PR Newswire | May 19, 2021 04:06PM EDT

05/19 15:05 CDT

Synopsys Posts Financial Results for Second Quarter Fiscal Year 2021Q2 2021 Financial Highlights- Revenue: $1,024.3 million- GAAP earnings per share: $1.24- Non-GAAP earnings per share: $1.70 MOUNTAIN VIEW, Calif., May 19, 2021

MOUNTAIN VIEW, Calif., May 19, 2021 /PRNewswire/ -- Synopsys, Inc. (Nasdaq: SNPS) today reported results for its second quarter fiscal year 2021. Revenue for the second quarter was $1,024.3 million, compared to $861.3 million for the second quarter of fiscal 2020.

"Synopsys continues to execute very well. We delivered outstanding second quarter results, exceeding all of our key guidance metrics, and business was robust across all product groups and geographies. Market demand is strong, and we see a new wave of growth on the horizon, driven by an increasing need for highly complex, connected, specialized, and secure chips and systems," said Aart de Geus, chairman and co-CEO of Synopsys. "Recent transformative technology innovations position us particularly well to enable this new era. And combined with our multi-year focus on accelerating growth and expanding non-GAAP operating margin, we continue to manage the business to drive significant long-term shareholder value. Our excellent year-to-date results, coupled with increased confidence in our business, lead us to raise our fiscal 2021 revenue, non-GAAP earnings and operating margin, and operating cash flow targets."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the second quarter of fiscal 2021 was $195.1 million, or $1.24 per share, compared to $109.9 million, or $0.71 per share, for the second quarter of fiscal 2020.

Non-GAAP Results

On a non-GAAP basis, net income for the second quarter of fiscal 2021 was $267.1 million, or $1.70 per share, compared to non-GAAP net income of $188.3 million, or $1.22 per share, for the second quarter of fiscal 2020.

For a reconciliation between GAAP and non-GAAP results, see "GAAP to Non-GAAP Reconciliation" and 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 associated services, and (2) Software Integrity, which includes security and quality solutions for software development across many industries. 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 third quarter and full fiscal year 2021. These financial targets assume that there are no further changes to the current U.S. government "Entity List" restrictions for the rest of the fiscal year. 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.

Third Quarter and Fiscal Year 2021 Financial Targets

(in millions except per share amounts)

Q3 FY 2021 FY 2021

Low High Low High

Revenue $ 1,030 $ 1,060 $ 4,035 $ 4,085

GAAP $ 807 $ 825 $ 3,241 $ 3,286Expenses

Non-GAAP $ 707 $ 717 $ 2,835 $ 2,865Expenses

OtherIncome $ (3) $ (1) $ (9) $ (5)(Expense)

NormalizedAnnual Tax 16% 16% 16% 16%Rate ^(1)

OutstandingShares 156 159 156 159(fullydiluted)

GAAP EPS $ 1.30 $ 1.41 $ 4.55 $ 4.72

Non-GAAP $ 1.75 $ 1.80 $ 6.38 $ 6.45EPS

Operating $ 1,250 $ 1,300Cash Flow

(1) Applied in non-GAAP net income calculations

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 8802871, beginning at 5:00 p.m. Pacific Time today, until 11:59 p.m. Pacific Time on May 26, 2021. A webcast replay will also be available on the website from approximately 5:30 p.m. Pacific Time today through the time Synopsys announces its results for the third quarter of fiscal year 2021 in August 2021. Synopsys will post copies of the prepared remarks of Aart de Geus, chairman and co-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 only. Although this press release, copies of the prepared remarks of the co-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 third quarter fiscal year 2021 earnings call in August 2021, their continued availability through such date does not mean that Synopsys is reaffirming or confirming their continued validity. Synopsys does not currently intend to report on its progress during the third quarter of fiscal year 2021 or comment to analysts or investors on, or otherwise update, the targets given in this release.

Availability of Final Financial Statements

Synopsys will include final financial statements for the second quarter fiscal year 2021 in its quarterly report on Form 10-Q to be filed by June 10, 2021.

