益華電腦 (CDNS) 2014 Q1 法說會逐字稿

Good afternoon.

My name is Marvin and I will be your conference operator today.

At this time, I would like to welcome everyone to the Cadence Design Systems first quarter 2014 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

I'll now hand the call over to Alan Lindstrom, Group Director of Investor Relations for Cadence Design Systems.

Please go ahead.

Thank you, Operator, and welcome to our earnings call for the first quarter of fiscal 2014.

The webcast to this call can be accessed through our website, www.Cadence.com, and will be archived through June 13, 2014.

A copy of today's prepared remarks will also be available on our website at the conclusion of today's call.

With us today are Lip-Bu Tan, President and CEO, and Geoff Ribar, Senior Vice President and CFO.

Please note that today's discussion will contain forward-looking statements and that our actual results may differ materially from those expectations.

For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission.

These include Cadence's most recent reports on Form 10-K and form 10-Q, including the Company's future filings and the cautionary comments regarding forward-looking statements in the earnings press release and press release announcing the definitive agreement to acquire Jasper Design Automation issued today.

I'd also want to point out that we filed our first quarter 10-Q this afternoon.

In addition to financial results prepared in accordance with Generally Accepted Accounting Principles, or GAAP, we will also present certain non-GAAP financial measures today.

Cadence management believes that in addition to using GAAP results in evaluating our business, it can also be useful to measure results using certain non-GAAP financial measures.

Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures with their most direct comparable GAAP financial results, which can be found in the quarterly earnings section of the Investor Relations portion of our website.

A copy of today's press release, dated April 21, 2014 for the quarter ended March 29, 2014 and related financial tables, can also be found in the Investor Relations portion of our website.

Now I'll turn the call over to Lip-Bu.

Good afternoon, everyone, and thank you for joining us today.

In the first quarter, Cadence produced solid results, and we will discuss them in detail in a few minutes.

And I will also give some thoughts about the exciting acquisition that we announced today of Jasper Design Automation.

But first I would like to take a quick moment to talk a bit about where we have been as a Company and where we are going.

Q1 2014 marked five years since I was blessed to become the CEO of Cadence.

So I want to take stocks of what we have accomplished and our vision for the future.

I'm humbled and very grateful for the support -- all the support that I've received from our employees, customers, partners, and shareholders over those five years.

In January 2009, the world was trying to see its way out of the worst financial crisis since the Great Depression, and Cadence was struggling on many fronts.

Since that time, we have focused on growing our core EDA business by delivering differentiations and value to our customers, growing in the new areas to expand our portfolio of businesses, and driven sustainable profitability.

We measure ourself in several ways and believe we have achieved success in these areas, shareholder return, revenue, margin and cash flow growth, innovation, and building and growing our new businesses.

At the same time, as you know, our space is highly competitive and leadership means continue to provide the best solutions, being first to market, delivering a growing set of innovative solutions to serve our customers' evolving needs, and having the skill to do these things efficiently and economically.

Leadership in our space requires continuous investment in R&D to meet our customers' broad and complex demands.

Our R&D teams have recently come through with exciting innovations on many fronts, including Tempus for static timing analysis, Voltus for power analysis, Spectra XPS for fast simulation, and Palladium XP II for emulation hardware, to name just a few.

We are able to fund our growth initiative to create value for our shareholders, including responding to attractive acquisition opportunities that support and advance our strategy through our strong free cash flow and solid balance sheet.

To that end, our capital management priorities, as we have said many times in the past, are to meet the needs of our ongoing business, plan for the maturity of our existing convertible debt, invest in the highest return opportunities, and return cash to shareholders, when it's appropriate.

We regularly review our capital structure, taking into consideration the appropriate levels of leverage in the cyclical business, our needs for capital to grow, and opportunity to return cash to shareholders.

You can see the success of our strategy in our results.

From 2009 through 2013, revenue grew 71%.

Non-GAAP operating margin expanded from near zero to 24%, and operating cash flow grew from just $26 million to $368 million.

And stock price has responded, increasing 283% from the beginning of 2009 to the end of 2013.

So we have much to be proud of, but we are humble and energized, because there's so much left to be done to drive the future of innovation.

