The paragraph introduces the Synopsys Earnings Conference Call for the Fourth Quarter and Fiscal Year 2024. The operator welcomes participants and explains that the call is in a listen-only mode initially, with a Q&A session to follow. Trey Campbell, the SVP of Investor Relations, introduces the company's President and CEO, Sassine Ghazi, and CFO, Shelagh Glaser. He reminds listeners that the call will include forward-looking statements subject to risks and uncertainties, and directs them to various resources for additional financial information. The prepared remarks will be available on the Synopsys website after the call.

Synopsys concluded the year surpassing its Q4 revenue guidance, marking another record year with a 15% revenue increase and surpassing $6 billion. The company has sharpened its focus on growth sectors by selling its software integrity business and has doubled its efforts on the silicon to systems strategy by planning to acquire Ansys. Synopsys is positioned at a strategic advantage due to trends in AI, silicon proliferation, and software-defined systems, unlike the cyclical semiconductor market. The accelerated pace of AI-driven technology innovation expands their opportunities despite slower recovery in end-demand industries. The acquisition of Ansys aims to augment their growth in new areas.

The paragraph discusses the advancements and progress of a company in developing AI-powered design solutions that integrate electronics and physics for R&D teams. It mentions the expiration of the HSR waiting period, signaling progress in the regulatory review process with the FTC and other agencies. The company anticipates a pro-competitive acquisition closing by the first half of 2025, expecting double-digit revenue growth and a 40% operating margin. Additionally, it highlights significant growth in the Design Automation segment, with increased revenue and successful customer use of their AI optimization engines, such as the Synopsys.ai solutions, which have optimized numerous tape outs and SOC blocks.

The paragraph discusses the advancements and implications of AI and Multi-Die technologies in semiconductor design. VSO.ai deployments have significantly improved hardware utilization and turnaround times. Synopsys.ai is integrating generative AI across 11 EDA products, enhancing efficiency. AI is becoming essential in workflows, while Multi-Die designs are emerging as a major shift in chip architecture, bringing complexity that requires integrated design and multi-physics solutions. Predicted widespread adoption of Multi-Die by 2027 will drive the use of advanced manufacturing nodes. Synopsys is collaborating with partners like TSMC to enhance Multi-Die design predictability and yield, demonstrated by a successful Multi-Die test chip tape out. The ultimate goal is a unified design platform combining automation and multi-physics simulation.

The paragraph highlights a successful year for Ansys in its Design Automation and Design IP segments. Ansys experienced significant growth and momentum, with record achievements in its hardware business, particularly in the HAPS and ZeBu product lines. The company gained numerous repeat and new customers, including a major US hyperscaler for AI workloads. Design IP saw robust activity, with continued revenue growth and new design wins, particularly for PCIe 6 and data security. Ansys also achieved a milestone with the industry's first multi-vendor 800-gig Ethernet demonstration and introduced a comprehensive 40-gig UCIe solution that outperforms existing specifications without compromising efficiency.

In this paragraph, the company highlights several key achievements and strategic moves. They secured significant design wins, including 40-gig UCIe and die-to-die designs, and saw strong demand in the automotive sector due to electrification and advanced features. Notably, they achieved a third-party certification for 40 gigabit per second USB4 IP, important for automotive and mobile markets, and were recognized with TSMC's 2024 Partner of the Year award. Additionally, they strengthened their partnership with Arm to align their roadmaps, integrating Arm's subsystems with their IP and solutions to deliver advanced chiplets and systems across various sectors. The company emphasizes strong business momentum, a resilient model, and strategic investments to accelerate growth, expressing gratitude to employees and partners for a transformative year as they look forward to 2025.

In 2024, the company achieved record financial performance with significant revenue and earnings growth. Looking ahead to 2025, they expect continued growth despite some challenges, like fiscal calendar changes and macroeconomic uncertainties, particularly concerning China. For 2025, they forecast revenue growth of 10.1% to 12.5%, excluding certain impacts, and a 150 basis point increase in non-GAAP operating margin, along with a 13% rise in non-GAAP EPS. In 2024, they reported $6.13 billion in total revenue, a 15% year-over-year increase, with strong performance across all segments, notably in Design Automation, which saw a 12% revenue rise. The non-GAAP operating margin was 38.5%, and non-GAAP EPS grew by 25% to $13.20.

The paragraph reports on the financial performance and future targets of a company. The Design IP segment revenue increased by 24% to $1.91 billion, with an adjusted operating margin of 38.3%. The company generated $1.4 billion in operating cash flow and $1.28 billion in free cash flow for the year, ending with $4.05 billion in cash and short-term investments, and $15.6 million in total debt. For 2025, the revenue is projected between $6.745 billion and $6.805 billion, with a non-GAAP operating margin of 40%. There is a 1-point increase in the non-GAAP tax rate compared to 2024. Expected GAAP earnings are between $10.42 and $10.63 per share, and non-GAAP earnings are between $14.88 and $14.96 per share. The company anticipates cash flow from operations to be around $1.8 billion and free cash flow to be approximately $1.6 billion, with considerations for deal-related costs and taxes from the sale of its Software Integrity business. For the first quarter, revenue is expected to be between $1.435 billion and $1.465 billion, and GAAP and non-GAAP earnings per share are projected to be between $1.81 and $1.95, and $2.77 and $2.82, respectively. The revenue split between the first and second halves of the year is anticipated to be 45% and 55%, influenced by fewer days in the first half and timing of deliveries.

