a muted performance in Q2 compared to Q1.
- Cautious outlook on China due to macroeconomic challenges and restrictions.
- Regulatory review process for the ANSYS acquisition is ongoing, with potential uncertainties.
- R&D expenses grew significantly, outpacing revenue growth, indicating high investment costs.
Q & A Highlights
Q: It sounds like analog and verification AI products are really gaining a nice foothold at customers. Is it possible to say just what the uplift around ACV tends to be with these customers adopting the newer AI products?
A: The 20% uplift is based on the DSO.ai incremental booking and revenue we're able to capture and the baseline increase for Fusion Compiler. On ASO.ai and VSO.ai, we're still in early stages, so it's difficult to give an average uplift figure at this stage. However, as customers use the technology in production, we are able to monetize it through the same approach and uplift based on consumption.
Q: Can you provide an update on the financial performance of ANSYS and your expectations for the balance of the year as you approach joint customers?
A: We are operating as two separate companies, so refer to ANSYS's communications for their financial performance. During our diligence process, we noted that their performance is tilted more towards the second half of the year. They continue to commit to double-digit ACV and revenue growth for FY '24.
Q: What drove the strength and upside in the quarter, especially given the recent update at SNUG?
A: Continued momentum in the core business, driven by ongoing demand for faster and energy-efficient compute from semiconductor companies and hyperscalers. Additionally, we outperformed on hardware this quarter, contributing to the overall strength.
Q: Your IP business seemed to take a pause in the April quarter, but your full-year guidance suggests a higher run rate. Is IP still expected to be first-half weighted?
A: IP tends to be lumpy. We had 53% IP growth in Q1, and while Q2 was more muted, we still saw 19% year-over-year growth. We anticipate continued growth throughout Q3 and Q4, with a strong Q4 expected.
Q: Are you seeing any changes in purchasing behavior due to the future combination with ANSYS?
A: We've had a partnership with ANSYS since 2017, so the established go-to-market and technology connections remain. There is no significant change in customer behavior at this stage; it's a continuation of our existing collaboration.
Q: Can you provide more color on the regulatory approval process for the ANSYS acquisition, particularly regarding China Samer approval?
A: We had a thorough roadmap for different jurisdiction filings. China confirmed that our transaction is below the merger notification threshold but desires to review it. We are evaluating potential next steps and working collaboratively with all jurisdictions to address any concerns.
Q: How is the adoption of AI products like DSO.ai, VSO.ai, and ASO.ai progressing among semiconductor and systems customers?
A: System companies typically adopt new technology faster due to the lack of legacy workflows. We see a mix of adoption among both semiconductor and hyperscaler customers. The adoption rate for VSO.ai is expected to be faster than DSO.ai due to its impact on verification cycles and TCO reduction.
Q: Are you seeing a shift in momentum in the analog business, and where do you see the best opportunities?
A: We see momentum from core analog companies looking to modernize their workflows and from customers seeking competitive alternatives. The introduction of AI for analog (ASO.ai) and a modern competitive platform are driving this momentum.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