Now I would like to turn our focus to our announcement today regarding Jasper, then Q1, and the future.

I want to start by telling you that we are very pleased that we enter into a definitive agreement to acquire Jasper Design Automation.

The proposed acquisition is an important step for us to meet our customers' growing needs for more comprehensive solutions to the verification challenge.

More than ever, design verification is a critical factor for time to market, driven by increasing IP design and integrations complexity.

This has made verification the top development challenge, representing 70% of the cost of developing a system-on-chip; and it's driving customers to adopt multiple complementary verification approaches, including formal analysis.

Jasper provides the leading solution for high level formal analysis, which is the fastest growing segment of verification.

Jasper will complement our matrix-driven verification floor and support RM-based SOC verification.

Jasper has a strong presence among top systems, semiconductor, and IP companies; and several of these companies specifically request us to add Jasper to our team.

We believe the technologies of Cadence and Jasper together can accelerate the growth of the emerging pharma analysis segment, as it moves beyond expert user applications towards mainstream verification.

Jasper brings solid strong pharma verification expertise and a very talented team with real world experience.

Now, let us turn to first quarter.

Cadence delivered solid operating results.

Revenue was $379 million.

Non-GAAP operating margin was 22%, and operating cash flow was $28 million.

The environment remains mixed, with pockets of both strength and weaknesses in semiconductors, combined with uncertain global macroeconomic conditions.

Despite the challenges and uncertainty, design activity is good and customers continue to deploy new technology.

Now let us review the highlights, starting with system design and verification.

To help meet the verification challenges I mentioned earlier, we continue to expand our system design suite.

We also expanded our integrated solutions with the introductions of Incisive vManager, which adds enterprise level planning and management capabilities for faster matrix-driven verification closure.

High level synthesis is another fast growing emerging segment, with increased production use by leading companies.

In Q1, we expanded this solution with the acquisition of 40 Design Systems, and the integration is progressing well.

Palladium usage for mobile applications continued to grow this quarter, especially in Asia where companies such as Media Tech and Spectrum.

Cadence has highly competitive solutions for digital implementation and sign-off for mainstream 28-nanometer, advanced 20-nanometer and 16/14-nanometer FinFET nodes.

This quarter, we are rapidly gaining momentum with FinFET designs.

TSMC announced that Cadence digital sign-off and custom analog tools have received full certificate for their 16-nanometer FinFET process.

Customers started over 20 new FinFET design projects with our digital implementation and sign-off flows in Q1.

We are winning because our solution provides the best power performance area for embedded processor designs in mobile and wireless applications.

We won a major competitive replacement at a large consumer electronics company who decided to adopt the full Cadence flow (Indiscernible) to sign off for multiple FinFET productions designs that should be in silicon later this year.

Our new sign-off tools, Tempus and Voltus, continue to gain strong traction.

Over 20 customers are now using Tempus for timing sign-off; and Voltus, which just came out in November, already has over 10 customers.

Highlights for IP included record bookings for the verification IP, introductions of new VIP for several of the latest protocols for the mobile and server markets, and Tensilica continues to introduce steady flow of new products, including Neo imaging and video processor core, which provides up to four times better performance than the previous version.

These highlights of the first quarter show the progress we are making on our strategy of creating shareholder value by continuing to develop and introduce innovative new products and thoughtfully executing acquisitions.

The Q1 highlights also underscore the progress we are making in the strategic path I outlined for you at the beginning of this call.

Specifically, our strategy is to be the leading system design enablement company by delivering a growing set of solutions to the expanding customer base for system and SOC design, focusing on leading customers and ecosystem partners, developing and acquiring flagship products in key areas, leading at advanced nodes, and generating high quality differentiated IP portfolio.

I can say that I, for one, am a big believer in this strategy, as evident by my consistent purchase of our shares during my tenure as CEO.

With that, let me turn it over to Geoff.

Thanks, Lip-Bu, and good afternoon, everyone.

I will now review the results for the first quarter, present our outlook for Q2, update our outlook for 2014.

Cadence again produced strong operating results in Q1.

Total revenue was $379 million, compared to $377 million for Q4 and $354 million for the year-ago quarter.

