Ladies and gentlemen, thank you for standing by, and welcome to the Synopsys Earnings Conference Call for the Q1 Fiscal Year 2019. At this time, all participants are in a listen only mode and then 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. 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.
Thank you, Laurie. Good afternoon, everyone. Hosting the call today are Arch de Geus, Chairman and Co CEO of Synopsys 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 performance 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 the call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release. In addition, we will refer to non GAAP financial measures during the discussion. Reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in today's earnings press release, financial supplement and 8 ks. Also included in the financial supplement is detailed information around our long term financial objectives, our transition to ASC 606 and newly disclosed results by segment. All of these items, plus the most recent investor presentation, are available on our website at www.synopsys.com.
In addition, the prepared remarks will be posted at the site at the conclusion of the call. With that, I'll turn it over to Art de Geass.
Good afternoon. Q1 was an excellent start to the year. Revenue was a record $820,000,000 and non GAAP earnings per share were $1.08 both above our target ranges. Strength was across all product groups, including some large expanded renewals with cornerstone semiconductor companies. We are confident in our outlook for the year and are reaffirming our guidance.
Please note that this is the Q1 we are reporting 2 segments, Semiconductor and System Design and Software Integrity. In Semiconductor and System Design, results exceeded plan with strength across the board, augmented by timing of customer shipments. In software integrity, revenue was right on plan and operating margin continued to move towards sustainable profitability as we build for the long term in this high growth space. Trac will discuss the financials in more detail. Looking at the overall landscape, solid demand for our solutions has continued into 2019, notwithstanding the somewhat increased uncertainty in the market.
While the global narrative focuses on geopolitical realities, electronics companies continue to design ever more complex chips and devices at an unabated speed. One notable driver, of course, is artificial intelligence. The development and proliferation of AI dedicated chips brings great potential for us as the number of customers and designs is growing quickly. Competition among AI specific company and indeed for anyone incorporating AI into their chips with an intense race to market and a broad set of competing architectures. In addition, we're seeing an escalation of the security challenges in highly interconnected systems loaded with software.
This is in part driven by the proliferation of data intensive IoT devices and the emerging 5 gs connectivity standard among other applications. The power of AI and the risks of security breaches require attention for all the products we use every day, from cars to mobile phones to smart homes to medical devices. Synopsys provides key technology in the midst of this evolving picture. Our results and outlook are not in spite of these challenges, but rather because of them. Our innovation and technologies become even more valuable to our customers when the stakes are so high.
This is evident throughout our business. Our penetration in new and growing AI chip companies has been excellent, and this growth has been visible across our product groups. In EDA, our Fusion technology and platform rollout is progressing well and reports show increasingly strong results. IP also continued on a positive path, helped by a particularly strong competitive win rate as we deliver sophisticated building blocks in more and more difficult advanced nodes and challenging verticals. On top of this, our software integrity business continues to broaden its customer base and software security is increasingly recognized as a must have in this era of product development.
With that, let me share some product highlights starting with EDA. At the leading edge of technology, we continue to see a steady push towards smaller geometries, as Synopsys continues to be the pioneer and the relied upon supplier for well over 90% of 12 nanometer and below designs, all the way down to 5, 3 and 2 nanometer research and development. A particularly noteworthy accomplishment was the tape out of the industry's first chip using next generation gate all around transistors. This highly integrated cloud is the result of an extensive collaboration with Samsung using a full fusion design platform flow from synthesis to place and route to sign off. Even at the earliest stages of process development, our unique position at the roots of silicon helps advance the most difficult research.
The latest example of this is the recently announced collaborations with LTAB and IMTAB, important industry innovators to drive modeling standards to 2 nanometer and beyond. Meanwhile, our breakthrough Fusion design platform continued to make great strides and generated strong results in Q1. You may recall that in November, we introduced not only our next generation synthesizer, Design Compiler NXT, but also a game changing new product called Fusion Compiler. Fusion Compiler, which is architected on a unified data model, is the only system on the market that integrates synthesis and place and route and all the key elements of our gold standard sign off technology. We accomplished this through a novel way of sharing code among the different functions, thus eliminating the need to move between tools.