About Synopsys

Synopsys, Inc. (Nasdaq: SNPS) is the Silicon to Software(tm) 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 believes 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, or as a substitute for, financial information prepared in accordance with GAAP. Synopsys' management believes it is useful for itself and investors to review, as applicable, both GAAP information that includes: (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 measures that exclude such information in order to assess the performance of Synopsys' business and for planning and forecasting in subsequent periods.

Synopsys utilizes a normalized annual non-GAAP tax rate in the calculation of its non-GAAP measures to provide better consistency across interim reporting periods by eliminating the effects of non-recurring and period-specific items such as tax audit settlements, which can vary in size and frequency and not necessarily reflect our normal operations, and to more clearly align our tax rate with our expected geographic earnings mix. In projecting this rate, we evaluate our historical and projected mix of U.S. and international profit before tax, excluding the non-GAAP adjustments described above. We also consider other factors including our current tax structure, our existing tax positions, and expected recurring tax incentives. On an annual basis, we re-evaluate this rate for significant events, including changes in tax laws and regulations, that may materially affect our projections. Based upon our review, our projected normalized annual non-GAAP tax rate remains 16% through fiscal year 2021.

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 the Current Report on Form 8-K filed on May 19, 2021 for additional information about the measures Synopsys uses to evaluate its core business operations.

Reconciliation of Second Quarter Fiscal Year 2021 Results

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

GAAP to Non-GAAP Reconciliation of Second Quarter Fiscal Year 2021 Results ^(1)

(unaudited and in thousands, except per share amounts)

Three Months Ended Six Months Ended

April 30, April 30,

2021 2020 2021 2020

GAAP net income $ 195,078 $ 109,920 $ 357,423 $ 213,981

Adjustments:

Amortization of 19,721 24,095 39,997 46,628intangible assets

Stock compensation 79,586 56,435 163,368 108,318

Acquisition-related 2,344 3,767 5,892 7,544costs

Restructuring - 29,672 - 38,423charges

Tax adjustments (29,630) (35,616) (60,108) (69,947)

Non-GAAP net $ 267,099 $ 188,273 $ 506,572 $ 344,947income

Three Months Ended Six Months Ended

April 30, April 30,

2021 2020 2021 2020

GAAP diluted net $ 1.24 $ 0.71 $ 2.27 $ 1.39income per share

Adjustments:

Amortization of 0.13 0.16 0.25 0.30intangible assets

Stock compensation 0.51 0.37 1.04 0.70

Acquisition-related 0.01 0.02 0.04 0.05costs

Restructuring - 0.19 - 0.25charges

Tax adjustments (0.19) (0.23) (0.38) (0.46)

Non-GAAP dilutednet income per $ 1.70 $ 1.22 $ 3.22 $ 2.23share

Shares used incomputing diluted 157,077 154,379 157,226 154,471net income pershare amounts:

(1) Synopsys' second quarter of fiscal year 2021 and 2020 ended on May 1, 2021and May 2, 2020, respectively. For presentation purposes, we refer to theclosest calendar month end.

Reconciliation of 2021 TargetsThe 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 Third Quarter Fiscal Year 2021 Targets ^(1)

(in thousands, except per share amounts)

Range for Three Months

July 31, 2021

Low High

Target GAAP expenses $ 807,000 $ 825,000

Adjustments:

Estimated impact ofamortization of intangible (19,000) (22,000)assets

Estimated impact of (81,000) (86,000)stock compensation

Target non-GAAP expenses $ 707,000 $ 717,000

Range for Three Months

July 31, 2021

Low High

Target GAAP earnings per $ 1.30 $ 1.41share

Adjustments:

Estimated impact ofamortization of intangible 0.14 0.12assets

Estimated impact of 0.55 0.51stock compensation

Estimated impact of (0.24) (0.24)tax adjustments

Target non-GAAP earnings $ 1.75 $ 1.80per share

Shares used in non-GAAPcalculation (midpoint of 157,500 157,500target range)

GAAP to Non-GAAP Reconciliation of Full Fiscal Year 2021 Targets^(1)

(in thousands, except per share amounts)

Range for Fiscal Year

October 31, 2021

Low High

Target GAAP expenses $ 3,240,892 $ 3,285,892

Adjustments:

