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Form 8-K SYNOPSYS INC For: Aug 17

August 17, 2022 4:36 PM EDT

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SYNOPSYS INC false 0000883241 0000883241 2022-08-17 2022-08-17

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): August 17, 2022

 

 

SYNOPSYS, INC.

(Exact name of Registrant as specified in charter)

 

 

 

Delaware   000-19807   56-1546236

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

690 East Middlefield Road

Mountain View, California 94043

(Address of principal executive offices)

Registrant’s telephone number, including area code: (650) 584-5000

N/A

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading
Symbol(s)

 

Name of each exchange

on which registered

Common Stock (par value of $0.01 per share)   SNPS   Nasdaq Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 


Item 2.02

Results of Operations and Financial Condition.

On August 17, 2022, Synopsys, Inc. (“Synopsys”, “we”, “our”, or “us”) issued a press release announcing the financial results of its third fiscal quarter ended July 31, 2022. A copy of the press release is furnished and attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information in this Current Report, including the exhibit hereto, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. The information contained herein and in the accompanying exhibit shall not be incorporated by reference into any registration statement or other document filed with the Securities and Exchange Commission by Synopsys whether made before or after the date hereof, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.

The attached press release includes measures that are not in accordance with, or are an alternative for, U.S. generally accepted accounting principles (“GAAP”). The attached press release includes non-GAAP earnings per diluted share, non-GAAP net income, non-GAAP tax rate, target non-GAAP expenses, and target non-GAAP earnings per diluted share.

These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles, and management exercises judgment in determining which items should be excluded in the calculation of non-GAAP measures. While we acknowledge that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP, we believe that these non-GAAP measures are valuable in analyzing our core operations as further described below. The presentation of non-GAAP financial information is not meant to be considered in isolation, superior to or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. These non-GAAP financial measures are meant to supplement, and be viewed in conjunction with, the corresponding GAAP financial measures. We believe that the presentation of non-GAAP measures, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors regarding financial and business trends relating to our financial condition and results of operations through the eyes of management.

Synopsys’ management evaluates and makes decisions about our business operations primarily based on the income and costs that management believes are directly related to Synopsys’ core operational performance, both from a company-wide basis and on a business segment basis. For our internal budgeting and resource allocation process, and in reviewing our financial results, we use non-GAAP financial measures that exclude: (i) the amortization of acquired intangible assets; (ii) the impact of stock compensation; (iii) acquisition-related costs; (iv) restructuring charges; (v) the effects of certain settlements, final judgments and loss contingencies related to legal proceedings; and (vi) the income tax effect of non-GAAP pre-tax adjustments, in each case, as further described below. We also utilize an annual non-GAAP tax rate in the calculation of our non-GAAP measures, as further described below.

We use these non-GAAP financial measures in making our operating decisions because we believe these measures give us a better understanding of how we should invest in research and development, as well as fund infrastructure and product and market strategies. We use these measures to help us make budgeting decisions, for example, among product development expenses and research and development, sales and marketing, and general and administrative expenses. In addition, these non-GAAP financial measures facilitate our internal comparisons to our historical operating results and forecasted targets, and comparisons to competitors’ operating results.

Synopsys provides segment information, namely adjusted segment operating income and adjusted segment operating margin, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 280, Segment Reporting. These measures reflect how management evaluates the operating performance of its segments. In evaluating our business segments, management considers the income and costs that it believes are directly related to those segments. The items mentioned above that are excluded from non-GAAP measures are the same items that management does not allocate to the segments to evaluate their performance. Similarly, Synopsys does not allocate changes in the fair value of its non-qualified deferred compensation plan because these changes typically do not require cash settlement and they are not used by us to assess the core profitability of our business operations.


As described above, we exclude the following items from one or more of our non-GAAP measures:

(i) Amortization of acquired intangible assets. We incur expenses from amortization of acquired intangible assets, which include, among other things, contract rights, core/developed technology, trademarks, trade names, customer relationships, covenants not to compete and other intangibles related to acquisitions. We amortize the intangible assets over their economic lives. We exclude this item because such expenses are non-cash in nature and because we believe the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding (a) our core operational performance and liquidity and (b) our ability to invest in research and development and fund acquisitions and capital expenditures.

