SYNOPSYS INC. This Quarterly Report on Form 10-Q includes forward-looking statements, which 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. Readers are urged to carefully review and consider the various disclosures regarding these risks and uncertainties made in this Quarterly Report on Form 10-Q, including those identified below in Part II, Item 1A. Risk Factors, and in other documents we file from time to time with theSecurities and Exchange Commission (SEC). Forward-looking statements include any statements that are not statements of historical fact and include, but are not limited to, statements concerning 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; the expected impact ofU.S. and foreign government actions on our financial results; and the expected impact of the COVID-19 pandemic. Forward-looking statements may be identified by words such as "may," "will," "could," "would," "can," "should," "anticipate," "expect," "intend," "believe," "estimate," "project," "continue," "forecast," "likely," "potential," "seek," or the negatives of such terms and similar expressions. The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. All subsequent written or oral forward-looking statements attributable toSynopsys or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The following summary of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and the related notes thereto contained in Part I, Item 1 of this report and with our audited consolidated financial statements and the related notes thereto contained in our Annual Report on Form 10-K for the fiscal year endedOctober 31, 2020 , as filed with theSEC onDecember 15, 2020 . Overview Business SummarySynopsys, Inc. provides products and services used across the entire Silicon to Software spectrum to bring Smart Everything to life. From engineers creating advanced semiconductors to product teams developing advanced electronic systems to software developers seeking to ensure the security and quality of their code, our customers trust that our technologies will enable them to meet new requirements for low power as well as reliability, mobility, and security. We are a global leader in supplying the electronic design automation (EDA) software that engineers use to design and test integrated circuits (ICs), also known as chips. We also offer semiconductor intellectual property (IP) products, which are pre-designed circuits that engineers use as components of larger chip designs rather than designing those circuits themselves. We provide software and hardware used to validate the electronic systems that incorporate chips and the software that runs on them. To complement these offerings, we provide technical services and support to help our customers develop advanced chips and electronic systems. These products and services are part of our Semiconductor & System Design segment. We are also a leading provider of software tools and services that improve the security, quality and compliance of software in a wide variety of industries, including electronics, financial services, automotive, medicine, energy and industrials. These tools and services are part of our Software Integrity segment. Our EDA and IP customers are generally semiconductor and electronics systems companies. Our solutions help these companies overcome the challenges of developing increasingly advanced electronics products while also helping them reduce their design and manufacturing costs. While our products are an important part of our customers' development process, our sales could be affected based on their research and development budgets, and our customers' spending decisions may be affected by their business outlook and willingness to invest in new and increasingly complex chip designs. Our Software Integrity business delivers products and services that enable software developers to test their code - while it is being written - for known security vulnerabilities and quality defects, as well as testing for open source security vulnerabilities and license compliance. Our Software Integrity customers are software developers across many industries, including, but also well beyond, the semiconductor and systems industries. Our Software Integrity products and services form a platform that helps our customers build security into the software development lifecycle and across the entire cyber supply chain. 23 -------------------------------------------------------------------------------- We have consistently grown our revenue since 2005, despite periods of global economic uncertainty. We achieved these results because of our solid execution, leading technologies and strong customer relationships, and because we recognize our revenue for software licenses over the arrangement period, which typically approximates three years. See Note 2.Summary of Significant Accounting Policies in the Company's Annual Report on Form 10-K for the year endedOctober 31, 2020 for discussion on our revenue recognition policy. The revenue we recognize in a particular period generally results from selling efforts in prior periods rather than the current period. As a result, decreases as well as increases in customer spending do not immediately affect our revenues in a significant way. Our growth strategy is based on maintaining and building on our leadership in our EDA products, expanding and proliferating our IP offerings, driving growth in the software security and quality market, and continuing to expand our product portfolio and our total addressable market. In addition, due to our adoption of ASC 606 in the beginning of fiscal 2019, the way in which we are required to account for certain types of arrangements has increased the variability in our total revenue from period to period. Nevertheless, the accounting impact has not affected the cash generated from our business. Based on our leading technologies, customer relationships, business model, diligent expense management, and acquisition strategy, we believe that we will continue to execute our strategies successfully. COVID-19 Pandemic While the COVID-19 pandemic has changed the physical working environment of the majority of our workforce to working from home, it has otherwise caused only minor disruptions to our business operations, with a limited impact on our operating results thus far. Given the unpredictable nature of the COVID-19 pandemic's impact on the global economy, our historical results may not be an indication of future performance. The extent to which the COVID-19 pandemic impacts our business operations in future periods will depend on multiple uncertain factors, including the duration and scope of the pandemic, its overall negative impact on the global economy generally and the semiconductor and electronics industries specifically, and continued responses by governments and businesses to COVID-19. We have not identified trends that we expect will materially impact our future operating results at this time. As we recognize our revenue for software licenses over the arrangement period, any potential impact related to COVID-19 may be delayed. We have not observed any changes in the design activity of customers, but we experienced a slowdown in customer commitments in our Software Integrity segment. We have not received any significant requests from our customers to either delay payments or modify arrangements due to COVID-19. However, this situation could change in future periods and the extent that these requests may impact our business is uncertain. We have also experienced minor disruptions in our hardware supply chain, which we have been able to address with minimal impact to our business operations to date. We will continue to consider the potential impact of the COVID-19 pandemic on our business operations. Although no material impairment or other effects have been identified to date related to the COVID-19 pandemic, there is substantial uncertainty in the nature and degree of its continued effects over time. That uncertainty affects management's accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions as additional events and information become known. See Part II, Item 1A, Risk Factors for further discussion of the possible impact of the COVID-19 pandemic on our business, operations and financial condition. Business Segments Semiconductor & System Design. This segment includes our advanced silicon design, verification products and services, and semiconductor IP portfolio, which encompasses products and services that serve companies primarily in the semiconductor and electronics industries. EDA includes digital, custom and Field Programmable Gate Array (FPGA) IC design software, verification products, and manufacturing software products. Designers use these products to automate the highly complex IC design process and to reduce defects that could lead to expensive design or manufacturing re-spins or suboptimal end products. For IP, we are a leading provider of high-quality, silicon-proven IP solutions for system-on-chips (SoCs). This includes IP that has been optimized to address specific application requirements for the mobile, automotive, digital home, internet of things, and cloud computing markets, enabling designers to quickly develop SoCs in these areas. Software Integrity. This segment includes a broad portfolio of products and services such as leading quality testing technologies, automated analysis, and consulting experts. Our Polaris Software Integrity Platform™ is an integrated cloud-based solution that unites key elements to provide an even more valuable way for developers to better develop personalized approaches for open source license compliance and detect and remediate known security vulnerabilities and quality defects early in the development process, thereby minimizing risk and maximizing 24 --------------------------------------------------------------------------------
productivity.
Fiscal Year End Our fiscal year ends on the Saturday nearest toOctober 31 and consists of 52 weeks, with the exception that approximately every five years, we have a 53-week year. When a 53-week year occurs, we include the additional week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 2021 and 2020 are 52-week years ending onOctober 30, 2021 andOctober 31, 2020 , respectively. Our results of operations for the first three months of fiscal 2021 and 2020 ended onJanuary 30, 2021 andFebruary 1, 2020 , respectively. For presentation purposes, this Form 10-Q refers to the closest calendar month end. Financial Performance Summary In the first quarter of fiscal 2021 compared to the same period of fiscal 2020, our financial performance reflects the following: •Revenues were$970.3 million , an increase of$135.9 million or 16%, primarily due to our continued organic growth. •Total cost of revenue and operating expenses were$822.0 million , an increase of$75.1 million , primarily due to an increase in employee-related costs of$72.6 million resulting from headcount increases through organic growth and acquisitions and higher deferred compensation expenses of$18.3 million , partially offset by a decrease in restructuring costs of$8.8 million . •Operating income was$148.3 million , an increase of$60.8 million or 70%. Critical Accounting Policies and Estimates Our discussion and analysis of our financial results under Results of Operations below are based on our unaudited condensed consolidated financial statements, which we have prepared in accordance withU.S. GAAP. In preparing these financial statements, we make assumptions, judgments and estimates that can affect the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we evaluate our estimates based on historical experience and various other assumptions we believe are reasonable under the circumstances. Our actual results may differ from these estimates. See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for further information on our significant accounting policies. The accounting policies that most frequently require us to make assumptions, judgments and estimates, and therefore are critical to understanding our results of operations, are: •Revenue recognition; •Valuation of business combinations; and •Income taxes.
See Critical Accounting Policies and Estimates in our Annual Report on Form 10-K
for the year ended
Results of Operations
Revenue
Our revenues are generated from two business segments: the Semiconductor &
System Design segment and the Software Integrity segment. See Note 15 of Notes
to Unaudited Condensed Consolidated Financial Statements for additional
information about our reportable segments and revenue by geographic regions.
Further disaggregation of the revenues into various products and services within
these two segments is summarized as follows:
Semiconductor & System Design Segment
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This segment is comprised of the following:
•EDA software includes digital, custom and Field Programmable Gate Array (FPGA)
IC design software, verification products and obligations to provide unspecified
updates and support services. EDA products and services are typically sold
through Technology Subscription License (TSL) arrangements that grant customers
the right to access and use all of the licensed products at the outset of an
arrangement and software updates are generally made available throughout the
entire term of the arrangement, which is typically three years. Under ASC 606,
we have concluded that the software licenses in TSL contracts are not distinct
from the obligation to provide unspecified software updates to the licensed
software throughout the license term, because the multiple software licenses and
support represent inputs to a single, combined offering, and timely, relevant
software updates are integral to maintaining the utility of the software
licenses. We recognize revenue for the combined performance obligation under TSL
contracts ratably over the term of the license.
•IP & System Integration includes our DesignWare® IP portfolio and system-level
products and services. Under ASC 606, these arrangements generally have two
performance obligations which consist of transferring of the licensed IP and
providing related support, which includes rights to technical support and
software updates that are provided over the support term and are transferred to
the customer over time. Revenue allocated to the IP licenses is recognized at a
point in time upon the later of the delivery date or the beginning of the
license period, and revenue allocated to support is recognized over the support
term. Royalties are recognized as revenue in the quarter in which the applicable
customer sells its products that incorporate our IP. Payments for IP contracts
are generally received upon delivery of the IP. Revenue related to the
customization of certain IP is recognized as "Professional Services."
•In the case of arrangements involving the sale of Hardware products, we
generally have two performance obligations. The first performance obligation is
to transfer the hardware product, which includes software integral to the
functionality of the hardware product. The second performance obligation is to
provide maintenance on the hardware and its embedded software, which includes
rights to technical support, hardware repairs and software updates that are all
provided over the same term and have the same time-based pattern of transfer to
the customer. The portion of the transaction price allocated to the hardware
product is generally recognized as revenue at the time of shipment because the
customer obtains control of the product at that point in time. We have concluded
that control generally transfers at that point in time because the customer has
the ability to direct the use of the asset and an obligation to pay for the
hardware. The portion of the transaction price allocated to the maintenance
obligation is recognized as revenue ratably over the maintenance term.
•Revenue from Professional Service contracts is recognized over time, generally
using costs incurred or hours expended to measure progress. We have a history of
reasonably estimating project status and the costs necessary to complete
projects. A number of internal and external factors can affect these estimates,
including labor rates, utilization and efficiency variances and specification
and testing requirement changes.
