Ladies and gentlemen, thank you for standing by and welcome to the Synopsys Earnings Conference Call for the Q2 of Fiscal Year 2019. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. Today's call will last 1 hour. 5 minutes prior to the end of the call, we will announce the amount of time remaining in the conference.
At this time, as a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Lisa Eubank, Vice President of Investor Relations. Please go ahead.
Thanks, Anna. Good afternoon, everyone. Hosting the call today are Art Egias, Chairman and Co CEO of SunOpta and Trac Pham, Chief Financial Officer. Before we begin, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts, targets and other forward looking statements regarding the company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results and results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect.
In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our most recent SEC report and today's earnings press release. In addition, we will refer to non GAAP financial measures during this session. Reconciliations to their most directly comparable GAAP financial measures and supplemental financial information to be found in the earnings press release, 8 ks and financial supplements that we released earlier today. Also included in the financial supplement are detailed information around our long term financial objectives, the transition to ASC 606 this year and operating segment results. All of these items, such as the most recent investor presentation, are available on our website at sanoptrix.com.
In addition, the prepared remarks will be posted on the site at the conclusion of the call. With that, I'll turn the call over to Art Pagliuk.
Good afternoon. I'm happy to report excellent second quarter results. Revenue was a record 836,000,000 dollars with strength across both operating segments. In semiconductor and system design, software revenue growth was particularly strong, moderated somewhat by a tough hardware comparison versus the Q3 of 2018. Software integrity revenue, products from right to plan, was greater than 20% growth and is expected to be profitable for the year.
Non GAAP EPS was $1.15 and we repurchased 100,000,000 of our stock, bringing the total so far this year to 129,000,000. The U. S. Export restrictions that were announced last week do have an impact. We are raising our non GAAP earnings guidance in the top end of our revenue range to reflect the strength of our business.
Chuck will provide some additional color on the topic and discuss the financials in more detail. As geopolitical tension has escalated, the overall customer environment for us is quite solid. The culture for advanced technology, design tools, IT and security solution is strong, creating a robust market opportunity. Growing impact of AI, 5 gs, Internet of Things and Big Data is profound and is driving substantial investment in new compute and machine learning applications. Roughly all vertical markets are raging with AI and the potential economic impact is forecast to be in 1,000,000,000 of dollars.
In addition, the long time semiconductors, very large system companies and self providers are investing competitively, opening further opportunities for us. The push for AI solution, along with the growing security issues associated with the highly interconnected world, benefit our entire silicon to software product portfolio. SunOptis is ideally positioned to solve these very complex challenges. Our EDA design and verification solutions are front to center in creating brand new AI optimized features. Our IT is broadly used in the most advanced technology ever built.
Our prototyping tools run and test software on new subsystems long before something is available. And our software security The underlying driver of EDA growth is design complexity along 2 factors. 1, advanced processes moving smaller, denser technology nodes 7, 5 and more frequently, 3 nanometer. 2, optimizing designs in more established nodes cost reduction, but also speed and low power. And seeing massive software contents that have become integrated as part of Tivity9.
And overall, the system challenge is to make sure the chip and the software work well together. In design, customers rely on synoptics solutions, all of the 12 nanometer and below design. The 3 reasons are state of the art tools and also our unmatched collaboration and support. This quarter, we continued our long standing Foundry enablement with CFS team who certified both our technical and custom design platforms for its 5 nanometer system set process. TSMC also certified our Fusion design platform with the innovative system of integrated chips or SOIC chip stacking technology, delivering design solutions for 2,3 d design device integration.
Samsung used our complete design solution to develop the very first test chip with brand new gate all around software. In digital design, a rapidly growing highlight is the success of our new fusion compiler product, which we launched in November. It's a revolutionary combination of the main pillars of design, all of which are cornerstones for synoptix. Evitin, It's a single solution on a single data model. Fusion for power is doing really well from both technical and business perspective.
A rapidly growing set of customers is reporting excellent results, including significantly shorter design time, a higher level of capability and better timing, area and power results. Adapted by 19 different logos across 8 different processing nodes and used for about 250 active and by now completed designs, the accessories impressive. Quanta's customer is ready redeployed fusion compilers across its high value automotive portfolio. Vanessa cited consistently superior power, performance and full flow productivity on its production design. The versatility and potential of the Fusion design platform is living up to its promise, which includes continuous free adding of new Fusion technology capabilities to broaden its impact.
