Synopsys Posts Financial Results for Third Quarter Fiscal Year 2018
MOUNTAIN VIEW, Calif., Aug. 22, 2018 /PRNewswire/ -- Synopsys, Inc. (Nasdaq: SNPS) today reported results for its third quarter of fiscal year 2018. Revenue was $779.7 million, compared to $695.4 million for the third quarter of fiscal year 2017, an increase of 12.1 percent.
"Synopsys delivered another outstanding quarter and is raising revenue and non-GAAP earnings per share guidance for the year. The age of digital intelligence is driving significant investments by traditional and new semiconductor and systems companies, as well as software developers across many industries. Our strategic investments over the past several years are paying off. Strong products and customer relationships in EDA and IP, as well as our rapid growth in software security and quality, are leading to double-digit revenue and non-GAAP earnings growth in 2018," said Aart de Geus, chairman and co-CEO of Synopsys. "This backdrop provides a solid foundation for continued growth and increased operating leverage in the business."
GAAP Results
On a generally accepted accounting principles (GAAP) basis, net income for the third quarter of fiscal 2018 was $79.4 million, or $0.52 per share, compared to $116.8 million, or $0.75 per share, for the third quarter of fiscal 2017. These results reflect a $26 million charge related to the settlement of Mentor Graphics patent litigation.
Non-GAAP Results
For the third quarter of fiscal 2018, on a non-GAAP basis, net income was $145.6 million, or $0.95 per share, compared to non-GAAP net income of $141.6 million, or $0.92 per share, for the third quarter of fiscal 2017.
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 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.
Fourth Quarter of Fiscal Year 2018 Targets:
-- Revenue: $774 million - $804 million
-- GAAP expenses: $722 million - $738 million
-- Non-GAAP expenses: $655 million - $665 million
-- Other income and expense: ($3) million - ($1) million
-- Normalized annual tax rate applied in non-GAAP net income calculations:
13 percent
-- Fully diluted outstanding shares: 153 million - 156 million
-- GAAP earnings per share: $0.39 - $0.47
-- Non-GAAP earnings per share: $0.76 - $0.80
Full Fiscal Year 2018 Targets:
-- Revenue: $3.10 billion - $3.13 billion
-- Other income and expense: ($5) million - ($3) million
-- Normalized annual tax rate applied in non-GAAP net income calculations:
13 percent
-- Fully diluted outstanding shares: 153 million - 156 million
-- GAAP earnings per share: $1.55 - $1.63
-- Non-GAAP earnings per share: $3.89 - $3.93
-- Cash flow from operations: $460 million - $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 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 and included tax rates then in effect. 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 August 22, 2018 for additional information about the measures Synopsys uses to evaluate its core business operations.
Reconciliation of Third 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 Third Quarter and Fiscal Year 2018 Results
(unaudited and in thousands, except per share amounts)
Three Months Ended Nine Months Ended
July 31, July 31,
2018 2017 2018 2017
---- ---- ---- ----
GAAP net income $79,409 $116,751 $178,190 $256,645
Adjustments:
Amortization of intangible
assets 30,805 26,520 90,538 83,526
Stock compensation 37,252 28,301 102,540 79,697
Acquisition-related costs 1,402 1,232 19,622 6,253
Restructuring charges 23 6,026 1,917 31,038
Legal matters 26,000 - 26,000 38,000
Income tax related to
transition tax - - 73,434 -
Income tax related to tax
rate change - - 45,636 -
Tax adjustments (29,275) (37,185) (57,714) (72,593)
------- ------- ------- -------
Non-GAAP net income $145,616 $141,645 $480,163 $422,566
======== ======== ======== ========
Three Months Ended Nine Months Ended
July 31, July 31,
2018 2017 2018 2017
---- ---- ---- ----
GAAP net income per share $0.52 $0.75 $1.16 $1.66
Adjustments:
Amortization of intangible
assets 0.20 0.17 0.59 0.54
Stock compensation 0.24 0.18 0.67 0.51
Acquisition-related costs 0.01 0.01 0.13 0.04
Restructuring charges - 0.04 0.01 0.20
Legal matters 0.17 - 0.17 0.25
Income tax related to
transition tax - - 0.48 -
Income tax related to tax
rate change - - 0.30 -
Tax adjustments (0.19) (0.23) (0.37) (0.47)
