Synopsys, Inc. (NASDAQ: SNPS), the world leader in semiconductor design software, today reported results for its second quarter ended April 30, 2004.
For the second quarter of fiscal 2004, Synopsys reported revenue of $294.6 million, a 1% increase over revenue of $292.0 million for the second quarter of fiscal 2003. For the six-month period ended April 30, 2004, revenue was $579.9 million, an increase of 4% over revenue of $560.2 million for the same period in 2003.
GAAP Results
On a generally accepted accounting principles (GAAP) basis, for the second quarter of fiscal 2004, net income was $28.7 million, or $0.18 per share, compared to net income of $22.3 million, or $0.15 per share, for the second quarter of fiscal 2003. GAAP net income for the six-month period ended April 30, 2004 was $60.9 million, or $0.37 per share, compared to $56.7 million, or $0.37 per share, for the same period in 2003.
Non-GAAP Results
On a non-GAAP basis, net income was $57.1 million, or $0.35 per share, for the second quarter of fiscal 2004 compared to non-GAAP net income of $61.2 million, or $0.40 per share, for the second quarter of fiscal 2003. Non-GAAP net income for the six-month period ended April 30, 2004 was $111.4 million, or $0.68 per share, compared to $113.7 million, or $0.74 per share, for the same period in 2003.
Per share data for the periods presented reflects the Company's two-for- one stock split completed on September 23, 2003. GAAP and non-GAAP net income are reconciled under "GAAP Reconciliation" below.
"Recently, the overall spending environment for our solutions has firmed up," said Aart de Geus, Chairman and Chief Executive Officer of Synopsys. "Customers are moving more aggressively to smaller geometries and we are unveiling some remarkable new technology that cements our position as the industry leader. These trends should bode well for us for the remainder of the year."
Financial Outlook
Synopsys also announced its operating model targets for the third quarter of fiscal 2004 and revised targets for the full year. The following targets are forward-looking and 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 2004 Targets:
-- Revenue: $300 million - $320 million
-- Non-GAAP expenses: $220 million - $230 million
-- Non-GAAP other income and expense: ($2.0) million - $1.0 million
-- Fully diluted outstanding shares: 158 million - 166 million
-- Tax rate applied in net income calculations: 31%
-- Non-GAAP earnings: $0.35 - $0.40 per share
-- Upfront licenses as a percentage of product bookings: 30%, plus or
minus 5%
Fiscal Year 2004 targets:
-- Orders: $1.4 billion
-- Revenue: $1.20 billion - $1.23 billion
-- Non-GAAP earnings: $1.37 - $1.47 per share
-- Upfront licenses as a percentage of product bookings: 30%, plus or
minus 5%
Effectiveness of Guidance
The targets set forth above represent Synopsys' expectations as of the date of this release only. Although this release will remain available on the Synopsys website, its continued availability does not indicate that Synopsys is reaffirming or confirming its continued validity. Synopsys does not currently intend to report on its progress during the third quarter of fiscal 2004 or comment to analysts or investors on, or otherwise update, such targets until it releases its quarterly results in August 2004.
GAAP Reconciliation
Non-GAAP net income consists of GAAP net income excluding, as applicable, amortization of intangible assets and deferred stock compensation, in-process research and development charges, integration and other acquisition-related expenses (including, in the second quarter of fiscal 2004, the $10.0 million fee paid to Monolithic System Technology, Inc. (MoSys) in connection with the termination of the acquisition agreement between Synopsys and MoSys in April 2004), facilities realignment charges and continuing amounts relating to Synopsys' workforce realignment announced in the fourth quarter of fiscal 2003. Intangible assets consist primarily of purchased technology, contract rights intangible, customer-installed base/relationships, trademarks and tradenames, covenants not to compete and customer backlog. Non-GAAP net income is reduced by the amount of additional taxes that Synopsys would accrue if it used non-GAAP results instead of GAAP results to calculate Synopsys' tax liability.
Synopsys' management evaluates and makes operating decisions primarily based on the bookings and revenues of its core software and services business operations and the direct, ongoing and recurring costs of those operations such as cost of revenues and research and development, sales and marketing and general and administrative expenses. Management does not believe amortization of intangible assets and deferred stock compensation, in-process research and development charges, integration and other acquisition-related expenses and workforce realignment charges are ordinary, ongoing and recurring operating charges for Synopsys' core software and services business operations. Therefore, management calculates the non-GAAP financial measures used in this earnings release excluding these charges and uses these non-GAAP financial measures to enable it to analyze better and more consistently the period-to- period financial performance of its core business operations. Management believes that, although it is important for investors to understand GAAP measures, providing investors with these non-GAAP measures gives investors additional important information to enable them to assess, in a way management assesses, Synopsys' current and future continuing operations.
