Synopsys Posts Financial Results for Third Quarter Fiscal Year 2017
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Synopsys Posts Financial Results for Third Quarter Fiscal Year 2017

Q3 2017 Financial Highlights

(PRNewswire) —  Synopsys, Inc. (Nasdaq: SNPS) today reported results for its third quarter of fiscal year 2017.

Synopsys reported revenue of $695.4 million, compared to $615.2 million for the third quarter of fiscal year 2016, an increase of 13.0 percent.  

"In our fiscal third quarter, we again delivered excellent results and are raising annual revenue and non-GAAP earnings per share targets," said Aart de Geus, chairman and co-CEO of Synopsys. "Our strategy and investments are paying off. Demand for EDA and IP products is robust and growing, as semiconductor and systems companies tackle immense complexity in both chips and ever-increasing software content. We are making very good progress in the fast-growing software security and quality market, helping software developers from a wide range of industries navigate daunting security challenges. In addition, we continue to return capital to shareholders, repurchasing $100 million of our stock in the quarter, and $300 million so far this year."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the third quarter of fiscal 2017 was $116.8 million, or $0.75 per share, compared to $64.7 million, or $0.42 per share, for the third quarter of fiscal 2016.

Non-GAAP Results

On a non-GAAP basis, net income was $141.6 million, or $0.92 per share, compared to non-GAAP net income of $116.2 million, or $0.76 per share, for the third quarter of fiscal 2016. 

A 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 fourth quarter and full fiscal year 2017, which do not include any impact of future acquisition-related activities or costs. 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.

Fourth Quarter of Fiscal Year 2017 Targets:

Full Fiscal Year 2017 Targets:

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 core business operations and what Synopsys uses to evaluate its business 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, (iv) restructuring charges, (v) the effects of certain settlements, final judgments and loss contingencies related to legal proceedings, and (vi) the income tax effect of non-GAAP pre-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. 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 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, as well as in Item 2.02 of the Current Report on Form 8-K filed on August 16, 2017 for additional information about the measures Synopsys uses to evaluate its core business operations.

Reconciliation of Third Quarter Fiscal Year 2017 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 2017 Results

(unaudited and in thousands, except per share amounts)










Three Months Ended


Nine Months Ended


July 31,


July 31,


2017


2016


2017


2016

GAAP net income

$ 116,751


$   64,718


$ 256,645


$ 194,129

Adjustments:








Amortization of intangible assets

26,520


31,518


83,526


100,558

Stock compensation

28,301


25,571


79,697


72,043

Acquisition-related costs

1,232


1,155


6,253


6,968

Restructuring charges

6,026


-


31,038


2,987

Legal matters

-


-


38,000


-

Tax adjustments

(37,185)


(6,747)


(72,593)


(28,909)

Non-GAAP net income 

$ 141,645


$ 116,215


$ 422,566


$ 347,776


























Three Months Ended


Nine Months Ended


July 31,


July 31,


2017


2016


2017


2016

GAAP net income per share

$       0.75


$       0.42


$       1.66


$       1.26

Adjustments:








Amortization of intangible assets

0.17


0.20


0.54


0.65

Stock compensation

0.18


0.17


0.51


0.47

Acquisition-related costs

0.01


0.01


0.04


0.05

Restructuring charges

0.04


-


0.20


0.02

Legal matters

-


-


0.25


-

Tax adjustments

(0.23)


(0.04)


(0.47)


(0.20)

Non-GAAP net income per share

$       0.92


$      0.76


$       2.73


$       2.25









Shares used in calculation

154,683


153,890


154,787


154,629

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 2017 Targets

(in thousands, except per share amounts)






 Range for Three Months 


Ending October 31, 2017 (1)


Low


High

Target GAAP expenses

$   586,000


$   602,000

Adjustments:




Estimated impact of amortization of intangible assets

(23,000)


(26,000)

Estimated impact of stock compensation

(28,000)


(31,000)

Target non-GAAP expenses

$   535,000


$   545,000










Range for Three Months


Ending October 31, 2017 (1)


Low


High

Target GAAP earnings per share

$         0.26


$         0.33

Adjustments:




Estimated impact of amortization of intangible assets

0.17


0.15

Estimated impact of stock compensation

0.20


0.18

Estimated impact of tax adjustments

(0.08)


(0.08)

