Cadence Design Systems Inc (CDNS) — Q4 2017 Earnings Call Transcript

Thank you, Jessy, and I’d like to welcome everyone to our fourth quarter 2017 earnings conference call. I am joined by Lip-Bu Tan, CEO; and John Wall, Senior Vice President and CFO. The webcast of this call is available through our website, cadence.com, and will be archived through March 16, 2018. A copy of today's prepared remarks will also be available on our website at the conclusion of today's call. Please note that today's discussion will contain forward-looking statements and that 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 we issued today. 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 review 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. The reconciliations are available at the Investor Relations section of cadence.com. Copies of today’s press release dated January 31, 2018, for the quarter ended December 30, 2017, related financial tables and the CFO commentary are also available on our website. And now I’ll turn the call over to Lip-Bu.

Good afternoon, everyone, and thank you for joining us today. Through the execution of our System Design Enablement Strategy and delivery of our innovative solutions, Cadence delivered strong performance for our shareholders. John will go through our results in a few minutes. The transition to the Data-Driven Economy, based on the creation, storage, transmission, and analysis of data, is transforming virtually every industry and driving strong demand for semiconductors. It is being propelled by key technology waves including mobile, cloud/datacenter, edge computing, and automotive. Additionally, machine learning is further transforming all of them. We are well positioned for growth and value creation as we provide the solutions that fuel these technology waves. Let me begin by highlighting our progress and successes during the year for several key vertical markets, starting with Cloud/Datacenter. High speed SERDES technology is essential for next generation hyperscale data centers. In Q4, we acquired nusemi, which is developing ultra-high-speed connectivity solutions, and we are thrilled to have a very talented team on board. The trend of system houses building their own silicon continues with the chip design group at a premier hyperscale web service provider adopting our software and hardware solutions for 7-nanometer designs. As we reported in Q3, we are collaborating with Xilinx, ARM, and TSMC to build the industry’s first test chip for Cache-Coherent Interconnect for Accelerators, or 'C-6', incorporating Cadence IP and using Cadence tools on the TSMC 7-nanometer FinFET process. 2017 was a year of rapid advancements for Automotive. We made steady progress with our EDA, IP, and Services solutions for this market. In Q4, we entered into a strategic relationship with a market-shaping automaker that will include software, hardware, IP, and services. Earlier in the year, we signed a large design IP deal with a major customer in the automotive semiconductor sector. We had several key wins for our Safety, Test, and Reliability EDA solutions. Our IP business had great traction. Tensilica is now in two of the top three, and Design IP is in four of the top five automotive semiconductor companies. The third vertical that I want to highlight is Aerospace and Defense. We have successfully built on our initial engagements with customers like GE Aviation and Northrop Grumman to further our footprint with both defense contractors and governmental agencies. During the year, we strengthened our existing relationships and won new customers for software, hardware, and services. System Design Enablement also requires expanding our investments and partnerships to provide increasingly integrated system solutions for mutual customers. There is strong interest in our PSpice-Mathworks integrated solution, which bridges the system-level design and chip-board implementation domains. Early adopters include customers in the automotive, aerospace & defense, and medical segments. In Q4, we acquired SFM Technology, an innovative company that accelerates advanced ECADMCAD library creation and is an important step towards