SYNOPSYS INC. 
By MOUNTAIN VIEW, Calif., May 21, 2014 /PRNewswire/ -- Synopsys, Inc. (Nasdaq: SNPS), a global leader providing software, IP and services used to accelerate innovation in chips and electronic systems, today reported results for its second quarter of fiscal year 2014.
For the second quarter of fiscal year 2014, Synopsys reported revenue of $517.7 million, compared to $499.3 million for the second quarter of fiscal 2013, an increase of 3.7 percent.
"Our fiscal second quarter results were very strong, driven by robust business in all key areas," said Aart de Geus, chairman and co-CEO of Synopsys. "In addition, we introduced several important new products, including IC Compiler II, a game-changer in digital design, and we completed the acquisition of Coverity, bringing us into the emerging market of software quality, test and security."
GAAP Results
On a generally accepted accounting principles (GAAP) basis, net income for the second quarter of fiscal 2014 was $63.3 million, or $0.40 per share, compared to $68.7 million, or $0.44 per share, for the second quarter of fiscal 2013.
Non-GAAP Results
On a non-GAAP basis, net income for the second quarter of fiscal 2014 was $101.7 million, or $0.65 per share, compared to non-GAAP net income of $103.7 million, or $0.66 per share, for the second quarter of fiscal 2013.
Financial Targets
Synopsys also provided its financial targets for the third quarter and full fiscal year 2014. These targets do not include any future acquisition-related expenses that may be incurred in fiscal 2014. These targets constitute forward-looking information and are based on current expectations. For a discussion of factors that could cause actual results to differ materially from these targets, see "Forward-Looking Statements" below.
Third Quarter of Fiscal Year 2014 Targets:
-- Revenue: $515 million - $525 million
-- GAAP expenses: $450.5 million - $471 million
-- Non-GAAP expenses: $400 million - $410 million
-- Other income and expense: ($1) million - $1 million
-- Tax rate applied in non-GAAP net income calculations: approximately 20
percent
-- Fully diluted outstanding shares: 155 million - 159 million
-- GAAP earnings per share: $0.30 - $0.38
-- Non-GAAP earnings per share: $0.60 - $0.62
Full Fiscal Year 2014 Targets:
-- Revenue: $2.05 billion - $2.075 billion
-- Other income and expense: $10 million - $12 million
-- Tax rate applied in non-GAAP net income calculations: approximately 21
percent
-- Fully diluted outstanding shares: 155 million - 159 million
-- GAAP earnings per share: $1.55 - $1.68
-- Non-GAAP earnings per share: $2.45 - $2.50
-- Cash flow from operations: $450 million - $475 million
GAAP Reconciliation
Synopsys continues to provide all information required in accordance with GAAP, but believes evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Accordingly, Synopsys presents non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Synopsys' operating results in a manner that focuses on what Synopsys believes to be its ongoing business operations and what Synopsys uses to evaluate its ongoing operations and for internal planning and forecasting purposes. Synopsys' management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Synopsys' management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes: (i) the amortization of acquired intangible assets, (ii) the impact of stock compensation, (iii) acquisition-related costs, including inventory fair value adjustments, (iv) other significant items, including facilities restructuring charges and the effect of tax and legal settlements, and (v) the income tax effect of non-GAAP pre-tax adjustments as well as unusual or infrequent tax adjustments; and the non-GAAP measures that exclude such information in order to assess the performance of Synopsys' business and for planning and forecasting in subsequent periods. Whenever Synopsys uses a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed below.
Reconciliation of Second Quarter Fiscal Year 2014 Results
The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP net income and earnings per share for the periods indicated below.
