Why has Synopsys changed its reportable segments?

Synopsys has changed its reportable segments from two to three (Design Automation, Design IP, and Software Integrity) to better reflect how its Chief Operating Decision Maker allocates resources and assesses performance against key growth strategies. This allows for a more distinct evaluation of the Design IP business.

What are non-GAAP financial measures and why does Synopsys use them?

Non-GAAP financial measures are financial metrics that exclude certain items from GAAP-based results. Synopsys uses them, such as non-GAAP earnings per diluted share and operating income, to provide investors with a clearer understanding of the company's core operational performance and trends by excluding items that management believes do not reflect ongoing business operations, such as acquisition-related costs and stock-based compensation.

What is the new non-GAAP tax rate for fiscal year 2023 and why was it updated?

Synopsys has updated its annual non-GAAP tax rate for fiscal year 2023 to 16%. This adjustment is primarily due to new federal tax laws that require research and development expenses to be capitalized starting in fiscal year 2023.

SNPS 8-K: Earnings & Results

Q: How does the segment change affect past financial reporting?

Prior period financial results have been reclassified to align with the new three-segment structure (Design Automation, Design IP, and Software Integrity). This ensures consistency for investors when comparing historical performance to the current reporting structure.

Summary

Synopsys, Inc. (SNPS) filed an 8-K on February 15, 2023, to announce its first fiscal quarter 2023 financial results and a significant change in its reportable business segments. The company has realigned its organizational structure, increasing the number of reportable segments from two to three. The new segments are Design Automation, Design IP, and Software Integrity. This change reflects how the Chief Operating Decision Maker (CEO) allocates resources and assesses performance, with prior period segment results being reclassified accordingly. The filing also emphasizes the use of non-GAAP financial measures, which management believes provide valuable insights into core operational performance by excluding items like amortization of acquired intangibles, stock compensation, acquisition-related costs, restructuring charges, and legal matters. The company also updated its non-GAAP tax rate for fiscal year 2023 to 16% due to changes in federal tax laws requiring capitalization of research and development expenses.

Key Highlights

1Synopsys has reorganized into three reportable segments: Design Automation, Design IP, and Software Integrity, effective Q1 FY2023.
2Prior period segment results have been reclassified to align with the new segment structure.
3The company reiterates its use of non-GAAP financial measures to provide a clearer view of core operational performance.
4Key exclusions for non-GAAP measures include amortization of acquired intangibles, stock compensation, acquisition-related costs, restructuring charges, and legal matters.
5Synopsys has updated its annual non-GAAP tax rate for fiscal year 2023 to 16%.
6This tax rate adjustment is primarily due to federal tax laws mandating the capitalization of R&D expenses starting in FY2023.

SYNOPSYS INC 8-K Report, Financial Results (Feb 15, 2023)

Summary

Key Highlights

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