MOUNTAIN VIEW, Calif., May 23 /PRNewswire-FirstCall/ -- Synopsys, Inc. (NASDAQ: SNPS), a world leader in semiconductor design software, today reported results for its second quarter ended April 30, 2007.
For the second quarter, Synopsys reported revenue of $292.9 million, a 7 percent increase compared to $274.8 million for the second quarter of fiscal 2006.
"In the second quarter we again executed very well, with strong revenue and earnings growth and solid cash flow," said Aart de Geus, chairman and CEO of Synopsys. "As a result of this performance and continuing technology momentum, we are well-positioned to finish the year stronger than initially planned."
GAAP Results
On a generally accepted accounting principles (GAAP) basis, net income for the second quarter of fiscal 2007 was $41.3 million, or $0.28 per share, compared to $5.4 million, or $0.04 per share, for the second quarter of fiscal 2006. This increase was driven primarily by an increase in revenue and a decrease in operating expense compared to the year-ago quarter, as well as a $12.5 million litigation settlement received from Magma Design Automation, recorded in other income, net.
Non-GAAP Results
On a non-GAAP basis, net income for the second quarter of fiscal 2007 was $53.2 million, or $0.35 per share, compared to non-GAAP net income of $24.5 million, or $0.17 per share, for the second quarter of fiscal 2006.
Non-GAAP net income consists of GAAP net income excluding employee stock- based compensation expense calculated in accordance with FAS 123® and, to the extent incurred in a particular quarter or period, amortization of intangible assets, in-process research and development charges, integration and other acquisition-related expenses, facilities and workforce realignment charges, and other significant items which, in the opinion of management, are infrequent or non-recurring. In Q2 of fiscal 2007 non-GAAP income also excludes the one-time litigation settlement payment referenced above. See "GAAP Reconciliation" below.
Financial Targets
Synopsys also provided its operating model targets for the third quarter and full fiscal year 2007. 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 2007 Targets: -- Revenue: $295 million - $305 million -- GAAP expenses: $268 million - $284 million -- Non-GAAP expenses: $243 million - $253 million -- Other income and expense: $3 million - $6 million -- Tax rate applied in non-GAAP net income calculations: 26 - 27 percent -- Fully diluted outstanding shares: 146 million - 151 million -- GAAP earnings per share: $0.13 - $0.20 -- Non-GAAP earnings per share: $0.28 - $0.31 -- Revenue from backlog: more than 90 percent Full-Year Fiscal Year 2007 Targets -- Revenue: $1.190 billion - $1.205 billion -- Tax rate applied in non-GAAP net income calculations: 25 - 26 percent -- Fully diluted outstanding shares: 146 million - 151 million -- GAAP earnings per share: $0.78 - $0.89 -- Non-GAAP earnings per share: $1.27 - $1.33 -- Cash flow from operations: greater than $275 million GAAP Reconciliation
Synopsys' management evaluates and makes decisions about the Company's business operations primarily based on the bookings, revenue and direct, ongoing and recurring costs of those operations. Management does not believe amortization of intangible assets, in-process research and development charges, integration and other acquisition-related expenses, facilities and workforce realignment charges and other significant infrequent items are ongoing and recurring operating costs of its core software, intellectual property and service business operations. In addition, while employee stock- based compensation expense calculated in accordance with FAS 123® and change in the fair value of the Company's non-qualified deferred compensation plan obligations constitute ongoing and recurring expenses of the Company, such expenses are excluded from non-GAAP results because they are not expenses that require cash settlement by the Company and because such expenses are not used by management to assess the core performance of the Company's business operations. Therefore, management excludes such costs, to the extent incurred in a particular quarter, from the following GAAP financial measures included in this earnings release: total cost of revenue, gross margin, total operating expenses, operating income (loss), income (loss) before provision (benefit) for income taxes, provision (benefit) for income taxes, net income (loss) and net income (loss) per share.
For each such measure, excluding these costs provides management with more consistent, comparable information about the Company's core performance. For example, since the Company does not acquire businesses on a predictable cycle, management would have difficulty evaluating the Company's performance as measured by gross margin, operating margin, income before taxes and net income on a period-to-period basis unless it excluded acquisition-related charges. Similarly, the Company does not undertake significant restructuring or realignments on a regular basis, and, as a result, excludes associated charges in order to enable better and more consistent evaluations of the Company's operating expenses before and after such actions are taken. Management also uses these measures to help it make budgeting decisions, for example, as between product development expenses (which affect cost of revenue and gross margin) and research and development, sales and marketing and general and administrative expenses (which affect operating expenses and operating margin). Finally, the availability of such information helps management track performance to both internal and externally communicated financial targets and to its competitors' operating results.