The value to the customer is better chip results such as size, speed and power in shorter and more predictable design time. For just 1 quarter on the market, we're seeing high initial demand and have rapidly grown the number of active customers, including many of the top 10 SoC design houses. Fusion Compiler was also recognized with a World Electronics Achievement Award for Product of the Year. When we pioneered the Fusion concept, our aspiration was to build a platform upon which we could roll out new differentiating capabilities for years to come. Stay tuned as we deliver even more exciting advances over the next 12 months.
Now to verification, where our platform vision and technology execution have yielded excellent business and market share growth. Increasing chip and system complexity means huge verification challenges in terms of both speed and time to market. In addition, the growing desire to run software on top of systems that are still in construction is taxing the state of the art of emulation and prototyping. Synopsys is at the forefront of enabling this to happen across software, simulation, emulation, FPGA based and virtual prototyping. Our verification continuum platform continues to drive excellent demand and competitive wins.
This quarter, we saw particularly strong growth in software based verification at both traditional semiconductor companies and emerging system companies focused on their own in house design. In emulation, revenue growth has been significant over the past 2 years, driven by a steadily expanding number of customers and average run rate. While hardware revenue is quite variable from period to period, driven by the timing and magnitude of specific orders, it's clear that strong industry demand continues. Our newly launched Zebu Server 4 product, the fastest, largest capacity emulator in the market, is generating broad based adoption by customers, designing storage, networking and AI chips, as well as a large global systems powerhouse. Orders for our HAPS FPGA based prototyping solution were strong, particularly in 5 gs and automotive verticals.
We're also seeing very promising progress with virtual prototyping in the automotive vertical benefiting semiconductor, Tier 1 and OEM customers. Verification is an example of a capability that works well on the cloud. While we've hosted tools on our own cloud for years, including our Zebu emulation system, we're continuing to make good progress tuning our solutions for cloud optimization. Interest is high. We have many customers who use their own or public clouds, some who are already work directly working directly with us and many others in proof of concept stages to see what structures may best work for them.
Now moving to our IP products. We continue to deliver double digit revenue growth with strength across the board, particularly in AI and Automotive. Our AI related differentiation was readily apparent in Q1 with wins from several very notable AI startups. As an example, Israel's Havana Labs achieved 1st pass silicon success on its high performance AI processor SoC using our PCI Express 4.0 IP. In automotive, we had a number of major global wins, including AI automotive startup Fabu, which selected a broad portfolio of Synopsys Automotive certified IP.
Over the past 12 months, we licensed IP to more than 25 leading automotive semiconductor suppliers, covering a range of applications such as autonomous driving, infotainment and connectivity gateways. Now to our Software Integrity Group, which provides products and services to address code quality and security vulnerabilities early in the software development lifecycle. Over the last 5 years, we've systematically scaled this business and expect it to reach 10% of total Synopsys revenue for fiscal 2019. Our investments in this high growth market also substantially diversify our customer base into verticals such as financial services and medical, expand our reach in automotive, and increase our business with our well established electronics customers. While the need for enhanced security measures has clearly increased, companies still struggle to develop effective strategies on how to get there, given the immense scope of the challenge.
One example is automotive, arguably one of the most vulnerable industries due to the heavy toll that breaches can cause. A recent survey of global automotive manufacturers and suppliers found that 84% of automotive professionals have concerns that their organization's cybersecurity practices are not keeping pace with evolving technologies and that most of them test less than half of the technology they develop for security vulnerabilities. Also by the acquisition of Black Duck, which was fully integrated in Q1, we offer by far the most comprehensive portfolio of products and services in the market today to help companies solve these challenges, and we're not standing still. We're on track this year to deliver our integrated software integrity platform, which will enable both software developers and management to build essential security and quality checks into their software development lifecycle. Stay tuned for an announcement soon.
In closing, Q1 was a strong start to the year. We delivered excellent financial results and are reaffirming our outlook for fiscal 2019. Even with some caution around global markets, electronics companies continue to invest in critical chip and system designs, as well as immense amounts of sophisticated software. We are confident in both our near term execution and our long term prospects given our position in the market. We are committed and well on track towards our mid and long term growth and margin expansion targets.
With that, let me thank our customers for their business and our employees for their dedication and hard work in delivering yet another strong quarter. Chuck will now highlight the financial perspective.
Thanks, Art. Good afternoon, everyone. Q1 was a great start to the year. Our financial results met or exceeded our targets in all key metrics as we continue to execute well across the board. Beginning with this quarter, we are also initiating segment reporting for Synopsys.
The investments we made 5 years ago in Software Integrity has reached critical mass and grown to approximately 10% of sales. Reporting this segment separately allows us to better highlight the strengths of the 2 businesses we're building within and beyond our traditional semiconductor vertical. Our increasingly diverse customer base and our strong product portfolio combined with our nearly 90% recurring revenue model positions us well for success in periods of high demand as well as those of greater uncertainty. Reflecting this dynamic, we are reaffirming our guidance for the year. Before I begin with the Q1 results, I want to remind everyone that Synopsys adopted ASC Topic 606, the new accounting standard for revenue recognition beginning in fiscal 2019.
All results I provide today will be under ASC 606. For a summary of these results as well as equivalent financial metrics under ASC 605, please refer to our financial supplement. Now to the numbers. All comparisons are year over year unless otherwise specified. We generated total revenue of $820,000,000 a 7% increase over Q1 of last year, which included an extra week.
Our growth reflects both strong demand and timing of customer shipments. Recall that ASC 606 creates additional quarterly revenue variability. Trailing 12 month revenue growth was strong across all product groups and geographies. These results reflect both the depth and breadth of our product portfolio, increasing diversity of our customer base and the impact of the investments we've made to drive long term growth. Our contracted but unsatisfied performance obligations or backlog at the end of the quarter totaled 4,300,000,000.
Turning to our segments, semiconductor and system design revenue was 738,000,000 up 5% year over year or just over 11% excluding the extra week in 2018. Software integrity revenue grew 29% to 82,000,000 dollars reaching approximately 10% of total revenue in the Q1. Software Integrity revenue for the trailing 12 months was 299,000,000 dollars reflecting a strong leadership position in the application security market. Moving to expenses. Total GAAP costs and expenses were $673,000,000 Total non GAAP costs and expenses were $619,000,000 and consolidated non GAAP operating margin was 24.5%.
For the quarter, Semiconductor and System Design delivered an adjusted operating margin of 26.5%, while Software Integrity delivered an adjusted operating margin of 6.8%. Certain operating expenses such as stock based compensation, amortization of intangibles and other expenses that are managed at the consolidated level have not been allocated to our segments. These items are further are described in further detail in our financial supplement. Operating margin will fluctuate quarter to quarter due to normal variability of revenue and expenses. ASC 606 can further amplify this quarterly variance within a given year.
For this reason, I want to reiterate that we manage the business with a strong emphasis on full year and multi year performance. We are on track to achieve our margin objective for the year, while driving towards our long term goal of 26% in 2021 and higher 20s longer term. To wrap up the income statement, GAAP earnings per share were 1.01 dollars non GAAP earnings per share were $1.08 Turning to cash, operating cash outflow was 144,000,000 dollars reflecting our typical payout of variable compensation in Q1. We ended the quarter with a cash balance of 592,000,000 and total debt of $542,000,000 Building on last year's significant share repurchases of $400,000,000 we repurchased $29,000,000 of our stock in Q1. Since 2016, we've returned more than $1,200,000,000 to shareholders and expect buybacks to remain an important piece of our capital allocation strategy.
Moving on to guidance. We remain confident in our outlook for the year and are reaffirming our annual targets. Our targets are based on ASC 606 revenue recognition rules. For the Q2, we expect revenue between $810,000,000 $850,000,000 total GAAP costs and expenses between $682,000,000 $708,000,000 Total non GAAP costs and expenses between $620,000,000 $640,000,000 dollars other income and expenses between $0,000,000 $2,000,000 a non GAAP normalized tax rate of 16% outstanding shares between $153,000,000 $156,000,000 GAAP earnings of $0.71 to $0.79 per share and non GAAP earnings of $1.07 to $1.12 per share. For 2019, the full year targets are revenue of $3,290,000,000 to $3,340,000,000 total GAAP costs and expenses between 2.76 dollars 2,790,000,000 total non GAAP costs and expenses between 2,520,000,000 and 2,540,000,000 resulting in a non GAAP operating margin at the midpoint of just over 23.5 percent.
Other income and expenses between minus $13,000,000 and minus $9,000,000 a non GAAP normalized tax rate of 16%, outstanding shares between 153,000,000 156,000,000 GAAP earnings of 3.19 to $3.32 per share. Non GAAP earnings of $4.20 to $4.27 per share. Cash flow from operations of approximately $700,000,000 and capital expenditures of approximately 270,000,000 dollars which includes the build out of our China facility as well as the relocation of some Silicon Valley offices. We continue to expect CapEx to drop roughly in half in twenty twenty. To wrap up, we executed very well in Q1 and we are reaffirming our guidance for the full year.
Company wide, we are delivering the robust revenue growth and driving profitability toward our long term margin objectives. Both of our operating segments performed well and our new segment reporting will provide investors with greater transparency into these results. Finally, we remain committed to a balanced capital allocation strategy, investing in the business while continuing to return capital to our shareholders as we focus on driving sustainable long term value. And with that, I'll turn it over to the operator for questions.
Our first question is from Rich Valera with Needham and Company. Please go ahead.
Thank you. Art, you mentioned a couple of times in your prepared remarks about the uncertain macro environment and a couple of questions on that. First is, has anything changed from last quarter you reported? And secondly, have you seen this uncertain macro impact your business in any way at this point, I guess, particularly on the hardware side, which might be more susceptible to that kind of pressure?
Thanks, Rich. Good question. It's always It's always difficult to say if
there's a big difference from
one quarter to another because these quarters flow from one to the other in somewhat not distinct fashion. The way I would answer it, it has had no impact on our business. I do think I do see that some of the reports looking at the forward look and the predictions for 2019 were a little softer than before, but they're also now a little bit better informed. And so this pertains to really the chip volume business more than anything else. So it doesn't really touch us as the design starts and the design difficulty has continued to grow.
So as we have been in the past, while we are not immune completely to the ups and downs of the semiconductor industry, we are relatively touched lightly and we're actually typically a safe haven during those times.
No, I appreciate that. And then Track, lots of nice new disclosure. A couple of things. 1, the backlog, which you gave a $4,300,000,000 is that something you're going to disclose more regularly? I've never heard you give a backlog number not at the end of the year.
So just wondering why give that now? And then should we expect to be getting the operating margins of the 2 business segments on a go forward basis, love that you are now breaking out that software integrity for both revenue and presumably operating margins?
Hi, Rich. On the first question on backlog, we thought it was important to highlight backlog starting this year because as part of the 606 transition, we will be including that and disclosing that in our 10 Q. So yes, you'll see that on a quarterly basis. With regards to the segment reporting, going forward as part of segment reporting, we will provide both revenue and operating margin for both those segments.
Great. Definitely appreciate that disclosure. Keep up the good work. Thank you.
Thank you. And
our next question is from Mitch Steves with RBC Capital Markets. Please go ahead.
Hey guys, thanks for taking my question and thanks for all the new disclosures here. So just first kind of on the revenue line, I know you guys already gave out a guidance, but this is kind of a 3rd year straight where you're talking about a 2H deceleration and that hasn't happened in the last couple of years. So I guess instead of me asking about the conservatism, what's kind of embedded in 2H in terms of the guidance?
Well, Mitch, I think I wouldn't characterize it that way. We actually had a great start to the year with Q1 and given our outlook for Q2, to us the latest balance forecast than we entered the year. And frankly, from that perspective, I'm feeling optimistic and more confident in the outlook that we have. That's why we reaffirmed the guidance for the full year.
Got it. And then the second one is on the cash flows. If I heard that correctly, you said that the CapEx should come down in half. Does that kind of give you an implied like, I guess, dollars 900,000,000 plus in cash flow for 2020?
Well, it's too early to guide on 2020 at this point. We just wanted to give an indication that the CapEx spend for this year is unusually high because of the few items that we highlighted.