This quarter, for example, we launched a fully integrated test flow, obtaining next generation capabilities for automotive tests and functional safety. Stay tuned as we deliver further enhancements over the next 12 months. Now turning to verification, where we continue to see outstanding results and a strong outlook for the year. Thanks to many years of great technology advances and excellent customer support, we are the market leader. Verification is a huge bottleneck for chip and system design.
Customers tell us that we can't get enough verification as the time complexity is getting more difficult and more time consuming by the day. Thomson is fortunate to have the fastest software and hardware solution and the largest size of our verification continuing platform. The 2 strength of verification software was driven in part by Our decade long leadership is an important indicator of our impact. 12 of the top 15% of the company in the world use our franchise DCS simulator as their primary verification solution. Demand for our hardware based verification is also high and increasingly broad based.
The ability to validate chips together with the software and the need for early software developments are paramount. Our new ZV4 emulator launched late last year and doing very well with early demand exceeding expectations and outpacing that of previous solutions. Adoption of our HaaS FPGA based prototyping solution, which targets early software development, has been robust in the quarter. As a result of our differentiation, we are market leader in both emulation and prototyping. Now to IP, which had another very strong quarter and is poised for an excellent year of double digit growth.
As the number 2 vendor in the world and the market leader in integrated, analog, embedded, memory and foundry specific IP, we provide the industry's broadest set of building blocks to address today's most complex design requirements for AI, automotive, Internet of Things, cloud computing and more. The quarter featured a number of important milestones at Advanced Nodes. We announced that we have achieved more than 250 IP wins on TSMC's 7 nanometer FinFET process across a broad range of applications. In addition, we signed a multi year agreement with a marquee global customer for 5 nanometer IP. Meanwhile, our portfolio continues to expand.
Further building on our strength for automotive, we announced a collaboration with Coleman Foundry to develop the industry's 1st automotive grade IP for their 22 nanometer Fx process. We announced a complete solution for 1 of the hottest markets around, narrowband IoT, enabling next wave of connected devices. And we taped out 2 key multi titles for cloud computing and AI application, improving 112 gigahertz and ultra high speed connection for hyperscale data centers. With the rising complexity and time to market challenges inherent in delivering today's electronic systems, we're not to fulfill the critical and growing need for sophisticated low risk IT. Now facing to our Software Integrity Group, which has now reached 10% of the last year's revenue milestone and is scaling nicely.
As software security issues continue to increase, both numbers and severity, as things during the development process becomes a necessity. This is true not only for electronics but for anyone who develops software in financial services, medical, automotive, industrial and beyond. The progress our team has made in building this business over the past 5 years is striking. While we acquired compelling technology and added substantial organic investment, we also focused our deep knowledge in building a compelling software security and quality platform. In March, we announced our new Polaris Software Integrity Platform.
It brings products and services together into an integrated, user friendly, cloud based solution that makes deployment and scalability easier. While we will continue to deliver enhancements to the platform over the next 12 to 18 months, the initial release is already showing great promise. We are engaged with customers across all regions, and earlier reaction has been very positive. This includes a Fortune 500 insurance company who placed a multiyear, multibillion dollar operator for Coverity delivered on Polaris. The power of our portfolio, the broadest in the industry, is evident in the growing number of high value contracts and companies adopting multiple products.
Industry recognition of our solution also continues to grow. Last month, for the 1st year in a row, Synopsys was named a leader in Gartner's Magic Quadrant for application security testing. In fact, we were placed at the highest level. We're also again recognized as a leader in the 4th wave software composition analysis for open source software. Important trends such as these substantiate our leadership for customers who are investing significantly in choosing their preferred partners.
In summary, we delivered another very strong quarter with our raising on top end of revenue and non GAAP EPS guidance for the year. We're making step by step progress in expanding our ops margin. Our new EDA comps in the early stages of the multi year adoption cycle are experiencing rapid and substantial adoption. Demand for our IT portfolio is high, and we expect to deliver another year of low double digit growth. And our software security and quality business is doing well, reaching about 10% of total revenue and expected to reach profitability for the full year.
