10-QPeriod: Q3 FY2009

SYNOPSYS INC Quarterly Report for Q3 Ended Jul 31, 2009

Filed September 9, 2009For Securities:SNPS

Summary

Synopsys Inc. (SNPS) reported its third-quarter results for fiscal year 2009, ending July 31, 2009. Despite a challenging global economic environment that impacted customer spending and payment terms, the company demonstrated resilience. Total revenue remained relatively flat year-over-year, driven by strong maintenance and services revenue, although time-based license revenue saw a slight decline. The company maintained a strong balance sheet with a significant increase in cash, cash equivalents, and short-term investments, totaling over $1.08 billion. While operating cash flow saw a decrease compared to the prior year, this was attributed to the timing of billings and payments, consistent with Synopsys' recurring revenue model. The company also highlighted its ongoing efforts in managing expenses and its robust business model that largely shields it from short-term economic fluctuations.

Financial Highlights

28 data points
Beta

Revenue

$345.18M

79.7% Gross Margin

Net Income

$47.44M

13.7% Net Margin

EPS (Diluted)

$0.32

Cash & Equivalents

$622.28M

Free Cash Flow

$150.62M

Financial Statements
Beta
Revenue$345.18M
Cost of Revenue$70.03M
Gross Profit$275.14M
R&D Expenses$104.99M
Operating Expenses$214.05M
Operating Income$61.09M
Net Income$47.44M
EPS (Basic)$0.33
EPS (Diluted)$0.32
Shares Outstanding (Basic)144.14M
Shares Outstanding (Diluted)146.06M

Key Highlights

  • 1Total revenue for the quarter was $345.2 million, a slight increase of 0.3% from $344.1 million in the prior year's comparable quarter.
  • 2Maintenance and services revenue increased by a robust 22% year-over-year, contributing to overall revenue stability.
  • 3Time-based license revenue decreased by 2%, reflecting a slight slowdown in new bookings or a shift in contract types during the challenging economic climate.
  • 4The company ended the quarter with a strong liquidity position, holding $1,082.5 million in cash, cash equivalents, and short-term investments, an increase of 14% from the previous fiscal year-end.
  • 5Operating cash flow for the nine months ended July 31, 2009, was $175.2 million, a decrease from $215.2 million in the prior year, attributed to timing of billings and payments.
  • 6Despite economic headwinds, the company reported net income of $47.4 million for the quarter, down 18% year-over-year, partly due to a one-time tax settlement benefit in the prior year.
  • 7Synopsys continued its commitment to expense management, with sales and marketing expenses decreasing by 10% year-over-year.

Frequently Asked Questions

Synopsys acknowledged that the global economic downturn and weakness in the semiconductor and electronics industries are impacting customer spending and payment terms. However, the company's recurring revenue business model has largely protected its financial results from immediate, severe short-term fluctuations. Total revenue remained relatively stable, and the company highlighted its strong liquidity position and expense management initiatives as key strengths during this period.

The company derives revenue primarily from time-based licenses, upfront licenses, and maintenance and services. Time-based licenses (including bundled maintenance) represent the largest portion of revenue. While time-based license revenue saw a slight decline, maintenance and services revenue showed strong growth (22% year-over-year). Upfront license revenue decreased slightly in the quarter but increased year-to-date. The company aims for over 90% of its revenue to be recurring.

Synopsys reported a strong financial position with $1,082.5 million in cash, cash equivalents, and short-term investments as of July 31, 2009, an increase of 14% from the end of the prior fiscal year. The company also had no outstanding borrowings under its $300 million revolving credit facility and was in compliance with all covenants, indicating robust liquidity and financial flexibility.

The company mentioned ongoing tax examinations, including a significant proposed adjustment from the IRS for fiscal years 2002-2004, for which a tentative settlement was reached and was awaiting government approval. While the company believes it has adequately provided for this, an adverse outcome could still impact results. The company also noted a $11 million increase in its liability for unrecognized tax benefits related to a court decision on stock-based compensation.