Synopsys Posts Financial Results for First Quarter Fiscal Year 2018
MOUNTAIN VIEW, Calif., Feb. 21, 2018 /PRNewswire/ --
Q1 2018 Financial Highlights
-- Revenue: $769.4 million
-- GAAP loss per share: $0.02
-- Non-GAAP earnings per share: $1.10
Synopsys, Inc. (Nasdaq: SNPS) today reported results for its first quarter of fiscal year 2018.
For the first quarter of fiscal 2018, Synopsys reported revenue of $769.4 million, compared to $652.8 million for the first quarter of fiscal 2017, an increase of approximately 17.9 percent. Fiscal 2018 results include a favorable impact of one additional week compared to fiscal 2017, which occurred in our first fiscal quarter.
"We began fiscal 2018 on a strong note, exceeding expectations, raising full-year revenue and non-GAAP earnings per share guidance, and returning capital to shareholders with a $200M buyback initiated in fiscal Q1," said Aart de Geus, chairman and co-CEO. "Propelled by the evolving age of 'Smart Everything,' semiconductor and systems companies, along with software developers across many industries, are driving digitization and machine learning, which require more and more advanced chips, sophisticated hardware/software interaction and high levels of software security. As the Silicon to Software partner, our unique combination of leading technologies positions us well to participate in this dynamic wave of opportunity."
GAAP Results
On a generally accepted accounting principles (GAAP) basis, net income (loss) for the first quarter of fiscal 2018 was $(3.7) million, or $(0.02) per share, compared to $86.6 million, or $0.56 per share, for the first quarter of fiscal 2017. First quarter fiscal 2018 results include one-time tax expenses of approximately $119 million associated with the Tax Cuts and Jobs Act of 2017 ("tax reform").
Non-GAAP Results
On a non-GAAP basis, net income for the first quarter of fiscal 2018 was $169.6 million, or $1.10 per share, compared to non-GAAP net income of $145.1 million, or $0.94 per share, for the first quarter of fiscal 2017. First quarter fiscal 2018 results include a benefit of approximately $0.08 per share as a result of tax reform.
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 second quarter and full fiscal year 2018, 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.
Second Quarter of Fiscal Year 2018 Targets:
-- Revenue: $765 million - $790 million
-- GAAP expenses: $637 million - $653 million
-- Non-GAAP expenses: $575 million - $585 million
-- Other income and expense: ($1) million - $1 million
-- Annual tax rate applied in non-GAAP net income calculations: 13 percent
-- Fully diluted outstanding shares: 153 million - 156 million
-- GAAP earnings per share: $0.69 - $0.77
-- Non-GAAP earnings per share: $1.06 - $1.10
Full Fiscal Year 2018 Targets:
-- Revenue: $2.92 billion - $2.95 billion
-- Other income and expense: ($6) million - ($2) million
-- Annual tax rate applied in non-GAAP net income calculations: 13 percent
-- Fully diluted outstanding shares: 153 million - 156 million
-- GAAP earnings per share: $1.59 - $1.69
-- Non-GAAP earnings per share: $3.67 - $3.74
-- Cash flow from operations: $500 million - $550 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 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, (vi) the impact of a one-time transition tax resulting from U.S. tax reform (referred to as the "Income tax related to transition tax"), (vii) the impact of a reduction in value of deferred tax assets caused by a reduction of the U.S. corporate tax rate (referred to as the "Income tax related to tax rate change"), and (viii) 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 considered 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 and, as a result of U.S. tax reform in December 2017, which lowered the U.S. statutory rate from 35% to 21%, we adjusted our normalized annual non-GAAP tax rate from 19% to 13% for fiscal 2018. We will re-evaluate this rate again for fiscal 2019, but we expect that our normalized annual non-GAAP tax rate will exceed 13%, but be below 19%, for fiscal 2019.
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 February 21, 2018 for additional information about the measures Synopsys uses to evaluate its core business operations.
