In connection with this earnings release, Synopsys is making available to investors supplemental financial information which can be found on Synopsys' website at http://www.synopsys.com/corporate/invest/finsupp/q106.pdf. Synopsys currently intends to provide this information on a quarterly basis.
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 at Synopsys' corporate website at http://www.synopsys.com/corporate/invest/invest.html. A recording of the call will be available by calling 1-800-475-6701 (320-365-3844 for international callers), access code 816786, beginning at 5:30 p.m. Pacific Time today. A webcast replay will also be available at http://www.synopsys.com/corporate/invest/invest.html from approximately 5:30 p.m. Pacific Time today through to the time Synopsys announces its results for the second quarter of fiscal 2006 in May 2006. In addition, Synopsys will post copies of the prepared remarks of Aart de Geus, chairman and chief executive officer, and Brian Beattie, chief financial officer, on its website at http://www.synopsys.com/corporate/invest/invest.html following the call.
Effectiveness of Information
The targets included in this release, the statements made during the earnings conference call and the information contained in the financial supplement represent Synopsys' expectations and beliefs as of the date of this release only. Although this press release, copies of the prepared remarks of the chief executive officer and chief financial officer made during the call and the financial supplement will remain available on Synopsys' website through the date of the second quarter earnings call in May 2006, 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 second quarter of fiscal 2006 or comment to analysts or investors on, or otherwise update, the targets given in this earnings release until it releases such results in May 2006.
Availability of Final Financial Statements
Synopsys will include final financial statements for the first quarter of fiscal 2006 in its Quarterly Report on Form 10-Q to be filed in March 2006.
Synopsys, Inc. (NASDAQ: SNPS) is a world leader in electronic design automation (EDA) software for semiconductor design. The company delivers technology-leading semiconductor design and verification platforms and IC manufacturing software products to the global electronics market, enabling the development and production of complex systems-on-chips. Synopsys also provides intellectual property and design services to simplify the design process and accelerate time-to-market for its customers. Synopsys is headquartered in Mountain View, California and has offices in more than 60 locations throughout North America, Europe, Japan and Asia. Visit Synopsys online at http://www.synopsys.com/.
The statements made in this press release regarding projected financial results in the sections entitled "Financial Targets," and "GAAP Reconciliation - Reconciliation of Estimated Target Operating Results" and certain statements made in the earnings conference call are forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those described by these statements due to a number of uncertainties, including, but not limited to:
* weakness or continued budgetary caution in the semiconductor or
* lower-than-expected research and development spending by semiconductor
and electronic systems companies;
* competition in the market for Synopsys' products and services;
* lower-than-anticipated new IC design starts;
* lower-than-anticipated purchases or delays in purchases of software or
consulting services by Synopsys' customers, including delays in the
renewal, or non-renewal, of Synopsys' license arrangements with major
* unexpected changes in the mix of time-based licenses and upfront
* lower-than-expected bookings of licenses on which revenue is recognized
* failure of our cost control efforts to result in the anticipated
* failure to continue to improve Synopsys' existing products;
* failure to successfully develop additional intellectual property blocks
for its IP business or to develop and integrate its design for
* difficulties in the integration of the products and operations of
acquired companies or assets into Synopsys' products and operations;
* downward pressure on maintenance orders, adversely affecting Synopsys'
future level of service revenue; and
* changes in the anticipated amount of stock-based compensation
recognized on the Company's financial statements.
In addition, Synopsys' actual operating expenses and earnings per share on a GAAP basis for the fiscal quarter ending April 30, 2006 and actual earnings per share and operating cash flow on a GAAP basis for fiscal year 2006 could differ materially from the targets stated under "Financial Targets" above for a number of reasons, including (i) a determination by Synopsys that any portion of its intangible assets have become impaired, (ii) application of the actual consolidated GAAP tax rate for such periods, (iii) integration and other acquisition-related expenses, amortization of additional intangible assets associated with future acquisitions, if any, (iv) increases or decreases in stock-based compensation expense caused by employee termination or otherwise, and (vi) increases or decreases to estimated capital expenditures.