expanding our System Design Enablement strategy into mechatronics. It was another strong year for innovation, which is the heart of our success. We introduced eight new products in 2017, and we have now introduced more than 20 significant products in the last three years. Now, I will move on to product highlights for both Q4 and 2017. Digital and signoff revenue grew 10% for the year, driven by increasing proliferation with market-shaping customers and broadening adoption by other semiconductor and system customers. Broadcom continued to increase its investments in our digital platform, which proliferated throughout many advanced node projects. During the year, a global marquee company, and a key IP partner, expanded and deepened their investments in Cadence Technology, including our digital solutions. More than 100 customers have now deployed our digital and signoff products for advanced node designs. About 40 customers are using Cadence at the 7-nanometer node and have taped out over 30 designs. Demonstrating the strength across our product line, we had 20 full flow wins for the year. IP revenue grew 18% for the year as the outsourcing trend continues and our refined strategy drove strong results. We booked by far our largest-ever design IP contract. The agreement includes a broad array of our design IP, including DDR controllers and PCI Express. Tensilica had a strong quarter with increased royalties. Tensilica’s leadership in audio is leading to key wins in the smart speakers’ market while adoption grows for our DSPs that are tuned for vision and neural networks. Momentum continued to build for the new software products in our Verification Suite, but overall revenue was down 5% for the year due to hardware. In Q4, Xcelium, our new parallel logic simulator, added more than 25 new customers. More than 90 customers have adopted Xcelium since its launch in February 2017. True to the lumpy nature of the hardware business, after a slow start to the year, Palladium and Protium ramped up in Q4, and we finished the year with a significant backlog of orders. For the year, we added 20 new Palladium Z1 customers, 10 of those in Q4. Sales of the new Protium S1 FPGA-Based Prototyping System were strong as we added 15 new customers and had nine repeat orders. Jasper proliferation continued to accelerate. Nine of the top 10 semiconductor companies now use our formal verification solution, and we doubled the number of new customers in 2017. For our custom and analog design solutions, newer market trends along with increasing design complexity drove strong demand for both our advanced node custom design and simulation solutions, leading to revenue growth of 11% for the year. Two of the top three memory companies have now adopted our Spectre XPS fast-spice simulator and characterization solutions. System interconnect and analysis solutions grew 8% for the year, with growth across PCB implementation, IC packaging, and Sigrity power integrity analysis. Newly launched Virtuoso Design System Platform and Allegro DesignTrue DFM products have been very well received. Our power integrity solution was the key driver for our strong Sigrity results, with interest across multiple verticals. Now let me quickly summarize my comments. Consistent execution and broad-based proliferation and adoption of our solutions drove excellent financial results for the fourth quarter and our full fiscal year. Cadence, along with the semiconductor and EDA space, is benefitting from a number of technology waves centered on machine learning. The adoption of our digital signoff solutions by market-shaping customers is broadening our reach and customer base. Our refined IP strategy led to strong mid-teens growth. We are excited about the acquisition of nusemi, which we expect to add next-generation high-speed SerDes, for modern cloud/datacenter applications. Momentum has continued for our custom and analog solutions as both large and small customers have been adding capacity. We are proud of what we accomplished in 2017 and excited about the opportunities ahead for 2018. With that, I will turn the call over to John, to review our financial results and provide our outlook.

