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Synopsys Posts Financial Results for Third Quarter Fiscal Year 2020

Published: 2020-08-19 20:03:00 ET
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Q3 2020 Financial Highlights

-- Revenue: $964.1 million

-- GAAP earnings per share: $1.62

-- Non-GAAP earnings per share: $1.74

MOUNTAIN VIEW, Calif., Aug. 19, 2020 /PRNewswire/ -- Synopsys, Inc. (Nasdaq: SNPS) today reported results for its third quarter fiscal year 2020. Revenue for the third quarter was $964.1 million, compared to $853.0 million for the third quarter of fiscal 2019.

"Synopsys again executed very well in the third quarter, delivering record revenue, non-GAAP earnings per share and operating cash flow. We saw double-digit revenue growth across all product groups and strength in all geographies. Our intense, multi-year innovation push is driving increased momentum in product successes and production adoptions," said Aart de Geus, chairman and co-CEO of Synopsys. "Even as the world navigates through the pandemic and economic challenges, global design activity and customer engagements are flourishing. Due to our very strong fiscal third quarter, confidence in our outlook and resilient business model, we are raising 2020 revenue, operating margin, non-GAAP earnings-per-share and operating cash flow targets."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the third quarter of fiscal 2020 was $252.9 million, or $1.62 per share, compared to $99.9 million, or $0.65 per share, for the third quarter of fiscal 2019.

Non-GAAP Results

On a non-GAAP basis, net income for the third quarter of fiscal 2020 was $271.9 million, or $1.74 per share, compared to non-GAAP net income of $182.5 million, or $1.18 per share, for the third quarter of fiscal 2019.

For a reconciliation between GAAP and non-GAAP results, see "GAAP to Non-GAAP Reconciliation" and the accompanying tables below. 

Business Segments

Synopsys reports revenue and operating income in two segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and associated services, and (2) Software Integrity, which includes security and quality solutions for software development across many industries. Further information regarding these segments is provided at the end of this press release.

Financial Targets

Synopsys also provided its consolidated financial targets for the fourth quarter and full fiscal year 2020. These financial targets assume that the current U.S. government "Entity List" restrictions remain in place for the rest of the fiscal year. 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 and Fiscal Year 2020 Financial Targets

(in millions except per share amounts)

Q4 FY2020

FY 2020

Low

High

Low

High

Revenue

$               1,000

$               1,030

$               3,660

$               3,690

GAAP Expenses

$                  802

$                  822

$               3,037

$               3,057

Non-GAAP Expenses

$                  717

$                  727

$               2,645

$               2,655

Other Income (Expense)

$                     (6)

$                     (4)

$                     (4)

$                     (2)

Normalized Annual Tax Rate (1)

16%

16%

16%

16%

Outstanding Shares (fully diluted)

154

157

154

157

GAAP EPS

$                 1.10

$                 1.21

$                 4.10

$                 4.21

Non-GAAP EPS

$                 1.51

$                 1.56

$                 5.48

$                 5.53

Operating Cash Flow

 approximately 

$                  900

(1) Applied in non-GAAP net income calculations

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 on Synopsys' corporate website at www.synopsys.com. A recording of the call will be available by calling +1-866-207-1041 (+1-402-970-0847 for international callers), access code 8385903, beginning at 5:00 p.m. Pacific Time today, until 11:59 p.m. Pacific Time on August 26, 2020. 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 and fiscal year 2020 in December 2020Synopsys 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 today's call.  In addition, Synopsys makes additional information available in a financial supplement and corporate overview presentation, which are also posted on the corporate website.

Effectiveness of Information

The targets included in this press 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' corporate 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 the corporate overview presentation will remain available on Synopsys' website through the date of the fourth quarter and fiscal year 2020 earnings call in December 2020, 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 2020 or comment to analysts or investors on, or otherwise update, the targets given in this release.

Availability of Final Financial Statements

Synopsys will include final financial statements for the third quarter of fiscal year 2020 in its quarterly report on Form 10-Q to be filed by September 10, 2020.

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 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.     

