Synopsys Posts Financial Results for Third Quarter Fiscal Year 2014 Q3 2014 Financial Highlights

- Revenue: $521.8 million

- GAAP earnings per share: $0.42

- Non-GAAP earnings per share: $0.65

MOUNTAIN VIEW, Calif., Aug. 20, 2014 /PRNewswire/ -- Synopsys, Inc. (Nasdaq: SNPS), a global leader providing software, IP and services used to accelerate innovation in chips and electronic systems, today reported results for its third quarter of fiscal year 2014.

For the third quarter of fiscal year 2014, Synopsys reported revenue of $521.8 million, compared to $482.9 million for the third quarter of fiscal 2013, an increase of 8.0 percent.  

"Synopsys delivered an excellent fiscal third quarter, solidifying the year's financial outlook," said Aart de Geus, chairman and co-CEO of Synopsys.  "We shipped game-changing new products that are generating intense customer interest and high-impact results, and have already started a multi-year upgrade cycle. We also achieved encouraging results through Coverity, the recent acquisition that expands our total addressable market into the software quality, test and security space."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the third quarter of fiscal 2014 was $65.7 million, or $0.42 per share, compared to $52.3 million, or $0.33 per share, for the third quarter of fiscal 2013.

Non-GAAP Results

On a non-GAAP basis, net income for the third quarter of fiscal 2014 was $103.2 million, or $0.65 per share, compared to non-GAAP net income of $86.5 million, or $0.55 per share, for the third quarter of fiscal 2013. 

Financial Targets

Synopsys also provided its financial targets for the fourth quarter and full fiscal year 2014.  These targets do not include any future acquisition-related expenses that may be incurred in fiscal 2014.  These targets constitute forward-looking information 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. 

Fourth Quarter of Fiscal Year 2014 Targets:

  • Revenue: $537 million - $547 million
  • GAAP expenses: $462 million - $479 million
  • Non-GAAP expenses: $410 million - $420 million
  • Other income and expense: ($1) million - $1 million
  • Tax rate applied in non-GAAP net income calculations: approximately 22 percent
  • Fully diluted outstanding shares: 155 million - 159 million
  • GAAP earnings per share: $0.32 - $0.38
  • Non-GAAP earnings per share: $0.59 - $0.61

Full Fiscal Year 2014 Targets:

  • Revenue: $2.055 billion - $2.065 billion
  • Other income and expense: $10 million - $12 million
  • Tax rate applied in non-GAAP net income calculations: approximately 20 percent
  • Fully diluted outstanding shares: 155 million - 159 million
  • GAAP earnings per share: $1.57 - $1.63
  • Non-GAAP earnings per share: $2.48 - $2.50
  • 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, including inventory fair value adjustments, (iv) other significant items, including facilities restructuring charges and the effect of tax and legal settlements, and (v) the income tax effect of 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. 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 Third Quarter Fiscal Year 2014 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 periods indicated below.

GAAP to Non-GAAP Reconciliation of Third Quarter Fiscal Year 2014 Results

(unaudited and in thousands, except per share amounts)










Three Months Ended


Nine Months Ended


July 31,


July 31,


2014


2013


2014


2013

GAAP net income

$   65,656


$ 52,297


$ 196,669


$ 190,910

Adjustments:








Amortization of intangible assets

32,809


32,281


92,990


96,957

Stock compensation

21,399


16,490


58,340


49,719

Acquisition-related costs

36


162


5,484


3,990

Inventory fair value adjustment

-


1,903


-


3,712

Facility restructuring charges

-


(239)


-


(209)

Tax and other settlements

(2,981)


(2,711)


(15,288)


(2,711)

Tax adjustments

(13,768)


(13,685)


(40,262)


(49,239)

Non-GAAP net income 

$ 103,151


$ 86,498


$ 297,933


$ 293,129


























Three Months Ended


Nine Months Ended


July 31,


July 31,


2014


2013


2014


2013

GAAP net income per share

$       0.42


$     0.33


$       1.25


$       1.22

Adjustments:








Amortization of intangible assets

0.21


0.21


0.59


0.62

Stock compensation

0.14


0.10


0.37


0.32

Acquisition-related costs

0.00


0.00


0.04


0.03

Inventory fair value adjustment

-


0.01


-


0.02

Facility restructuring charges

-


(0.00)


-


(0.00)

Tax and other settlements

(0.03)


(0.02)


(0.10)


(0.02)

Tax adjustments

(0.09)


(0.08)


(0.26)


(0.31)

