2008-08-20 15:00:00
MOUNTAIN VIEW, Calif., Aug. 20 /EMWNews/ -- Synopsys, Inc. (Nasdaq: SNPS), a world leader in software and IP for semiconductor design and manufacturing, today reported results for its third quarter ended July 31, 2008. For the third quarter, Synopsys reported revenue of $344.1 million, a 13.2 percent increase compared to $304.1 million for the third quarter of fiscal 2007. "Our technology and product pipeline are strong throughout our broad portfolio, and we are seeing good competitive momentum," said Aart de Geus, chairman and CEO of Synopsys. "Even at a time of increased customer caution around spending, Synopsys continues to perform well." GAAP Results On a generally accepted accounting principles (GAAP) basis, net income for the third quarter of fiscal 2008 was $57.7 million, or $0.39 per share, compared to $24.9 million, or $0.17 per share for the third quarter of fiscal 2007. GAAP earnings per share included a $17.3 million tax benefit associated with the settlement of an IRS tax issue for fiscal years 2000 and 2001. Non-GAAP Results On a non-GAAP basis, net income for the third quarter of fiscal 2008 was $64.5 million, or $0.44 per share, compared to non-GAAP net income of $47.7 million, or $0.32 per share, for the third quarter of fiscal 2007. Non-GAAP net income consists of GAAP net income excluding employee share- based compensation expense calculated in accordance with FAS 123(R) and, to the extent incurred in a particular quarter or period, amortization of intangible assets (which could include in-process research and development charges), facilities realignment charges, and other significant items, including a tax benefit from a settlement with the IRS in the third quarter, and the related tax-effect of each, which, in the opinion of management, are infrequent or non-recurring. See "GAAP Reconciliation" below. Financial Targets Synopsys also provided its operating model targets for the fourth quarter and full fiscal year 2008. These targets constitute forward-looking information and are based on current expectations. For a discussion of factors that could cause actual results to differ materially from these targets, see "Forward-Looking Statements" below.
Fourth Quarter of Fiscal Year 2008 Targets: -- Revenue: $348 million - $356 million -- GAAP expenses: $295 million - $310 million -- Non-GAAP expenses: $273 million - $283 million -- Other income and expense: $0 - $3 million -- Tax rate applied in non-GAAP net income calculations: approximately 27 percent -- Fully diluted outstanding shares: 147 million - 152 million -- GAAP earnings per share: $0.23 - $0.29 -- Non-GAAP earnings per share: $0.36 - $0.39 -- Revenue from backlog: greater than 90 percent Full Fiscal Year 2008 Targets: -- Revenue: $1.332 billion - $1.340 billion -- Tax rate applied in non-GAAP net income calculations: approximately 26 percent -- Fully diluted outstanding shares: 147 million - 150 million -- GAAP earnings per share: $1.20 - $1.26 -- Non-GAAP earnings per share: $1.65 - $1.68 -- Cash flow from operations: $300 million - $325 million GAAP Reconciliation Synopsys' management evaluates and makes decisions about the Company's business operations primarily based on the bookings, revenue, and direct, ongoing and recurring costs of those operations. Management does not believe amortization of intangible assets (including in-process research and development charges), facilities realignment charges and other significant infrequent items, including a tax benefit from a settlement with the IRS, are ongoing and recurring operating costs of its core software, intellectual property and service business operations. In addition, while employee share-based compensation expense calculated in accordance with FAS 123(R) constitutes an ongoing and recurring expense of the Company, such expense is excluded from non-GAAP results because it is not an expense that requires cash settlement by the Company and because such expense is not used by management to assess the core performance of the Company's business operations. Therefore, management excludes such costs, to the extent incurred in a particular quarter, from the following historical and targeted GAAP financial measures included in this earnings release: total cost of revenue, gross margin, total operating expenses, operating income, income before provision (benefit) for income taxes, provision (benefit) for income taxes, net income and net income per share. For each such measure, excluding these costs provides management with