Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Cadence Design Systems 2nd Quarter 2015 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.
Thank you. I will now turn the call over to Alan Lindstrom, Senior Group Director of Investor Relations for Cadence Design Systems. Please go ahead.
Thank you, Mike, and welcome everyone to our Q2 2015 earnings conference call. The webcast of this call can be accessed through our website cadence.com and will be archived through September 18, 2015. A copy of today's prepared remarks will also be available on our website at the conclusion of today's call. With me today are Lip Bu Tan, President and CEO and Jeff Rebar, Senior Vice President and CFO. Please note that today's discussion will contain forward looking statements and that our 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 ks and Form 10 Q, including the company's future filings and the cautionary comments regarding forward looking statements in the earnings press release issued today. In addition to the 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 measure 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 reconciliation can be found in the quarterly earnings section of the Investor Relations portion of our website. A copy of today's press release dated July 27, 2015 for the quarter ended July 4, 2015 and related financial tables can also be found in the Investor Relations portion of our website. Our 10 Q for the quarter ended July 4, 2015 was also filed today. Now I will turn the call over to Lip Bu.
Good afternoon, everyone, and thank you for joining us today. Cadence produced strong operational results for Q2, while continuing to deliver innovative new products. Revenue was $416,000,000 non GAAP operating margin was 28%, non GAAP EPS was 0 point 2 $7 and operating cash flow was $122,000,000 Let us start with the environment. Semiconductor business conditions continue to be mixed with some segments performing better than others. Overall, softer sales for the year now appear more likely.
So far, there has been no material impact on design activity and demand for our products remains stable. We are also mindful of the customer consolidations in Q2. Long term impact of this on our industry is complex and difficult to predict. While we do not expect material impact near term, consolidation could pose a challenge to industry growth over the next few years. Earlier today, we announced a change of our current stock repurchase program.
Kadant is committed to driving shareholder value through a balanced approach that drives growth, invest in innovation and return capital to our shareholders. Our Board and management team regularly and thoughtfully review all aspects of Kadant business and capital structure. As a result of such review, we announced a new $1,200,000,000 stock repurchase program, which replaced our current program. Jeff will share more details about this program in a few minutes. Now let us review Q2 product highlights.
We continue to execute on our system design enablement strategy. I'm pleased with our progress in driving growth in our core EDA business, which is at the heart of the strategy and with our momentum in IP and system interconnect. Innovation is the driving engine of our strategy. In Q2, we introduced 2 new products, the Genus Synthesis solution, which is our next generation synthesis engine for digital design and Indego debug platform which significantly enhance functional debug productivity. With these new products, we have now delivered more than a dozen innovative new products in the past 2 years.
Janus is the latest addition to our industry leading advanced digital design and sign off platform, which includes Innovus, Pampers, Votus and Qantas. Genus improves on previous Synthesis tool by deploying a massive parallel architecture that delivers up to 5 times fast turnaround and linear scaling of 1 times beyond 10,000,000 instances. This will greatly improve our customer design productivity. TI and Imagination Technologies have endorsed Genius and we have more than 1,000 engagements underway. Innovus, our next generation digital implementation system continues to rapidly gain traction with market shipping customers on their most advanced designs.
Qualcomm Technologies, NVIDIA, STMicroelectronics and Thunderday Technology have joined ARM, Freescale, Juniper and others in adopting Innovus for production design at the most advanced nodes benefiting from excellent quality of results and faster turnaround time. Another important part of our system design enablement strategy is to bring a vertical orientation to our product portfolio and go to market strategy. I am delighted to report that we are making good progress on several verticals. Infineon Technologies decided to partner with Cadence on a comprehensive automotive functional safety solution and a major Asian car manufacturer adopted Sigriti for system level analysis for automotive function functional safety. Tensilica had 2 significant automotive wins, one for car to car communication and another for ADAS application.