The revenue mix for the geographies was 45% for the Americas, 23% for Asia, 20% for EMEA, and 12% for Japan.

The revenue mix by product group was 23% for functional verification, 30% for digital IC design and sign-off, 27% for custom IC design, 10% for system interconnected analysis, and 10% for IP.

Note that we are now breaking out IP, which includes verification IP.

The digital design and sign-off includes our DFM products.

Functional verification includes high level synthesis and emulation hardware.

System interconnected analysis includes our printed circuit board, IC package and [sigrity] analysis tools.

Total costs and expenses on a non-GAAP basis were $295 million, compared to $282 million for Q4 and $270 million for the year-ago quarter.

Q1 headcount was 5,835, up 101 from Q4, due to hiring in R&D and technical field positions and acquisitions.

Non-GAAP operating margin was 22%, compared to 25% for Q4 and 24% for the year-ago quarter.

Non-GAAP operating margin was down from Q4, primarily due to the seasonal impact of payroll taxes.

GAAP net income per share was $0.11.

Non-GAAP net income per share was $0.20, compared to $0.23 for Q4 and $0.21 for the year-ago quarter.

Operating cash flow was $28 million, compared to $119 million for Q4 and $75 million for the year-ago quarter.

Q1 operating cash flow was lower than expected, due to the timing of receipts and disbursements.

Total DSOs was 27 days, compared to 27 days for Q4 and 20 days for the year-ago quarter.

Capital expenditures were $6 million.

Cash and short-term investments were $630 million at quarter-end, compared to $633 million for the prior quarter-end.

During the quarter, we paid $27 million for acquisitions.

We purchased 827,000 shares for $12.5 million, Approximately 17% of our cash was in the US at quarter-end.

Weighted average contract life was 2.4 years.

Today, we announced the proposed acquisition of Jasper Design Automation for approximately $170 million, or approximately $146 million net of an estimated $24 million of cash, cash equivalents and short-term investments acquired.

The transaction is expected to close in the second quarter of 2014, subject to customary closing conditions, including regulatory approval.

We will fund the acquisition with cash on hand and access to our revolving credit facility.

Jasper's revenue for 2013 was $28 million, with a compounded annual growth rate of over 25% for the past several years.

We expect the transaction to be accretive to non-GAAP earnings per share in fiscal 2015, after merger-related accounting.

Because we've not yet closed, we will discuss the impact on 2014 earnings per share and update our outlook for Jasper on our Q2 earnings call.

Now let's address the outlook for the second quarter of 2014 and fiscal 2014, which does not include any impact of the proposed Jasper acquisition.

For Q2, we expect revenue to be in the range of $370 million to $380 million.

During Q1, hardware gross margins were pressured due to increasing competition, and this trend will likely continue.

Non-GAAP operating margin is expected to be approximately 22%.

GAAP EPS is expected to be in a range of $0.10 and $0.12, and non-GAAP EPS is expected to be in the range of $0.19 to $0.21.

Now for our outlook for fiscal 2014.

Bookings are projected to be in the range of $1.725 billion to $1.775 billion.

We expect weighted average contract life in a range of 2.4 to 2.6 years, and we expect at least 90% of revenue for the year to be recurring in nature, as well as to book at least 90% of our orders under ratable arrangements for the year.

Revenue is expected to be in the range of $1.55 billion to $1.59 billion.

Non-GAAP operating margin is expected to be approximately 26% on an annual basis.

Non-GAAP other income and expense is expected to be in a range of negative $15 million to negative $9 million.

We are assuming a non-GAAP tax rate of 26% and weighted average shares outstanding of 300 million to 308 million shares for the year.

GAAP EPS is expected to be in a range of $0.56 to $0.66, and non-GAAP EPS is expected to be in a range of $0.92 to $1.02.

Operating -- we expect operating cash flow to be in the range of $335 million to $365 million.

Our DSO forecast is approximately 30 days.

Capital expenditures are expected to be approximately $40 million.

So with that, Operator, we'll now take any questions.

(Operator Instructions)

Our first question comes from the line of Ruben Roy with Piper Jaffray.

Thank you.

Geoff, just to circle back a bit on the guidance, obviously the full year revenue guidance was unchanged, but when I'm looking at Q2, on a sequential basis, the midpoint's down, and that hasn't happened for a number of years.

