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Synopsys' (SNPS) Q1 Earnings and Revenues Surpass Estimates

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Synopsys Inc.’s (SNPS - Free Report) first-quarter fiscal 2020 non-GAAP earnings of $1.01 per share beat the Zacks Consensus Estimate by 9.78%. However, the figure declined 6.5% year over year.

Further, revenues grew 1.7% year over year to $834.4 million and surpassed the Zacks Consensus Estimate of $822 million.

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

However, a challenging global market, geopolitical tensions and unevenness in the semiconductor industry are key headwinds.

Synopsys, Inc. Price, Consensus and EPS Surprise

Synopsys, Inc. Price, Consensus and EPS Surprise

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

Quarter in Detail

Time-Based Product revenues (66.7% of the total revenues) of $556.4 million were up 0.5% year over year. Moreover, Upfront Product revenues (18.1%) grew 15.5% to $150.7 million. However, Maintenance and Service revenues (15.2%) declined 6.6% to $127.2 million.

Segment-wise, Semiconductor & System Design revenues (89.7% of total) were $748.8 million, driven by strong growth in IP. Within the same, EDA revenues were $492.6 million and IP & Systems Integration revenues were $255.1 million.

Software Integrity revenues were 85.6 million, accounting for approximately 10.3% of the top line in the reported quarter.

Geographically, Synopsys’ revenues in North America (50% of total) were $415.4 million, while that in Europe (11%) was $94.4 million. Revenues from Japan (9%), Korea (11%) and the Asia Pacific (20%) were $72.2 million, $89.5 million and $162.9 million, respectively.

Margins

Non-GAAP operating margin was 22.4%, contracting 210 basis points year over year. While Semiconductor & System Design delivered an adjusted operating margin of 23.9%, the Software Integrity margin came in at 9.4%.

Balance Sheet & Cash Flow

Synopsys exited the fiscal first quarter with cash and cash equivalents of $700.4 million compared with $728.6 million at the end of the previous quarter.

Operating cash flow for the quarter was $9.8 million.

Guidance

For second-quarter fiscal 2020, the company’s revenues are expected to be $820-$850 million. Non-GAAP expenses are anticipated to be $645-$665 million. Management assumes non-GAAP earnings between 6 cents and $1.01 per share.

For the fiscal, revenues are now projected in the range of $3.60-$3.65 billion. Non-GAAP earnings per share for the period are expected between $5.18 and $5.25.

Double-digit growth in non-GAAP earnings is likely to be driven by a revenue rise in high-single digits, indicating mid to high-single-digit growth for EDA, low-double-digit growth for IP and Software Integrity growth of 15-20%.

The company intends to split revenues for the first and second half of the year by roughly 45% and 55%. This reflects anticipated unfavorable delivery timing of IP and hardware as well as general uncertainty pertaining to the coronavirus situation.

The company estimates operating-margin expansion in the high-20s by 2021 and within the 30% range over the long haul.

Zacks Rank & Stocks to Consider

Synopsys currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector are Q2 Holdings, Inc. (QTWO - Free Report) , SYNNEX (SNX - Free Report) and Silicon Motion Technology Corporation (SIMO - Free Report) , all sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Q2 Holdings, SYNNEX and Silicon Motion is currently pegged at 20%, 10.37% and 7%, respectively.

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