Synopsys Posts Financial Results for First Quarter Fiscal Year 2016

Q1 2016 Financial Highlights

- Revenue: $568.6 million

- GAAP earnings per share: $0.39

- Non-GAAP earnings per share: $0.68

Feb 17, 2016, 16:05 ET from Synopsys, Inc.

MOUNTAIN VIEW, Calif., Feb. 17, 2016 /PRNewswire/ -- Synopsys, Inc. (Nasdaq: SNPS) today reported results for its first quarter of fiscal year 2016.

For the first quarter of fiscal year 2016, Synopsys reported revenue of $568.6 million, compared to $542.0 million for the first quarter of fiscal 2015, an increase of approximately 5 percent.  

"The fiscal first quarter was a very good start to the year, and we are well on-track to meeting our annual financial targets," said Aart de Geus, chairman and co-CEO of Synopsys. "Our business is strong, even in the context of the challenging macro environment, and customers continue to count on us for their most critical projects. As the market and technology leader in EDA, the second largest IP provider in the world, and the emerging front-runner in addressing the critical new software quality and security space, our vision and investments align well with robust current and future opportunities."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the first quarter of fiscal 2016 was $60.0 million, or $0.39 per share, compared to $65.2 million, or $0.41 per share, for the first quarter of fiscal 2015.

Non-GAAP Results

On a non-GAAP basis, net income for the first quarter of fiscal 2016 was $105.9 million, or $0.68 per share, compared to non-GAAP net income of $125.7 million, or $0.80 per share, for the first quarter of fiscal 2015. 

Fiscal first quarter 2015 earnings reflected the reinstatement of the federal R&D tax credit for 2014, including both a retroactive benefit for fiscal 2014 and a partial year impact to fiscal 2015. Fiscal first quarter 2016 reflects a permanent reinstatement of the federal R&D tax credit.

Reconciliation between GAAP and non-GAAP results is provided at the end of this press release. 

Financial Targets

Synopsys also provided its financial targets for the second quarter and full fiscal year 2016.  These targets do not include any impact of future acquisition-related activities or costs that may be incurred in fiscal year 2016. Beginning in fiscal year 2016, Synopsys began utilizing a normalized annual non-GAAP tax rate in calculating non-GAAP financial measures in order to provide better consistency across interim reporting periods by eliminating the effects of non-recurring and period-specific items.

These targets constitute forward-looking statements and are based on current expectations.  For a discussion of factors that could cause actual results to differ materially from these targets, see "Forward-Looking Statements" below.

Second Quarter of Fiscal Year 2016 Targets:

  • Revenue: $595 million - $610 million
  • GAAP expenses: $503 million - $522 million
  • Non-GAAP expenses: $450 million - $460 million
  • Other income and expense: $0 - $2 million
  • Normalized annual tax rate applied in non-GAAP net income calculations: 19 percent
  • Fully diluted outstanding shares: 153 million - 156 million
  • GAAP earnings per share: $0.38 - $0.47
  • Non-GAAP earnings per share: $0.78 - $0.81

Full Fiscal Year 2016 Targets:

  • Revenue: $2.350 billion - $2.390 billion
  • Other income and expense: $0 - $4 million
  • Normalized annual tax rate applied in non-GAAP net income calculations: 19 percent
  • Fully diluted outstanding shares: 153 million - 156 million
  • GAAP earnings per share: $1.64 - $1.79
  • Non-GAAP earnings per share: $2.93 - $3.00
  • Cash flow from operations: at least $500 million

GAAP Reconciliation

Synopsys continues to provide all information required in accordance with GAAP, but believes evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Accordingly, Synopsys presents non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Synopsys' operating results in a manner that focuses on what Synopsys believes to be its ongoing business operations and what Synopsys uses to evaluate its ongoing operations and for internal planning and forecasting purposes. Synopsys' management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Synopsys' management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes: (i) the amortization of acquired intangible assets, (ii) the impact of stock compensation, (iii) acquisition-related costs, and (iv) other significant items, including restructuring charges and, in fiscal 2015, certain accruals for legal and tax matters.  In fiscal 2015, the non-GAAP tax provision excluded the income tax effect of above-mentioned non-GAAP pre-tax adjustments as well as unusual or infrequent tax adjustments; and the non-GAAP measures that exclude such information in order to assess the performance of Synopsys' business and for planning and forecasting in subsequent periods. Beginning in fiscal 2016, Synopsys began utilizing a normalized annual non-GAAP tax rate in the calculation of its non-GAAP measures that is based on our projected annual tax rate through fiscal 2018.  In projecting this rate, we evaluated our historical and projected mix of U.S. and international profit before tax, excluding the impact of stock-based compensation, the amortization of purchased intangibles and other non-GAAP adjustments described above. We also took into account other factors including our current tax structure, our existing tax positions, and expected recurring tax incentives, such as the U.S. federal research and development tax credit. We intend to re-evaluate this rate on an annual basis for any significant events that may materially affect our projections, such as significant changes in our geographic earnings mix or significant tax law changes in major jurisdictions where we operate. Whenever Synopsys uses a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed below.

