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Synopsys' (SNPS) Q4 Earnings and Revenues Beat Estimates

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Synopsys Inc.’s (SNPS - Free Report) fourth-quarter fiscal 2020 non-GAAP earnings of $1.58 per share beat the Zacks Consensus Estimate by 0.6%. Moreover, the figure improved 37.4% year over year.

Further, revenues increased 20.5% year over year to $1.03 billion and surpassed the Zacks Consensus Estimate by 0.5%, driven by significant contributions from Electronic design automation (EDA), and IP and Systems Integration business segments.

The company is benefiting from increasing global design activities and customer engagements. The rising trend of machine learning, AI, 5G, IoT, Cloud, and the proliferation of Smart Everything are boosting demand for its advanced solutions.

Synopsys, Inc. Price, Consensus and EPS Surprise

Synopsys, Inc. Price, Consensus and EPS Surprise

Synopsys, Inc. price-consensus-eps-surprise-chart | Synopsys, Inc. Quote

Moreover, robust adoption of the company’s Verification Continuum Platform and Fusion Compiler product within Fusion Design Platform was a major growth driver in the fourth quarter. Additionally, Fusion Complier witnessed an order growth of 140% in fiscal 2020.

Further, growing traction of Synopsys’ ARC processor in the automotive space has been a major positive in the recently-concluded quarter. Moreover, in 2020, the company won more than 400 customers across 30 semiconductor companies, for its advanced processes. Its enterprise clientele widened to contribute 75% to revenues.

Quarter in Detail

Time-Based Product revenues (59.2% of total revenues) of $606.6 million were up 10.6% year over year. Maintenance and Service revenues (17%) improved 30% to $174.7million. Upfront Product revenues (23.8%) grew 45% to $244.2 million.

Segment-wise, Semiconductor & System Design revenues (91.1% of total revenues) were $934.6 million, up 22% year over year. Within the segment, EDA revenues (56.6% of revenues) were $580.5 million and IP & Systems Integration revenues (34.3% of revenues) came in at $351.9 million. Software Integrity revenues totaled $90.8 million, contributing approximately 8.9% to the top line in the reported quarter.

Geographically, Synopsys’ revenues in North America (52.4% of total) were $536.9 million and $107.3 million in Europe (10.5%). Revenues from Japan (7.6%), Korea (9.5%) and the Asia Pacific (20.1%) came in at $77.6 million, $97.8 million and $205.8 million, respectively.

Non-GAAP operating margin was 29.2%, expanding 440 basis points (bps) year over year. Semiconductor & System Design delivered an adjusted operating margin of 31.4%, up 500 bps year over year, while Software Integrity margin contracted 420 bps year over year to 6.8%.

Fiscal 2020 Highlights

Synopsys reported fiscal 2020 earnings of $5.55 per share, which is in line with the Zacks Consensus Estimate. Moreover, the figure grew 21.7% year over year.

Further, revenues for fiscal 2020 grew 9.7% year over year to $3.69 billion and beat the Zacks Consensus Estimate by 0.1%.

Balance Sheet & Cash Flow

Synopsys had cash and cash equivalents of $1.24 billion as of Oct 31 compared with $1.05 billion as of Jul 31.

Total debt came in at $127.9 million in the reported quarter compared with the previous quarter’s $131.4 million.

Operating cash flow in fiscal 2020 was $991.3 million.

Guidance

For first-quarter fiscal 2021, the company’s revenues are expected to be $935-$965 million. The Zacks Consensus Estimate for revenues is currently pegged at $963.06 million, which indicates growth of 15.4% from the year-ago quarter.

Management expects non-GAAP earnings between $1.44 and $1.49 per share. The consensus mark for earnings is pegged at $1.4 per share, suggesting year-over-year growth of 38.6%.

Non-GAAP expenses are anticipated to be $674-$684 million.

For fiscal 2021, management projects revenues at $4-$4.05 billion. The Zacks Consensus Estimate for fiscal 2021 revenues is pinned at $3.99 billion.

Non-GAAP earnings for the fiscal year are expected between $6.23 and $6.3 per share. The consensus mark for fiscal 2021 earnings is pegged at $6.19.

Operating cash flow is expected between $1.2 and $1.3 billion.

Further, management expects strong demand for the company’s advanced solutions and cloud computing services along with growing customer acceptance for its new capabilities to drive growth for its robust product portfolio.

Zacks Rank and Key Picks

Currently, Synopsys carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Arrow Electronics (ARW - Free Report) , Avnet, Inc. (AVT - Free Report) and CDW Corporation (CDW - Free Report) .  Currently, Avnet sports a Zacks Rank #1 (Strong Buy), while Arrow and CDW carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Arrow, CDW and Avnet is currently pegged at 9.8%, 13.1% and 19%, respectively.

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