For the second quarter, Synopsys reported revenue of $324.6 million, a 10.8 percent increase compared to $292.9 million for the second quarter of fiscal 2007.
"Synopsys continues to deliver predictable revenue growth and solid earnings expansion," said Aart de Geus, chairman and CEO of Synopsys. "We are seeing good momentum as our leading technology, comprehensive solutions and strong field support make us a long-term, reliable partner to our customers."
GAAP Results
On a generally accepted accounting principles (GAAP) basis, net income for the second quarter of fiscal 2008 was $39.4 million, or $0.27 per share, compared to $41.3 million, or $0.28 per share, for the second quarter of fiscal 2007, which included a $12.5 million litigation settlement received from Magma Design Automation, recorded in other income, net.
Non-GAAP Results
On a non-GAAP basis, net income for the second quarter of fiscal 2008 was $59.7 million, or $0.41 per share, compared to non-GAAP net income of $53.2 million, or $0.35 per share, for the second 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, and the related tax-effect of each, which, in the opinion of management, are infrequent or non-recurring. See "GAAP Reconciliation" below.
Financial Targets
Synopsys also provided its operating model targets for the third 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.
Third Quarter of Fiscal Year 2008 Targets:
-- Revenue: $335 million - $343 million
-- GAAP expenses: $290 million - $308 million
-- Non-GAAP expenses: $260 million - $270 million
-- Other income and expense: $0 - $3 million
-- Tax rate applied in non-GAAP net income calculations: 26 - 27 percent
-- Fully diluted outstanding shares: 143 million - 148 million
-- GAAP earnings per share: $0.18 - $0.24
-- Non-GAAP earnings per share: $0.38 - $0.40
-- Revenue from backlog: greater than 90 percent
Full Fiscal Year 2008 Targets:
-- Revenue: $1.325 billion - $1.340 billion
-- Tax rate applied in non-GAAP net income calculations: ~ 26 percent
-- Fully diluted outstanding shares: 146 million - 149 million
-- GAAP earnings per share: $0.99 - $1.11
-- Non-GAAP earnings per share: $1.60 - $1.64
-- Cash flow from operations: ~ $325 million
GAAP Reconciliation
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 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 development 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 Second 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 Second Quarter Results
(unaudited, in thousands, except per share amounts)
Income Statement Reconciliation Three Months Ended Six Months Ended
April 30, April 30,
2008 2007 2008 2007
GAAP net income $39,387 $41,265 $85,832 $64,622
Adjustments:
Amortization of intangible assets 12,407 11,854 24,031 25,206
Share-based compensation 17,841 14,349 33,485 30,564
Litigation settlement - (12,500) - (12,500)
Facilities realignment charge - (645) - (645)
Tax effect (9,975) (1,162) (17,672) (10,082)
Non-GAAP net income $59,660 $53,161 $125,676 $97,165
Three Months Ended Six Months Ended
April 30, April 30,
2008 2007 2008 2007
GAAP earnings per share $0.27 $0.28 $0.58 $0.43
Adjustments:
Amortization of intangible assets 0.09 0.08 0.16 0.17
Share-based compensation 0.12 0.10 0.23 0.21
Litigation settlement - (0.08) - (0.08)
Facilities realignment charge - (0.01) - (0.01)
Tax effect (0.07) (0.01) (0.12) (0.07)
Non-GAAP earnings per share $0.41 $0.35 $0.85 $0.65
Shares used in calculation 145,271 149,783 147,801 148,782
