Good afternoon. My name is Jomarya, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Second Quarter 2021 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.
Earnings. Thank you. I will now turn the call over to Alan Lindstrom, Senior Group Director of Investor Relations for Cadence. Please go ahead.
Thank you, Jameyra. I would like to welcome everyone to our 2nd quarter 2021 earnings conference call. I am joined today by Lip Bu Tan, Chief Executive Officer Earnings Conference and John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call Call is available through our website cadence.com and will be archived through September 17, 2021. A copy of today's prepared remarks will also be available on our website at the conclusion of the call today.
Please note that the discussion today will contain forward looking statements. Forward looking statements include, but are not limited to, statements about our business outlook, product development, business strategy and plans, industry and regulatory trends, market size opportunities and positioning. Due to known and unknown risks and uncertainties, actual results may differ materially from those projected or implied in today's discussion. For information on those factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. Earnings call.
These include Cadence's most recent reports on Form 10 ks and Form 10 Q and the cautionary comments regarding forward looking statements in today's earnings press release. And by the way, our Q2 10 Q was filed about 4:15 Eastern Time today, so it's out You should not rely on our forward looking statements as predictions of future events. All such statements are based on estimates and information available at this time, and Cadence disclaims any obligation to update any forward looking statements except as required by law. 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.
These non GAAP financial measures should not be considered in isolation from or as a substitute for GAAP results. These non GAAP financial measures are not based on any standardized methodology earnings call. Earnings. Thank you, ladies and gentlemen. I would like to welcome everyone to the Cadence 2nd quarter 2021 earnings.
Investors are encouraged to review the reconciliation of non GAAP financial measures with their most direct comparable GAAP financial results earnings press release. Copies of today's press release dated July 26, 2021 For the quarter ended July 3, 2021, related financial tables and the CFO commentary are also available on our website. Earnings. Earnings. Now I will turn the call over to Lip Bu.
Good afternoon, everyone, and thank you for joining us today. Cadence delivered outstanding financial results for the 2nd quarter as broad based customer demand for our innovative solutions growth stronger than expected revenue growth, and cash flow. We are significantly raising our financial outlook for the year, highlighted earnings call by a $40,000,000 increase in revenue guidance or 10% year over year revenue growth. John will provide the details in a moment for both our Q2 results and the updated outlook for the year. Before I get into more details about the quarter, I would like to talk about CEO Jeff Khan, our President, will take over as CEO on December 15, 2021, And I will transition to the role of Executive Chairman at that time.
It has been a privilege earnings call. Earnings Field, a sustainable culture center on Ziploc innovation and customer delight. Earnings call. We have launched very close partnership with our customers and partners and built an extremely talented earnings. Cadence team of over 9,000 employees.
Cadence is now firmly established, not just as a top end to end EDA provider of choice, but a company that is well on its way in expanding beyond EDA by earnings. Our exciting ISD strategy that tripled our TAM to 30,000,000,000 The Board and I are very excited that Anurud will become CEO in December, And we cannot think of anyone more uniquely qualified to lead Cadence to even higher heights. And passion for driving customer success. Over the past 4 years, since he became President, Anurud and I have jointly left the company, and the Board and I think this is the right time to execute the next phase of our succession plan earnings and hand over the baton to him. You can expect to see a lot of continuity going forward as we view this transition Call as more of a formalization of our current responsibilities.
As Executive Chairman, I will focus more on new market opportunities, key strategic initiatives and deepening our relationship with customers and partners and on maximizing shareholder value. And now let me Move on to the business highlights. Generation trends such as 5 gs, hyperscaler and Autonomous Vehicles underpinned AI, machine learning and data analytics Earnings Conference. With semiconductors At this foundation, these trends are driving strong design activity across a growing spectrum of semi and system companies, and we are very well positioned for this to be a sustainable long term growth driver Call. Delighting customers and accelerating growth require a relentless commitment to innovation.
With the launch of the 4 new products, we are now introduced 8 significant innovative products so far this year We continue to expand our business with market shaping customers and our differentiated solution It was an outstanding quarter for our digital and sign off business with revenue growing 16% year over year. Expanding significantly at several market shipping customers. Noteworthy among them were a large quarter. Further expansion of a marquee U. S.