Non-GAAP net income per share

$       0.65


$     0.55


$       1.89


$       1.88









Shares used in calculation

157,622


157,056


157,253


156,215

 

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 Fourth Quarter Fiscal Year 2014 Targets

(in thousands, except per share amounts)






 Range for Three Months 


Ending October 31, 2014 (1)


Low


High

Target GAAP expenses

$   462,000


$   479,000

Adjustments:




       Estimated impact of amortization of intangible assets

(31,000)


(35,000)

       Estimated impact of stock compensation

(21,000)


(24,000)

Target non-GAAP expenses

$   410,000


$   420,000










Range for Three Months


Ending October 31, 2014 (1)


Low


High

Target GAAP earnings per share

$         0.32


$         0.38

Adjustments:




Estimated impact of amortization of intangible assets

0.22


0.20

Estimated impact of stock compensation

0.15


0.13

Net non-GAAP tax adjustments 

(0.10)


(0.10)

Target non-GAAP earnings per share

$         0.59


$         0.61





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

157,000


157,000









GAAP to Non-GAAP Reconciliation of Full Fiscal Year 2014 Targets






Range for Fiscal Year


Ending October 31, 2014 (1)


Low


High

Target GAAP earnings per share

$         1.57


$         1.63

Adjustments:




Estimated impact of amortization of intangible assets

0.81


0.79

Estimated impact of stock compensation

0.52


0.50

Acquisition-related costs

0.04


0.04

     Tax and other settlements

(0.10)


(0.10)

Net non-GAAP tax adjustments

(0.36)


(0.36)

Target non-GAAP earnings per share

$         2.48


$         2.50





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

157,000


157,000





(1) Synopsys' fourth quarter and fiscal year end on November 1, 2014.  For presentation purposes, the periods refer to the closest calendar month end.





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 333616, beginning at 4:00 p.m. Pacific Time today.  A webcast replay will also be available on the website from approximately 5:30 p.m. Pacific Time today through the time Synopsys announces its results for the fourth quarter fiscal 2014 in December 2014.  Synopsys will post copies of the prepared remarks of Aart de Geus, chairman and co-chief executive officer, and Brian Beattie, chief financial officer, on its website following the call.  In addition, Synopsys makes additional financial information available in a financial supplement 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 (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 and the financial supplement will remain available on Synopsys' website through the date of the fourth quarter fiscal year 2014 earnings call in December 2014, 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 fourth quarter of fiscal 2014 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 third quarter fiscal 2014 in its quarterly report on Form 10-Q to be filed by Sept. 11, 2014.

About Synopsys

Synopsys, Inc. (Nasdaq: SNPS) accelerates innovation in the global electronics market. As a leader in electronic design automation (EDA) and semiconductor IP, its software, IP and services help engineers address their design, verification, system and manufacturing challenges. Since 1986, engineers around the world have been using Synopsys technology to design and create billions of chips and systems. Learn more at http://www.synopsys.com.

Forward-Looking Statements

This press release and our upcoming earnings results conference call contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.  Any statements that are not statements of historical fact may be deemed to be forward-looking statements.  Forward-looking statements include but are not limited to: sections of this press release entitled "Financial Targets" and "Reconciliation of Target Non-GAAP Operating Results"; and statements regarding Synopsys' business, acquisitions, products, technologies, business model, customer demand for our technology, and projected financial results and business objectives.  These statements involve known and unknown risks, uncertainties and other factors that could cause our actual results, time frames or achievements 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:

  • continued uncertainty in the global economy and its potential impact on the semiconductor and electronics industries;
  • uncertainty in the growth of the semiconductor and electronics industry;
  • increased competition in the market for Synopsys' products and services including through consolidation in the industry and among our customers;
  • changes in demand for Synopsys' products due to fluctuations in demand for its customers' products;
  • Synopsys' ability to realize the potential financial or strategic benefits of acquisitions it completes, including its recent acquisition of Coverity, Inc., and challenges in entering new markets in which Synopsys is not experienced and in the integration of the products and operations of acquired companies or assets into Synopsys' products and operations, including possible delays in customer orders, potential loss of customers, key employees, partners or vendors, customer demand and support obligations for product offerings, and disruption of ongoing business operations and diversion of management attention;
  • adverse changes in the relationships between Synopsys and key participants in the complex semiconductor ecosystem, including major foundries and intellectual property providers;
  • litigation;
  • lower-than-anticipated new IC design starts;
  • lower-than-anticipated purchases or delays in purchases of products or consulting services by Synopsys' customers, including delays in the renewal, or non-renewal, of Synopsys' license arrangements with major customers;
  • changes in accounting principles or standards or in the way they are applied;
  • changes in the mix of time-based licenses and upfront licenses;
  • variability in the timing of revenue recognition due to factors such as payment terms and the timing and value of contract renewals and professional services projects;
  • lower-than-expected orders; and
  • failure of customers to pay license fees as scheduled.