Reconciliation of Second Quarter Results
The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP results for the periods indicated below:
Income Statement Reconciliation Three Months Ended Six Months Ended
(in thousands) April 30, April 30,
2004 2003 2004 2003
GAAP net income $28,739 $22,289 $60,891 $56,674
Amortization of intangible assets
and deferred stock compensation 34,351 33,478 68,835 62,261
Merger termination fee 10,000 -- 10,000 --
In process research and development -- 18,250 -- 18,250
Work force realignment charges
at a lower cost than estimated (641) -- (1,782) --
Facilities realignment charges 523 -- 2,295 --
Tax effect (15,886) (12,826) (28,833) (23,527)
Non-GAAP net income $57,086 $61,191 $111,406 $113,658
Income Statement Reconciliation Per
Share Three Months Ended Six Months Ended
(in thousands, except per share data) April 30, April 30,
2004 2003 2004 2003
GAAP earnings per share $0.18 $0.15 $0.37 $0.37
Amortization of intangible assets and
deferred stock compensation 0.21 0.22 0.42 0.41
Merger termination fee 0.06 -- 0.06 --
In process research and development -- 0.12 -- 0.12
Work force realignment charges
at a lower cost than estimated -- -- (0.01) --
Facilities realignment charges -- -- 0.01 --
Tax effect (0.10) (0.09) (0.17) (0.16)
Non-GAAP earnings per share $0.35 $0.40 $0.68 $0.74
Shares used in calculation 161,840 153,034 163,779 153,102
Reconciliation of Target Operating Results
The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP target operating results for the periods indicated below:
Information regarding Target Expenses Range for Three Months
(in thousands) Ending July 31, 2004
Low High
Non-GAAP target expenses $220,000 $230,000
Impact of amortization of intangible
assets and deferred stock compensation 34,000 35,000
Impact of facility realignment
charges -- 1,000
GAAP target expenses $254,000 $266,000
Information regarding Target Earnings
Per Share Range for Three Months
Ending July 31, 2004
Low High
Non-GAAP target earnings per share $0.35 $0.40
Impact of amortization of intangible
assets and deferred stock compensation
per share, net of tax effect (0.15) (0.15)
Impact of facility realignment
charges per share, net of tax effect -- --
GAAP target earnings per share $0.20 $0.25
Information regarding Target Earnings
Per Share Range for Fiscal Year
Ending October 31, 2004
Low High
Non-GAAP target earnings per share $1.37 $1.47
Impact of amortization of intangible
assets and deferred stock compensation
per share, net of tax effect (0.59) (0.58)
Impact of facility realignment
charges per share, net of tax effect (0.02) (0.01)
GAAP target earnings per share $0.76 $0.88
Synopsys will include final financial statements for the second quarter of fiscal 2004 in its Quarterly Report on Form 10-Q to be filed in June 2004.
Additional Financial Information Available on Synopsys Website
In connection with the issuance of this earnings release, Synopsys is making available to investors supplemental financial information, which can be found on Synopsys' website at http://www.synopsys.com/corporate/invest/finsupp/q204.pdf . Synopsys currently intends to provide this information on a quarterly basis.
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 http://www.synopsys.com/corporate/invest/invest.html . A recording of the call will be available by calling 1-888-276-9995 (612-332-0335 for international callers), access code 730804, beginning at 5:30 p.m. Pacific Time today. A webcast replay will also be available at http://www.synopsys.com/corporate/invest/invest.html from approximately 5:30 p.m. Pacific Time today through the time of the announcement of Synopsys' results for the third quarter of fiscal 2004 in August 2004. Finally, Synopsys will post copies of the prepared remarks of Aart de Geus, Chairman and Chief Executive Officer, and Steve Shevick, Chief Financial Officer, on its website at http://www.synopsys.com/corporate/invest/invest.html following the call.
About Synopsys
Synopsys, Inc. is the world leader in electronic design automation (EDA) software for semiconductor design. The company delivers technology-leading semiconductor design and verification platforms and IC manufacturing software products to the global electronics market, enabling the development and production of complex systems-on-chips (SoCs). Synopsys also provides intellectual property and design services to simplify the design process and accelerate time-to-market for its customers. Synopsys is headquartered in Mountain View, California and has offices in more than 60 locations throughout North America, Europe, Japan and Asia. Visit Synopsys online at http://www.synopsys.com/ .