Estimated impact ofamortization of intangible (75,000) (80,000)assets

Estimated impact of (325,000) (335,000)stock compensation

Acquisition-related (5,892) (5,892)costs

Target non-GAAP expenses $ 2,835,000 $ 2,865,000

Range for Fiscal Year

October 31, 2021

Low High

Target GAAP earnings per $ 4.55 $ 4.72share

Adjustments:

Estimated impact ofamortization of intangible 0.51 0.48assets

Estimated impact of 2.13 2.06stock compensation

Acquisition-related 0.04 0.04costs

Estimated impact of (0.85) (0.85)tax adjustments

Target non-GAAP earnings $ 6.38 $ 6.45per share

Shares used in non-GAAPcalculation (midpoint of 157,500 157,500target range)

(1) Synopsys' third fiscal quarter and fiscal year will end on July 31, 2021and October 30, 2021, respectively. For presentation purposes, we refer to theclosest 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; business outlook, opportunities and strategies; customer demand and market expansion; strategies related to our products and technology; our planned product releases and capabilities; industry growth rates; software trends; planned acquisitions and buybacks; our expected tax rate; the expected impact of U.S. and foreign government action on our results; and the expected impact of the COVID-19 pandemic. These statements involve risks, uncertainties and other factors that could cause our actual results, time frames or achievements to differ materially from those expressed or implied in our forward-looking statements. Such risks, uncertainties and factors include, but are not limited to: risks from the effect of the COVID-19 pandemic and the associated economic downturn on our business, operations and financial condition; uncertainty in the growth of the semiconductor and electronics industries; 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 measures in response to the COVID-19 pandemic or the imposition of additional tariffs or export restrictions; macroeconomic conditions and uncertainty in the global economy; fluctuation of our operating results; increased variability in our revenue due to the adoption of ASC 606, including the resulting increase in recognizing upfront revenue as a percentage of total revenue; and more. Additional information on potential risks, uncertainties and other factors that could affect Synopsys' results is included in filings it makes with the Securities and Exchange Commission from time to time, including in the sections entitled "Risk Factors" in its Annual Report on Form 10-K for the fiscal year ended October 31, 2020 and its latest Quarterly Report on Form 10-Q. The information provided herein is as of May 19, 2021. 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.

SYNOPSYS, INC.

Unaudited Consolidated Statements of Operations^(1)

(in thousands, except per share amounts)

Three Months Ended Six Months Ended

April 30, April 30,

2021 2020 2021 2020

Revenue:

Time-based $ 648,794 $ 590,097 $ 1,280,084 $ 1,146,536products

Upfront 209,116 129,765 383,497 280,486products

Maintenance 166,413 141,465 331,063 268,686and service

Total 1,024,323 861,327 1,994,644 1,695,708revenue

Cost ofrevenue:

Products 134,738 108,207 262,085 225,991

Maintenance 67,840 62,213 136,606 124,128and service

Amortizationof intangible 11,408 13,845 23,294 27,014assets

Total cost 213,986 184,265 421,985 377,133of revenue

Gross margin 810,337 677,062 1,572,659 1,318,575

Operatingexpenses:

Research and 362,345 302,571 719,813 616,854development

Sales and 172,754 146,200 343,382 299,055marketing

General and 72,694 62,474 150,182 131,218administrative

Amortizationof intangible 8,313 10,250 16,703 19,614assets

Restructuring - 29,672 - 38,423charges

Totaloperating 616,106 551,167 1,230,080 1,105,164expenses

Operating 194,231 125,895 342,579 213,411income

Other income 21,764 (15,729) 50,520 (3,672)(expense), net

Income before 215,995 110,166 393,099 209,739income taxes

Provision(benefit) for 21,193 246 36,269 (4,242)income taxes

Net income 194,802 109,920 356,830 213,981

Net income(loss)attributed to (276) - (593) -non-controllinginterest

Net incomeattributed to $ 195,078 $ 109,920 $ 357,423 $ 213,981Synopsys

Net income pershare:

Basic $ 1.28 $ 0.73 $ 2.34 $ 1.42

Diluted $ 1.24 $ 0.71 $ 2.27 $ 1.39

Shares used incomputing pershare amounts:

Basic 152,725 150,597 152,612 150,421

Diluted 157,077 154,379 157,226 154,471

(1) Synopsys' second quarter of fiscal year 2021 and 2020 ended on May 1, 2021and May 2, 2020, respectively. For presentation purposes, we refer to theclosest calendar month end.