For further discussion of these and other factors that may cause results to differ from those projected in this release, readers are referred to the reports which Synopsys has filed with the Securities and Exchange Commission (SEC), and which are available at www.sec.gov, particularly the information contained in the section of Part II, Item 7 of Synopsys' Annual Report on Form 10-K for the fiscal year ended October 31, 2005 filed with the SEC on January 12, 2006 entitled "Factors That May Affect Future Results." Synopsys is under no obligation to (and expressly disclaims any such obligation to) update or alter any of the forward-looking statements made in this earnings release, the conference call or the financial supplement whether as a result of new information, future events or otherwise, unless otherwise required by law.
NOTE: Synopsys is a registered trademark of Synopsys, Inc. Any other trademarks mentioned in this release are the intellectual property of their respective owners. INVESTOR CONTACT: Lisa L. Ewbank Synopsys, Inc. 650-584-1901 EDITORIAL CONTACT: Yvette Huygen Synopsys, Inc. 650-584-4547 SYNOPSYS, INC. Unaudited Condensed Consolidated Statements of Operations (1) (in thousands, except per share data) Three Months Ended Three Months Ended January 31, 2006 January 31, 2005 Adjust- Non- Adjust- Non- GAAP ments(2) GAAP GAAP ments(2) GAAP Revenue: Time-based license $211,110 -- $211,110 $186,284 -- $186,284 Upfront license 8,367 -- 8,367 10,798 -- 10,798 Maintenance and Service 40,712 -- 40,712 44,222 -- 44,222 Total revenue 260,189 -- 260,189 241,304 -- 241,304 Cost of revenue: License 29,989 (1,619) 28,370 24,847 -- 24,847 Maintenance and service 16,573 (856) 15,717 17,029 -- 17,029 Amortization of intangible assets 8,659 (8,659) -- 28,099 (28,099) -- Total cost of revenue 55,221 (11,134) 44,087 69,975 (28,099) 41,876 Gross margin 204,968 11,134 216,102 171,329 28,099 199,428 Operating expenses: Research and development 87,604 (8,149) 79,455 72,917 -- 72,917 Sales and marketing 77,189 (4,709) 72,480 83,990 -- 83,990 General and admin- istrative 29,804 (3,097) 26,707 24,223 -- 24,223 In-process research and development 800 (800) -- 5,700 (5,700) -- Amortization of intangible assets 7,340 (7,340) -- 8,852 (8,852) -- Total operating expenses 202,737 (24,095) 178,642 195,682 (14,552) 181,130 Operating income (loss) 2,231 35,229 37,460 (24,353) 42,651 18,298 Other income, net 795 -- 795 5,199 -- 5,199 Income (loss) before provision (benefit) for income taxes 3,026 35,229 38,255 (19,154) 42,651 23,497 Provision (benefit) for income taxes 1,329 10,530 11,859 (4,829) 13,638 8,809 Net income (loss) $1,697 $24,699 $26,396 $(14,325) $29,013 $14,688 Net income (loss) per share: Basic $0.01 $0.18 $(0.10) $0.10 Diluted $0.01 $0.18 $(0.10) $0.10 Shared used in computing per share amounts: Basic 144,989 144,989 146,060 146,060 Diluted 146,969 146,969 146,060 146,998 (1) Synopsys' first quarter ends on the Saturday nearest to January 31. For presentation purposes, the Unaudited Condensed Consolidated Statements of Operations refer to a calendar month end. (2) Adjustments consist of stock-based compensation and related tax effect under FAS 123(R) and to the extent incurred amortization of intangible assets, in-process research and development charges, integration and other significant items, which in the opinion of management are extraordinary.Pre-tax income for the first fiscal quarter of 2006 includes total stock-based compensation of $18.4 million as follows: cost of revenue $2.5 million; research & development $8.1 million; sales & marketing $4.7 million; general & administrative $3.1 million. As of January 31, 2005 no stock-based compensation was recorded under FAS 123(R). SYNOPSYS, INC. Unaudited Condensed Consolidated Balance Sheets (1) (in thousands, except Par value) January 31, October 31, 2006 (2) 2005 ASSETS: Current assets: Cash and cash equivalents $314,498 $404,436 Short-term investments 199,787 182,070 Total cash, cash equivalents and short-term investments 514,285 586,506 Accounts receivable, net 