Software Integrity Segment
•We sell Software Integrity products in arrangements that provide customers the
right to software licenses, maintenance updates and technical support. Over the
term of these arrangements, the customer expects us to provide integral
maintenance updates to the software licenses, which help customers protect their
own software from new critical quality defects and potential security
vulnerabilities. The licenses and maintenance updates serve together to fulfill
our commitment to the customer as both work together to provide functionality to
the customer and represent a combined performance obligation. We recognize
revenue for the combined performance obligation over the term of the
arrangement.
Most of our customer arrangements involve hundreds of products and various
license rights, and our customers bargain with us over many aspects of these
arrangements. For example, they often demand a broader portfolio of solutions,
support and services and seek more favorable terms such as expanded license
usage, future purchase rights and other unique rights at an overall lower total
cost. No single factor typically drives our customers' buying decisions, and we
compete on all fronts to serve customers in highly competitive markets.
Customers generally negotiate the total value of the arrangement rather than
just unit pricing or volumes.
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Total Revenue
January 31,
2021 2020 $ Change % Change
(dollars in millions)
Three months ended
Semiconductor & System Design Segment $ 878.3 $ 748.8 $ 129.5 17 %
Software Integrity Segment 92.0 85.6 6.4 7 %
Total $ 970.3 $ 834.4 $ 135.9 16 %
The overall growth of our business has been the primary driver of the increase
in our revenue. Our revenues are subject to fluctuations, primarily due to
customer requirements including the timing and value of contract renewals. For
example, we experience fluctuations in our revenue due to factors such as the
timing of IP product sales, consulting projects, FSA drawdowns, royalties, and
hardware sales. As revenue from IP products sales and hardware sales are
recognized upfront, customer demand and timing requirements for such IP products
and hardware have resulted in increased variability of our total revenue.
The increase in total revenue for the three months ended January 31, 2021
compared to the same period in fiscal 2020 was primarily attributable to the
continued organic growth of the business in all product categories and regions.
See Note 15 of Notes to Unaudited Condensed Consolidated Financial Statements
for a discussion of revenue by geographic areas.
Time-Based Products Revenue
January 31,
2021 2020 $ Change % Change
(dollars in millions)
Three months ended $ 631.3 $ 556.4 $ 74.9 13 %
Percentage of total revenue 65 % 67 %
The increase in time-based products for the three months ended
Upfront Products Revenue
January 31,
2021 2020 $ Change % Change
(dollars in millions)
Three months ended $ 174.4 $ 150.7 $ 23.7 16 %
Percentage of total revenue 18 % 18 %
Changes in upfront products revenue are generally attributable to normal
fluctuations in the extent and timing of customer requirements, which can drive
the amount of upfront orders and revenue in any particular period.
The increase in upfront products revenue for the three months ended January 31,
2021 compared to the same period in fiscal 2020 was primarily due to an increase
in the sale of IP products driven by higher demand from customers.
Upfront products revenue as a percentage of total revenue will likely fluctuate
based on the timing of IP products and hardware sales. Such fluctuations will
continue to be impacted by the timing of shipments or FSA drawdowns due to
customer requirements.
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--------------------------------------------------------------------------------Maintenance and Service Revenue
January 31,
2021 2020 $ Change % Change
(dollars in millions)
Three months ended
Maintenance revenue $ 54.2 $ 40.2 $ 14.0 35 %
Professional services and other revenue 110.5 87.0 23.5 27 %
Total $ 164.7 $ 127.2 $ 37.5 29 %
Percentage of total revenue 17 % 15 %
The increase in maintenance revenue for the three months ended January 31, 2021
compared to the same period in fiscal 2020 was primarily due to an increase in
the volume of arrangements that include maintenance.
The increase in professional services and other revenue for the three months
ended January 31, 2021 compared to the same period in fiscal 2020 was primarily
due to changes in the volume and timing of IP consulting projects.
