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Synopsys (SNPS) Q3 Earnings & Revenues Top; View Strong

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Synopsys Inc. (SNPS - Free Report) posted better-than-expected third quarter of fiscal 2016 results. The company reported adjusted earnings per share (excluding all one-time items but including stock based compensation expenses) of 61 cents, which surpassed the Zacks Consensus Estimate of 43 cents per share.

On a GAAP basis, earnings came in at 42 cents per share compared with 35 cents in the year-ago period.

Quarter Details

Total revenue increased 10.7% year over year to $615.2 million and was above the guided range of $595 million–$610 million. Reported revenues also surpassed the Zacks Consensus Estimate of $603 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 $546.2 million, up nearly 37.6% from the year-ago quarter. Maintenance and service revenues increased 12.9% year over year to $69 million.

More than 90% of third 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 $499.9 million, up approximately 10.4% from the year-ago period. However, as a percentage of revenues, it contracted 20 basis points (bps) from the year-ago quarter to 81.3%.

Adjusted operating expenses increased 7.1% on a year-over-year basis to $390.6 million, primarily due to higher employee compensation expenses, research and development expenses and sales and marketing. As a percentage of revenues, the same decreased 210 bps from the year-ago quarter to 63.5%.

Synopsys’ adjusted operating income (excluding all one-time items but including stock based compensation expenses) was up 23.9% on a year-over-year basis and came in at $109.4 million. Also, operating margin expanded 190 bps on a year-over-year basis and came in at 17.8%.

The company’s adjusted net income (excluding all one-time items but including stock based compensation expenses) for the quarter came in at $93.6 million. On a GAAP basis, net income came in at $64.7 million compared with $55.4 million in third-quarter fiscal 2015.

Cash Flow & Balance Sheet

Synopsys exited the quarter with cash, cash equivalents and short-term investments of $1.089 billion compared with $959.9 million at the end of the previous quarter. Accounts receivables were $317.1 million compared with $299.1 million in the last quarter. Total debt (including current portion) was $277.5 million. During the nine months ended Jul 31, 2016, cash flow from operational activities was $438.9 million. The company has repurchased 325 million shares so far this year.

Guidance

Synopsys raised its fiscal 2016 guidance. The company now expects revenues in a range of $2.410–$2.425 billion (previously $2.360–$2.400 billion). The Zacks Consensus Estimate for revenues is pegged at $2.392 billion.

Non-GAAP earnings per share are now projected between $3.00 and $3.03 (previously $2.95 and $3.00). The Zacks Consensus Estimate for earnings is pegged at $1.73 per share. The company projects cash from operations in the range of $525 million to $545 million (previously $510 million to $530 million).

For fourth quarter fiscal 2016, the company expects revenues in the range of $621 million–$636 million (mid-point $628.5 million). The Zacks Consensus Estimate for revenues is pegged at $615 million. The company expects non-GAAP expenses within $483 million–$493 million. Management expects non-GAAP earnings per share in the range of 75 cents–78 cents, higher than the Zacks Consensus Estimate of 46 cents.

SYNOPSYS INC Price, Consensus and EPS Surprise

 

SYNOPSYS INC Price, Consensus and EPS Surprise | SYNOPSYS INC Quote

Our Take

Synopsys posted better-than-expected third quarter of fiscal 2016 results. Also, third 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 fourth 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. (CDNS - Free Report) and Mentor Graphics Corp. , 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). A stock worth considering in the technology space is Facebook, Inc. , sporting a Zacks Rank #1 (Strong Buy).

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