(ii) Stock compensation impact. While stock compensation expense constitutes an ongoing and recurring expense, such expense is excluded from non-GAAP results because it is not an expense that typically requires or will require cash settlement by us and because such expense is not used by us to assess the core profitability of our business operations. In addition, excluding this item from various non-GAAP measures facilitates comparisons to our competitors’ operating results and our past operating results.

(iii) Acquisition-related costs. In connection with our business combinations, we incur significant expenses which we would not have otherwise incurred as part of our business operations. These expenses include, among other things, compensation expenses, professional fees and other direct expenses, concurrent restructuring activities, including employee severance and other exit costs, changes to the fair value of contingent consideration related to the acquired company, and amortization of the fair value difference of below-market value assets arising from arrangements entered into or acquired in conjunction with an acquisition. We exclude such expenses because they are related to acquisitions and have no direct correlation to the operation of our business.

(iv) Restructuring charges. We initiate restructuring activities in order to align our costs to both our operating plans and our business strategies based on then-current economic conditions. The amounts of the restructuring activities and frequency of occurrence may vary from time to time. Restructuring costs generally include severance and other termination benefits related to voluntary retirement programs and involuntary headcount reductions as well as facilities closures. Such restructuring costs include elimination of operational redundancy and permanent reductions in workforce and facilities closures and, therefore, are not considered by us to be a part of the core operation of our business and not used by us when assessing the core profitability and performance of our business operations. Furthermore, excluding this item from various non-GAAP measures facilitates comparisons to our competitors’ operating results and our past operating results.

(v) Legal matters. From time to time, we are party to legal proceedings, including tax-related matters. Legal proceedings could result in an expense or benefit due to settlements, final judgments, or accruals for loss contingencies. We exclude these types of expenses or benefits because we do not believe they are reflective of the core operation of our business.

(vi) Income tax effect of non-GAAP pre-tax adjustments. Excluding the income tax effect of non-GAAP pre-tax adjustments from the provision for income taxes assists investors in understanding the tax provision associated with those adjustments and the effect on net income.

We adopted a three-year normalized non-GAAP tax rate of 16% for fiscal years 2019 through 2021 in calculating non-GAAP financial measures to provide better consistency across interim reporting periods by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency and do not necessarily reflect our normal operations, and to more closely align our tax rate with our expected geographic earnings mix.

Given the uncertainty surrounding corporate tax reform, we adopted an annual non-GAAP tax rate of 18% for fiscal year 2022 rather than a three-year normalized non-GAAP tax rate in calculating our non-GAAP financial measures. This annual non-GAAP tax rate is based on an evaluation of our historical and projected mix of U.S. and international profit before tax, taking into account the impact of non-GAAP adjustments, as well as other factors such as our current tax structure, existing tax positions and expected recurring tax incentives. We will re-evaluate this rate on an annual basis for any significant events that could materially affect our projections, such as significant changes in our geographic earnings mix or significant tax law changes in major jurisdictions where we operate, and will further consider the appropriateness of adopting a multi-year normalized non-GAAP tax rate.


Item 9.01

Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit
Number
  

Exhibit Title

99.1    Press release dated August 17, 2022 containing Synopsys, Inc.’s results of operations for its third fiscal quarter ended July 31, 2022.
104    Cover Page Interactive Data File (embedded within the Inline XBRL document).


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

    SYNOPSYS, INC.
Dated: August 17, 2022     By:  

/s/ John F. Runkel, Jr.

            John F. Runkel, Jr.
            General Counsel and Corporate Secretary

EXHIBIT 99.1

PRESS RELEASE

INVESTOR CONTACT:

Lisa L. Ewbank

Synopsys, Inc.

650-584-1901

[email protected]

EDITORIAL CONTACT:

Simone Souza

Synopsys, Inc.

650-584-6454

[email protected]

Synopsys Posts Financial Results for Third Quarter Fiscal Year 2022

Q3 FY 2022 Financial Highlights

 

 

Revenue: $1.248 billion

 

 

GAAP earnings per diluted share: $1.43

 

 

Non-GAAP earnings per diluted share: $2.10

MOUNTAIN VIEW, Calif. August 17, 2022Synopsys, Inc. (Nasdaq: SNPS) today reported results for its third quarter fiscal year 2022. Revenue for the third quarter of fiscal year 2022 was $1.248 billion, compared to $1.057 billion for the third quarter of fiscal year 2021.

