Synopsys, Inc. (SNPS) Earnings Call Transcript & Summary

Great. Welcome to the UBS TMT Conference. My name is Pradeep Ramani, and I cover Synopsys at UBS. We're delighted today to have Trac Pham, CFO of Synopsys. And welcome, Trac, and maybe I'll give you a minute or so to sort of set the stage.

Thanks, Pradeep. It's really wonderful to join you at the conference. The timing to catch up with you and investors is really very good. We reported results last week in which we delivered very strong results for FY '21, 14% growth on the top line while simultaneously expanding margins to north of 30%. Record cash flow year, record backlog, just outstanding results, broad-based strength across the board. We also gave guidance for FY '22, which reflected another year of strong growth, continued margin expansion, very healthy cash generation, just reflecting strong execution of the company. The context that we're in is very healthy. Our customer base is doing well. The needs for our products, the desire to get to market faster, the needs to build more complex chips and just do incredibly innovative and complex things continues unabated. That pace is -- continues to be very aggressive. And against that background, we are executing incredibly well, and the portfolio is as strong as it's ever been across the board, and you can see that in result. And as a result of that context of healthy market and us uniquely executing extraordinarily well, we have raised our long-term financial model, where we are growing the business at double digits. And then we've also raised expectations for the subgroup categories. EDA historically has been at mid to high single digits. We raised that to double digits. IP historically has been low double digits, and we raised that to mid-teens. And then we have reaffirmed our commitment on growing the Software Integrity business, which is roughly 10% of overall company to 15% to 20%. And we're going to drive really strong healthy growth over an extended period of time while simultaneously committing to increasing margins at the same time. So it's a very compelling opportunity and a compelling case for value creation for investors over the next several years. And we are incredibly optimistic and confident in the opportunity ahead. So I'm glad to be able to join you to share that, share our story.

Yes. One of the things that sort of stood out is historically, EDA and IP has been viewed as a pretty consistent, stable grower. And one of the things that really stood out was the growth aspect in your call and without really sort of compromising on the stability aspect of it. So that's sort of -- was very optimistic commentary. And when I think about different levers of growth, which you touched upon, one of the things that stand out is automotive. And hyperscalers are increasingly beginning to sort of get into chip design. And the more customers, the better it is for you. So how would you sort of characterize where we are today with respect to contributions from the nontraditional semi to, say, a revenue base -- I mean, an industry revenue base of maybe $12 billion to $13 billion if you look at IP and EDA together? And how are you thinking about sort of the growth on these contributors going forward?

That's a great question. And I particularly love the context that you set for that question, which is we have upped our growth expectations and reaffirmed our commitment for continued market expansion, but we haven't traded any of that off for stability. So you're seeing incredible stability in the business, and that remains intact. So it's really a unique value proposition. And why are we able to do -- to commit to strong growth and margin expansion. And it's really what you described, the opportunities in terms of where our portfolio is in terms of the products that we have introduced, the breadth of our portfolio, meaning we're leading in EDA. We hit a record in hardware, and we're leading in hardware. We have got the largest and broadest portfolio in IP by a wide margin. And then we also have a long-term opportunity for growth in Software Integrity. So the breadth of the portfolio due to the investments we've made over the years. And then on top of that, you've got market drivers, the new market opportunities, whether it's hyperscalers or their automotive or AMD doesn't get a lot of potential. But there's new market entrants that are designing their own chips and their systems. What's really encouraging is that this is not a blip. This is not a onetime phenomenon. This really has some legs and a lot of runway. And against that context of a good runway and increased demand from these new customer segments, I would say that our portfolio and going back to that is uniquely positioned to really capture more value from that market opportunity because obviously, to design a chip, you need EDA tools, design tools. And we continue to strengthen and widen our lead within EDA, given all of the new products that we've launched over the last 1.5 years. And we've been pretty vocal about the benefits of our customers' return. But also in these spaces with the hyperscalers and automotive, they don't want to necessarily build out their design capabilities similar to chip companies. And so they're willing to really be open-minded with regards to IP. And so in many cases, the conversation with these customers are leading with IP and where we're positioned as the broadest portfolio with the strength of capabilities around all the areas that you need for these chips really is -- dovetails well with their needs. So it's a nice combination of strong market demand, new entrants and us being at the right place with a really strong portfolio.