In addition, Synopsys' actual expenses, earnings per share and tax rate on a GAAP and non-GAAP basis for the fiscal quarter ending Oct. 31, 2014; actual expenses, earnings per share, tax rate, and other projections on a GAAP and non-GAAP basis for fiscal year 2014; and cash flow from operations on a GAAP basis for fiscal year 2014 could differ materially from the targets stated under "Financial Targets" above for a number of reasons, including, but not limited to, (i) integration and other acquisition-related costs, (ii) application of the actual consolidated GAAP and non-GAAP tax rates for such periods, or judgment by management, based upon the status of pending audits and settlements, to increase or decrease an income tax asset or liability, (iii) a determination by Synopsys that any portion of its goodwill or intangible assets has become impaired, (iv) changes in the anticipated amount of employee stock-based compensation expense recognized in Synopsys' financial statements, (v) actual change in the fair value of Synopsys' non-qualified deferred compensation plan obligations, (vi) increases or decreases to estimated capital expenditures, (vii) changes driven by new accounting rules, regulations, interpretations or guidance, (viii) fluctuations in foreign currency exchange rates, (ix) litigation, (x) general economic conditions, and (xi) other risks as detailed in Synopsys' SEC filings, including those described in the "Risk Factors" section in its latest Quarterly Report on Form 10-Q for the fiscal quarter ended Apr. 30, 2014. Furthermore, Synopsys' actual tax rates applied to income for the fourth quarter and fiscal year 2014 could differ from the targets given in this press release as a result of a number of factors, including the actual geographic mix of revenue during the quarter and year, and actions by the government. Finally, Synopsys' targets for outstanding shares in the fourth quarter and fiscal year 2014 could differ from the targets given in this press release as a result of higher than expected employee stock plan issuances, stock option exercises, acquisitions, and the extent of Synopsys' stock repurchase activity.

Synopsys is under no obligation to (and expressly disclaims any such obligation to) update or alter any of the forward-looking statements made in this earnings release, the conference call or the financial supplement whether as a result of new information, future events or otherwise, unless otherwise required by law.

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

EDITORIAL CONTACT:
Yvette Huygen
Synopsys, Inc.
650-584-4547
yvetteh@synopsys.com

 

SYNOPSYS, INC.

Unaudited Consolidated Statements of Operations (1)

(in thousands, except per share amounts)










  Three Months Ended July 31,


Nine Months Ended July 31,


2014


2013


2014


2013

Revenue:








  Time-based license

$   431,184


$   387,088


$    1,255,515


$    1,186,538

  Upfront license

31,594


39,957


101,863


95,525

  Maintenance and service

59,034


55,900


161,082


175,276

      Total revenue

521,812


482,945


1,518,460


1,457,339

Cost of revenue:








  License

68,573


69,857


198,700


195,918

  Maintenance and service

20,685


19,253


62,065


59,074

  Amortization of intangible assets

26,272


26,537


74,699


79,451

     Total cost of revenue

115,530


115,647


335,464


334,443

Gross margin

406,282


367,298


1,182,996


1,122,896

Operating expenses:








  Research and development

182,809


166,668


528,395


494,140

  Sales and marketing

112,271


105,381


332,847


311,069

  General and administrative

37,438


34,510


112,246


104,702

  Amortization of intangible assets 

6,537


5,744


18,291


17,506

     Total operating expenses

339,055


312,303


991,779


927,417

Operating income

67,227


54,995


191,217


195,479

Other income (expense), net

3,544


3,177


18,797


21,130

Income before income taxes

70,771


58,172


210,014


216,609

Provision (benefit) for income taxes

5,115


5,875


13,345


25,699

Net income

$     65,656


$     52,297


$       196,669


$       190,910









Net income per share:








  Basic

$         0.42


$         0.34


$             1.27


$             1.25

  Diluted

$         0.42


$         0.33


$             1.25


$             1.22









Shares used in computing per share amounts:








  Basic

155,194


153,915


154,611


152,969

  Diluted

157,622


157,056


157,253


156,215









(1)  Synopsys' third quarter of fiscal 2014 and 2013 ended on August 2, 2014 and August 3, 2013, respectively. For presentation purposes, we refer to periods ended July 31.  

 

SYNOPSYS, INC.