Cost of Revenue
January 31,
2021 2020 $ Change % Change
(dollars in millions)
Three months ended
Cost of products revenue $ 127.3 $ 117.8 $ 9.5 8 %
Cost of maintenance and service revenue 68.8 61.9 6.9 11 %
Amortization of intangible assets 11.9 13.2 (1.3) (10) %
Total $ 208.0 $ 192.9 $ 15.1 8 %
Percentage of total revenue 21 % 23 %
We divide cost of revenue into three categories: cost of products revenue, cost
of maintenance and service revenue, and amortization of intangible assets. We
segregate expenses directly associated with consulting and training services
from cost of products revenue associated with internal functions providing
license delivery and post-customer contract support services. We then allocate
these group costs between cost of products revenue and cost of maintenance and
service revenue based on products and maintenance and service revenue reported.
Cost of products revenue. Cost of products revenue includes costs related to
products sold and software licensed, allocated operating costs related to
product support and distribution costs, royalties paid to third-party vendors,
and the amortization of capitalized research and development costs associated
with software products that had reached technological feasibility.
Cost of maintenance and service revenue. Cost of maintenance and service revenue
includes operating costs related to maintaining the infrastructure necessary to
operate our services and costs to deliver our consulting services, such as
hotline and on-site support, production services and documentation of
maintenance updates. We expect our cost of maintenance and service revenue to
increase in future periods because of recent acquisitions, but we do not expect
the impact to be material to our total cost of revenue.
Amortization of intangible assets. Amortization of intangible assets, which is
recorded to cost of revenue and operating expenses, includes the amortization of
core/developed technology, trademarks, trade names, customer relationships,
covenants not to compete related to acquisitions and certain contract rights
related to acquisitions.
The increase in cost of revenue for the three months ended January 31, 2021
compared to the same period in fiscal 2020, was primarily due to increases of
$10.7 million in personnel-related costs as a result of headcount increases from
organic hiring and acquisitions, $3.8 million in servicing IP consulting
arrangements and $3.3 million in hardware related costs.
Changes in other cost of revenue categories for the above-mentioned periods were
not individually material.
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Operating Expenses
Research and Development
January 31,
2021 2020 $ Change % Change
(dollars in millions)
Three months ended $ 357.5 $ 314.3 $ 43.2 14 %
Percentage of total revenue 37 % 38 %
The increase in research and development expenses for the three months ended
January 31, 2021 compared to the same period in fiscal 2020 was primarily due to
an increase of $35.7 million in personnel-related costs as a result of headcount
increases, including those from acquisitions, and higher deferred compensation
expenses of $10.8 million , partially offset by a decrease of $2.1 million in
facility expenses.
Changes in other research and development expense categories for the
above-mentioned periods were not individually material.
Sales and Marketing
January 31,
2021 2020 $ Change % Change
(dollars in millions)
Three months ended $ 170.6 $ 152.9 $ 17.7 12 %
Percentage of total revenue 18 % 18 %
The increase in sales and marketing expenses for the three months ended
January 31, 2021 compared to the same period in fiscal 2020, was primarily due
to an increase of $18.3 million in personnel-related costs as a result of an
increase in sales commissions and bonus and higher deferred compensation
expenses of $4.1 million , partially offset by a decrease of $3.8 million that
included reduced travel and marketing expenses as a result of COVID-19
restrictions.
Changes in other sales and marketing expense categories for the above-mentioned
periods were not individually material.
General and Administrative
January 31,
2021 2020 $ Change % Change
(dollars in millions)
Three months ended $ 77.5 $ 68.7 $ 8.8 13 %
Percentage of total revenue 8 % 8 %
The increase in general and administrative expenses for the three months ended
January 31, 2021 compared to the same period in fiscal 2020 was primarily due to
an increase of $7.9 million in personnel-related expenses and higher deferred
compensation expenses of $1.8 million , partially offset by a decrease of $2.0
million in professional service costs.
Changes in other general and administrative expense categories for the
above-mentioned periods were not individually material.