Thanks, Lip-Bu. Good afternoon everyone. I’m very pleased to say that we met or exceeded our key operating metrics and delivered strong financial results for both the fourth quarter and fiscal year 2017. First, I will go through the key results starting with the P&L. Total revenue was $502 million for Q4, up 7% over the prior year period. For the year, revenue was $1.943 billion, also up 7% year-over-year. Non-GAAP operating margin was 30% for Q4 and 27.5% for 2017. On a GAAP basis, Cadence reported net income of $0.73 per share for fiscal 2017, and a net loss of $0.05 per share for Q4. These GAAP results reflect a total one-time charge of $92 million, or $0.33 per share, on a provisional basis for U.S. tax reform, of which $67 million, or $0.24 per share, was for the mandatory repatriation tax, and $25 million, or $0.09 per share, was for the revaluation of our net deferred tax asset, resulting from the U.S. corporate tax rate reduction. Please note that these provisional amounts may change as Cadence continues to evaluate the impact of the Tax Act. Non-GAAP net income per share was $1.40 for the year, up 16% over 2016, and $0.39 for Q4, up 15% year-over-year. Now turning to the balance sheet and cash flow. Cash and short-term investments were $693 million at year-end, of which 80% was outside of the U.S. We had $735 million of debt outstanding at quarter-end, which includes $85 million that we drew down from our revolving credit facility during the quarter. Operating cash flow was $127 million for Q4 and $471 million for 2017. During Q4, we used $143 million for acquisitions and repurchased $50 million of Cadence shares. DSOs were 36 days. Before I present the outlook for Q1 and fiscal 2018, I’d like to talk a little about the impact of U.S. Tax Reform and our transition to new revenue rules. First, the impact of US tax reform. It has only been 40 days since the U.S. Tax Cuts and Jobs Act was signed into law. We’ve done a lot of work and we have a lot more to do, but as of today, here is what I can tell you about its impact on Cadence. Based on our analysis of the act, our non-GAAP tax rate will fall from 23% to 16% for 2018. As mentioned earlier, in Q4 we recorded a $67 million charge for the mandatory repatriation tax, and $25 million for the revaluation of our net deferred tax asset, resulting from the U.S. corporate tax rate reduction. We do not expect a meaningful impact on cash used for taxes in 2018. We expect to repatriate international cash, but given the logistics involved, we are still determining the timing and amount of repatriation. In the first half of this year, we plan to review our overall tax position in light of the new tax act. As of now, that’s about as much as we can say about the impact of the new tax act, but we are continuing to work on it and we plan to provide further information in our Form 10-K when it is filed in a couple of weeks. Now, I will discuss the changing revenue rules. Cadence has adopted the new revenue accounting standard known as ASC Topic 606 for fiscal 2018. For ease of communication, over the course of the next few minutes, I plan to refer to the new revenue accounting standard simply as ‘the new revenue rules’ or ‘the new rules’ to contrast it with the former standard, ASC Topic 605, which I will refer to as ‘the old revenue rules’ or ‘the old rules’. The first thing to mention about our transition to the new revenue rules is there will be no impact to our cash flows or how we operate our business. The impact on our expense line is minimal, and the portion of our revenue recognized over time will remain approximately 90% under the new revenue rules, just as it was under the old revenue rules. However, there is a difference in our revenue guidance for 2018 under the old and new revenue rules, and I’ll explain now why this difference exists. In the recast process on transition to the new revenue rules, some of our contracts that had upfront revenue recognition under the old rules shift to recognition over time, and some contracts that were recognized over time become upfront. Cadence is using the modified retrospective transition method to adopt the new revenue rules. Under this transition method, only a subset of orders are recast and recognized as revenue under the new revenue rules, specifically, those orders that were in our backlog at the end of 2017. During this recast process, we expect to take approximately 3% of our backlog that would have primarily been recorded as revenue over the next two years under the old rules, and include it immediately as an adjustment to our opening retained earnings on the balance sheet for 2018. As a result, we estimate that our revenue under the new rules in 2018 will be approximately 2% lower than it would have been under the old rules. We expect the difference between revenue under the new rules and old rules to gradually decline over time and be negligible within two years. Guidance for the year will be provided under both the new and old rules, while quarterly guidance will only be provided on the basis of the new rules. We will report revenue under both sets of rules for every quarter in 2018. Now, I will provide our guidance. For fiscal 2018, we expect revenue in the range of $2.015 billion to $2.055 billion under the new revenue rules. That range would be $2.055 billion to $2.095 billion under the old rules, or growth of approximately 7%. We expect non-GAAP operating margin of approximately 27%, under the new rules. Adjusting for the difference in revenue, this implies a non-GAAP operating margin of 28.4% under the old rules. We expect GAAP EPS in the range of $0.80 to $0.90, which would be $0.93 to $1.03 under the old rules. Non-GAAP EPS of $1.50 to $1.60, which would be $1.62 to $1.72 under the old rules. We further expect operating cash flow to be in the range of $480 million to $530 million, and we expect to repurchase Cadence common stock at the rate of $50 million per quarter during 2018. For Q1, our guidance based on the new revenue rules is as follows: Revenue in the range of $500 million to $510 million. Non-GAAP operating margin of approximately 26%. GAAP EPS in the range of $0.20 to $0.22. And non-GAAP EPS in the range of $0.36 to $0.38. We expect our DSOs for Q1 to be approximately 40 days. You will find guidance for additional items in the CFO commentary available on our website. I want to leave you with the following points: Cadence had a strong finish to 2017 and we’re excited about our prospects for 2018. We will continue to improve our operating profitability in 2018. Our guidance implies an operating margin of 28.4% for 2018 under the old rules, which is up from the 27.5% we achieved in 2017, and I’m delighted to finish 2017 with 7% revenue growth for Q4, 7% revenue growth for 2017, and a projection for 7% revenue growth for 2018, on an apples-to-apples basis under the old revenue rules. And with that operator, we’ll now take questions.