more consistent, comparable information about the Company's core performance. For example, the Company does not undertake significant restructuring or realignments on a regular basis, and, as a result, excludes associated charges in order to enable better and more consistent evaluations of the Company's operating expenses before and after such actions are taken. Management also uses these measures to help it make budgeting decisions, for example, as between product support expenses (which affect cost of revenue and gross margin) and research and development, sales and marketing and general and administrative expenses (which affect operating expenses and operating margin). Finally, the availability of such information helps management track performance to both internal and externally communicated financial targets and to its competitors' operating results. Management recognizes that the use of these non-GAAP measures has certain limitations, including the fact that management must exercise judgment in determining whether certain types of charges, such as those relating to workforce reductions executed in the ordinary course, should be excluded from non-GAAP results. However, management believes that, although it is important for investors to understand GAAP measures, providing investors with these non- GAAP measures gives them additional important information to enable them to assess, in a way management assesses, Synopsys' current and future continuing operations. Reconciliation of Third Quarter Results The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP net income and earnings per share for periods indicated below:
GAAP to Non-GAAP Reconciliation of Third Quarter Results (in thousands, except per share amounts) Income Statement Reconciliation Three Months Ended Nine Months Ended July 31, July 31, 2008 2007 2008 2007 GAAP net income $57,749 $24,855 $143,581 $89,477 Adjustments: Amortization of intangible assets 10,810 12,186 34,841 37,393 Share-based compensation 17,321 16,110 50,806 46,674 In-process research and development 4,800 2,100 4,800 2,100 Litigation settlement - - - (12,500) Facilities realignment charge - - - (645) Tax benefit from IRS settlement (17,253) - (17,253) - Tax effect (8,923) (7,552) (26,595) (17,634) Non-GAAP net income $64,504 $47,699 $190,180 $144,865 Three Months Ended Nine Months Ended July 31, July 31, 2008 2007 2008 2007 GAAP earnings per share $0.39 $0.17 $0.97 $0.60 Adjustments: Amortization of intangible assets 0.07 0.08 0.24 0.25 Share-based compensation 0.12 0.11 0.34 0.32 In-process research and development 0.03 0.01 0.03 0.01 Litigation settlement - - - (0.08) Facilities realignment charge - - - (0.01) Tax benefit from IRS settlement (0.12) - (0.12) - Tax effect (0.05) (0.05) (0.17) (0.12) Non-GAAP earnings per share $0.44 $0.32 $1.29 $0.97 Shares used in calculation 147,486 149,709 147,760 149,283 Reconciliation of Target Operating Results The following tables reconcile the specific items excluded from GAAP in the calculation of target non-GAAP operating results for the periods indicated below:
GAAP to non-GAAP Reconciliation of Fourth Quarter Fiscal Year 2008 Targets (in thousands, except per share amounts) Range for Three Months Ending October 31, 2008 Low High Target GAAP expenses $295,000 $310,000 Adjustment: Estimated impact of amortization of intangible assets (9,000) (12,000) Estimated impact of share-based compensation (13,000) (15,000) Target non-GAAP expenses $273,000 $283,000 Range for Three Months Ending October 31, 2008 Low High Target GAAP earnings per share $0.23 $0.29 Adjustment: Estimated impact of amortization of intangible assets 0.08 0.06 Estimated impact of share-based compensation 0.10 0.08 Net non-GAAP tax effect (0.05) (0.04) Target non-GAAP earnings per share $0.36 $0.39 Shares used in non-GAAP calculation (midpoint of target range) 149,500 149,500 GAAP to Non-GAAP Reconciliation of Fiscal Year 2008 Targets Range for Fiscal Year Ending October 31, 2008 Low High Target GAAP earnings per share $1.20 $1.26 Adjustment: Estimated impact of amortization of intangible assets 0.32 0.30 Estimated impact of share-based compensation 0.44 0.43 In-process research and development 0.03 0.03 Tax benefit from IRS settlement (0.12) (0.12) Net non-GAAP tax effect (0.22) (0.22) Target non-GAAP earnings per share $1.65 $1.68 Shares used in non-GAAP calculation (midpoint of target range) 148,500 148,500 Earnings Call Open to Investors Synopsys will hold a conference call for financial analysts and investors today at 2:00 