SYNOPSYS, INC.

Unaudited Consolidated Balance Sheets ^(1)

(in thousands, except par value amounts)

April 30, 2021 October 31, 2020

ASSETS:

Current assets:

Cash and cash $ 1,457,918 $ 1,235,653equivalents

Accounts 612,285 780,709receivable, net

Inventories, 230,068 192,333net

Income taxesreceivable and 32,657 32,355prepaid taxes

Prepaid andother current 356,872 308,167assets

Total 2,689,800 2,549,217current assets

Property and 478,975 483,818equipment, net

Operating leaseright-of-use 505,225 465,818assets, net

Goodwill 3,432,577 3,365,114

Intangible 233,809 254,322assets, net

Long-term 10,416 8,276prepaid taxes

Deferred income 514,064 497,546taxes

Other long-term 474,699 405,951assets

$ 8,339,565 $ 8,030,062Total assets

LIABILITIES ANDSTOCKHOLDERS'EQUITY:

Currentliabilities:

Accountspayable and $ 480,831 $ 623,664accruedliabilities

Operatinglease 77,610 73,173liabilities,current

Accrued 25,473 27,738income taxes

Deferred 1,581,841 1,388,263revenue

Short-term 89,945 27,084debt

Total current 2,255,700 2,139,922liabilities

Operating leaseliabilities, 498,953 462,411non-current

Long-termaccrued income 24,658 25,178taxes

Long-termdeferred 98,470 104,850revenue

Long-term debt 25,620 100,823

Other long-term 343,659 284,511liabilities

Total 3,247,060 3,117,695liabilities

Stockholders'equity:

Preferredstock, $0.01par value:2,000 shares - -authorized;noneoutstanding

Common stock,$0.01 parvalue: 400,000sharesauthorized;152,554 and

152,618shares 1,526 1,528outstanding,respectively

Capital inexcess of par 1,679,801 1,653,166value

Retained 4,149,620 3,795,397earnings

Treasurystock, at cost:4,706 and 4,643 (701,457) (488,613)shares,respectively

Accumulatedother (41,355) (54,074)comprehensiveincome (loss)

Total Synopsys 5,088,135 4,907,404stockholders'equity

Non-controlling 4,370 4,963interest

Total 5,092,505 4,912,367stockholders'equity

Totalliabilities and $ 8,339,565 $ 8,030,062stockholders'equity

(1) Synopsys' second quarter of fiscal year 2021 ended on May 1, 2021, and itsfiscal year 2020 ended on October 31, 2020. For presentation purposes, we referto the closest calendar month end.

SYNOPSYS, INC.

Unaudited Consolidated Statements of Cash Flows ^(1)

(in thousands)

Six Months Ended

April 30,

2021 2020

CASH FLOWS FROM OPERATINGACTIVITIES:

Net income attributed to Synopsys $ 357,423 $ 213,981

Adjustments to reconcile net incometo net cash provided by

operating activities:

Amortization and depreciation 100,066 105,078

Reduction of operating lease 42,711 39,513right-of-use assets

Amortization of capitalized costs to 30,475 28,279obtain revenue contracts

Stock-based compensation 163,368 108,318

Allowance for doubtful accounts 10,051 9,982

Deferred income taxes (16,461) (37,681)

Other non-cash (401) 97

Net changes in operating assets andliabilities, net of

acquired assets and liabilities:

Accounts receivable 157,637 (84,533)

Inventories (38,305) (25,237)

Prepaid and other current assets (45,972) (5,889)

Other long-term assets (97,519) (38,378)

Accounts payable and accrued (96,798) (78,989)liabilities

Operating lease liabilities (41,105) (32,432)

Income taxes (8,386) 1,270

Deferred revenue 183,512 186,360

Net cash provided by operating 700,296 389,739activities

CASH FLOWS FROM INVESTINGACTIVITIES:

Purchases of long-term investments - (2,762)

Purchases of property and equipment (44,060) (80,663)

