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Synopsys (SNPS) Q1 Earnings & Revenues Top; View Strong

Zacks

Synopsys Inc. SNPS reported better-than-expected first-quarter fiscal 2017 results. The company’s revenues and earnings also increased year over year.

On a GAAP basis, the company’s earnings per share came in at 56 cents compared with 39 cents reported in the year-ago quarter.

The company reported adjusted earnings per share (excluding all one-time items but including stock based compensation expenses) of 80 cents, up 36.1% from the year-ago quarter’s adjusted earnings of 59 cents. The Zacks Consensus Estimate was pegged at 48 cents per share.

Quarter Details


Total revenue increased approximately 14.8% year over year to $652.8 million and exceeded the previously guided range of $630 million–$645 million (mid-point $637.5 million). Reported revenues also surpassed the Zacks Consensus Estimate of $638 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 $568.9 million, up nearly 11.9% from the year-ago quarter. Maintenance and service revenues increased 37.6% year over year to $83.8 million.

Adjusted gross profit (excluding all one-time items but including stock based compensation expenses) was $518.5 million, up approximately 10.4% from the year-ago period. However, as a percentage of revenues, it contracted 320 basis points (bps) from the year-ago quarter to 79.4%.

Adjusted operating expenses increased 6.1% on a year-over-year basis to $376.7 million, primarily due to higher employee compensation expenses, research and development expenses and sales and marketing. As a percentage of revenues, the same decreased 480 bps from the year-ago quarter to 57.7%.

Synopsys’ adjusted operating income (excluding all one-time items but including stock based compensation expenses) was up 23.8% on a year-over-year basis and came in at $141.8 million. Also, operating margin increased 160 bps on a year-over-year basis to 21.7%.

The company’s adjusted net income (excluding all one-time items but including stock based compensation expenses) for the quarter came in at $123.7 million, marking a year-over-year jump of 37.4%.

On a non-GAAP basis, Synopsys reported earnings of 94 cents per share compared with 68 cents reported in the year-ago quarter.

On a GAAP basis, net income was $86.6 million compared with $60 million in first-quarter fiscal 2016.

Balance Sheet & Cash Flow

Synopsys exited the quarter with cash, cash equivalents and short-term investments of $966.3 million compared with $1.117 million at the end of the previous quarter. Accounts receivables were $331.9 million compared with $438.9 million in the last quarter. During the quarter, cash flow from operational activities was $46.9 million. The company repurchased $100 million worth of its common stock during the quarter.

Guidance

Synopsys provided guidance for the second quarter and raised its fiscal 2017 outlook. The company now expects fiscal 2017 revenues to come in a range of $2.58–$2.61 billion (previous guidance $2.570–$2.600 billion). The Zacks Consensus Estimate for revenues is pegged at $2.587 billion.

Non-GAAP earnings per share are now projected between $3.21 and $3.26 (previously $3.16 and $3.23). GAAP earnings per share are now projected in a range of $2.01 to $2.12 (previous guidance $1.92 – $2.06). The company now projects cash from operations to be approximately $500 million to $520 million.

For the second quarter, the company expects revenues in a range of $665 million–$680 million (mid-point $672.5 million). The Zacks Consensus Estimate for revenues is pegged at $648 million. The company expects non-GAAP expenses within $507 million–$517 million. Management expects non-GAAP earnings per share in a range of 85 cents–88 cents, while GAAP earnings are projected between 51 cents and 59 cents.

Our Take

Synopsys posted impressive first quarter fiscal 2017 results. 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’s second-quarter and fiscal 2017 guidance was encouraging.

Shares of the company have generated a return of 51.8% over the last one year, outperforming the Zacks Computer-Software industry’s gain of just 24.8%.

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. CDNS and Mentor Graphics Corp. 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 technology sector is Seagate Technology plc STX, carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Seagate has a long-term expected EPS growth rate of 8.17%.

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