Reconciliation of First Quarter Fiscal Year 2016 Results

The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP net income and earnings per share for the period indicated below.

 

GAAP to Non-GAAP Reconciliation of First Quarter Fiscal Year 2016 Results

(unaudited and in thousands, except per share amounts)

Three Months Ended

January 31,

2016

2015

GAAP net income

$   60,035

$                    65,189

Adjustments:

Amortization of intangible assets

37,461

32,308

Stock compensation

23,013

20,581

Acquisition-related costs

3,872

712

Restructuring charges

2,093

15,336

Legal and tax matters

-

(1,519)

Tax adjustments (1)

(20,541)

(6,936)

Non-GAAP net income 

$ 105,933

$                  125,671

Three Months Ended

January 31,

2016

2015

GAAP net income per share

$       0.39

$                        0.41

Adjustments:

Amortization of intangible assets

0.24

0.21

Stock compensation

0.15

0.13

Acquisition-related costs

0.02

0.00

Restructuring charges

0.01

0.10

Legal and tax matters

-

(0.01)

Tax adjustments (1)

(0.13)

(0.04)

Non-GAAP net income per share

$       0.68

$                        0.80

Shares used in calculation

155,283

157,206

(1) Fiscal 2016 tax adjustments reflect the application of our normalized annual non-GAAP tax rate to non-GAAP pre-tax income.

 

Reconciliation of Target Non-GAAP Operating Results

The following tables reconcile the specific items excluded from GAAP in the calculation of target non-GAAP operating results for the periods indicated below.

 

GAAP to Non-GAAP Reconciliation of Second Quarter Fiscal Year 2016 Targets

(in thousands, except per share amounts)

 Range for Three Months 

Ending April 30, 2016 (1)

Low

High

Target GAAP expenses

$   503,000

$   522,000

Adjustments:

      Estimated impact of amortization of intangible assets

(31,000)

(35,000)

      Estimated impact of stock compensation

(22,000)

(27,000)

Target non-GAAP expenses

$   450,000

$   460,000

Range for Three Months

Ending April 30, 2016 (1)

Low

High

Target GAAP earnings per share

$         0.38

$         0.47

Adjustments:

Estimated impact of amortization of intangible assets

0.23

0.20

Estimated impact of stock compensation

0.17

0.14

Target non-GAAP earnings per share

$         0.78

$         0.81

Shares used in non-GAAP calculation (midpoint of target range)

154,500

154,500

GAAP to Non-GAAP Reconciliation of Full Fiscal Year 2016 Targets

Range for Fiscal Year

Ending October 31, 2016 (1)

Low

High

Target GAAP earnings per share

$         1.64

$         1.79

Adjustments:

Estimated impact of amortization of intangible assets

0.85

0.80

Estimated impact of stock compensation

0.69

0.64

Acquisition-related costs

0.02

0.02

Estimated impact of restructuring

0.01

0.01

Estimated impact of tax adjustments (2)

(0.28)

(0.26)

Target non-GAAP earnings per share

$         2.93

$         3.00

Shares used in non-GAAP calculation (midpoint of target range)

154,500

154,500

(1) Synopsys' second quarter and fiscal year end on April 30, 2016 and October 29, 2016, respectively.  For presentation purposes, we refer to the closest calendar month end.

(2) Fiscal 2016 tax adjustments reflect the application of our normalized annual non-GAAP tax rate to non-GAAP pre-tax income.

 

Earnings Call Open to Investors

Synopsys will hold a conference call for financial analysts and investors today at 2:00 p.m. Pacific Time.  A live webcast of the call will be available at Synopsys' corporate website at www.synopsys.com.  A recording of the call will be available by calling +1-800-475-6701 (+1-320-365-3844 for international callers), access code 385770, beginning at 4:00 p.m. Pacific Time today.  A webcast replay will also be available on the website from approximately 4:30 p.m. Pacific Time today through the time Synopsys announces its results for the second fiscal quarter in May 2016.  Synopsys will post copies of the prepared remarks of Aart de Geus, chairman and co-chief executive officer, and Trac Pham, chief financial officer, on its website following the call.  In addition, Synopsys makes additional information available in a financial supplement and corporate overview presentation, also posted on the corporate website.