Bosch deployed our new Indecco debug platform for advanced mixed signal MEMS sensors and they believe IndeGo will enable them to continue to deliver for application include consumer electronics, fitness tracking, wearables and IoT. And we expanded our business with 2 major mail aero customers. IP is the fastest growing part of our business and is essential to the system design enablement strategy. The 3 major parts of our IP business are Tensilica DSP, Design IP and Verification IP. Tensilica represent the 2nd most popular instruction set architecture in the market and we estimate that around 50,000,000 IoT devices that contain Tensilica IP are already shipping annually.
This quarter, we announced a collaboration with TSMC for IoT IP subsystems with our Tensilica Fusion DSP plus our analog interfaces and peripheral and sensor interfaces. Demand for high performance wire interface IP cores for server and data centers was strong with a major data center old EM adopting our PCIe Gen 4 and DDR4 IP solutions. In memory space, we had our first 10 nanometer DDR4 physical interface IP win. On hardware front, Palladium XP won 6 new logos. 1 of our newest Palladium used models, dynamic power analysis is proven to be vital in diagnosing and debugging software related power issues in mobile applications.
Pre production testing of our next generation emulator continues and we remain on track to start shipping later this year. So now to summarize, Q2 was a solid quarter with strong operational execution. Our system design enablement strategy is bringing more innovation and more vertical focus to our business and solutions. We continue to gain traction in digital with the launch of Genius for RTL synthesis and top tier customer adoption of Innovus implementation system. IP growth was strong and we continue to gain new customers.
And finally, our new $1,200,000,000 stock repurchase program will return additional capital to our shareholders. I will now turn the call to Jeff to give you more details on our new stock repurchase program, review the financial results and provide our outlook.
Thank you, Lip Bu, and good afternoon, everyone. Let me start the discussion today with our new stock repurchase program and then move on to our Q2 results and outlook. As Lip Bu said, we have been and are committed to driving shareholder value through a balanced approach that drives growth, invest in innovation and returns capital to our shareholders. We will do this by continuing to invest and profitably grow the business, operating the business effectively and efficiently, financing the business with efficient capital structure that provides the necessary flexibility to meet the investment needs of the business while maintaining adequate liquidity and allocating capital to the highest return opportunities that will create value for our customers and for our investors. With our most recent review of the Cadence Capital Structure, our most recent review of the Cadence Capital structure took into account Cadence's capitalization, projected free cash flow, ongoing investment requirements, maintaining adequate liquidity, future acquisition opportunities and input from investors.
Based on the results of this review, we are placing our current $450,000,000 stock repurchase program with a new program to repurchase $1,200,000,000 of our shares over the next 6 quarters through the end of 2016. The actual timing and amount of repurchases would be based on business and market conditions, corporate and regulatory requirements, acquisition opportunities and the other factors. One such factor is the settlement of our warrants, which begins in September of this year and extends through early December. We plan to limit the pace of our repurchase program during that period. We expect the new share repurchase program will be funded by U.
S. Cash on hand, future U. S. Cash flow and additional debt. We also plan to reduce U.
S. Cash over time to a minimum level that we believe is prudent to operate the business, maintains adequate liquidity and maintains strategic capacity for investment opportunities. Now let's move on to the quarterly review. Cadence had a strong Q2. Total revenue was $416,000,000 up 10% compared to $379,000,000 for Q2 of 2014.
The revenue mix for the geographies was 48% for the Americas, 23% for Asia, 20% for EMEA and 9% for Japan. Revenue mix by product group was 21% for functional verification, 29% for digital IC design and sign off, 27% for custom IT IC design, 11% for system interconnect and analysis and 12% for IP. The weighted average contract life was approximately 2.4 years. Total costs and expenses on a non GAAP basis were $300,000,000 compared to $350,000,000 for Q1 $290,000,000 for the year ago quarter. Q2 headcount was 6,405, which was up 145 from Q1, primarily due to hiring in R and D and technical field positions.