Hi guys. Thanks for taking my question. Congrats on a strong finish to the year. Wanted to start with a question about the contribution from the nusemi acquisition you mentioned; you paid about $142 million for the acquisition. Just given market multiples, I’m assuming maybe nusemi was operating with about $25 million in annual revenue and may be adding about 100 basis points to your fiscal year 2018 outlook. Am I doing that analysis correctly?

I don't think so, Gary, but you are right in terms of we used $143 million of cash for acquisitions in Q4. We're not disclosing any more details at this time, but we don’t expect those acquisitions to become accretive until 2019.

Okay. So, because the purchase accounting is not falling to the income statement in 2018.

Any impact on 2018 is included in our guidance. I will provide more information in our Form 10-K when we file in a couple of weeks.

Okay. Alright. Did you mention that the emulation backlog increased year-over-year despite having a down year for emulation in 2017?

Yes, I mentioned earlier, this is a lumpy business and we had a slow start in the first three quarters, but we have a strong finish and we’re very excited that we have a significant backlog of orders going into 2018.

Okay, alright. I just have one follow-up question on this ASC 606 issue. I’m assuming you are going to start recognizing emulation revenue more ratably versus upfront and - correct me if I'm wrong; if that’s not the component that’s moving up front, but…

No. Sorry, Gary, that’s not the case. We have a slight difference; some of our revenue goes from upfront over time and that’s mainly software perpetual revenue that’s a small portion of our business, and the piece that’s mainly moving from previously ratable to upfront is some of our IP business. Hardware, we recognized upfront, and that’s partly why it has been inherently a lumpy business for us.

Okay. Help me understand how this balances out over time the difference between ASC 606 and 605, is it just a way you’re booking the revenue as we annualize this issue?

Sure. Like we said in the prepared remarks, during the recast process we expect to take approximately 3% of our backlog that would have primarily been recorded as revenue over the next two years under the old rules and then included immediately as an adjustment to our opening retained earnings. Now, about a third of that we never get back; that about 2% of that backlog becomes a timing difference, and then we will gradually grow that revenue over time such that ASC 606 and 605 revenue would be the same. We believe that if you take the difference in our guidance there is about a $40 million difference in revenue in 2018 between both sets of revenue rules, that’s around 60% of the total reference. We expect the difference in revenue under the new rules and old rules to gradually decline over time and be essentially negligible within two years.

Okay.

And, Gary, just to go back to the first question: the nusemi acquisition plus SFM Technology acquisition; so we did two acquisitions that we used $143 million cash.

Okay, that’s helpful. Alright. I’ll let others ask questions. Thank you, guys.

Thank you.

Thanks, good evening. Lip-Bu, let’s start with you on an EDA market question. To what extent are you seeing that the frequency of intro contract new or expansion business is perhaps increasing reflecting the positive trends that we’ve been seeing in semiconductor R&D? In other words, customers are coming back for additional business notwithstanding that they may not actually be up for renewal, are you seeing more of that kind of walk-in business for any part of the business?

Yes. So, good question, and as you recall, we are very disciplined in terms of our agreement with our customers. We have just averaged 2.5, 2.6 year durations in contracts we had in place, but from time to time we also have customers come back to us and add some of this recorded add-on business that is not part of the agreement because some of the new product and new technology will come out based on the new advanced nodes, and we keep track of that very carefully because that is where you show the growth for the future. And we are very excited that our add-on business is showing strong growth and that indicates strong growth in what I described earlier regarding this data-driven economy, focusing on the three vertical markets and system companies building their own silicon teams to differentiate their products. The demand for advanced nodes and more complicated designs is prompting them to approach us, and we are really excited about it.

