UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02 | Results of Operations and Financial Condition. |
On August 19, 2020, Synopsys, Inc. (“Synopsys”) issued a press release announcing the financial results of its third fiscal quarter ended July 31, 2020. A copy of this press release is furnished and attached hereto as Exhibit 99.1 and is incorporated herein by reference.
The information in this Current Report, including the exhibit hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. The information contained herein and in the accompanying exhibit shall not be incorporated by reference into any registration statement or other document filed with the Securities and Exchange Commission by Synopsys whether made before or after the date hereof, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.
The attached press release includes measures that are not in accordance with, or an alternative for, U.S. generally accepted accounting principles (“GAAP”). The attached press release includes non-GAAP earnings per share, non-GAAP net income, targeted non-GAAP expenses, and targeted non-GAAP earnings per share.
These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles, and management exercises judgment in determining which items should be excluded in the calculation of non-GAAP measures. While we believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP, we believe that non-GAAP measures are valuable in analyzing our core operations. Management analyzes current and future results on a GAAP basis as well as a non-GAAP basis and also provides GAAP and non-GAAP measures in our earnings release. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. The non-GAAP financial measures are meant to supplement, and be viewed in conjunction with, GAAP financial measures. We believe that the presentation of non-GAAP measures, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to our financial condition and results of operations.
Synopsys’ management evaluates and makes decisions about our business operations primarily based on the income and costs that management believes are directly related to Synopsys’ core operations, both from a company-wide basis and on a business segment basis. For our internal budgeting and resource allocation process, and in reviewing our financial results, we use non-GAAP financial measures that exclude: (i) the amortization of acquired intangible assets; (ii) the impact of stock compensation; (iii) acquisition-related costs; (iv) restructuring charges; (v) the effects of certain settlements, final judgments and loss contingencies related to legal proceedings; and (vi) the income tax effect of non-GAAP pre-tax adjustments. We also utilize a normalized annual non-GAAP tax rate in the calculation of our non-GAAP measures, as further described below.
We use these non-GAAP financial measures in making our operating decisions because we believe the measures provide meaningful supplemental information regarding our core operational performance and give us a better understanding of how we should invest in research and development, as well as fund infrastructure and product and market strategies. We use these measures to help us make budgeting decisions, for example, among product development expenses and research and development, sales and marketing, and general and administrative expenses. In addition, these non-GAAP financial measures facilitate our internal comparisons to our historical operating results, forecasted targets and comparisons to competitors’ operating results.
Synopsys provides segment information, namely adjusted segment operating income and adjusted segment operating margin, in accordance with FASB Accounting Standards Codification Topic 280, Segment Reporting. These measures reflect how management evaluates the operating performance of its segments. In evaluating our business segments, management considers the income and costs that management believes are directly related to those segments. The items mentioned above that are excluded from non-GAAP measures are the same items that management does not allocate to the segments to evaluate their performance. Similarly, Synopsys does not allocate changes in the fair value of its non-qualified deferred compensation plan because these changes typically do not require cash settlement and they are not used by us to assess the core profitability of our business operations.
As described above, we exclude the following items from one or more of our non-GAAP measures:
(i) Amortization of acquired intangible assets. We incur expenses from amortization of acquired intangible assets, which include contract rights, core/developed technology, trademarks, trade names, customer relationships, covenants not to compete, and other intangibles related to acquisitions. We amortize the intangible assets over their economic lives. We exclude this item because the expense is non-cash in nature and because we believe the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding (a) our core operational performance and liquidity, and (b) our ability to invest in research and development and fund acquisitions and capital expenditures.
(ii) Stock compensation impact. While stock compensation expense constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense that typically requires or will require cash settlement by us and because such expense is not used by us to assess the core profitability of our business operations. In addition, excluding this item from various non-GAAP measures facilitates comparisons to our competitors’ operating results.
(iii) Acquisition-related costs. In connection with our business combinations, we incur significant expenses which we would not have otherwise incurred as part of our business operations. These expenses include compensation expenses, professional fees and other direct expenses, concurrent restructuring activities, including employee severance and other exit costs, changes to the fair value of contingent consideration related to the acquired company, and amortization of the fair value difference of below-market value assets arising from arrangements entered into or acquired in conjunction with an acquisition. We exclude such expenses, which we would not have otherwise incurred, as they are related to acquisitions and have no direct correlation to the operation of our business.
