Synopsys Posts Financial Results for Third Quarter Fiscal Year 2016

MOUNTAIN VIEW, Calif. -- Aug. 17, 2016 -- Synopsys, Inc. (Nasdaq: SNPS) today reported results for its third quarter of fiscal year 2016.

For the third quarter of fiscal year 2016, Synopsys reported revenue of $615.2 million, compared to $555.8 million for the third quarter of fiscal 2015, an increase of 10.7 percent.

"In our fiscal third quarter, we again delivered strong results across the board and are raising our annual revenue, non-GAAP earnings per share, and operating cash flow targets," said Aart de Geus, chairman and co-CEO of Synopsys. "While semiconductor consolidation has continued, investments in EDA and IP by semiconductor and systems companies are robust as they tackle highly complex designs within unforgiving market windows. Our state-of-the-art products, along with expert engineering support, are key differentiators for us. We are also making good progress in the promising new software quality and security market. Lastly, we continue to drive long-term shareholder value through prudent organic investments, value-creating acquisitions, and returning $325 million to shareholders in the form of share repurchases this year."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net income for the third quarter of fiscal 2016 was $64.7 million, or $0.42 per share, compared to $55.4 million, or $0.35 per share, for the third quarter of fiscal 2015.

Non-GAAP Results

On a non-GAAP basis, net income for the third quarter of fiscal 2016 was $116.2 million, or $0.76 per share, compared to non-GAAP net income of $99.7 million, or $0.63 per share, for the third quarter of fiscal 2015. Reconciliation between GAAP and non-GAAP results is provided below.

Financial Targets

Synopsys also provided its financial targets for the fourth quarter and full fiscal year 2016. These targets do not include any impact of future acquisition-related activities or costs that may be incurred in the remainder of fiscal year 2016. 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.

Fourth Quarter of Fiscal Year 2016 Targets:

• Revenue: $621 million - $636 million
• GAAP expenses: $537 million - $556 million
• Non-GAAP expenses: $483 million - $493 million
• Other income and expense: $0 - $2 million
• Tax rate applied in non-GAAP net income calculations: 19 percent
• Fully diluted outstanding shares: 152 million - 155 million
• GAAP earnings per share: $0.46 - $0.55
• Non-GAAP earnings per share: $0.75 - $0.78

Full Fiscal Year 2016 Targets:

• Revenue: $2.410 billion - $2.425 billion
• Other income and expense: $6 million - $8 million
• Tax rate applied in non-GAAP net income calculations: 19 percent
• Fully diluted outstanding shares: 153 million - 156 million
• GAAP earnings per share: $1.72 - $1.81
• Non-GAAP earnings per share: $3.00 - $3.03
• Cash flow from operations: $525 million - $545 million

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 ongoing business operations and what Synopsys uses to evaluate its ongoing 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, and (iv) other significant items, including restructuring charges and, in fiscal 2015, certain accruals for legal and tax matters. In fiscal 2015, the non-GAAP tax provision excluded the income tax effect of above-mentioned non-GAAP pre-tax adjustments as well as unusual or infrequent 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. In fiscal 2016, Synopsys began utilizing a normalized annual non-GAAP tax rate in the calculation of its non-GAAP measures that is based on our projected annual tax rate through fiscal 2018. In projecting this rate, we evaluated our historical and projected mix of U.S. and international profit before tax, excluding the impact of stock-based compensation, the amortization of purchased intangibles and other non-GAAP adjustments described above. We also took into account other factors including our current tax structure, our existing tax positions, and expected recurring tax incentives, such as the U.S. federal research and development tax credit. We intend to re-evaluate this rate on an annual basis for any significant events that may materially affect our projections, such as significant changes in our geographic earnings mix or significant tax law changes in major jurisdictions where we operate. 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.

Reconciliation of Third Quarter Fiscal Year 2016 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 period indicated below.

GAAP to Non-GAAP Reconciliation of Third Quarter Fiscal Year 2016 Results
(unaudited and in thousands, except per share amounts)

(1) Fiscal 2016 tax adjustments reflect the application of our normalized annual non-GAAP tax rate to non-GAAP pre-tax income.

Reconciliation of Target Non-GAAP Operating Results

The following tables reconcile the specific items excluded from GAAP in the calculation of target non-GAAP operating results for the periods indicated below.

GAAP to Non-GAAP Reconciliation of Fourth Quarter Fiscal Year 2016 Targets
(in thousands, except per share amounts)

GAAP to Non-GAAP Reconciliation of Full Fiscal Year 2016 Targets

(1) Synopsys' fourth quarter and fiscal year end on October 29, 2016. For presentation purposes, we refer to the closest calendar month end.

(2) Fiscal 2016 tax adjustments reflect the application of our normalized annual non-GAAP tax rate to non-GAAP pre-tax income.

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 www.synopsys.com. A recording of the call will be available by calling +1-800-475-6701 (+1-320-365-3844 for international callers), access code 399721, beginning at 4:00 p.m. Pacific Time today. A webcast replay will also be available on the website from approximately 4:30 p.m. Pacific Time today through the time Synopsys announces its results for the fourth quarter and fiscal year 2016 earnings in November 2016. 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 the 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 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' 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 corporate overview presentation will remain available on Synopsys' website through the date of the fourth quarter and fiscal year 2016 earnings call in November 2016, 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 fourth quarter of fiscal year 2016 or comment to analysts or investors on, or otherwise update, the targets given in this earnings release.

Availability of Final Financial Statements

Synopsys will include final financial statements for the third quarter fiscal 2016 in its quarterly report on Form 10-Q to be filed by Sept. 8, 2016.

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 the world's 15th largest software company, Synopsys has a long history of being a global leader in electronic design automation (EDA) and semiconductor IP and is also growing its leadership in software quality and security solutions. Whether you're a system-on-chip (SoC) designer creating advanced semiconductors, or a software developer writing applications that require the highest quality and security, Synopsys has the solutions needed to deliver innovative, high-quality, secure products. Learn more at www.synopsys.com.