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Synopsys Posts Financial Results for First Quarter Fiscal Year 2021

[February 17, 2021]

Synopsys Posts Financial Results for First Quarter Fiscal Year 2021

MOUNTAIN VIEW, Calif., Feb. 17, 2021 /PRNewswire/ -- Synopsys, Inc. (Nasdaq: SNPS) today reported results for its first quarter fiscal year 2021. Revenue for the first quarter was $970.3 million, compared to $834.4 million for the first quarter of fiscal 2020.

"The first quarter was a very good start to fiscal year 2021, with strength across all geographies and product groups. We delivered financial results at or above guidance targets, initiated a $250 million stock repurchase, and are reaffirming our outlook for the year," said Aart de Geus, chairman and co-CEO of Synopsys. "Our markets are strong, as companies across vertical segments are racing to leverage big data, faster computation, and machine learning to differentiate themselves. Synopsys is at the heart of this wave of advanced technology. Our highly differentiated portfolio of solutions, including exciting new innovations in EDA, state-of-the-art IP blocks and leading software security products and services, is generating high demand and excellent growth. In fiscal 2021, we expect to deliver low-to-mid teens non-GAAP earnings per share growth on revenue surpassing the $4 billion milestone and continued non-GAAP operating margin expansion, with more than $1 billion in operating cash flow."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the first quarter of fiscal 2021 was $162.3 million, or $1.03 per share, compared to $104.1 million, or $0.67 per share, for the first quarter of fiscal 2020.

Non-GAAP Results

On a non-GAAP basis, net income for the first quarter of fiscal 2021 was $239.5 million, or $1.52 per share, compared to non-GAAP net income of $156.7 million, or $1.01 per share, for the first 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 second 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.

Second Quarter and Fiscal Year 2021 Financial Targets
(in millions except per share amounts)

	Q2 FY 2021		FY 2021
	Low	High	Low	High
Revenue	$ 970	$ 1,000	$ 4,000	$ 4,050
GAAP Expenses	$ 801	$ 819	$ 3,234	$ 3,279
Non-GAAP Expenses	$ 697	$ 707	$ 2,825	$ 2,855
Other Income (Expense)	$ (4)	$ (2)	$ (11)	$ (7)
Normalized Annual Tax Rate ⁽¹⁾	16%	16%	16%	16%
Outstanding Shares (fully diluted)	156	159	156	159
GAAP EPS	$ 0.93	$ 1.02	$ 4.29	$ 4.45
Non-GAAP EPS	$ 1.50	$ 1.55	$ 6.23	$ 6.30
Operating Cash Flow			$ 1,200	$ 1,300

(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 +1-866-207-1041 (+1-402-970-0847 for international callers), access code 9968053, beginning at 5:00 p.m. Pacific Time today, until 11:59 p.m. Pacific Time on February 24, 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 second quarter of fiscal year 2021 in May 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 second quarter fiscal year 2021 earnings call in May 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 second 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 first quarter fiscal year 2021 in its quarterly report on Form 10-Q to be filed by March 11, 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.

INVESTOR CONTACT:
Lisa L. Ewbank
Synopsys, Inc.
650-584-1901
[email protected]

EDITORIAL CONTACT:
Simone Souza
Synopsys, Inc.
650-584-6454
[email protected]

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-GAAP pre-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 February 17, 2021 for additional information about the measures Synopsys uses to evaluate its core business operations.

Reconciliation of First 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 First Quarter Fiscal Year 2021 Results ⁽¹⁾
(unaudited and in thousands, except per share amounts)

	Three Months Ended
	January 31,
	2021	2020
GAAP net income	$ 162,345	$ 104,061
Adjustments:
Amortization of intangible assets	20,276	22,533
Stock compensation	83,782	51,883
Acquisition-related costs	3,548	3,777
Restructuring charges	-	8,751
Tax adjustments	(30,478)	(34,331)
Non-GAAP net income	$ 239,473	$ 156,674



	Three Months Ended
	January 31,
	2021	2020
GAAP diluted net income per share	$ 1.03	$ 0.67
Adjustments:
Amortization of intangible assets	0.13	0.15
Stock compensation	0.53	0.34
Acquisition-related costs	0.02	0.02
Restructuring charges	-	0.06
Tax adjustments	(0.19)	(0.23)
Non-GAAP diluted net income per share	$ 1.52	$ 1.01

Shares used in computing diluted net income per share amounts:	157,277	154,504

(1) Synopsys' first quarter of fiscal year 2021 and 2020 ended on January 30, 2021 and February 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 Second Quarter Fiscal Year 2021 Targets ⁽¹⁾
(in thousands, except per share amounts)


