10-QPeriod: Q3 FY2019

SYNOPSYS INC Quarterly Report for Q3 Ended Jul 31, 2019

Filed August 26, 2019For Securities:SNPS

Summary

Synopsys, Inc. (SNPS) reported its financial results for the fiscal quarter ending July 31, 2019. The company demonstrated robust top-line growth, with total revenue increasing by 9% year-over-year to $853.0 million, driven by strong performance in both its Semiconductor & System Design and Software Integrity segments. This growth was further bolstered by the adoption of the new revenue recognition standard, ASC 606, which impacted the timing and recognition of revenue. Despite increased operating expenses, including restructuring costs, Synopsys saw a significant 99% increase in operating income to $127.6 million, reflecting improved operational efficiency and strong revenue generation. The company also continued its capital return program, repurchasing shares and maintaining a healthy cash position. The company's strategic focus on its two core segments, Semiconductor & System Design and Software Integrity, continues to yield positive results. The Semiconductor & System Design segment remains the primary revenue driver, showing consistent growth, while the Software Integrity segment demonstrated a notable acceleration in revenue growth. Synopsys' time-based revenue model provides a degree of revenue predictability, even amidst broader economic uncertainties. The company also provided disclosures regarding its adoption of ASC 606, detailing its impact on revenue recognition and balance sheet accounts, and reaffirmed its commitment to innovation and strategic growth.

Financial Highlights

56 data points
Beta

Revenue

$852.97M

78.1% Gross Margin

Net Income

$99.93M

11.7% Net Margin

EPS (Diluted)

$0.65

Total Assets

$6.15B

Cash & Equivalents

$688.68M

Free Cash Flow

$317.07M

Financial Statements
Beta
Revenue$852.97M
Cost of Revenue$186.63M
Gross Profit$666.34M
R&D Expenses$284.80M
Operating Expenses$538.74M
Operating Income$127.59M
Interest Expense$2.21M
Net Income$99.93M
EPS (Basic)$0.67
EPS (Diluted)$0.65
Shares Outstanding (Basic)150.12M
Shares Outstanding (Diluted)154.60M

Key Highlights

  • 1Total revenue increased by 9% to $853.0 million for the three months ended July 31, 2019, compared to $779.7 million in the prior year period.
  • 2Operating income saw a substantial increase of 99% to $127.6 million, up from $63.9 million in the same period last year.
  • 3The Semiconductor & System Design segment revenue grew by 9% to $769.4 million, while the Software Integrity segment revenue increased by 17% to $83.6 million.
  • 4Net income per diluted share was $0.65 for the quarter, up from $0.52 in the prior year.
  • 5The company adopted ASC 606, a new revenue recognition standard, which impacted revenue reporting and required adjustments to retained earnings and deferred revenue.
  • 6Synopsys continued its share repurchase program, spending $100.0 million on accelerated share repurchases during the quarter.
  • 7Cash provided by operating activities for the nine months ended July 31, 2019, was $579.3 million, a significant increase from $293.5 million in the prior year.

Frequently Asked Questions

Synopsys' revenue growth was driven by a combination of factors including organic growth across its business segments, contributions from prior year acquisitions, and the impact of adopting the new revenue recognition standard, ASC 606. The Semiconductor & System Design segment continued its strong performance, while the Software Integrity segment showed accelerated growth.

The adoption of ASC 606, a new revenue recognition standard, impacted Synopsys' financial statements by changing the timing and methods of revenue recognition. This resulted in adjustments to retained earnings and deferred revenue, and altered the reporting of revenue, cost of revenue, and operating expenses compared to prior periods under ASC 605. While it increased variability in total revenue, it did not affect cash generation.

Synopsys reports in two segments: Semiconductor & System Design and Software Integrity. The Semiconductor & System Design segment is the larger contributor to revenue and showed consistent growth. The Software Integrity segment, which focuses on security and quality solutions for software development, demonstrated accelerated growth, indicating a positive trend for this area of the business. The company continues to invest in both segments as part of its growth strategy.

Synopsys generated strong cash flow from operations, with $579.3 million for the nine months ended July 31, 2019. The company also actively repurchased its own stock, demonstrating a commitment to returning capital to shareholders. Despite a decrease in cash and cash equivalents due to debt repayments and stock repurchases, the company believes its liquidity is sufficient to meet its business requirements for the foreseeable future.