Non GAAP operating margin was 28% compared to 23% for Q1 and 23% for the year ago quarter. Product mix, the timing of certain expenses and the fact that our 4th July shutdown week fell in Q2 this year instead of the usual Q3, all contributed to higher than normal non GAAP operating margin for Q2. GAAP net income was $0.19 Non GAAP net income per share was 0 point $2.7 compared to $0.23 for Q1 $0.21 for Q2 2014. Operating cash flow was $122,000,000 compared to $47,000,000 for Q1 $69,000,000 for the year ago quarter. Total DSOs were 29 days compared to 30 for Q1 and 26 for a year ago quarter.
Capital expenditures were $17,000,000 This was higher than Q1 due to the timing of facilities investments. We expect capital expenditures to remain approximately $40,000,000 for the year. Cash and short term investments were $744,000,000 at quarter end compared to $980,000,000 at the end of Q1. We paid $296,000,000 in cash on June 1 to complete the retirement of our convertible notes. We repurchased 2,900,000 shares of common stock for $56,300,000 during the quarter.
47% of our cash and short term investments were in the U. S. At quarter end. As a reminder, our outstanding warrants will settle from September through December. The potential dilution table is in our 10 Q filing.
Now let's turn to our outlook for the Q3. Note that our outlook includes the projected impact of increased share purchases, repurchases and additional debt. For Q3, we expect revenue to be in the range of $423,000,000 to $433,000,000 Non GAAP operating margin is expected to be in the range of 25% to 26%. As Lupo mentioned in his remarks, in Q2 we added several more marquee customers for digital. We are continuing our plan to invest in hiring to support and expand our business with these market shaping customers in Q3 and Q4.
GAAP EPS for the 3rd quarter is expected to be in the range of 0 point 17 dollars Non GAAP EPS for the 2nd quarter is expected in the range of $0.25 to 0 point 2 $7 Now for our fiscal 2015 outlook. The midpoints of our bookings and revenue guidance for the year are unchanged from last quarter. The bookings are projected to be in a range of $1,870,000,000 to $1,930,000,000 We expect weighted average contract life in the range 2.4 to 2.6 years and we expect at least 90% of the revenue for the year to be recurring in nature. Revenue is expected to be in the range of $1,685,000,000 to $1,715,000,000 We continue to expect hardware revenue to increase in 2015 compared to last year. Non GAAP operating margin expected to be in the range of 25% to 26%.
This is up from our prior expectation of approximately 25% due to favorable expense variances in the first half. While we will not address 2016 in our Q4 earnings call, but as you think of about next year, you should be aware of the fact that our cost of investments in hiring for R and D and technical customer support are ramping through the year. So we elected 2015 with a higher expense run rate than where we are at present. Non GAAP and the other income expense is now expected to be in the range of 25 negative $25,000,000 to negative $19,000,000 Our assumed non GAAP income tax rate is 23%. We are assuming weighted average shares, diluted shares outstanding of $308,000,000 to $314,000,000 for the year.
GAAP EPS is now expected to be a range of $0.63 to $0.69 Non GAAP EPS is now expected to be in the range of $1 to 1.06 dollars which is an increase of $0.02 at the midpoint. We expect operating cash flow to be approximately $360,000,000 up from our prior guidance of $350,000,000 Our DSO forecast is approximately 30 days and we expect capital expenditures of approximately $40,000,000 Now in closing, we believe our new stock repurchase program will enhance us enable us to enhance value to our investors optimizing our current balance sheet to continue delivering mission critical products to our customers, expanding our leadership position in system design and enablement and allocating capital efficiently between future investments in the business, maintaining liquidity and returning capital to our shareholders. So with that operator, we'll now take questions.
I had a couple of them. First one on the buyback. Jeff, you mentioned that you're going to use U. S. Cash, cash flow and also some debt.
Just kind of curious, what kind of debt level are you talking about? What are you comfortable with? If you can help quantify that either in terms of leverage or any kind of number that will be very helpful? And then I had a follow-up.