Finally, I want to say thank you to the Global Cloud 6 team for its continued hard work and commitment in helping our customers meet their important and always urgent objectives. Let me now turn the call over to
Chuck. Thanks, Orest. Good afternoon, everyone. We continue to execute well, delivering top and bottom line growth and non GAAP optimization of 25%. Operationally, we are on track for another outstanding year and an outlook that reflects high single digit revenue growth on an apples to apples ASC 65 basis, substantial operating margin improvement and double digit non GAAP EPS growth.
Government action to restricted trade with 1 of our customers and its affiliates does have an impact on the business but we are currently unable to ship products, so there are certain updates or provide support. As a result, we are now we are not able to do business and recognition of currently contracted revenue is on hold. However, due to the strength in the first half, we're still able to raise our non GAAP guidance and the top end of our revenue range. I'll provide more details in a moment. Now to our Q2 numbers.
All comparisons are year over year unless otherwise stated, and all results are reported under ASC Topic 606. For our summary of these results as well as the current financial metrics under ASC 605, please refer to our financial segment. We generated consolidated total revenue of 886,000,000 dollars or 8% growth and saw broad based strength across both segments. Semiconductor and System Design was $753,000,000 up 6% or high single digits excluding hardware, which had a record second quarter last year. For software integrity, revenue was $83,000,000 and increased 23% as the business continues to capitalize on market dynamics and gain share in high growth markets.
Continuing down the income statement, consolidated total GAAP costs and expenses were $721,000,000 Total non GAAP costs and expenses were $622,000,000 resulting in a non GAAP operating margin of approximately 25%. At the segment level, Semiconductor and System Design delivered an adjusted operating margin of 26.2 percent with software integrity at 10.1%, enhancing both underlying strength and quarterly variability of revenue and expenses. Numerous certain operating expenses such as stock based compensation, amortization of intangibles and other expenses that are managed by the consolidated side has not been allocated to our segment. We continue to expect software integrity to be profitable for the full year with a goal of reaching at least our consolidated profit margin over the long term. These operating results in turn drove GAAP earnings per share of $0.77 and non GAAP earnings per share of $1.18 Turning to cash.
Operating cash flow was $353,000,000 driven by strong collections in the quarter. We ended the quarter with a cash balance of 631,000,000 dollars and total debt of $292,000,000 Before moving to guidance, let me provide some additional color around the impact of last week's settlement action. As I mentioned, we are not able to continue business with these customers and its commitments, The revenue recognition for current contracts is on hold until either the contract expires or the restriction is lifted. Because the duration of the ban is unclear, we've expanded our ranges to account for an array of potential impacts. We believe that we will eventually be able to recognize the revenue depending on the timing of the ultimate resolution of the government action.
Our target is on ASC 606 for the fiscal 2019, revenue of 3.29 dollars to $3,250,000,000 total GAAP costs and expenses between $2,798,000,000 and $2,833,000,000 Total non GAAP costs and expenses between $2,525,000,000 $2,525,000,000 reflecting our non GAAP operating margin of 8 point percent,
operating expenses between minus 12
dollars our non cash loan less tax rate of 16,000,000 outstanding shares between 160,000,000 dollars GAAP earnings of $2.85 to $3.20 per share non GAAP earnings of $4.26 $0.08 per share, an increase at the midpoint of $0.08 per our prior guidance. Cash flow from operations of $6,700,000,000 to $700,000,000 which reflects additional uncertainty due to trade restrictions and some restructuring costs as we reallocate resources to future growth And capital expenditures of approximately $220,000,000 We continue to expect CapEx to drop by roughly half in 2020. Now to the targets for the 3rd quarter, revenue between 8x10 and income of $10,000,000 total non GAAP costs and expenses between $620,000,000 dollars and $640,000,000 other income and expenses between minus $4,000,000 and minus 2,000,000 dollars a non GAAP normalized tax rate of 15%, outstanding shares between $156,000,000 to 156,000,000 GAAP earnings of $0.60 to $0.83 per share and non GAAP earnings of $3.07 to $1.12 per share. I'll conclude by reiterating our long term financial objectives. Pang and double digit non GAAP earnings growth driven by strong and high single digits reflected mid to high single digits for ETA, low double digits for IT and software security gear in the 20% range and operating margin expansion to the high 20s for 2021 and in the 30% range longer term.
