MOUNTAIN VIEW, Calif., Aug. 20 /PRNewswire-FirstCall/ -- Synopsys, Inc. (NASDAQ: SNPS), a world leader in software and IP for semiconductor design and manufacturing, today reported results for its third quarter ended July 31, 2008.
For the third quarter, Synopsys reported revenue of $344.1 million, a 13.2 percent increase compared to $304.1 million for the third quarter of fiscal 2007.
"Our technology and product pipeline are strong throughout our broad portfolio, and we are seeing good competitive momentum," said Aart de Geus, chairman and CEO of Synopsys. "Even at a time of increased customer caution around spending, Synopsys continues to perform well."
On a generally accepted accounting principles (GAAP) basis, net income for the third quarter of fiscal 2008 was $57.7 million, or $0.39 per share, compared to $24.9 million, or $0.17 per share for the third quarter of fiscal 2007. GAAP earnings per share included a $17.3 million tax benefit associated with the settlement of an IRS tax issue for fiscal years 2000 and 2001.
On a non-GAAP basis, net income for the third quarter of fiscal 2008 was $64.5 million, or $0.44 per share, compared to non-GAAP net income of $47.7 million, or $0.32 per share, for the third quarter of fiscal 2007.
Non-GAAP net income consists of GAAP net income excluding employee share- based compensation expense calculated in accordance with FAS 123(R) and, to the extent incurred in a particular quarter or period, amortization of intangible assets (which could include in-process research and development charges), facilities realignment charges, and other significant items, including a tax benefit from a settlement with the IRS in the third quarter, and the related tax-effect of each, which, in the opinion of management, are infrequent or non-recurring. See "GAAP Reconciliation" below.
Synopsys also provided its operating model targets for the fourth quarter and full fiscal year 2008. These targets constitute forward-looking information 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 of Fiscal Year 2008 Targets: -- Revenue: $348 million - $356 million -- GAAP expenses: $295 million - $310 million -- Non-GAAP expenses: $273 million - $283 million -- Other income and expense: $0 - $3 million -- Tax rate applied in non-GAAP net income calculations: approximately 27 percent -- Fully diluted outstanding shares: 147 million - 152 million -- GAAP earnings per share: $0.23 - $0.29 -- Non-GAAP earnings per share: $0.36 - $0.39 -- Revenue from backlog: greater than 90 percent Full Fiscal Year 2008 Targets: -- Revenue: $1.332 billion - $1.340 billion -- Tax rate applied in non-GAAP net income calculations: approximately 26 percent -- Fully diluted outstanding shares: 147 million - 150 million -- GAAP earnings per share: $1.20 - $1.26 -- Non-GAAP earnings per share: $1.65 - $1.68 -- Cash flow from operations: $300 million - $325 million
Synopsys' management evaluates and makes decisions about the Company's business operations primarily based on the bookings, revenue, and direct, ongoing and recurring costs of those operations. Management does not believe amortization of intangible assets (including in-process research and development charges), facilities realignment charges and other significant infrequent items, including a tax benefit from a settlement with the IRS, are ongoing and recurring operating costs of its core software, intellectual property and service business operations. In addition, while employee share-based compensation expense calculated in accordance with FAS 123(R) constitutes an ongoing and recurring expense of the Company, such expense is excluded from non-GAAP results because it is not an expense that requires cash settlement by the Company and because such expense is not used by management to assess the core performance of the Company's business operations. Therefore, management excludes such costs, to the extent incurred in a particular quarter, from the following historical and targeted GAAP financial measures included in this earnings release: total cost of revenue, gross margin, total operating expenses, operating income, income before provision (benefit) for income taxes, provision (benefit) for income taxes, net income and net income per share.
For each such measure, excluding these costs provides management with more consistent, comparable information about the Company's core performance. For example, the Company does not undertake significant restructuring or realignments on a regular basis, and, as a result, excludes associated charges in order to enable better and more consistent evaluations of the Company's operating expenses before and after such actions are taken. Management also uses these measures to help it make budgeting decisions, for example, as between product support expenses (which affect cost of revenue and gross margin) and research and development, sales and marketing and general and administrative expenses (which affect operating expenses and operating margin). Finally, the availability of such information helps management track performance to both internal and externally communicated financial targets and to its competitors' operating results.
Management recognizes that the use of these non-GAAP measures has certain limitations, including the fact that management must exercise judgment in determining whether certain types of charges, such as those relating to workforce reductions executed in the ordinary course, should be excluded from non-GAAP results. However, management believes that, although it is important for investors to understand GAAP measures, providing investors with these non- GAAP measures gives them additional important information to enable them to assess, in a way management assesses, Synopsys' current and future continuing operations.
Reconciliation of Third Quarter Results
The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP net income and earnings per share for periods indicated below:
GAAP to Non-GAAP Reconciliation of Third Quarter Results (in thousands, except per share amounts) Income Statement Reconciliation Three Months Ended Nine Months Ended July 31, July 31, 2008 2007 2008 2007 GAAP net income $57,749 $24,855 $143,581 $89,477 Adjustments: Amortization of intangible assets 10,810 12,186 34,841 37,393 Share-based compensation 17,321 16,110 50,806 46,674 In-process research and development 4,800 2,100 4,800 2,100 Litigation settlement - - - (12,500) Facilities realignment charge - - - (645) Tax benefit from IRS settlement (17,253) - (17,253) - Tax effect (8,923) (7,552) (26,595) (17,634) Non-GAAP net income $64,504 $47,699 $190,180 $144,865 Three Months Ended Nine Months Ended July 31, July 31, 2008 2007 2008 2007 GAAP earnings per share $0.39 $0.17 $0.97 $0.60 Adjustments: Amortization of intangible assets 0.07 0.08 0.24 0.25 Share-based compensation 0.12 0.11 0.34 0.32 In-process research and development 0.03 0.01 0.03 0.01 Litigation settlement - - - (0.08) Facilities realignment charge - - - (0.01) Tax benefit from IRS settlement (0.12) - (0.12) - Tax effect (0.05) (0.05) (0.17) (0.12) Non-GAAP earnings per share $0.44 $0.32 $1.29 $0.97 Shares used in calculation 147,486 149,709 147,760 149,283