“Licensing Trends”
EDA Consortium East Coast Meeting
John O. Barr
Managing Director
Robertson Stephens
646-366-4477
September 11, 2001
John_Barr@rsco.com
Wall Street View
 Conservative revenue recognition is good. Like
revenue to be recognized concurrent with or after
cash collection.
 Do whatever creates the most economic value.
 The simpler the better.
 Wall Street likes predictability…but not if
confused by complexity!
2
Design Automation Outperforms
Nasdaq and SOXX
200
180
160
140
120
100
80
60
40
20
0
09/08/00
11/21/00
02/01/01
Design Automation Index *
04/16/01
Philadelphia SOXX
06/27/01
09/07/01
Nasdaq Composite
* EDA Index is an equally weighted composite of ANST, AVNT, CDN, IKOSa, MENTa, SNPSa SLPXab, SYNPab, and VRSTab.
Source: FactSet
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When to Invest?
The Design Automation Cycle
4
The Design Automation Cycle
Semiconductor Revenues
250
 Semiconductor industry
downturn in 1996.
150
 Double-dip downturn in
1998 with Asian crisis.
100
E
03
E
 Semiconductor revenue
20
02
E
20
01
20
00
20
19
19
19
19
19
99
2001 and +10% in 2002.
98
0
97
 Model assumes -20% in
96
50
95
$Billions
200
may decline 25%-30% in
2001.
Source: Robertson Stephens estimates
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The Design Automation Cycle
EDA as % of Semiconductor
 EDA at peak of 3.1% of
4.0%
semiconductor revenues in
1998.
3.0%
2.0%
1.0%
 2001 to 2003 estimates at
2.5-2.7%.
20
03
E
20
02
E
20
01
E
20
00
19
99
19
98
19
97
19
96
19
95
0.0%
Source: Robertson Stephens estimates
estimates.
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The Design Automation Cycle
 Unsustainable EDA,
50%
40%
30%