Aerospace and defense firm, We have been steadily incorporating cutting edge AIML technology into our solutions. Call. And we significantly advanced that with last week's introduction of new Syrabus Intelligent Chip Explorer. Cerebus' unique reinforcement learning model increase effectiveness with each use and enables to 20% PPA improvement earnings and 10x productivity gain. Syllabus was endorsed by Samsung and Renesas, and several customers conference has realized meaningful benefits across multiple process nodes and end applications.
It was also a great quarter for our Verification business with 23% year over year revenue growth. Call. Continued strong customer adoption and expansion at several leading customers. Circular demand for our hardware continue unabated leading to best Q2 ever for our Palladium and Protium platforms. There is a robust customer interest in in the NIO Z2 and X2 systems with sales ramping nicely.
Our sales of earnings call. Our hardware family had 15 new orders earnings call and over 65 repeat orders in the quarter, with the 3 largest transactions being with Hyperscalers earnings call and included our largest Blue Tier transaction to date, which was for NIO X2. Strong momentum continued for our System Design and Analysis segment with 20% year over year revenue growth. We expanded our system earnings conference call with multiple verticals, including Aerospace and Defense, 5 gs Wireless and Communications. Growing system complexity for high frequency applications is driving the need for an integrated platform solution across system design, simulation and analysis.
As we continue building our system portfolio, we We are pleased to see earlier indication of customer increasingly choosing a broader set of our solution across earnings. For instance, in Q2, a large U. S. Data infrastructure company make a a significant commitment to our PCB, IC packaging, RF and system analysis Solution. We introduced our next generation PCB and IC packaging design platform Allegro X that provides a unified engineering platform incorporating innovative machine earnings techniques and delivering up to 4x improvement in overall earnings.
AWR and Integrin have a record quarter, and the integration of our recent Numeka and PointWise acquisition is progressing well. We have added several 100 system customers as we enhance our go to market and channel organization We continue to monitor the ongoing semiconductor supply chain situation. As I reported last quarter, We are not seeing any slowdown in design activity across our customer base. Unfortunately, the COVID-nineteen dynamic continues to evolve in in an unpredictable manner with overall progress being threatened by new variants. As always, earnings call.
The health and safety of our employees, customer and partners is paramount, and we will continue doing in their best interest while working closely with local regulatory agencies. Now I will turn it over to Anurag to say a few words.
Thank you, Libu. I'm very honored and humbled to be appointed the next CEO of Cadence. And I'm deeply grateful to the Board and Libbu for their confidence in me. I'm also very thankful to Libbu for his mentorship and guidance over the years, and I'm excited to continuing partnering with him in our new roles. Generational industry drivers earnings call.
And rapidly unfolding digital transformation across several industries presents an enormous opportunity for Cadence. And I strongly believe we couldn't be better positioned to seize this opportunity. Our intelligent system design strategy plays out a very exciting growth path as we enhance our portfolio to serve a growing set of customers. Our highly innovative solutions have led to a very strong foundation in core ED and IP and to our early successes in the system and AIML segments of our strategy as we expand into large fast growing adjacencies. I enthusiastically look forward to working with our talented team to accelerate our growth strategy, earnings call.
While relentlessly driving to deliver strong business results and delight our customers with breakthrough innovation, execution and unparalleled support. I also look forward to furthering our collaborations with customers and ecosystem partners and deepening the engagements with you, our valued shareholders. Thank you. And I will now
earnings conference call.
Thanks, Anurud, and congratulations to you and Lip Bu in your new roles. This is a great day for Cadence. Good afternoon, everyone. I'm pleased to report that we exceeded all of our key financial metrics for the quarter with broad based demand for our innovative solutions, guidance, driving stronger than expected revenue growth, profitability and cash flow. As a result, we are raising our financial outlook for the year across all key metrics.
Before getting into the numbers, I'd like to say a particular thank you to our India team. As we all know, India was particularly hard hit earnings call by the pandemic in Q2, and we are deeply grateful to our India leaders for going above and beyond the call of duty to put people first. Call. We commend them for their heroic work in helping the local relief efforts and it's reassuring to see the situation in India improve over the past few weeks. Now let's go through the key results for the Q2, beginning with the P and L.
