10-QPeriod: Q3 FY2003

SYNOPSYS INC Quarterly Report for Q3 Ended Aug 2, 2003

Filed September 15, 2003For Securities:SNPS

Summary

Synopsys, Inc. (SNPS) reported a strong third quarter for fiscal year 2003, demonstrating significant year-over-year growth in total revenue and a return to profitability. Total revenue increased by 27% to $300.4 million, driven by a substantial rise in ratable license revenue and continued contributions from the Avant! acquisition. The company successfully transitioned to a profitable quarter, reporting a net income of $48.5 million, a stark contrast to the net loss in the prior year's comparable period. This financial performance reflects the company's strategic shift towards the TSL (Technology Subscription License) model, which is maturing and contributing positively to deferred revenue and future revenue recognition. Key financial strengths include a robust increase in cash and cash equivalents, reaching $426.3 million, and a healthy increase in total stockholders' equity. The company also announced a two-for-one stock split in the form of a stock dividend, indicating confidence in future performance and aiming to increase share liquidity. Management's focus on integrating recent acquisitions and optimizing operating expenses appears to be yielding positive results, positioning Synopsys for continued growth in the electronic design automation market.

Key Highlights

  • 1Total revenue for the third quarter of fiscal 2003 increased by 27% to $300.4 million compared to $236.1 million in the prior year.
  • 2The company returned to profitability, reporting a net income of $48.5 million ($0.63 basic EPS) for the quarter, compared to a net loss of $137.6 million ($1.93 basic EPS) in the same period last year.
  • 3Ratable license revenue showed strong growth, increasing by 58% year-over-year to $160.9 million, highlighting the ongoing success of the TSL model.
  • 4Cash, cash equivalents, and short-term investments significantly increased to $568.1 million as of July 31, 2003, up from $414.7 million at October 31, 2002.
  • 5Total stockholders' equity increased to $1.3 billion, demonstrating strengthening financial position.
  • 6Synopsys announced a two-for-one stock split in the form of a stock dividend, effective September 23, 2003, indicating positive future outlook and aiming to improve share liquidity.
  • 7Operating expenses, despite growth in R&D and Sales & Marketing due to acquisitions, were managed effectively, contributing to the return to profitability.

Frequently Asked Questions

The primary drivers for Synopsys' revenue growth in Q3 FY2003 were the continued adoption and maturing of the Technology Subscription License (TSL) model, which recognizes revenue ratably over the license term, and the inclusion of revenues from the Avant! acquisition completed in fiscal year 2002. The increase in ratable license revenue, up 58% year-over-year, significantly contributed to the overall revenue growth.

Synopsys has shown a significant improvement in profitability. For the third quarter of fiscal year 2003, the company reported a net income of $48.5 million, or $0.63 per basic share. This is a substantial turnaround from the net loss of $137.6 million, or $1.93 per basic share, reported in the third quarter of fiscal year 2002.

Synopsys' financial position has strengthened considerably. As of July 31, 2003, the company held $426.3 million in cash and cash equivalents and $141.8 million in short-term investments, bringing the total cash and short-term investments to $568.1 million. This is an increase from $414.7 million at the end of fiscal year 2002, reflecting strong operational cash flow and effective cash management.

Synopsys announced a two-for-one stock split in the form of a stock dividend, effective September 23, 2003. This action is typically taken by companies to increase the liquidity of their shares by making them more accessible to a broader range of investors, and it often signals management's confidence in the company's future prospects and its ability to sustain or grow its stock price.