GAAP to Non-GAAP Reconciliation of Second Quarter Fiscal Year 2014 Results
(unaudited and in thousands, except per share amounts)
Three Months
Ended Six Months Ended
April 30, April 30,
2014 2013 2014 2013
---- ---- ---- ----
GAAP net
income $63,317 $68,691 $131,013 $138,613
Adjustments:
Amortization
of
intangible
assets 32,050 32,273 60,181 64,676
Stock
compensation 18,824 15,529 36,941 33,229
Acquisition-
related
costs 4,374 1,992 5,449 3,828
Inventory
fair value
adjustment - - - 1,809
Facility
restructuring
charges - 302 - 30
Tax and
other
settlements (2,040) - (12,307) -
Tax
adjustments (14,830) (15,123) (26,495) (35,554)
------- ------- -------
Non-GAAP
net income $101,695 $103,664 $194,782 $206,631
======== ======== ======== ========
Three Months
Ended Six Months Ended
April 30, April 30,
2014 2013 2014 2013
---- ---- ---- ----
GAAP net
income per
share $0.40 $0.44 $0.83 $0.89
Adjustments:
Amortization
of
intangible
assets 0.20 0.21 0.38 0.42
Stock
compensation 0.12 0.10 0.24 0.22
Acquisition-
related
costs 0.03 0.01 0.04 0.02
Inventory
fair value
adjustment - - - 0.01
Facility
restructuring
charges - 0.00 - 0.00
Tax and
other
settlements (0.01) - (0.08) -
Tax
adjustments (0.09) (0.10) (0.17) (0.23)
Non-GAAP
net income
per share $0.65 $0.66 $1.24 $1.33
===== ===== ===== =====
Shares used
in
calculation 157,082 156,606 156,986 155,662
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 Third Quarter Fiscal
Year 2014 Targets
(in thousands, except per share amounts)
Range for Three
Months
Ending July 31,
2014 (1)
Low High
--- ----
Target
GAAP
expenses $450,500 $471,000
Adjustments:
Estimated
impact of
amortization
of
intangible
assets (32,000) (39,000)
Estimated
impact of
stock
compensation (18,500) (22,000)
Target
non-GAAP
expenses $400,000 $410,000
======== ========
Range for Three
Months
Ending July 31,
2014 (1)
Low High
--- ----
Target
GAAP
earnings
per share $0.30 $0.38
Adjustments:
Estimated
impact of
amortization
of
intangible
assets 0.25 0.20
Estimated
impact of
stock
compensation 0.14 0.12
Net non-
GAAP tax
adjustments (0.09) (0.08)
Target
non-GAAP
earnings
per share $0.60 $0.62
===== =====
Shares
used in
non-GAAP
calculation
(midpoint
of target
range) 157,000 157,000
GAAP to Non-GAAP Reconciliation of Full Fiscal Year
2014 Targets
Range for Fiscal
Year
Ending October 31,
2014 (1)
Low High
--- ----
Target
GAAP
earnings
per share $1.55 $1.68
Adjustments:
Estimated
impact of
amortization
of
intangible
assets 0.83 0.78
Estimated
impact of
stock
compensation 0.54 0.50
Acquisition-
related
costs 0.04 0.04
Tax and
other
settlements (0.08) (0.08)
Net non-
GAAP tax
adjustments (0.43) (0.42)
Target
non-GAAP
earnings
per share $2.45 $2.50
===== =====
Shares
used in
non-GAAP
calculation
(midpoint
of target
range) 157,000 157,000
(1) Synopsys' third quarter and fiscal year end on
August 2, and November 1, 2014, respectively. For
presentation purposes, the periods refer to the closest
calendar month end.
Earnings Call Open to Investors
Synopsys will hold a conference call for financial analysts and investors today at 2:00 p.m. Pacific Time. A live webcast of the call will be available at Synopsys' corporate website at www.synopsys.com. A recording of the call will be available by calling +1-800-475-6701 (+1-320-365-3844 for international callers), access code 326039, beginning at 4:00 p.m. Pacific Time today. A webcast replay will also be available on the website from approximately 5:30 p.m. Pacific Time today through the time Synopsys announces its results for the third quarter fiscal 2014 in August 2014. Synopsys will post copies of the prepared remarks of Aart de Geus, chairman and co-chief executive officer, and Brian Beattie, chief financial officer, on its website following the call. In addition, Synopsys makes additional financial information available in a financial supplement also posted on the corporate website.