GAAP to Non-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.

Synopsys utilizes a normalized annual non-GAAP tax rate in the calculation of its non-GAAP measures to provide better consistency across interim reporting periods by eliminating the effects of non-recurring and period-specific items such as tax audit settlements, which can vary in size and frequency and not necessarily reflect our normal operations, and to more clearly align our tax rate with our expected geographic earnings mix.  In projecting this rate, we evaluate our historical and projected mix of U.S. and international profit before tax, excluding the non-GAAP adjustments described above. We also consider 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. On an annual basis, we re-evaluate this rate for significant events that may materially affect our projections.  Based upon our review, our projected normalized annual non-GAAP tax rate remains 16% through fiscal year 2021. We will re-evaluate this rate on an annual basis, but further regulatory guidance regarding specific parts of recent U.S. Tax reform legislation could materially change our projections.

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 Item 2.02 of the Current Report on Form 8-K filed on August 19, 2020 for additional information about the measures Synopsys uses to evaluate its core business operations.

Reconciliation of Third Quarter Fiscal Year 2020 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 2020 Results (1)

(unaudited and in thousands, except per share amounts)

Three Months Ended

Nine Months Ended

July 31,

July 31,

2020

2019

2020

2019

GAAP net income

$               252,911

$                 99,929

$               466,892

$               371,653

Adjustments:

Amortization of intangible assets

23,649

23,714

70,277

77,138

Stock compensation

61,837

39,453

170,155

114,827

Acquisition-related costs

3,293

1,796

10,837

3,948

Restructuring charges

(1,977)

19,338

36,446

33,746

Legal matters

-

-

-

(18,000)

Tax settlement

-

-

-

17,418

Tax adjustments

(67,767)

(1,772)

(137,714)

(75,275)

Non-GAAP net income 

$               271,946

$               182,458

$               616,893

$               525,455

Three Months Ended

Nine Months Ended

July 31,

July 31,

2020

2019

2020

2019

GAAP diluted net income per share

$                     1.62

$                     0.65

$                     3.01

$                     2.42

Adjustments:

Amortization of intangible assets

0.15

0.15

0.45

0.50

Stock compensation

0.40

0.25

1.10

0.75

Acquisition-related costs

0.02

0.01

0.07

0.03

Restructuring charges

(0.01)

0.13

0.24

0.22

Legal matters

-

-

-

(0.12)

Tax settlement

-

-

-

0.11

Tax adjustments

(0.44)

(0.01)

(0.89)

(0.49)

Non-GAAP diluted net income per share

$                     1.74

$                     1.18

$                     3.98

$                     3.42

Shares used in computing diluted net income per share amounts:

155,973

154,600

155,074

153,859

(1) Synopsys' third quarter of fiscal year 2020 and 2019 ended on August 1, 2020 and August 3, 2019, respectively. For presentation purposes, we refer to the closest calendar month end.

Reconciliation of 2020 Targets

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

GAAP to Non-GAAP Reconciliation of Fourth Quarter Fiscal Year 2020 Targets (1)

(in thousands, except per share amounts)

 Range for Three Months 

Ending October 31, 2020

Low

High

Target GAAP expenses

$             802,000

$             822,000

Adjustments:

      Estimated impact of amortization of intangible assets

(20,000)

(25,000)

      Estimated impact of stock compensation

(65,000)

(70,000)

Target non-GAAP expenses

$             717,000

$             727,000

Range for Three Months

Ending October 31, 2020

Low

High

Target GAAP earnings per share

$                   1.10

$                   1.21

Adjustments:

      Estimated impact of amortization of intangible assets

0.16

0.13

      Estimated impact of stock compensation

0.45

0.42

      Estimated impact of tax adjustments

(0.20)

(0.20)

Target non-GAAP earnings per share

$                   1.51

$                   1.56

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

155,500

155,500

GAAP to Non-GAAP Reconciliation of Full Fiscal Year 2020 Targets (1)

(in thousands, except per share amounts)

Range for Fiscal Year

October 31, 2020

Low

High

Target GAAP expenses

$          3,037,449

$          3,057,449

Adjustments:

      Estimated impact of amortization of intangible assets

(90,000)

(95,000)

      Estimated impact of stock compensation

(235,000)

(240,000)

      Acquisition-related costs

(10,837)

(10,837)

      Estimated impact of restructuring charges

(36,446)

(36,446)

      Fair value changes in executive deferred compensation plan

(20,166)

(20,166)

Target non-GAAP expenses

$          2,645,000

$          2,655,000

Range for Fiscal Year

October 31, 2020

Low

High

Target GAAP earnings per share

$                   4.10

$                   4.21

Adjustments:

     Estimated impact of amortization of intangible assets

0.61

0.58

     Estimated impact of stock compensation

1.55

1.52

     Acquisition-related costs

0.07

0.07

     Estimated impact of restructuring charges

0.24

0.24

     Impact of tax adjustments

(1.09)

(1.09)

Target non-GAAP earnings per share

$                   5.48

$                   5.53

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

155,500

155,500

(1) Synopsys' fourth fiscal quarter and fiscal year will end on October 31, 2020

Forward-Looking Statements

This press release contains forward-looking statements including, but not limited to, statements regarding Synopsys' short-term and long-term financial targets, expectations and objectives; business outlook, opportunities and strategies; customer demand and market expansion; strategies related to our products and technology; our planned product releases and capabilities; industry growth rates; software trends; planned acquisitions and buybacks; our expected tax rate; the expected impact of U.S. and foreign government action on our results; and the expected impact of the COVID-19 pandemic. These statements involve 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. Such risks, uncertainties and factors include, but are not limited to: risks from the effect of the COVID-19 pandemic and the associated economic downturn on our business, operations and financial condition; uncertainty in the growth of the semiconductor and electronics industries; consolidation among our customers and our dependence on a relatively small number of large customers; risks and compliance obligations relating to the global nature of our operations as well as actions by the U.S. or foreign governments, such as measures in response to the COVID-19 pandemic or the imposition of additional tariffs or export restrictions; macroeconomic conditions and uncertainty in the global economy; fluctuation of our operating results; increased variability in our revenue due to the adoption of ASC 606, including the resulting increase in recognizing upfront revenue as a percentage of total revenue; and more. Additional 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, 2019 and its latest Quarterly Report on Form 10-Q. The information provided herein is as of August 19, 2020. 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.

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

EDITORIAL CONTACT:Simone SouzaSynopsys, Inc.650-584-6454simone@synopsys.com

SYNOPSYS, INC.

Unaudited Consolidated Statements of Operations (1)

(in thousands, except per share amounts)

Three Months Ended 

Nine Months Ended

July 31,

July 31,

2020

2019

2020

2019

Revenue:

  Time-based products

$               612,065

$               537,569

$            1,758,601

$            1,649,590

  Upfront products

210,931

177,552

491,417

451,466

  Maintenance and service

141,138

137,849

409,824

408,557

      Total revenue

964,134

852,970

2,659,842

2,509,613

Cost of revenue:

  Products

118,478

113,533

344,469

346,163

  Maintenance and service

60,812

59,496

184,940

178,113

  Amortization of intangible assets

13,718

13,603

40,732

45,927

     Total cost of revenue

193,008

186,632

570,141

570,203

Gross margin

771,126

666,338

2,089,701

1,939,410

Operating expenses:

  Research and development

322,602

284,804

939,456

846,429

  Sales and marketing

156,456

157,109

455,511

471,720

  General and administrative

73,516

67,382

204,734

165,794

  Amortization of intangible assets 

9,931

10,111

29,545

31,211

  Restructuring charges

(1,977)

19,338

36,446

33,746

     Total operating expenses

560,528

538,744

1,665,692

1,548,900

Operating income

210,598

127,594

424,009

390,510

Other income (expense), net

26,256

5,317

22,584

23,373

Income before income taxes

236,854

132,911

446,593

413,883

Provision (benefit) for income taxes

(16,057)

32,982

(20,299)