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Amortization of Intangible Assets
Amortization of intangible assets includes the amortization of contract rights
and the amortization of core/developed technology, trademarks, trade names,
customer relationships, and in-process research and development related to
acquisitions completed in prior years. Amortization expense is included in the
unaudited condensed consolidated statements of operations as follows:
January 31,
2021 2020 $ Change % Change
(dollars in millions)
Three months ended
Included in cost of revenue $ 11.9 $ 13.2 $ (1.3) (10) %
Included in operating expenses 8.4 9.4 (1.0) (11) %
Total $ 20.3 $ 22.6 $ (2.3) (10) %
Percentage of total revenue 2 % 3 %
The decrease in amortization of intangible assets for the three months ended
January 31, 2021 compared to the same period in fiscal 2020 was primarily due to
intangible assets that were fully amortized, partially offset by additions of
acquired intangible assets.
Other Income (Expense), Net
January 31,
2021 2020 $ Change % Change
(dollars in millions)
Three months ended
Interest income $ 0.3 $ 1.5 $ (1.2) (80) %
Interest expense (0.7) (1.6) 0.9 (56) %Gain (loss) on assets related to executive deferred compensation plan
30.9 12.5 18.4 147 %
Foreign currency exchange gain (loss) (0.3) 0.1 (0.4) (400) %
Other, net (1.4) (0.4) (1.0) 250 %
Total $ 28.8 $ 12.1 $ 16.7 138 %
The net increase in other income (expense) for the three months ended
January 31, 2021 as compared to the same period in fiscal 2020 was primarily due
to higher gains in the market value of our executive deferred compensation plan
assets.
Segment Operating Results
We do not allocate certain operating expenses managed at a consolidated level to
our reportable segments. These unallocated expenses consist primarily of
stock-based compensation expense, amortization of intangible assets,
restructuring, litigation and acquisition-related costs. See Note 15 of Notes to
Unaudited Condensed Consolidated Financial Statements for more information.
Semiconductor & System Design Segment
January 31,
2021 2020 Change % Change
(dollars in millions)
Three months ended
Adjusted operating income $ 278.9 $ 178.9 $ 100.0 56 %
Adjusted operating margin 32 % 24 % 8 % 33 %
The increase in adjusted operating income for the three months ended January 31,
2021 compared to the same period in fiscal 2020 was primarily due to an increase
in revenue from arrangements booked in prior periods.
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Software Integrity Segment
January 31,
2021 2020 Change % Change
(dollars in millions)
Three months ended
Adjusted operating income $ 7.9 $ 8.1 $ (0.2) (2) %
Adjusted operating margin 9 % 9 % - % - %
The adjusted operating income for the three months ended January 31, 2021
remained relatively flat compared to the same period in fiscal 2020. The slight
decrease was primarily due to an increase in operating expenses, partially
offset by an increase in revenue from arrangements booked in prior periods.
Income Taxes
Our effective tax rate increased in the three months ended January 31, 2021 as
compared to the same period in fiscal 2020, primarily due to enacted legislation
in California which limits the use of California research and development tax
credits commencing in fiscal 2021, partially offset by excess tax benefits from
stock-based compensation. Our effective tax rate was lower in the three months
ended January 31, 2020 primarily due to the realizability of U.S. foreign tax
credits and California research and development tax credits.
See Note 17 of Notes to Unaudited Condensed Consolidated Financial Statements
for further discussion of the provision for income taxes and impacts related to
the Tax Act.
Liquidity and Capital Resources
Our sources of cash and cash equivalents are funds generated from our business
operations and funds that may be drawn down under our revolving credit and term
loan facilities.