“Synopsys continues to execute very well. We delivered excellent fiscal third quarter results, with broad-based strength, and are increasing our outlook for the year,” said Aart de Geus, chairman and CEO of Synopsys. “Technology strength across the board, including multiple game-changing innovations, drove outstanding technical, competitive, and business results. While our customers navigate through the ebbs and flows of the market, they are simultaneously investing heavily in more complex chips, more sophisticated systems, and more software. The combination of Synopsys’ powerful portfolio and constructive market dynamics, plus the resilience of our business model, position us for a strong finish to the year. We expect to cross the $5 billion revenue mark in FY’22, with over 20% revenue growth, strong margin expansion and EPS growth, and more than $1.6 billion in operating cash flow.”


GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the third quarter of fiscal year 2022 was $222.6 million, or $1.43 per diluted share, compared to $198.6 million, or $1.27 per diluted share, for the third quarter of fiscal year 2021.

Non-GAAP Results

On a non-GAAP basis, net income for the third quarter of fiscal year 2022 was $327.4 million, or $2.10 per diluted share, compared to non-GAAP net income of $284.5 million, or $1.81 per diluted share, for the third quarter of fiscal year 2021.

For a reconciliation of net income, earnings per diluted share and other measures on a GAAP and non-GAAP basis, see “GAAP to Non-GAAP Reconciliation” in the accompanying tables below.

Business Segments

Synopsys reports revenue and operating income in two segments: (1) Semiconductor & System Design, which includes EDA tools, IP products, system integration solutions and other associated revenue categories, and (2) Software Integrity, which includes a comprehensive solution for building integrity—security, quality and compliance testing—into the customers’ software development lifecycle and supply chain. Further information regarding these segments is provided at the end of this press release.

Financial Targets

Synopsys also provided its consolidated financial targets for the fourth quarter and full fiscal year 2022. These financial targets assume that there are no further changes to the current U.S. government “Entity List” restrictions. These targets constitute forward-looking statements and are based on current expectations. For a discussion of factors that could cause actual results to differ materially from these targets, see “Forward-Looking Statements” below.

 

2


Fourth Quarter and Fiscal Year 2022 Financial Targets

(in millions except per share amounts)

 

     Range for Three Months     Range for Fiscal Year  
     October 31, 2022     October 31, 2022  
     Low     High     Low     High  

Revenue

   $  1,263     $  1,293     $  5,060     $  5,090  

GAAP Expenses

   $ 1,076     $ 1,096     $ 3,978     $ 3,998  

Non-GAAP Expenses

   $ 919     $ 929     $ 3,395     $ 3,405  

Other Income (Expense)

   $ 3     $ 5     $ 12     $ 14  

Non-GAAP Tax Rate

     18     18     18     18

Outstanding Shares (fully diluted)

     156       159       156       159  

GAAP EPS

   $ 1.06     $ 1.18     $ 6.37     $ 6.49  

Non-GAAP EPS

   $ 1.80     $ 1.85     $ 8.80     $ 8.85  

Operating Cash Flow

       $ 1,600     $ 1,650  

For a reconciliation of Synopsys’ Fourth Quarter and Fiscal Year 2022 targets, including expenses, earnings per diluted share and other measures on a GAAP and non-GAAP basis, see “GAAP to Non-GAAP Reconciliation” in the accompanying tables below.

Earnings Call Open to Investors

Synopsys will hold a conference call for financial analysts and investors today at 2:00 p.m. Pacific Time. A live webcast of the call will be available on Synopsys’ corporate website at www.synopsys.com. A recording of the call will be available by calling +1-866-207-1041 (+1-402-970-0847 for international callers), access code 6337628, beginning at 5:00 p.m. Pacific Time today, until 11:59 p.m. Pacific Time on August 24, 2022. A webcast replay will also be available on the corporate website from approximately 5:30 p.m. Pacific Time today through the time Synopsys announces its results for the fourth quarter and fiscal year 2022 in November 2022. Synopsys will post copies of the prepared remarks of Aart de Geus, chairman and chief executive officer, and Trac Pham, chief financial officer, on its website following today’s call. In addition, Synopsys makes additional information available in a financial supplement and corporate overview presentation, also posted on the corporate website.