Sure, Krish. So our review took into account Cadence's capitalization, our projected free cash flows, ongoing investment requirements, maintaining adequate liquidity and future acquisition opportunities. When we're ready to let you know though on the amount, we'll let you know. It's hard for us to speculate at this time based on market conditions and securities loss.
Got it. All right. Fair enough. And then question for Lip Bu. You kind of mentioned how the consolidation is really a complex situation.
Tough to quantify how it's going to impact your the design activity or the EDA budget. I'm kind of curious, are you seeing any changes yet either positive or negative from the consolidation that has happened so far? And along the same path, some of your customers seem to be pushing out or slowing down the 10 nanometer ramp. Kind of curious how that impacts design activity?
Good. Thank you for the questions. So first of all, I think clearly we see the pace of consolidations increase. And so clearly I think from the design point of view we don't see any material impact. And as I indicated earlier, I think the consolidation in the longer term may have some impact to the overall growth for the industry.
But so far we don't see any positive or negative impact. But clearly some of this consolidation is also a great opportunity for us when we see our product continue to innovate better product, better solution. And then when they go into the more complex, more advanced node, clearly it's an opportunity for us to win. And then the other part and also we can proliferate. And then the other part we also see a new breed of system and service provider that are decided to go vertical, integrated and aggregated and that's a greater opportunity for us.
So I think we kind of stick to our game plan in terms of system design enablement, really focused on executing our core EDA business, our IP business, our PCB and then go beyond some of the vertical focus that we have. We highlight some of the success we have. We're going to continue to execute and then be truly a trusted partner for them.
Got it. That's very Libri, in your prepared comments, you mentioned you added some digital customers. Are these customers actually using cadence blocks in the actual design flow? Or are they just in the evaluation phase today?
And how
are you penetrating these customers? Are you do you have to give any free services as a part of it? Or is it more purely based on merit?
Yes, good question. So we are delighted. In fact, we are very pleased with our progress in terms of our innovation and then the new product that we are offering. And clearly, the customers see the benefit of the massive parallel architecture faster one time, 5 times is significant and also the scale to 10 1,000,000 instances that is significant for them. So we highlight some of the key name like Qualcomm Technology, NVIDIA, STMicroelectronics, Feliday to join ARM, Freescale and Juniper, they are not just evaluating.
Actually, they are design adopting our innovators for production design for the most advanced node based on the excellent quality of result and then faster turnaround. And that they're clearly seeing the benefit of the delivery that we mentioned earlier. And so right now we have a good design win and now we are really focused on proliferating to various product groups so that they can be comprehensively using us as a platform of choice.
And by the way, Krish, we get paid for these too.
Got it. Thanks, Ibu. Thanks, Jeff. Appreciate it.
Great. Thank you.
The next question is from Rich Valera with Needham and Company.
Thank you. Jeff, just wanted to clarify your comments with respect to being sort of not in the market while you're settling the warrants. So is that you said the month of September through December you would expect minimal buybacks. Is that correct?
Yes. What we said is we will constrain the pace of our repurchase program during that period. Obviously, as those are being settled, we don't want to interfere with the warrant settlements, Rich. Okay. So we will be in the market during that period of time, but the amount will be constrained.
Got you. And I just wanted to understand that the level of commitment to the full $1,200,000,000 over the 6 quarters. I mean, I'm assuming there's a pretty high level of commitment there, but the sort of qualifying language you put right after that seems to suggest that maybe you would, maybe wouldn't purchase it depending on market conditions. And I just wanted to make sure that just trying to understand from you better, what is that level of commitment for the $1,200,000,000 over that timeframe?
Rich, that's a very good question. And so I think a couple of points I'll make. This is a serious process that we go through with our Board and our management team to look at capital allocation. And by the way, review our business and capital structure at the same time. As a result, we improved the $1,200,000,000 plan.
2nd, I think if you look at our past commitments, right, we have met those as far as the repurchases in the marketplace. Again, of course, there's business conditions, M and A and those types of things, which may impact us going forward, but it is a commitment that we've made.