Okay, got it. And then just last one just on the software integrity margins. I think there's kind of a bold case here where that's going to be higher than your corporate average long term. Is there any reason why that wouldn't be the case if I look out 5 or 10 years?
But we don't want to go out that far. I guess, let me abstract that first at the high list level. We are committed to 26% operating margins in 2021. We will be driving improvements across all areas, both on in both segments and across all areas of the business. So you should see improvements there.
At this point, we're pleased to start off the quarter with profitability in software integrity, But it's a new market for us that's growing and we'll continue to invest in building up the software integrity platform as well as scaling up that business. So it will be lumpy quarter to quarter. But I think long term, the trend that we've seen over the last 5 years should be should continue.
Okay, perfect. Great quarter, guys.
Thank you. Thank you.
And we go next to Sterling Auty with JPMorgan. Please go ahead.
Great, thanks. Hi guys, this is actually Jackson Ader on for Sterling tonight. Thanks for taking our questions. You're welcome. First one, there's been something on investors' minds today, I guess since last night.
Cadence announced a significant new win with a marquee North American semiconductor company. And so based on their description, it's led to some investors concluding that, that company that they mentioned last night may be Intel. Since Intel is your largest customer, do you have any comment on what's happening there? Any share shifts that you may be seeing?
Well, we never comment about individual customers and Intel has definitely been a very good partnering customer to us. And in general, it sounds like both companies have done extremely well recently and I hope that bodes well the overall market. So yes, we do compete in many places, but at the same time, our objectives are to do well and I think we just did that this quarter.
Okay. All right, fair enough. And then a quick follow-up. Was there any maybe buying behavior, particularly in the emulation space that maybe drove some budget flush spending around the calendar year end in December where you maybe saw some pull forward of emulation purchases?
No, we didn't see any of that. And a number of people have asked us that question also in the context of China, and we didn't really see that. And so I think we are seeing Q1 as just a continuation of now quite a number of good quarters and of a business that is both diversified, well balanced and growing well. Okay. All right.
Thank you. You're welcome.
We have a question from Monika Garg with KeyBanc. Please go ahead.
Hi. Thanks for taking my question. First is, I mean, you have a very strong beat in Q1 revenue by $20,000,000 almost, EPS $0.10 I guess, why the upside not flowing through yearly guidance both for revenue and EPS?
Well, Monica, this is Trac. As I said earlier, it's a good start for the year. The results were a combination of us executing very well and growing the business. Some of it is timing in terms of customer deliveries. So and frankly, there's a lot of business left to book for the full year.
We feel good about the outlook and it's nice to have the first half look pretty secure.
Got it. And then I think last quarter or before that you did you reiterate you said that you have a leadership position in emulation. Could you maybe see if that still holds true?
Well, our emulation has done extremely well. And this is a domain that this is I think good news for many that continues to grow well because the demand around very difficult problems for emulation as an acceleration to simulation is high. In addition, Synopsys has focused on a special case that is extremely important, which is can you run software on hardware that doesn't quite exist yet, I. E. Hardware that you mock up in an emulator?
And the answer is yes. And more and more customers report that that is absolutely crucial because more often than not when a product is ready, the software is not and you cannot go to market. And that is why our area has done particularly well. And while these numbers are not individually disclosed, we are certainly convinced that we are the market leader in this area.
Then Art, you provided some commentary regarding the verification usage in cloud, but maybe could you talk about how ready you think Synopsys solutions are for usage in the cloud? Are you seeing interest from not only from verification, for other products as well?
So let me go backwards on the question. The answer is yes. There are a number of other tools that also used in the cloud. Typically things that require or can benefit from big bursts of computation where a user may not want to buy their own computers just for the burst period. And so these type of tools tend to be optimized a little bit differently so that they can run more easily in a public cloud or various forms of private clouds.
And so there's quite a bit of interest in that. I don't think that things are completely black and white though, meaning that there are a lot of practical issues that have to be overcome to make things run very well. And there are steady advances on making the various forms of software do that effectively, so that customers can essentially have a more flexible spending on hardware when they want it.
Thank you so much.
You're welcome.