Effectiveness of Information

The targets included in this press release, the statements made during the earnings conference call and the information contained in the financial supplement and corporate overview presentation (available in the Investor Relations section of Synopsys’ corporate website at www.synopsys.com) represent Synopsys’ expectations and beliefs as of the date of this release

 

3


only. Although this press release, copies of the prepared remarks of the chief executive officer and chief financial officer made during the call, the financial supplement, and the corporate overview presentation will remain available on Synopsys’ website through the date of the earnings call for the fourth quarter and fiscal year 2022, their continued availability through such date does not mean that Synopsys is reaffirming or confirming their continued validity. Synopsys undertakes no duty and does not intend to update any forward-looking statement, whether as a result of new information or future events, or otherwise update, the targets given in this release unless required by law.

Availability of Final Financial Statements

Synopsys will include final financial statements for the third quarter fiscal year 2022 in its quarterly report on Form 10-Q to be filed by September 8, 2022.

About Synopsys

Synopsys, Inc. (Nasdaq: SNPS) is the Silicon to Software partner for innovative companies developing the electronic products and software applications we rely on every day. As an S&P 500 company, Synopsys has a long history of being a global leader in electronic design automation (EDA) and semiconductor IP and offers the industry’s broadest portfolio of application security testing tools and services. Whether you’re a system-on-chip (SoC) designer creating advanced semiconductors, or a software developer writing more secure, high-quality code, Synopsys has the solutions needed to deliver innovative products. Learn more at www.synopsys.com.

GAAP to Non-GAAP Reconciliation

Synopsys continues to provide all information required in accordance with GAAP, but acknowledges evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Accordingly, Synopsys presents non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Synopsys’ operating results in a manner that focuses on what Synopsys believes to be its core business operations and what Synopsys uses to evaluate its business operations and for internal planning and forecasting purposes. Synopsys’ management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, superior to, or as a substitute for, financial information prepared in accordance with GAAP.

 

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Synopsys’ management believes it is useful for itself and investors to review, as applicable, both GAAP financial measures that include: (i) the amortization of acquired intangible assets, (ii) the impact of stock compensation, (iii) acquisition-related costs, (iv) restructuring charges, (v) the effects of certain settlements, final judgments and loss contingencies related to legal proceedings, and (vi) the income tax effect of non-GAAP pre-tax adjustments; and the non-GAAP financial measures that exclude such information in order to assess the performance of Synopsys’ business and for planning and forecasting in subsequent periods.

Synopsys adopted a three-year normalized non-GAAP tax rate of 16% for fiscal years 2019 through 2021 in calculating non-GAAP financial measures to provide better consistency across interim reporting periods by eliminating the effects of non-recurring and period-specific items, which can vary in size and frequency and do not necessarily reflect our normal operations, and to more closely align our tax rate with our expected geographic earnings mix.

Given the uncertainty surrounding corporate tax reform, Synopsys adopted an annual non-GAAP tax rate of 18% for fiscal year 2022 rather than a three-year normalized non-GAAP tax rate in calculating its non-GAAP financial measures. This annual non-GAAP tax rate is based on an evaluation of its historical and projected mix of U.S. and international profit before tax, taking into account the impact of non-GAAP adjustments, as well as other factors such as its current tax structure, existing tax positions and expected recurring tax incentives. Synopsys will re-evaluate this rate on an annual basis for any significant events that could materially affect its projections, such as significant changes in its geographic earnings mix or significant tax law changes in major jurisdictions where Synopsys operates, and will further consider the appropriateness of adopting a multi-year normalized non-GAAP tax rate.

Whenever Synopsys uses a non-GAAP financial measure, it provides a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed below, as well as Item 2.02 of Synopsys’ Current Report on Form 8-K filed on August 17, 2022, for additional information about the measures Synopsys uses to evaluate its core business operations.

 

5


Reconciliation of Third Quarter Fiscal Year 2022 Results

The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP net income and earnings per diluted share for the periods indicated below.