Okay, I have just two more questions; I’ll ask them at the same time. For John, on the last conference call, a quarter ago, we talked a bit about customer concentration, and you mentioned that you have no customers above a single-digit percentage of revenue. The question is: is there some upward trend for any customers beyond that? In other words, that was a snapshot, but have you seen any customers increase from perhaps low single-digit to mid-single-digit on their way to high single-digit, perhaps? Just as for example in the case of Synopsys, Intel has grown from 10% or 11% of their business to 16%, 17% of Synopsys. Is there some similar trend for any customers in your case? And then just to wrap up on the product side for Lip-Bu, you mentioned early momentum for Protium. My question is, how do you see the addressable market developing for FPGA prototyping; it’s much smaller to date than emulation as best we can tell; it’s less than $100 million category, predominated thus far by Synopsys. Do you foresee perhaps that category growing several-fold eventually the way emulation has over the last decade, thus making it worthwhile for you to be in that market?

So, I think in that, Jay, I think you have two questions. So, let me address the first one first in terms of customer concentration topics. First of all, I think we have a very broad portfolio. We also have a very long tail analog and industrial usage that are very stable and are a good business for us. Meanwhile, our newly developed digital flow is seeing a lot of proliferation with different accounts. The good news is that we have—most of the customers are growing, and we are delighted to support them, while still maintaining that no customer has more than 6% of our business. So, it’s a very broad growth in diversification that we appreciate. In terms of your second question about Protium, as you recall, we have the hardware emulation product that is still the best in the emulation business and continues to grow well; as I mentioned earlier, we had a strong finish in Q4 with a healthy backlog for 2018. We also just launched Protium, our FPGA-based prototyping system, which is gaining good traction. We have 17 new customers and 11 repeat orders. So this software-oriented system is getting a lot of interest from customers. At the end of the day, we are focused on the entire verification suite, including Jasper, the former verification solution, and our hardware offerings. With the addition of Protium, we have a complete suite moving forward, and many customers appreciate these solutions.

Great. Jay, I wouldn't add any more to that. I think Lip-Bu has covered it all.

Okay, thank you.

Hi, thanks for taking my question. First question, John, this 2018 ASC 606 is about a $40 million negative impact. In 2019, is it fair to assume you were saying 60% of the impact is this year, that means next 2019 is probably close to somewhere $30 million to $35 million negative impact?

Again, I'd like to say, Monika, that we would expect the difference between revenue under the new rules to gradually decline over time to be negligible within two years.

So, some in 2019 and then mostly zero?

There is a very, very small difference in 2020, but it’s minimal.

Got it. Okay, thank you. Then Lip-Bu, IP grew strongly in the year, close to 17%, 18%. So, and you made an acquisition also, which probably has 2018, but how do you think about the IP growth rate going forward? Do you think it could grow about low double-digit sustainably?

Yes, so I think, first of all, I think we are excited about the Q4 results. For the whole year, IP grew 18% and under the leadership of Babu, the outsourcing trend is continuing. On the other part, our refined strategy is clearly working; we have secured several very important key contracts in the largest design IP, and also we have Tensilica as a very strong IP with loyal growth that applies to machine learning, deep learning, and neural network applications. So overall, we have confidence in our IP portfolio and IP team and will continue to look for the right IP that is critical to our vertical market—such as automotive, data center, and defense and aviation industries. This is why we are focused on the vertical parts, as that is where the future growth will come from for Cadence.

John, the non-GAAP tax rate went lower; how about cash taxes? Any change to that?

Cash taxes are around 11% to 12%; this is what the cash tax was for 2017. You will see that detail in the Form 10-K when we file it in a couple of weeks. And I would expect it to be maybe slightly lower for 2018.