(iv) Restructuring charges. We initiate restructuring activities in order to align our costs in connection with both our operating plans and our business strategies based on then-current economic conditions. The amounts of the restructuring activities and frequency of occurrence may vary from time to time. Restructuring costs generally include severance and other termination benefits related to voluntary retirement programs and involuntary headcount reductions as well as facilities closures. Such restructuring costs include elimination of operational redundancy and permanent reductions in workforce and facilities closures and, therefore, are not considered by us to be a part of the core operation of our business and not used by us when assessing the core profitability and performance of our business operations. Furthermore, excluding this item from various non-GAAP measures facilitates comparisons to our competitors’ and our past operating results.
(v) Legal matters. From time to time we are party to legal proceedings, including tax-related matters. Legal proceedings could result in an expense or benefit due to settlements, final judgments, or accruals for loss contingencies. We exclude these types of expenses or benefits because we do not believe they are reflective of the core operation of our business.
(vi) Income tax effect of non-GAAP pre-tax adjustments. Excluding the income tax effect of non-GAAP pre-tax adjustments from the provision for income taxes assists investors in understanding the tax provision associated with those adjustments and the effect on net income.
We utilize a normalized annual non-GAAP tax rate in calculating non-GAAP financial measures to provide better consistency across interim reporting periods by eliminating the effects of non-recurring and period-specific items such as tax audit settlements, which can vary in size and frequency and not necessarily reflect our normal operations, and to more clearly align our tax rate with our expected geographic earnings mix. In projecting this rate, we evaluate our historical and projected mix of U.S. and international profit before tax, excluding the impact of the non-GAAP adjustments described above. We also consider other factors including our current tax structure, our existing tax positions, and expected recurring tax incentives.
On an annual basis we re-evaluate this rate for significant events that may materially affect our projections. Based upon our review, our projected normalized annual non-GAAP tax rate remains 16% through fiscal 2021. We will re-evaluate this rate on an annual basis, but further regulatory guidance regarding specific parts of recent U.S. tax reform legislations could materially change our projections.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits
| Exhibit Number |
Exhibit Title | |
| 99.1 | Press release dated August 19, 2020 containing Synopsys, Inc.’s results of operations for its third fiscal quarter ended July 31, 2020. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| SYNOPSYS, INC. | ||||||
| Dated: August 19, 2020 | By: | /s/ John F. Runkel, Jr. | ||||
| John F. Runkel, Jr. | ||||||
| General Counsel and Corporate Secretary | ||||||
Exhibit 99.1
PRESS RELEASE
INVESTOR CONTACT:
Lisa L. Ewbank
Synopsys, Inc.
650-584-1901
Synopsys-ir@synopsys.com
EDITORIAL CONTACT:
Simone Souza
Synopsys, Inc.
650-584-6454
simone@synopsys.com
Synopsys Posts Financial Results for Third Quarter Fiscal Year 2020
Q3 2020 Financial Highlights
| • | Revenue: $964.1 million |
| • | GAAP earnings per share: $1.62 |
| • | Non-GAAP earnings per share: $1.74 |
MOUNTAIN VIEW, Calif. – August 19, 2020 – Synopsys, Inc. (Nasdaq: SNPS) today reported results for its third quarter fiscal year 2020. Revenue for the third quarter was $964.1 million, compared to $853.0 million for the third quarter of fiscal 2019.
“Synopsys again executed very well in the third quarter, delivering record revenue, non-GAAP earnings per share and operating cash flow. We saw double-digit revenue growth across all product groups and strength in all geographies. Our intense, multi-year innovation push is driving increased momentum in product successes and production adoptions,” said Aart de Geus, chairman and co-CEO of Synopsys. “Even as the world navigates through the pandemic and economic challenges, global design activity and customer engagements are flourishing. Due to our very strong fiscal third quarter, confidence in our outlook and resilient business model, we are raising 2020 revenue, operating margin, non-GAAP earnings-per-share and operating cash flow targets.”
GAAP Results
On a generally accepted accounting principles (GAAP) basis, net income for the third quarter of fiscal 2020 was $252.9 million, or $1.62 per share, compared to $99.9 million, or $0.65 per share, for the third quarter of fiscal 2019.
1
Non-GAAP Results
On a non-GAAP basis, net income for the third quarter of fiscal 2020 was $271.9 million, or $1.74 per share, compared to non-GAAP net income of $182.5 million, or $1.18 per share, for the third quarter of fiscal 2019.
For a reconciliation between GAAP and non-GAAP results, see “GAAP to Non-GAAP Reconciliation” and the accompanying tables below.
Business Segments
Synopsys reports revenue and operating income in two segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and associated services, and (2) Software Integrity, which includes security and quality solutions for software development across many industries. Further information regarding these segments is provided at the end of this press release.
Financial Targets
Synopsys also provided its consolidated financial targets for the fourth quarter and full fiscal year 2020. These financial targets assume that the current U.S. government “Entity List” restrictions remain in place for the rest of the fiscal year. These targets constitute forward-looking statements 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.