Effectiveness of Information

The targets included in this release, the statements made during the earnings conference call and the information contained in the financial supplement and corporate overview presentation (available in the Investor Relations section of Synopsys' website at www.synopsys.com) represent Synopsys' expectations and beliefs as of the date of this release only.  Although this press release, copies of the prepared remarks of the co-chief executive officer and chief financial officer made during the call, the financial supplement, and corporate overview presentation will remain available on Synopsys' website through the date of the second quarter fiscal year 2016 earnings call in May 2016, their continued availability through such date does not mean that Synopsys is reaffirming or confirming their continued validity.  Synopsys does not currently intend to report on its progress during the second quarter of fiscal year 2016 or comment to analysts or investors on, or otherwise update, the targets given in this earnings release.

Availability of Final Financial Statements

Synopsys will include final financial statements for the first quarter fiscal 2016 in its quarterly report on Form 10-Q to be filed by March 10, 2016.

About Synopsys

Synopsys, Inc. (Nasdaq: SNPS) is the Silicon to Software™ partner for innovative companies developing the electronic products and software applications we rely on every day. As the world's 16th largest software company, Synopsys has a long history of being a global leader in electronic design automation (EDA) and semiconductor IP and is also growing its leadership in software quality and security solutions. Whether you're a system-on-chip (SoC) designer creating advanced semiconductors, or a software developer writing applications that require the highest quality and security, Synopsys has the solutions needed to deliver innovative, high-quality, secure products. Learn more at www.synopsys.com.  

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including, but not limited to, information in the sections entitled "Financial Targets" and "Reconciliation of Target Non-GAAP Operating Results." These statements involve known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in our forward-looking statements.  Accordingly, we caution stockholders and prospective investors not to place undue reliance on these statements.  Such risks, uncertainties and factors include, but are not limited to: uncertainty in the growth of the semiconductor and electronics industry; consolidation among our customers; continued uncertainty in the global economy; our ability to realize the potential financial or strategic benefits of acquisitions we complete; changes in accounting principles or standards; fluctuation of our operating results; our highly competitive industries and our ability to meet our customers' demand for innovative technology at lower costs; our ability to protect our proprietary technology; application of the actual consolidated GAAP tax rate, or our decision to change our non-GAAP normalized tax rate, as a result of a number of factors, including the actual geographic mix of revenue during the quarter and year, tax law changes, actions by government authorities, or judgment by management, based upon the status of pending audits and settlements, to increase or decrease an income tax asset or liability; investments of more resources in research and development than anticipated; risks and compliance obligations relating to the global nature of our operations; cybersecurity threats or other security breaches; liquidity requirements in our U.S. operations; claims that our products infringe on third-party intellectual property rights; product errors or defects; litigation; the ability to obtain licenses to third-party software and intellectual property on reasonable terms or at all; the ability to timely recruit and retain senior management and key employees; evolving corporate governance and public disclosure regulations; the inherent limitations on the effectiveness of our controls and compliance programs; the impairment of our investment portfolio by the deterioration of capital markets and the change in the fair value of our non-qualified deferred compensation plan obligations; the accuracy of certain assumptions, judgments and estimates that affect amounts reported in our financial statements; and the impact of catastrophic events.  More information on potential risks, uncertainties and other factors that could affect Synopsys' results is included in filings it makes with the Securities and Exchange Commission from time to time, including in the sections entitled "Risk Factors" in its Annual Report on Form 10-K for the fiscal year ended October 31, 2015 and in its Form 10-Q for the fiscal quarter ended January 31, 2016 to be filed with the SEC.  The information provided herein is as of February 17, 2016.  Synopsys undertakes no duty, and does not intend, to update any forward-looking statement, whether as a result of new information, future events or otherwise, unless required by law.

 

SYNOPSYS, INC.

Unaudited Consolidated Statements of Operations (1)

(in thousands, except per share amounts)

Three Months Ended 

January 31,

2016

2015

Revenue:

  Time-based license

$   464,280

$   431,026

  Upfront license

43,437

46,480

  Maintenance and service

60,887

64,537

      Total revenue

568,604

542,043

Cost of revenue:

  License

76,393

70,784

  Maintenance and service

22,525

27,983

  Amortization of intangible assets

30,526

25,866

     Total cost of revenue

129,444

124,633

Gross margin

439,160

417,410

Operating expenses:

  Research and development

196,705

181,610

  Sales and marketing

122,620

106,169

  General and administrative

39,697

36,354

  Amortization of intangible assets 

6,935

6,442

  Restructuring charges

2,093

15,336

     Total operating expenses

368,050

345,911

Operating income

71,110

71,499

Other income (expense), net

(6,768)

5,116

Income before income taxes

64,342

76,615

Provision (benefit) for income taxes

4,307

11,426

Net income

$     60,035

$     65,189

Net income per share:

  Basic

$         0.39

$         0.42

  Diluted

$         0.39

$         0.41

Shares used in computing per share amounts:

  Basic

152,968

154,458

  Diluted

155,283

157,206

(1)  Synopsys' first quarter of fiscal year 2016 and 2015 ended on January 30, 2016 and January 31, 2015, respectively. For presentation purposes, we refer to the closest calendar month end.