Our execution in the first half reflects optimism to drive near term results that will put us on a path to achieving our longer term operating objectives. Our capital allocation strategy enables us to meet dual objectives while returning to special value to shareholders. We maintain a balance of internal and external investment growth and a robust share repurchase program. I would now turn it over to the operator for questions.
And our first question comes from Rich Valera with Needham and Company. Please go ahead.
Thank you. Good afternoon.
Art, aside from the ban, which has some specific implications, would you say there's any other change in the outlook of the ban from your customers relative to a quarter ago?
Actually, I would say no. I don't think that there's material other change. There was some worry about 3 months ago that you've just settled. I think the market is just reinvesting itself among the companies and doing better than others. But the end demand, I think, remains just as strong as it was before.
Got it. And then, Track, just a clarification on the guidance for the rev rec with Huawei. So can we assume that the low end of your revenue range that there's no rev rec assumed for Huawei for the balance of the year. Is that correct?
That's correct, Rich. We tried to watch as the branch recapture the possibilities of the restrictions remaining in effect and then the higher end of the range with respect to the execution of the first half, which has been pretty strong and possibly that gets completed in some reasonable amount of time.
Right. So is it fair
to say that the low end would have been going up had not yet this change with respect to Huawei?
That's correct.
Got it. And then with respect to the hardware business, which obviously had a tough comp in Q2, but generally, I think as a kind of a tough comp for all of next year, when you came into this year, you were thinking that that
would be flattish. I don't know if
you gave that specific guidance, but my sense was you were just sort of thinking about that being flattish. Any change in thoughts on the hardware business now that we're a couple of quarters into the year?
No. I think fundamentally, I think we have predicted it reasonably well. And while we're speaking those words, your words are not all that far away from where we are. And so we do see good demand and broader demand, but it is excellent. So in the long term, I think that will just come back.
Last year was just particularly strong and actually overall so far this year is good in general.
I think you tax rate it correctly.
Got it. Thanks very much, gentlemen.
You're welcome.
Our next question comes from Tom Diffely with D. A. Davidson. Please go ahead.
Yes. Good afternoon. Following up on Rich's question on Huawei, were there application engineers on location that have been removed at this point? I don't think we want to go into the Internet piece or the individual action. But with all of our customers, we have essentially constantly applications, engineers helping them.
Them. And right now, we just follow exactly the rules set by the government and they include not getting specific support. Okay. And then just one more question on that. So the combination of both kind of traditional EDA tool as well as IP, was one more significant than the other?
Yes. Well, we wouldn't break it into individual pieces. Large companies typically are participants in all of our portfolio. So that's certainly would include. Okay.
And as Gary said, at some point, there was some of the
strong interest in IT comes from a lot of the Chinese customers as they're filling into the space.
Okay. So I guess moving on, do you see any other impacts from the trade war, the tariffs on your business? And if you do, is there a difference between delivering traditionally versus over the cloud? No. We don't see any changes, and I think it's too early to see any changes in the market period.
Obviously, there will be some adjustment of how different suppliers act. I'm talking about semiconductor companies. But I think it's really much too early to speculate because in the last few days there have been changes. Okay. And then, Trav, when I look at your full year view, obviously, you've got the dampening effect of Huawei.
But is there any other puts and takes that you created the spread? Or was it really just that one particular event?
It's pretty that isolated the issue because when you look at the first half results, you're seeing very good growth in top line margin improving very well against last year. And you can see on guidance for Q3, it's very disruptive. And so the widening of the guidance range really reflects the trade restriction that went to effect last year.
Our next question comes from Mitch Steves with RBC Capital Markets. Please go ahead.
So I only have 2 questions. First one is pretty high level. So obviously, the U. S. And China are having a little higher tensions here.
Maybe I'm thinking this is too much. Is there a chance that essentially the Chinese vendors you guys are selling to outside of Huawei would want to push kind of going to
the higher end nodes now. Now that the substantial currency band, it makes sense to try to, I guess, try to invest in the Airtech.