Got it. Just the last one on emulation; you know it grew very strongly in 2015 and 2016, 2017 slightly lower given two very strong years. How should we think about emulation, given you talk about good backlog also going forward? Thank you.

Right. So, as Lip-Bu mentioned, hardware revenue was down for the year in 2017, but as we said before, hardware is inherently a lumpy business, and after a slow start to the year, we’re pleased with how the year turned out; we had a strong finish and exited the year with a very good backlog of orders. I would say we are very confident in the secular trend in demand for emulation capacity that continues. Palladium Z1 is still the most advanced emulator in the market, and our existing customers continue to add more capacity. So, we feel good about our hardware business for 2018.

Alright. So, we should expect it to kind of have returned to good growth going forward?

Monika, at 7% revenue growth on an apples-to-apples basis, I think we would expect all product groups to grow in 2018.

Hi guys. Just want to clarify questions on the acquisitions. Just to be clear, so you’re essentially messaging that the acquisition did not contribute anywhere or more than 1% to the top line for 2018?

We're not disclosing any more details at this time, but we will have further information in our Form 10-K in a couple of weeks.

Okay. And then secondly, just to make sure on the stock buyback here, we should just assume a $50 million buyback every single quarter, and I’m assuming that’s in the guidance as well?

Yes.

Okay. And then one last small one just on the margin front; was there any impact from the accounting change in margins as well?

Of course, yes. You will see in our guidance. We have given our guidance; it’s on the CFO commentary that we are guiding a 27% operating margin under the new rules, and the implied guidance under the old rules will be 28.4%.

Right. So, I guess my next question, if the margin ahead is going to go in the ratable subscription fees and not related to the hardware business, correct?

The difference is just that $40 million of revenue. There is a minimal impact on expenses.

Thanks for taking my question. My first question is regarding the nusemi acquisition; you are entering the 30s design IP space. Now Broadcom is a very important customer; you mentioned and highlighted it on your call. They would end up becoming your competitor literally once you enter the market. Do you see any kind of conflict entering the space?

Yes, this is a very good IP on the data center, and the demand is so strong. I have a lot of respect for Broadcom, and meanwhile, there are also some opportunities for us. We will only be licensing the IP.

Got it. And then, can you just talk about your philosophy around stock-based compensation? It’s risen quite a bit as a percentage of your sales. It used to be like 3% to 4%, now it’s about 7% to 7.5% of the sales. How should we think about stock compensation going forward, and how should we think about stock dilution from employee stock grants going forward?

Alright Farhan, this is John. I mean stock is just one part of the overall compensation package, and different companies have different mixes of the package.

And then from Cadence, as I mentioned, our success is due to our continued pursuit of innovation, for which we attract and retain the best talent possible—so far, this strategy has been working well.

Got it. And then one accounting question for John; I’m just trying to reconcile my model. The cash flow from operations is not going to be impacted because of the accounting change, yet the net income is going to be impacted. So, can you help me just understand like what’s the plug that’s different now that basically bridges the gap between the net income to the free cash flow? How should we think about it?

So, Farhan, the total difference between ASC 606 and 605 results is that $40 million of revenue. That’s it. I think you need to just go through your model and apply that—everything else is minimal. There is minimal impact on expenses, and you’re correct; it’s just an accounting change. There is no difference to our cash from operations. There is no difference to how we go to market or how we bill or contract our business with customers.

Got it. And then one last question on the Spectre impact; is any of your Tensilica IP impacted by Spectre?

Say again your question.

So, recently there were security issues for processors—Spectre, Meltdown. I'm just curious if Tensilica core IP, if there is any impact to your processors over there?

One thing is clearly the security is quite important at this stage. We protect our IP and data and the system with the utmost diligence and we are committed to that. Comprehensive design and verification have to be a lot more robust, and we take this very seriously. So far, so good.

Thank you. That's all I had.

Thank you.