Total revenue was $728,000,000 Non GAAP operating margin was 39.5%. GAAP EPS was 0 point 56 dollars At quarter end, cash totaling $847,000,000 while the principal earnings. Cash totaled $847,000,000 while the principal value of debt outstanding was $350,000,000 earnings. Operating cash flow for Q2 was $380,000,000 DSOs were 49 days and during Q2, we repurchased $220,000,000 of Cadence shares. Before I provide our updated outlook for fiscal 2021, I'd like to take a moment to share the assumptions embedded in our outlook.
We continue to expect that our new MEKA and PointWise acquisitions will be slightly dilutive this year before becoming accretive next year. Our hiring plans in the first half were delayed by the COVID situation in India, but call. But our outlook currently assumes we catch up on much of that delayed hiring activity in the second half. Our outlook for the second half earnings. The from July 1.
And finally, our outlook assumes there will be no changes to the export limitations that exist today. Embedding these assumptions into our outlook for fiscal We expect revenue in the range of $2,925,000,000 to $2,965,000,000 earnings. Non GAAP operating margin in the range of 36% to 36.75 percent. GAAP EPS in the range of $2.15 to 2 $0.21 non GAAP EPS in the range of $3.14 to 3.20 and we expect to use at least 50% of our free cash flow to repurchase Cadence shares in 2021. For Q3 2021, we expect revenue in the range of $730,000,000 to $750,000,000 earnings call.
Non GAAP operating margin of approximately 34%, GAAP EPS in the range of 0.48 to $0.50 and non GAAP EPS in the range of $0.74 to 0 $0.76 Our CFO commentary, which is available on our website, includes our outlook for additional items as well as further analysis and GAAP to non GAAP reconciliations. In conclusion, Cadence delivered another quarter of strong revenue growth and expanding profitability, and we're pleased to raise our outlook for the year. To be our first priority. And with that, operator, we will now take questions.
Please limit your questions to one question and one follow-up question. We will pause for a moment to compile the Q and A roster. Your first question comes from Jay Zweschhouwer with Griffin Securities.
Thank you. Good evening. Anurag, let me start with you and then my follow-up for Lip Bu. With regard to last week's product announcement of Cerebras, the application of AIML to EDA. It would seem fair to say that that's perhaps the most significant methodological advance in EDA since the days that Synthesis placed en route 20 years or so ago.
The question I have for you is, cerebras Extensible to your non digital businesses such as custom and PCB and your new computational software ambitions. And similarly, to the extent that there's a growing design trend towards specialty or domain specific designs, Call. Cerebras have to be tuned to an increasingly specialty chick market. And then for Lip Bu, the follow-up is, In your keynote last month at Cadence Slide, you listed all your market opportunities such as 5 gs, IoT and so forth. Call.
Interestingly, you referred to hyperscaler market as the most exciting. Could you explain why you said that? And was that just
Call. Jay, let me start. Thanks for the question. And we are really truly excited about Cerebras. I believe Cerebras is a fundamental breakthrough using reinforcement learning to basically drive our digital full flow.
So I mean, Genus Innovus Tempers can give great quality of results, but the designer earnings. So run them and based on their intuition, run them again and do the design that way. And Cerebras can do that much more in a much more mathematical way to explore the design options and parameters. And we announced that last week, as we said, and earnings. Some of the results or some of the endorsement, for example, Samsung said they got 8% power improvement earnings.
And this could be done in days versus months. And Renesys said that they got 10% improvement in frequency. So these are definitely very promising results. I mean, it's still early. We are continuing to work with more and more customers.
So far, we are happy with how well Cerebras is performing. And these are based on fundamental kind of new optimization method. And one thing I would like to remind you is that we have a lot of expertise in computational software, and a lot of it can be applied to AI. So, it's still early days and I think these can be definitely applied to other areas. So for example, we also announced Allegro X a couple of months ago and that also has new machine learning technology.
Couple of months ago. And that also has new machine learning technology to try and more automate place and route earnings call for PCB. So I think it's still early days, but we are very pleased by what CEREGRIST can do and the application of AI and in general
You have in terms of my keynote on the we are very excited about this 5 generation waves that drive a lot of silicon and Design and Activity, and I call it the Silicon Renaissance. And because I think clearly, This 5 generation are driving a lot of innovation. And one particular one I call out is hyperscalers because as you know, the data is And then the hyperscalers, they are really trying to scale their infrastructure Network, storage and the workload have changed and moved towards more in the domain specific application specific application. So there's a lot of different processes required and that drive a lot of innovation, a lot of design activity and that's feeding very well with our Cadence ISD Intelligent System Design strategy that beside the silicon, beside the IP, The move up into the system innovation that tie in very well to Anurud mentioned about this whole system modeling, system analysis
Your next question is with Gary Mobley with Wells Fargo Securities.