Cash paid for acquisitions, net of (74,626) (151,178)cash acquired

Capitalization of software (1,264) (2,130)development costs

Other (800) -

Net cash used in investing (120,750) (236,733)activities

CASH FLOWS FROM FINANCINGACTIVITIES:

Proceeds from credit facilities - 276,490

Repayment of debt (13,194) (178,437)

Issuances of common stock 103,203 98,361

Payments for taxes related to net (54,664) (17,105)share settlement of equity awards

Purchase of equity forward contract - (20,000)

Purchases of treasury stock (398,082) (180,000)

Other (1,000) -

Net cash used in financing (363,737) (20,691)activities

Effect of exchange rate changes oncash, cash equivalents and 6,457 (4,424)restricted cash

Net change in cash, cash equivalents 222,266 127,891and restricted cash

Cash, cash equivalents and 1,237,970 730,527restricted cash, beginning of year

Cash, cash equivalents and $ 1,460,236 $ 858,418restricted cash, end of period

(1) Synopsys' second quarter of fiscal year 2021 and 2020 ended on May 1, 2021and May 2, 2020, respectively. For presentation purposes, we refer to theclosest calendar month end.

SYNOPSYS, INC.

Business Segment Reporting ^(1)

(in millions)

Q2'21 Q2'20 YTD Q2'21 YTD Q2'20

Revenue by segment

- Semiconductor & $ 930.4 $ 773.0 $ 1,808.8 $ 1,521.8System Design

% of Total 90.8% 89.7% 90.7% 89.7%

- Software Integrity $ 93.9 $ 88.3 $ 185.8 $ 173.9

% of Total 9.2% 10.3% 9.3% 10.3%

Total segment $ 1,024.3 $ 861.3 $ 1,994.6 $ 1,695.7revenue

Adjusted operatingincome by segment

- Semiconductor & $ 308.8 $ 209.7 $ 587.7 $ 388.5System Design

- Software Integrity $ 8.4 $ 11.7 $ 16.4 $ 19.8

Total adjustedsegment operating $ 317.2 $ 221.4 $ 604.1 $ 408.3income

Adjusted operatingmargin by segment

- Semiconductor & System Design 27.1% 32.5% 25.5% 33.2%

- Software Integrity 9.0% 13.3% 8.8% 11.4%

Total adjustedsegment operating 31.0% 25.7% 30.3% 24.1%margin

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

(in millions)

Three Months Ended Three Months Ended Six Months Six Months

April 30, 2021 ^(3) April 30, 2020 ^(3) April 30 2021 ^(3) April 30, 2020 ^(3)

GAAP total operating $ 194.2 $ 125.9 $ 342.6 $ 213.4income - as reported

Other expensesmanaged atconsolidated level

-Amortization of 19.7 24.1 40.0 46.6intangible assets

-Stock compensation 79.6 56.4 163.4 108.3

-Fair value changesin executive 21.4 (18.5) 52.2 (6.0)deferredcompensation plan

-Acquisition-related 2.3 3.8 5.9 7.5costs

-Restructuring - 29.7 - 38.4

Total adjustedsegment operating $ 317.2 $ 221.4 $ 604.1 $ 408.3income

(1) Synopsys manages the business on a long-term, annual basis, and considersquarterly fluctuations of revenue and profitability as normal elements of ourbusiness. Amounts may not foot due to rounding.

(2) These segment results are consistent with the information required by ASC280, Segment Reporting. They are presented to reflect the information that isconsidered by Synopsys' chief operating decision makers (CODMs) to evaluate theoperating performance of its segments. The CODMs do not allocate certainoperating expenses managed at a consolidated level to our reportable segments,and as a result, the reported operating income and operating margin do notinclude these unallocated expenses as shown in the table above. Amounts may notfoot due to rounding.

(3) Synopsys' second quarter of fiscal year 2021 and 2020 ended on May 1, 2021and May 2, 2020, respectively. For presentation purposes, we refer to theclosest calendar month end.

INVESTOR CONTACT:Lisa L. EwbankSynopsys, Inc.650-584-1901Synopsys-ir@synopsys.com

EDITORIAL CONTACT:Simone SouzaSynopsys, Inc.650-584-6454simone@synopsys.com

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SOURCE Synopsys, Inc.