Forward-Looking Statements
The sections of this earnings release entitled "Financial Outlook" and "GAAP Reconciliation" contain forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those described by these statements due to a number of factors, including but not limited to:
-- weakness or continued budgetary caution in the semiconductor or
electronic systems industries;
-- lower-than-expected research and development spending by semiconductor
and electronic systems companies;
-- lower-than-anticipated purchases or delays in purchases of software or
consulting services by Synopsys' customers;
-- lower-than-anticipated new IC design starts;
-- competition in the market for Synopsys' products and services;
-- failure to continue to improve Synopsys' existing products;
-- failure to successfully develop additional intellectual property blocks
for its IP business or to develop and integrate its design for
manufacturing products;
-- difficulties in the ongoing integration of the products and operations
of acquired companies or assets, including Numerical Technologies,
Inc., Accelerant Networks, iRoC Technologies, and Analog Design
Automation, into Synopsys' products and operations;
-- unexpected changes in the mix of time-based licenses and upfront
licenses;
-- adverse variations from currently projected customer payment terms;
-- downward pressure on maintenance orders, adversely affecting Synopsys'
future level of service revenue; and
-- an adverse outcome in the litigation between Synopsys and MoSys.
In addition, Synopsys' actual expenses and earnings per share on a GAAP basis for the third quarter of fiscal 2004 and actual earnings per share on a GAAP basis for the full-year fiscal 2004 could differ materially from the targets stated under "Financial Outlook" above for a number of reasons, including a determination by Synopsys that any portion of its intangible assets have become impaired, changes in deferred stock compensation expenses caused by employee terminations, and integration and other acquisition-related expenses, amortization of additional intangible assets and deferred stock compensation associated with additional acquisitions, if any.
For further discussion of these and other factors that may cause results to differ from those projected in this release, readers are referred to documents Synopsys has filed with the Securities and Exchange Commission, specifically the section contained in Part I, Item 2 of Synopsys' Quarterly Report on Form 10-Q for the first quarter of fiscal 2004 filed with the SEC on March 15, 2004 entitled "Factors That May Affect Future Results." Synopsys is under no obligation to (and expressly disclaims any such obligation to) update or alter these forward-looking statements whether as a result of new information, future events or otherwise.
NOTE: Synopsys is a registered trademark of Synopsys, Inc. All other trademarks mentioned in this release are the intellectual property of their respective owners.
SYNOPSYS, INC.
Unaudited Condensed Consolidated Statements of Income (1)
(in thousands, except per share data)
Three Months Ended April 30, 2004 (2)
Non-GAAP
GAAP Basis Adjustments Basis
Revenue:
Upfront license $75,812 -- $75,812
Time-based license 162,946 -- 162,946
Service 55,846 -- 55,846
Total revenue 294,604 -- 294,604
Cost of revenue:
Upfront license 6,770 -- 6,770
Time-based license 10,872 -- 10,872
Service 21,541 111 21,652
Amortization of intangible assets
and deferred stock compensation 25,715 (25,715) --
Total cost of revenue 64,898 (25,604) 39,294
Gross margin 229,706 25,604 255,310
Operating expenses:
Research and development 70,136 271 70,407
Sales and marketing 74,885 209 75,094
General and administrative 38,474 (10,473) 28,001
In-process research and development -- -- --
Amortization of intangible assets
and deferred stock compensation 8,636 (8,636) --
Total operating expenses 192,131 (18,629) 173,502
Operating income 37,575 44,233 81,808
Other income, net 925 -- 925
Income before provision for
income taxes 38,500 44,233 82,733
Provision for income taxes 9,761 15,886 25,647
Net income $28,739 $28,347 $57,086
Basic earnings per share:
Net income per share $0.19 $0.37
Weighted-average common shares 154,806 154,806
Diluted earnings per share:
Net income per share $0.18 $0.35
Weighted-average common shares
and equivalents 161,840 161,840
Three Months Ended April 30, 2003 (2)
Non-GAAP
GAAP Basis Adjustments Basis
Revenue:
Upfront license $82,000 -- $82,000
Time-based license 148,061 -- 148,061
Service 61,967 -- 61,967
Total revenue 292,028 -- 292,028
Cost of revenue:
Upfront license 3,845 -- 3,845
Time-based license 13,472 -- 13,472
Service 17,750 -- 17,750
Amortization of intangible assets
and deferred stock compensation 24,309 (24,309) --
Total cost of revenue 59,376 (24,309) 35,067
Gross margin 232,652 24,309 256,961
Operating expenses:
Research and development 68,612 -- 68,612
Sales and marketing 80,970 -- 80,970
General and administrative 24,240 -- 24,240
In-process research and development 18,250 (18,250) --
Amortization of intangible assets
and deferred stock compensation 9,169 (9,169) --
Total operating expenses 201,241 (27,419) 173,822
Operating income 31,411 51,728 83,139
Other income, net 7,515 -- 7,515
Income before provision for
income taxes 38,926 51,728 90,654
Provision for income taxes 16,637 12,826 29,463
Net income $22,289 $38,902 $61,191
Basic earnings per share:
Net income per share $0.15 $0.41
Weighted-average common shares 148,702 148,702
Diluted earnings per share:
Net income per share $0.15 $0.40
Weighted-average common shares
and equivalents 153,034 153,034
(1) The Company's fiscal year and second quarter ends on the Saturday
nearest to October 31 and April 30, respectively. For presentation
purposes, the unaudited condensed consolidated financial statements
refer to a calendar month end.