p.m., Pacific Time. A live webcast of the call will be available at Synopsys' corporate website at http://www.synopsys.com/corporate/invest/invest.html. A recording of the call will be available by calling +1-800-475-6701 (+1-320-365-3844 for international callers), access code 956118, beginning at 4:00 p.m. Pacific Time today. A webcast replay will also be available on the website from approximately 5:30 p.m. Pacific Time today through the time Synopsys announces its results for the fourth quarter and full fiscal 2008 in December. Synopsys will also post copies of the prepared remarks of Aart de Geus, chairman and chief executive officer, and Brian Beattie, chief financial officer, on its website following the call. In addition, Synopsys makes additional financial information available in a financial supplement posted at Synopsys' corporate website at http://www.synopsys.com/corporate/invest/invest.html. Effectiveness of Information The targets included in this release, the statements made during the earnings conference call and the information contained in the financial supplement represent Synopsys' expectations and beliefs as of the date of this release only. Although this press release, copies of the prepared remarks of the chief executive officer and chief financial officer made during the call and the financial supplement will remain available on Synopsys' website through the date of the fourth quarter earnings call in December 2008, their continued availability through such date does not mean that Synopsys is reaffirming or confirming their continued validity. Synopsys does not currently intend to report on its progress during the fourth quarter of fiscal 2008 or comment to analysts or investors on, or otherwise update, the targets given in this earnings release. Availability of Final Financial Statements Synopsys will include final financial statements for the third quarter of fiscal 2008 in its quarterly report on Form 10-Q to be filed by September 11, 2008.
About Synopsys
Synopsys, Inc. (NASDAQ:SNPS) is a world leader in electronic design
automation (EDA), supplying the global electronics market with the
software, intellectual property (IP) and services used in semiconductor
design and manufacturing. Synopsys' comprehensive, integrated portfolio of
implementation, verification, IP, manufacturing and field-programmable gate
array (FPGA) solutions helps address the key challenges designers and
manufacturers face today, such as power and yield management, system-to-
silicon verification and time-to-results. These technology-leading
solutions help give Synopsys customers a competitive edge in bringing the
best products to market quickly while reducing costs and schedule risk.
Synopsys is headquartered in Mountain View, California, and has more than
60 offices located throughout North America, Europe, Japan, Asia and India.
Visit Synopsys online at http://www.synopsys.com/.
Forward-Looking Statements
The statements made in this press release regarding projected financial
results in the sections entitled "Financial Targets," and "Reconciliation
of Target Operating Results" and certain statements made in the earnings
conference call are forward-looking statements within the meaning of the
safe harbor provisions of Section 21E of the Securities Exchange Act of
1934. Actual results could differ materially from those described by these
statements due to a number of uncertainties, including, but not limited to:
-- weakness or continued budgetary caution in the semiconductor or
electronics industries;
-- lower-than-expected research and development spending by semiconductor
and electronic systems companies;
-- competition in the market for Synopsys' products and services;
-- lower-than-anticipated new IC design starts;
-- lower-than-anticipated purchases or delays in purchases of software or
consulting services by Synopsys' customers, including delays in the
renewal, or non-renewal, of Synopsys' license arrangements with major
customers;
-- failure of customers to pay license fees as scheduled;
-- changes in the mix of time-based licenses and upfront licenses;
-- lower-than-expected bookings;
-- failure of Synopsys' cost control efforts, including recent efforts to
outsource certain internal functions, to result in the anticipated
savings;
-- failure to successfully develop additional intellectual property
blocks for its IP business; and
-- difficulties in the integration of the products and operations of
acquired companies or assets into Synopsys' products and operations.
