Synopsys Inc. SNPS posted mixed fourth quarter of fiscal 2015 results. While its bottom line missed the Zacks Consensus Estimate, the top line surpassed the same.
On a GAAP basis, earnings came in at 31 cents per share compared with 39 cents in the year-ago period.
Quarter Details
Total revenue increased 8.9% year over year to $587.2 million and exceeded the guided range of $570–$585 million. Reported revenues surpassed the Zacks Consensus Estimate of $577 million. On a year-over-year basis, revenues were positively impacted by higher adoption of Synopsys’ products. Also, better-than-expected organic growth and several acquisitions positively impacted the quarter’s revenues.
The company witnessed revenue growth across all its business segments. License revenues (including time-based and upfront) were $525.2 million, up nearly 9.9% from the year-ago quarter. Maintenance and service revenues increased 0.8% year over year to $61.8 million.
More than 90% of fourth quarter revenues came from backlog. A single customer accounted for more than 10% of the revenues.
GAAP gross profit was $447.3 million, up approximately 7.1% from the year-ago period. However, as a percentage of revenues, it contracted 129 basis points (bps) from the year-ago quarter to 76.2%.
GAAP operating expenses increased 8.2% on a year-over-year basis to $389.8 million, primarily due to higher employee compensation expenses, planned hiring, acquisitions and cost of goods sold for emulation sales. As a percentage of revenues, the same decreased 43 bps from the year-ago quarter to 66.4%.
Synopsys’ GAAP operating income was approximately flat on a year-over-year basis and came in at $57.6 million. However, operating margin contracted 87 bps to 15.9%.
Adjusted net income (including stock-based compensation but excluding all one-time items) on a proportionate tax basis was $88.2 million or 56 cents per share compared with $85.6 million or 54 cents a year ago.
The company reported GAAP net income of $49.8 million or 31 cents per share compared with $62.5 million or 39 cents per share in fourth-quarter fiscal 2014.
Cash Flow & Balance Sheet
Synopsys exited the quarter with cash, cash equivalents and short-term investments of $964.9 million compared with $1.122 billion at the end of the previous quarter. Accounts receivable were $385.7 million compared with $307.8 million in the last quarter. Total debt (including current portion) was $205 million. During the fourth quarter of fiscal 2015, the company generated cash flow of $495.2 million from operational activities.
The company repurchased 1.7 million shares under its accelerated share repurchase program started in August this year. The company currently has shares worth $500 million remaining under its share repurchase authorization program.
Guidance
Synopsys provided fiscal 2016 guidance. The company expects revenues in the range of $2.350–$2.390 billion. The Zacks Consensus Estimate for revenues is pegged at $2.418 billion.
Non-GAAP earnings per share are projected between $2.93 and $3.00. The Zacks Consensus Estimate for earnings is pegged at $1.72 per share. The company projects cash from operations of approximately $500 million.
For first quarter fiscal 2016, the company expects revenues in the range of $560–$575 million (mid-point $567.5 million). The Zacks Consensus Estimate for revenues is pegged at $586 million. The company expects non-GAAP expenses within $445–$455 million. Management expects non-GAAP earnings per share in the range of 60–63 cents, higher than the Zacks Consensus Estimate of 41 cents.
Our Take
Synopsys fourth quarter revenues witnessed a significant year-over-year improvement. This came mainly on the back of higher adoption of Synopsys’ products and several acquisitions. The company’s bottom line however missed the Zacks Consensus Estimate. Moreover, the company provided a tepid first quarter and fiscal 2016 revenue guidance.
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 company’s acquisition of Coverity will expand its reach in the software quality, testing and security tools market.
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 VASCO Data Security International Inc. VDSI, sporting a Zacks Rank #1 (Strong Buy).
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