01—Abstract
Summary
Summary of the 8-K filed May 22, 2024. Cited figures are marked; the original filing is the authoritative source.
Synopsys reported second-quarter fiscal 2024 results (quarter ended April 30, 2024) that came in at the high end of guidance and beat on profitability.
Revenue was $1.455 billiona, up about 15% year over year from $1.263 billion. GAAP diluted EPS was $1.92, versus $1.78 a year earlier, and non-GAAP diluted EPS was $3.00, up about 26% from $2.38. Results are presented on a continuing operations basis, with the Software Integrity business treated as a discontinued operation following its May 5, 2024 divestiture agreement.
Management described operational execution and demand as strong, and cited continued momentum in its Design Automation and Design IP segments. Design IP was especially strong, with adjusted segment operating margin rising to 31.2%b in the quarter from 24.3%. The company raised its full-year fiscal 2024 targets.
Full-year revenue is now guided to $6.090c–$6.150 billion, and full-year non-GAAP EPS to $12.90–$12.98. Third-quarter guidance calls for revenue of $1.505–$1.535 billion and non-GAAP EPS of $3.25–$3.30. Management also said that shareholders of Ansys approved the planned Ansys acquisition on the same day.
The full-year targets include an extra week of results in fiscal Q1 2024, and they assume no further changes to export controls or the U.S. Entity List restrictions. Investors should weigh the strong top-line and margin trends against several risks. These include the pending Ansys merger, which still depends on regulatory approvals, and the timing of the Software Integrity divestiture.
Free cash flow for the year is guided to about $1.1 billiond, and six-month operating cash flow was $388.8 million, which is down sharply from $817.7 million a year earlier. Cash flow is therefore a point to monitor. The company also noted that final financial statements would appear in its Form 10-Q, due by June 13, 2024.
02—Key points
Key Highlights
- Q2 FY2024 revenue of $1.455B, up ~15% YoY and at the high end of company guidance
- Non-GAAP EPS of $3.00, up ~26% YoY from $2.38, and above guidance; GAAP diluted EPS of $1.92 vs. $1.78 a year earlier
- Raised FY2024 targets: revenue $6.09–$6.15B and non-GAAP EPS $12.90–$12.98
- Q3 FY2024 guidance: revenue $1.505–$1.535B and non-GAAP EPS $3.25–$3.30
- Design IP adjusted operating margin expanded to 31.2% from 24.3% year over year, while Design Automation margin rose to 39.6% from 38.1%
- Six-month operating cash flow fell to $388.8M from $817.7M, and FY2024 free cash flow is guided to ~$1.1B
- Ansys acquisition approved by Ansys shareholders on May 22, 2024; Software Integrity divestiture was agreed on May 5, 2024
03—Questions
Frequently Asked Questions
How did Synopsys perform in the second quarter of fiscal 2024?
Revenue was $1.455 billion, up about 15% from $1.263 billion a year earlier, and landed at the high end of guidance. GAAP diluted EPS was $1.92, and non-GAAP diluted EPS was $3.00, which exceeded guidance and was up about 26% year over year.
Did Synopsys change its outlook?
Yes. Management raised its full-year fiscal 2024 targets for revenue and non-GAAP EPS. The new ranges are $6.090–$6.150 billion in revenue and $12.90–$12.98 in non-GAAP EPS. Third-quarter guidance is $1.505–$1.535 billion in revenue and $3.25–$3.30 in non-GAAP EPS.
What is the status of the Software Integrity divestiture and the Ansys acquisition?
Synopsys agreed to sell Software Integrity on May 5, 2024, and that business is reported as discontinued operations. Ansys shareholders approved the planned Ansys acquisition on May 22, 2024. Completion still depends on governmental approvals, and the filing lists failure to obtain those approvals as a risk.
Why does cash flow look weaker than earnings?
Six-month operating cash flow was $388.8 million, down from $817.7 million a year earlier, while net income was $735.3 million. The filing shows large working-capital and tax-related outflows, including a $229.5 million income tax change and a $191.6 million increase in prepaid and other current assets. Management still guides to about $1.1 billion of free cash flow for the full year.
What do the non-GAAP adjustments mainly consist of?
The largest adjustment is stock-based compensation, which was $162.3 million in the quarter. Other items include amortization of acquired intangibles, acquisition and divestiture costs, and tax effects. Management applies a 15% non-GAAP tax rate for fiscal 2024, so investors should review the GAAP reconciliation alongside the non-GAAP figures.
04—Continue