Synopsys Inc. (SNPS) reported fiscal first-quarter 2014 adjusted earnings per share (including stock-based compensation and excluding all one-time items) on a proportionate tax basis of 51 cents, ahead of the Zacks Consensus Estimate of 31 cents. Earnings decreased 14.9% on a year-over-year basis.
On a GAAP basis, earnings per share came in at 43 cents compared with 45 cents in the year–ago period.
Quarter Details
Total revenue for the quarter stood at $478.9 million, up a marginal 0.8% on a year-over-year basis but missing the Zacks Consensus Estimate of $488.0 million. Revenues came within management’s guided range of $475.0 million–$485.0 million. Year over year revenues were positively impacted by higher adoption of Synopsys’ products.
License revenues (including time-based and upfront) were $434.1 million, up 4.2% from the year-ago quarter. Maintenance and service revenues decreased 23.2% from the year-ago quarter to $44.8 million
More than 90% of the first-quarter revenues came from backlog. A single customer accounted for slightly more than 11% of the revenues in the first-quarter.
GAAP gross profit was $373.1 million, up 2.5% from the year-ago quarter. Gross margin increased 127 basis points from the year-ago quarter to 77.9% due to lower cost of sales.
GAAP operating expenses in the quarter increased 3.3% on a year-over-year basis to $312.9 million primarily due to higher selling & marketing and research and development expenses, which increased 3.9% and 6.4%, respectively from the year-ago quarter. Operating expenses as a percentage of revenues expanded 155 basis points (bps) from the year-ago quarter to 65.3%.
Synopsys’ GAAP operating income for the quarter was down 1.4% on a year-over-year basis to $60.2 million, primarily due to higher operating expenses as a percentage of revenue. Operating margin declined 27 bps to 12.6% during the same period.
The company reported GAAP net income of $67.7 million or 43 cents per share compared with $69.9 million or 45 cents per share in the year-ago quarter.
Adjusted net income (including stock-based compensation and excluding all one-time items) on a proportionate tax basis in the same quarter was $79.4 million or 51 cents per share compared with $91.9 million or 60 cents per share in the year-ago quarter.
Cash Flow & Balance Sheet
Synopsys ended the quarter with cash and cash equivalents of $893.1 million compared with $1.02 billion at the end of the previous quarter. Accounts receivable were $246.8.0 million, down from $256.0 million in the year-ago quarter. Long-term debt in the quarter was $67.5 million. Net cash used in operating activities during the quarter was $73.9 million.
Guidance
For the second-quarter of fiscal 2014, the company expects revenues in the range of $505.0 million–$515.0 million. The Zacks Consensus Estimate is pegged at $513.0 million. The company expects non-GAAP expenses in the range of $377.0 million–$387.0 million. Management expects non-GAAP earnings per share in the range of 60 cents–62 cents, higher than the Zacks Consensus Estimate of 42 cents per share.
For the full year 2014, the company expects revenues in the range of $2.03 billion–$2.065 billion, while non-GAAP earnings per share are projected within $2.55–$2.60. The Zacks Consensus Estimate for revenues and earnings is pegged at $2.076 billion and $1.69 per share, respectively. The company expects to generate $425.0-$450.0 million cash from operations in fiscal 2014.
Conclusion
Synopsys delivered mixed fiscal first-quarter 2014 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. However, revenues improved on a year-over-year basis. Moreover, the company provided an encouraging second-quarter 2014 guidance.
We believe the company’s recent product launches, acquisitions and deal wins will boost results, going ahead. Moreover, the 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 Synopsys’ reach in the software quality, testing and security tools market.
However, competition from Adobe Systems (ADBE), Advent Software (ADVS) and Ansys Inc. (ANSS) coupled with a challenging technology spending environment and uncertainty regarding proper time to realize acquisition synergies keep us on the sidelines.
Currently, Synopsys has a Zacks Rank #3 (Hold).
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