Yes. Just to add on, this is Lipo. Cadence is committed to driving shareholder value and in a very balanced approach and drive growth, invest in innovation and then return capital to our shareholder. And then the Board and the management review regularly and thoroughly all the aspect of our business and capital structure. And as a result of this review and we put in place a new plan and so we take it seriously with our Board, with the management and then really focus on driving shareholder value.
Great. And just one more, Jeff. When do you think you might be able to talk about any debt or notes that you might use to finance the buyback? Any sense on the timing of when we might get more clarity?
Yes. Well, as you know in this world we there's a lot of uncertainty. We'll let you know if and when we decide to do the offering. As you probably also noticed, we filed an S-three today, which gives us some flexibility. But it's difficult for us to speculate right now.
We'll let
you know as soon as we can.
Very good. Thanks very much gentlemen.
Okay. Thank you.
The next question comes from Reuben Roy from Piper Jaffray.
Thank you. My first question, Lip Bu, I want to return to the discussion you were having around the digital tools. In terms of some of the customer traction, you said it's some new customers for Innovus, for instance.
Is there a way to
think about what kind of traction you're seeing with customers with this round of products, specifically Ovis versus maybe your previous implementation system encounter? And perhaps from a maybe a little bit of a longer term perspective to 3 years where you think your digital market share can get to as your customers seem to be using these tools for new generation designs? Thanks.
Yes. Ruben, thank you so much for the question. So I think overall, we are very pleased with our offering in the digital and sign off area. We mentioned about JANUS. This is our latest additions.
And we mentioned about TI and Imagination and a dozen of others we are engaging. And then in Innovus, we are very delighted. This is a completely rewritten and it's massively parallel architecture and clearly see the benefit on the faster run time and then scalable to 10,000,000 instances. And then we are delighted to highlight some of the key customer. They are selecting us, Qualcomm Technologies, NVIDIA, STMicro and Faraday and then joining Freescale, ARM and Juniper.
And clearly they see the result. Clearly they see the faster turnaround. And then saying that, we also have some of these sign off tool Campus, Voltus, Qantas. They all add on additional 10 new logos each. And so we are delighted with all this Tier 1 customer winning.
And then meanwhile, we continue to really focus on their tape out and their design win and then proliferate across all their product group that is our job. And so that we are continuing to investing in the engineering side in terms of the field organizations so that we can support the customer win and that's the most important focus on us. So I think all we are saying is we are earlier deployment success and right now we are rapidly proliferating across product group in those leading customers.
And if I can add one thing, we are showing strong revenue growth year over year in digital. If you look at our supplementary schedule, you can see the revenue growth. So we're seeing results.
And then in terms of 2 years from now, I think clearly we continue to execute and I think the opportunity is great, but we take one thing at a time.
Right. Okay. That's very helpful. Thank you both, Lipko and Jeff. And then Jeff a quick follow-up.
I may have missed it. I think you're going through sort of the discussion around OpEx exiting this year a little quickly and I may have missed it. But it sounded like you're saying that you're exiting 2015 at a higher rate than you are now, which is not surprising. But were there any specific areas that you were investing in as you look at 2016? Or any other color as how to think about OpEx as either a percentage of revenue or percentage of growth versus revenue as we look ahead to 2016?
Yes, yes, Ruben. So the fundamental reason we're investing is some of the strategic wins that Lip Bu talked about with our digital flows and those types of things and our customer wins. So we are investing in R and D and technical sales people to support those wins. And of course, as we announce those wins, we want to make sure we support our customers fully on both deploying these wins, but then enhancing these wins and proliferating these wins going forward. So that's why our expenses are going up from now to the end of the year.
And we'll talk about 2016 when we talk about 2016.
Okay. Last one then for me. You're reiterating your expectation for hardware revenue to increase in 2015. Any update on timing of the new platform shipping?