Management recognizes that the use of these non-GAAP measures has certain limitations, including the fact that management must exercise judgment in determining whether certain types of charges, such as those relating to workforce reductions executed in the ordinary course, should be excluded from non-GAAP results. However, management believes that, although it is important for investors to understand GAAP measures, providing investors with these non- GAAP measures gives them 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 net income and earnings per share for the second quarter 2007.
GAAP to Non-GAAP Reconciliation of Second Quarter Results
(unaudited, in thousands, except per share amounts)
Income Statement Reconciliation Three Months Ended Six Months Ended
April 30, April 30,
2007 2006 2007 2006
GAAP net income $41,265 $5,375 $64,622 $7,072
Adjustments:
Amortization of intangible assets 11,854 13,626 25,206 29,626
Share-based compensation 14,349 13,839 30,564 32,331
In-process research and development -- -- -- 800
Litigation settlement (12,500) -- (12,500) --
Facilities realignment charge (645) -- (645) --
Tax effect (1,162) (8,313) (10,082) (18,863)
Non-GAAP net income $53,161 $24,527 $97,165 $50,966
Earnings Per Share Reconciliation Three Months Ended Six Months Ended
April 30, April 30,
2007 2006 2007 2006
GAAP earnings per share $0.28 $0.04 $0.43 $0.05
Adjustments:
Amortization of intangible assets 0.08 0.09 0.17 0.20
Share-based compensation 0.10 0.09 0.21 0.22
In-process research and development -- -- -- 0.01
Litigation settlement (0.08) -- (0.08) --
Facilities realignment charge (0.01) -- (0.01) --
Tax effect (0.02) (0.05) (0.07) (0.13)
Non-GAAP earnings per share $0.35 $0.17 $0.65 $0.35
Shares used in calculation 149,783 146,010 148,782 146,491
Reconciliation of Target 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 2007 Targets
(unaudited, in thousands, except per share amounts)
Range for Three Months
Ending July 31, 2007
Low High
Target GAAP expenses $268,000 $284,000
Adjustment:
Estimated impact of amortization of
intangible assets (11,000) (13,000)
Estimated impact of share-based
compensation (14,000) (18,000)
Target non-GAAP expenses $243,000 $253,000
Range for Three Months
Ending July 31, 2007
Low High
Target GAAP earnings per share $0.13 $0.20
Adjustment:
Estimated impact of amortization of
intangible assets 0.09 0.07
Estimated impact of share-based
compensation 0.12 0.09
Net non-GAAP tax effect (0.06) (0.05)
Target non-GAAP earnings per share $0.28 $0.31
Shares used in non-GAAP calculation
(midpoint of target range) 148,500 148,500
GAAP to Non-GAAP Reconciliation of Fiscal Year 2007 Targets
Range for Fiscal Year
Ending October 31, 2007
Low High
Target GAAP earnings per share $0.78 $0.89
Adjustment:
Estimated impact of amortization of
intangible assets 0.33 0.32
Estimated impact of share-based
compensation 0.48 0.45
Litigation settlement (0.09) (0.09)
Net non-GAAP tax effect (0.23) (0.24)
Target non-GAAP earnings per share $1.27 $1.33
Shares used in non-GAAP calculation
(midpoint of target range) 148,500 148,500
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 1-800-475-6701 (1-320-365-3844 for international callers), access code 872635, 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 Synopsys announces its results for the third quarter of fiscal 2007 in August 2007. In addition, Synopsys will post copies of the prepared remarks of Aart de Geus, chairman and chief executive officer, and Brian Beattie, chief financial officer, on its website following the call.
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 represent Synopsys' expectations and beliefs as of the date of this release only. Although this press release, copies of the prepared remarks of the 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 earnings call in August 2007, 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 2007 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 of fiscal 2007 in its Quarterly Report on Form 10-Q to be filed in June 2007.