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Fourth Quarter and Fiscal Year 2020 Financial Targets
(in millions except per share amounts)
| Q4 FY2020 | FY 2020 | |||||||||||||||
| Low | High | Low | High | |||||||||||||
| Revenue |
$ | 1,000 | $ | 1,030 | $ | 3,660 | $ | 3,690 | ||||||||
| GAAP Expenses |
$ | 802 | $ | 822 | $ | 3,037 | $ | 3,057 | ||||||||
| Non-GAAP Expenses |
$ | 717 | $ | 727 | $ | 2,645 | $ | 2,655 | ||||||||
| Other Income (Expense) |
$ | (6 | ) | $ | (4 | ) | $ | (4 | ) | $ | (2 | ) | ||||
| Normalized Annual Tax Rate (1) |
16 | % | 16 | % | 16 | % | 16 | % | ||||||||
| Outstanding Shares (fully diluted) |
154 | 157 | 154 | 157 | ||||||||||||
| GAAP EPS |
$ | 1.10 | $ | 1.21 | $ | 4.10 | $ | 4.21 | ||||||||
| Non-GAAP EPS |
$ | 1.51 | $ | 1.56 | $ | 5.48 | $ | 5.53 | ||||||||
| Operating Cash Flow |
approximately | $ | 900 | |||||||||||||
| (1) | Applied in non-GAAP net income calculations |
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 on Synopsys’ corporate website at www.synopsys.com. A recording of the call will be available by calling +1-866-207-1041 (+1-402-970-0847 for international callers), access code 8385903, beginning at 5:00 p.m. Pacific Time today, until 11:59 p.m. Pacific Time on August 26, 2020. 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 fiscal year 2020 in December 2020. Synopsys will post copies of the prepared remarks of Aart de Geus, chairman and co-chief executive officer, and Trac Pham, chief financial officer, on its website following today’s call. In addition, Synopsys makes additional information available in a financial supplement and corporate overview presentation, which are also posted on the corporate website.
Effectiveness of Information
The targets included in this press release, the statements made during the earnings conference call and the information contained in the financial supplement and corporate overview presentation (available in the Investor Relations section of Synopsys’ corporate website at www.synopsys.com) represent Synopsys’ expectations and beliefs as of the date of this release only. Although this press release, copies of the prepared remarks of the co-chief executive officer and chief financial officer made during the call, the financial supplement, and the corporate overview presentation will remain available on Synopsys’ website through the date of the fourth quarter and fiscal year 2020 earnings call in December 2020, their continued availability through such date does not mean that Synopsys is reaffirming or confirming their continued validity.
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Synopsys does not currently intend to report on its progress during the fourth quarter of fiscal year 2020 or comment to analysts or investors on, or otherwise update, the targets given in this release.
Availability of Final Financial Statements
Synopsys will include final financial statements for the third quarter of fiscal year 2020 in its quarterly report on Form 10-Q to be filed by September 10, 2020.
About Synopsys
Synopsys, Inc. (Nasdaq: SNPS) is the Silicon to Software™ partner for innovative companies developing the electronic products and software applications we rely on every day. As the world’s 15th largest software company, Synopsys has a long history of being a global leader in electronic design automation (EDA) and semiconductor IP and is also growing its leadership in software security and quality solutions. Whether you’re a system-on-chip (SoC) designer creating advanced semiconductors, or a software developer writing applications that require the highest security and quality, Synopsys has the solutions needed to deliver innovative, high-quality, secure products. Learn more at www.synopsys.com.
GAAP to Non-GAAP Reconciliation
Synopsys continues to provide all information required in accordance with GAAP but believes evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Accordingly, Synopsys presents non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Synopsys’ operating results in a manner that focuses on what Synopsys believes to be its core business operations and what Synopsys uses to evaluate its business operations and for internal planning and forecasting purposes. Synopsys’ management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Synopsys’ management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes: (i) the amortization of acquired intangible assets, (ii) the impact of stock compensation, (iii) acquisition-related costs, (iv) restructuring charges, (v) the effects of certain settlements, final judgments and loss contingencies related to legal proceedings, and (vi) the income tax effect of non-GAAP pre-tax adjustments; and the non-GAAP measures that exclude such information in order to assess the performance of Synopsys’ business and for planning and forecasting in subsequent periods.