What are
your thoughts on that? Well, I think that all companies that are in the signature arena are continually racing forward to try to provide products with the high end nodes and the most sophisticated technology. I don't think that goes away under any economic scenario. And so this is one of the reasons why we think that overall our business outlook is very solid or strong because demand, given the applications that are being developed, requires strong investments on the fiber customers in advanced technologies. And so different companies will be there in different ways.
But the race is definitely on. Got it. And then second one, I guess, on the track, keep the limelight for this one. So I look at the software, I think it's got 10% margins already.
That seems pretty consistent on a Tier two basis.
Can you maybe help us understand how that's going to ramp? Because I
think that going 50% growth
in terms of margin perspective is pretty high.
So how do we model that going forward over the next couple of years?
Let's focus on this year. You're showing very good trend on software integrity, and that's heading in the right direction after roughly 5 years of investment in that area. The profit area or the OEM for that business, it's going to be noisy from quarter to quarter. Keep in mind, it's a nascent market that's growing and the profile that we look through very supportive to measure the revenue growth. It's still very strong.
And we continue to invest in this area. So you'll see us talk in terms of revenue growth and investments. For this year, though, we are certainly out of track or possibly for the 2nd fiscal year. I just would be cautious about extrapolating too quickly on the Q1 results heading to Q2, but we definitely will be profitable. Longer term, given the dynamics and the nature of that business, do you expect it to be at least at the corporate average interest of our land.
Our next question comes from Sterling Auty with JPMorgan.
I apologize, I don't know if it's static or I didn't quite catch the following two questions around the China situation. The first one is, is it all revenue related to all products currently with that customer that's put on hold? Is there anything else that potentially could come out of the revenue line over the coming quarters? And I got one follow-up.
So the revenue guidance included all revenues for all products related to that customer.
Okay. And also so there's no revenue at all coming to that customer
in the income statement. All right, perfect. And then the other one
is, I didn't catch what about cash flow in terms of cash collection and payments?
Yes. So our cash flow guidance of $670,000,000 to $700,000,000 does reflect a couple of new items. 1 is an impact of cash collections for that customer. It's hardly a reflection of the fact that we are already able to provide additional support for them. So the prudent outlook is to assume that the collections will be delayed.
The other part is the restructuring that we take into Q2, a a minor restructuring in Q2.
That's very fair. Last element, FX impact on top and bottom line in the quarter and the outlook?
Generally, immaterial to the overall results. Can you keep in mind that the one currency that's not in the U. S. Is the yen, and that is hedged at the beginning of the year. So the top and bottom line
has been much dampened by Thank
you so much. You're welcome.
And our next question comes from Gary Mobley with Wells Fargo Securities. Please go ahead.
Hi, everyone. Thanks for taking my question. A follow-up question on the operating margin for the Software Integrity business. You mentioned the long term target of being at corporate average, presumably high 20%. What revenue level has to be achieved to get to that target?
Really, the model that we described for software integrity is roughly about 20% plus growth. And if you continue on that path, the growth will be there. And then over the last few years, not only have we invested in the product portfolio and our go to market infrastructure, but we have also spent time building out the organizational infrastructure, the back office, whether it's a stick point where the process is to stand alone. So, do you continue to see improvements in operating margin through a combination of revenue growth in that 20% range and operating leverage as that business scales.
Okay. Jack, you mentioned a minor restructuring in the Q2, but I think the charge was the highest charge you've had in at least a few years. So could you shed some more light on what restructuring was and perhaps what the headcount and product groups might be impacted?
Yes. It's really Gary, it's very much fine tuning. We've committed to driving monthly margin expansion with a focus on hitting the high 20s by 20, 2021. We continue to invest in the nice important part across all areas. And as we continue it, we'll try to our
focus is making sure that
we're emphasizing the EBITDA areas that is going to deliver the best combination of top and top line growth and margin expansion. So P2 is just a function of that.
Okay. Last question, I'll ask it quickly. Hopefully, it's a quick answer. But do you have any of the mix between merchant, chip vendors and system OEMs and captively developed integrated circuits? I don't follow that.
Well, what's your sales mix between merchant integrated circuit companies and system OEMs?