In addition, Synopsys' actual expenses and earnings per share on a GAAP
and non-GAAP basis for the fiscal quarter ending October 31, 2008 and
actual expenses, earnings per share and operating cash flow on a GAAP and
non-GAAP basis for fiscal year 2008 could differ materially from the
targets stated under "Financial Targets" above for a number of reasons,
including, but not limited to, (i) a determination by Synopsys that any
portion of its goodwill or intangible assets have become impaired, (ii)
application of the actual consolidated GAAP and non-GAAP tax rates for such
periods, or judgment by management, based upon the status of pending audits
to increase or decrease an income tax asset or liability, (iii) integration
and other acquisition-related expenses including amortization of additional
intangible assets associated with future acquisitions, if any, (iv) changes
in the anticipated amount of employee share-based compensation expense
recognized on Synopsys' financial statements, (v) actual change in the fair
value of Synopsys' non-qualified deferred compensation plan obligations,
(vi) increases or decreases to estimated capital expenditures, (vii)
changes driven by new accounting rules, regulations, interpretations or
pronouncements, (viii) general economic conditions, and (ix), other risks
as detailed in our SEC filings, including those described in the "Risk
Factors" section in our Quarterly Report on Form 10-Q for the fiscal
quarter ended April 30, 2008. Furthermore, Synopsys' actual tax rates
applied to income for the fourth quarter and fiscal year 2008 could differ
from the targets given in this press release as a result of a number of
factors, including the actual geographic mix of revenue during the quarter.
Finally, Synopsys' targets for outstanding shares in the fourth quarter and
fiscal year 2008 could differ from the targets given in this press release
as a result of higher than expected employee stock plan issuances or stock
option exercises, acquisitions and the extent of Synopsys' stock repurchase
activity.
Synopsys is under no obligation to (and expressly disclaims any such
obligation to) update or alter any of the forward-looking statements made
in this earnings release, the conference call or the financial supplement
whether as a result of new information, future events or otherwise, unless
otherwise required by law.
Synopsys is a registered trademark of Synopsys, Inc. Any other
trademarks mentioned in this release are the property of their respective
owners.
INVESTOR CONTACT:
Lisa L. Ewbank
Synopsys, Inc.
650-584-1901
EDITORIAL CONTACT:
Yvette Huygen
Synopsys, Inc.
650-584-4547
[email protected]
SYNOPSYS, INC.
Unaudited Condensed Consolidated Statements of Operations (1)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
July 31, July 31,
2008 2007 2008 2007
Revenue:
Time-based license $289,250 $251,389 $835,330 $746,091
Upfront license 20,558 18,981 45,293 47,108
Maintenance and service 34,320 33,728 103,523 104,037
Total revenue 344,128 304,098 984,146 897,236
Cost of revenue:
License 44,654 37,092 126,761 107,269
Maintenance and service 16,110 15,763 48,156 47,459
Amortization of intangible
assets 6,262 5,536 17,111 17,455
Total cost of revenue 67,026 58,391 192,028 172,183
Gross margin 277,102 245,707 792,118 725,053
Operating expenses:
Research and development 104,394 94,365 292,183 282,205
Sales and marketing 86,816 95,417 247,073 264,237
General and administrative 26,512 24,177 76,524 76,405
In-process research and
development 4,800 2,100 4,800 2,100
Amortization of intangible
assets 4,548 6,650 17,730 19,938
Total operating expenses 227,070 222,709 638,310 644,885
Operating income 50,032 22,998 153,808 80,168
Other income, net 2,947 10,829 9,428 38,431
Income before income taxes 52,979 33,827 163,236 118,599
(Benefit) provision for income
taxes (4,770) 8,972 19,655 29,122
Net income $57,749 $24,855 $143,581 $89,477
Net income per share:
Basic $0.41 $0.17 $1.00 $0.62
Diluted $0.39 $0.17 $0.97 $0.60
Shares used in computing per share
amounts:
Basic 142,536 143,820 143,450 143,626
Diluted 147,486 149,709 147,760 149,283
(1) Synopsys' third quarter ended on August 2, 2008 and August 4, 2007,
respectively. For presentation purposes, the Unaudited Condensed
Consolidated Statements of Operations refer to a calendar month end.
SYNOPSYS, INC.