42,230

Net income

$               252,911

$                 99,929

$               466,892

$               371,653

Net income per share:

  Basic

$                     1.67

$                     0.67

$                     3.10

$                     2.48

  Diluted

$                     1.62

$                     0.65

$                     3.01

$                     2.42

Shares used in computing per share amounts:

  Basic

151,352

150,123

150,731

149,708

  Diluted

155,973

154,600

155,074

153,859

(1) Synopsys' third quarter of fiscal year 2020 and 2019 ended on August 1, 2020 and August 3, 2019, 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, 2020

October 31, 2019

ASSETS:

Current assets:

  Cash and cash equivalents

$                    1,049,922

$                       728,597

  Accounts receivable, net

638,489

553,895

  Inventories, net

159,813

141,518

  Income taxes receivable and prepaid taxes

20,960

24,855

  Prepaid and other current assets

316,831

290,052

          Total current assets

2,186,015

1,738,917

Property and equipment, net

484,529

429,532

Operating lease right-of-use assets, net

472,244

-

Goodwill

3,356,407

3,171,179

Intangible assets, net

275,338

279,374

Long-term prepaid taxes

8,279

15,503

Deferred income taxes

463,894

390,129

Other long-term assets

416,544

380,526

           Total assets

$                    7,663,250

$                    6,405,160

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current liabilities:

  Accounts payable and accrued liabilities

$                       549,906

$                       506,459

  Operating lease liabilities, current

71,861

-

  Accrued income taxes

20,653

15,904

  Deferred revenue

1,389,609

1,212,476

  Short-term debt

24,248

17,614

           Total current liabilities

2,056,277

1,752,453

Operating lease liabilities, non-current

470,215

-

Long-term accrued income taxes

27,011

29,911

Long-term deferred revenue

111,915

90,102

Long-term debt

107,104

120,093

Other long-term liabilities

289,411

323,725

           Total liabilities

3,061,933

2,316,284

Stockholders' equity:

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

-

-

  Common stock, $0.01 par value: 400,000 shares authorized; 151,758 and 150,331 shares outstanding, respectively

1,519

1,503

  Capital in excess of par value

1,623,586

1,635,455

  Retained earnings

3,597,944

3,164,144

  Treasury stock, at cost: 5,503 and 6,930 shares, respectively

(554,304)

(625,642)

  Accumulated other comprehensive income (loss) 

(72,820)

(92,447)

           Total Synopsys stockholders' equity

4,595,925

4,083,013

Non-controlling interest

5,392

5,863

           Total stockholders' equity

4,601,317

4,088,876

           Total liabilities and stockholders' equity

$                    7,663,250

$                    6,405,160

(1) Synopsys' third quarter of fiscal year 2020 ended on August 1, 2020, and its fiscal year 2019 ended on November 2, 2019. 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,

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$            466,892

$            371,653

Adjustments to reconcile net income to net cash provided by

operating activities:

Amortization and depreciation

159,156

152,133

Reduction of operating lease right-of-use assets

62,585

-

Amortization of capitalized costs to obtain revenue contracts

44,851

46,230

Stock compensation

170,155

114,826

Allowance for doubtful accounts

14,875

8,950

(Gain) loss on sale of property and investments

(1,994)

(4,052)

Deferred income taxes

(74,374)

(9,664)

Net changes in operating assets and liabilities, net of

acquired assets and liabilities:

Accounts receivable

(89,667)

89,370

Inventories

(17,040)

(39,431)

Prepaid and other current assets

(21,350)

(38,224)

Other long-term assets

(77,895)

(114,344)

Accounts payable and accrued liabilities

43,842

(45,200)

Operating lease liabilities

(57,968)

-

Income taxes

6,128

(6,963)

Deferred revenue

160,966

53,980

Net cash provided by operating activities

789,162

579,264

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales of long-term investments

2,151

6,361

Purchases of long-term investments

(2,762)

-

Purchases of property and equipment

(120,234)

(122,358)

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

(201,045)

-

Capitalization of software development costs

(3,035)

(2,245)

Net cash used in investing activities

(324,925)