GAAP to Non-GAAP Reconciliation of Third Quarter Fiscal Year 2022 Results (1)

(unaudited and in thousands, except per share amounts)

 

     Three Months Ended      Nine Months Ended  
     July 31,      July 31,  
     2022      2021      2022      2021  

GAAP net income

   $  222,626      $  198,646      $ 831,094      $  556,069  

Adjustments:

           

Amortization of intangible assets

     26,454        20,440        70,181        60,437  

Stock compensation

     127,605        85,162        333,437        248,530  

Acquisition-related costs

     5,232        5,702        11,332        11,594  

Restructuring charges

     —          15,151        12,057        15,151  

Legal matters

     —          (1,455      —          (1,455

Tax adjustments

     (54,508      (39,189      (162,964      (99,297
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP net income

   $ 327,409      $ 284,457      $  1,095,137      $ 791,029  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Three Months Ended      Nine Months Ended  
     July 31,      July 31,  
     2022      2021      2022      2021  

GAAP net income per diluted share

   $ 1.43      $ 1.27      $ 5.31      $ 3.54  

Adjustments:

           

Amortization of intangible assets

     0.17        0.13        0.45        0.38  

Stock compensation

     0.82        0.54        2.13        1.58  

Acquisition-related costs

     0.03        0.04        0.07        0.07  

Restructuring charges

     —          0.10        0.08        0.10  

Legal matters

     —          (0.01      —          (0.01

Tax adjustments

     (0.35      (0.26      (1.04      (0.63
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP net income per diluted share

   $ 2.10      $ 1.81      $ 7.00      $ 5.03  
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used in computing net income per diluted share amounts:

     155,806        156,907        156,545        157,158  

 

(1)

Synopsys’ third quarter of fiscal year 2022 and 2021 ended on July 30, 2022 and July 31, 2021, respectively. For presentation purposes, we refer to the closest calendar month end.

 

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Reconciliation of 2022 Targets

The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP targets for the periods indicated below.

GAAP to Non-GAAP Reconciliation of Fourth Quarter Fiscal Year 2022 Targets (1)

(in thousands, except per share amounts)

 

     Range for Three Months  
     October 31, 2022  
     Low      High  

Target GAAP expenses

   $  1,076,000      $  1,096,000  

Adjustments:

     

Amortization of intangible assets

     (26,000      (29,000

Stock compensation

     (131,000      (138,000
  

 

 

    

 

 

 

Target non-GAAP expenses

   $ 919,000      $ 929,000  
  

 

 

    

 

 

 

 

     Range for Three Months  
     October 31, 2022  
     Low      High  

Target GAAP earnings per diluted share

   $ 1.06      $ 1.18  

Adjustments:

     

Amortization of intangible assets

     0.18        0.17  

Stock compensation

     0.88        0.83  

Tax adjustments

     (0.32      (0.33
  

 

 

    

 

 

 

Target non-GAAP earnings per diluted share

   $ 1.80      $ 1.85  
  

 

 

    

 

 

 

Shares used in non-GAAP calculation (midpoint of target range)

     157,500        157,500  

 

7


GAAP to Non-GAAP Reconciliation of Full Fiscal Year 2022 Targets (1)

(in thousands, except per share amounts)

 

     Range for Fiscal Year  
     October 31, 2022  
     Low      High  

Target GAAP expenses

   $  3,978,389      $  3,998,389  

Adjustments:

     

Amortization of intangible assets

     (96,000      (99,000

Stock compensation

     (464,000      (471,000

Acquisition-related costs

     (11,332      (11,332

Restructuring charges

     (12,057      (12,057
  

 

 

    

 

 

 

Target non-GAAP expenses

   $ 3,395,000      $ 3,405,000  
  

 

 

    

 

 

 

 

     Range for Fiscal Year  
     October 31, 2022  
     Low      High  

Target GAAP earnings per diluted share

   $ 6.37      $ 6.49  

Adjustments:

     

Amortization of intangible assets

     0.63        0.62  

Stock compensation

     3.01        2.96  

Acquisition-related costs

     0.07        0.07  

Restructuring charges

     0.08        0.08  

Tax adjustments

     (1.36      (1.37
  

 

 

    

 

 

 

Target non-GAAP earnings per diluted share

   $ 8.80      $ 8.85  
  

 

 

    

 

 

 

Shares used in non-GAAP calculation (midpoint of target range)

     157,500        157,500  

 

(1)

Synopsys’ fourth quarter of fiscal year 2022 and fiscal year 2022 will end on October 29, 2022. For presentation purposes, we refer to the closest calendar month end.