Reconciliation of First Quarter Fiscal Year 2018 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 First Quarter Fiscal Year 2018 Results
(unaudited and in thousands, except per share amounts)
Three Months Ended
January 31,
2018 2017
---- ----
GAAP net income (loss) $(3,691) $86,588
Adjustments:
Amortization of intangible
assets 28,547 29,508
Stock compensation 32,323 25,834
Acquisition-related costs 14,200 3,299
Restructuring charges (282) 12,105
Income tax related to
transition tax 73,434 -
Income tax related to tax
rate change 45,636 -
Tax adjustments (20,612) (12,257)
------- -------
Non-GAAP net income $169,555 $145,077
======== ========
Three Months Ended
January 31,
2018 2017
---- ----
GAAP net income (loss) per
share (1) $(0.02) $0.56
Adjustments:
Amortization of intangible
assets 0.19 0.19
Stock compensation 0.21 0.17
Acquisition-related costs 0.09 0.02
Restructuring charges - 0.08
Income tax related to
transition tax 0.47 -
Income tax related to tax
rate change 0.29 -
Tax adjustments (0.13) (0.08)
Non-GAAP net income per
share(1) $1.10 $0.94
===== =====
Shares used in computing
per share amounts: (1)
Basic - GAAP net loss 149,441 n/a
Diluted - Non-GAAP
adjustments & net income 154,068 154,433
(1) We provide both basic
weighted-average outstanding
shares and fully diluted
weighted-average outstanding
shares in net income (loss) per
share calculation in the
reconciliation of earnings per
share amounts. If there is a
GAAP net loss in a reporting
period, we are required to use
basic weighted-average
outstanding shares to compute
net loss per share to prevent
anti-dilutive effect while we
use fully diluted weighted-
average outstanding shares to
compute per share non-GAAP
adjustments and net 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 2018 Targets
(in thousands, except per share amounts)
Range for Three Months
Ending April 30, 2018 (1)
Low High
--- ----
Target GAAP expenses $637,000 $653,000
Adjustments:
Estimated impact of
amortization of
intangible assets (30,000) (33,000)
Estimated impact of stock
compensation (32,000) (35,000)
Target non-GAAP expenses $575,000 $585,000
======== ========
Range for Three Months
Ending April 30, 2018 (1)
Low High
--- ----
Target GAAP earnings per
share $0.69 $0.77
Adjustments:
Estimated impact of
amortization of
intangible assets 0.21 0.19
Estimated impact of stock
compensation 0.23 0.21
Estimated impact of tax
adjustments (0.07) (0.07)
Target non-GAAP earnings
per share $1.06 $1.10
===== =====
Shares used in non-GAAP
calculation (midpoint of
target range) 154,500 154,500
GAAP to Non-GAAP Reconciliation of Full Fiscal Year 2018 Targets
Range for Fiscal Year
Ending October 31, 2018
(1)
------------------------
Low High
--- ----
Target GAAP earnings per
share $1.59 $1.69
Adjustments:
Estimated impact of
amortization of
intangible assets 0.78 0.74
Estimated impact of stock
compensation 0.90 0.87
Acquisition-related costs 0.09 0.09
Income tax related to
transition tax 0.47 0.47
Income tax related to tax
rate change 0.29 0.29
Estimated impact of tax
adjustments (0.45) (0.41)
Target non-GAAP earnings
per share $3.67 $3.74
===== =====
Shares used in non-GAAP
calculation (midpoint of
target range) 154,500 154,500
(1) Synopsys' second quarter and
fiscal year end on May 5, 2018
and November 3, 2018,
respectively. For presentation
purposes, we refer to the
closest calendar month end.
The first quarter of fiscal
2018 included an extra week.
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 444434, beginning at 4:00 p.m. Pacific Time today, until 11:59 p.m. Pacific Time on February 28, 2018. 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 2018. 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 2018 earnings call in May 2018, 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 2018 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 of fiscal year 2018 in its quarterly report on Form 10-Q to be filed by March 15, 2018.
About Synopsys
Synopsys, Inc. (Nasdaq: SNPS) is the Silicon to Software(TM) 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 titled "Financial Targets" and "GAAP to Non-GAAP Reconciliation", and the expected impact of recent U.S. tax reform. 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; 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; cybersecurity threats or other security breaches; risks and compliance obligations relating to the global nature of our operations; our ability to protect our proprietary technology; investments of more resources in research and development than anticipated; increased risks resulting from an increase in sales of our hardware products; changes in accounting principles or standards; changes in our effective 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; 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; 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, 2017. The information provided herein is as of February 21, 2018. 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. Ewbank
Synopsys, Inc.
650-584-1901
Synopsys-ir@synopsys.com
EDITORIAL CONTACT:
Simone Souza
Synopsys, Inc.
650-584-6454
simone@synopsys.com
SYNOPSYS, INC.
Unaudited Consolidated Statements of Operations (1)
(in thousands, except per share amounts)
Three Months Ended
January 31,
-----------
2018 2017
---- ----
Revenue:
Time-based products $570,933 $489,365
Upfront products 91,604 79,609
Maintenance and service 106,889 83,812
------- ------
Total revenue 769,426 652,786
Cost of revenue:
Products 111,394 96,971
Maintenance and service 50,754 37,303
Amortization of intangible
assets 19,008 21,472
Total cost of revenue 181,156 155,746
Gross margin 588,270 497,040
Operating expenses:
Research and development 264,411 212,648
Sales and marketing 150,512 126,511
General and administrative 56,372 40,866
Amortization of intangible
assets 9,539 8,036
Restructuring charges (282) 12,105
Total operating expenses 480,552 400,166
Operating income 107,718 96,874
Other income (expense),
net 12,385 11,487
------ ------
Income before income taxes 120,103 108,361
Provision (benefit) for
income taxes 123,794 21,773
Net income (loss) $(3,691) $86,588
======= =======
Net income (loss) per share:
Basic $(0.02) $0.57
Diluted $(0.02) $0.56
Shares used in computing per share amounts:
Basic 149,441 150,782
======= =======
Diluted 149,441 154,433
======= =======
(1) Synopsys' first quarter of
fiscal year 2018 and 2017 ended
on February 3, 2018 and January
28, 2017, respectively. For
presentation purposes, we refer
to the closest calendar month
end. The first quarter of fiscal
2018 included an extra week.