Yes. This is Lippo. As I mentioned preproduction testing or our next generation emulation continues remain on track to start shipping later this year. And we will provide more details when the new product formally launch.
Great. Thank you, guys.
Thank you.
The next question comes from Jay Vleeschhouwer with Griffin Securities.
Good afternoon. Jeff, first for you, I'd like to get a better sense of the moving parts inside the 2nd quarter numbers and as well your guidance for the year. For the quarter, your total product and maintenance revenue was hardly up sequentially, but your hardware cost of revenues as per the 10 Q were down pretty materially year over year and sequentially. So would it be fair to say that your emulation revenues were also down pretty significantly from Q1 year over year, but you were able to offset that with outperformance on the services revenue and the services revenue in turn would have correlated to the strength of IP?
So Jay, if I can rephrase the question a little bit, but I'll get to all different parts. Our software mix as a percentage of total was better than it had been. Partially that was because hardware was down, but the main material part was because software was up. Services was up slightly, but the biggest part was actually in the software side of the business for some of the wins and some of the reasons that Lip Bu gave earlier. So hopefully that got to your question.
Okay. For hardware to be up year over year for the year, would it be fair to say that you would probably need to have a record 4th quarter? The inference is that you're in the hole in the first half of the year down in Q1, down in Q2. It looks like your revenues through the first half in hardware maybe the lowest in about 4 or 5 years. So again to be up, would it be fair to say that you would just need to have an unusually strong or record Q4?
So a couple of things. First, we had a good Q1 in hardware, right? Q2 was down from Q1, but we had a good Q1 in hardware, right? One of the best quarters we had in the previous 4 quarters before that. Hardware will clearly be up in the second half of the year is what I think we've consistently said and will be up for the year as a whole.
I think you can probably do the math from where that is. Yes, I can chip in
a little bit a little here. I think clearly from my customer interface, customer interest in emulations remains high. And then secondly, I think clearly we indicate that the Palladium XP we won 6 new logos and also the newest application dynamic power analysis turned out to be very good and very vital for some of the key customer in terms of software related power issues for mobile applications. So overall, I think the demand is strong and so far I think we're going to be up year for 2015.
Okay. So I may finish with just a couple of product questions. When we think about your principal segments, starting with custom, that's had a pretty good run here for about 3 years. PCB as a category for the whole industry, meaning for you and for Menor has been good for the last 2 to 3 years. So the question there is, do you think that the kind of multi year momentum you've seen in 2 of your largest categories can continue.
On the other hand, when we look at implementation or placing a route, that's been pretty much sideways for the industry for the last year or more. Do you think that both you and Synopsys can grow in implementation that this isn't necessarily a 0 sum game in implementation? They can grow with their new tool. You can grow with yours as customers reinvest or grow their spending for your respective tools and implementation?
Yes, good questions, Ji. So let me address 1 by 1. First of all, you mentioned about the custom analog and SPB side. And IoT and consumer electronics actually driving tremendous growth demands for our tool like Virtu also. We have this the electrical aware design that turned out to be very Siguitee that integrate together with Allegro that provide a whole system analysis from power signal and the whole PCB side.
And a couple of things I just want to highlight. Asian major car manufacturers adopted security for their system level analysis. And in fact customer actually pushing for the 10 nanometer and with more and more customer using Virtuoso on the most advanced 10 nanometer design start. And so I think the 10 nanometer is ramping faster than and broader than a lot of people expected. Advanced packaging technology for IoT and mobile is also another driver for our growth.
And so I think overall I think mixed signal, Anonoc and then the whole IoT is helping us a lot. We are collaborating very deeply with major advanced foundries for this most advanced nodes to support our customer. And then with that, I think there's a lot of system on the chip design SoC analog and mixed signal with our strength with our digital. And in fact digital we're seeing 8% revenue growth and year over year that is very significant. And so we are very delighted.