4
Synopsys utilizes a normalized annual non-GAAP tax rate in the calculation of its non-GAAP measures to provide better consistency across interim reporting periods by eliminating the effects of non-recurring and period-specific items such as tax audit settlements, which can vary in size and frequency and not necessarily reflect our normal operations, and to more clearly align our tax rate with our expected geographic earnings mix. In projecting this rate, we evaluate our historical and projected mix of U.S. and international profit before tax, excluding the non-GAAP adjustments described above. We also consider other factors including our current tax structure, our existing tax positions, and expected recurring tax incentives, such as the U.S. federal research and development tax credit. On an annual basis, we re-evaluate this rate for significant events that may materially affect our projections. Based upon our review, our projected normalized annual non-GAAP tax rate remains 16% through fiscal year 2021. We will re-evaluate this rate on an annual basis, but further regulatory guidance regarding specific parts of recent U.S. Tax reform legislation could materially change our projections.
Whenever Synopsys uses a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed below, as well as Item 2.02 of the Current Report on Form 8-K filed on August 19, 2020 for additional information about the measures Synopsys uses to evaluate its core business operations.
Reconciliation of Third Quarter Fiscal Year 2020 Results
The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP net income and earnings per share for the periods indicated below.
5
GAAP to Non-GAAP Reconciliation of Third Quarter Fiscal Year 2020 Results (1)
(unaudited and in thousands, except per share amounts)
| Three Months Ended July 31, |
Nine Months Ended July 31, |
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| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| GAAP net income |
$ | 252,911 | $ | 99,929 | $ | 466,892 | $ | 371,653 | ||||||||
| Adjustments: |
||||||||||||||||
| Amortization of intangible assets |
23,649 | 23,714 | 70,277 | 77,138 | ||||||||||||
| Stock compensation |
61,837 | 39,453 | 170,155 | 114,827 | ||||||||||||
| Acquisition-related costs |
3,293 | 1,796 | 10,837 | 3,948 | ||||||||||||
| Restructuring charges |
(1,977 | ) | 19,338 | 36,446 | 33,746 | |||||||||||
| Legal matters |
— | — | — | (18,000 | ) | |||||||||||
| Tax settlement |
— | — | — | 17,418 | ||||||||||||
| Tax adjustments |
(67,767 | ) | (1,772 | ) | (137,714 | ) | (75,275 | ) | ||||||||
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| Non-GAAP net income |
$ | 271,946 | $ | 182,458 | $ | 616,893 | $ | 525,455 | ||||||||
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| Three Months Ended July 31, |
Nine Months Ended July 31, |
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| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| GAAP diluted net income per share |
$ | 1.62 | $ | 0.65 | $ | 3.01 | $ | 2.42 | ||||||||
| Adjustments: |
||||||||||||||||
| Amortization of intangible assets |
0.15 | 0.15 | 0.45 | 0.50 | ||||||||||||
| Stock compensation |
0.40 | 0.25 | 1.10 | 0.75 | ||||||||||||
| Acquisition-related costs |
0.02 | 0.01 | 0.07 | 0.03 | ||||||||||||
| Restructuring charges |
(0.01 | ) | 0.13 | 0.24 | 0.22 | |||||||||||
| Legal matters |
— | — | — | (0.12 | ) | |||||||||||
| Tax settlement |
— | — | — | 0.11 | ||||||||||||
| Tax adjustments |
(0.44 | ) | (0.01 | ) | (0.89 | ) | (0.49 | ) | ||||||||
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| Non-GAAP diluted net income per share |
$ | 1.74 | $ | 1.18 | $ | 3.98 | $ | 3.42 | ||||||||
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| Shares used in computing diluted net income per share amounts |
155,973 | 154,600 | 155,074 | 153,859 | ||||||||||||
| (1) | Synopsys’ third quarter of fiscal year 2020 and 2019 ended on August 1, 2020 and August 3, 2019, respectively. For presentation purposes, we refer to the closest calendar month end. |
6
Reconciliation of 2020 Targets
The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP targets for the periods indicated below.
