Synopsys Inc.’s (SNPS) second quarter 2011 earnings per share (EPS) of 39 cents surpassed the Zacks Consensus Estimate of 34 cents per share.
Revenue
Revenue in the second quarter was $393.7 million, up 16.4% from $338.1 million reported in the year-ago period. The significant revenue growth was attributable to strong orders in the quarter and faster business run rate. Moreover, the company benefited from healthy electronics industry and higher demand for new product during the quarter.
License revenues (including time-based and upfront) were $343.8 million, up from $301.4 million reported in the year-ago quarter. Upfront revenue was 6.0% of the total revenue, well within the company’s targeted range of less than 10.0%. The average length of renewable customer license commitments in the quarter was 2.8 years. The company continues to expect average duration over time to be approximately 3 years. Maintenance and service revenues were $49.9 million, up from $36.7 million reported in the prior-year quarter.
The company is witnessing accelerated adoption of the 28/32 and even the 20/22 nanometer nodes.
Operating Results
Gross profit in the second quarter was $307.6 million (78.1% of revenue), up 14.3% from $269.0 million (79.6% of revenue) in the year-ago quarter. The improvement in gross profit was attributable to the shift in product mix toward the high margin products.
Total operating expense in the quarter was $255.9 million, up 14.2% from $224.1 million incurred in the year-ago quarter. The year-over-year increase in cost and expense was primarily due to higher research and development and sales and marketing expense. Operating margin was 13.1% versus 13.3% reported in the year-ago period.
GAAP net income in the reported quarter was $81.1 million or 53 cents per share compared with $39.5 million or 26 cents per share in the second quarter of fiscal 2010. Including special items like amortization, acquisition-related costs, facility restructuring charge, and tax benefit from the IRS settlement, non-GAAP net income in the second quarter was $59.9 million or 39 cents per share compared with $52.3 million or 34 cents in the comparable quarter last year.
Balance Sheet
Synopsys has a decent cash position. On April 30, 2011, cash and short-term investments were $840.5 million compared with $867.1 million at the end of the previous quarter. The company has no long-term debt. Capital expenditures in the quarter were $10.0 million. Day’s sales outstanding in the quarter were 42 days.
During the quarter, the company purchased 6.2 million shares for $170.0 million, consistent with the company’s commitment to increasing share holders’ value and keeping the share count roughly flat at about 151 million shares over time. During the first half of the fiscal year, the company spent $235.0 million in repurchasing 8.6 million shares. The company currently has $80.0 million remaining in its current authorization.
Guidance
For the third quarter of fiscal year 2011, the company expects revenues in the range of $378.0 – $386.0 million. Non-GAAP expenses are estimated in the range of $292.0 – $302.0 million. GAAP earnings per share are projected between 25 cents and 31 cents and non-GAAP earnings per share in the range of 41 – 43 cents.
For fiscal 2011, revenue is expected in the range of $1.50 billion to $1.52 billion. GAAP earnings per share between $1.33 and $1.46, while Non-GAAP earnings per share are estimated in the range of $1.70 – $1.77. Cash flow from operations of approximately $300.0 million.
Our Take
Synopsys delivered decent results in the second quarter, with minimal improvement in operating performance. The third quarter 2011 guidance is encouraging. Although Synopsys is gaining traction from new products and acquisitions, we believe these will take some time to produce favorable results. Besides, the company is also facing competition from Salesforce.com (CRM)
We believe Synopsys’ time-based license model has good visibility, and the company’s cash position is decent.
The company currently has a Zacks #3 Rank (short-term 'Hold' recommendation).
SALESFORCE.COM (CRM): Free Stock Analysis Report
SYNOPSYS INC (SNPS): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment