Synopsys (SNPS) Q2 Earnings & Revenues Top; Guides Well

Synopsys Inc. (NASDAQ:SNPS) posted better-than-expected second-quarter fiscal 2016 results. The company reported adjusted earnings per share (excluding all one-time items but including stock based compensation expenses) of 66 cents, which surpassed the Zacks Consensus Estimate of 48 cents per share.

On a GAAP basis, earnings came in at 45 cents per share compared with 35 cents in the year-ago period.

Quarter Details

Total revenue increased 8.6% year over year to $605 million and was within management's guided range of $595–$610 million. Reported revenues also surpassed the Zacks Consensus Estimate of $599 million. On a year-over-year basis, revenues were positively impacted by higher adoption of Synopsys’ products and strength in hardware products.

Segment wise, License revenues (including time-based and upfront) were $542.3 million, up nearly 10.2% from the year-ago quarter. Maintenance and service revenues decreased 3.7% year over year to $62.7 million.

More than 90% of fiscal second-quarter revenues came from backlog. A single customer accounted for more than 10% of the revenues.

Adjusted gross profit (excluding all one-time items but including stock based compensation expenses) was $497.9 million, up approximately 8.8% from the year-ago period. Moreover, as a percentage of revenues, it expanded 10 basis points (bps) from the year-ago quarter to 82.3%.

Adjusted operating expenses increased 8.8% on a year-over-year basis to $376.7 million, primarily due to higher employee compensation expenses. As a percentage of revenues, the same increased 10 bps from the year-ago quarter to 62.3%.

Synopsys’ adjusted operating income (excluding all one-time items but including stock based compensation expenses) was up 8.8% on a year-over-year basis and came in at $121.2 million. Also, operating margin was flat year over year at 20%.

The company’s adjusted net income (excluding all one-time items but including stock based compensation expenses) for the fiscal quarter came in at $102.8 million. On a GAAP basis, net income came in at $69.4 million compared with $55.6 million in second-quarter fiscal 2015.

Cash Flow & Balance Sheet

Synopsys exited the reported quarter with cash, cash equivalents and short-term investments of $959.9 million compared with $705.9 million at the end of the previous quarter. Accounts receivable were $299.1 million compared with $354.8 million in the last quarter. Total debt (including current portion) was $250 million. During the six months ended Apr 30, 2016, the company provided cash flow of $187.3 million from operational activities.

The company completed a $200 million accelerated share repurchase program during the reported quarter and repurchased 4.5 million shares. The company currently has shares worth $300 million remaining under its share repurchase authorization program.

Guidance

Synopsys raised its fiscal 2016 guidance. The company now expects revenues in a range of $2.360–$2.400 billion (previously $2.350–$2.390 billion). The Zacks Consensus Estimate for revenues is pegged at $2.382 billion.

Non-GAAP earnings per share are now projected between $2.95 and $3.00 (previously $2.93 and $3.00). The Zacks Consensus Estimate for earnings is pegged at $1.76 per share. The company projects cash from operations in the range of $510 million to $530 million (previously $500 million).

For third-quarter fiscal 2016, the company expects revenues in the range of $595–$610 million (mid-point $602.5 million). The Zacks Consensus Estimate for revenues is pegged at $599 million. The company expects non-GAAP expenses within $463–$473 million. Management expects non-GAAP earnings per share in the range of 72–75 cents, higher than the Zacks Consensus Estimate of 42 cents.

Our Take

Synopsys posted better-than-expected second-quarter fiscal 2016 results. Also, second quarter revenues saw a year-over-year improvement, mainly on the back of higher adoption of Synopsys’ products and strength in hardware products. Moreover, the company provided an encouraging third quarter guidance and raised its fiscal 2016 guidance.

Synopsys is a vendor of electronic design automation (EDA) software to the semiconductor and electronics industries. We believe the company’s recent product launches, acquisitions and deal wins will boost results, going ahead. Moreover, unique intellectual properties and global support provided by the company will likely drive its forthcoming results. Additionally, the company’s acquisition of Coverity will expand its reach in the software quality, testing and security tools market.

However, competition from Cadence Design Systems Inc. (NASDAQ:CDNS) and Mentor Graphics Corp. (NASDAQ:MENT) , a challenging technology spending environment and uncertainty regarding the exact time of realizing acquisition synergies keep us on the sidelines.

Currently, Synopsys has a Zacks Rank #2 (Buy). Another stock worth considering in the technology sector is TiVo Inc. (NASDAQ:TIVO) , sporting a Zacks Rank #1 (Strong Buy).