This ratio has never changed all that much. It was always sort of a 40 ish percentage for the system houses. But in all fairness, those definitions are becoming much fuzzier because a number of system companies that in the past didn't do any chip designs have now started to invest in chip teams. And I think you mentioned some of those as being some of the big cloud providers, for example, some of the very large companies in the world. And at the same time, the other people that are taking the chip designers
are spending more money because
it's more challenging. So fundamentally, for us, the picture is changing, but it's not evolving at major
And our next question comes from Jay Vleeschhouwer with Brickman Securities.
Track, just a clarification, you did not mention in your prepared remarks an updated backlog number as you did in Q1, if you can provide that. 2nd, for our with respect to the restructuring, that ties into a couple of questions that we had meant to ask you anyway. And that is back in September at an investor meeting in New York and again at the analyst meeting a couple of months ago, you referred to improving your internal processes that related to the company's profitability and track referred to efficiencies, but you didn't really go into much detail as to what you're doing. You're changing your cost structure here.
But in what other operational and
ongoing phase are you in fact going to improve those processes and efficiencies that you alluded to? And also, it looks now, just a quick spell check this afternoon, once the restructuring news came out, that your current job openings are the lowest in 1.5 years. And it looks like most of the pullback in openings is in the U. S. And you still have a fair number of openings in China.
So maybe just talk about all of those issues together in terms of processes, cost structure and hiring. Let me start with your first question, Jay. The backlog was around $1,300,000,000 consistent with where it was at the end of Q1. Overall, the business, as you can see in the outlook that interest has been pretty healthy and run rate growth was actually up in Q2 then. I think a few comments on the fine tuning of our business that I should provide with the color.
It really ranges across the board. For example, in goes from systems implementation. Over a couple of years ago, we upgraded our ERP system, which we prepared for 06 transitioning as well as the evolution of the businesses in different portfolios. Having that platform then allowed that we go in and spend time last year and continue into this year looking at our infrastructure and the processes around the software integrity business and allowing us to some of that benefit you're seeing certainly in the profitability improvements in the first half. But really, you're
thinking about the processes and then the
systems that are supporting that business, the CRM system that supports that business, which is very different than what we traditionally used to. It's much higher volume, lower dollar, in absolute terms relative to the EDA and the business. Those are two examples of the sort of things that we're looking at. As you can see, in some ways, they're big heavy lifts in terms of creating infrastructure, but are there appropriate things that you'd want to do in terms of scaling the business from where we are today to bring $1,000,000,000 to next level of ambition?
Yes. So maybe I can comment a little bit going back to I forget exactly if it's 2 or 3 quarters ago when we communicated to you that we had essentially executed on a multiyear investment push with a number of acquisitions, specifically creating the Software Integrity Group, but also a number of pushes on the tool side and broadening our IP portfolio. And so we are continuing on all these investments because I think we invested in the right direction and think it's looking quite good there. At the same time, as we communicated to you that we were putting additional emphasis on improving the optionality after this round of investment, we are not only looking at all the infrastructure tasks and all the processes, as Trac mentioned, But essentially going through every business and looking at which products have high potential, which areas in the world or areas with customers need additional emphasis or can be slightly reduced. And even what verticals are of interest, and we very well, for example, in the automotive side and maybe other stuff we could consider.
And so it is actually a long list of a lot of fine tuning, but fine tuning does have an impact. As to the openings, I do think that we have a very large number of openings at this point in time. They do change from time to time also because business units visit, where the needs are, how these have evolved? Which positions have been filled? What are we looking for?
And they also move a little bit from geography to geography as a function of of the situation. So I wouldn't say there's anything else. I don't know on that, but I think we are very serious and well organized to keep pushing on the ops margin. And if you have watched the results of last before, you should at least get an inkling that we're heading in the right direction.
Thank you.
You're welcome.
Our next question comes from Jason Celino with KeyBanc Pacific Crest. Please go ahead. Hi. Can you guys hear me?
Yes. Staying on the margin topic, even your semi and systems operating margins increased by 30 bps quarter over quarter. How should we think about linearity of those margins? I appreciate your comfortability of the other segments. But how should we look at the core margin?
Yes. If you look down on a
multiyear basis, you should see a steady progression from where we are where we were last year to where we want to be in 2020 and 2021, which is the high 2020. You'll see a big progression towards that. On a quarter to quarter basis, it could be very highly variable, very lumpy given the mix of the business that we shipped up in the quarter or the contracts that are in play in the quarter. But overall, as you see the trend on an upward trajectory.