Yes. And would you sort of look at China as another, I would say, pretty sustainable growth driver? I mean your China business has grown over 30% a year for the second year in succession. It's almost as if we're seeing an inflection. And how -- I mean, there's questions around is this sustainable going forward and what a normalized rate looks like for China. So how would you characterize sort of the sustainability of the growth in China? And maybe could you speak to some of the drivers there as well that give you confidence that the growth is actually sustainable?

Great. We don't guide specific on any markets or customer segments. But I'll offer a few thoughts just for investors to assess the health of it. One is we do think that we will -- we do believe that the opportunity to continue to grow in China still has room, that we are very confident in our ability to continue to grow that business. We're not exactly -- we're not committing to specific numbers, but I think it's going to be a very healthy growth. Secondly, what you've highlighted is that business has gotten to new levels over the last 2.5, 3 years. And so whatever that growth rate is, we believe it's going to be healthy, but it's coming off of a large -- a larger base, a substantially larger base than where it was 3 years ago. So it's going to be a good contributor to growth. Now the -- now you -- all those things are great, and then you flip around and say, well, it's much larger, you've got larger growth. What's the risk here? What's the risk? Well, we've been operating with the Entity List restrictions over the last 2.5 years. And so clearly, we've shown an ability to adapt our business to the environment. So despite the restrictions, we've grown it to a new level, and we've sustained very good growth. And we've done that because of our ability to widen the customer base to really contribute, really collaborate with a much wider footprint of customers, sell a broad range of products to these customers. And as I said on a broader scale for Synopsys, it's a healthy market because the government investing in the government and investors in China are investing significant amounts in design capabilities and fabs and the whole semiconductor industry and the ecosystem. And we are benefiting from that, and we're executing well against that environment. And so I think that it may be noisy from quarter-to-quarter and you've got variability. But overall, I think it's -- it will continue to be a very healthy market for us.

And there is a flip side to this as well, right? In China, I mean, not only 2 weeks ago, we saw press articles about indigenous local China companies and indigenous local China EDA companies as well. But my sense is that you are far ahead in terms of just the breadth of your capabilities and the penetration that you have. Can you speak to sort of how you have diversified over the last couple of years beyond the large China semiconductor players into sort of a broader customer base as well?

That's a great question. And certainly, you touched on many of these points is that our confidence -- the results, right, that you've seen as well as our confidence in the future is really a function of how broad the growth has been that it hasn't been concentrated in a handful of customers. But it's just really been across the board in different areas, both on, I think the manufacturing side, on the design side, different types of customers on the design side, hyperscalers in China. So it's been a very healthy balanced growth across the board. The -- with regards to the competitive environment there, right, I think that it's not -- we've been talking about investors and the financial computing assets -- the financial community have asked us for many years now about the competitive threat about China. We certainly don't take that lightly, and we do are very mindful about the risk. But the best thing that we can do to address that risk and the things that are under our control is continue to build a business that is sustainable, which means that drive good growth, drive good profitability, which will allow us the resources to invest in the business. And if we continue to invest and develop new products and advance the technology, that is the greatest thing we can do to affect our future. And in that context, if you think about what we do, there's 2 things working to our advantage. One, I've talked about us continue to move our technology forward and differentiating and separating ourselves not only from U.S. competitors but global competitors and Chinese competitors. But the other part too is the goal posts and the goals continue to move further and further out, right? The pace of design, the pace of complexity to chip design hasn't stood still and have continued to evolve and stay at the rate that's been over for many, many decades. And so for a new entrant, whether it's China or any other type of entrant to try to keep -- catch up, they're trying to catch up with over decades of innovation against like a -- against a mile of -- a goalpost that keeps moving and against us who will continue to innovate. And so I think that, that bodes well for us. And if we can focus on the things that we can control, I think it will serve us well, and it has.