So, I'm just wondering if there are any moving parts this year that are creating back-end weighted?

Yes, Rubin, as we've said in the last quarter call, we now expect a certain amount of lumpiness in our business related to the fact that hardware and IP both have revenue recognition that's up front, as those businesses have become an increasingly important part of our business, that we will have some lumpiness.

Again, I think it's important, as you noted, that we reiterated revenue for the year.

Okay.

Good enough.

Thanks, Geoff.

And then just quickly for Lip-Bu, on the Jasper technology.

I was wondering if you could just maybe talk a little bit about if there are specific -- you mentioned some customers were asking that this complementary technology would be good to add.

I'm wondering if there was specific end markets or verticals where Jasper's verification tools are being used more so than others today, and are there bundling opportunities, et cetera?

Will this be a high end business unit for Cadence going forward?

Thank you.

Yes, so let me try to answer in a broader sense.

First of all, I think verification, as I mentioned, for system and SOC time to market, and it's now compounded with the increasing IP design decorations.

And so it can be as much as 70% of the cost of development for SOC.

And then Jasper clearly providing the leading solution for formal analysis, and this is the fastest growing segment.

And this is very critical for CPU.

You mentioned earlier, somewhat a vertical CPU verification floor and also increasingly used to address complex SOC verification.

And we really complement our matrix-driven verification floor.

And as I mentioned earlier, systems, semiconductor and IP companies are among the important customers, and they request us to have them as our [product in our] portfolio.

And so clearly, in somewhat the vertical I mentioned earlier, in the CPU mobile, and some of the complex SOC are really showing, and this is very important for them.

And also I think clearly, the talent that we're going to bring on board is tremendous, and that's why we like that.

Great.

Thanks, Lip-Bu.

Thank you.

Our next question comes from the line of Jay Vleeschhouwer with Griffin Securities.

Lip-Bu, Geoff, you've highlighted your systems customers not only in this call, but of course, on earlier calls.

The question is how systems customers differ from your more traditional IC customers in terms of their, say, average profitability?

Would it be fair to assume that at least in hardware, or perhaps other parts of your business, the systems customers are generally more profitable accounts than the IC customers, which are often under more financial strain?

And if that's so, is that a sustainable difference, or do you think there may be some risks to that favorable disparity in customer profitability?

Yes, Jay, this is a good question.

Systems companies become increasing in terms of percentage of our revenue and the customers.

They decided to go vertical and optimize in every level, from the silicon to the board level to all the way to the applications, so they can drive differentiations.

And we engage with them quite a lot and intensively, because clearly, they fit into our system design enablement strategy and the core EDA is very important as a foundation.

And so in a way, answer your question, are they better than a semiconductor?

I cannot comment.

But I think clearly they drive different value.

And that's all the way from the tools to the IP to the system analysis to our VIP in terms of verification become a very important part of their requirement, because time to market is critical for their success, and also they try to drive some differentiations.

So pretty much all the different levels of requirements and the complexity they need, and that's why we need to gear up towards responding to their needs, and that some time may be different from our semiconductor customer.

And one thing very good for us is now be we have an entire suite, from digital to analog and all the way to IP and verification IP and all the way to verification, and then plus, our PCP business, the board-level business, and also the system analysis, we bought Sigrity because of that.

It can really drive the power, the signal integrity, the thermal aspect, the mechanical part of the overall end products point of view, and that is very profound, and then their need is tremendous, and we want to respond to their needs.

Okay.

And then my follow-up is on products.

Specifically to the last one to two years, you've benefited well from the growth in the PCB and custom markets, and you've certainly retained leadership in custom.

Do you expect that kind of momentum to be able to continue this year and into next in both of those areas?

And similarly, with respect to sign-off, where you've been somewhat further behind than your peers, if you were to have share in sign-off proportional to your overall share of EDA, in timing and power, let's say, what do you think the incremental revenues could be to you, given their TAMs?

Yes, very good questions.

Let me try to answer one by one.

Clearly, the PCB is a very exciting opportunity and growing.

I mentioned earlier, last year we grew about 23%.

It's a very exciting.