Hey, everybody. Thanks Let me start off by congratulating LeBu and Anarud for all that you've accomplished in your careers at Cadence as a team Earnings Conference Call. Mike, I want to start with a multipart question on the backlog metric. It was nice to see the improvement. And I think you were expecting an improvement from where it ended in the Q1.
Might we see some further improvement for the balance of the year In that backlog metric and to what extent was that backlog metric helped or hurt by earnings. Average license terms or in other words, the duration adjusted backlog metric and to what extent has it been held back
Yes, Gary, I can take that one. And taking the last part of your question first that I don't think our decision to release some business early earnings call. Or on like 3 year renewal cycles for their base contract. In relation to RPOs, I think that's what you're referring to. RPO bounce back a little bit.
But as you recall, Q1 was a light renewals quarter for software, Q2 was a heavier renewals quarter for software. But the annual value of those contracts in Q2 jumped really well. And I think I said on the last call this, we thought that the decline in RPOs in Q1 was a temporary phenomenon, and we expect it to climb back and improve earnings throughout the year.
Okay. And my second question relates to China. John, I think you mentioned last earnings call that you would We expect sort of a normalized level for China related revenue about 12% of this year's revenue. Revenue this year or is that 14% China mix in the second earnings call.
Yes, I think it's the latter, Gary. I think we saw a very solid 2nd quarter and an uptick in China business. I was cautious in the Q1 because last year we benefited call. Higher than average upfront revenue mix in the second half in China and that contributed to, I mean, close to 70% growth last year, which is a really tough comp to lap. Call.
So I was being careful with the guide. But now having seen the strength in Q2, I think one of the sales guys told me that Q2 The best Q4 we've ever had, but and they were really impressed with the strength of bookings that were coming through. But I think we feel much more confident in the region. And there's broad based strength across all the bookings activity in Q2. So, yes, I think that the The year is probably going to be more like Q2 than Q1.
Thanks for the color. No worries.
Your next question is with Gal Munda from Berenberg.
Hi, thank you for taking my questions. So the first Just kind of touch a little bit on this trend that you've seen on the digital side, specifically You mentioned some competitive displacements. I guess, I want to kind of if you zoom out a little bit and think about what's really driving the growth call between the competitive displacements and just the very, very healthy design activity in terms of the market. Could you help us understand that?
Earnings. Yes.
Hi, this is Anuj. I'll take that question.
So I
think your question is regarding the digital and sign of group growth, right? So Yes, we are very pleased with the Digital Group performing well. Like Lebou mentioned, it grew about 16% from Last Q2 and I believe faster than market. And there is a lot of design activity, which continues to accelerate, especially at advanced node, where we do particularly well. So we see a lot of design activity at earnings increasing at N5 and N3 and some early work with foundries at N2.
So I think the whole trend of People moving to more advanced nodes is continuing at a strong pace, and I think that helps us in our digital business. And also we are getting more full flow adoption, not just place and route, the full flow means synthesis, place and route sign off. So customers are more and more comfortable running our entire flow. And that's again a trend that we have worked on for a while to give a full integrated flow to our digital customers. And then there are other trends like 3DIC becoming more prevalent, of course, mixed signal.
We are always strong in mixed signal. So overall, we are confident in our digital position. And then on top of that, we can have Cerebras to perform to give even better results call. So I think the summary is that the design activity is strong and we are glad to work with our customers earnings.
Got you. That's very helpful. And then maybe as a follow-up, I don't know, maybe for you, Even John, maybe. When I think about kind of the way Q2 came in extremely strong, It enables you to kind of go above and beyond the beat in order to kind of raise the guidance for the year. What gives you that confidence?
Is it the fact that We're unable to do that as it's Q1 because of the fact that there was still a lot of hardware tough comp from last year Now you're kind of another 3 months in and seeing more of it. What's behind kind of the same thing to be a little bit more earnings.