And would you sort of -- just switching gears back to your overall growth. Would you say that sort of overall industry growth is actually accelerating? Do you see that accelerating? Or do we -- do you think it's more of a onetime sustained reset to a higher growth rate? And when I think about it, your guidance and your view, how much of it is actually driven by a rising tide lifting all boats versus Synopsys gaining share, especially in digital, either because of the portfolio or the breadth of customers and so on?

I -- let me assume out, and that it's going to sound a little bit -- maybe I'm distracted a little bit. I'd say that from any year-to-year, it may be noisy. The trend may be noisy. But I do think, overall, if you look at the broader context and you look at the 50,000-foot level, I think the environment is very healthy for the semi industry and the ecosystem. I think it's healthy. Just because you think about the problems that the end user and companies are trying to solve for the end user, it's going to require just more chips and more sophisticated chips and more software that runs on those ships. And so I think the overall underlying trend is healthy. Now that said, we have been able to drive various sustainable success over many decades in different context, right? So that if it's a healthy market, certainly we're going to participate. If it's a less healthy market, a less robust market, we're going to -- we've shown that we've been able to execute very well, and it's hard to tell when it's a healthy market or not, right? And so we didn't raise the guidance long term. because it's a healthy market and it's all tides -- the tide rise -- the tide lifting all boats. It certainly helps. But our confidence is -- our confidence to sustain this over an extended period of time is really a function of the business model that we have that allows us the room to operate and room to make thoughtful long-term decisions and room to absorb whatever near-term hiccups there are in the economic environment or the industry environment. And a confidence that's born of decades of execution that we can manage to do that. And so I do think that if it's a healthy market, we're definitely going to win more. And if it's an unhealthy market, I think I almost feel like we're built for really challenging times because that's when we really, really flourish. And so you get downside protection and really participation in the upside with this sort of business model and this team that can execute against that.

Okay. And I think one of the other things that sort of caught me by surprise was your big step up in backlog. And typically, I have focused too much on the backlog because I know it varies from quarter-to-quarter, and there is a volatility and timing sort of angle to it. But this was a very big jump. And can you speak about what's driving the visit coming from 1 or 2 large customers who are sort of renewing large contracts? And can you speak to sort of how customers are thinking about the next 2 to 3 years, which is what they do when they renew your contracts with respect to their outlook and their design pipeline and whether it's being reflected in your ASP?

Yes. I appreciate your thoughtfulness around backlog because it does get very volatile from year-to-year. But that said, the $6.9 billion is undeniably a big number, right? And I'll talk about them -- I'll talk about it in some specific ways, but maybe about -- and I'll also try to extract it to how to be viewed qualitatively, right? Very specifically, it was just a fantastic bookings year for us, right, that the deals that we renew, the deals that we booked, they were really strong deals with various very healthy run rate growth. And it's a continuation of the momentum that we've seen over the last few years. So that's a really great start. And you're taking care of business by renewing it and renewing with growth and renewing with on a larger basis with more products and more commitments, that's great. On top of that core base, we also saw a number of customers, several large customers making longer-term commitments to us, making larger dollar commitments to us that added to what was already a very good renewal year and a really good, strong, healthy business. And so those are the specifics around that. What I was going to say is qualitatively, without getting into the gyrations of bookings or backlog from quarter-to-quarter, year-to-year, I would say that says something about where we are positioned and how our customers view us and the technology and the capabilities that we're offering. Because in an environment like this, where they are intensely focused on their market opportunity and how to capture that and how to differentiate in a very competitive market, they're aligning with us and they're aligning with us longer term. They're aligning us deeper and broader on the portfolio. So it says something to you about what they're signaling about our technology position and our commitment to them in terms of enabling their success with our collaboration. So that, as much as a $6.9 billion, is really a good indicator of the underlying health of the business.

And let's sort of shift gears to the other interesting point around margins because it is not easy to grow margins. But I guess when I look at your financials in last couple of years or even 3, 4 years, you've consistently grown margins. And when I look at sort of the magnitude by which you're guiding for margin growth, I mean it feels like in this such a strong environment, your -- is margin growth sort of approaching sort of -- I want to say, a ceiling where we -- you're sort of seeing a deceleration in margins? Or do you feel like maybe it is a little bit conservative relative to what you have sort of accomplished in the past?