Non-GAAP net income per share $0.95 $0.92 $3.14 $2.73
===== ===== ===== =====
Shares used in computing per
share amounts: 152,614 154,683 153,118 154,787
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 2018 Targets
(in thousands, except per share amounts)
Range for Three Months
Ending October 31, 2018 (1)
Low High
--- ----
Target GAAP expenses $722,000 $738,000
Adjustments:
Estimated impact of amortization of intangible assets (28,000) (31,000)
Estimated impact of stock compensation (39,000) (42,000)
Target non-GAAP expenses $655,000 $665,000
======== ========
Range for Three Months
Ending October 31, 2018 (1)
Low High
--- ----
Target GAAP earnings per share $0.39 $0.47
Adjustments:
Estimated impact of amortization of intangible assets 0.20 0.18
Estimated impact of stock compensation 0.27 0.25
Estimated impact of tax adjustments (0.10) (0.10)
Target non-GAAP earnings per share $0.76 $0.80
===== =====
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 $1.55 $1.63
Adjustments:
Estimated impact of amortization of intangible assets 0.79 0.77
Estimated impact of stock compensation 0.94 0.92
Acquisition-related costs 0.13 0.13
Restructuring charges 0.01 0.01
Legal matters 0.17 0.17
Income tax related to transition tax 0.48 0.48
Income tax related to tax rate change 0.30 0.30
Estimated impact of tax adjustments (0.48) (0.48)
Target non-GAAP earnings per share $3.89 $3.93
===== =====
Shares used in non-GAAP calculation (midpoint of target range) 154,500 154,500
(1) Synopsys' fourth quarter and
fiscal year end on November 3,
2018. 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 452792, beginning at 4:00 p.m. Pacific Time today, until 11:59 p.m. Pacific Time on August 29, 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 fourth quarter and fiscal year 2018 in December 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 fourth quarter and fiscal year 2018 earnings call in December 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 fourth 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 third quarter of fiscal year 2018 in its quarterly report on Form 10-Q to be filed by September 13, 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" as well as statements related to our revenue and non-GAAP earnings growth, and increased operating leverage. 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 and its latest Quarterly Report on Form 10-Q. The information provided herein is as of August 22, 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.
SYNOPSYS, INC.
Unaudited Consolidated Statements of Operations (1)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
July 31, July 31,
-------- --------
2018 2017 2018 2017
---- ---- ---- ----
Revenue:
Time-based products $570,053 $503,530 $1,697,756 $1,493,991
Upfront products 99,579 100,251 291,143 263,310
Maintenance and
service 110,082 91,600 337,077 270,935
------- ------ ------- -------
Total revenue 779,714 695,381 2,325,976 2,028,236
Cost of revenue:
Products 115,437 107,104 335,030 304,982
Maintenance and
service 49,790 43,828 150,674 122,618
Amortization of
intangible assets 20,154 18,614 59,612 59,720
Total cost of
revenue 185,381 169,546 545,316 487,320
Gross margin 594,333 525,835 1,780,660 1,540,916
Operating expenses:
Research and
development 277,402 228,663 793,947 664,326
Sales and marketing 157,953 131,520 455,653 395,242
General and
administrative 84,336 46,350 199,517 170,654
Amortization of
intangible assets 10,651 7,906 30,926 23,806
Restructuring
charges 23 6,026 1,917 31,038
Total operating
expenses 530,365 420,465 1,481,960 1,285,066
Operating income 63,968 105,370 298,700 255,850
Other income
(expense), net 7,925 7,421 12,595 27,322
----- ----- ------ ------
Income before income
taxes 71,893 112,791 311,295 283,172
Provision (benefit)
for income taxes (7,516) (3,960) 133,105 26,527
Net income $79,409 $116,751 $178,190 $256,645
======= ======== ======== ========
Net income per share:
Basic $0.53 $0.78 $1.20 $1.71
Diluted $0.52 $0.75 $1.16 $1.66
Shares used in computing per share amounts:
Basic 148,490 150,214 148,760 150,460
======= ======= ======= =======
Diluted 152,614 154,683 153,118 154,787
======= ======= ======= =======
(1) Synopsys' third quarter of
fiscal year 2018 and 2017 ended
on August 4, 2018 and July 29,
2017, respectively. The first