Effectiveness of Information
The targets included in this release, the statements made during the earnings conference call and the information contained in the financial supplement (available in the Investor Relations section of Synopsys' website at www.synopsys.com) represent Synopsys' expectations and beliefs as of the date of this release only. Although this press release, copies of the prepared remarks of the co-chief executive officer and chief financial officer made during the call and the financial supplement will remain available on Synopsys' website through the date of the third quarter fiscal year 2014 earnings call in August 2014, their continued availability through such date does not mean that Synopsys is reaffirming or confirming their continued validity. Synopsys does not currently intend to report on its progress during the third quarter of fiscal 2014 or comment to analysts or investors on, or otherwise update, the targets given in this earnings release.
Availability of Final Financial Statements
Synopsys will include final financial statements for the second quarter fiscal 2014 in its quarterly report on Form 10-Q to be filed by June 12, 2014.
About Synopsys
Synopsys, Inc. (Nasdaq: SNPS) accelerates innovation in the global electronics market. As a leader in electronic design automation (EDA) and semiconductor IP, its software, IP and services help engineers address their design, verification, system and manufacturing challenges. Since 1986, engineers around the world have been using Synopsys technology to design and create billions of chips and systems. Learn more at http://www.synopsys.com.
Forward-Looking Statements
This press release and our upcoming earnings results conference call contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Any statements that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements include but are not limited to: sections of this press release entitled "Financial Targets" and "Reconciliation of Target Non-GAAP Operating Results"; and statements regarding Synopsys' business, acquisitions, products, technologies, business model, customer demand for our technology, and projected financial results and business objectives. These statements involve known and unknown risks, uncertainties and other factors that could cause our actual results, time frames or achievements to differ materially from those expressed or implied in our forward-looking statements. Accordingly, we caution stockholders and prospective investors not to place undue reliance on these statements. Such risks, uncertainties and factors include, but are not limited to:
-- continued uncertainty in the global economy and its potential impact on
the semiconductor and electronics industries;
-- uncertainty in the growth of the semiconductor and electronics industry;
-- increased competition in the market for Synopsys' products and services
including through consolidation in the industry and among our customers;
-- changes in demand for Synopsys' products due to fluctuations in demand
for its customers' products;
-- Synopsys' ability to realize the potential financial or strategic
benefits of acquisitions it completes, including its recent acquisition
of Coverity, Inc., and challenges in entering new markets in which
Synopsys is not experienced and in the integration of the products and
operations of acquired companies or assets into Synopsys' products and
operations, including possible delays in customer orders, potential loss
of customers, key employees, partners or vendors, customer demand and
support obligations for product offerings, and disruption of ongoing
business operations and diversion of management attention;
-- adverse changes in the relationships between Synopsys and key
participants in the complex semiconductor ecosystem, including major
foundries and intellectual property providers;
-- litigation;
-- lower-than-anticipated new IC design starts;
-- lower-than-anticipated purchases or delays in purchases of products or
consulting services by Synopsys' customers, including delays in the
renewal, or non-renewal, of Synopsys' license arrangements with major
customers;
-- changes in the mix of time-based licenses and upfront licenses;
-- variability in the timing of revenue recognition due to factors such as
payment terms and the timing and value of contract renewals and
professional services projects;
-- lower-than-expected orders; and
-- failure of customers to pay license fees as scheduled.