If I -- I would say adamantly that we are very positive about our ability to drive margins up over time. And we -- our commitment to that -- and we've shown our history of commitment to drive marketing expansion hasn't changed our approach or philosophy. Our commitment hasn't changed. And I am as enthusiastic about ability to generate margin improvements over time as I have been over the last few years. And adamantly, there is no cap to margins. Now the key for us, a challenge for us -- I say challenge, but really the opportunity is when you look at this really healthy contracts that we're in and the portfolio that we're bringing to bear in this opportunity, there's a lot of value that is -- that we can capture and a lot of value that we can create. And the opportunity for us to step up in terms of the growth commitments that we described and the operating leverage that you can get on that new step-up in growth with margin expansion is going to create tremendous amount of value for shareholders. And I'm really excited about that. And so I don't view the communication at all differently or as a cap or as I would view it as a negative number. I actually think we've tried to provide more clarity and more specific details about how we're going to generate this, the value for shareholders over a sustainable period of time. And the opportunity ahead of us is how to create that tremendous operating leverage of a new step-up in growth, while driving margins up. And what you -- what we've touched on a number of times in this discussion is doing that in a way that's predictable and sustainable over the long term, which is a key element of how we want to manage this business.

So you would say that, look, just given the environment we're in, it feels like there's no real near-term feeling to margins. And even when you look at it over a longer-term horizon, I mean, growth and operating leverage basically are the largest drivers of margin. Would that be a fair characterization?

That's a very fair characterization and what we're trying to do is we're doing -- we're being as transparent and direct as we can about how we see being very specific about value creation for shareholders over the coming years, right? At the same time, we're also describing to you that our job as the leadership team is balance, finding that optimal balance to create the most operating leverage to create that value, right? And we're giving you enough points for us to have a constructive conversation. And we do think that there's going to be a lot of value there. But it's on us, it's incumbent on us and the responsibility's on us to strike that balance to find that maximum return.

And the other question I was getting a lot from investors is -- I mean, Q1 has been sort of -- you sort of indicated has -- it's heavy on IP, right? And to some extent, hardware. And yet your guidance sort of implies that your margins are sort of the highest in Q1 and then they sort of -- closer at a lower level. So is that the right way or some framework you can provide us in terms of why the incremental margins are maybe different? Or how do you sort of reconcile the margin projected?

If I kind of parse through your question, there may be some confusions on the -- maybe some confusion but just a question of the mix and how the mix might affect margins and how to interpret that because it's going to be the highest margin profile for the quarter. It's less a mix issue, just a volume, just the magnitude of the revenues with expenses relatively stable because the expenses are not floating all over the map for the quarter. It may move. But for this year, it happens to be a relatively stable expense profile throughout the year. And so you've got this volume impact in the quarter in terms of a much more significant revenue base driven by the timing of IP and hardware that's driving the margin. So there's nothing unusual in terms of business or nothing unusual in terms of mix. Now I also want to then take this moment to talk about the profile, right. If you zoom out and you look at the profile and you try to look at it, one, very good constructive growth outlook for the year with margin expansion, right? So at the midpoint, I think our guidance has us growing at 30%. This is on top of a very healthy 40% last year, mostly -- all of it's mostly organic. And when you look at the profile mix between the first half and the second half, it's actually a pretty balanced profile. First half is about 51%, just under 51% versus 49% for the second half. You look at that relative to -- you'd have to go back 2 or 3 years to kind of find that balanced mix. And so it's a pretty well-balanced mix other than the fact that Q1 is really a big quarter, but it's a function of the timing of our customers' requirements. Hardware kind of fits in with a certain point within the development cycle. IP, they're drawing down IP as they need it. So the timing of both of those things kind of lines up in Q1. It's making up for a good quarter. And frankly, it'd be good to get a big quarter behind us so that we can build more certainty into the year. So in that regard, it's -- if I had to choose between a big Q1 versus a Q4, I'd -- after the last couple of years, I'd welcome the big Q1.