Target non-GAAP earnings per share

$         0.55


$         0.58





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

154,500


154,500









GAAP to Non-GAAP Reconciliation of Full Fiscal Year 2017 Targets






Range for Fiscal Year


Ending October 31, 2017 (1)


Low


High

Target GAAP earnings per share

$         1.92


$         1.99

Adjustments:




Estimated impact of amortization of intangible assets

0.71


0.69

Estimated impact of stock compensation

0.72


0.70

Estimated impact of acquisition-related costs

0.04


0.04

Estimated impact of restructuring

0.20


0.20

Estimated impact of legal matters

0.25


0.25

Estimated impact of tax adjustments

(0.55)


(0.55)

Target non-GAAP earnings per share

$         3.29


$         3.32





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

154,500


154,500






(1) Synopsys' fourth quarter and fiscal year end on October 28, 2017. For presentation purposes, we 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 428130, beginning at 4:00 p.m. Pacific Time today, until 11:59 p.m. Pacific Time on August 23, 2017. 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 fourth quarter and fiscal year in late November 2017. 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 fourth quarter and fiscal year 2017 earnings call in November 2017, 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 year 2017 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 of fiscal year 2017 in its quarterly report on Form 10-Q to be filed by September 7, 2017.

About Synopsys

Synopsys, Inc. (Nasdaq: SNPS) is the Silicon to Softwareâ„¢ partner for innovative companies developing the electronic products and software applications we rely on every day. As the world's 15th 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 security and quality solutions. Whether you're a system-on-chip (SoC) designer creating advanced semiconductors, or a software developer writing applications that require the highest security and quality, 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" as well as statements related to 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 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 and our dependence on a relatively small number of large customers; continued uncertainty in the global economy; our ability to realize the potential financial or strategic benefits of acquisitions we complete; 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 carry out our new product and technology initiatives; our ability to protect our proprietary technology; changes in accounting principles or standards; 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; changes in our GAAP or non-GAAP tax rate; liquidity requirements in our U.S. operations; claims that our products infringe on third-party intellectual property rights; litigation; product errors or defects; increased risks resulting from an increase in sales of our hardware products; 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, 2016, and in its Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2017, to be filed with the SEC. The information provided herein is as of August 16, 2017.  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 


Nine Months Ended


July 31,


July 31,


2017


2016


2017


2016

Revenue:








  Time-based products

$ 503,530


$ 479,285


$ 1,493,991


$ 1,427,740

  Upfront products

100,251


66,885


263,310


168,485

  Maintenance and service

91,600


69,034


270,935


192,588

      Total revenue

695,381


615,204


2,028,236


1,788,813

Cost of revenue:








  Products

107,104


92,042


304,982


253,879

  Maintenance and service

43,828


23,172


122,618


67,328

  Amortization of intangible assets

18,614


24,463


59,720


79,544

     Total cost of revenue

169,546


139,677


487,320


400,751

Gross margin

525,835


475,527


1,540,916


1,388,062

Operating expenses:








  Research and development

228,663


221,874


664,326


634,751

  Sales and marketing

131,520


127,328


395,242


370,874

  General and administrative

46,350


42,548


170,654


123,798

  Amortization of intangible assets 

7,906


7,055


23,806


21,014

  Restructuring charges

6,026


-


31,038


2,987

     Total operating expenses

420,465


398,805


1,285,066


1,153,424

Operating income

105,370


76,722


255,850


234,638

Other income (expense), net

7,421


8,509


27,322


12,158

Income before income taxes

112,791


85,231


283,172


246,796

Provision (benefit) for income taxes

(3,960)


20,513


26,527


52,667

Net income

$ 116,751


$   64,718


$    256,645


$    194,129









Net income per share:








  Basic

$       0.78


$0.43


$          1.71


$1.28

  Diluted

$       0.75


$0.42


$          1.66


$1.26









Shares used in computing per share amounts:








  Basic

150,214


151,169


150,460


152,129

  Diluted

154,683


153,890


154,787


154,629










(1)  Synopsys' third quarter of fiscal year 2017 and 2016 ended on July 29, 2017 and July 30, 2016, 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)












July 31, 2017


October 31, 2016

ASSETS:







Current assets:







  Cash and cash equivalents




$   1,154,986


$             976,620

  Short-term investments




147,508


140,695

          Total cash, cash equivalents and short-term investments




1,302,494


1,117,315

  Accounts receivable, net




411,262


438,873

  Income taxes receivable and prepaid taxes




55,750


56,091

  Prepaid and other current assets




125,126


104,659

          Total current assets




1,894,632


1,716,938

Property and equipment, net




262,025


257,035

Goodwill




2,660,680


2,518,245

Intangible assets, net




248,335


266,661

Long-term prepaid taxes




15,706


13,991

Deferred income taxes




382,495


281,926

Other long-term assets




215,066


185,569

           Total assets




$   5,678,939


$          5,240,365








LIABILITIES AND STOCKHOLDERS' EQUITY:







Current liabilities:







Accounts payable and accrued liabilities




$      403,302


$             401,451

Accrued income taxes




16,270


22,693

Deferred revenue




1,046,801


1,085,802

Short-term debt




298,025


205,000

           Total current liabilities




1,764,398


1,714,946

Long-term accrued income taxes




23,545


39,562

Long-term deferred revenue




83,001


79,856

Long-term debt




137,813


-

Other long-term liabilities




247,014


210,855

           Total liabilities




2,255,771


2,045,219

Stockholders' equity:







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




-


-

Common stock, $0.01 par value: 400,000 shares authorized; 150,238 and 151,454 shares outstanding, respectively










1,503


1,515

Capital in excess of par value




1,631,200


1,644,675

Retained earnings




2,277,499


1,947,585

Treasury stock, at cost: 7,024 and 5,811 shares, respectively




(419,370)


(294,052)

Accumulated other comprehensive income (loss) 




(67,664)


(104,577)

           Total stockholders' equity




3,423,168


3,195,146

           Total liabilities and stockholders' equity




$   5,678,939


$          5,240,365









(1)  Synopsys' third quarter of fiscal 2017 ended on July 29, 2017, and its fiscal year 2016 ended on October 29, 2016. For presentation purposes, we refer to the closest calendar month end.

 

SYNOPSYS, INC.

Unaudited Consolidated Statements of Cash Flows (1)

(in thousands)






 Nine Months Ended July 31, 


2017


2016

CASH FLOWS FROM OPERATING ACTIVITIES:




Net income

$  256,645


$194,129

Adjustments to reconcile net income to net cash provided by operating activities:




Amortization and depreciation

144,112


157,814

Stock compensation

79,697


72,043

Allowance for doubtful accounts 

1,289


650

(Gain) loss on sale of investments

(1)


(15)

Write-down of long-term investments

1,300


-

Deferred income taxes

(10,960)


2,747

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







Accounts receivable

42,413


77,532

Prepaid and other current assets

(13,636)


(22,941)

Other long-term assets

(33,416)


(8,118)

Accounts payable and accrued liabilities

36,129


(41,749)

Income taxes

(19,169)


(3,314)

Deferred revenue

(34,692)


10,195

Net cash provided by operating activities

449,711


438,973





CASH FLOWS FROM INVESTING ACTIVITIES:




Proceeds from sales and maturities of short-term investments

130,529


111,078

Purchases of short-term investments

(137,486)


(126,216)

Proceeds from sales of long-term investments

839


1,785

Purchases of long-term investments

-


(1,002)

Purchases of property and equipment

(50,227)


(48,249)

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

(187,624)


(60,056)

Capitalization of software development costs

(3,130)


(2,959)

Other

2,100


-

Net cash used in investing activities

(244,999)


(125,619)





CASH FLOWS FROM FINANCING ACTIVITIES:




Proceeds from credit facilities

270,000


185,000

Repayment of debt

(38,750)


(112,500)

Issuances of common stock

78,718


69,884

Payments for taxes related to net share settlement of equity awards

(35,376)


(25,718)

Purchase of equity forward contract

-


(25,000)

Purchases of treasury stock

(300,000)


(300,000)

Other

(482)


2,713

Net cash used in financing activities

(25,890)


(205,621)

Effect of exchange rate changes on cash and cash equivalents

(456)


2,396

Net change in cash and cash equivalents

178,366


110,129

Cash and cash equivalents, beginning of the year

976,620


836,188

Cash and cash equivalents, end of the period

$1,154,986


$946,317






(1)  Synopsys' third quarter of fiscal year 2017 and 2016 ended on July 29, 2017 and July 30, 2016, 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:
Carole Murchison
Synopsys, Inc.
650-584-4632
carolem@synopsys.com  

 

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SOURCE Synopsys, Inc.

Contact:
Synopsys, Inc.
Web: http://www.synopsys.com