That's a great question, Gal. But yes, I can take that. Essentially, the annual value of the contracts that we booked in Q2, in a lot of cases were significantly higher than the contracts that were expiring. And that gave us Great confidence. That along with, I guess, the visibility into the second half that we have now that we becomes clearer and clearer as you get closer to the start of second half.
That helps us a lot. I would advise anyone not to look at any one quarter, but maybe focus on the year's numbers But because the quarter since the pandemic started, the quarters can be distorted. I mean, digital was great growth this quarter over last Q2 2020. But I would like to remind you that in Q2 2020, we did back out some revenue earnings call. And some of that we later recovered in Q4.
So some of the quarters have It's been a bit distorted. So I've been inclined to focus on the year. And when we look at the year, the annual value of contracts has increased considerably and enough for us to rate the guidance by $40,000,000 at the midpoint for revenue.
That's very clear. Thank you.
Thanks.
Your next question is with Jackson Ader from JPMorgan.
Great. Thank you. Call. Can we just touch on the subpoena that
was disclosed in the 10 Q? So
just from Reading the language, it sounds like you received it in February. And so I'm just curious why was it something that was disclosed in this quarter and not earnings call in the previous Q. And is that what kind of risk or whether it's operationally or any kind of penalties
Yes. That was really just a bit of housework, really, I guess, in terms of the nature of the Vina became more clear to us during the last quarter and we wanted to make sure that investors were aware of this. Call. We don't think it's hugely significant, but we wanted to document it in the queue in the interest of full transparency.
Okay, fair enough. And then on the hardware side, out of those, Was it 15 new orders and 65 repeat orders of Z2 and 4 I'm sorry, of hardware orders. How many of those were Z1X1 versus Z2X2 if we had that breakdown?
Yes, I think I will let Anurag to answer the question and I will chip in later on.
Yes. Thanks, Lubu. That's a good question. So I mean, we are pretty pleased with the performance of Z2 and X2, Palladium and Protium. And more and more of our business is transitioning to the new systems, which is Z2 and X2.
And we still have Z1s and X1s still perform well. So we are continuing to sell them depending on the customer situation. Earnings. But more and more, we are selling the new systems, which are performing well. And I think John mentioned last time, we expect about 6 months of overlap with the 2 systems.
So it will be a few months into that. So I think that trend will continue, but more of it The new systems and it should be I would expect by end of year, most of it will be the new systems.
Yes. We're very happy with the Yes, X2 and Z2 ramp and we're building inventory as fast as we can to meet demand. Great. Okay. Thank you.
Your next question will come from Joe Vruwink with Baird.
Great. Hi, everyone. And Tim, First of all, best wishes and congrats to Lip Bu and Anurud. Just I wouldn't expect, I suppose, much change in the strategy. I think Lip Bu mentioned continuity.
That currently seems to be the case, but I'll still ask the question just given the leadership changes. If maybe you do see an opportunity in particular areas of the business to accelerate what growth has been. Certainly, the product announcement last week on earnings. AI driven design seems to be a big trend, not just for Cadence, but the industry. Are there things like that where over the next few years, you would earnings.
Yes. Thank you, Joe. And I think,
earnings. Yes. Thank you, Joe. And I think I would like to say that Cadence is in a very strong position, Right, as you guys see here. And I worked closely with Libbu over the last 4 years ever since I became President earnings.
So there is a lot of continuity going forward. And we are very confident in our intelligent system design Strategy. I'm a big believer that computational software is our growth trend. EDA has done that for decades. And This is the right time to not only do well in our core business of ED and IP, but also expand it earnings.
2 other adjacencies, one of them being system design and analysis. And as you know, we have a big effort in that. And then the second one being AI and machine learning, which are also inherently computational. So I think EDA and IP have Been a good business. We think it will continue to be a good business, but added with system design and analysis and AI and machine learning, earnings.
It provides other adjacencies we can grow into. So we are truly excited. I think we are in a great position and we look going forward Look at all the we worked very hard to accelerate all these trends and accelerate the growth and opportunities that we see And take Cadence to new heights.
That's great. Call. And then just a follow-up on the anticipated margin cadence in the back half, it looks like the outlook implies Maybe 34% to 35%. Is that purely a reflection of hiring accelerating? Is there any earnings.
T and E that might be working back into the budget or maybe what's the best way to saying just relative first half, second half margins?