Okay. And one of the other sort of interesting pieces is about your IT business now it's greater than $1 billion and growing at 20% a year. And you don't see a whole lot of that in EDA, even in this environment. And I guess, if I zoom out and think about IP, what would you say is driving IP growth and is it sort of concentrated to a specific geography? Or is it broad-based? And maybe can you speak to how that impacts your margins as IP becomes a bigger piece of your overall revenues versus EDA?

Let me tackle the last thing because it's kind of top of mind. I think to frame certainly where I think what you're alluding to is IP directionally has lower margin software. That's just -- it's more -- maybe directionally more resource-intensive than software. Software margins are in a different category. So you're right, directionally. But what' so -- what is so, frankly, awesome about the IP business is you get this operating leverage where you can grow that business. Over the last couple of years, we've grown at 20% and it's still very healthy margins. And so the combination of that margin profile plus that growth, as you'd alluded to, is really -- kind of stands out within this industry. It creates tremendous profit leverage over the coming years. And so -- and with it being at scale north of $1 billion, it's an amazing part of the portfolio, which I love. So I don't look at the mix being a problem. I love the operating leverage and the volume benefit that it provides in terms of profit contribution. The headwinds, tailwinds for IP, there's a lot of tailwinds. And just one, it's broad-based across the board. We're seeing really strong growth across the board, new customer entrants, whether it's hyperscalers or automotive R&D. A lot of these companies are getting into chip design, and they don't have the legacy and history of extensive design. So they want to get to market faster or they just want to leverage our portfolio. Two -- a third is it's really hard. It's really hard to do. I mean -- and effectively, we're a design shop. And when you build a $1 billion business, what that says is you're really good at what you do. And the fact that there's a virtuous cycle to it, we already have the broadest IP portfolio. We continue to broaden that because of the scale of the investment. It just creates a more -- it increases the customers' willingness to buy more IP because they know it's a reliable vendor that delivers per spec on time and per the economic commitments. And so that's -- that scale and the momentum continues to reinforce itself. The -- all the trends that you might describe in terms of the end market customers and the trends with regards to complexity, all that plays into the sweet spot of IP. And so it is a multiyear subscription model, [ look here ] in terms of revenue profile because of the revenue rules in effect. But overall, it's just a fantastic business for us. And then there's so many tailwinds to this business and what we described going forward. We're not assuming that all the tailwinds kind of line up and start in a line, but there's enough tailwinds that on a risk-adjusted basis and you adjust the probability, it's still a very healthy market for us.

And right now, I guess, we've seen announcements on silicon life cycle management and DSO.ai. So you have this sort of a very unique collection of business opportunity that, frankly, I would say, detract from the evolutionary and are sort of pretty revolutionary in terms of what they can. enable. And so when I think about sort of the contribution to revenues over -- and we try and handicap the time line, first, is this collection of businesses sort of opportunities already above 5% of your revenue? Or -- and if not, how do we think about the trajectory of these businesses going forward?

Let me offer this perspective to you and investors as you think about these new opportunities. First of all, they're real, right? Customers are paying for it. Customers are excited about it. They see the opportunity. They're getting results. But importantly, they're paying for it. Now that said, we are -- the guidance for this year has us in a $4 billion to $7 billion range of revenues for 7% plus, it's on a percentage basis. It's a relatively small amount. But what the opportunity is and why it's exciting is that it's an opportunity for the future, and we're in the early stages of this, right? We are in the early stages of this opportunity. And as this plays out over time, it's going to be a tailwind to growth. But that doesn't mean you have to wait over time for it to affect the results because, in effect, you're going to see the halo effect of those products in the near term because the fact that we have those products within the portfolio and the fact that those things fit within the other tools also has a benefit for those tools and being able to really drive growth in those tools itself. Right now, with the bulk of our revenues coming from the broader set of established tools, that's a tremendous amount of leverage in the business, right? And so you're going to see both near-term effects of it, which will take time to flow into the results, right, because of the business model, the long-term subscription model. It will take time for usage wins and usage share gains to translate to revenue. That's just the nature of the business. But you're going to see that play out in the near medium term. And then you also have this option for growth in the long term. So it's a really unique situation where you can see that over time as opposed to a bet that has to play out over the longer term.

