Synopsys : Posts Financial Results for Third Quarter Fiscal Year 2021 (Form 8-K)

Synopsys Posts Financial Results for Third Quarter Fiscal Year 2021

Q3 2021 Financial Highlights

•

Revenue: $1,057.1 million

•

GAAP earnings per share: $1.27

•

Non-GAAP earnings per share: $1.81

MOUNTAIN VIEW, Calif. - August 18, 2021 - 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 [phone]([phone] 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^™ 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-GAAPpre-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 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 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 intangible assets				20,440					23,649						60,437					70,277
Stock compensation				85,162					61,837						248,530					170,155
Acquisition-related costs				5,702					3,293						11,594					10,837
Restructuring charges				15,151					(1,977	)					15,151					36,446
Legal matters				(1,455	)				-						(1,455	)				-
Tax adjustments				(39,189	)				(67,767	)					(99,297	)				(137,714	)
Non-GAAP net income		$					284,457			$					271,946				$					791,029			$					616,893
		Three Months Ended						Nine Months Ended
		July 31,						July 31,
		2021			2020						2021			2020
GAAP diluted net income per share		$					1.27			$					1.62				$					3.54			$					3.01
Adjustments:
Amortization of intangible assets				0.13					0.15						0.38					0.45
Stock compensation				0.54					0.40						1.58					1.10
Acquisition-related costs				0.04					0.02						0.07					0.07
Restructuring charges				0.10					(0.01	)					0.10					0.24
Legal matters				(0.01	)				-						(0.01	)				-
Tax adjustments				(0.26	)				(0.44	)					(0.63	)				(0.89	)
Non-GAAP diluted net income per share		$					1.81			$					1.74				$					5.03			$					3.98
Shares used in computing diluted net income per share amounts				156,907					155,973						157,158					155,074

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

Reconciliation of 2021 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 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 intangible assets			(20,000	)			(23,000	)
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 share		$	1.09			$	1.25
Adjustments:
Amortization of intangible assets			0.15				0.13
Stock compensation			0.58				0.55
Restructuring charges			0.15				0.08
Tax adjustments			(0.22	)			(0.21	)
Target non-GAAP earnings per share		$	1.75			$	1.80
Shares used in non-GAAP calculation (midpoint of target range)			157,500				157,500

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 intangible assets			(80,000	)			(83,000	)
Stock compensation			(335,000	)			(340,000	)
Acquisition-related costs			(11,594	)			(11,594	)
Restructuring charges			(28,000	)			(38,000	)
Legal matters			1,455				1,455
Non-qualified deferred compensation plan			(62,698	)			(62,698	)
Target non-GAAP expenses		$	2,915,000			$	2,925,000
		Range for Fiscal Year October 31, 2021
		Low			High
Target GAAP earnings per share		$	4.63			$	4.79
Adjustments:
Amortization of intangible assets			0.53				0.51
Stock compensation			2.16				2.13
Acquisition-related costs			0.07				0.07
Restructuring charges			0.25				0.18
Legal matters			(0.01	)			(0.01	)
Tax adjustments			(0.85	)			(0.84	)
Target non-GAAP earnings per share		$	6.78			$	6.83
Shares used in non-GAAP calculation (midpoint of target range)			157,500				157,500