And also, I think the need become more and more wanted, because clearly, people, when they design chip, are viewing from the system, from the board level, what is the power and the signal integrity in the thermal.

And that's where Sigrity is helping us to really grow some of our PC business.

And we fully integrate it into our Alegra product line.

And we also announced a timing vision that can come out and increase the shorter the time to market and internal design.

So overall, we continue to see that.

And then this quarter and then quarter to quarter, we see up growth in the revenue.

In term of custom mix signal, it also becomes a very sticky business for us, because custom analog are virtuoso so with our suite of new product coming up, and then the advanced node, it becomes a very important solution for the SOC; because as you know, most of the SOC are mixed signal, and analog and digital had to work together into a integrated platform.

And that's where we really shine and the customers see our value on that.

In terms of the digital side, we have improved substantially.

And clearly, our sign-off, as I mentioned in the past, have 10x performance compared to our competitors.

And then secondly, can scale all the way to 100 CPU, and that has become reality.

And that's why we have sign-up more than 20 customers, paying customer and embrace us.

And then the other thing is also that same thing with Tempus.

And we just announced in November, but we already have more than 10 customers.

And we continue to improving our digital implementation in the most advanced nodes, and clearly you saw that in my remarks; and that one large consumer electronics company divided after the benchmarking and decided we are the best performance in terms of power, performance, and area for the mobile application-related area.

And we are excited to have them to completely use all of the entire floor, from RTL to sign-off and all the way down, and this is a huge win for us.

We are excited about it.

Our next question comes from the line of Tom Diffely with D.A. Davidson.

Yes.

Good afternoon.

Maybe first a quick definition.

With Jasper, you talked about formal analysis.

How is that different in the verification world than what you currently do today?

Is it a different type of product altogether?

Yes.

So let me explain that.

First of all, I think the verification is an entire portfolio that we have.

And clearly, from some of you are very familiar with our Palladium.

This is for the emulation side.

And then same thing with our Incisive products.

And we also have some of the formal analysis tool, but combined the tool with Jasper after the completion of the acquisitions.

Together with ours, it will give us a very strong position in the verification, so all the way from simulation to prototyping, and then really adds a lot more capability in the CPU vetiification and complex SOC verification.

Clearly, they have the leading solution that we're looking for, and a lot of key leading customers, in terms of system, semiconductor, and IP companies, they embrace that.

They requested us to be part of our overall solution.

So you should really look at us from the system development suite all the way from software and all the way to the hardware emulation acceleration.

And then so that is the whole suite that we are providing, and that complements our matrix-driven verifications.

Okay.

You said the customer list was overlapping?

The top system company and semiconductor and IP company.

And clearly, we have some success with all of them.

But this give us increase, in terms of footprints and also their needs, in term of their higher end design complexity verification.

So it's a very, very strategic important for us.

And then by the way, just look at their standalone, they are growing at 25% per year and it's profitable as a standalone company for the last few years.

Okay.

Great.

And then, Geoff, switching gears here, you mentioned that the hardware margins were a little tougher this quarter because of the competition.

Are you seeing new competitors, or is it really just you and Mentor out there still battling through some of these opportunities?

Yes, it's us and Mentor.

Okay.

And then I noticed on your full-year guidance, you kept essentially revenue and earnings as is.

Is this the margin hit in the simulation not following through on a full-year basis, or not impactful on a full-year basis?

Yes.

I think the important thing, Tom, is we left the full-year unchanged, right?

Actually, the revenue's up a little bit from the midpoint, up $2.5 million.

But we've kept the rest of the guidance unchanged.

Again, when we do guidance, we look at everything we know about all our businesses and we don't guide our businesses independently, uniquely.

Okay.

Thank you.

Our next question comes from the line of Monika Garg with Pacific Crest Securities.

Hello.

Thanks for taking my question.

First is, could you maybe talk about what is your current market share in verification and how Jasper can help you increase the share?

And now, since you have also the formal verification, which is -- and Jasper is kind of leading the market -- could that help you maybe drive higher value from your customers, maybe some more price increases in the verification suite?

So Monika, we don't talk about market share generally here.

But clearly, the combination of the verification businesses will help us, along with our channel.