Unaudited Consolidated Balance Sheets (1)

(in thousands, except par value amounts)








July 31, 2014


October 31, 2013

ASSETS:





Current assets:





  Cash and cash equivalents


$      903,046


$          1,022,441

  Accounts receivable, net


238,863


256,026

  Deferred income taxes


99,217


92,058

  Income taxes receivable and prepaid taxes


18,544


18,277

  Prepaid and other current assets


55,113


59,175

          Total current assets


1,314,783


1,447,977

Property and equipment, net


216,010


197,600

Goodwill


2,260,897


1,975,971

Intangible assets, net


367,416


335,425

Long-term prepaid taxes


9,952


7,935

Long-term deferred income taxes


204,502


243,066

Other long-term assets


171,369


150,961

           Total assets


$   4,544,929


$          4,358,935






LIABILITIES AND STOCKHOLDERS' EQUITY:





Current liabilities:





  Accounts payable and accrued liabilities


$      319,036


$             358,197

  Accrued income taxes


20,716


7,168

  Deferred revenue


857,532


827,554

  Short-term debt


30,000


30,000

           Total current liabilities


1,227,284


1,222,919

Long-term accrued income taxes


37,030


53,064

Long-term deferred revenue


67,311


54,736

Long-term debt


52,500


75,000

Other long-term liabilities


164,751


164,939

           Total liabilities


1,548,876


1,570,658

Stockholders' equity:





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


-


-

  Common stock, $0.01 par value: 400,000 shares authorized; 155,638 and





      154,169 shares outstanding, respectively


1,556


1,542

  Capital in excess of par value


1,594,965


1,597,244

  Retained earnings


1,501,238


1,324,854

  Treasury stock, at cost:1,626 and 3,095 shares, respectively


(60,194)


(106,668)

  Accumulated other comprehensive loss 


(41,512)


(28,695)

           Total stockholders' equity


2,996,053


2,788,277

           Total liabilities and stockholders' equity


$   4,544,929


$          4,358,935






(1)  Synopsys' third quarter of fiscal 2014 ended on August 2, 2014, and its fourth quarter of fiscal 2013 ended on November 2, 2013. For presentation purposes, the periods refer to the closest calendar month end.

 

SYNOPSYS, INC.

Unaudited Consolidated Statements of Cash Flows (1)

(in thousands)






 Nine Months Ended July 31, 


2014


2013

CASH FLOWS FROM OPERATING ACTIVITIES:




Net income

$  196,669


$ 190,910

Adjustments to reconcile net income to net cash provided by operating




    activities:




Amortization and depreciation

140,750


141,756

Stock compensation

58,341


49,719

Allowance for doubtful accounts 

(750)


901

Gain on sale of investments

(6,538)


(101)

Deferred income taxes

7,459


7,272

Net changes in operating assets and liabilities, net of 




acquired assets and liabilities:




Accounts receivable

24,834


8,207

Prepaid and other current assets

982


(14,617)

Other long-term assets

(18,847)


(20,292)

Accounts payable and other liabilities

(28,270)


(48,188)

Income taxes

(18,950)


(475)

Deferred revenue

22,361


(9,722)

Net cash provided by operating activities

378,041


305,370





CASH FLOWS FROM INVESTING ACTIVITIES:




Proceeds from sales of long-term investments

7,313


222

Purchases of property and equipment

(58,085)


(47,624)

Proceeds from sales of property and equipment

-


2,000

Cash paid for acquisitions, net of cash acquired

(373,513)


-

Capitalization of software development costs

(2,812)


(2,681)

Other

(3,000)


-

Net cash used in investing activities

(430,097)


(48,083)





CASH FLOWS FROM FINANCING ACTIVITIES:




Proceeds from credit facility

200,000


-

Repayment of debt

(223,239)


(22,975)

Acquisition of non-controlling interest

-


(44,004)

Issuances of common stock

45,336


90,529

Purchases of treasury stock

(79,747)


(69,999)

Other

(5,008)


(5,781)

Net cash used in financing activities

(62,658)


(52,230)

Effect of exchange rate changes on cash and cash equivalents

(4,681)


(13,069)

Net change in cash and cash equivalents

(119,395)


191,988

Cash and cash equivalents, beginning of the year

1,022,441


700,382

Cash and cash equivalents, end of the period

$  903,046


$ 892,370









(1)  Synopsys' third quarter of fiscal 2014 and 2013 ended on August 2, 2014 and August 3, 2013, respectively. For presentation purposes, we refer to periods ended July 31.  

 

SOURCE Synopsys, Inc.



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