Ladies and gentlemen, thank you for standing by, and welcome to the Synopsys earnings conference call for the fourth quarter and full fiscal year 2013. [Operator Instructions] Today's call will last 1 hour. Five minutes prior to the end of the call, we will announce the amount of time remaining in the conference. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations. Please go ahead.

Thank you, Rochelle. Good afternoon, everyone. With us on the call today are Aart de Geus, Chairman and co-CEO of Synopsys; and Brian Beattie, Chief Financial Officer. Before we begin our remarks this afternoon, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss plans, forecasts and targets and will make other forward-looking statements regarding the company, its business and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results and performance are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our most recent quarterly report on Form 10-Q and today's earnings press release. All financial information to be discussed on this conference call, the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures and supplemental financial information can be found in the 8-K, the earnings press release and the financial supplement that we released today. All of these items are currently available on our website at www.synopsys.com. With that, I'll turn the call over to Aart de Geus.

Good afternoon, and thank you for joining us. I'm happy to report that we closed a very good quarter and achieved excellent 2013 results. We're seeing strong product and customer momentum, and we're positioned well as we head into 2014. Summarizing our results, we delivered revenue of $505 million in Q4 and $1.962 billion for the fiscal year, a 12% increase over 2012. We reported non-GAAP earnings per share of $0.56 in Q4 and $2.44 for the year. This is 16% growth over fiscal 2012 and substantially above the target range communicated at the beginning of the year. Simultaneously, we increased our non-GAAP ops margin to 24% for the year and generated $497 million in operating cash flow. With strong multiyear commitments by a number of key customers, we grew our 3-year backlog to $3.1 billion. Lastly, we continued to diversify and broaden our product portfolio, with strong momentum in IP and Systems. Building on a very solid year-end position, we're setting a 2014 non-GAAP EPS objective of $2.55 to $2.60 and a revenue target of $2.06 billion to $2.085 billion. Brian will discuss these in more detail shortly. Before providing some highlights for the year, let me comment on the customer landscape. As you've seen, 2013 has been a year of gradual and uneven economic recovery across the globe. Against this backdrop, the semiconductor market, while forecasted to show modest growth in 2013, remains highly competitive. To prosper, our customers must excel in both cost and time-to-market while accelerating their adoption of disruptive new technology such as FinFET transistors, 20 and 16, 14 process geometries and multi-pattern masks. While we have not seen a material change in customer behavior, we realize that 2013 is another year in an extended period of uncertainty, and customers have remained somewhat cautious. Nonetheless,…

Well, thank you, Aart, and good afternoon, everyone. In my comments today, I will summarize our financial results for the quarter and fiscal year and provide you with our guidance for Q1 and the full year of 2014. In my discussions, all of my comparisons will be year-over-year unless I specify otherwise. Now, as a reminder, FY '12 included an extra fiscal week, affecting both revenue and total expenses by $25 million and $16 million, respectively. Synopsys delivered a solid fourth quarter, wrapping up an outstanding year. FY '13 financial results were highlighted by double-digit growth in both revenue and non-GAAP earnings and considerable free cash flow generation. Additionally, we significantly exceeded our original 2013 target for operating cash flow and continued our stock repurchase program. Q4 total revenue increased 11% to $505 million. Annual revenue grew 12% to $1.962 billion, the third consecutive year we've delivered double-digit growth. This, of course, includes the revenue contribution from our fiscal 2012 acquisitions. But even excluding these transactions, business was very solid. We met our original 2013 revenue growth targets, even in the context of the significant yen depreciation this year, due to our stronger business models. About 90% of Q4 revenue came from beginning-of-quarter backlog, and one customer accounted for approximately 11% of Q4 and fiscal year revenue. The weighted average duration of our renewable customer license commitments for the quarter was about 3 years. For all of fiscal 2013, it was greater than 3.5 years, reflecting a mix of contracts, including the impact of a large contract renewal in Q2. We currently expect average duration for FY '14 to be approximately 3 years. Three-year backlog increased to $3.1 billion from $2.7 billion, with just over $1.5 billion scheduled to be recognized as revenue in fiscal 2014. Taking into account the…

[Operator Instructions] Our first question comes from the line of Sterling Auty of JPMorgan. Sterling P. Auty - JP Morgan Chase & Co, Research Division: So, as you noted in your prepared remarks, for the full year outlook, you've got 75% coming from backlog versus the 80% we've seen for the last couple of years. How much of that revenue that won't be coming from backlog would you attribute to the emulation type of products versus IP versus other things that maybe is more transactional or upfront revenue recognition?