GAAP to Non-GAAP Reconciliation of Fourth Quarter Fiscal Year 2020 Targets (1)
(in thousands, except per share amounts)
| Range for Three Months Ending October 31, 2020 |
||||||||
| Low | High | |||||||
| Target GAAP expenses |
$ | 802,000 | $ | 822,000 | ||||
| Adjustments: |
||||||||
| Estimated impact of amortization of intangible assets |
(20,000 | ) | (25,000 | ) | ||||
| Estimated impact of stock compensation |
(65,000 | ) | (70,000 | ) | ||||
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| Target non-GAAP expenses |
$ | 717,000 | $ | 727,000 | ||||
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| Range for Three Months Ending October 31, 2020 |
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| Low | High | |||||||
| Target GAAP earnings per share |
$ | 1.10 | $ | 1.21 | ||||
| Adjustments: |
||||||||
| Estimated impact of amortization of intangible assets |
0.16 | 0.13 | ||||||
| Estimated impact of stock compensation |
0.45 | 0.42 | ||||||
| Estimated impact of tax adjustments |
(0.20 | ) | (0.20 | ) | ||||
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| Target non-GAAP earnings per share |
$ | 1.51 | $ | 1.56 | ||||
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| Shares used in non-GAAP calculation (midpoint of target range) |
155,500 | 155,500 | ||||||
GAAP to Non-GAAP Reconciliation of Full Fiscal Year 2020 Targets (1)
(in thousands, except per share amounts)
| Range for Fiscal Year October 31, 2020 |
||||||||
| Low | High | |||||||
| Target GAAP expenses |
$ | 3,037,449 | $ | 3,057,449 | ||||
| Adjustments: |
||||||||
| Estimated impact of amortization of intangible assets |
(90,000 | ) | (95,000 | ) | ||||
| Estimated impact of stock compensation |
(235,000 | ) | (240,000 | ) | ||||
| Acquisition-related costs |
(10,837 | ) | (10,837 | ) | ||||
| Estimated impact of restructuring charges |
(36,446 | ) | (36,446 | ) | ||||
| Fair value changes in executive deferred compensation plan |
(20,166 | ) | (20,166 | ) | ||||
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| Target non-GAAP expenses |
$ | 2,645,000 | $ | 2,655,000 | ||||
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| Range for Fiscal Year October 31, 2020 |
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| Low | High | |||||||
| Target GAAP earnings per share |
$ | 4.10 | $ | 4.21 | ||||
| Adjustments: |
||||||||
| Estimated impact of amortization of intangible assets |
0.61 | 0.58 | ||||||
| Estimated impact of stock compensation |
1.55 | 1.52 | ||||||
| Acquisition-related costs |
0.07 | 0.07 | ||||||
| Estimated impact of restructuring charges |
0.24 | 0.24 | ||||||
| Impact of tax adjustments |
(1.09 | ) | (1.09 | ) | ||||
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| Target non-GAAP earnings per share |
$ | 5.48 | $ | 5.53 | ||||
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| Shares used in non-GAAP calculation (midpoint of target range) |
155,500 | 155,500 | ||||||
| (1) | Synopsys’ fourth fiscal quarter and fiscal year will end on October 31, 2020. |
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Forward-Looking Statements
This press release contains forward-looking statements including, but not limited to, statements regarding Synopsys’ short-term and long-term financial targets, expectations and objectives; business outlook, opportunities and strategies; customer demand and market expansion; strategies related to our products and technology; our planned product releases and capabilities; industry growth rates; software trends; planned acquisitions and buybacks; our expected tax rate; the expected impact of U.S. and foreign government action on our results; and the expected impact of the COVID-19 pandemic. These statements involve risks, uncertainties and other factors that could cause our actual results, time frames or achievements to differ materially from those expressed or implied in our forward-looking statements. Such risks, uncertainties and factors include, but are not limited to: risks from the effect of the COVID-19 pandemic and the associated economic downturn on our business, operations and financial condition; uncertainty in the growth of the semiconductor and electronics industries; consolidation among our customers and our dependence on a relatively small number of large customers; risks and compliance obligations relating to the global nature of our operations as well as actions by the U.S. or foreign governments, such as measures in response to the COVID-19 pandemic or the imposition of additional tariffs or export restrictions; macroeconomic conditions and uncertainty in the global economy; fluctuation of our operating results; increased variability in our revenue due to the adoption of ASC 606, including the resulting increase in recognizing upfront revenue as a percentage of total revenue; and more. Additional information on potential risks, uncertainties and other factors that could affect Synopsys’ results is included in filings it makes with the Securities and Exchange Commission from time to time, including in the sections entitled “Risk Factors” in its Annual Report on Form 10-K for the fiscal year ended October 31, 2019 and its latest Quarterly Report on Form 10-Q. The information provided herein is as of August 19, 2020. Synopsys undertakes no duty, and does not intend to update any forward-looking statement, whether as a result of new information, future events or otherwise, unless required by law.
8
SYNOPSYS, INC.