20%
10%
E
03
E
20
20
02
E
01
20
00
20
99
19
98
19
97
19
96
19
19
-10%
95
0%

Reported EDA Growth

-20%
-30%
Semiconductor Growth
Subscription Bookings

Source: Robertson
Robertson Stephens
Stephens estimates.
estimates.
Source:
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compared to semiconductor
growth in 1997 and 1998.
In 1997 and 1998, $300 MM of
licenses with deferred
payment terms
Licenses being absorbed
from 1999 through 2002.
We estimate 2% growth for
2001 and 10% for 2002.
Adjusted growth of 14% in
2001 due to backlog build
adds future predictability and
understates current revenue
and EPS.
Economic Value of One License
 Net Present Value from each license is
approximately equivalent after 6 years.
Perpetual & Maintenance Revenue
NPV of Flows at a 15% discount rate
Yr 1
$100
$100
Yr 2
$15
$13
Yr 3
$15
$11
Yr 4
$15
$10
Yr 5
$15
$9
Yr 6
$15
$7
Yr 7
$15
$6
Running NPV of Perpetual License
$100
$113
$124
$134
$143
$150
$157
Subscription Revenue
NPV of Flows at a 15% discount rate
$35
$35
$35
$30
$35
$26
$35
$23
$35
$20
$35
$17
$35
$15
Running NPV of Subscription License
$35
$65
$92
$115
$135
$152
$167
•Assumes $100 cost of perpetual license, $15/year cost of maintenance, $35/year cost of subscription license
(including maintenance), and a 15% discount rate.
Source: Robertson Stephens estimates.
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Revenue Model for Entire Company
 During model transition, company-wide revenue
falls initially and is then built up over time.
Perpetual License #1
Perpetual License #2
Perpetual License #3
Perpetual License #4
Annual Revenue Under Perpetual
Subscription License #1
Subscription License #2
Subscription License #3
Subscription License #4
Annual Revenue Under Subscription
Yr 1
$100
Yr 2
$15
$100
Yr 3
$15
$15
$100
$100
$115
$130
$35
$35
$35
$35
$35
$35
$35
$70
$105
Yr 4
$15
$15
$15
$100
$145
Yr 5
$15
$15
$15
$15
$60
Yr 6
$15
$15
$15
$15
$60
Yr 7
$15
$15
$15
$15
$60
$35
$35
$35
$35
$140
$35
$35
$35
$35
$140
$35
$35
$35
$35
$140
$35
$35
$35
$35
$140
•Assumes $100 cost of perpetual license, $15/year cost of maintenance and $35/year cost of subscription
license (including maintenance).
Source: Robertson Stephens estimates
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“Adjusted” Revenue &
Balance Sheet Statistics
 Accounting for changes in deferred revenue results in
adjusted revenue figures that are significantly higher.
Synopsys and Verisity have levels of deferred revenue
significantly higher than the rest of the industry.
Cadence Design
Synopsys
Mentor Graphics
Simplex Solutions
Synplicity
Verisity
LTM Revenue
Actual
Adjusted (1)
$1,416
$1,457
$630
$733
$628
$639
$41
$44
$46
$51
$31
$44
Last Quarter Days of
Def. Rev.
A/R
61
91
130
68
44
111
47
89
78
35
254
60
(1) Revenue adjusted by adding changes in deferred revenue to reported revenue.
Source: Robertson Stephens estimates
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“Adjusted” Revenue &
Operating Income Margin
 Operating margins for companies transitioning to
subscription models would be significantly higher if
adjusted revenue figures were used.
Cadence Design
Synopsys
Mentor Graphics
Simplex Solutions
Synplicity
Verisity
LTM Revenue
Actual
Adjusted (2)
$1,416
$1,615
$630
$1,006
$628
$641
$41
NA
$46
NA
$31
$36
LTM Operating Income Margin
Actual
Adjusted (1)
Adjusted (2)
18.0%
20.3%
28.1%
(7.1%)
7.9%
28.8%
16.9%
18.4%
18.6%
4.5%
9.9%
NA
1.3%
10.7%
NA
4.9%
33.1%
17.6%
(1) Revenue adjusted by adding changes in deferred revenue to reported revenue. Operating income calculated
assuming no change in expenses. Adjusted figures do not take into account expenses that are deferred and accrued on
the balance sheet.
(2) Revenue adjusted by substituting actual product revenue w ith our estimate of product bookings. Operating income
calculated assuming no change in expenses. Adjusted figures do not take into account expenses that are deferred and
Source: Robertson Stephens estimates
accrued on the balance sheet.
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Verisity Case Study
 Verisity’s true cash generation not reflected in income statement.
Subscription model with deferred revenue drives cash generation.
(FYE 12/31)
($ Millions)
INCOME STATEMENT
Revenue
Gross Margin
Operating Income
Operting Margin
Earnings Before Goodwill
Diluted EBG per Share
CASH FLOW STATEMENT
Deferred Revenue
Other Balance Sheet Flows
Operating Cash Flow
Operating Cash Flow Per Share
Verisity
1999A
$11.5
83.4%
($7.2)
(63.0%)
($6.9)
($0.59)
2000A
2001E
Synplicity
2002E
$21.5
88.5%
($3.7)
(17.1%)
($3.5)
($0.27)
$38.5
90.0%
$3.7
9.6%
$3.9
$0.20
$54.1
91.5%
$8.2
15.2%
$7.5
$0.36
$2.6
$0.0
$14.7
($3.3)
$12.1
($0.1)
$12.9
($0.7)
($4.4)
($0.31)
$8.0
$0.50
$15.9
$0.80
$19.7
$0.92
Source: Company reports and Robertson Stephens estimates.
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Synopsys Case Study
 Bookings model based on 12-15% growth leads to 30%+
revenue growth in 2002 & 2003.
 Cost structure geared to current revenue level. Could lead
to 35%+ operating margin.
$1,500
($ in Millions)
$1,300
$1,100
$900
$700
$500
1999
2000
2001
Bookings
2002
Revenue
Source: Company reports and Robertson Stephens estimates.
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2003
Companies Mentioned (priced as of 9/7/01):
Cadence Design Systems, Inc. (CDN $20.04)
Mentor Graphics Corp. (MENT $16.46)
Simplex Solutions (SPLX $20.34)
Synopsys Inc. (SNPS $43.75)
Synplicity Inc. (SYNP $7.18)
Verisity Inc. (VRST $12.51)
Robertson Stephens maintains a market in the shares of Cadence Design Systems, Mentor Graphics Corporation, Simplex Solutions, Synopsys,
Synplicity and Verisity.
Robertson Stephens has been a managing or comanaging underwriter or has privately placed securities within the past three years for Simplex
Solutions, Synplicity and Verisity.
Robertson Stephens, Inc. ("Robertson Stephens") is a NASD member and a member of all major exchanges and SIPC.
The information contained herein is not a complete analysis of every material fact respecting any company, industry or security. Although opinions and
estimates expressed herein reflect the current judgment of Robertson Stephens, the information upon which such opinions and estimates are based is
not necessarily updated on a regular basis; when it is, the date of the change in estimate will be noted. In addition, opinions and estimates are subject to
change without notice. This Report contains forward-looking statements, which involve risks and uncertainties. Actual results may differ significantly from
the results described in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in
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occasionally possess material, nonpublic information regarding such companies. This information is not used in the preparation of the opinions and
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Copyright © 2001 Robertson Stephens
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