10-QPeriod: Q1 FY2020

SYNOPSYS INC Quarterly Report for Q1 Ended Jan 31, 2020

Filed February 21, 2020For Securities:SNPS

Summary

Synopsys Inc. (SNPS) reported its first quarter fiscal year 2020 results, highlighting moderate revenue growth and a shift in its operational performance compared to the prior year. Total revenue increased by 2% year-over-year to $834.4 million, driven primarily by organic growth in both the Semiconductor & System Design and Software Integrity segments. While revenue growth was modest, the company saw a significant improvement in operating cash flow, which swung from a negative $144.0 million in the prior year's first quarter to a positive $9.8 million in the current period. This improvement was largely due to changes in working capital, particularly a decrease in accounts receivable and an increase in deferred revenue. Despite an increase in operating expenses, largely attributable to higher R&D spending and restructuring costs, Synopsys managed its costs effectively. The company also continued to return capital to shareholders through its stock repurchase program, repurchasing $80.0 million of its common stock during the quarter. The balance sheet reflects the adoption of new lease accounting standards, introducing significant operating lease right-of-use assets and liabilities. Overall, the report indicates a company navigating a dynamic market with a focus on operational efficiency and strategic investments, while managing its financial resources prudently.

Financial Statements
Beta
Revenue$834.38M
Cost of Revenue$192.87M
Gross Profit$641.51M
R&D Expenses$314.28M
Operating Expenses$554.00M
Operating Income$87.52M
Interest Expense$1.60M
Net Income$104.06M
EPS (Basic)$0.69
EPS (Diluted)$0.67
Shares Outstanding (Basic)150.24M
Shares Outstanding (Diluted)154.50M

Key Highlights

  • 1Total revenue increased by 2% to $834.4 million, driven by organic growth in both segments.
  • 2Operating cash flow improved dramatically, turning positive at $9.8 million from a negative $144.0 million in the prior year's quarter, largely due to working capital improvements.
  • 3Research and Development expenses increased by 16% to $314.3 million, reflecting continued investment in innovation.
  • 4General and Administrative expenses saw a significant increase (63%), partly due to a legal settlement comparison from the prior year.
  • 5The company repurchased $80.0 million of its common stock during the quarter, indicating a commitment to shareholder returns.
  • 6Adoption of new lease accounting standards resulted in significant increases in operating lease right-of-use assets and liabilities on the balance sheet.
  • 7The Semiconductor & System Design segment's adjusted operating income decreased by 8%, while the Software Integrity segment's adjusted operating income grew by 45%.

Frequently Asked Questions

Synopsys reported total revenue of $834.4 million for the three months ended January 31, 2020, representing a 2% increase compared to $820.4 million in the same period of fiscal 2019. This growth was primarily driven by organic expansion within both its Semiconductor & System Design and Software Integrity segments.

The company demonstrated a significant improvement in operating cash flow. Cash provided by operating activities was $9.8 million for the three months ended January 31, 2020, a substantial increase from the $144.0 million used in operating activities during the same period last year. This turnaround was largely attributed to favorable changes in working capital, including a decrease in accounts receivable and an increase in deferred revenue.

Synopsys adopted the new lease accounting standard (ASC 842) at the beginning of fiscal 2020. This resulted in the recognition of significant operating lease right-of-use assets ($460.1 million) and operating lease liabilities ($527.4 million as of Jan 31, 2020) on the balance sheet. While this impacts the balance sheet presentation, the adoption did not materially affect the company's beginning retained earnings, results of operations, or cash flows.

Synopsys continued its commitment to returning capital to shareholders. During the quarter ended January 31, 2020, the company repurchased approximately $80.0 million of its common stock. As of January 31, 2020, $300.0 million remained available under its authorized stock repurchase program.