Okay. And when we -- maybe, let's shift gears to SIG because that's a very interesting and very unique, I would say, line of business that -- for a semiconductor company. But you talked about SIG getting back to the 15%, 20% growth. And can you sort of paint for us the background in terms of the demand environment that you see in 2021 for IT spend? And in general, just what you'd hear from customers in terms of where you are in the adoption cycle for, say -- because if you look at it at a very high level, you -- investors, there's going to be investors who argue that, hey, maybe 2021, maybe there is a little bit of pull forward of IT spend at a high level. But how do you see the environment for SIG and how that translates into your growth targets?

I would not characterize the Software Integrity results as a reflection of pull-in. The -- we overachieved relative to that internal plan, relative to what we communicated to investors. We finished the year just under $400 million double-digit growth for the year. And that's in a year where we said that -- and margins were relatively flat from '20 to '21. This is in a year when we were very open about needing to make some adjustments to how we're executing on this because our view was the opportunity for this business 5, 10, 15 years from now and the huge potential that we have. And so we're very deliberate about that. And yet, we overachieved our top line results and still held margins relatively flat. So it gives you a sense of the operating discipline that we have in that business. We're 7 years into this effort with Software Integrity. Privacy, we're still -- in the broader context, I think we're still in the very early stages of this opportunity. And for us, at $400 million, there's still a tremendous room ahead for growth. It's hard to characterize the business. We talk about Software Integrity as this thing in this business, but you have to compose it and there's a lot of details within it. One, it's both a market leadership on the product side and a leading secured consulting business that we have, right, which is unique. You're not going to find a competitor in the space that has the strength on both sides. And then when you take the product categories and you decompose into the types of testing, the types of tools, the context of security, there are a number of different things that we're doing. So most of our competition are competing on point tools or a smaller set. What you don't see is some competing with us on the breadth of the portfolio that we absolutely uniquely positioned there. There's still a lot of runway in this growth. And for us, they're tremendous. Again, I keep going to the word operating leverage, but there's trend in this operating leverage as we grow this business at 15% to 20% and as we scale up the profitability. The opportunity here both from an operational perspective but also from a market opportunity perspective is really around security. And I think that when we began this journey 7 years ago, we had to explain to people why it matters to secure your software, right, why it mattered, why it's a big deal to build that process in. And halfway through, 3.5 years in and now some years in, that's a no-brainer. That's a conversation that happens at the Board level. That -- that's a conversation that happens at the C-level now, right? And so nowadays, we're in a mode where we're getting them executing on this vision, so those who were buying to the vision that they want to build security into the software because they see the vulnerability. We're in the hard part of really helping them execute on that vision. And so you see that in our announcement this year where we signed larger multimillion dollar longer-term contracts, we're not operating in that start-up space where you're ringing the bell for 50,000 or 100,000 [ KPR ]. We're driving a large multimillion dollar engagement with household names that are developing software. And that's -- and there's still so much more room in this business.

And one interesting thing I sort of picked up on your call on this angle was you are beginning to see synergies between software and software integrity and your core business. I mean, you talked about getting penetration into hyperscalers, which is very interesting because traditionally, people think about these 2 as separate buckets. Can you speak to maybe what's driving these synergies between software and your core EDA business? And is this model that is scalable beyond the customers that you have sort of already penetrated with hyperscalers and -- yes?

