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#Thanks, <UNK> and good afternoon everyone
Consistent execution drove excellent financial results for the second quarter, highlighted by revenue near the high end of our guidance range and operating margin, EPS and operating cash flow, all exceeding expectations
Specifically, here are some key results for the quarter; total revenue of $479 million; non-GAAP operating margin was 27%; GAAP net income per share was $0.25; non-GAAP net income per share was $0.34; and operating cash flow was $162 million
Also, please note that the recurring revenue mix was approximately 90%; DSOs were 31 days, down six days from Q1 on strong collections
Our DSO target remains approximately 35 days
For geographies and products, Asia continued as our fastest growing region, with revenue up 18% year-over-year
As <UNK> mentioned, digital and sign-off revenue was up 14% year-over-year, as we benefit from proliferation with market shaping customers and IP continued to rebound from 2016, with revenue up 15%
Functional verification revenue was down from last year, as overall hardware revenue was less than anticipated for the first half
However, we expect hardware revenue to be a little stronger for the second half
Now let's turn to our outlook
We are increasing our revenue and EPS outlook
For fiscal 2017, we now expect revenue in the range of $1.91 billion to $1.95 billion; non-GAAP operating margin of approximately 27%; GAAP EPS in the range of $0.98 to $1.04; non-GAAP EPS of $1.36 to $1.42; and operating cash flow in the range of $430 million to $470 million
For Q3, we expect revenue in the range of $475 million to $485 million; non-GAAP operating margin of 26% to 27%; GAAP EPS in the range of $0.24 to $0.26; and non-GAAP EPS in the range of $0.33 to $0.35. Approximately 90% of revenue is expected to come from beginning backlog
You will find guidance for additional items in the CFO commentary
Next, I will take a moment to review our capital allocation priorities
As we have said before, the company regularly reviews its capital structure, balancing our needs for investment, the appropriate level of risk for our business model and operating environment; maintaining adequate liquidity and the opportunity to return cash to shareholders
In January of this year, the board authorized the repurchase of $525 million of our common stock
We did not repurchase shares in the first half of the year, but we do expect to repurchase some shares in Q3. I also want to provide a few additional comments before we take questions
As a reminder, hardware and IP have become a larger portion of our business, which may lead to more variability in our results from quarter-to-quarter
Only about 5% of our revenue is in currencies other than the U.S
dollar, primarily the Japanese yen
But about 30% of our costs are in currencies other than the dollar
So weakening dollar would generally be a headwind to operating profits, and conversely, a strengthening dollar would be a tailwind
The dollar further weakened in Q2, but so far, we have been able to manage through this challenge
As you know, we have been reviewing the new revenue recognition standard that we will implement for 2018, and we are confident that we will substantially maintain recurring revenue or revenue over time treatment
To conclude, we are pleased with our second quarter results, including strong financial performance, software and IP growth, and growing proliferation of our digital and sign-off solutions with market shaping customers
Looking forward, we are excited about the new opportunities resulting from our system-design enablement strategy, and we are confident that we will continue to drive strong financial and operating results
And with that operator, we will now take questions
Question-and-Answer Session
And <UNK>, this is <UNK> <UNK> here
I'd just like to add that and remind you that, Q2 2016 was a record year for hardware, and that we continue to see a secular trend, and increasing customer need for emulation and acceleration products
But just want to point out
So <UNK>, this is <UNK>, I will take that first question on the cash flow
I'd just point you to the DSOs, that we had a six day decrease in DSO from Q1. A number of large payments came in after the end of the first quarter, driving a more favorable comparison between the quarters
So Q2 ended up being a very strong quarter for us, for collections
But so you will see a little bit more, a shift to the first half for cash collections
But our guidance reflects our confidence in the business, and takes into account everything we know at this time
So we reiterated the cash flow guidance
And Krish, this is <UNK> here
I just want to add that, we have great products in the hardware space
And note, that we delivered excellent financial results for Q2, software and IP were both strong, and we increased our outlook for the year
So software and hardware in the first half is only part of what is a really good story
Yeah <UNK>, this is <UNK>
I'd just like to add that, the R&D investment that we are making now is for future years
But our strategic priority is to develop innovative products and help our customers be successful, capture market segment share, and bring our solutions to market shaping customers
But we are continuing to build on our innovation and take action to drive growth and deliver results for our customers, all of which should enable us to deliver value to shareholders
Geoff, I don't know if you want to add anything?
Yes
As we said, we'd like to maintain more flexibility with the most recent authorization
The company regularly reviews its capital structure, balancing our needs for investments
The appropriate level of risk for our business model and operating environment, maintaining adequate liquidity, and the opportunity to return cash to shareholders
Board and management make their decisions through the lens of shareholder value
We purchased shares in the first half, but we do obviously expect to repurchase shares in Q3.