Well, the shift of where we've seen, last year, for example, 80% moving to 75% does reflect the increased amount of revenue associated with hardware businesses and with our IP balance of increasing revenues there, which are a little bit more front-end loaded. And it's just the profile of the business that comes through based on the makeup of that. Our hardware business continues to grow. We can see, again, continued growth in our IP and Systems business. So that really takes into account the shift from the 80% to the 75%. Sterling P. Auty - JP Morgan Chase & Co, Research Division: And when you look -- Aart, when you look at the -- you mentioned kind of the leading-edge designs, et cetera. How would you characterize kind of the budget and the headcount views in terms of the design teams, design engineers at your customers, heading into 2014?

Well, actually, I think it follows very much the semiconductor evolution, which is a slight growth. I think a lot of the companies that are venturing into the very advanced designs do it pretty much with the same teams. There are a number of situations where companies acquire additional teams, mostly for the specialties that they bring in-house, as they go towards more complete solutions. I can't say that I even have heard anywhere that suddenly, the teams are dramatically different. I think they just follow sort of the industry. And that makes sense because everything we see in terms of the complexity growing rapidly, our tools can -- I wouldn't say easily, but they can certainly match the increasing complexity. And good old Moore’s Law is very much alive and well, and our industry follows up with it. Sterling P. Auty - JP Morgan Chase & Co, Research Division: And last question. As you look at 2014, you kind of characterized the growth rates, I thought, more industry-like, core EDA versus IP. Would you think that, looking at your business, that core EDA growth in fiscal '14 was going to be faster, slower, or the same as what you saw in 2013? And the same on -- same question for your IP business.

I think it's, all-in-all, pretty much the same. Now the only reason we are a little bit prudent is because we realize that the semiconductor industry that has had essentially 5 years of fairly slow growth is under some degree of pressure. But on the positive side, there's no question that it also accelerates the adoption of some of the newer technology because they're really looking hard for differentiation. And by the way, we do see continued strong growth on the IP side because -- and maybe that ties a little bit to your earlier question. One way to, out of the same teams, get actually more productivity is to increase the amount of IP we use. And so we definitely see an evolution of design methodology towards what they have predicted for a number of years, and that serves us well.

And the next question is from the line of Tom Diffely of D.A. Davidson. Thomas Diffely - D.A. Davidson & Co., Research Division: Brian, I was hoping you could give us maybe a little more qualitatively on the yen impact for both 2013 and your outlook for '14.

Sure. The yen impact did affect us in '13, on various lines of the P&L, both revenue and, to some extent, the earnings piece because we do have spending also in Japan. And that went in a favorable direction. So, overall, you looked at about a 20% reduction in the impact of the yen last year, going from '12 to '13. But it's just something we had to manage. It did not have a material impact on either revenues or expenses or the bottom line, as a result of the hedging program that we have in effect. Then, if I look at 2014, I said we have a 1 percentage point impact on the top line. That is something, again, we've locked in those hedges, as we kind of directed to everybody during FY '13 that we are locking in those rates in '13 for '14. And it's about a 1% impact to the growth rate, and it's just one of those things we've had to offset with other operating efficiencies and growth in other parts and other regions. Thomas Diffely - D.A. Davidson & Co., Research Division: And have you also seen weakness with some of the Japanese customers, or is it really just a yen issue for you in '13 or '14?

I think the economic impact that you just heard about is just a yen currency issue because, from a customer point of view, Synopsys -- and not just last year, I think in the last -- in quite a number of years, has done particularly well, while it's well understood that the overall Japanese industry is going through almost sort of a generational shift in how they do business, who is doing business, how the companies are made up. And so we've actually done quite well in Japan, and I think we have a very strong team there working with all the top companies. So I would say the only impact, really, that we felt has been through the currency change. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And then, Aart, in the past, you've talked a little bit about progress made in the IP from a margins side. Maybe give us an update there and where you are and where you think you can get to.