In addition, Synopsys' actual expenses, earnings per share and tax rate on a GAAP and non-GAAP basis for the fiscal quarter ending July 31, 2014; actual expenses, earnings per share, tax rate, and other projections on a GAAP and non-GAAP basis for fiscal year 2014; and cash flow from operations on a GAAP basis for fiscal year 2014 could differ materially from the targets stated under "Financial Targets" above for a number of reasons, including, but not limited to, (i) integration and other acquisition-related costs, (ii) application of the actual consolidated GAAP and non-GAAP tax rates for such periods, or judgment by management, based upon the status of pending audits and settlements, to increase or decrease an income tax asset or liability, (iii) a determination by Synopsys that any portion of its goodwill or intangible assets have become impaired, (iv) changes in the anticipated amount of employee stock-based compensation expense recognized in Synopsys' financial statements, (v) actual change in the fair value of Synopsys' non-qualified deferred compensation plan obligations, (vi) increases or decreases to estimated capital expenditures, (vii) changes driven by new accounting rules, regulations, interpretations or guidance, (viii) fluctuations in foreign currency exchange rates, (ix) litigation, (x) general economic conditions, and (xi) other risks as detailed in Synopsys' SEC filings, including those described in the "Risk Factors" section in its latest Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2014. Furthermore, Synopsys' actual tax rates applied to income for the third quarter and fiscal year 2014 could differ from the targets given in this press release as a result of a number of factors, including the actual geographic mix of revenue during the quarter and year, and actions by the government. Finally, Synopsys' targets for outstanding shares in the third quarter and fiscal year 2014 could differ from the targets given in this press release as a result of higher than expected employee stock plan issuances, stock option exercises, acquisitions, and the extent of Synopsys' stock repurchase activity.
Synopsys is under no obligation to (and expressly disclaims any such obligation to) update or alter any of the forward-looking statements made in this earnings release, the conference call or the financial supplement whether as a result of new information, future events or otherwise, unless otherwise required by law.
INVESTOR CONTACT:
Lisa L. Ewbank
Synopsys, Inc.
650-584-1901
Synopsys-ir@synopsys.com
EDITORIAL CONTACT:
Yvette Huygen
Synopsys, Inc.
650-584-4547
yvetteh@synopsys.com
SYNOPSYS, INC.
Unaudited Consolidated Statements of Operations (1)
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
April 30, April 30,
------------------ -----------------
2014 2013 2014 2013
---- ---- ---- ----
Revenue:
Time-based
license $424,185 $413,491 $824,331 $799,450
Upfront
license 36,297 24,779 70,269 55,568
Maintenance
and service 57,215 60,987 102,048 119,376
------ ------ ------- -------
Total
revenue 517,697 499,257 996,648 974,394
Cost of revenue:
License 67,302 61,569 130,127 126,061
Maintenance
and service 21,109 19,766 41,380 39,821
Amortization
of
intangible
assets 25,674 26,398 48,427 52,914
Total cost
of revenue 114,085 107,733 219,934 218,796
Gross margin 403,612 391,524 776,714 755,598
Operating expenses:
Research and
development 178,043 169,962 345,586 327,472
Sales and
marketing 114,784 103,930 220,576 205,688
General and
administrative 40,575 32,254 74,808 70,192
Amortization
of
intangible
assets 6,376 5,875 11,754 11,762
Total
operating
expenses 339,778 312,021 652,724 615,114
Operating
income 63,834 79,503 123,990 140,484
Other income
(expense),
net 4,225 7,204 15,253 17,953
----- ----- ------ ------
Income
before
income
taxes 68,059 86,707 139,243 158,437
Provision
(benefit)
for income
taxes 4,742 18,016 8,230 19,824
Net income $63,317 $68,691 $131,013 $138,613
======= ======= ======== ========
Net income per share:
Basic $0.41 $0.45 $0.85 $0.91
Diluted $0.40 $0.44 $0.83 $0.89
Shares used in computing per share
amounts:
Basic 154,572 153,515 154,319 152,496
======= ======= ======= =======
Diluted 157,082 156,606 156,986 155,662
======= ======= ======= =======
(1) Synopsys' second quarter of fiscal 2014 and 2013 ended on May 3, 2014 and May 4, 2013,
respectively. For presentation purposes, we refer to periods ended April 30.
SYNOPSYS, INC.
Unaudited Consolidated Balance Sheets (1)
(in thousands, except par value amounts)
April 30, 2014 October 31, 2013
-------------- ----------------
ASSETS:
Current assets:
Cash and cash equivalents $821,633 $1,022,441
Accounts receivable, net 322,606 256,026
Deferred income taxes 99,385 92,058
Income taxes receivable and prepaid taxes 18,241 18,277
Prepaid and other current assets 66,406 59,175
------ ------
Total current assets 1,328,271 1,447,977
Property and equipment, net 202,860 197,600
Goodwill 2,254,454 1,975,971
Intangible assets, net 398,560 335,425
Long-term prepaid taxes 9,605 7,935
Long-term deferred income taxes 203,554 243,066
Other long-term assets 163,232 150,961
Total assets $4,560,536 $4,358,935
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities $275,611 $358,197
Accrued income taxes 17,847 7,168
Deferred revenue 781,274 827,554
Short-term debt 230,000 30,000
------- ------
Total current liabilities 1,304,732 1,222,919
Long-term accrued income taxes 42,943 53,064
Long-term deferred revenue 72,212 54,736
Long-term debt 60,000 75,000
Other long-term liabilities 161,530 164,939
------- -------
Total liabilities 1,641,417 1,570,658
Stockholders' equity:
Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding - -
Common stock, $0.01 par value: 400,000 shares authorized; 154,707 and
154,169 shares outstanding, respectively 1,547 1,542
Capital in excess of par value 1,614,838 1,597,244
Retained earnings 1,437,246 1,324,854
Treasury stock, at cost: 2,558 and 3,095 shares, respectively (94,659) (106,668)
Accumulated other comprehensive loss (39,853) (28,695)
------- -------
Total stockholders' equity 2,919,119 2,788,277
Total liabilities and stockholders' equity $4,560,536 $4,358,935
========== ==========
(1) Synopsys' second quarter of fiscal 2014 ended on May 3, 2014, and its fourth quarter of fiscal 2013 ended on November 2, 2013. For presentation purposes, the periods refer to the closest calendar month end.
SYNOPSYS, INC.
Unaudited Consolidated Statements of Cash Flows (1)
(in thousands)
Six Months Ended
April 30,
----------------
2014 2013
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $131,013 $138,613
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization and depreciation 91,585 94,154
Stock compensation 36,941 33,229
Allowance for doubtful accounts (250) 901
Gain on sale of investments (6,529) (101)
Deferred income taxes 9,266 8,225
Net changes in operating assets and liabilities, net of
acquired assets and liabilities:
Accounts receivable (59,577) 39,287
Prepaid and other current assets (4,557) (27,502)
Other long-term assets (13,756) (16,524)
Accounts payable and other liabilities (83,135) (97,569)
Income taxes (15,021) (2,574)
Deferred revenue (48,069) (127,847)
------- --------
Net cash provided by operating activities 37,911 42,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of long-term investments 7,304 222
Purchases of property and equipment (29,901) (29,426)
Proceeds from sales of property and equipment - 2,000
Cash paid for acquisitions, net of cash acquired (367,965) -
Capitalization of software development costs (1,875) (1,787)
Net cash used in investing activities (392,437) (28,991)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital leases (206) (784)
Proceeds from credit facility 200,000 -
Repayment of debt (15,497) (15,237)
Acquisition of non-controlling interest - (44,004)
Issuances of common stock 53,326 75,193
Purchases of treasury stock (79,747) (34,998)
Other (500) (1,130)
Net cash provided by (used in) financing activities 157,376 (20,960)
Effect of exchange rate changes on cash and cash equivalents (3,658) (11,705)
Net change in cash and cash equivalents (200,808) (19,364)
Cash and cash equivalents, beginning of the year 1,022,441 700,382
Cash and cash equivalents, end of the period $821,633 $681,018
======== ========
(1) Synopsys' second quarter of fiscal 2014 and 2013 ended on May 3, 2014 and May 4, 2013, respectively. For presentation purposes, we refer to periods ended April 30.
SOURCE Synopsys, Inc.