(2) All common share and per share data for all periods presented are
adjusted to reflect the Company's two-for-one stock split completed
on September 23, 2003.
SYNOPSYS, INC.
Unaudited Condensed Consolidated Statements of Income (1)
(in thousands, except per share data)
Six Months Ended April 30, 2004 (2)
Non-GAAP
GAAP Basis Adjustments Basis
Revenue:
Upfront license $135,302 -- $135,302
Time-based license 333,544 -- 333,544
Service 111,022 -- 111,022
Total revenue 579,868 -- 579,868
Cost of revenue:
Upfront license 14,196 197 14,393
Time-based license 15,755 -- 15,755
Service 45,114 111 45,225
Amortization of intangible assets
and deferred stock compensation 50,955 (50,955) --
Total cost of revenue 126,020 (50,647) 75,373
Gross margin 453,848 50,647 504,495
Operating expenses:
Research and development 140,473 754 141,227
Sales and marketing 145,631 580 146,211
General and administrative 67,611 (12,155) 55,456
In-process research and development -- -- --
Amortization of intangible assets
and deferred stock compensation 17,880 (17,880) --
Total operating expenses 371,595 (28,701) 342,894
Operating income 82,253 79,348 161,601
Other (expense) income, net (144) -- (144)
Income before provision for
income taxes 82,109 79,348 161,457
Provision for income taxes 21,218 28,833 50,051
Net income $60,891 $50,515 $111,406
Basic earnings per share:
Net income per share $0.39 $0.72
Weighted-average common shares 155,556 155,556
Diluted earnings per share:
Net income per share $0.37 $0.68
Weighted-average common shares
and equivalents 163,779 163,779
Six Months Ended April 30, 2003 (2)
Non-GAAP
GAAP Basis Adjustments Basis
Revenue:
Upfront license $136,520 -- $136,520
Time-based license 289,290 -- 289,290
Service 134,354 -- 134,354
Total revenue 560,164 -- 560,164
Cost of revenue:
Upfront license 7,598 -- 7,598
Time-based license 26,258 -- 26,258
Service 39,770 -- 39,770
Amortization of intangible assets
and deferred stock compensation 45,102 (45,102) --
Total cost of revenue 118,728 (45,102) 73,626
Gross margin 441,436 45,102 486,538
Operating expenses:
Research and development 135,881 -- 135,881
Sales and marketing 152,208 -- 152,208
General and administrative 46,791 -- 46,791
In-process research and development 18,250 (18,250) --
Amortization of intangible assets
and deferred stock compensation 17,159 (17,159) --
Total operating expenses 370,289 (35,409) 334,880
Operating income 71,147 80,511 151,658
Other (expense) income, net 16,725 -- 16,725
Income before provision for
income taxes 87,872 80,511 168,383
Provision for income taxes 31,198 23,527 54,725
Net income $56,674 $56,984 $113,658
Basic earnings per share:
Net income per share $0.38 $0.77
Weighted-average common shares 148,440 148,440
Diluted earnings per share:
Net income per share $0.37 $0.74
Weighted-average common shares
and equivalents 153,102 153,102
(1) The Company's fiscal year and second quarter ends on the Saturday
nearest to October 31 and April 30, respectively. For presentation
purposes, the unaudited condensed consolidated financial statements
refer to a calendar month end.
(2) All common share and per share data for all periods presented are
adjusted to reflect the Company's two-for-one stock split completed
on September 23, 2003.