Yes, in general, on all the IP that we have had on the market or that is a part of our business, we keep improving our efficiency. At the same time, and economically, of course, that's relevant, is we also keep investing in it because we see more opportunity. So, in general, we feel very, very comfortable where the margins of the business are now. They are lower than for the rest of the company. But as you have seen, we continue to improve the overall ops margin of Synopsys, and that certainly includes paying a high degree of attention to the ops margin of a growing business such as the IP. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. Is it as simple as just getting more customers to use the IP, or is it you're fine-tuning how you customize the IP per customer, or is it a little of everything?

I wish I could say it is as simple as. Nothing in what we do is simple, partially for a good reason, actually positive reason, which is the very IP that we do, I think, every 2 years is dramatically increasing in complexity. And while that does add a lot of stress, including economic stress of how to develop it, how to make sure that the quality is there, it does add not only differentiation, it really impacts the efficiency of our customers that are okay with adopting very complex IP from the outside. And so, in that context, I think it's a business that is not only a growth business, it's a very foundational business in terms of where the design methodology is going. And I think, even if it gets harder, it is really good for Synopsys because there's a high value we provide, and therefore, we will see good return. Thomas Diffely - D.A. Davidson & Co., Research Division: And then earlier, you talked about how you've even seen some very early work on 7 nanometers. I'm just kind of curious, how much of your businesses is driven by 10 and 7 at this point?

Well, it is only through our very most advanced tools. Those fall into the general area of manufacturing. And really, they're 2 areas. One is TCAD. And for those of you not familiar with it, TCAD is really 3-dimensional modeling of devices, almost at the molecular or atomic level. And the other area is, of course, in the mask-making, where doing masks for these geometries requires just fabulous photolithography tricks, if I can put it like that. And so that's the area that we are investing in. And the manufacturing is, I don't know, 10%, 15% of our company or so. So that gives you a sense. It's a subcategory of that, but a very important one and one that gives us very important insight where things are going and also gives the first models of transistors, even before transistors are manufactured. Thomas Diffely - D.A. Davidson & Co., Research Division: Okay. And lastly, there's a lot of concern today about the ability to yield the 14-nanometer FinFET move as we ramp over the next year or two. Do you feel as though your tools are complete and ready to go as far as that transition goes?

Yes, I do because, at the end of the day, we do impact yield. But the reality is the sleepless nights on the part of the guys in the fab. They have to continually tune the manufacturing to literally wring out percentage point after percentage point. Recently, the indications are getting more positive about those nodes, so I think that the foundries are really making excellent progress on it. But this is not any different than 1980s, '90s and 2000s. Tomorrow was always really hard. On the design side, though, which is where we sit, I can absolutely say that the tools for FinFET design are not only ready to go, they have been used on quite a number of designs that have either taped out or have gone to production already. And so, while nothing is simple there, I think we are in a very strong technology situation, maybe much stronger even than where we, as a field, were in the late '90s or 2000s.

And the next question is from the line of Krish Sankar of Bank of America.

I also had one industry-level question. You guys highlighted how you're getting very good traction on the FinFET side of the business. It's going to be a big opportunity for EDA down the road, and Synopsys, specifically. Given that it's a consolidated industry with only 3 large players, I'm kind of curious to know that -- are you seeing any pricing upside? Is there any way you can actually get value pricing because you're providing such a value-added service? Should we start hoping that, down the road, pricing should start improving due to a consolidated industry and the fact that you guys are enabling such leading technology transitions like FinFET?

Well, in general, the best way to maintain pricing is, obviously, to not only be providing superior value but to actually be differentiated in it. And I do think that we have a number of areas that Synopsys, specifically, is differentiated. At the same time, we are in a hypercompetitive market. And this is especially competitive because our customers are seeing their world change at a rapid pace, and they have not seen their market grow all that rapidly. So, having said that, I think we're in as good a position as any of the companies. And we've always believed that, if one can conquer the next round of really tough technical problems, that's the first premise to do well. And as a matter of fact, we've seen, again, this year, our run rate go up. I don't think that we've seen any price erosion beyond the normal customers always wanting more for the same renewals. But aside of that, I think we're actually in a quite good position.