Forward-Looking Statements

This press release contains forward-looking statements including, but not limited to, statements regarding Synopsys’ short-term and long-term financial targets, expectations and objectives; strategies related to our products and technology; business and market outlook, opportunities and strategies; customer demand and market expansion; our planned product releases and capabilities; industry growth rates; software trends; planned acquisitions and stock repurchases; our expected tax rate; the expected impact of U.S. and foreign government actions and regulatory changes on our financial results; and the continued impact of the COVID-19 pandemic. These statements involve risks, uncertainties and other factors that could cause our actual results, time

 

8


frames or achievements to differ materially from those expressed or implied in such forward-looking statements. Such risks, uncertainties and factors include, but are not limited to: risks from the continued impact of the COVID-19 pandemic on the global economy and on our business, operations and financial condition; macroeconomic conditions and uncertainty in the global economy; uncertainty in the growth of the semiconductor and electronics industries; the highly competitive industry we operate in; consolidation among our customers and our dependence on a relatively small number of large customers; risks and compliance obligations relating to the global nature of our operations as well as actions by the U.S. or foreign governments, such as the imposition of additional export restrictions or tariffs; and more. Additional information on potential risks, uncertainties and other factors that could affect Synopsys’ results is included in filings we make with the Securities and Exchange Commission from time to time, including in the sections entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, and in our latest Quarterly Report on Form 10-Q. The information provided herein is as of August 17, 2022. Synopsys undertakes no duty, and does not intend, to update any forward-looking statement, whether as a result of new information, future events or otherwise, unless required by law.

 

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SYNOPSYS, INC.

Unaudited Condensed Consolidated Statements of Income (1)

(in thousands, except per share amounts)

 

     Three Months Ended
July 31,
    Nine Months Ended
July 31,
 
     2022     2021     2022     2021  

Revenue:

        

Time-based products

   $ 754,322     $ 665,563     $  2,185,626     $  1,945,647  

Upfront products

     268,584       203,301       973,483       586,798  

Maintenance and service

     224,860       188,266       638,141       519,329  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     1,247,766       1,057,130       3,797,250       3,051,774  

Cost of revenue:

        

Products

     164,077       127,592       480,166       389,677  

Maintenance and service

     87,774       65,604       253,665       202,210  

Amortization of intangible assets

     19,330       11,870       47,145       35,164  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenue

     271,181       205,066       780,976       627,051  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     976,585       852,064       3,016,274       2,424,723  

Operating expenses:

        

Research and development

     444,826       371,146       1,218,761       1,090,959  

Sales and marketing

     199,246       171,428       571,329       514,810  

General and administrative

     91,461       83,846       246,426       234,028  

Amortization of intangible assets

     7,124       8,570       23,036       25,273  

Restructuring charges

     —         15,151       12,057       15,151  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     742,657       650,141       2,071,609       1,880,221  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     233,928       201,923       944,665       544,502  

Other income (expense), net

     2,426       11,414       (41,280     61,934  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     236,354       213,337       903,385       606,436  

Provision for income taxes

     16,708       14,945       76,506       51,214  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     219,646       198,392       826,879       555,222  

Net income (loss) attributed to non-controlling interest and redeemable non-controlling interest

     (2,980     (254     (4,215     (847
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributed to Synopsys

   $ 222,626     $ 198,646     $ 831,094     $ 556,069  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share attributed to Synopsys:

        

Basic

   $ 1.46     $ 1.30     $ 5.43     $ 3.64  

Diluted

   $ 1.43     $ 1.27     $ 5.31     $ 3.54  

Shares used in computing per share amounts:

        

Basic

     152,938       152,635       153,082       152,619  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     155,806       156,907       156,545       157,158  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Synopsys’ third quarter of fiscal year 2022 and 2021 ended on July 30, 2022 and July 31, 2021, respectively. For presentation purposes, we refer to the closest calendar month end.

 

10


SYNOPSYS, INC.