(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 July 31,			Nine Months Ended July 31,
		2021			2020			2021			2020
Revenue:
Time-based products		$	665,563			$	612,065			$	1,945,647			$	1,758,601
Upfront products			203,301				210,931				586,798				491,417
Maintenance and service			188,266				141,138				519,329				409,824
Total revenue			1,057,130				964,134				3,051,774				2,659,842
Cost of revenue:
Products			127,592				118,478				389,677				344,469
Maintenance and service			65,604				60,812				202,210				184,940
Amortization of intangible assets			11,870				13,718				35,164				40,732
Total cost of revenue			205,066				193,008				627,051				570,141
Gross margin			852,064				771,126				2,424,723				2,089,701
Operating expenses:
Research and development			371,146				322,602				1,090,959				939,456
Sales and marketing			171,428				156,456				514,810				455,511
General and administrative			83,846				73,516				234,028				204,734
Amortization of intangible assets			8,570				9,931				25,273				29,545
Restructuring charges			15,151				(1,977	)			15,151				36,446
Total operating expenses			650,141				560,528				1,880,221				1,665,692
Operating income			201,923				210,598				544,502				424,009
Other income (expense), net			11,414				26,256				61,934				22,584
Income before income taxes			213,337				236,854				606,436				446,593
Provision (benefit) for income taxes			14,945				(16,057	)			51,214				(20,299	)
Net income			198,392				252,911				555,222				466,892
Net income (loss) attributed to non-controlling interest			(254	)			-				(847	)			-
Net income attributed to Synopsys		$	198,646			$	252,911			$	556,069			$	466,892
Net income per share:
Basic		$	1.30			$	1.67			$	3.64			$	3.10
Diluted		$	1.27			$	1.62			$	3.54			$	3.01
Shares used in computing per share 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, 2021 and August 1, 2020, respectively. For presentation purposes, we refer to the closest 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, cash equivalents & short-term investments			1,530,168				1,235,653
Accounts receivable, net			577,845				780,709
Inventories, net			241,103				192,333
Income taxes receivable and prepaid taxes			35,724				32,355
Prepaid and other current assets			379,136				308,167
Total current assets			2,763,976				2,549,217
Property and equipment, net			470,129				483,818
Operating lease right-of-use assets, net			493,899				465,818
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 liabilities		$	615,737			$	623,664
Operating lease liabilities, current			79,289				73,173
Accrued income taxes			14,536				27,738
Deferred revenue			1,542,606				1,388,263
Short-term debt			82,468				27,084
Total current liabilities			2,334,636				2,139,922
Operating lease liabilities, non-current			487,574				462,411
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; 152,597 and 152,618 shares outstanding, respectively			1,526				1,528
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 and 4,643 shares, respectively			(757,341	)			(488,613	)
Accumulated other comprehensive income (loss)			(48,411	)			(54,074	)
Total Synopsys stockholders' equity			5,151,020				4,907,404
Non-controlling interest			4,116				4,963
Total stockholders' equity			5,155,136				4,912,367
Total liabilities and stockholders' equity		$	8,485,906			$	8,030,062

(1)	Synopsys' third quarter of fiscal year 2021 ended on July 31, 2021, and its 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 cash provided 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 contracts			46,973				44,851
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, net of 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 investments			1,128				-
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 of equity awards			(104,291	)			(66,985	)
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 equivalents and restricted cash			2,985				8,700
Net change in cash, cash equivalents and restricted cash			149,767				321,461
Cash, cash equivalents and restricted cash, beginning of year			1,237,970				730,527
Cash, cash equivalents and restricted cash, end of period		$	1,387,737			$	1,051,988

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

purposes, we refer to the closest 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 & System Design		$	959.1			$	870.7			$	2,768.0			$	2,392.5
% 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 revenue		$	1,057.1			$	964.1			$	3,051.8			$	2,659.8
Adjusted operating income by segment
- Semiconductor & System Design		$	328.7			$	308.7			$	916.5			$	697.3
- Software Integrity		$	8.7			$	14.8			$	25.0			$	34.6
Total adjusted segment operating income		$	337.4			$	323.6			$	941.5			$	731.9
Adjusted operating margin by segment
- Semiconductor & System Design			34.3	%			35.4	%			33.1	%			29.1	%
- Software Integrity			8.8	%			15.8	%			8.8	%			12.9	%
Total adjusted segment operating margin			31.9	%			33.6	%			30.8	%			27.5	%

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

(in millions)

		Three Months Ended July 31, 2021 (3)			Three Months Ended July 31, 2020 (3)			Nine Months Ended July 31, 2021(3)			Nine Months Ended July 31, 2020 (3)
GAAP total operating income - as reported		$	201.9			$	210.6			$	544.5			$	424.0
Other expenses managed at consolidated level
-Amortization of intangible assets			20.4				23.6				60.4				70.3
-Stock compensation			85.2				61.8				248.5				170.2
-Non-qualified deferred compensation plan			10.5				26.2				62.7				20.2
-Acquisition-related costs			5.7				3.3				11.6				10.8
-Restructuring charges			15.2				(2.0	)			15.2				36.4
-Legal matters			(1.5	)			-				(1.5	)			-
Total adjusted segment operating income		$	337.4			$	323.6			$	941.5			$	731.9

(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 segment results are consistent with the information required by ASC 280, Segment Reporting . They are presented to reflect the information that is considered by Synopsys' chief operating decision makers (CODMs) to evaluate the operating performance of its segments. The CODMs do 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. Amounts may not foot due to rounding.

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