10-QPeriod: Q2 FY2017

SYNOPSYS INC Quarterly Report for Q2 Ended Apr 30, 2017

Filed May 19, 2017For Securities:SNPS

Summary

Synopsys Inc. (SNPS) reported its financial results for the second quarter and first six months ended April 30, 2017. For the quarter, revenue increased by 12% to $680.1 million compared to the prior year, driven by growth in hardware sales, IP consulting projects, and time-based license revenues, with a notable increase in upfront product revenue by 43%. However, operating income saw a significant decrease of 38% to $53.6 million, primarily due to a substantial increase in general and administrative expenses, largely attributed to accrued loss contingencies related to litigation. For the first six months of fiscal year 2017, revenue grew 14% to $1.33 billion. Despite the revenue growth, the net income for the six-month period was $139.9 million, a slight increase from $129.4 million in the prior year. The company's balance sheet shows total assets of $5.47 billion, with significant goodwill of $2.66 billion. Cash and cash equivalents stood at $991.3 million. A key event impacting the current quarter was the accrual of a $39 million loss contingency related to ongoing patent litigation with Mentor Graphics, which significantly impacted operating results.

Financial Highlights

55 data points
Beta

Revenue

$680.07M

76.2% Gross Margin

Net Income

$53.31M

7.8% Net Margin

EPS (Diluted)

$0.34

Total Assets

$5.47B

Cash & Equivalents

$991.33M

Free Cash Flow

$109.96M

Financial Statements
Beta
Revenue$680.07M
Cost of Revenue$162.03M
Gross Profit$518.04M
R&D Expenses$223.01M
Operating Expenses$464.44M
Operating Income$53.61M
Interest Expense$1.86M
Net Income$53.31M
EPS (Basic)$0.35
EPS (Diluted)$0.34
Shares Outstanding (Basic)150.38M
Shares Outstanding (Diluted)154.86M

Key Highlights

  • 1Total revenue for the second quarter increased 12% year-over-year to $680.1 million.
  • 2Upfront product revenue saw a significant surge of 43% in the second quarter, indicating strong performance in hardware sales and perpetual licenses.
  • 3Operating income decreased by 38% to $53.6 million in the second quarter, impacted by increased litigation-related expenses.
  • 4General and administrative expenses more than doubled year-over-year in the second quarter, primarily due to a $38 million accrual for litigation loss contingencies.
  • 5The company accrued $39.0 million as a loss contingency related to the Mentor Graphics patent litigation following a Federal Circuit decision.
  • 6Cash and cash equivalents remained strong, totaling $991.3 million as of April 30, 2017.
  • 7The company's time-based revenue model continues to be a significant driver, representing 88% of revenue in the quarter.

Frequently Asked Questions

The primary driver for the substantial increase in G&A expenses during the second quarter of fiscal 2017 was an accrual of $38.0 million for loss contingencies related to ongoing patent litigation with Mentor Graphics Corporation.

Synopsys reported a 12% increase in revenue for the second quarter of fiscal 2017, reaching $680.1 million. This growth was driven by an overall increase in the business, including higher hardware sales, IP consulting projects, and time-based license revenues. Notably, upfront product revenue saw a significant surge of 43%.

Following a Federal Circuit decision in March 2017, which affirmed a jury verdict and damages award, Synopsys has accrued $39.0 million as a loss contingency. Further proceedings are expected in the federal district court related to other patents involved in the litigation. The company is also petitioning for a rehearing on certain aspects of the decision.

The company has transitioned from having no outstanding balance on its previous term loan to having a $147.7 million balance under a new $150 million term loan facility as of April 30, 2017. Additionally, borrowings under the revolving credit facility increased to $270 million from $205 million in the prior fiscal year. These changes are related to an amended and restated credit agreement that also increased the revolving credit facility size and extended its termination date.