About Synopsys
Synopsys, Inc. (NASDAQ: SNPS) is a 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. 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 statements made in this press release regarding projected financial results in the sections entitled "Financial Targets," and "Reconciliation of Target Operating Results" and certain statements made in the earnings conference call are 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 uncertainties, including, but not limited to:
-- weakness or continued budgetary caution in the semiconductor or
electronics industries;
-- lower-than-expected research and development spending by semiconductor and electronic systems companies;
-- competition in the market for Synopsys' products and services;
-- lower-than-anticipated new IC design starts;
-- lower-than-anticipated purchases or delays in purchases of software or
consulting services by Synopsys' customers;
-- failure of customers to pay license fees as scheduled;
-- unexpected changes in the mix of time-based licenses and upfront
licenses;
-- failure of Synopsys' cost control efforts, including recent efforts to
outsource certain internal functions, to result in the anticipated
savings;
-- failure to successfully develop additional intellectual property blocks
or to develop and integrate Synopsys' design for manufacturing
products; and
-- difficulties in the integration of the products and operations of
acquired companies or assets into Synopsys' products and operations.
In addition, Synopsys' actual expenses and earnings per share on a GAAP basis for the fiscal quarter ending July 31, 2007 and actual earnings per share and operating cash flow on a GAAP basis for fiscal year 2007 could differ materially from the targets stated under "Financial Targets" above for a number of reasons, including (i) a determination by Synopsys that any portion of its goodwill or intangible assets have become impaired, (ii) application of the actual consolidated GAAP tax rate for such periods, (iii) integration and other acquisition-related expenses including amortization of additional intangible assets associated with future acquisitions, if any, (iv) changes in the anticipated amount of employee stock-based compensation recognized on the Company's financial statements, (v) actual change in the fair value of the Company's non-qualified deferred compensation plan obligations, (vi) increases or decreases to estimated capital expenditures, and (vii) charges driven by adoption of Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements," which Synopsys is required to adopt during fiscal year 2007. Furthermore, Synopsys' actual tax rates applied to non-GAAP net income for the third quarter and full-year fiscal 2007 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. Finally, Synopsys' targets for outstanding shares in the third quarter and full-year fiscal 2007 could differ from the targets given in this press release as a result of higher than expected employee stock plan issuances, acquisitions and the extent of the Company's 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.
Synopsys is a registered trademark of Synopsys, Inc. Any other trademarks mentioned in this release are the property of their respective owners.
SYNOPSYS, INC.
Unaudited Condensed Consolidated Statements of Operations (1)
(in thousands, except per share amounts)
Three Months Ended April 30, Six Months Ended April 30,
2007 2006 2007 2006
Revenue:
Time-based license $243,096 $209,417 $494,702 $420,527
Upfront license 14,624 25,959 28,127 34,326
Maintenance and service 35,208 39,403 70,309 80,115
Total revenue 292,928 274,779 593,138 534,968
Cost of revenue:
License 34,657 32,582 70,177 62,639
Maintenance and service 15,550 16,904 31,696 33,477
Amortization of intangible
assets 5,210 6,495 11,919 15,154
Total cost of
revenue 55,417 55,981 113,792 111,270
Gross margin 237,511 218,798 479,346 423,698
Operating expenses:
Research and
development 91,956 92,750 187,840 181,139
Sales and marketing 79,012 86,618 168,820 164,289
General and
administrative 22,551 27,108 52,228 58,153
In-process research and
development -- -- -- 800
Amortization of intangible
assets 6,644 7,131 13,288 14,472
Total operating
expenses 200,163 213,607 422,176 418,853
Operating income 37,348 5,191 57,170 4,845
Other income, net 19,668 3,952 27,602 7,324
Income before income
taxes 57,016 9,143 84,772 12,169
Income tax provision 15,751 3,768 20,150 5,097
Net income $41,265 $5,375 $64,622 $7,072
Net income per share:
Basic $0.29 $0.04 $0.45 $0.05
Diluted $0.28 $0.04 $0.43 $0.05
Shares used in computing per share
amounts:
Basic 144,370 143,352 143,527 144,172
Diluted 149,783 146,010 148,782 146,491
(1) Synopsys' second quarter ends on May 5, 2007 and April 29, 2006,
respectively. For presentation purposes, the Unaudited Condensed
Consolidated Statements of Operations refer to a calendar month end.
SYNOPSYS, INC.