And then so that with the new suite of digital flow with our most advanced and our custom analog and that will drive a lot of SoC mixed signal in the IoT and consumer product and also in the automotive side and I highlight couple of them. And then also the other part is that whole system and service provider they're really looking and we are very uniquely positioned not only our tool and IP plus our packaging and that can do the system analysis become a tremendous value for them. So I think to answer your question, we continue to cautiously optimistic in terms of the growth potential that we see.
And not just for us, but for the industry as a whole. We don't view this industry as a zero sum game. We're certainly very happy with our progress, but the whole industry we think is a good industry to be in.
Thank you.
The next question comes from Gus Richard from Northland.
Yes. Thanks for Just a quick follow on. When you think about your core EDA business and thinking about the consolidation, what do you think the growth of that business would be over the next 3 to 5 years, the overall market?
Yes, Gus, I think clearly the co EDA and then consolidation is happening right now. It's very hard to predict what is the growth look like. I think you can look at the eDAQ survey and then you can get a projection from that. But all in all, all I'm trying to hear from the customer, when you move down the geometry and in all these vertical application like cloud, data center and also some of the consumer like IoT and machine to machine power going to be critical, massive parallelism will be critical. And so I think the complexity of the chip design will be very important to have the EDA and foundry and IP all collaborate closely together to have a customer success.
So we have been working really hard to be the trusted partner for our customer and partner. And I think slowly over time people will see that we are very collaborative and we are pushing the envelope helping to solve their most challenging design and the complexity, the scalability, the low power and then time to market with all the offering we have. So I think going forward that partnership closely with the customer will be the key to success. So I think that's something that we really believe in it and we really work hard with our customers.
Okay. Thanks. Thank you for that. And then secondly, when I look at some of the folks working on 10 nanometers have announced that they're going to delay implementation. 75 look even more challenging.
There's been sort of a slowdown in the cadence of Moore's Law. Can you talk a little bit about how that might affect your business in terms of new EDA tools? Or will people pivot to other processes like FDSOI that will give you a new opportunity? Again, how do you think that will affect the growth of the overall business?
Yes, very good question, very insightful questions. So I think couple of things. 1, clearly, we work closely with our customer and also our foundry partners. And we want to make sure that our tool are optimized for various process that their customer demand them. And so clearly 10 nanometer some are slowing down, some are not slowing down.
And so it really depends on some of the key application they are driving. And so clearly on some of the mobile and some of the graphic and computer vision related area, advanced node is critical. So we work very close with our customer in foundry and 10 nanometer and 7 nanometer. When you move down to 5 nanometer clearly double triple patterning may not be enough then you're starting to really look at the EUV for 5 nanometer from a humble experience critical to have EUV. And I'm very pleased to see the ASML, the EUV are making progress.
They can go up to 80 watts now and they can go up to 500 wafer per day. That is extremely encouraging. Then you're starting to look at TSMC, Intel progress on the EUV side and also some of the photoresist related development. So we keep a very close eye on this whole roadmap and the process technology. And we also work closely with equipment semiconductor equipment company to make sure they are ready.
And in terms of FD SOI and the various version of the process, we work closely with our foundry partners and it's going to be driven by customers. So we work closely with the customer understanding which process node, which foundry they are using. Our tool will be optimized ready for them. That is our job.
Great. Thank you so much.
Thank you, Raj.
The next question comes from Monica Garg from Pacific Crest Securities.
Hi. Thanks for taking my question. Jeff, could you remind us how much of your cash is generated in U. S? And how much offshares?
And I think you gave us a number. How much of the cash currently is
in U. S? Hi, Monica. So in cash, the current cash balance is about 45% are in the U. S.
And our cash split is about equal to our revenue split, approximately 50% of it is generated in service
revenue
service revenue in first half twenty fifteen is up almost 25%, 30% year over year from first half last year. Is any there is any re classification of revenue in that?
No, Monica. There's no reclassification in revenue in our services. We've some nice services business. Part of the services, of course, is IP also, but it's been a very nice business for us so far this year.