Again, we like the acquisitions, I think, from the reason that Lip-Bu clearly laid out over and over again.

It does provide the leading formal analysis tool out there.

It is the fastest growing segment in verification.

It's a great strategic fit that complements our industry-leading verification platform.

Okay.

Then shifting gears to emulation, could you maybe talk about what is the total install base of your Palladium tool, and what is a typical replacement cycle that your customers?

And we know the latest II hardware tool is in the fourth year: maybe if you can shed some light on when can we expect the new release, or where do you think it's in the development stage?

So Monika, I'll answer first and then Lip-Bu will talk about the future.

Obviously, we believe we have the largest installed base in the emulation business, and we've had the largest installed base for a long time.

We believe Palladium remains the leading emulator in the market.

The whole segment is growing, and we have the best technology.

And so, I think we're quite comfortable where we are within emulation.

Just to add on a little bit on what Geoff described.

Clearly, the Palladium in our hardware is the leading emulator in the marketplace.

As we mentioned, in Q4, we have the second largest quarter in hardware revenue, and strong in mobile this quarter, and clearly, especially in Asia, Media Tech and Spectrum, the leading winning company, they embrace our platform.

Just the last one for me.

Bookings, still you're guiding 9% to 12%, right?

Mid-point double digit.

Last year was 19%.

Coming to the same conclusion, the top line growth is almost mid-point 7-ish%.

Could you help reconcile the two?

Yes.

Obviously, as we talk about some of our businesses that are more lumpy, like hardware, like IP, you'll recognize revenue at different times than you recognize bookings.

And bookings, when you do bookings in software, generally it takes time to fully get that into revenue, right?

It layers in onto revenue.

So that's the story.

Again, I think strong bookings is good.

Right.

Okay.

Thank you so much.

Thank you.

Our next question comes from the line of Sterling Auty with JP Morgan.

I think that's a perfect segue, in terms of the comment about strong bookings, because I want to play devil's advocate and just make sure I understand.

If I look at the deferred revenue result in the quarter and I look at the cash flow in the quarter, one might conclude that the year got off to a slower start, in terms of bookings.

Is that the case?

And if not, what am I missing?

Actually, the cash flow was a little bit of a challenge for us, just to be clear.

And that's really based on the timing of collections and disbursements.

I think you may remember in the last call, we talked about collecting a large amount of money early and collected in Q4 instead of in Q1.

We also didn't collect everything we anticipated in Q1.

Some of that slipped into Q2, which we've now collected.

The full-year guidance has stayed unchanged.

Bookings started out strong this year.

Okay.

Perfect.

And then, I want to go back to that commentary about the gross margin on the hardware side.

Is some of that -- and maybe I missed it, if you answered it in another question -- but is some of that related to just where you are in the product cycle for Palladium?

No, it's primary competition that's causing the pressure.

The Palladium XP2, which was released in Q4, is still the leader in terms of performance stability capabilities, but competition has increased to when the products were originally introduced.

Okay.

But that would still seem to be a timing of the different product lines that would be impacted?

In other words, maybe another way to ask is, as you -- you haven't released the timing, but as you refresh that product line, would you expect the gross margin impact to change a bit?

Yes.

So this is Lip-Bu.

Let me try to answer the first portion and then Geoff will add on to it.

So first of all, clearly, the Palladium XP2 is a second emulation for the Palladium family, significant performance and well received by customers.

We are not commenting on the future product availability, but I can say that we're booking very close with our customer, understanding their needs.

And we are well on our way to developing our next generation solutions and for the future emulation.

And with that, usually when you have a new product come out, you increase your gross margins, and that will be expected.

Okay.

And last question, Lip-Bu, for you.

In terms of the traction you're starting to get in terms of FinFET, I didn't hear it in any of the other questions, but any additional commentary as to what's changed in the product line, the technology, or anything else that's helped you start to gain better traction on FinFET?

Yes, a couple of things.

I think clearly our investment and commitment into the FinFET advanced node is starting to pay dividends.

Clearly, you saw that TSMC fully certified our digital sign-off custom analog tool for the 16-nanometer FinFET.

And in this quarter, we have over 20 new designs in the FinFET-related projects, and then we have quite a few marquee customers are shifting to us because we are providing the best performance power area for the embedded processor site.

