Synopsys (SNPS) Q3 Earnings & Revenues Surpass Estimates
Synopsys Inc. SNPS reported solid third-quarter fiscal 2018 results, wherein both the top line and bottom line beat the Zacks Consensus Estimate. The results also marked year-over-year improvement.
The company reported non-GAAP earnings per share of 95 cents, 3.3% higher than the year-ago figure. The bottom line also beat the Zacks Consensus Estimate of 92 cents.
Synopsys, Inc. Price, Consensus and EPS Surprise
Synopsys, Inc. Price, Consensus and EPS Surprise | Synopsys, Inc. Quote
The company’s fiscal third-quarter revenues jumped 12.1% year over year to $779.7 and surpassed the Zacks Consensus Estimate of $775 million.
On a year-over-year basis, revenues were positively impacted by the proliferation of digital intelligence, leading to increased investments by semiconductor and systems companies, and software developers, which in turn is leading to increased adoption of Synopsys’ products. Strength in IP and rapid growth in software products also drove revenues.
Synopsys, Inc. Revenue (TTM)
Synopsys, Inc. Revenue (TTM) | Synopsys, Inc. Quote
Quarter in Detail
Segment wise, License revenues (including time-based and upfront) came in at $669.6 million, up nearly 11% from the year-ago quarter. Maintenance and service revenues jumped 20.2% year over year to $110.1 million.
By product group, revenues from Core EDA (55% of total) increased 5.2% to $428.5 million. Synopsys is positive about its EDA design solutions, which are helping in the designing of new artificial intelligence engines. The company is leading this market and has started to deploy advanced technology, which is helping it gain market share.
Synopsys’ design platform was a major growth area in the reported quarter, generating higher-than-expected revenues.
Fusion Technology, which was recently announced, also continues to gain traction among customers. Its 7-nanometer Low Power Plus process with EUV has been certified by Samsung Foundry. The technology’s power to reduce runtime by 40% made multimedia SoC provider Vatics its customer. Moreover, industry leaders AMD, Broadcom, Qualcomm, Renesas and Samsung testified the benefits of Fusion Technology, helping the company appeal to more customers.
Synopsys witnessed impressive performance in the Verification area as well. The Verification Continuum Platform experienced strong demand. Broad-based adoptions and renewals in the verification hardware business also boosted the top line.
During the quarter, the company released ZeBu Server 4 in the market, which is said to be one of the fastest and highest capacity emulation systems. It can perform two times better than existing systems, addressing extremely demanding requirements across various industries.
The company also teamed up with Toshiba Memory to enhance 3D flash memory verification.
Revenues from IP/Systems/SI (35%) increased 26.3% year over year to 273.5 million on the back of continued outsourcing of semiconductor IP blocks, a growing portfolio of interfaces, embedded memories, security and processor IP, and demand for IP subsystems.
The company also experienced strong demand for the ARC Embedded Vision Processor, which features ASIL-D-Ready embedded vision IP for autonomous driving applications — the first of its kind in the industry.
Acquisitions in non-volatile memory market brought in significant orders across different market segments, aiding the company’s top line.
Manufacturing revenues (8%) also grew 11% year over year to $64.5 million. The company is benefiting from being a prime partner of choice in initial stages of manufacturing process development, as it is equipped with high quality TCAD and lithography tools. In the quarter, it certified several Samsung Foundry advanced processes, from digital and custom design to verification.
Revenues from the Services and Other segment (2%), however, fell 3.7% year over year.
Margins
Total non-GAAP costs and expenses were $612 million, up 26% year over year.
Synopsys’ non-GAAP operating income of $167.6 increased marginally from $167.4 in the year-ago quarter. Operating margin shrunk 260 (basis points) bps year over year to 21.5%.
Balance Sheet & Cash Flow
Synopsys exited the fiscal third quarter with cash and cash equivalents of $741.2 million compared with $$570.8 million reported at the end of the previous quarter.
During the quarter, the company generated $289 million of cash from operational activities. It repurchased $165 million worth of its common stock during the quarter. It has $325 million remaining in its current share repurchase authorization.
Guidance
Buoyed by splendid quarterly performance, Synopsys raised its fiscal 2018 outlook. The company now expects 2018 revenues to be in the range of $3.10 - $3.13 billion, up from prior guidance of $3.07-$3.10 billion.
Non-GAAP earnings per share are now projected between $3.89 and $3.93, up from earlier projected range of $3.76 to $3.83.
The company noted that the acquisition of Black Duck will be dilutive to its earnings initially but will be accretive over the long run. Management reiterated that the acquisition is expected to be dilutive to 2018 non-GAAP EPS by 12 cents to touch breakeven in the second half of 2019.
Operating cash flow is expected to be within $460 to $500 million, lower than the earlier guidance of $500-$550 million. The guidance for this metric was reduced to accommodate the one-time Mentor legal settlement.
In addition to these, the company initiated guidance for the fiscal fourth quarter as well. It estimates revenues in the range of $774-$804 million. The company expects non-GAAP costs and expenses within $655-$665 million. Management predicts non-GAAP earnings per share in the range of 76-80 cents.
Zacks Rank & Stocks to Consider
Synopsys currently has a Zacks Rank #3 (Hold).
Few better-ranked stocks in the broader Computer and Technology sector are Qualys, Inc. QLYS and Fortinet, Inc. FTNT, each sporting a Zacks Rank #1 (Strong Buy), and Virtusa Corporation VRTU, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth for Qualys, Fortinet and Virtusa is projected to be 8%, 16.8% and 20% respectively.
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