The paragraph discusses the company's outlook and strategy as it heads into 2025, following a record year in 2024. It mentions the company's strong execution and leadership, as well as its stable business model, which positions it well for the future. The CFO, Sassine Ghazi, responds to a question from Baird's Joe Vruwink about the slightly lower growth projections for FY '25. Ghazi explains that the company has taken a balanced view, considering the different markets it serves. While benefiting significantly from sectors like AI infrastructure, which includes memory chips and advanced logic, there's mention of other parts of the semiconductor market, such as mobile, PC, automotive, and industrial, which are still experiencing product refresh cycles and adapting to AI integration. The CFO acknowledges the potential impact of the Ansys deal on their budgeting approach, emphasizing prudence around possible disruptions.

The paragraph discusses the growth prospects and challenges faced by a company tied to R&D investments, particularly in the context of different market cohorts. While the initial cohort showed strong growth, the current cohort is not delivering at the same level. Factors influencing this include macroeconomic uncertainties, particularly in China's decelerating economy and increased restrictions. Additionally, the company is preparing for a major acquisition of Ansys in 2025, marking the largest in the engineering software industry. Consequently, the company forecasts pragmatic growth of 11.5% to 12.5% for FY '25, following a 15% growth previously achieved. Joe Vruwink emphasizes a strong $8.1 billion backlog indicating business health and high visibility for the next year. Sassine Ghazi appreciates this point, noting the ability to achieve growth without depleting the backlog and hints at influences from foundry investments and geopolitics.

The paragraph involves a discussion about the company's financial performance and projections. Shelagh Glaser explains that the Q1 guide is impacted by an eight-day shorter fiscal quarter, equating to an $80 million difference, and refers to the business's "ratable" nature, meaning fewer days of revenue accounted for in Q1 of '24. Additionally, she notes the previous year's Q1 had unusually high IP activity, up 53%, making for tough comparisons. Q1 is expected to be a low quarter as the company builds IP and anticipates stronger activity in the year's second half. Hence, two primary factors—reduced days in the fiscal calendar and variable IP pull-downs—are affecting Q1 performance.

In the paragraph, industry analysts discuss the impact of various business activities and regulatory changes on the company's financial outlook. Shelagh Glaser clarifies that a pending divestiture won't affect current forecasts, as it remains part of their business until a transaction closes. Harlan Sur inquires about the impact of new U.S. Department of Commerce rules on semiconductor and EDA software regulations, which Sassine Ghazi confirms do affect their fiscal '25 outlook but are already reflected in their guidance. Ghazi also notes strong growth in the company's IP and Design Automation businesses for fiscal '24, linked to increasing chip design activity and the entrance of new players like OpenAI, and qualitatively describes this growth as part of their overall positive annual outlook.

The paragraph features a discussion with Harlan about the strong customer enthusiasm for AI infrastructure, emphasizing the rapid pace of their investment and development. This momentum contributes to a 15% revenue growth over the past five years and influences future growth forecasts, especially for FY '25. Many customers are increasingly investing in advanced IP for Multi-Die designs, moving towards 2.5D and 3D models, requiring advanced hardware verification and design automation software. The conversation shifts to Vivek Arya's question regarding the growth in AI design starts over recent years, including the impact from hyperscalers and semiconductor companies serving them.

The paragraph discusses the increasing investment in custom silicon and AI accelerators by major tech companies, or hyperscalers, which is boosting the semiconductor market, particularly benefiting Synopsys. Despite questions about hyperscalers' ongoing investment capacity, their commitment to enhancing silicon for optimized workloads is evident. Synopsys' business with its largest customers involves multi-year contracts for EDA tools, IP, and hardware, providing a stable revenue stream. Even as some customers undergo restructuring, Synopsys anticipates continued growth, accounting for potential headwinds in its outlook.

The paragraph discusses how Synopsys is managing its revenue and operating margin despite a slowdown in projected revenue. It explains that the timing of IP and hardware pull down affects revenue from customers on a case-by-case basis, and these dynamics are considered in their fiscal year 2025 guidance. The focus on improving operating margins is attributed to a multi-year effort to drive efficiency and leverage within the company. This includes improving processes across R&D and leveraging technologies such as AI, along with digital transformation initiatives. Overall, the company is committed to improving efficiency and modernizing operations to enhance profitability.