And that's why we kind of highlight one large consumer electronics, and in a very competitive replacement for us.

And then we are delighted they chose us and adopt us for the full Cadence floor, from RTL to sign-off and then with a multiple FinFET production design, the silicon will come out end of this year.

Great.

Thank you guys.

Thank you.

Our next question comes from the line of Mahesh Saganaria with RBC Capital Markets.

Yes.

Thank you very much.

Geoff, a question on your revenue profile.

Yes, you had pointed out last quarter that it's going to be volatile, or it seems like the first half is starting slower.

Is that a pattern we should expect going forward, the first half, weak, second half, stronger, or is it just something random?

Yes, there's no seasonality in the business that we see right now.

It's just continued growth in businesses, and we don't guide each segment individually.

So again, I think the important part, Mahesh, is we kept the year unchanged.

Okay.

And the second question, we had strong adoption of 28-nanometer.

And 20 is very low volume, and I think everybody waiting for 16-nanometer.

And so, this year is kind of a lower transition year.

Is that somehow impacting your Business in any way?

Yes, so let me answer that, Mahesh.

First of all, I think, as you correctly point out, the volume is in the 28-nanometer.

We are very well-positioned out to very optimize, and in our IP also very ready.

And so, that probably continued to benefit a majority of our revenue.

But the 20-nanometer, yes, from our view is a shorter node.

And a lot of customers, they decided to move into the 14 & 16 FinFET.

We see substantial increase in terms of 16-, 14-nanometer FinFET design.

And we work very close with our IP partners and also in our foundry partners, when they move into the 16- and 14-nanometer FinFET.

And we see the increasing momentum in terms of customer needs to move down that path.

Okay.

And just one quick question on the capital return.

You have $350 million due, and I'm guessing that $150 million in this acquisition.

Are you going to -- are you committed to the $100 million buyback?

Or is that something that's going to slow down, considering that you made this acquisition?

And also maybe a comment -- go ahead, sorry.

Yes.

So again, to quickly go through capital.

First, we want to do things that support our strategy; and that includes funding high return innovation and financially disciplined acquisitions.

We have to take into account the maturity of our debt and our product cycles and the challenges in the overall industry.

And third, we are committed to returning cash to our shareholders, and that hasn't changed as a result of this acquisition.

Okay.

All right.

Thank you.

That's very helpful.

(Operator Instructions)

Our next question comes from the line of Krish Sankar with Bank of America Merrill Lynch.

Hello.

Thanks for taking my question.

I just had a couple of them.

Number one, on the Jasper design acquisition, were there other competing bidders for the product?

Yes.

We don't comment about the situation.

But we are delighted with the acquisitions and very talented, clearly the leading solutions and our customer requested.

And also, it's fast growing, 35%, it's profitable.

And being a very disciplined buyer of business, we are always very thoughtful about our acquisitions.

If you look at record, Denali, it help us a lot into memory and also in the IP-related area.

Sigrity move into the whole PCB and help us to grow 20% last year.

Azuro acquisition another good example, really drive our digital improvement.

And that right now, you see a lot of success we have right now.

And then we clearly see Jasper is a very important formal analysis.

It's critical for some of the CPU verification, compact SOC verification and is a fast growing, and it's very, very important to the whole system design suite.

And that's why we are excited about it.

Got it.

Got it.

And then two quick questions.

Number one, on the emulator side, I guess that's a question on the installed base of you guys are clearly the leader.

Let me ask the same question another way.

Of your installed base's emulators, how much of them are leased?

So we do both leases and sales; it depends really on what the customer is requesting or requiring for that business.

Generally, many more sales than with up front revenue recognition, as a result.

So most of them are direct sales, not leases?

Yes.

Got it.

And then the final question is -- I think I asked this in the past.

I understand the need for more acquisitions to build your core products and just in product portfolio, but just curious, your thoughts on dividends at this point.

Is it something that should be thought about coming back to the table after you pay your convert off next year, or is this something that is still an ongoing discussion?

Yes, so we listen and we talk to shareholders a lot and we talk to the industry a lot.

We've started, as you know, last quarter, doing a share buyback.

And for now, that's what we're willing to talk about.