Got it. Okay. Then you've talked about the new customer wins in the digital side, but you have not changed your bookings guidance. So were you already expecting these customers? Or there could be any upside on the bookings numbers here?
Hi, Monica, again, this is Jeff. So as always, when we guide, we put everything we know into our guidance. We certainly had some indication along the way that we were going to be successful with these customers. I think we mentioned it on the prior calls that we are looking positive at more than just the customers we had previously announced. Those businesses largely came to fruition as we anticipated.
So that's why the bookings isn't really changing.
The next question comes from Sterling Auty with JPMorgan.
Yes. Thanks for squeezing me in guys. So just want to start in terms of the quarter you mentioned the timing of the shutdown. But just wondering if there was any other variable expense savings in the quarter that also contributed to the upside in margins?
Yes. Yes, Sterling. This is Jeff. Yes, the shutdown was 1. There was 2 other issues.
Certainly, the mix of hardware and software favored software in the quarter. As we mentioned, hardware was down, so that certainly helped us. And then we did benefit from the timing of certain expenses and we don't anticipate that benefit carrying forward into Q3 and Q4.
Okay. And then you also mentioned in terms of the hardware that you're already in testing on the new platform. I didn't quite catch what's the feedback on the testing Ben and what are the next steps before general availability?
Yes. Sterling, this is Lippo. As I mentioned the preproduction testing of our next generation emulator continues and we remain on track to start shipping later this year. And we will provide you more details when the new product formally launched.
Okay. Sounds good. And then in terms of the duration the 2.4 years, Any sense there what the mix driving that? Is it a lot of additional 1 year stuff that you're seeing? Or what's kind of leading to coming down to the 2.4?
Yes, Sterling. So we kept the year unchanged at 2.4 to 2.6. We are going to have fluctuations from quarter to quarter and those are just kind of the natural fluctuations in business. I don't think there's any particular trend there that's material.
All right, great. Thanks guys.
Thank you.
Our final question comes from Mahesh Sajanaria
from RBC Capital Markets. Yes. Thank you very much, Jeff or Lubu. So you looks like you had a pretty detailed review on the capital structure. And from that, that looks like dividend is not on the table for now.
So at least it's not going to be there for a year or 2. Can you talk a little bit about what was discussion around dividend in your discussion on capital structure?
Sure, Mahesh. It's a good question. Our process of going through the capital allocation review with our board and the management team is a regular event for us. We look at all the alternatives in front of us, but our focus remains on what is our capitalization, what are our projected free cash flows, the ongoing investment requirements, necessity to retain adequate liquidity, future acquisition opportunities and advice from both shareholders and advisors. So we took that all into account and came up with our conclusion.
We obviously can't talk at a level underneath that, but I'm sure you understand.
Right. And also I wanted to follow-up on the OpEx commentary
we have had.
And the upside you are guiding pretty much for the full year EPS is looks like the upside in Q2, but shutdown should not impact that. And I mean within your guidance free model, we have a run rate exiting 2015. So I'm just trying I'm wondering what message you're conveying on 20 16 that the increase is likely to be of the similar level as 2015 or what's tied behind that OpEx commentary?
Yes. So the commentary about our ramp in expenses through 2015 is I think a reflection of the success we've had in many different parts of our business. And as we support those customers, we're continuing to add engineering headcount and technical sales headcount. All we want to be clear is that when we leave 2015, we are going to be at a higher expense rate than we were during the beginning of the year. We're quite happy with the results we've had in Q1 and Q2.
So just to follow-up. So 2016 will be a nominal increase whatever you normalize it. Is there will your additional support personnel and everything will be in place by end of 2015 or it continues a little bit in 2016?
Yes. We're really not guiding 2016 at this point, right? All we want to do is make clear that our expense run rate is going to be higher than it is at present. Again, we're investing to support the wins that we've had. It's very important for us to sustain and proliferate within these customers.
And so we're making R and D investment and the technical sales investment to ensure we do that. We just want you to be aware that our run rate is going to be higher in expenses than when we leave than when we