Got it, got it. And then another -- a quick follow-up. Even in your fiscal '14 guidance for Synopsys, or broadly speaking for industry, what do you think is the emulation growth going to be? And what contribution is EVE going to be out of your fiscal '14 guidance?

Well, we don't break out the contribution of any of our individual products. And we look very much at the emulation part as a key ingredient in our broader verification strategy. It's hard for me to speak for the industry, given that there have been other people in emulation that have substantial size, and they have clearly shown that they can go up and down quite rapidly. Our approach has been, I think, more temperate and more steady because we're looking at a more integrated, broader solution. And that is how we differentiate ourselves, and that has turned out to be, I think, a wise direction.

And the next question's from the line of Jay Vleeschhouwer of Griffin Securities.

This is Zack Ajzenman for Jay. First question. When you're further communicating or substantiating the value and impact of EDA, as with customers, are there certain metrics that you use, for instance, in terms of the results for specific product segments?

Yes. There are some metrics that just come back over and over again. And there are 2 or 3 key categories. Some have been more emphasized in the past than today. But in the past, number one was always the performance of the chips. Number two, invariably, was the power consumption. And because the 2 trade off, you never look at them in isolation. Underneath of that is always how dense a chip can you make, meaning what is the area going to be because that impacts directly the cost of the chips. And that gets refined by, oh, well, if you make them small, can you also make them yield well because that multiplies all of this. And so, pretty quickly, you're into a fairly broad set of metrics. On top of that, touching the time-to-market metrics are really 2, which is the run-time of the tools, and that includes how long does it take to read in the design and set it up, and the amount of memory needed on computers because we somehow lightly say, "Oh, well, I'm doing a chip with 1 billion transistors." That takes substantial compute power. And so time-to-market is very much impacted by how efficient the tools are and how cost-effective they are. And last but not least, as we move more and more towards the hardware/software world, a variety of prototyping forms become important. Now hopefully, this is not too long an answer, but what I told you here is, in one way, nothing new. It has always been objectives that one keeps optimizing. On the other hand, what is new is that the interaction between all of the terms I just gave you is much more prevalent. And therein lies, I think, one of the differentiations for Synopsys, which is we are optimizing so many variables at the same time, and I think we do it quite well. So, in that context, over and over again, we take existing designs, pass them through the new tools and, at the same time, make sure that the new tools are ready for the new technologies. And I think we have quite a machine capable of doing that today.

Okay. Has Synopsys been able to quantify what the incremental revenue opportunity from FinFET might be when we take into account specific tool areas that are most likely to be affected, the number of customers likely to design with the new structure and then your share of the affected segment?

It's very difficult to quantify it, partially because, in all the key customers -- and the key customers, invariably, are the most advanced ones that are also the first adopting FinFET technology -- we have multiyear agreements that make sure that at no point in time are they left hanging. With other words, we work with them to migrate the tools to the newest technologies. Now the benefit of that for them, of course, is a high degree of stability in the economic relationship and, most importantly, the technology; but for us, is that at renewal, we have an opportunity to grow our business to be very stable where others are maybe in question in ups and downs of the market and in general, be always connected to where the state-of-the-art is going. And the state-of-the-art is where most of the money is spent. So I think we're in a good position there.

Okay, and last question. When you look back on 2013, other than acquired products, which products or segment did you see the most increase in usage and/or the base of user licenses?

Good question. I would say, solely generically, IP is growing just because that market is growing and the number of pieces are growing. On the individual tools, invariably, the highest growth in numbers of copy tend to be in verification, validation. And the reason for that is that the systemic complexity as you have more and more and more transistors grows much more rapidly than the number of transistors. And so those are sort of the tools that, invariably, customers just want more and more copies, and it's almost like they're limited by their own compute farm availability. Now in terms of some of the other tools, the IC Compiler and IC Validator have tended to do very well because the advanced chips really do require a high degree of optimization and verification physically. And Synopsys, I think, is particularly well placed.

