10-QPeriod: Q2 FY2012

SYNOPSYS INC Quarterly Report for Q2 Ended Apr 30, 2012

Filed June 4, 2012For Securities:SNPS

Summary

Synopsys Inc. (SNPS) reported its fiscal second-quarter results for 2012, showcasing revenue growth driven by its recurring revenue model and strategic acquisitions, most notably the acquisition of Magma Design Automation, Inc. While total revenue increased by 10% year-over-year, net income saw a significant decline of 74% primarily due to acquisition-related expenses and a one-time tax settlement benefit in the prior year's comparable quarter. The company's balance sheet reflects a substantial increase in goodwill and intangible assets following acquisitions, alongside a significant draw-down of its credit facilities to finance these strategic moves. The company maintains a strong cash position, though working capital has decreased due to acquisition-related uses of cash and increased short-term debt. Despite the decrease in net income for the quarter, Synopsys's core business model, which relies heavily on time-based licenses and maintenance/service revenue, continues to provide revenue predictability. The company is actively managing its financial resources, including a robust stock repurchase program, and appears well-positioned to navigate market uncertainties through its strategic acquisitions and established market leadership in Electronic Design Automation (EDA) software.

Financial Statements
Beta
Revenue$432.56M
Cost of Revenue$100.51M
Gross Profit$332.06M
R&D Expenses$151.23M
Operating Expenses$314.92M
Operating Income$17.14M
Interest Expense$710K
Net Income$20.97M
EPS (Basic)$0.14
EPS (Diluted)$0.14
Shares Outstanding (Basic)145.95M
Shares Outstanding (Diluted)149.30M

Key Highlights

  • 1Total revenue for the quarter ended April 30, 2012, increased by 10% to $432.6 million, up from $393.7 million in the prior year's quarter.
  • 2Net income for the quarter significantly decreased by 74% to $21.0 million ($0.14 per diluted share), compared to $81.1 million ($0.53 per diluted share) in the same period last year, largely due to acquisition costs and a prior year tax benefit.
  • 3The company completed the acquisition of Magma Design Automation, Inc. for approximately $550.2 million, significantly increasing goodwill by $303.5 million and intangible assets by $184.3 million.
  • 4Total assets grew to $3.74 billion from $3.37 billion, driven by increases in goodwill and intangible assets, while cash and cash equivalents decreased to $796.6 million from $855.1 million.
  • 5Total liabilities increased to $1.45 billion from $1.27 billion, reflecting a substantial increase in debt, with $250 million drawn under new credit facilities to finance acquisitions.
  • 6Operating cash flow for the six months ended April 30, 2012, was $87.5 million, an increase from $56.9 million in the prior year period, demonstrating continued operational cash generation.
  • 7Research and development expenses increased by 23% for the quarter, reflecting investments in innovation and integration costs from recent acquisitions.

Frequently Asked Questions

The substantial increase in goodwill and intangible assets is primarily due to the acquisition of Magma Design Automation, Inc. for approximately $550.2 million. This acquisition contributed $303.5 million to goodwill and $184.3 million to identifiable intangible assets.

The significant decrease in net income was mainly attributed to two factors: acquisition-related costs totaling $30.2 million for the quarter related to the Magma acquisition, and a substantial tax benefit of approximately $23.9 million recorded in the prior year's comparable quarter due to an IRS settlement. These factors, combined with increased operating expenses related to the acquisitions, led to the lower net income.

The Magma acquisition was financed through a combination of cash and debt. The company drew down $250 million under its newly established senior unsecured revolving credit facility ($100 million) and term loan facility ($150 million) to fund a portion of the purchase price.

The Magma acquisition contributed $13.5 million to revenue in the second quarter of fiscal 2012. However, it also led to increased expenses, including acquisition-related costs and higher amortization of intangible assets, which impacted profitability in the current quarter.