Unaudited Condensed Consolidated Balance Sheets (1)

(in thousands, except par value amounts)

 

     July 31, 2022     October 31, 2021  

ASSETS:

    

Current assets:

    

Cash and cash equivalents

   $ 1,383,559     $  1,432,840  

Short-term investments

     147,599       147,949  
  

 

 

   

 

 

 

Total cash, cash equivalents & short-term investments

   $ 1,531,158     $ 1,580,789  

Accounts receivable, net

     682,647       568,501  

Inventories

     219,736       229,023  

Prepaid and other current assets

     465,487       430,028  
  

 

 

   

 

 

 

Total current assets

     2,899,028       2,808,341  

Property and equipment, net

     486,872       472,398  

Operating lease right-of-use assets, net

     574,501       493,251  

Goodwill

     3,854,889       3,575,785  

Intangible assets, net

     404,652       279,132  

Deferred income taxes

     617,429       612,655  

Other long-term assets

     492,176       510,698  
  

 

 

   

 

 

 

Total assets

   $ 9,329,547     $ 8,752,260  
  

 

 

   

 

 

 

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY:

    

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 736,099     $ 741,191  

Operating lease liabilities, current

     54,170       79,678  

Deferred revenue

     1,755,594       1,517,623  

Short-term debt

     —         74,992  
  

 

 

   

 

 

 

Total current liabilities

     2,545,863       2,413,484  

Operating lease liabilities, non-current

     592,930       487,003  

Long-term deferred revenue

     164,964       136,303  

Long-term debt

     21,960       25,094  

Other long-term liabilities

     352,188       391,433  
  

 

 

   

 

 

 

Total liabilities

     3,677,905       3,453,317  

Redeemable non-controlling interest

     43,516       —    

Stockholders’ equity:

    

Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding

     —         —    

Common stock, $0.01 par value: 400,000 shares authorized; 153,004 and 153,062 shares outstanding, respectively

     1,530       1,531  

Capital in excess of par value

     1,415,244       1,576,363  

Retained earnings

     5,377,586       4,549,713  

Treasury stock, at cost: 4,257 and 4,198 shares, respectively

     (1,034,841     (782,866

Accumulated other comprehensive income (loss)

     (155,493     (49,604
  

 

 

   

 

 

 

Total Synopsys stockholders’ equity

     5,604,026       5,295,137  

Non-controlling interest

     4,100       3,806  
  

 

 

   

 

 

 

Total stockholders’ equity

     5,608,126       5,298,943  
  

 

 

   

 

 

 

Total liabilities, redeemable non-controlling interest and stockholders’ equity

   $  9,329,547     $  8,752,260  
  

 

 

   

 

 

 

 

(1)

Synopsys’ third quarter of fiscal year 2022 ended on July 30, 2022 and its fiscal year 2021 ended on October 30, 2021. For presentation purposes, we refer to the closest calendar month end.

 

11


SYNOPSYS, INC.

Unaudited Condensed Consolidated Statements of Cash Flows (1)

(in thousands)

 

     Nine Months Ended
July 31,
 
     2022     2021  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income attributed to Synopsys

   $ 831,094     $ 556,069  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Amortization and depreciation

     169,708       151,274  

Reduction of operating lease right-of-use assets

     65,980       64,920  

Amortization of capitalized costs to obtain revenue contracts

     54,438       46,973  

Stock-based compensation

     333,437       248,530  

Allowance for credit losses

     (4,516     13,813  

Deferred income taxes

     5,843       (33,116

Other non-cash

     6,141       2,936  

Net changes in operating assets and liabilities, net of acquired assets and liabilities:

    

Accounts receivable

     (121,786     188,996  

Inventories

     118       (51,448

Prepaid and other current assets

     (56,075     (62,201

Other long-term assets

     (20,058     (117,922

Accounts payable and accrued liabilities

     (46,356     51,991  

Operating lease liabilities

     (66,187     (61,666

Income taxes

     (60,739     (29,414

Deferred revenue

     254,353       152,328  
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,345,395       1,122,063  

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Proceeds from sales and maturities of short-term investments

     70,847       1,128  

Purchases of short-term investments

     (73,330     (146,082

Proceeds from sales of long-term investments

     582       —    

Purchases of long-term investments

     (7,000     (7,591

Purchases of property and equipment

     (102,934     (66,957

Cash paid for acquisitions, net of cash acquired

     (416,323     (164,053

Capitalization of software development costs

     (1,970     (1,517

Other

     (1,200     (800
  

 