Unaudited Condensed Consolidated Balance Sheets (1)
(in thousands, except par value amounts)
July 31, 2008 October 31, 2007
ASSETS:
Current assets:
Cash and cash equivalents $545,489 $579,327
Short-term investments 331,598 405,126
Total cash, cash equivalents and
short-term investments 877,087 984,453
Accounts receivable, net 143,613 123,900
Deferred income taxes 121,424 123,165
Income taxes receivable 51,233 42,525
Prepaid expenses and other current assets 60,814 53,496
Total current assets 1,254,171 1,327,539
Property and equipment, net 130,511 131,866
Goodwill 896,574 767,087
Intangible assets, net 123,972 78,792
Long-term deferred income taxes 151,077 216,642
Other assets 102,552 95,411
Total assets $2,658,857 $2,617,337
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities $240,676 $246,209
Accrued income taxes 1,896 207,572
Deferred revenue 603,525 577,295
Total current liabilities 846,097 1,031,076
Deferred compensation and other liabilities 105,513 84,648
Accrued income taxes 123,236 -
Long-term deferred revenue 53,607 65,220
Total liabilities 1,128,453 1,180,944
Stockholders' equity:
Preferred stock, $0.01 par value:
2,000 shares authorized; none outstanding - -
Common stock, $0.01 par value:
400,000 shares authorized; 142,844 and
146,365 shares outstanding, respectively 1,428 1,464
Capital in excess of par value 1,457,282 1,401,965
Retained earnings 395,378 263,977
Treasury stock, at cost: 14,423 and
10,867 shares, respectively (323,885) (234,918)
Accumulated other comprehensive
income (loss) 201 3,905
Total stockholders' equity 1,530,404 1,436,393
Total liabilities and stockholders'
equity $2,658,857 $2,617,337
(1) Synopsys' third quarter ended on August 2, 2008, and its 2007 fiscal
year ended on November 3, 2007. For presentation purposes, the
Unaudited Condensed Consolidated Balance Sheets refer to a calendar
month end.
SYNOPSYS, INC.
Unaudited Condensed Consolidated Statements of Cash Flows (1)
(in thousands)
Nine Months Ended July 31,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $143,581 $89,477
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization and depreciation 73,535 77,844
Share-based compensation 50,807 46,674
Allowance for doubtful accounts 429 (330)
(Gain) loss on sale of investments (1,347) 8
(Gain) on sale of land - (4,284)
Deferred income taxes 18,852 14,966
Net change in deferred gains and
losses on cash flow hedges 5,169 1,661
In-process research and development 4,800 2,100
Net changes in operating assets and
liabilities, net of acquired assets
and liabilities:
Accounts receivable (8,761) (80,511)
Prepaid expenses and other current assets (11,277) (13,498)
Other assets 458 317
Accounts payable and accrued liabilities (26,767) (8,255)
Accrued income taxes (33,974) (3,313)
Deferred revenue 2,626 135,279
Deferred compensation and other
liabilities (2,928) 254
Net cash provided by operating activities 215,203 258,389
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and maturities of
short-term investments 512,797 209,167
Purchases of short-term investments (436,144) (326,476)
Proceeds from sales of long-term
investments 77 -
Purchases of long-term investments (7,694) (4,620)
Purchases of property and equipment (26,500) (36,429)
Proceeds from sale of land - 26,298
Cash paid for acquisitions and intangible
assets, net of cash acquired (181,018) (34,120)
Capitalization of software development
costs (2,114) (2,106)
Net cash used in investing activities (140,596) (168,286)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on lease obligations (1,453) -
Issuances of common stock 56,600 151,653
Purchases of common stock (170,052) (140,789)
Net cash (used in) provided by
financing activities (114,905) 10,864
Effect of exchange rate changes on cash and
cash equivalents 6,460 4,128
Net change in cash and cash equivalents (33,838) 105,095
Cash and cash equivalents, beginning
of period 579,327 330,759
Cash and cash equivalents, end of period $545,489 $435,854
(1) Synopsys' third quarter ended on August 2, 2008 and August 4, 2007,
respectively. For presentation purposes, the Unaudited Condensed
Consolidated Statements of Cash Flows refer to a calendar month end.
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