PR Newswire | Aug 18, 2021 04:06PM EDT

08/18 15:05 CDT

Synopsys Posts Financial Results for Third Quarter Fiscal Year 2021Q3 2021 Financial Highlights- Revenue: $1,057.1 million- GAAP earnings per share: $1.27- Non-GAAP earnings per share: $1.81 MOUNTAIN VIEW, Calif., Aug. 18, 2021

MOUNTAIN VIEW, Calif., Aug. 18, 2021 /PRNewswire/ -- Synopsys, Inc. (Nasdaq: SNPS ) today reported results for its third quarter fiscal year 2021. Revenue for the third quarter was $1,057.1 million, compared to $964.1 million for the third quarter of fiscal 2020.

"Synopsys delivered excellent results in the fiscal third quarter, including record revenue and non-GAAP earnings, and we are substantially raising our fiscal 2021 targets. On a trailing-12-month basis, we surpassed the major milestone we set a few years ago: $4 billion in revenue and 30% non-GAAP operating margin." said Aart de Geus, chairman and co-CEO of Synopsys. "Vibrant markets, unparalleled technology innovations, and strong execution position us to continue to increase shareholder value going forward. As we look to next year and beyond, we are aiming at crossing $5 billion in revenue by 2023, with double-digit annual revenue growth and continuing margin expansion."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the third quarter of fiscal 2021 was $198.6 million, or $1.27 per share, compared to $252.9 million, or $1.62 per share, for the third quarter of fiscal 2020.

Non-GAAP Results

On a non-GAAP basis, net income for the third quarter of fiscal 2021 was $284.5 million, or $1.81 per share, compared to non-GAAP net income of $271.9 million, or $1.74 per share, for the third 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 fourth 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.

Fourth Quarter and Fiscal Year 2021 Financial Targets

(in millions except per share amounts)

Q4 FY 2021 FY 2021

Low High Low High

Revenue $ 1,138 $ 1,168 $ 4,190 $ 4,220

GAAP Expenses $ 924 $ 952 $ 3,431 $ 3,459

Non-GAAP Expenses $ 805 $ 815 $ 2,915 $ 2,925

Other Income (Expense) $ (5) $ (3) $ (6) $ (4)

Normalized Annual Tax Rate ^(1) 16% 16% 16% 16%

Outstanding Shares (fully diluted) 156 159 156 159

GAAP EPS $ 1.09 $ 1.25 $ 4.63 $ 4.79

Non-GAAP EPS $ 1.75 $ 1.80 $ 6.78 $ 6.83

Operating Cash Flow ~ $1,350

(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 9581321, beginning at 5:45 p.m. Pacific Time today, until 11:59 p.m. Pacific Time on August 25, 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 fourth quarter and fiscal year 2021 in December 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 fourth quarter and fiscal year 2021 earnings call in December 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 fourth 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 third quarter fiscal year 2021 in its quarterly report on Form 10-Q to be filed by September 9, 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 August 18, 2021 for additional information about the measures Synopsys uses to evaluate its core business operations.

Reconciliation of Third Quarter Fiscal Year 2021 ResultsThe 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 Third Quarter Fiscal Year 2021 Results ^(1)

(unaudited and in thousands, except per share amounts)

Three Months Ended Nine Months Ended

July 31, July 31,

2021 2020 2021 2020

GAAP net income $ 198,646 $ 252,911 $ 556,069 $ 466,892

Adjustments:

Amortization of 20,440 23,649 60,437 70,277intangible assets

Stock compensation 85,162 61,837 248,530 170,155

Acquisition-related 5,702 3,293 11,594 10,837costs

Restructuring 15,151 (1,977) 15,151 36,446charges

Legal matters (1,455) - (1,455) -

Tax adjustments (39,189) (67,767) (99,297) (137,714)