	Range for Three Months
	April 30, 2021
	Low		High
Target GAAP expenses	$ 801,000		$ 819,000
Adjustments:
Estimated impact of amortization of intangible assets	(19,000)		(22,000)
Estimated impact of stock compensation	(85,000)		(90,000)
Target non-GAAP expenses	$ 697,000		$ 707,000



	Range for Three Months
	April 30, 2021
	Low		High
Target GAAP earnings per share	$ 0.93		$ 1.02
Adjustments:
Estimated impact of amortization of intangible assets	0.14		0.12
Estimated impact of stock compensation	0.57		0.54
Estimated impact of tax adjustments	(0.14)		(0.13)
Target non-GAAP earnings per share	$ 1.50		$ 1.55

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	$ 3,233,548		$ 3,278,548
Adjustments:
Estimated impact of amortization of intangible assets	(75,000)		(80,000)
Estimated impact of stock compensation	(330,000)		(340,000)
Acquisition-related costs	(3,548)		(3,548)
Target non-GAAP expenses	$ 2,825,000	#	$ 2,855,000



	Range for Fiscal Year
	October 31, 2021
	Low		High
Target GAAP earnings per share	$ 4.29		$ 4.45
Adjustments:
Estimated impact of amortization of intangible assets	0.51		0.48
Estimated impact of stock compensation	2.16		2.10
Acquisition-related costs	0.02		0.02
Estimated impact of tax adjustments	(0.75)		(0.75)
Target non-GAAP earnings per share	$ 6.23		$ 6.30

Shares used in non-GAAP calculation (midpoint of target range)	157,500		157,500

(1) Synopsys' second fiscal quarter and fiscal year will end on May 1, 2021 and October 30, 2021, respectively. 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 expected 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 effect of the COVID-19 pandemic and the associated economic downturn 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 February 17, 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
	January 31,
	2021	2020
Revenue:
Time-based products	$ 631,290	$ 556,439
Upfront products	174,381	150,721
Maintenance and service	164,650	127,221
Total revenue	970,321	834,381
Cost of revenue:
Products	127,347	117,784
Maintenance and service	68,766	61,915
Amortization of intangible assets	11,886	13,169
Total cost of revenue	207,999	192,868
Gross margin	762,322	641,513
Operating expenses:
Research and development	357,468	314,283
Sales and marketing	170,628	152,855
General and administrative	77,488	68,744
Amortization of intangible assets	8,390	9,364
Restructuring charges	-	8,751
Total operating expenses	613,974	553,997
Operating income	148,348	87,516
Other income (expense), net	28,756	12,057
Income before income taxes	177,104	99,573
Provision (benefit) for income taxes	15,076	(4,488)
Net income	162,028	104,061
Net income (loss) attributed to non-controlling interest	(317)	-
Net income attributed to Synopsys	$ 162,345	$ 104,061

Net income per share:
Basic	$ 1.06	$ 0.69
Diluted	$ 1.03	$ 0.67

Shares used in computing per share amounts:
Basic	152,498	150,244
Diluted	157,277	154,504

(1) Synopsys' first quarter of fiscal year 2021 and 2020 ended on January 30, 2021 and February 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)

	January 31, 2021	October 31, 2020
ASSETS:
Current assets:
Cash and cash equivalents	$ 1,023,074	$ 1,235,653
Accounts receivable, net	789,320	780,709
Inventories, net	230,907	192,333
Income taxes receivable and prepaid taxes	25,190	32,355
Prepaid and other current assets	329,233	308,167
Total current assets	2,397,724	2,549,217
Property and equipment, net	486,604	483,818
Operating lease right-of-use assets, net	462,136	465,818
Goodwill	3,433,003	3,365,114
Intangible assets, net	254,375	254,322
Long-term prepaid taxes	8,285	8,276
Deferred income taxes	522,871	497,546
Other long-term assets	447,840	405,951
Total assets	$ 8,012,838	$ 8,030,062

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued liabilities	$ 422,928	$ 623,664
Operating lease liabilities, current	72,769	73,173
Accrued income taxes	32,227	27,738
Deferred revenue	1,546,038	1,388,263
Short-term debt	97,421	27,084
Total current liabilities	2,171,383	2,139,922
Operating lease liabilities, non-current	459,880	462,411
Long-term accrued income taxes	25,184	25,178
Long-term deferred revenue	107,001	104,850
Long-term debt	25,658	100,823
Other long-term liabilities	336,834	284,511
Total liabilities	3,125,940	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; 152,364 and
152,618 shares outstanding, respectively	1,526	1,528
Capital in excess of par value	1,589,175	1,653,166
Retained earnings	3,954,542	3,795,397
Treasury stock, at cost: 4,897 and 4,643 shares, respectively	(628,216)	(488,613)
Accumulated other comprehensive income (loss)	(34,775)	(54,074)
Total Synopsys stockholders' equity	4,882,252	4,907,404
Non-controlling interest	4,646	4,963
Total stockholders' equity	4,886,898	4,912,367
Total liabilities and stockholders' equity	$ 8,012,838	$ 8,030,062