Yes, Joe. I think the first thing to note there is we completed our annual salary review and promotion cycle during Q2, and that's part of the earnings. But there are also some one time things that kind of distort the margin picture in the second half. As part of our succession planning efforts, We did a voluntary early severance program at the same time as the promotion round. And there will be some temporary overlap in expense in the second half as earnings.
The impending retirees transition to the their roles to their replacements. So we kind of double up on expense for 6 months there. And that's a free phenomenon. There's also the purchase accounting treatment of the acquisitions we had in the first half with Pneumaeka and PointWise. Earnings.
They cause our second half margins to be lower than they would otherwise be. And yes, we're planning to do a lot of hiring in the second half, and I've embedded that into the guidance. But my team and I will review all of that and make sure it's absolutely necessary. So there could be some upside to that margin outlook following our review. Call.
As I mentioned earlier, the quarterly numbers can be a little bit distorted during the pandemic. It's better to look at the annual view. And I think when I look at the annual guide, 36% to 36.75%, that's closer earnings to the margin levels at which the business is currently performing.
That's helpful. Thank you. Earnings.
Your next question is with Jason Celino from KeyBanc Capital Markets.
Great. Thanks for taking my questions. Lip Bu and Arun, congrats on the well deserved promotions. Maybe for my first question, earnings. ACV being bigger, it might be indicative of customer budgets and spend.
John, when we think about the guidance raise, are you able to provide any more segment color on where you've seen the uptick? It sounds like from a geo perspective, China uptick versus last quarter, but what else can you add?
Yes, it was pretty broad based. I would say China sorry, with Asia and then China within Asia was a part of that. And then of course, North America, I thought they were probably the stronger performing regions. But it was pretty broad based strength across all lines of business that I think we're the kind of recurring revenue profile we have right now and what we've projected in the guide for the second half of the year is our typical Average profile, I think it sets us really sets us up really well for growth for next year.
Okay, great. And then maybe diving down in that a little bit. Earnings. IP growing mid single digits in the quarter, not entirely a surprise given the call outs from last call. But how are you feeling about the IP for the remainder of the year today versus maybe 3
months ago? Thank you.
Well, I'll let Anurag talk to the IP business. I think it's performing really well. But I mean, when I look at the numbers, it's kind of similar to China. Last year, IP grew 25%. So there have been some really, really tough comps.
And we did highlight last quarter that we thought that Q2 and Q3 might be a little bit light because of those comps. But Q4, we thought we would power back in Q4 and set ourselves up for growth earnings call for next year. And it's with another quarter under our belt, I'm more confident that that's what the outlook looks like. Earnings Call. Anurud, do you want to say anything about the IP business generally?
Yes. Thanks, John. That's a good summary. And Jason, That's true. One thing I would just like to add is that overall, we are pretty happy with the IP business.
Like John mentioned, There is some seasonality to it, which you know is lumpy business. And also the IP purchases are more based on projects, so there's Just a little bit of lumpiness. But overall, the trends are strong. The whole outsourcing trend for IP earnings call. And there is more and more design activity, more foundry activity.
So we are pleased with where we are in the IP business and make sure we have the right kind of star IP to serve the customers.
Excellent. Thank you.
Your next question is with Pradeep Rahmani from UBS.
Hi. Thanks for taking my question. Congrats to Aniluz and Lip Bu. John, I think you mentioned that your APD in Q2 was higher. What is driving that?
I mean, are customers buying up the stack? Is it a function of renewal by different customers? Or I mean, what is driving that higher ACV? And in terms of Sustainability, how do you feel that it's sustainable going forward? I mean, just beyond Q3?
Sure. Yes, great question. But yes, what we saw, I guess, was I mean, design activity was very strong earnings. And the volume of licenses that were purchased were higher than the previous contracts, expiring contracts. Also pricing had improved a little bit.
But And generally, I mean, when I look at like if I look at the business at a very high level, Tom, I like to look at the 3 year PAGRs and I put them in the second page of the CFO commentary. And over the last few years, we've seen consistently accelerating revenue growth year over year when you look at the 3 year earnings. And we're on track again for that for this year to improve on last year. So generally, I think With all of our accounts, we keep providing greater value to our customers. They're buying more products.