Unaudited Consolidated Statements of Operations (1)
(in thousands, except per share amounts)
| Three Months Ended July 31, |
Nine Months Ended July 31, |
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| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenue: |
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| Time-based products |
$ | 612,065 | $ | 537,569 | $ | 1,758,601 | $ | 1,649,590 | ||||||||
| Upfront products |
210,931 | 177,552 | 491,417 | 451,466 | ||||||||||||
| Maintenance and service |
141,138 | 137,849 | 409,824 | 408,557 | ||||||||||||
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| Total revenue |
964,134 | 852,970 | 2,659,842 | 2,509,613 | ||||||||||||
| Cost of revenue: |
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| Products |
118,478 | 113,533 | 344,469 | 346,163 | ||||||||||||
| Maintenance and service |
60,812 | 59,496 | 184,940 | 178,113 | ||||||||||||
| Amortization of intangible assets |
13,718 | 13,603 | 40,732 | 45,927 | ||||||||||||
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| Total cost of revenue |
193,008 | 186,632 | 570,141 | 570,203 | ||||||||||||
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|
|
|||||||||
| Gross margin |
771,126 | 666,338 | 2,089,701 | 1,939,410 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
322,602 | 284,804 | 939,456 | 846,429 | ||||||||||||
| Sales and marketing |
156,456 | 157,109 | 455,511 | 471,720 | ||||||||||||
| General and administrative |
73,516 | 67,382 | 204,734 | 165,794 | ||||||||||||
| Amortization of intangible assets |
9,931 | 10,111 | 29,545 | 31,211 | ||||||||||||
| Restructuring charges |
(1,977 | ) | 19,338 | 36,446 | 33,746 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total operating expenses |
560,528 | 538,744 | 1,665,692 | 1,548,900 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Operating income |
210,598 | 127,594 | 424,009 | 390,510 | ||||||||||||
| Other income (expense), net |
26,256 | 5,317 | 22,584 | 23,373 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income before income taxes |
236,854 | 132,911 | 446,593 | 413,883 | ||||||||||||
| Provision (benefit) for income taxes |
(16,057 | ) | 32,982 | (20,299 | ) | 42,230 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income |
$ | 252,911 | $ | 99,929 | $ | 466,892 | $ | 371,653 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net income per share: |
||||||||||||||||
| Basic |
$ | 1.67 | $ | 0.67 | $ | 3.10 | $ | 2.48 | ||||||||
| Diluted |
$ | 1.62 | $ | 0.65 | $ | 3.01 | $ | 2.42 | ||||||||
| Shares used in computing per share amounts: |
||||||||||||||||
| Basic |
151,352 | 150,123 | 150,731 | 149,708 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Diluted |
155,973 | 154,600 | 155,074 | 153,859 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | Synopsys’ third quarter of fiscal year 2020 and 2019 ended on August 1, 2020 and August 3, 2019, respectively. For presentation purposes, we refer to the closest calendar month end. |
9
SYNOPSYS, INC.
Unaudited Consolidated Balance Sheets (1)
(in thousands, except par value amounts)
| July 31, 2020 | October 31, 2019 | |||||||
| ASSETS: |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 1,049,922 | $ | 728,597 | ||||
| Accounts receivable, net |
638,489 | 553,895 | ||||||
| Inventories, net |
159,813 | 141,518 | ||||||
| Income taxes receivable and prepaid taxes |
20,960 | 24,855 | ||||||
| Prepaid and other current assets |
316,831 | 290,052 | ||||||
|
|
|
|
|
|||||
| Total current assets |
2,186,015 | 1,738,917 | ||||||
| Property and equipment, net |
484,529 | 429,532 | ||||||
| Operating lease right-of-use assets, net |
472,244 | — | ||||||
| Goodwill |
3,356,407 | 3,171,179 | ||||||
| Intangible assets, net |
275,338 | 279,374 | ||||||
| Long-term prepaid taxes |
8,279 | 15,503 | ||||||
| Deferred income taxes |
463,894 | 390,129 | ||||||
| Other long-term assets |
416,544 | 380,526 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 7,663,250 | $ | 6,405,160 | ||||
|
|
|
|
|
|||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: |
||||||||
| Current liabilities: |
||||||||
| Accounts payable and accrued liabilities |
$ | 549,906 | $ | 506,459 | ||||
| Operating lease liabilities, current |
71,861 | — | ||||||
| Accrued income taxes |
20,653 | 15,904 | ||||||
| Deferred revenue |
1,389,609 | 1,212,476 | ||||||
| Short-term debt |
24,248 | 17,614 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
2,056,277 | 1,752,453 | ||||||
| Operating lease liabilities, non-current |
470,215 | — | ||||||
| Long-term accrued income taxes |
27,011 | 29,911 | ||||||
| Long-term deferred revenue |
111,915 | 90,102 | ||||||
| Long-term debt |
107,104 | 120,093 | ||||||
| Other long-term liabilities |
289,411 | 323,725 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
3,061,933 | 2,316,284 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding |
— | — | ||||||
| Common stock, $0.01 par value: 400,000 shares authorized; 151,758 and 150,331 shares outstanding, respectively |
1,519 | 1,503 | ||||||
| Capital in excess of par value |
1,623,586 | 1,635,455 | ||||||
| Retained earnings |
3,597,944 | 3,164,144 | ||||||
| Treasury stock, at cost: 5,503 and 6,930 shares, respectively |
(554,304 | ) | (625,642 | ) | ||||
| Accumulated other comprehensive income (loss) |
(72,820 | ) | (92,447 | ) | ||||
|
|
|
|
|
|||||
| Total Synopsys stockholders’ equity |
4,595,925 | 4,083,013 | ||||||
| Non-controlling interest |
5,392 | 5,863 | ||||||
|
|
|
|
|
|||||
| Total stockholders’ equity |
4,601,317 | 4,088,876 | ||||||
|
|
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | 7,663,250 | $ | 6,405,160 | ||||
|
|
|
|
|
|||||
| (1) | Synopsys’ third quarter of fiscal year 2020 ended on August 1, 2020, and its fiscal year 2019 ended on November 2, 2019. For presentation purposes, we refer to the closest calendar month end. |
10
SYNOPSYS, INC.