Our next question is from Tom Diffely with D. A. Davidson. Please go ahead.
Yes, good afternoon. I guess first, Taka, I was wondering if any of the strength you saw in the quarter was driven by concerns that maybe there'd be a worsening of a trade war and some of the customers wanted to buy ahead of that?
We haven't seen a change in behavior of having that affect our revenues. Okay. Good. As I said, it's pretty balanced in terms of growth as well as to some to a lesser degree timing of customer contracts.
Okay. And then maybe just a big picture question for Art. How do you look at the EDA growth when you have a slowing of Moore's Law, but then you have an increase in the use of new materials and technologies along the way? I mean, on balance, is that scenario provided growth for EDA or stability? How do you look at that?
It almost feels like a question that you could have asked in 97 and 2,007 and again. And I don't want to sidestep at all the fact that the complexity of Moore's Law is increasing. And the complexity itself is good for us, but with the complexity of course comes an economic equation that will over time bring some changes for customers. And so, at this point in time though, the demand for really advanced chips is quite strong. And that I have illuminated many times by saying that we have entered a whole new phase of what electronics can do in most products and actually in most verticals.
And that is the age of condition or artificial intelligence where the early results and they have to be called early because they're literally just 3, 4 years old now are very promising, but the demand for dramatically more computation is unabated. And so I think the push will continue and the challenge is to continue with it and I think for companies such as ourselves that's a good thing because that is our specialty. And by the way, this reaches all the way down to the deep physics of Moore's Law, where we do excellent business in providing simulation tools that allow to check out how a brand new transistor such as, let's say, the gate are all around type models will function before you even manufacture them. So the food chain of Moore's Law is actually pretty long.
But maybe just to bring the food chain down a little further, maybe up a little further. If you look at advanced packaging, taking over some of the increases in more than Moore's law, if you will. How does that benefit you from an EDA company and is it meaningful?
Excellent question because this is a question that has actually also has sort of ups and downs multiple times in the last couple of decades. Every time that there was sort of a hint that Moore's Law was coming to an abrupt end, the solution was, well, instead of putting things in 1 chip, let's put it into multiple chips, maybe stack those chips on top of each other. And the technologies have actually advanced substantially to make that possible, but they're not simple in their own right. Meaning that if you can still put it in 1 chip that is often easier both economically and technically. Having said that, yes, there is progress in various forms of packaging and stacking of jets, and we think that that will continue to grow over the years to come.
And there too sophisticated EDA tools such as ours will be absolutely necessary to do that. So it sounds like these are very different things, but from my perspective, it's just a continuation of whatever is the best method to deliver a lot of functionality electronically, we will be full focused on.
Okay, great. Thanks for your time.
You're welcome.
We'll go next to Jay Vleeschhouwer with Griffin Securities. Please go ahead.
Thank you, Art. Let me start with you regarding SIG and then a backlog question for Trac. So anticipation of the SIG platform that you've been alluding to, could you talk about what the customer behavior looks like thus far with regard to both the mix of SIG tools that they're buying and services engagements that you're providing or undertaking for SIG. So in the case of the product, for example, are customers buying multiple solutions? Are they buying not just Coverity, not just the Duck, but multiple products?
And then with regard to the services, would you regard those as leading, coincident or lagging indicators for the SIG business? And might the platform perhaps mitigate how services Well, that's an it's an excellent question because we,
of Well,
that's an it's an excellent question because we of course entered this market as it was just coming about. It's a highly in development market in many different point solutions. And we were fortunate enough to acquire, I believe, some of the very best ones. Why do I describe it in that fashion? Because if you're sitting on the user side, you may have specific problems for which you buy a very specific point tool and may be happy with that.
If you're sitting a little bit closer to the IT management of a company that has many users, this is a horror scenario because now you have all these point tools from all these individual often small companies, often companies that do not have a longevity in being able to support you may disappear, may get acquired. And so we noticed already now, I would say a couple of years ago that a number of companies were positively surprised when they found out that of some of the point tools we had acquired, behind that was a company like Synopsys that were actually substantial, has a long history and therefore was probably stable. If you now amend that by the fact that mechanism to bring multiple point tools together to make them look and feel the same, be able to share data between the tools, have reports that can both work for the individual user, but also for the management to get good overview, you can see how at a minimum this brings a simplification for the people that have to manage the utilization of all of this in large companies, often companies where their core competence is not the software, but they're highly dependent on some piece, some sets of software that need to be secure and high quality.
