10-QPeriod: Q2 FY2019

SYNOPSYS INC Quarterly Report for Q2 Ended Apr 30, 2019

Filed May 24, 2019For Securities:SNPS

Summary

Synopsys Inc. reported its financial results for the quarter and six months ended April 30, 2019. For the second quarter of fiscal year 2019, total revenue increased by 8% year-over-year to $836.2 million. This growth was driven by strong performance in both the Semiconductor & System Design segment and the Software Integrity segment, with the latter showing a significant 23% revenue increase. Despite revenue growth, operating income saw a slight decrease of 9% to $115.5 million, attributed to increased operating expenses, including a rise in restructuring charges and R&D investments to support future growth. The adoption of ASC 606, the new revenue recognition standard, had a noticeable impact, particularly on upfront revenue recognition, leading to a decrease in reported net income for the quarter compared to what would have been reported under the previous standard. The company maintained a strong balance sheet, with total assets of $6.19 billion and a significant cash and cash equivalents balance of $631.2 million. Management expressed confidence in the company's liquidity and ability to meet its obligations, supported by operational cash flow and available credit facilities.

Financial Highlights

56 data points
Beta

Revenue

$836.24M

77.2% Gross Margin

Net Income

$118.21M

14.1% Net Margin

EPS (Diluted)

$0.77

Total Assets

$6.19B

Cash & Equivalents

$633.05M

Free Cash Flow

$312.87M

Financial Statements
Beta
Revenue$836.24M
Cost of Revenue$190.68M
Gross Profit$645.56M
R&D Expenses$290.30M
Operating Expenses$530.06M
Operating Income$115.50M
Interest Expense$3.84M
Net Income$118.21M
EPS (Basic)$0.79
EPS (Diluted)$0.77
Shares Outstanding (Basic)149.71M
Shares Outstanding (Diluted)153.90M

Key Highlights

  • 1Total revenue for Q2 FY2019 increased by 8% year-over-year to $836.2 million.
  • 2Software Integrity segment revenue surged by 23% year-over-year, indicating strong growth in this area.
  • 3Operating income decreased by 9% to $115.5 million due to increased operating expenses, including restructuring charges.
  • 4The company adopted ASC 606, impacting revenue recognition and leading to a $11.8 million decrease in net income compared to the previous standard for the quarter.
  • 5Cash and cash equivalents stood at $631.2 million as of April 30, 2019.
  • 6Research and Development expenses increased by 15% year-over-year, reflecting continued investment in innovation.
  • 7The company maintained compliance with its financial covenants under its credit facilities.

Frequently Asked Questions

Synopsys' revenue growth is primarily driven by continued organic growth and contributions from prior year acquisitions across both its Semiconductor & System Design and Software Integrity segments. The Software Integrity segment, in particular, showed substantial growth in this reporting period.

The adoption of ASC 606, the new revenue recognition standard, has impacted how Synopsys recognizes revenue, particularly for upfront revenue arrangements. This resulted in a decrease in reported net income for the quarter compared to what would have been recognized under the previous ASC 605 standard, though it did not affect cash generation.

Synopsys maintains a strong liquidity position, with $631.2 million in cash and cash equivalents as of April 30, 2019. The company expects cash from operating activities, combined with available credit under its facilities, to be sufficient to meet its routine business requirements for at least the next 12 months and the foreseeable future.

The company is involved in ongoing legal and tax matters. Notably, there was a tax assessment in Hungary that resulted in a tax expense due to an unrecognized tax benefit after an unfavorable court ruling. Investors should monitor developments in these areas as they can impact financial results.