Unaudited Consolidated Statements of Cash Flows (1)
(in thousands)
| Nine Months Ended July 31, |
||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 466,892 | $ | 371,653 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Amortization and depreciation |
159,156 | 152,133 | ||||||
| Reduction of operating lease right-of-use assets |
62,585 | — | ||||||
| Amortization of capitalized costs to obtain revenue contracts |
44,851 | 46,230 | ||||||
| Stock compensation |
170,155 | 114,826 | ||||||
| Allowance for doubtful accounts |
14,875 | 8,950 | ||||||
| (Gain) loss on sale of property and investments |
(1,994 | ) | (4,052 | ) | ||||
| Deferred income taxes |
(74,374 | ) | (9,664 | ) | ||||
| Net changes in operating assets and liabilities, net of acquired assets and liabilities: |
||||||||
| Accounts receivable |
(89,667 | ) | 89,370 | |||||
| Inventories |
(17,040 | ) | (39,431 | ) | ||||
| Prepaid and other current assets |
(21,350 | ) | (38,224 | ) | ||||
| Other long-term assets |
(77,895 | ) | (114,344 | ) | ||||
| Accounts payable and accrued liabilities |
43,842 | (45,200 | ) | |||||
| Operating lease liabilities |
(57,968 | ) | — | |||||
| Income taxes |
6,128 | (6,963 | ) | |||||
| Deferred revenue |
160,966 | 53,980 | ||||||
|
|
|
|
|
|||||
| Net cash provided by operating activities |
789,162 | 579,264 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Proceeds from sales of long-term investments |
2,151 | 6,361 | ||||||
| Purchases of long-term investments |
(2,762 | ) | — | |||||
| Purchases of property and equipment |
(120,234 | ) | (122,358 | ) | ||||
| Cash paid for acquisitions and intangible assets, net of cash acquired |
(201,045 | ) | — | |||||
| Capitalization of software development costs |
(3,035 | ) | (2,245 | ) | ||||
|
|
|
|
|
|||||
| Net cash used in investing activities |
(324,925 | ) | (118,242 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from credit facilities |
276,490 | 192,897 | ||||||
| Repayment of debt |
(284,218 | ) | (520,312 | ) | ||||
| Issuances of common stock |
123,237 | 107,354 | ||||||
| Payments for taxes related to net share settlement of equity awards |
(66,985 | ) | (52,309 | ) | ||||
| Purchase of equity forward contract |
— | (20,000 | ) | |||||
| Purchases of treasury stock |
(200,000 | ) | (209,185 | ) | ||||
| Other |
— | (762 | ) | |||||
|
|
|
|
|
|||||
| Net cash used in financing activities |
(151,476 | ) | (502,317 | ) | ||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash |
8,700 | 4,975 | ||||||
|
|
|
|
|
|||||
| Net change in cash, cash equivalents and restricted cash |
321,461 | (36,320 | ) | |||||
| Cash, cash equivalents and restricted cash, beginning of year |
730,527 | 725,001 | ||||||
|
|
|
|
|
|||||
| Cash, cash equivalents and restricted cash, end of period |
$ | 1,051,988 | $ | 688,681 | ||||
|
|
|
|
|
|||||
| (1) | Synopsys’ third quarter of fiscal year 2020 and 2019 ended on August 1, 2020 and August 3, 2019, respectively. For presentation purposes, we refer to the closest calendar month end. |
11
SYNOPSYS, INC.