We have considered the potential impact of the COVID-19 pandemic on our
liquidity and capital resources. Although we have not observed any material
effects on our liquidity, collections from customers or other working capital
requirements due to the COVID-19 pandemic to date, there is substantial
uncertainty that could result in greater variability as additional events and
information become known. We believe that our existing balances of cash and cash
equivalents will be sufficient to satisfy our working capital needs, capital
asset purchases, share repurchases, acquisitions, debt repayments and other
liquidity requirements associated with our existing operations. We are
continuously evaluating the COVID-19 pandemic's effects and taking steps to
mitigate known risks, including potential constraints on our liquidity and
capital resources as a result of customers' reduced expenditures or disruptions
to our supply chain. In light of that ongoing assessment, we may choose to
temporarily defer certain expenditures due to the effects of the COVID-19
pandemic.
As of January 31, 2021 , we held an aggregate of $407.7 million in cash and cash
equivalents in the United States and an aggregate of $615.4 million in our
foreign subsidiaries. In addition, we have provided foreign withholding taxes on
the undistributed earnings of certain of our foreign subsidiaries to the extent
such earnings are no longer considered to be indefinitely reinvested in the
operations of those subsidiaries.
The following sections discuss changes in our unaudited condensed consolidated
balance sheets and statements of cash flows, and other commitments of our
liquidity and capital resources during the three months ended January 31, 2021 .
Cash and Cash Equivalents
January 31, October 31,
2021 2020 $ Change % Change
(dollars in millions)
Cash and cash equivalents $ 1,023.1 $ 1,235.7 $ (212.6) (17) %
Cash and cash equivalents decreased primarily due to no proceeds from our credit
facilities and stock repurchase activities in the three months ended January 31,
2021 . The decrease in cash and cash equivalents was partially offset by higher
cash from our operations.
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Cash Flows
Three Months Ended
January 31,
2021 2020 $ Change
(dollars in millions)
Cash provided by operating activities $ 174.0 $ 9.8 $ 164.2
Cash used in investing activities (103.5) (133.6) 30.1
Cash used in financing activities (293.1) 93.5
(386.6)
Cash Provided by Operating Activities We expect cash from our operating activities to fluctuate as a result of a number of factors, including the timing of our billings and collections, our operating results, and the timing and amount of tax and other liability payments. Cash provided by our operations is dependent primarily upon the payment terms of our license agreements. We generally receive cash from upfront arrangements much sooner than from time-based products revenue, in which the license fee is typically paid either quarterly or annually over the term of the license. Cash provided by operating activities for the three months endedJanuary 31, 2021 was higher compared to the same period in fiscal 2020, primarily attributable to higher net income and higher cash collections, partially offset by higher disbursements for operations, including vendor payments. Cash Used in Investing Activities Cash used in investing activities for the three months endedJanuary 31, 2021 was lower compared to the same period in fiscal 2020, primarily due to lower purchases of property and equipment of$26.8 million . Cash Provided by (Used in) Financing Activities Cash used in financing activities for the three months endedJanuary 31, 2021 was higher compared to the same period in fiscal 2020, primarily due to lower proceeds of$196.5 million from credit facilities drawdowns and higher stock repurchase activities of$152.9 million . Accounts Receivable, net January 31, October 31, 2021 2020 $ Change % Change (dollars in millions) Accounts Receivable, net$ 789.3 $ 780.7 $ 8.6 1 % Changes in our accounts receivable balance are primarily driven by the timing and volume of customer billing and collection activities. Working Capital Working capital is comprised of current assets less current liabilities, as shown on our unaudited condensed consolidated balance sheets: January 31, October 31, 2021 2020 $ Change % Change (dollars in millions) Current assets$ 2,397.7 $ 2,549.2 $ (151.5) (6) % Current liabilities 2,171.4 2,139.9 31.5 1 % Working capital (deficit)$ 226.3 $ 409.3 $ (183.0) (45) % Decreases in our working capital were primarily due to a decrease in cash and cash equivalents of$212.6 million and an increase in deferred revenue of$157.8 million , partially offset by a decrease in accounts payable and accrued liabilities of$200.7 million . We did not see a significant impact on our working capital during this period from the COVID-19 pandemic. 