83,997 100,178 Deferred income taxes 197,110 195,501 Income taxes receivable 48,224 48,370 Prepaid expenses and other current assets 24,808 16,924 Total current assets 868,424 947,479 Property and equipment, net 165,116 170,195 Long-term investments 8,322 8,092 Goodwill, net 744,114 728,979 Intangible assets, net 135,570 142,519 Long-term deferred income taxes 83,232 82,384 Other assets 65,253 61,828 Total assets $2,070,031 $2,141,476 LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable and accrued liabilities $146,477 $231,359 Accrued income taxes 171,775 169,632 Deferred revenue 475,962 415,689 Total current liabilities 794,214 816,680 Deferred compensation and other liabilities 68,360 63,841 Long-term deferred revenue 37,600 42,019 Stockholders' equity: Preferred stock, $0.01 par value; 2,000 shares authorized; none outstanding -- -- Common stock, $0.01 par value per share; 400,000 shares authorized; 142,680 and 145,897 shares outstanding, respectively 1,427 1,459 Capital in excess of par value 1,280,329 1,263,952 Retained earnings 171,559 171,108 Treasury stock, at cost; 14,477 and 11,259 shares, respectively (268,800) (199,482) Deferred stock compensation -- (2,100) Accumulated other comprehensive loss (14,658) (16,001) Total stockholders' equity 1,169,857 1,218,936 Total liabilities and stockholders' equity $2,070,031 $2,141,476 (1) The Company's first quarter and fiscal year ends on the Saturday nearest to January 31 and October 31, respectively. For presentation purposes, the Unaudited Condensed Consolidated Balance Sheets refer to a calendar month end. (2) During the quarter, Synopsys completed the acquisition of HPL Technologies, Inc., and has performed a preliminary valuation of the tangible and identifiable intangible assets and liabilities. The Company expects to complete the valuation during its second fiscal quarter. SYNOPSYS, INC. Unaudited Condensed Consolidated Statements of Cash Flows (1) (in thousands) Three Months Ended January 31, 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $1,697 $(14,552) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Amortization and depreciation 29,729 50,482 Stock-based compensation 18,430 -- In-process research and development 800 5,700 Deferred income taxes (52) (7,723) Write-down of long-term assets -- 1,568 Provision for (reduction to) doubtful accounts -- (720) Net change in unrecognized gains and losses on foreign exchange contracts 272 (3,789) Gain (loss) on sale of short and long-term investments 14 30 Net changes in operating assets and liabilities net of acquired assets and liabilities: Accounts receivable 17,203 31,480 Income taxes receivable -- 61 Prepaid expenses and other current assets (7,607) 2,544 Other assets (3,425) (6,051) Accounts payable and accrued liabilities (93,130) (32,909) Accrued income taxes (2,775) 2,062 Deferred revenue 54,745 107,129 Deferred compensation and other liabilities 3,900 6,763 Net cash provided by operating activities 19,801 142,075 CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for acquisitions, net of cash received (11,894) (91,293) Proceeds from sales and maturities of short-term investments 84,671 97,114 Purchases of short-term investments (102,453) (71,538) Purchases of long-term investments (1,539) -- Purchases of property and equipment (7,539) (6,330) Capitalization of software development costs (762) (738) Net cash used in investing activities (39,516) (72,785) CASH FLOWS FROM FINANCING ACTIVITIES: Issuances of common stock 10,433 2,268 Purchases of treasury stock (80,982) (40,160) Net cash used in financing activities (70,549) (37,892) Effect of exchange rate changes on cash and cash equivalents 326 (1,740) Net (decrease) increase in cash and cash equivalents (89,938) 29,658 Cash and cash equivalents, beginning of period 404,436 346,709 Cash and cash equivalents, end of period $314,498 $376,367 (1) Synopsys' first quarter ends on the Saturday nearest to January 31. For presentation purposes, the Unaudited Condensed Consolidated Statements of Cash Flows refer to a calendar month end.