In short, yes. I think it's translatable, right? Because you abstract the opportunity in hyperscalers. What is it increasingly more -- the hyperscalers are pursuing a model of vertical integration, right? They're coming from the hardware side, they want to get more in software. They come in to the software and the application is not going to want to build their own hardware because they want to create the synergy and the seamlessness, and they want to lock in their customers into the ecosystem of hardware and software. And in that context, obviously, when we talk about hardware, it's unavoidable. You need chips to be the brains of that hardware and that plays to our strength, and you know that well. On the software side, as they're building applications and they're linking those applications to the hardware, I think historically, the chip companies, the industry understands the importance of working out bugs, stripping out bugs in the process. They don't want to do -- develop these chips, go through the chip design process only to find out they can't take it out there's a bug in the software. So they understand the value of that and the cost of not getting that right. And on the software side, historically, they haven't faced that cost because if they ship a buggy software, just do a refresh and a software update and just -- you get used to it. But when you're building it to these systems and these systems may be in a car or maybe in a medical device, the risk of faulty software and the risk of failure is much more noticeable, right? And so in hyperscalers, they want to get the time to market, and they want to make the product work more seamlessly. You get shocked in some cases. Now you get health and safety and functional safety and reliability is a more urgent pricing. So I guess to my second point, which is you abstract the value to hyperscalers and building systems, a car these days is not just a physical thing with all these software and stuff or chips, but it's an integrated system, now a Tesla is an integrated system. And that model reflects the tightness between software and hardware, and that's where, ultimately, we're playing.

Yes. And in my sense, at least -- and I followed you, your system, the Software Integrity over the last couple of years has been that -- to some extent, I think -- I mean, there's a balance -- you're trying to strike a balance between growth and profitability in sales. And the last year was a pretty heavy sort of investment phase, and it feels like you're coming out of it and beginning to sort of harvest the gains of your investment. But if I want to sort of zoom out and think about, say, scaling from, let's call it, a $400 million type business -- revenue business to say $500 million or $600 million type business eventually, how would you sort of speak to how margins sort of scale with revenue? Because, I mean, how do we think about the margin profile scaling as well?

Actually, the -- we've committed to continue to increase margins for the company overall. And for the work everyone has contributed, so I do see an opportunity for Software Integrity to margins to approach the corporate average over time. And there's nothing structural around that business because it's an enterprise software play. It's in security. There's a potential for it to be even higher, right? And there's -- I think there's room. But in the near term -- and that's kind of longer term in terms of value creation. But near term, it's going to be a very healthy growth business and we'll continue to increase margins. And you're going to see pretty significant profit dollar contributions from that business. And there's still a lot of room for growth in the space. And so capturing that growth while driving margins up, we're going to see it contribute meaningfully over time like the rest of the business.

So would you -- where would you sort of categorize where you are in the investment cycle for SIG especially if you look at the consulting side and OpEx and so on?

It's a nuanced answer in that I love our competitive position. We are in a fantastic competitive position, right, in terms of the breadth of the product capabilities and the competitive space that we're in terms of having both product and services, right? It just -- it is a significant differentiator. That said, as we think about investments or M&A or where we go with this, we're coming into it from a position of strength. I don't look at it in terms of weakness of the portfolio. But I really do think that we're operating from a position of strength and competitive strength. The awareness of where we need to invest and how we invest is really more a function of how the market developed. Even though we're 7 years into it, this opportunity is in the nascent phases, right? And especially in security, it's an incredibly dynamic environment. And as they evolve, we want to make sure we're adapting appropriately. I think that there is no structural limit in terms of profitability and growth. But there is a thoughtfulness that's required in terms of how do we balance this profitability to make sure that we continue to evolve and do the right thing that can not only sustain but widen our leadership opportunity. Especially, there's just a lot of available money given that it's -- there is huge potential, right? So to me, that's really the management challenge for us. So listen, you step back and look at us despite the operational challenges that we had to work through this year, we overachieved our results and we kept margins relatively flat versus the prior year. It highlights an operating discipline within that business. And it's a very encouraging sign that we can drive it the way that we think it's going to deliver the best value.

Great. I think we're almost out of time. So Trac, any last comment, if you would like to share with investors? I think we're almost out of time.

I really enjoyed the conversation. Very thoughtful questions. I thought it gave us a chance to really touch on all areas of the business. And really, you can sense in my responses too, it just reflects the -- how well we're executing and the tremendous confidence in the outlook for the business. And as a result, that's why we've been able to communicate the raise in the long-term outlook for growth and reaffirming and stressing our commitment for margin expansion over time. And we do think there's a lot of room to create value for shareholders looking ahead.

Great. Thank you.

Great. Thanks for your time. Goodbye.

Thank you.