In the paragraph, Sassine Ghazi discusses the company's efforts to align operations for growth beyond 2025, especially after surpassing $6 billion in fiscal year 2024. They are focusing on scaling product development and delivering innovative solutions to customers, which involves restructuring the company and evolving their engineering workflows. They've increased their headcount by 10% and have the most R&D openings in two years. These initiatives are part of their strategy to prepare for future growth, irrespective of their collaboration with Ansys.

The paragraph discusses how Synopsys and similar software companies are integrating AI into their products to enhance efficiency and results. Jay Vleeschhouwer inquires about the interplay between long-standing domain-specific design trends and the emerging focus on customer-specific AI applications. Sassine Ghazi explains that Synopsys is focusing on embedding AI within its portfolio to improve outcomes like time and quality of results. He highlights their XSO.ai family of products as an example of successful AI integration, noting that customers are adapting well to these AI-enhanced tools in their workflows.

The paragraph discusses the evolving role of AI in business workflows, emphasizing the need for customer-specific AI solutions that integrate seamlessly into existing processes rather than using pre-trained models. It highlights the emergence of Agentic and generative AI as transformative elements that reshape how products and business models are developed and delivered. The conversation reflects on how AI discussions have rapidly progressed over the past two years, particularly in terms of optimization and knowledge assistance. Additionally, the text transitions to a dialogue between two speakers, Jay and Sassine, followed by a question from Ruben Roy regarding the acceleration of AI silicon designs and its implications over the next couple of years.

The paragraph features a discussion between Ruben Roy and Sassine Ghazi regarding the impact of cloud-based EDA tools on business models. Ghazi explains that Synopsys is focusing on accelerated compute to enhance EDA efficiency, citing significant performance benefits when optimized on preferred computing systems like Nvidia GPUs. He mentions that some customers prefer cloud-based capabilities, allowing them to "burst" onto their preferred cloud service providers when needed. This flexibility benefits Synopsys by increasing software usage and monetization. Additionally, Roy briefly inquires about robust design activity and interface technologies that Synopsys is working on.

In the interview, Sassine Ghazi discusses how his company is exploring potential changes in their business model for IP deliverables, specifically considering royalty models. However, he notes that for traditional interface IP, there will be no change from their base monetization model. Royalty models are used in other parts of their IP and will continue. He suggests that a new business model could emerge with advancements in IP delivery beyond interfaces, such as subsystems or chiplets, which customers are receptive to. The company is investing in and testing future business opportunities and models. Ruben Roy acknowledges Sassine's points, and then Charles Shi from Needham & Company shifts the conversation to the impact of export control on the company’s operations in China, questioning whether the impact is significant or not for the fiscal year 2025 outlook.

The paragraph discusses the company's cautious approach toward growth in China, highlighting a deceleration in revenue and growth over the past few years due to a shrinking customer base and economic restrictions. The Chinese economy is also slowing down, affecting new business opportunities. Last year, the company's growth in China matched the corporate average, but future expectations, particularly for fiscal 2025, remain uncertain. The company is being pragmatic in its planning, considering these factors. Additionally, there is a discussion about the distribution of revenue or performance split in the fiscal year, noting a weaker first half and a stronger second half.

In this paragraph, Shelagh Glaser addresses investor skepticism about Synopsys' revenue being heavily weighted towards the second half of the fiscal year. She explains that this is due to two main factors: a mechanical effect where there are 10 fewer days in the first half of 2025 compared to 2024, causing a $100 million revenue shortfall; and the timing of customer pull downs in their upfront businesses, particularly in IP and hardware, which tend to be lumpy and more second-half weighted. Glaser reassures investors by highlighting the company's ability to manage this variability effectively.

The paragraph discusses the company's strong performance in hardware sales, anticipating another record year in 2025. However, customers face challenges in obtaining space and power for hardware installations, similar to data center issues. To address this, the company is developing a ZeBu cloud service to allow clients limited access to their servers for design work, although this doesn't offer the same scale or real-time feedback as on-premises installations. The company's revenue model is shifting, with increasing upfront revenue year-over-year, causing variability in quarterly results. Overall, they emphasize their reliability and ability to deliver on commitments.

The paragraph features a conversation during a call, where Joshua Tilton from Wolfe Research asks about the conservative guidance for the upcoming year, particularly concerning assumptions for China's business. Sassine Ghazi explains that the cautious approach considers the deceleration in China's market and expanding restrictions, predicting that China's performance will align with the corporate average. Tilton follows up with a question to Shelagh Glaser about how the company plans to leverage the mission-critical nature of their software to achieve better pricing for Synopsys and its customers in the coming year.

In the paragraph, Shelagh Glaser discusses the company's approach to renewing long-term contracts in EDA, emphasizing the importance of aligning with customers on the improvements and benefits provided, particularly in AI and IP. She highlights the company's focus on enhancing operating margins, noting consistent year-over-year improvements and projecting 150 basis point growth by 2025. After this segment, a series of acknowledgments and thanks from various individuals, including Joshua Tilton, Sassine Ghazi, and Trey Campbell, take place before the operator announces the conclusion of the conference call.

This summary was generated with AI and may contain some inaccuracies.