[Operator Instructions] And you have a question from the line of Mahesh Sanganeria of RBC Capital Markets.

Aart, just see if you can give us a comparison of how you felt entering last year and how do you compare that to this year. Last year, your performance was much better than initial expectations. And also, the semiconductor industry, most of the growth -- I mean, the spend -- I said last -- this year has come from memory, not from everything else. So, in that environment, the EDA has grown reasonably well. How do you -- I know that there is a caution for the next year, but even in a very cautious semi environment, do you think you can perform in the same manner you did in 2013?

Well, obviously, every year is a little bit different, although we enter, typically, with the same level of confidence, and then it's full speed ahead on evolving through the year. What was different last year, we had made a large set of acquisitions, and so there was a high degree of emphasis on the integration, making sure that the transition for the customers would work well. This year, we're entering '14 with having made a large number of investments in R&D over the last, actually, more than 18 months, and integration of technologies acquired. And so it's going to be a fair degree of focus on advancing the introduction of new capabilities that will be announced throughout the year and, I think, will make a major impact on the customers. Just to clarify a little bit more about how I look at the semiconductor market, I cannot really say that our customers have changed or are dramatically more or less cautious. I'm just observing the number of years of, let's say, mitigated growth in semiconductors with an increase in complexity. What that brings about is a fairly high dynamic among the customers on how are they competing. In general, that is called uncertainty. In practice, it's called opportunity for us because if we can help them, in that situation, do better, we add real value. And by the way, it's interesting, you mentioning memories, because we've actually done quite well in that domain. And you're absolutely correct, the price -- that segment grew, but it grew mostly because prices went up. And as you remember, it went all the way as bad as one of the fabs burning down and, immediately, the market growing more. So those dynamics are beyond our control. But what we do have impact on is that they, too, are driving technology towards the systemic complexity end, meaning not just make the transistors smaller, but make, actually, the memories much more complex. And that is very interesting to us because, again, many of our system tools, even some of our IP and, certainly, our digital tools are highly applicable to that evolution. So, in general, we're looking at a very dynamic market that, hopefully, will attract more money. But for right now, we're in a good position.

That was very helpful. And Brian, just a question on your revenue profile. Just can you give us some color around what drives the linearity of revenue so that we can model it better going forward and...

You best, Mahesh. On the quarterly profile, it reflects, again, a very detailed bottom-up, account-by-account profile. Given that we've got $3.1 billion of backlog, as you know, we profile that out by quarter, by account. And the guidance that we provided this afternoon gives you the perspective of how much would be in Q1 and then what that revenue profile would be. We said it'll be slightly higher in the second half of the year. Also, we could note that Q1 is followed by other quarters of growth as well. So that's how it is. So it really kind of breaks out to the individual makeup of the detailed backlog of those accounts. It ties into when cash is scheduled to be collected. It takes into account the makeup of hardware, things like royalties, which, again, are not in the backlog. They come in based on usage in the future. So, again, we take all that into account providing to you that level of guidance for the quarters and the halves of the year to address the linearity question you had.

Okay. And one more last question on your 24% tax guide. Does that include investment tax credit?

It does not. It takes into account, because it's a calendar year R&D tax credit, it goes until December 31 of the year. But we have assumed no additional R&D tax credits to be in effect from January 1 forward for all of '14.

But you do expect that to be there for 2014? What's your opinion on that?

No, we don't. No, we do not have that taken into account based on -- we call it -- in a tax world, we call it extenders. And right now, in a world of tax reform and all the other positioning, the expectations that all companies have right now is don't count on that for 2014. So that's what's reflected in our statement. And if it got approved at some point in the future, then we would be able to reflect that in the numbers.

And speakers, at this time, there are no further questions in queue. Back to you for closing remarks.

Well, thank you very much for your time. I think we closed a very strong 2013 with many investments that will become visible in '14. And our job is to make that a great year again. We look forward to talk to you after the call or in subsequent events. Thank you very much.

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