Got it.

Thanks, guys.

Thank you.

Our next question comes from the line of Rich Valera with Needham and Company.

Thank you.

Geoff, just wanted to revisit the second half ramp that you're projecting.

And I understand it sounds like it will be driven by IP and emulation.

But can you give us any sense, maybe qualitatively, of the visibility you have to that ramp, maybe how much of that expected ramp is either booked or in backlog, and how does that visibility compare to the more ratable software business that would be more typical -- you'd more typically see in the back half?

So as we go into this current quarter, Q2 earnings, our Q2 results, obviously, we have over 90% booked, as is normal.

We're coming out of backlog.

And what's happening in the second half of the year is pretty much what you would expect traditionally from where we were at this time of the year.

So there's no real change at all in our business, from that perspective.

But there's a pretty -- significantly larger than historical quarter-over-quarter, I guess, ramp in those couple quarters, which apparently is being driven by non-ratable; is that correct?

Yes, plus the fact we have a 53-week year this year, as you remember we talked about last quarter, is we, every six or seven years, we have a 53-week year.

So that will also play into Q4.

Right, understood.

And then, Geoff, with the price pressure related to the emulation competition, you actually had pretty much the same comment last quarter.

So just wanted to understand, has anything changed?

Because it sounded to me like exactly what you said last quarter.

So just wanted to know if that's the same as it was, or has something actually gotten -- is pricing pressure even more than you had expected a quarter ago?

No, it's pretty much in line what we expect; again, driven by competition.

Again, we still think we have the best product, and we're still quite successful with that product.

But there is pricing pressure from competition.

And any change to your full-year emulation outlook you had talked about last year, I think you talked about last quarter it being slightly down, I think, for the year?

Yes.

I think we're not going to guide individually individual segments.

We are quite happy and quite comfortable with our overall guidance for the year.

Okay.

And then just quickly, on the Jasper growth rate.

I understand you gave a CAGR there, the 25% CAGR.

I was wondering if you'd be willing to give anything more specific with respect to 2013 growth or projected 2014 that it was maybe north of 20% in the last year?

Because CAGRs, depending on the base year, can be quite -- don't necessarily represent near-term growth rates, if you know what I mean.

Yes, it's been growing at 25% CAGR over the past few years.

Okay.

We'll stick with that.

All right.

Thanks, guys.

Thank you.

Our final question comes from Monika Garg of Pacific Crest Securities.

Hello.

Thanks for taking my follow-up question.

I just have, on the emulation market, maybe could you elaborate or talk more about what is the growth rate of this market you expect?

And given that Mentor has been growing the last couple of years in this segment, do you think you could lose your number one position in this market?

Yes, so Monika, we're not giving individual growth rates on the different markets.

Again, we continue to believe that this is a secular trending up business in emulation over a long period of time.

There will be fluctuations from period to period and quarter to quarter.

Again, remember in Q4 of last year, we came off our second record quarter ever on revenue.

So we're comfortable with our position in the business, we're comfortable with our strategy, and are comfortable with our product.

And what is the industry growth rate you will expect?

Yes, those numbers are very hard to come by and very hard to say.

Again, we just believe that it's going to be a continued secular growth business, with some bumpiness for each independent company, based on quarter-to-quarter results.

Yes.

Got it.

Okay.

Thank you.

I will now turn the call over to Cadence President and CEO Lip-Bu Tan for closing remarks.

Thank you.

In closing, Cadence continues to drive consistent operational and financial performance.

We have enhanced our system design verification solutions with the acquisition of Forte and we are looking forward to bringing Jasper to our team soon.

Our digital and new sign-off tools are highly competitive and are gaining traction with leading customers.

We believe that if Cadence continues to invest to deliver great technology to our customers and to run our business with discipline, then revenue, profits and cash flow all benefit, thereby increasing shareholder value.

I have received tremendous support during my first five years, as I would like to recognize our hard working employees for the result we have achieved and thank all our shareholders, customers, partners, and looking forward to everyone's continued support for the future.

Thank you, everyone, for joining us this afternoon.

Have a good day.

Ladies and gentlemen, this concludes today's conference call.

We thank you for your participation.

You may all disconnect.