Synopsys Boosts Guidance After a Solid Quarter

Even geopolitical uncertainty can't slow the specialty software maker down.

Brian Feroldi
Brian Feroldi
May 23, 2019 at 2:29PM
Technology and Telecom

Synopsys (NASDAQ:SNPS), which makes specialty software used in the semiconductor industry, reported its fiscal year 2019 second-quarter results on Wednesday.

Sales continued to grow at a moderate pace and management was also able to boost margins modestly and buy back some stock. The combination helped drive a double-digit jump on the bottom line. The upbeat results also enabled the company to favorably tweak its guidance for the full year. That's pretty impressive given that the Trump administration recently decided to place Chinese tech giant Huawei -- one of Synopsys' customers -- on a list of companies that can't buy U.S. tech products without the government's approval.

Synopsys' second-quarter results: The raw numbers

Metric

Q2 2019

Q2 2018

Year-Over-Year Change

Revenue

$836 million

$777 million

7.6%

GAAP net income

$118 million

$103 million

15%

GAAP earnings per share

$0.77

$0.67

15%

Data source: Synopsys.

What happened with Synopsys this quarter?

  • Semiconductor & System Design revenue -- which includes sales of electronic design automation tools, intellectual property products, system integration products, and services -- grew 6% to $753 million.
  • Software Integrity revenue -- which includes sales of security and quality-solutions products -- grew 23% to $83 million.
  • Total revenue of $836 million landed in the middle of management's guidance range of $810 million to $850 million.
  • GAAP EPS of $0.77 was at the high end of management's target range.
  • Non-GAAP operating margin was 25%.
  • On a non-GAAP basis, net income was $178.1 million, or $1.16 per share. That result exceeded the high end of management's guidance by $0.04.
  • Stock buybacks totaled $100 million during the quarter.
  • Cash balance was $631 million at quarter's end. Total debt was $292 million.
Man typing computer code with three screens in front of him.

Image source: Getty Images.

What management had to say

Co-CEO Aart de Geus was quite happy with the company's results. He was quoted in a press release as saying: "Synopsys delivered an excellent second fiscal quarter, with record revenue and strength across both operating segments. We also continued returning capital to shareholders through an accelerated share repurchase."

He also provided investors with commentary about how the company is able to thrive even with the recent escalation in the trade war: "Whereas geopolitical tension has escalated, the overall customer environment for us is quite solid. Investments in sophisticated electronic content and the growing impact of AI in today's connected world are leading to an ever-increasing need for the Silicon to Software solutions that we provide."

Check out Synopsys' latest earnings call.

Looking ahead

Management expects that the good times will continue to roll and shared upbeat guidance for the current quarter.

Metric Q3 2019 Guidance Range Q3 2018 Actual Year-Over-Year Change at Midpoint
Revenue $810 million to $850 million $780 million 6.4%
GAAP EPS $0.60 to $0.83 $0.52 38%
Non-GAAP EPS $1.07 to $1.12 $0.95 16%

Data source: Synopsys.

On the conference call with analysts, CFO Trac Pham noted that the recent government decision to restrict sales of U.S. technology to Huawei adds a new layer of uncertainty to the company's annual revenue and profits targets. Management decided to widen its financial guidance range for the full year in response.

However, even with that near-term headwind, the company still was able to boost its revenue and non-GAAP EPS targets for the full fiscal year.

Metric Old Guidance Range New Guidance Range
Revenue $3.29 billion to $3.34 billion $3.29 billion to $3.35 billion
GAAP EPS $3.19 to $3.32 $2.85 to $3.27
Non-GAAP EPS $4.20 to $4.27 $4.24 to $4.40

Data source: Synopsys.

Pham also restated that the company continues to target long-term revenue growth in high single digits and non-GAAP earnings growth in double digits.

Geus ended his prepared remarks on the conference call by stating that all of the company's long-term growth drivers remain firmly in place:

The hunger for advanced technology, design tools, IP and security solutions is strong, creating a robust market opportunity. The growing impact of AI, 5G, Internet of Things and Big Data is profound and is driving substantial investment in new compute and machine learning architectures. Virtually all vertical markets are engaging with AI and the potential economic impact is forecast to be in the trillions of dollars. In addition to long-time semiconductor vendors, very large system companies and cloud providers are investing competitively, opening further opportunities for us.