Non-GAAP net $ 284,457 $ 271,946 $ 791,029 $ 616,893income

Three Months Ended Nine Months Ended

July 31, July 31,

2021 2020 2021 2020

GAAP diluted net $ 1.27 $ 1.62 $ 3.54 $ 3.01income per share

Adjustments:

Amortization of 0.13 0.15 0.38 0.45intangible assets

Stock compensation 0.54 0.40 1.58 1.10

Acquisition-related 0.04 0.02 0.07 0.07costs

Restructuring 0.10 (0.01) 0.10 0.24charges

Legal matters (0.01) - (0.01) -

Tax adjustments (0.26) (0.44) (0.63) (0.89)

Non-GAAP dilutednet income per $ 1.81 $ 1.74 $ 5.03 $ 3.98share

Shares used incomputing diluted 156,907 155,973 157,158 155,074net income pershare amounts:

(1) Synopsys' third quarter of fiscal year 2021 and 2020 ended on July 31, 2021and August 1, 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 Fourth Quarter Fiscal Year 2021 Targets ^(1)

(in thousands, except per share amounts)

Range for Three Months

October 31, 2021

Low High

Target GAAP expenses $ 924,000 $ 952,000

Adjustments:

Amortization of (20,000) (23,000)intangible assets

Stock compensation (86,000) (91,000)

Restructuring charges (13,000) (23,000)

Target non-GAAP expenses $ 805,000 $ 815,000

Range for Three Months

October 31, 2021

Low High

Target GAAP earnings per $ 1.09 $ 1.25share

Adjustments:

Amortization of 0.15 0.13intangible assets

Stock compensation 0.58 0.55

Restructuring charges 0.15 0.08

Tax adjustments (0.22) (0.21)

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 $ 3,430,837 $ 3,458,837

Adjustments:

Amortization of (80,000) (83,000)intangible assets

Stock compensation (335,000) (340,000)

Acquisition-related (11,594) (11,594)costs

Restructuring charges (28,000) (38,000)

Legal matters 1,455 1,455

Non-qualified (62,698) (62,698)deferred compensation plan

Target non-GAAP expenses $ 2,915,000 $ 2,925,000

Range for Fiscal Year

October 31, 2021

Low High

Target GAAP earnings per $ 4.63 $ 4.79share

Adjustments:

Amortization of 0.53 0.51intangible assets

Stock compensation 2.16 2.13

Acquisition-related 0.07 0.07costs

Restructuring charges 0.25 0.18

Legal matters (0.01) (0.01)

Tax adjustments (0.85) (0.84)

Target non-GAAP earnings $ 6.78 $ 6.83per share

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

(1) Synopsys' fourth fiscal quarter and fiscal year will end on October 30,2021. 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; 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 continued 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 continued effect of the COVID-19 pandemic on the global economy and 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 August 18, 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 Nine Months Ended

July 31, July 31,

2021 2020 2021 2020

Revenue:

Time-based $ 665,563 $ 612,065 $ 1,945,647 $ 1,758,601products

Upfront 203,301 210,931 586,798 491,417products

Maintenance 188,266 141,138 519,329 409,824and service

Total 1,057,130 964,134 3,051,774 2,659,842revenue

Cost ofrevenue:

Products 127,592 118,478 389,677 344,469

Maintenance 65,604 60,812 202,210 184,940and service

Amortizationof intangible 11,870 13,718 35,164 40,732assets

Total cost 205,066 193,008 627,051 570,141of revenue

Gross margin 852,064 771,126 2,424,723 2,089,701

Operatingexpenses:

Research and 371,146 322,602 1,090,959 939,456development

Sales and 171,428 156,456 514,810 455,511marketing

General and 83,846 73,516 234,028 204,734administrative

Amortizationof intangible 8,570 9,931 25,273 29,545assets

Restructuring 15,151 (1,977) 15,151 36,446charges

Totaloperating 650,141 560,528 1,880,221 1,665,692expenses

Operating 201,923 210,598 544,502 424,009income

Other income 11,414 26,256 61,934 22,584(expense), net

Income before 213,337 236,854 606,436 446,593income taxes

Provision(benefit) for 14,945 (16,057) 51,214 (20,299)income taxes

Net income 198,392 252,911 555,222 466,892

Net income(loss)attributed to (254) - (847) -non-controllinginterest

Net incomeattributed to $ 198,646 $ 252,911 $ 556,069 $ 466,892Synopsys

Net income pershare:

Basic $ 1.30 $ 1.67 $ 3.64 $ 3.10

Diluted $ 1.27 $ 1.62 $ 3.54 $ 3.01

Shares used incomputing pershare amounts:

Basic 152,635 151,352 152,619 150,731

Diluted 156,907 155,973 157,158 155,074

(1) Synopsys' third quarter of fiscal year 2021 and 2020 ended on July 31, 2021and August 1, 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)

July 31, 2021 October 31, 2020

ASSETS:

Current assets:

Cash and cash equivalents $ 1,385,395 $ 1,235,653

Short-term investments 144,773 -

Total cash, cashequivalents & short-term 1,530,168 1,235,653investments

Accounts receivable, net 577,845 780,709

Inventories, net 241,103 192,333

Income taxes receivable and 35,724 32,355prepaid taxes

Prepaid and other current 379,136 308,167assets

Total current assets 2,763,976 2,549,217

Property and equipment, net 470,129 483,818

Operating lease right-of-use 493,899 465,818assets, net

Goodwill 3,485,181 3,365,114

Intangible assets, net 249,974 254,322

Long-term prepaid taxes 10,417 8,276

Deferred income taxes 527,753 497,546

Other long-term assets 484,577 405,951

Total assets $ 8,485,906 $ 8,030,062

LIABILITIES AND STOCKHOLDERS'EQUITY:

Current liabilities:

Accounts payable and accrued $ 615,737 $ 623,664liabilities

Operating lease liabilities, 79,289 73,173current

Accrued income taxes 14,536 27,738

Deferred revenue 1,542,606 1,388,263

Short-term debt 82,468 27,084

Total current 2,334,636 2,139,922liabilities

Operating lease liabilities, 487,574 462,411non-current

Long-term accrued income taxes 24,600 25,178

Long-term deferred revenue 103,759 104,850

Long-term debt 24,754 100,823

Other long-term liabilities 355,447 284,511

Total liabilities 3,330,770 3,117,695

Stockholders' equity:

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

Common stock, $0.01 par value:400,000 shares authorized; 152,597and

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

Capital in excess of par value 1,606,980 1,653,166

Retained earnings 4,348,266 3,795,397

Treasury stock, at cost: 4,664 (757,341) (488,613)and 4,643 shares, respectively

Accumulated other comprehensive (48,411) (54,074)income (loss)

Total Synopsys 5,151,020 4,907,404stockholders' equity

Non-controlling interest 4,116 4,963

Total stockholders' 5,155,136 4,912,367equity

Total liabilities and $ 8,485,906 $ 8,030,062stockholders' equity

(1) Synopsys' third quarter of fiscal year 2021 ended on July 31, 2021, andits fiscal year 2020 ended on October 31, 2020.

SYNOPSYS, INC.

Unaudited Consolidated Statements of Cash Flows ^(1)

(in thousands)

Nine Months Ended

July 31,

2021 2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income attributed to Synopsys $ 556,069 $ 466,892

Adjustments to reconcile net income to net cashprovided by

operating activities:

Amortization and depreciation 151,274 159,156

Reduction of operating lease right-of-use assets 64,920 62,585

Amortization of capitalized costs to obtain revenue 46,973 44,851contracts

Stock-based compensation 248,530 170,155

Allowance for doubtful accounts 13,813 14,875

(Gain) loss on sale of property and investments 10 (1,994)

Deferred income taxes (33,116) (74,374)

Other non-cash 2,926 2,750

Net changes in operating assets and liabilities, netof

acquired assets and liabilities:

Accounts receivable 188,996 (89,667)

Inventories (51,448) (20,296)

Prepaid and other current assets (62,201) (21,350)

Other long-term assets (117,922) (77,860)

Accounts payable and accrued liabilities 51,991 44,313

Operating lease liabilities (61,666) (57,968)

Income taxes (29,414) 6,128

Deferred revenue 152,328 160,966

Net cash provided by operating activities 1,122,063 789,162

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales and maturities of short-term 1,128 -investments

Purchases of short-term investments (146,082) -

Proceeds from sales of long-term investments - 2,151

Purchases of long-term investments (7,591) (2,762)

Purchases of property and equipment (66,957) (120,234)

Cash paid for acquisitions, net of cash acquired (164,053) (201,045)

Capitalization of software development costs (1,517) (3,035)

Other (800) -

Net cash used in investing activities (385,872) (324,925)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from credit facilities - 276,490

Repayment of debt (21,637) (284,218)

Issuances of common stock 113,976 123,237

Payments for taxes related to net share settlement (104,291) (66,985)of equity awards

Purchase of equity forward contract (35,000) -

Purchases of treasury stock (538,082) (200,000)

Other (4,375) -

Net cash used in financing activities (589,409) (151,476)

Effect of exchange rate changes on cash, cash 2,985 8,700equivalents and restricted cash

Net change in cash, cash equivalents and restricted 149,767 321,461cash

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

Cash, cash equivalents and restricted cash, end of $ 1,387,737 $ 1,051,988period

(1) Synopsys' third quarter of fiscal year 2021 and 2020 ended on July 31, 2021and August 1, 2020, respectively. For presentation purposes, we refer to theclosest calendar month end.

SYNOPSYS, INC.

Business Segment Reporting ^(1)

(in millions)

Q3'21 Q3'20 YTD Q3'21 YTD Q3'20

Revenue by segment

- Semiconductor & $ 959.1 $ 870.7 $ 2,768.0 $ 2,392.5System Design

% of Total 90.7% 90.3% 90.7% 90.0%

- Software Integrity $ 98.0 $ 93.4 $ 283.8 $ 267.3

% of Total 9.3% 9.7% 9.3% 10.0%

Total segment $ 1,057.1 $ 964.1 $ 3,051.8 $ 2,659.8revenue

Adjusted operatingincome by segment

- Semiconductor & $ 328.7 $ 308.7 $ 916.5 $ 697.3System Design

- Software Integrity $ 8.7 $ 14.8 $ 25.0 $ 34.6

Total adjustedsegment operating $ 337.4 $ 323.6 $ 941.5 $ 731.9income

Adjusted operatingmargin by segment

- Semiconductor & 34.3% 35.4% 33.1% 29.1%System Design

- Software Integrity 8.8% 15.8% 8.8% 12.9%

Total adjustedsegment operating 31.9% 33.6% 30.8% 27.5%margin

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

(in millions)

Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended

July 31, 2021 ^(3) July 31, 2020 ^(3) July 31, 2021 ^(3) July 31, 2020 ^(3)

GAAP total operating $ 201.9 $ 210.6 $ 544.5 $ 424.0income - as reported

Other expensesmanaged atconsolidated level

-Amortization of 20.4 23.6 60.4 70.3intangible assets

-Stock compensation 85.2 61.8 248.5 170.2

-Non-qualifieddeferred 10.5 26.2 62.7 20.2compensation plan

-Acquisition-related 5.7 3.3 11.6 10.8costs

-Restructuring 15.2 (2.0) 15.2 36.4charges

-Legal matters (1.5) - (1.5) -

Total adjustedsegment operating $ 337.4 $ 323.6 $ 941.5 $ 731.9income

(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' third quarter of fiscal year 2021 and 2020 ended on July 31, 2021and August 1, 2020, respectively. For presentation purposes, we refer to theclosest calendar month end.

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

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

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SOURCE Synopsys, Inc.