SYNOPSYS, INC.
Unaudited Consolidated Balance Sheets (1)
(in thousands, except par value amounts)
January 31, 2018 October 31, 2017
---------------- ----------------
ASSETS:
Current assets:
Cash and cash equivalents $605,892 $1,048,356
Accounts receivable, net 499,373 451,144
Income taxes receivable and prepaid
taxes 44,258 48,257
Prepaid and other current assets 182,823 134,836
------- -------
Total current assets 1,332,346 1,682,593
Property and equipment, net 284,441 266,014
Goodwill 3,130,598 2,706,974
Intangible assets, net 434,539 253,843
Long-term prepaid taxes 99,835 20,157
Long-term deferred income taxes 187,346 243,989
Other long-term assets 248,444 222,844
Total assets $5,717,549 $5,396,414
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities $349,365 $499,846
Accrued income taxes 38,867 39,811
Deferred revenue 1,121,297 1,064,528
Short-term debt 440,885 9,924
------- -----
Total current liabilities 1,950,414 1,614,109
Long-term accrued income taxes 95,528 33,239
Long-term deferred revenue 119,864 83,252
Long-term debt 131,250 134,063
Other long-term liabilities 279,860 252,027
------- -------
Total liabilities 2,576,916 2,116,690
Stockholders' equity:
Preferred stock, $0.01 par value: 2,000
shares authorized; none outstanding - -
Common stock, $0.01 par value: 400,000
shares authorized; 148,953 and
150,445 shares outstanding, respectively 1,490 1,505
Capital in excess of par value 1,612,459 1,622,429
Retained earnings 2,133,854 2,143,873
Treasury stock, at cost: 8,309 and 6,817
shares, respectively (574,082) (426,208)
Accumulated other comprehensive income
(loss) (37,192) (65,979)
------- -------
Total Synopsys stockholders' equity 3,136,529 3,275,620
Non-controlling interest 4,104 4,104
----- -----
Total stockholders' equity 3,140,633 3,279,724
Total liabilities and stockholders'
equity $5,717,549 $5,396,414
========== ==========
(1) Synopsys' first quarter of
fiscal 2018 ended on February
3, 2018, and its fiscal year
2017 ended on October 28,
2017. For presentation
purposes, we refer to the
closest calendar month end.
The first quarter of fiscal
2018 included an extra week.
SYNOPSYS, INC.
Unaudited Consolidated Statements of Cash Flows (1)
(in thousands)
Three Months Ended January
31,
---------------------------
2018 2017
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(3,691) $86,588
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating
activities:
Amortization and depreciation 43,920 49,464
Stock compensation 32,323 25,834
Allowance for doubtful accounts 368 229
(Gain) loss on sale of investments 4 (1)
Write-down of long-term investments - 1,300
Deferred income taxes 46,172 12,989
Net changes in operating assets and liabilities, net of acquired
assets and liabilities:
Accounts receivable (34,811) 122,192
Prepaid and other current assets (30,592) (24,893)
Other long-term assets (25,635) (13,931)
Accounts payable and accrued
liabilities (139,864) (129,316)
Income taxes (18,017) (14,201)
Deferred revenue 70,458 (69,372)
------ -------
Net cash (used in) provided by
operating activities (59,365) 46,882
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of
short-term investments 12,449 37,284
Purchases of short-term investments - (35,338)
Purchases of property and equipment (28,316) (18,178)
Cash paid for acquisitions and
intangible assets, net of cash
acquired (608,344) (187,624)
Capitalization of software development
costs (807) (1,033)
Other - 2,100
Net cash used in investing activities (625,018) (202,789)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility 450,000 150,000
Repayment of debt (21,875) (35,000)
Issuances of common stock 12,486 7,205
Payments for taxes related to net share
settlement of equity awards (10,247) (6,887)
Purchase of equity forward contract (20,000) (20,000)
Purchases of treasury stock (180,000) (80,000)
Other - 559
Net cash provided by financing
activities 230,364 15,877
Effect of exchange rate changes on cash
and cash equivalents 11,555 (8,881)
Net change in cash and cash equivalents (442,464) (148,911)
Cash and cash equivalents, beginning of
the year 1,048,356 976,620
Cash and cash equivalents, end of the
period $605,892 $827,709
======== ========
(1) Synopsys' first quarter of
fiscal year 2018 and 2017 ended
on February 3, 2018 and January
28, 2017, respectively. For
presentation purposes, we refer
to the closest calendar month
end. The first quarter of
fiscal 2018 included an extra
week.
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SOURCE Synopsys, Inc.