In that context, the service question is extremely appropriate. And we have said when we acquired it that initially it would give us access to precisely the higher level management that needed help in plotting their strategies on how to go about security strategy around the software. And in that sense, that would be in your leading category. Meanwhile, there's a number of services that we provide where on a regular basis we do certain checks for customers that would be in the coincidental category. And then if there are issues that pop up at a customer that suddenly they don't know what to do, there that would be lagging, but we certainly can provide help in a situation where certainly an urgency comes up.
So maybe summarizing this somewhat long monologue here is that we have a number of puzzle pieces that are now being put together. And out of that, I think comes both a stronger position for us, a more effective utilization on the part of the customer and the opportunity to continually add incremental value to the platform.
For Track, you grew your backlog and thank you for that Art. That was a good explanation. For Track, you grew your backlog the quarter by the amount that you grew your backlog for all of fiscal 2018 about 300,000,000 dollars So assuming the usual 3 year runoff or conversion that isn't translating into any incremental revenues relative to guns for this year?
Well, Jay, we don't want to comment on how to extrapolate the backlog. We're going to disclose that, so you'll see that trend over time. But given that we will have different contracts renew at different points in time, I think it's too it would be too difficult to really translate to that to the health of the business. Overall, I think we'll continue to refer you back to run rate growth in the business and look at that trend and that tends to be that has been up.
Okay. Thank you.
Thank you, Jay.
We have a question from Josh Tilton with Berenberg Capital Markets. Please go ahead.
Thanks for taking my questions. Have you seen increased stickiness with customers as the Fusion offering integrates many steps with the design flow that may have been accomplished with numerous products in the past?
It is too early to be able to check on stickiness because that is by definition something over a long period of time. But the expectation would be absolutely yes, meaning that one of the key reasons customers will use this is because on a number of cases they will get better results, they will get the better results in a more predictable fashion and in a shorter amount of time. And so in that sense, it's really a continuation of our objectives for the last 30 years, which is provide better and better tools for more and more difficult chips. And so the early adoption has been very positive. We are maturing things rapidly.
We're adding already new capabilities. Some of those will be announced in the not too distant future. And so it is definitely at the core of our platform for the next decade. Thanks.
And then second question, what is Software Integrity's current exposure to auto? And then how big is the potential Auto TAM for Software Integrity?
I don't know the exact number, but I can tell you that we've had a number of very exciting automotive, not only interactions, but actually substantial business closures. And just to give a little color to that, in some cases, they have been connected somewhat to the rest of our business as we have moved into automotive. But in a number of cases, it's also that the automotive field has discovered, so to speak, that software is a major issue. And when I say the automotive industry, I mean the OEM, so the actual car manufacturers. And this is interesting from a different perspective.
They have in the last 100 years or so relied on an enormously complex supplier chain and now certainly the concerns are directly at their door. Because if they move into adding way more software and already the advanced cars have about 100,000,000 lines of code, way more software in order to do autonomous driving or any other form of assisted driving, the risk of vulnerability is actually very, very costly. And so, we have a number of customers that have now done large deals with us. We expect those to continue to grow over time. And interestingly enough, as we're coming via the Software Integrity Group sort of down from the software, we're moving up from the hardware with the various forms of virtual prototyping and this is exactly part of the strategic picture that we have seen now for a number of years, which is this pincer movement around everything is sitting on the intersection of hardware and software, and that's where the value will be created.
Thank you very much.
Thank you.
And I'll turn it back to our speakers for any closing comments.
Well, with that, thank you very much for attending this call. We completed a strong Q1 in the year and thus have renewed confidence in the rest of the year. And we're, as usual, thankful for both your questions and your attention to our company. Have a good rest of the afternoon.
Ladies and gentlemen, this will conclude our teleconference for today. Thank you for using AT and T teleconferencing and you may now