(118,242)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from credit facilities

276,490

192,897

Repayment of debt

(284,218)

(520,312)

Issuances of common stock

123,237

107,354

Payments for taxes related to net share settlement of equity awards

(66,985)

(52,309)

Purchase of equity forward contract

-

(20,000)

Purchases of treasury stock

(200,000)

(209,185)

Other

-

(762)

Net cash used in financing activities

(151,476)

(502,317)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

8,700

4,975

Net change in cash, cash equivalents and restricted cash

321,461

(36,320)

Cash, cash equivalents and restricted cash, beginning of year

730,527

725,001

Cash, cash equivalents and restricted cash, end of period

$         1,051,988

$            688,681

(1) Synopsys' third quarter of fiscal year 2020 and 2019 ended on August 1, 2020 and August 3, 2019, respectively. For presentation purposes, we refer to the closest calendar month end.

SYNOPSYS, INC.

Business Segment Reporting (1)

(in millions)

Q3'20

Q3'19

YTD Q3'20

YTD Q3'19

Revenue by segment

- Semiconductor & System Design

$                   870.7

$                   769.4

$                2,392.5

$                2,260.3

% of Total

90.3%

90.2%

90.0%

90.1%

- Software Integrity

$                     93.4

$                     83.6

$                   267.3

$                   249.3

% of Total

9.7%

9.8%

10.0%

9.9%

Total segment revenue

$                   964.1

$                   853.0

$                2,659.8

$                2,509.6

Adjusted operating income by segment

- Semiconductor & System Design

$                   308.7

$                   207.8

$                   697.3

$                   604.5

- Software Integrity

$                     14.8

$                       8.8

$                     34.6

$                     22.9

Total adjusted segment operating income

$                   323.6

$                   216.6

$                   731.9

$                   627.4

Adjusted operating margin by segment

- Semiconductor & System Design

35.4%

27.0%

29.1%

26.7%

- Software Integrity

15.8%

10.5%

12.9%

9.2%

Total adjusted segment operating margin

33.6%

25.4%

27.5%

25.0%

Total Adjusted Segment Operating Income Reconciliation (1)(2)

(in millions)

Three Months

Three Months 

Nine Months 

Nine Months 

 Ended

Ended

Ended

Ended

July 31, 2020(3)

July 31, 2019(3)

July 31, 2020(3)

July 31, 2019(3)

GAAP total operating income – as reported

$                   210.6

$                   127.6

$                   424.0

$                   390.5

Other expenses managed at consolidated level

-Amortization of intangible assets

23.6

23.7

70.3

77.1

-Stock compensation

61.8

39.5

170.2

114.8

-Fair value changes in executive deferred compensation plan

26.2

4.7

20.2

25.2

-Acquisition-related costs

3.3

1.8

10.8

3.9

-Restructuring

(2.0)

19.3

36.4

33.7

-Legal matters

-

-

-

(18.0)

Total adjusted segment operating income

$                   323.6

$                   216.6

$                   731.9

$                   627.4

(1) Synopsys manages the business on a long-term, annual basis, and considers quarterly fluctuations of revenue and profitability as normal elements of our business. Quarterly variability, which increases as a result of ASC 606, should be expected. Amounts may not foot due to rounding.

(2) These segment results are consistent with the information required by ASC 280, Segment Reporting. They are presented to reflect the information that is considered by Synopsys' chief operating decision makers (CODMs) to evaluate the operating performance of its segments. The CODMs do not allocate certain operating expenses managed at a consolidated level to our reportable segments, and as a result, the reported operating income and operating margin do not include these unallocated expenses as shown in the table above. Amounts may not foot due to rounding.

(3) Synopsys' third quarter of fiscal year 2020 and 2019 ended on August 1, 2020 and August 3, 2019, respectively. For presentation purposes, we refer to the closest calendar month end.

 

Cision View original content:http://www.prnewswire.com/news-releases/synopsys-posts-financial-results-for-third-quarter-fiscal-year-2020-301115089.html

SOURCE Synopsys, Inc.