10-QPeriod: Q2 FY2007

SYNOPSYS INC Quarterly Report for Q2 Ended Apr 30, 2007

Filed June 6, 2007For Securities:SNPS

Summary

Synopsys Inc. reported a strong financial performance for the quarter ending April 30, 2007. Total revenue increased by 7% year-over-year to $292.9 million, driven by a significant 16% growth in time-based license revenue, which now constitutes 83% of total revenue. This shift towards a ratable license model, initiated in fiscal year 2004, continues to provide predictable, recurring revenue streams. Net income saw a substantial increase to $41.3 million from $5.4 million in the prior year's comparable quarter, bolstered by revenue growth, improved operating margins, and a non-recurring gain from a litigation settlement and land sale. The company's balance sheet remains robust, with total cash, cash equivalents, and short-term investments growing by 34% to $767.5 million. This growth in liquidity, combined with strong operating cash flow of $144.2 million for the six-month period, provides Synopsys with ample financial flexibility. The company also continues its share repurchase program, demonstrating confidence in its financial position and commitment to shareholder value.

Key Highlights

  • 1Revenue increased 7% to $292.9 million in Q2 FY2007, driven by a 16% rise in time-based license revenue.
  • 2Net income surged to $41.3 million, a significant improvement from $5.4 million in Q2 FY2006, attributed to revenue growth and operational efficiencies.
  • 3The company's strong cash position increased by 34% to $767.5 million in cash, cash equivalents, and short-term investments.
  • 4Operating cash flow for the first six months of FY2007 was robust at $144.2 million, a 209% increase year-over-year.
  • 5Synopsys continues its commitment to shareholder returns, repurchasing $63.3 million worth of common stock in the quarter.
  • 6The company successfully settled all outstanding litigation with Magma Design Automation, Inc., receiving a $12.5 million payment.
  • 7Synopsys maintains a strong liquidity position with no outstanding borrowings on its $300 million revolving credit facility.

Frequently Asked Questions

The primary driver of revenue growth is the increase in time-based license revenue, which grew by 16% year-over-year. This is largely a result of the company's strategic shift to a ratable license model initiated in fiscal year 2004, where revenue from these longer-term agreements is recognized over time.

The substantial increase in net income is due to a combination of factors: overall revenue growth driven by time-based licenses, improved operating margins resulting from efficiencies, and a one-time gain from a litigation settlement with Magma Design Automation and the sale of land. These factors led to a net income of $41.3 million, compared to $5.4 million in the prior year period.

Synopsys maintains a very strong liquidity position. Total cash, cash equivalents, and short-term investments grew by 34% to $767.5 million as of April 30, 2007. Furthermore, the company generated $144.2 million in cash from operations during the first six months of fiscal year 2007 and has an undrawn $300 million credit facility, indicating ample financial resources.

Synopsys has resolved its litigation with Magma Design Automation. However, a significant matter is an ongoing examination by the IRS for fiscal years 2000 and 2001, where the IRS proposed a tax deficiency of approximately $476.8 million plus interest. Synopsys is contesting this, but an adverse outcome could materially affect its financial condition. The company believes it has adequately provided for this matter to date.