32 -------------------------------------------------------------------------------- Other Commitments - Credit and Term Loan Facilities As ofJanuary 31, 2021 , we had$97.4 million outstanding balance, net of debt issuance costs, under the Term Loan. Outstanding principal payments under the Term Loan are due as follows: Fiscal year (in thousands) Remainder of fiscal 2021$ 22,500 2022 75,000 Total$ 97,500 InJuly 2018 , we entered into a 12-year220.0 million RMB (approximately$33.0 million ) credit agreement with a lender inChina to support our facilities expansion. Borrowings bear interest at a floating rate based on the 5 year Loan Prime Rate plus 0.74%. As ofJanuary 31, 2021 , we had$25.7 million outstanding under the agreement. As ofOctober 31, 2020 , we had$102.1 million outstanding balance, net of debt issuance costs, under the Term Loan, of which$75.0 million was classified as long-term liabilities. There was no outstanding balance under the Revolver as ofJanuary 31, 2021 andOctober 31, 2020 . We expect our borrowings under the Revolver will fluctuate from quarter to quarter. Borrowings bear interest at a floating rate based on a margin over our choice of market observable base rates as defined in the Credit Agreement. As ofJanuary 31, 2021 , borrowings under the Term Loan bore interest at LIBOR +1.125% and the applicable interest rate for the Revolver was LIBOR +1.000%. In addition, commitment fees are payable on the Revolver at rates between 0.125% and 0.200% per year based on our leverage ratio on the daily amount of the revolving commitment. See Note 9 of Notes to Unaudited Condensed Consolidated Financial Statements for additional information. Other As ofJanuary 31, 2021 , our cash equivalents consisted of taxable money market mutual funds. We follow an established investment policy and set of guidelines to monitor, manage and limit our exposure to interest rate and credit risk. We proactively manage our cash equivalents balances and closely monitor our capital and stock repurchase expenditures to ensure ample liquidity. Additionally, we believe the overall credit quality of our portfolio is strong, with our global excess cash, and our cash equivalents, invested in banks and securities with a weighted-average credit rating exceeding AA. The majority of our investments are classified as Level 1 or Level 2 investments, as measured under fair value guidance. See Notes 6 and 7 of Notes to Unaudited Condensed Consolidated Financial Statements. We believe that our current cash and cash equivalents, cash generated from operations, and available credit under our Revolver will satisfy our routine business requirements for at least the next 12 months and the foreseeable future. Contractual Obligations Contractual obligations as ofJanuary 31, 2021 are as follows: Remainder of Fiscal 2022/ Fiscal 2024/ Total Fiscal 2021 Fiscal 2023 Fiscal 2025 Thereafter Other (in thousands) Operating leases$ 632,571 $ 63,434 $ 148,424 $ 126,837 $ 293,876 $ - Purchase obligations(1) 299,605 112,360 185,155 2,090 - - Other obligations(2) 123,804 48,804 75,000 - - - Long-term accrued income taxes(3) 25,184 - - - - 25,184 Total$ 1,081,164 $ 224,598 $ 408,579 $ 128,927 $ 293,876 $ 25,184 (1)Purchase obligations represent an estimate of all open purchase orders and contractual obligations in the ordinary course of business for which we have not received the goods or services as ofJanuary 31, 2021 . Although open purchase orders are considered enforceable and legally binding, the terms generally allow us the option to cancel, 33 -------------------------------------------------------------------------------- reschedule, and adjust our requirements based on our business needs prior to the delivery of goods or performance of services. (2) These other obligations include our Term Loan, credit facilities and associated fees. (3) Long-term accrued income taxes represent uncertain tax benefits as ofJanuary 31, 2021 . Currently, a reasonably reliable estimate of timing of payments related to uncertain tax benefits in individual years beyond fiscal 2021 cannot be made due to uncertainties in timing of the commencement and settlement of potential tax audits. The expected timing of payments of the obligations discussed above is estimated based on current information. Timing of payment and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations. 34
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