Okay. And then relative to the new vehicle 4 product, can you give me some good feedback? Can you just maybe provide some more color around that? Sure. One of the key capabilities of the 4 is, a, that it is faster and b, that it can do much larger capacity and the fact that you can really scale your capacity as required by the needs of the customer.
Lastly, the cost for computation is the lowest on the market and so that makes for an attractive solution. It's actually a solution that has also found some really hairy problems to solve, such as can you start running software on hardware that you don't have yet. In other words, can you virtualize your designs? Can you implement them in an emulator before you actually have the program? And that is turning out to be both a very challenging problem, but one that we are well equipped for.
So we're very encouraged where this is going. And if nothing else, we've also seen in the last few quarters that we are broadening the number of customers that are intrigued or that actually has started to use this.
Great. Thanks.
And our next question comes from Gal Mundo from Berenberg Capital Markets. Please go ahead.
Hi. This is actually Francois on for Gal. I just wanted to revisit the China contract that you said was on hold. We're just wondering how long do you think that would be on hold? And then as a follow-up, you mentioned how system companies are driving software verification.
Are these customers purchasing hardware as well? Or is that not necessary for the complexity of the designs?
Our guidance for is focused for FY 'nineteen. So the range, particularly on the lower end, reflects the possibility that the restriction restrictions are in effect for the rest of the year. In the event that it does change, then you expect it to be on the higher end of higher revenue and earnings guidance. Regarding your question on
prototyping, most customers, if not all, really involve, meaning that let me say it simply. The people that use hardware invariably also use the software because that's typically how you got to know us in the 1st place. For smaller problems, you try to get as far along as you can on the software. And once the speed is hopefully inadequate and the complexity has grown, that's where people start using the hardware to get much faster results. And we have multiple variations on that theme, by the way.
So the other comment I would make is that, it's one thing to do very, very fast simulations. It's another thing to actually diagnose what happens when something goes wrong. And so that's where the debugging is extremely important. And we have a very, very powerful set of tools for debugging capabilities that work with both our software simulator and with the innovators.
Okay, great. And what's the length of those kinds of contracts?
Our duration in general is typically 3 years. It runs around 3 years.
Okay. And then I just had one more on your Polaris platform. Is that platform absolutely built in? And if not, what's left to be integrated? And what is the roadmap for completion?
And how should we think about that for its benefit to your margins? Okay.
Let me take one step back and say what is the platform all about. Well, the platform is all about to let software developers use really a multiplicity of tools that can detect a variety of quality and security issues as you develop the code. And so you have to realize that it's a little bit more than a year ago that we actually acquired one of the bigger pieces of our products. And so the objective for early for this year, and it turns out it was early in the spring this year, was to have the first version of the Polaris platform aimed at bringing all of our products together, including, by the way, some services through that platform also. What we have today that some customers have already purchased is the platform with the 1st set of tools and competitive with the 1st set of tools that is on there.
As we now progress through the next 12 to 18 months, more and more of our tools will become available. Last comment on about this is that why is this particularly equivalent for the larger companies? Because if you are the CISO or the Head of IT in a large company, you have a lot of challenges around security. And of course, for each challenge, there are 10 different companies that have numerical cure. And while we do not participate in many of these remedial situations, what we intend to provide is the best development environment that can constantly diagnose and early indicate issues so that the development is better in the first place.
And for that, the ITs or heads of ITs or CISOs would rather have one trusted broader partner as long as the stuff works together. That's easily said and so difficult to do. And this is why we are so excited about the product for the product because we are making things work together really well. And of course, we have 25 years of lessons learned from EDA on how to do that. And now we're applying all of these lessons to the software integrity space.
And there are no further questions in queue at this time. I'll turn it back over to the host for any closing remarks.
Sure. Let me start by apologizing on the static. While we don't hear any of that, you've been loud and clear to us. I hope that the message has at least came across. And if nothing else, we all understand that there's quite a bit of noise in the market.
And most of those things, there's no control we can have over that situation. But in general, our business has been strong in the 1st 2 quarters of the year. It's looking good for Q3. And so we are continuing upper terms on our trajectory, and we appreciate all the interest that you had in this earnings release. Have a good afternoon.
And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation, and you may now disconnect.