Unaudited Condensed Consolidated Balance Sheets (1) (2)
(in thousands, except par value amounts)
April 30, 2007 October 31, 2006
ASSETS:
Current assets:
Cash and cash equivalents $461,074 $330,759
Short-term investments 306,463 241,963
Total cash, cash equivalents and
short-term investments 767,537 572,722
Accounts receivable, net 166,850 122,584
Deferred income taxes 112,189 112,342
Income taxes receivable 41,539 42,538
Prepaid expenses and other current
assets 32,982 44,304
Total current assets 1,121,097 894,490
Property and equipment, net 141,044 140,660
Long-term investments 4,125 4,877
Goodwill 736,799 735,643
Intangible assets, net 81,130 106,144
Long-term deferred income taxes 191,551 206,254
Other assets 75,258 69,754
Total assets $2,351,004 $2,157,822
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current liabilities:
Accounts payable and accrued
liabilities $173,156 $234,149
Accrued income taxes 184,284 191,349
Deferred revenue 540,003 445,598
Total current liabilities 897,443 871,096
Deferred compensation and other
liabilities 73,476 69,889
Long-term deferred revenue 66,461 53,670
Total liabilities 1,037,380 994,655
Stockholders' equity:
Preferred stock, $0.01 par value:
2,000 shares authorized; none
outstanding -- --
Common stock, $0.01 par value:
400,000 shares authorized;
144,737 and 140,568 shares
outstanding, respectively 1,447 1,406
Capital in excess of par value 1,347,232 1,316,252
Retained earnings 226,606 170,743
Treasury stock, at cost: 12,485
and 16,619 shares, respectively (255,831) (312,753)
Accumulated other comprehensive
loss (5,830) (12,481)
Total stockholders'
equity 1,313,624 1,163,167
Total liabilities and
stockholders' equity $2,351,004 $2,157,822
(1) Synopsys' second quarter ends on May 5, 2007 and April 29, 2006,
respectively. For presentation purposes, the Unaudited Condensed
Consolidated Balance Sheets refer to a calendar month end.
(2) The prior year tax provision and related balance sheet accounts
(long-term deferred income taxes, capital in excess of par value and
retained earnings accounts) have been revised to reflect immaterial
adjustments originating in years prior to fiscal 2006.
SYNOPSYS, INC.
Unaudited Condensed Consolidated Statement of Cash Flows (1) (2)
(in thousands)
Six Months Ended April 30,
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $64,622 $7,072
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization and depreciation 52,676 57,974
Share-based compensation 30,565 32,333
Provision for doubtful accounts (330) 375
(Gain) loss on sale of short-term investment (1) 20
(Gain) on sale of land (4,284) --
Deferred income taxes 10,677 70
Write-down of long-term investments -- 1,336
Net change in deferred gains and
losses on cash flow hedges 2,990 (475)
In-process research and development -- 800
Net changes in operating assets and
liabilities, net of acquired assets
and liabilities:
Accounts receivable (43,935) (37,501)
Prepaid expenses and other current assets (11,272) (5,483)
Other assets 487 (6,905)
Accounts payable and accrued liabilities (59,642) (67,276)
Accrued income taxes (4,592) (4,374)
Deferred revenue 107,196 61,315
Deferred compensation and other liabilities (926) 7,397
Net cash provided by operating activities 144,231 46,678
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of
short-term investments 113,351 136,093
Sale of land 26,298 --
Purchases of short-term investments (178,782) (194,084)
Purchases of long-term investments -- (1,539)
Purchases of property and equipment (24,520) (23,136)
Cash paid for acquisitions, net of
cash received -- (11,894)
Capitalization of software development costs (1,592) (1,523)
Net cash used in investing activities (65,245) (96,083)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of common stock 130,240 38,428
Purchases of treasury stock (81,394) (99,026)
Net cash provided by (used in)
financing activities 48,846 (60,598)
Effect of exchange rate changes on
cash and cash equivalents 2,483 498
Net change in cash and cash equivalents 130,315 (109,505)
Cash and cash equivalents, beginning
of period 330,759 404,436
Cash and cash equivalents, end of period $461,074 $294,931
(1) Synopsys' second quarter ends on May 5, 2007 and April 29, 2006,
respectively. For presentation purposes, the Unaudited Condensed
Consolidated Balance Sheets refer to a calendar month end.
(2) The prior year tax provision and related balance sheet accounts
(long-term deferred income taxes, capital in excess of par value
and retained earnings accounts) have been revised to reflect
immaterial adjustments originating in years prior to fiscal 2006.
INVESTOR CONTACT:
Lisa L. Ewbank
Synopsys, Inc.
650-584-1901
EDITORIAL CONTACT:
Yvette Huygen
Synopsys, Inc.
650-584-4547
yvetteh@synopsys.com
SOURCE: Synopsys, Inc.
CONTACT: Investor, Lisa L. Ewbank, +1-650-584-1901, or editorial, Yvette
Huygen, +1-650-584-4547, yvetteh@synopsys.com, both of Synopsys, Inc.
Web site: http://www.synopsys.com/