Synopsys (SNPS) Q4 Earnings & Revenues Top; View Strong

Synopsys Inc. (NASDAQ:SNPS) ended fiscal 2016 on a strong note, reporting better-than-expected fourth quarter results. The company’s revenues and earnings also marked year-over-year improvement.

The company reported adjusted earnings per share (excluding all one-time items but including stock based compensation expenses) of 65 cents, which surpassed the Zacks Consensus Estimate of 46 cents per share. Moreover, adjusted earnings were 16.1% higher than the year-ago quarter’s adjusted earnings of 56 cents.

Quarter Details

Total revenue increased approximately 7.9% year over year to $633.7 million and was toward the higher-end of the previously guided range of $621 million–$636 million (mid-point $628.5 million). Reported revenues also surpassed the Zacks Consensus Estimate of $628 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 $562.8 million, up nearly 7.2% from the year-ago quarter. Maintenance and service revenues increased 14.4% year over year to $70.9 million.

Adjusted gross profit (excluding all one-time items but including stock based compensation expenses) was $514.1 million, up approximately 7.3% from the year-ago period. However, as a percentage of revenues, it contracted 50 basis points (bps) from the year-ago quarter to 81.1%.

Adjusted operating expenses increased 0.5% on a year-over-year basis to $392.6 million, primarily due to higher employee compensation expenses, research and development expenses and sales and marketing. As a percentage of revenues, the same decreased 200 bps from the year-ago quarter to 62%.

Synopsys’ adjusted operating income (excluding all one-time items but including stock based compensation expenses) was up 17.7% on a year-over-year basis and came in at $121.5 million. Also, operating margin expanded 160 bps on a year-over-year basis and came in at 19.2%.

The company’s adjusted net income (excluding all one-time items but including stock based compensation expenses) for the quarter came in at $100.6 million, marking a year-over-year jump of 13.8%.

On a non-GAAP basis, Synopsys reported earnings of 77 cents per share compared with 67 cents reported in the year-ago quarter. Non-GAAP earnings were also toward the higher end of the company’s guidance range of 75 cents–78 cents (mid-point 76.5 cents).

On a GAAP basis, net income came in at $72.7 million or 47 cents per share compared with $49.8 million or 31 cents in fourth-quarter fiscal 2015.

Fiscal 2016 Highlights

The company’s fiscal 2016 results were also impressive. The company posted revenues of $2.423 billion, which were slightly above the Zacks Consensus Estimate of $2.42 billion and toward the higher-end of its guidance range of $2.410–$2.425 billion. The company’s non-GAAP earnings of $3.02 per share were toward the higher-end of the guided range of $3.00 and $3.03.

Balance Sheet & Cash Flow

Synopsys exited the quarter with cash, cash equivalents and short-term investments of $1.117 billion compared with $1.089 million at the end of the previous quarter. Accounts receivables were $438.9 million compared with $317.1 million in the last quarter. During the fiscal, cash flow from operational activities was $586.6 million. The company repurchased $400 million worth of its common stock during the fiscal.

Guidance

Synopsys provided guidance for the first quarter and fiscal 2017. The company expects fiscal 2017 revenues to come in the range of $2.570–$2.600 billion (mid-point $2.585 billion). The Zacks Consensus Estimate for revenues is pegged at $2.55 billion.

Non-GAAP earnings per share are projected between $3.16 and $3.23 (mid-point $3.195). GAAP earnings per share are projected in the range of $1.92 - $2.06. The company projects cash from operations to be approximately $500 million.

For the first quarter, the company expects revenues in the range of $630 million–$645 million (mid-point $637.5 million). The Zacks Consensus Estimate for revenues is pegged at $607.05 million. The company expects non-GAAP expenses within $485 million–$495 million. Management expects non-GAAP earnings per share in the range of 77 cents–80 cents, while GAAP earnings are projected between 43 cents and 50 cents.

Our Take

Synopsys posted better-than-expected fourth quarter of fiscal 2016 results. Also, fourth quarter revenues as well as earnings improved year over year, mainly on the back of higher adoption of Synopsys’ products and strength in hardware products. Moreover, the company provided encouraging first quarter and fiscal 2017 guidance.

Despite reporting splendid quarterly results, shares of Synopsys declined approximately 2% in the after-hour trading session. Nevertheless, it should be noted that the shares of the company have outperformed the Zacks Computer–Software industry so far this year. On a year-to-date basis, the stock generated a return of 32.6% compared with the Zacks Computer-Software industry gain of 10.50%.

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 acquisition of Cigital and Codiscope will enable Synopsys to offer a comprehensive software security signoff solution to its customers.

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 #3 (Hold).

A better-ranked stock in the broader technology sector is Cirrus Logic Inc. (NASDAQ:CRUS) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cirrus Logic has witnessed upward estimate revisions in the last 60 days and has surpassed the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive surprise of 53.68%.

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