Business Segment Reporting (1)
(in millions)
| Q3’20 | Q3’19 | YTD Q3’20 | YTD Q3’19 | |||||||||||||
| Revenue by segment |
||||||||||||||||
| - Semiconductor & System Design |
$ | 870.7 | $ | 769.4 | $ | 2,392.5 | $ | 2,260.3 | ||||||||
| % of Total |
90.3 | % | 90.2 | % | 90.0 | % | 90.1 | % | ||||||||
| - Software Integrity |
$ | 93.4 | $ | 83.6 | $ | 267.3 | $ | 249.3 | ||||||||
| % of Total |
9.7 | % | 9.8 | % | 10.0 | % | 9.9 | % | ||||||||
| Total segment revenue |
$ | 964.1 | $ | 853.0 | $ | 2,659.8 | $ | 2,509.6 | ||||||||
| Adjusted operating income by segment |
||||||||||||||||
| - Semiconductor & System Design |
$ | 308.7 | $ | 207.8 | $ | 697.3 | $ | 604.5 | ||||||||
| - Software Integrity |
$ | 14.8 | $ | 8.8 | $ | 34.6 | $ | 22.9 | ||||||||
| Total adjusted segment operating income |
$ | 323.6 | $ | 216.6 | $ | 731.9 | $ | 627.4 | ||||||||
| Adjusted operating margin by segment |
||||||||||||||||
| - Semiconductor & System Design |
35.4 | % | 27.0 | % | 29.1 | % | 26.7 | % | ||||||||
| - Software Integrity |
15.8 | % | 10.5 | % | 12.9 | % | 9.2 | % | ||||||||
| Total adjusted segment operating margin |
33.6 | % | 25.4 | % | 27.5 | % | 25.0 | % | ||||||||
Total Adjusted Segment Operating Income Reconciliation (1)(2)
(in millions)
| Three Months Ended July 31, 2020 (3) |
Three Months Ended July 31, 2019 (3) |
Nine Months Ended July 31, 2020 (3) |
Nine Months Ended July 31, 2019 (3) |
|||||||||||||
| GAAP total operating income – as reported |
$ | 210.6 | $ | 127.6 | $ | 424.0 | $ | 390.5 | ||||||||
| Other expenses managed at consolidated level |
||||||||||||||||
| -Amortization of intangible assets |
23.6 | 23.7 | 70.3 | 77.1 | ||||||||||||
| -Stock compensation |
61.8 | 39.5 | 170.2 | 114.8 | ||||||||||||
| -Fair value changes in executive deferred compensation plan |
26.2 | 4.7 | 20.2 | 25.2 | ||||||||||||
| -Acquisition-related costs |
3.3 | 1.8 | 10.8 | 3.9 | ||||||||||||
| -Restructuring |
(2.0 | ) | 19.3 | 36.4 | 33.7 | |||||||||||
| -Legal matters |
— | — | — | (18.0 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total adjusted segment operating income |
$ | 323.6 | $ | 216.6 | $ | 731.9 | $ | 627.4 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | Synopsys manages the business on a long-term, annual basis, and considers quarterly fluctuations of revenue and profitability as normal elements of our business. Quarterly variability, which increases as a result of ASC 606, should be expected. Amounts may not foot due to rounding. |
| (2) | These segment results are consistent with the information required by ASC 280, Segment Reporting. They are presented to reflect the information that is considered by Synopsys’ chief operating decision makers (CODMs) to evaluate the operating performance of its segments. The CODMs do not allocate certain operating expenses managed at a consolidated level to our reportable segments, and as a result, the reported operating income and operating margin do not include these unallocated expenses as shown in the table above. Amounts may not foot due to rounding. |
| (3) | Synopsys’ third quarter of fiscal year 2020 and 2019 ended on August 1, 2020 and August 3, 2019, respectively. For presentation purposes, we refer to the closest calendar month end. |
12
Document and Entity Information |
Aug. 19, 2020 |
|---|---|
| Cover [Abstract] | |
| Entity Registrant Name | SYNOPSYS INC |
| Amendment Flag | false |
| Entity Central Index Key | 0000883241 |
| Document Type | 8-K |
| Document Period End Date | Aug. 19, 2020 |
| Entity Incorporation State Country Code | DE |
| Entity File Number | 000-19807 |
| Entity Tax Identification Number | 56-1546236 |
| Entity Address, Address Line One | 690 East Middlefield Road |
| Entity Address, City or Town | Mountain View |
| Entity Address, State or Province | CA |
| Entity Address, Postal Zip Code | 94043 |
| City Area Code | (650) |
| Local Phone Number | 584-5000 |
| Written Communications | false |
| Soliciting Material | false |
| Pre Commencement Tender Offer | false |
| Pre Commencement Issuer Tender Offer | false |
| Security 12b Title | Common Stock ($0.01 par value) |
| Trading Symbol | SNPS |
| Security Exchange Name | NASDAQ |
| Entity Emerging Growth Company | false |