 

   

 

 

 

Net cash used in investing activities

     (531,328     (385,872

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Repayment of debt

     (76,838     (21,637

Issuances of common stock

     161,416       113,976  

Payments for taxes related to net share settlement of equity awards

     (149,130     (104,291

Purchase of equity forward contract

     (40,000     (35,000

Purchases of treasury stock

     (717,266     (538,082

Other

     (3,413     (4,375
  

 

 

   

 

 

 

Net cash used in financing activities

     (825,231     (589,409

Effect of exchange rate changes on cash, cash equivalents and restricted cash

     (38,155     2,985  
  

 

 

   

 

 

 

Net change in cash, cash equivalents and restricted cash

     (49,319     149,767  

Cash, cash equivalents and restricted cash, beginning of year

     1,435,183       1,237,970  
  

 

 

   

 

 

 

Cash, cash equivalents and restricted cash, end of period

   $  1,385,864     $  1,387,737  
  

 

 

   

 

 

 

 

(1)

Synopsys’ third quarter of fiscal year 2022 and 2021 ended on July 30, 2022 and July 31, 2021, respectively. For presentation purposes, we refer to the closest calendar month end.

 

12


SYNOPSYS, INC.

Business Segment Reporting (1)(3)

(in millions)

 

     Three Months
Ended
July 31, 2022
    Three Months
Ended
July 31, 2021
    Nine Months
Ended
July 31, 2022
    Nine Months
Ended
July 31, 2021
 

Revenue by segment

        

- Semiconductor & System Design

   $  1,129.5     $ 959.1     $  3,458.5     $  2,768.0  

% of Total

     90.5     90.7     91.1     90.7

- Software Integrity

   $ 118.3     $ 98.0     $ 338.8     $ 283.8  

% of Total

     9.5     9.3     8.9     9.3

Total segment revenue

   $ 1,247.8     $  1,057.1     $ 3,797.3     $ 3,051.8  

Adjusted operating income by segment

        

- Semiconductor & System Design

   $ 380.8     $ 328.7     $ 1,285.4     $ 916.5  

- Software Integrity

   $ 11.3     $ 8.7     $ 36.3     $ 25.0  

Total adjusted segment operating income

   $ 392.1     $ 337.4     $ 1,321.7     $ 941.5  

Adjusted operating margin by segment

        

- Semiconductor & System Design

     33.7     34.3     37.2     33.1

- Software Integrity

     9.5     8.8     10.7     8.8

Total adjusted segment operating margin

     31.4     31.9     34.8     30.8

Total Adjusted Segment Operating Income Reconciliation (1)(2)(3)

(in millions)

 

     Three Months
Ended
July 31, 2022
     Three Months
Ended
July 31, 2021
     Nine Months
Ended
July 31, 2022
     Nine Months
Ended
July 31, 2021
 

GAAP total operating income – as reported

   $  233.9      $  201.9      $ 944.7      $  544.5  

Other expenses managed at consolidated level

           

-Amortization of intangible assets

     26.5        20.4        70.2        60.4  

-Stock compensation

     127.6        85.2        333.4        248.5  

-Non-qualified deferred compensation plan

     (1.1      10.5        (50.0      62.7  

-Acquisition-related costs

     5.2        5.7        11.3        11.6  

-Restructuring charges

     —          15.2        12.1        15.2  

-Legal matters

     —          (1.5      —          (1.5
  

 

 

    

 

 

    

 

 

    

 

 

 

Total adjusted segment operating income

   $ 392.1      $ 337.4      $  1,321.7      $ 941.5  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Synopsys manages the business on a long-term, annual basis, and considers quarterly fluctuations of revenue and profitability as normal elements of our business. Amounts may not foot due to rounding.

(2)

These segments results are consistent with the information required by ASC 280, Segment Reporting. Synopsys’ chief operating decision maker (CODM) is our CEO. The CODM does not allocate certain operating expenses managed at a consolidated level to our reportable segments and, as a result, the reported operating income and operating margin do not include these unallocated expenses as shown in the table above. Amount may not foot due to rounding.

(3)

Synopsys’ third quarter of fiscal year 2022 and 2021 ended on July 30, 2022 and July 31, 2021, respectively. For presentation purposes, we refer to the closest calendar month end.

 

13



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