SYNOPSYS, INC.
Unaudited Condensed Consolidated Balance Sheets (1)
(in thousands)
April 30, 2004 October 31, 2003
ASSETS:
Current assets:
Cash and cash equivalents $456,123 $524,308
Short-term investments 156,891 174,049
Total cash, cash equivalents and
short-term investments 613,014 698,357
Accounts receivable, net of
allowances of $9,991 and $8,295,
respectively 220,854 200,998
Deferred income taxes 249,766 248,425
Income taxes receivable 49,328 72,124
Prepaid expenses and other current
assets 33,336 19,302
Total current assets 1,166,298 1,239,206
Property and equipment, net 182,041 184,313
Long-term investments 7,730 8,595
Goodwill 568,535 550,732
Intangible assets, net 246,955 285,583
Other assets 66,914 38,924
Total assets $2,238,473 $2,307,353
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued
liabilities $157,733 $204,226
Accrued income taxes 181,669 201,855
Deferred revenue 430,302 398,878
Total current liabilities 769,704 804,959
Deferred compensation and other
liabilities 51,302 47,390
Long-term deferred revenue 21,581 21,594
Stockholders' equity (2):
Common stock, $0.01 par value per share;
400,000 shares authorized; 155,247 and
155,837 shares outstanding, respectively 1,552 1,560
Additional paid-in capital 1,236,738 1,198,421
Retained earnings 226,403 251,979
Treasury stock, at cost; 1,882 and
662 shares, respectively (67,117) (20,733)
Deferred stock compensation (4,738) (7,170)
Accumulated other comprehensive
income 3,048 9,353
Total stockholders' equity 1,395,886 1,433,410
Total liabilities and
stockholders' equity $2,238,473 $2,307,353
(1) The Company's fiscal year and second quarter ends on the Saturday
nearest to October 31 and April 30, respectively. For presentation
purposes, the unaudited condensed consolidated financial statements
refer to a calendar month end.
(2) All common share data for all periods presented are adjusted to
reflect the Company's two-for-one stock split completed on September
23, 2003.
SYNOPSYS, INC.
Unaudited Condensed Consolidated Statements of Cash Flows (1)
(in thousands)
Six Months Ended April 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $60,891 $56,674
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization and depreciation 96,272 90,875
In-process research and development -- 18,250
Write-down of long-term investments 1,901 2,065
Tax benefit associated with stock
options -- 3,226
Deferred rent (71) 1,351
Provision for doubtful accounts and
sales returns 2,000 2,423
Net change in unrecognized gains and
losses on foreign exchange contracts (5,963) 13,683
Gain on sale of short- and long-term
investments (756) (12,470)
Net changes in operating assets and
liabilities:
Accounts receivable (21,731) (41,565)
Income taxes receivable 22,796 2,038
Prepaid expenses and other current
assets (14,034) 1,094
Other assets (11,219) 3,259
Accounts payable and accrued
liabilities (50,294) (65,433)
Accrued income taxes (20,186) 5,077
Deferred revenue 31,269 62,893
Deferred compensation 10,842 4,623
Net cash provided by operating
activities 101,717 148,063
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of
short-term investments 533,313 113,799
Purchases of short-term investments (516,099) (134,246)
Proceeds from sale of long-term
investments 300 18,231
Purchases of long-term investments (1,254) (800)
Purchases of property and equipment (24,129) (19,705)
Cash paid for acquisitions, net of
cash received (38,815) (162,461)
Capitalization of software
development costs (1,371) (1,308)
Net cash used in investing activities (48,055) (186,490)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facility 200,000 --
Payments on credit facility (200,000) --
Issuances of common stock 117,996 63,419
Purchases of treasury stock (238,338) (67,795)
Net cash used in financing activities (120,342) (4,376)
Effect of exchange rate changes on
cash (1,505) (955)
Net decrease in cash and cash
equivalents (68,185) (43,758)
Cash and cash equivalents, beginning
of period 524,308 312,580
Cash and cash equivalents, end of
period $456,123 $268,822
(1) The Company's fiscal year and second quarter ends on the Saturday
nearest to October 31 and April 30, respectively. For presentation
purposes, the unaudited condensed consolidated financial statements
refer to a calendar month end.
SOURCE: Synopsys, Inc.
CONTACT: investors, Jessica Kourakos, +1-650-584-1901, or editorial,
Yvette Huygen, +1-650-584-4547, both of Synopsys, Inc.
Web site: http://www.synopsys.com/