It's a virtuous cycle, so to call. I think a few years ago, we often talked about we released 20 significant new products in the previous 3 years. Call. We've launched 8 new products in the last 6 months, but I think the pace of innovation and the release of new significant products at Cadence has accelerated and that's helped us improve our ACV across very, very broad based across our customers.
Okay. And for my follow-up on the verification side, you mentioned there was some V2 and V1, but Call. In terms of just thinking about it where about where we are in the penetration cycle for V2, Call. Would you say that we're very early days and but you still had significant contribution from Z2 in Q2? Earnings.
Or was the contribution from V2XB sort of pretty negligible in Q2?
I think it's a significant contribution. It's like I don't know whether if you don't mind me using an Olympic style analogy, it's a bit like a relay race in terms of Handing over the baton. I think Q2 and Q3, these middle quarters of the year are where you see that Q4, we'll be off and sprinting with the newer systems and we'll have very little of the older systems left to sell.
Thank you.
Our final question comes from John McPeek with Rosenblatt Securities.
Thanks for squeezing me in guys. Can you hear me okay?
Yes. Yes. Yes. Yes.
Yes. Great. Congratulations, Lip Bu and Anauro. It's been quite a run with the amazing I guess you'd be on some more calls, but I just wanted to mention that. So the First question I had is about the high level trends in the semiconductor industry.
Earnings. They're getting more competitive than they've ever been. I mean, you're seeing some share shifts. You're seeing some Historically significant companies seeing major rethinks about their strategy. And I'm wondering if that Potentially is freeing up budget in those companies to try new things that they historically may not earnings.
Have done with the prior management regimes that were in place, because it seems like it could become a significant For Cadence, that's my first one. Then I have a follow-up.
Yes, I think let me answer that, John. Thank you so much. Call. And so clearly we see this industry change in the 5 generation wave and a lot of Call in terms of the hyperscale and all the autonomous driving, industrial automation for the Industrial Group and then autonomous driving. That is another part.
So I think those five area are going to be driving a lot of new and new solution needed. So a lot of innovation needed. And so in some way, Our ISD strategy really playing very well from the silicon all the way to the system and how to provide some of this solution, especially in the workload, have changed a lot. And so not just the CPU computing and there's a lot of new domain specific application driving the solution and that create a lot of new design. So that's why we don't see any slowdown in design.
In the contrary, actually, we see a lot of increase in design activity and that give me a lot of hope going forward.
Right. And then I guess specifically, it seems like when you get to 3 and under, Potentially, we're going to gate all around. And I'm curious as to what that might do for Place and Route and your digital strategy there. I think you've made some announcements at 3, some tape outs already. Maybe you guys could talk about
Yes, John. Let me take that. This is Anirudh. So we have quite a bit of activity at 3 nanometer. As you could imagine, a lot of customers are already designing a lot at 3 nanometer.
And So we are happy to work with the major foundries. So we do have solutions which are being optimized for K Dollar earnings call. And we are happy with the progress there. And like I said earlier, we also starting work on N2. So I think this is good for the industry.
3 should be a very, very strong node and also N2 after that or this 2 nanometer node after that. And one key thing is that 3 nanometer, what we noticed is that it's a good news Call. For EDA and Cadence, the role of tools and methodologies becomes even more critical than, let's say, 7 or 5 nanometer. Because there is a little bit of slowing of pure performance scaling from Moore's Law. I mean Moore's Law is still giving lot of Area scaling or number of transistors keep going up, but the performance you get from each transistor is not as much as before.
So then there is more demand for Cadence tools and EDA solutions and IP solutions to deliver earnings. So I think the role of EDA will become more and more critical at lower nodes and then combined with other advances like syllabus and machine learning. So overall, we are pretty pleased with our position at these advanced nodes, and I think it is overall good news for the industry.
Thank you. I mean, it would just seem like there's a shortage of engineers and you guys are the ones making them more productive. Call. So thank you.
Yes, thanks.
I would now like
to turn the call back over to Lip Bu Tan for closing remarks at this time.
In closing, thank you all for joining us this afternoon. I'm very excited about the growing market opportunities and the business momentum so far in 2021. Our Intelligent System Design strategy is playing out very nicely as we benefit from new opportunities in design excellence, Call. And lastly, on behalf of our employees and our Board of Directors, we thank all our customers
Thank you for participating in today's Cadence 2nd quarter 2021 earnings conference call. This concludes today's call. You may now disconnect.