 

SYNOPSYS, INC.

Unaudited Consolidated Balance Sheets (1)

(in thousands, except par value amounts)

January 31, 2016

October 31, 2015

ASSETS:

Current assets:

  Cash and cash equivalents

$             582,986

$             836,188

  Short-term investments

122,948

128,747

          Total cash, cash equivalents and short-term investments

705,934

964,935

  Accounts receivable, net

354,766

385,694

  Income taxes receivable and prepaid taxes

48,550

46,732

  Prepaid and other current assets

91,278

71,446

          Total current assets

1,200,528

1,468,807

Property and equipment, net

261,235

263,077

Goodwill

2,472,844

2,471,241

Intangible assets, net

337,380

363,659

Long-term prepaid taxes

19,207

18,736

Long-term deferred income taxes

280,009

273,909

Other long-term assets

176,320

186,310

           Total assets

$          4,747,523

$          5,045,739

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current liabilities:

  Accounts payable and accrued liabilities

$             254,872

$             385,542

  Accrued income taxes

16,386

19,565

  Deferred revenue

934,524

968,246

  Short-term debt

227,500

205,000

           Total current liabilities

1,433,282

1,578,353

Long-term accrued income taxes

34,509

37,763

Long-term deferred revenue

96,643

93,613

Other long-term liabilities

192,706

202,021

           Total liabilities

1,757,140

1,911,750

Stockholders' equity:

  Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding

-

-

  Common stock, $0.01 par value: 400,000 shares authorized; 151,509 and 155,157 shares outstanding, respectively

1,515

1,552

  Capital in excess of par value

1,602,206

1,610,460

  Retained earnings

1,784,317

1,725,727

  Treasury stock, at cost: 5,755 and 2,107 shares, respectively

(268,860)

(98,375)

  Accumulated other comprehensive income (loss) 

(128,795)

(105,375)

           Total stockholders' equity

2,990,383

3,133,989

           Total liabilities and stockholders' equity

$          4,747,523

$          5,045,739

(1)  Synopsys' first quarter of fiscal 2016 ended on January 30, 2016, and its fiscal year 2015 ended on October 31, 2015. For presentation purposes, we refer to the closest calendar month end.

 

SYNOPSYS, INC.

Unaudited Consolidated Statements of Cash Flows (1)

(in thousands)

 Three Months Ended January 31, 

2016

2015

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$  60,035

$  65,189

Adjustments to reconcile net income to net cash used in operating activities:

Amortization and depreciation

56,436

50,529

Stock compensation

23,013

20,581

Allowance for doubtful accounts 

250

300

(Gain) loss on sale of investments

3

(12)

Excess tax benefits on stock-based awards

(440)

-

Deferred income taxes

(3,955)

(158)

Net changes in operating assets and liabilities, net of acquired assets and liabilities:

Accounts receivable

30,365

40,857

Prepaid and other current assets

(27,825)

(42,860)

Other long-term assets

9,008

(7,597)

Accounts payable and accrued liabilities

(145,229)

(125,320)

Income taxes

(4,734)

(14,024)

Deferred revenue

(32,097)

(74,828)

Net cash used in operating activities

(35,170)

(87,343)

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales and maturities of short-term investments

40,489

8,012

Purchases of short-term investments

(34,933)

(128,427)

Proceeds from sales of long-term investments

161

-

Purchases of property and equipment

(15,337)

(19,607)

Cash paid for acquisitions and intangible assets, net of cash acquired

(18,941)

-

Capitalization of software development costs

(920)

(909)

Net cash used in investing activities

(29,481)

(140,931)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from credit facility

30,000

250,000

Repayment of debt

(7,500)

(22,723)

Issuances of common stock

(3,725)

10,542

Purchase of equity forward contract

(40,000)

(36,000)

Purchases of treasury stock

(160,000)

(144,000)

Excess tax benefits on stock-based awards

440

-

Other

(1,470)

(14)

Net cash (used in) provided by financing activities

(182,255)

57,805

Effect of exchange rate changes on cash and cash equivalents

(6,296)

(18,469)

Net change in cash and cash equivalents

(253,202)

(188,938)

Cash and cash equivalents, beginning of the year

836,188

985,762

Cash and cash equivalents, end of the period

$582,986

$796,824

(1)  Synopsys' first quarter of fiscal year 2015 and 2014 ended on January 30, 2016 and January 31, 2015, respectively. For presentation purposes, we refer to the closest calendar month end.

 

INVESTOR CONTACT: Lisa L. Ewbank Synopsys, Inc. 650-584-1901 Synopsys-ir@synopsys.com

EDITORIAL CONTACT: Sheryl Gulizia Synopsys, Inc. 650-584-8635 sgulizia@synopsys.com  

 

SOURCE Synopsys, Inc.



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