quarter of fiscal 2018 included
an extra week. 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, 2018 October 31, 2017
------------- ----------------
ASSETS:
Current assets:
Cash and cash equivalents $741,236 $1,048,356
Accounts receivable, net 501,331 451,144
Income taxes receivable and
prepaid taxes 44,378 48,257
Prepaid and other current
assets 178,638 134,836
------- -------
Total current assets 1,465,583 1,682,593
Property and equipment, net 290,446 266,014
Goodwill 3,138,666 2,706,974
Intangible assets, net 394,485 253,843
Long-term prepaid taxes 86,405 20,157
Long-term deferred income taxes 167,427 243,989
Other long-term assets 252,203 222,844
Total assets $5,795,215 $5,396,414
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued
liabilities $449,037 $499,846
Accrued income taxes 6,909 39,811
Deferred revenue 1,129,651 1,064,528
Short-term debt 497,808 9,924
------- -----
Total current liabilities 2,083,405 1,614,109
Long-term accrued income taxes 36,704 33,239
Long-term deferred revenue 113,842 83,252
Long-term debt 123,750 134,063
Other long-term liabilities 273,512 252,027
------- -------
Total liabilities 2,631,213 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; 148,559 and
150,445 shares outstanding,
respectively 1,486 1,505
Capital in excess of par value 1,591,293 1,622,429
Retained earnings 2,296,546 2,143,873
Treasury stock, at cost: 8,701
and 6,817 shares, respectively (636,533) (426,208)
Accumulated other comprehensive
income (loss) (94,653) (65,979)
------- -------
Total Synopsys stockholders'
equity 3,158,139 3,275,620
Non-controlling interest 5,863 4,104
----- -----
Total stockholders' equity 3,164,002 3,279,724
Total liabilities and
stockholders' equity $5,795,215 $5,396,414
========== ==========
(1) Synopsys' third quarter of
fiscal 2018 ended on August 4,
2018, and its fiscal year 2017
ended on October 28, 2017. 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,
--------------------------
2018 2017
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $178,190 $256,645
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization and depreciation 150,245 144,112
Stock compensation 102,540 79,697
Allowance for doubtful accounts 3,368 1,289
(Gain) loss on sale of investments 4 (1)
(Gain) loss on sale of property and
equipment (97) -
Write-down of long-term investments - 1,300
Deferred income taxes 5,509 (10,960)
Net changes in operating assets and liabilities, net of
acquired assets and liabilities:
Accounts receivable (41,695) 42,413
Prepaid and other current assets (58,409) (13,636)
Other long-term assets (31,659) (33,416)
Accounts payable and accrued liabilities (56,491) 36,129
Income taxes (35,014) (19,169)
Deferred revenue 76,780 (34,692)
Net cash provided by operating activities 293,271 449,711
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of
short-term investments 12,449 130,529
Purchases of short-term investments - (137,486)
Proceeds from sales of long-term
investments 494 839
Purchases of long-term investments (645) -
Proceeds from sales of property and
equipment 1,662 -
Purchases of property and equipment (70,469) (50,227)
Cash paid for acquisitions and intangible
assets, net of cash acquired (646,687) (187,624)
Capitalization of software development
costs (2,714) (3,130)
Other - 2,100
Net cash used in investing activities (705,910) (244,999)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility 615,000 270,000
Repayment of debt (137,500) (38,750)
Issuances of common stock 72,722 78,718
Payments for taxes related to net share
settlement of equity awards (42,636) (35,376)
Purchase of equity forward contract (33,000) -
Purchases of treasury stock (367,000) (300,000)
Other 1,759 (482)
Net cash provided by (used in) financing
activities 109,345 (25,890)
Effect of exchange rate changes on cash
and cash equivalents (3,826) (456)
Net change in cash and cash equivalents (307,120) 178,366
Cash and cash equivalents, beginning of
the year 1,048,356 976,620
Cash and cash equivalents, end of the
period $741,236 $1,154,986
======== ==========
(1) Synopsys' third quarter of
fiscal year 2018 and 2017 ended
on August 4, 2018 and July 29,
2017, 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:
Simone Souza
Synopsys, Inc.
650-584-6454
simone@synopsys.com
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SOURCE Synopsys, Inc.