Thank you. Lip-Bu, I was wondering if you could give any more color around what sounds like some pretty good share gains inside of Broadcom. What’s driving that? Any more specifics in terms of the applications or technologies they're working at, geometries they're working with? And then, obviously, Broadcom has made overtures towards Qualcomm. I'm just wondering how you think about that transaction if it were to happen? Could there be issues around pauses in spending, or could it ultimately be an opportunity? Perhaps you have some historical context from the prior Avago-Broadcom acquisition that might inform this? Thanks.

First of all, we have a lot of respect for Broadcom; it’s a very successful company run by Hock, and we are delighted they are embracing and investing into the digital platform we have in many of the advanced node projects. We continue to support them for their success. In terms of the Qualcomm-Broadcom situation, both are very respected companies and leaders in their space, and I do not want to comment or speculate on any potential impacts.

Got it. And I missed the second acquisition that I think you called out that you made in the systems space. What was that company?

Yes. So, it's called SFM. It's an innovative product, accelerating the advanced ECAD and MCAD library creations. This is one of the very important steps we are taking to expand our System Design Enablement into this mechatronics area. This is a crucial piece for us to move into the SDE for some of the vertical markets we are trying to address.

Got it. And then John, you said they are not accretive until I think 2019; are they actually dilutive in 2018?

A little bit, yes.

Okay. And will you actually have the expected revenue contribution in that K filing, or what will you have incrementally on the revenue side in that K?

I don't actually know right now, but our guidance includes everything, but we’ve taken everything into account in our guidance. However, it’s been 40 days since the U.S. Tax Cuts and Jobs Act, and we are still evaluating it. There will be additional information in the Form 10-K, and we’re about two weeks away from filing. I would look to that.

Fair enough. Thank you both.

Thank you.

Yes, good afternoon. I was hoping to get a little information about some of these traditionally smaller end markets that seem to be growing. Could you provide a little background as to where your exposure is now to advanced packaging in memory, how you have seen that grow recently, and what do you think about the future with some of the new changes that they’re undergoing?

Thank you, Tom, for asking this question. Clearly, advanced packaging has become increasingly critical. We’re delighted; we have a very strong offering in IC packaging. We also address board-level packaging, focusing on silicon side, with 2.5D and 3D becoming more and more adopted by customers. Moreover, we work closely with our foundry partners for 2.5D packaging, enabling overall solutions. We also see that 3D NAND and packaging has become very important. That part is an area we look into closely. As I mentioned earlier, with every 100 gigs of SerDes, the insertion loss is increasingly critical. There are numerous opportunities here, and we aim to provide solutions to help enable our customers.

Can you give us some insight into how fast these markets have grown over the last year or two, and what growth rate you expect going forward?

That's a great question. Sometimes it’s very hard to predict the growth rate, but I can tell you we are way ahead on the 2.5D and 3D fronts compared to a couple of years ago. When we talk to foundry partners and packaging companies, they are telling us there were not many customer requests, but now customers are reaching out and coming to us for solutions. This means they are starting to realize the pinpoints and recognize the need for efficient solutions. We believe we have the necessary solutions to design and drive packaging efficiency and meet performance demands.

And then finally, do you have the technologies ready to work with the next generation of memory, such as NAND and the different types of memory that may come up over the next five years?

Yes, memory has become increasingly critical, particularly in this data-driven economy, which revolves around data and storage. We pay a lot of attention to this area and are excited; I highlighted that two of the three memory companies are now utilizing our FastSPICE simulator and characterization solutions. Several are collaborating closely with us on comprehensive end-to-end solutions. We will continue to support our customers in whatever they need, be it IP solutions in memory while supporting them, or tools to enhance performance efficiency. And on the packaging side, we will assist as well. Memory and data storage have become vital in big data, data analytics, and machine learning. We stay focused on these areas.

Okay, great. Thank you.

Thank you.

In closing, through consistent execution and innovation, we are well positioned to build on the positive momentum of our System Design Enablement strategy to enable the Data Driven Economy. I would like to thank all of our shareholders, customers, partners, Board of Directors, and hardworking global employees for their continued support. Thank you all for joining us this afternoon.