(1) Synopsys' first quarter of fiscal year 2021 ended on January 30, 2021 and its fiscal year 2020 ended on October 31, 2020, respectively. For presentation purposes, we refer to the closest calendar month end.

SYNOPSYS, INC.
Unaudited Consolidated Statements of Cash Flows ⁽¹⁾
(in thousands)

	Three Months Ended
	January 31,
	2021	2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributed to Synopsys	$ 162,345	$ 104,061
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization and depreciation	50,628	52,232
Reduction of operating lease right-of-use assets	20,974	23,201
Amortization of capitalized costs to obtain revenue contracts	15,008	13,762
Stock-based compensation	83,782	51,883
Deferred income taxes	(20,222)	(17,694)
Other non-cash	(3,984)	(629)
Net changes in operating assets and liabilities, net of
acquired assets and liabilities:
Accounts receivable	(7,433)	(241,503)
Inventories	(37,139)	(5,302)
Prepaid and other current assets	(12,289)	8,697
Other long-term assets	(50,385)	(27,103)
Accounts payable and accrued liabilities	(171,137)	(132,814)
Operating lease liabilities	(20,707)	(20,979)
Income taxes	12,226	5,039
Deferred revenue	152,291	196,969
Net cash provided by operating activities	173,958	9,820

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of long-term investments	-	(2,500)
Purchases of property and equipment	(27,779)	(54,605)
Cash paid for acquisitions, net of cash acquired	(74,670)	(75,388)
Capitalization of software development costs	(1,011)	(1,065)
Net cash used in investing activities	(103,460)	(133,558)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from credit facilities	-	196,490
Repayment of debt	(5,694)	(3,750)
Issuances of common stock	15,092	14,982
Payments for taxes related to net share settlement of equity awards	(49,591)	(14,242)
Purchase of equity forward contract	(50,000)	(20,000)
Purchases of treasury stock	(202,871)	(80,000)
Net cash (used in) provided by financing activities	(293,064)	93,480
Effect of exchange rate changes on cash, cash equivalents and restricted cash	10,001	2,013
Net change in cash, cash equivalents and restricted cash	(212,565)	(28,245)
Cash, cash equivalents and restricted cash, beginning of year	1,237,970	730,527
Cash, cash equivalents and restricted cash, end of period	$ 1,025,405	$ 702,282


(1) Synopsys' first quarter of fiscal year 2021 and 2020 ended on January 30, 2021 and February 1, 2020, respectively. For presentation purposes, we refer to the closest calendar month end.

SYNOPSYS, INC.
Business Segment Reporting ⁽¹⁾
(in millions)

	Q1'21	Q1'20
Revenue by segment
- Semiconductor & System Design	$ 878.3	$ 748.8
% of Total	90.5%	89.7%
- Software Integrity	$ 92.0	$ 85.6
% of Total	9.5%	10.3%
Total segment revenue	$ 970.3	$ 834.4

Adjusted operating income by segment
- Semiconductor & System Design	$ 278.9	$ 178.8
- Software Integrity	$ 7.9	$ 8.1
Total adjusted segment operating income	$ 286.8	$ 186.9

Adjusted operating margin by segment
- Semiconductor & System Design	31.8%	23.9%
- Software Integrity	8.6%	9.4%
Total adjusted segment operating margin	29.6%	22.4%

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

	Three Months Ended
	January 31, 2021 ⁽³⁾	January 31, 2020 ⁽³⁾
GAAP total operating income – as reported	$ 148.3	$ 87.5
Other expenses managed at consolidated level
-Amortization of intangible assets	20.3	22.5
-Stock compensation	83.8	51.9
-Fair value changes in executive deferred compensation plan	30.9	12.5
-Acquisition-related costs	3.5	3.8
-Restructuring	-	8.8
Total adjusted segment operating income	$ 286.8	$ 186.9


(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' first quarter of fiscal year 2021 and 2020 ended on January 30, 2021 and February 1, 2020, respectively. For presentation purposes, we refer to the closest calendar month end.

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SOURCE Synopsys, Inc.

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