Q4 2017 Financial Highlights

• Revenue: $696.6 million
• GAAP loss per share: $0.80
• Non-GAAP earnings per share: $0.69

FY 2017 Financial Highlights

• Revenue: $2.725 billion
• GAAP earnings per share: $0.88
• Non-GAAP earnings per share: $3.42
• Cash flow from operations: $634.6 million
• Cash and cash equivalents: $1.05 billion

Synopsys, Inc. (Nasdaq: SNPS) today reported results for its fourth quarter and fiscal year 2017.

For the fourth quarter of fiscal 2017, Synopsys reported revenue of $696.6 million, compared to $633.7 million for the fourth quarter of fiscal 2016. Revenue for fiscal year 2017 was $2.725 billion, an increase of 12.5 percent from $2.423 billion in fiscal year 2016.  

"Synopsys reported another excellent fiscal year, with double-digit revenue and non-GAAP earnings growth. We saw revenue strength across the board, augmented by upside from hardware and IP, and an approximate $150 million increase in non-cancellable backlog," said Aart de Geus, chairman and co-CEO of Synopsys. "Our EDA and IP products are essential for customers building chips to bring about the Digital Intelligence age. In addition, we are making great progress in scaling our software security platform both organically and through the recently announced planned acquisition of Black Duck Software. Overall, we continued to drive long-term shareholder value by balancing our investment priorities while executing $400 million in share repurchases during fiscal year 2017."

GAAP Results

On a generally accepted accounting principles (GAAP) basis, net loss for the fourth quarter of fiscal 2017 was $120.1 million, or $0.80 per share, compared to net income of $72.7 million, or $0.47 per share, for the fourth quarter of fiscal 2016. Fourth quarter fiscal 2017 and fiscal year 2017 results include a one-time tax expense impact of $166 million resulting from the repatriation of approximately $825 million of offshore cash, initiated in the fourth quarter. GAAP net income for fiscal year 2017 was $136.6 million, or $0.88 per share, compared to $266.8 million, or $1.73 per share, for fiscal year 2016.

Non-GAAP Results

On a non-GAAP basis, net income for the fourth quarter of fiscal 2017 was $106.5 million, or $0.69 per share, compared to non-GAAP net income of $119.1 million, or $0.77 per share, for the fourth quarter of fiscal 2016. Non-GAAP net income for fiscal year 2017 was $529.1 million, or $3.42 per share, compared to non-GAAP net income of $466.8 million, or $3.02 per share, for fiscal year 2016. Reconciliation between GAAP and non-GAAP results is provided below.

Financial Targets

Synopsys also provided its financial targets for the first quarter and full fiscal year 2018, which do not include any impact of future acquisition-related activities or costs. However, Synopsys provided certain full fiscal year 2018 targets which include and exclude the estimated impact of the impending acquisition of Black Duck Software, which remains subject to customary closing conditions, but is expected to close in December 2017. The estimated impact of the planned Black Duck Software acquisition is: revenue of approximately $55 million - $60 million, and GAAP EPS and non-GAAP EPS at the midpoint of the target ranges below of approximately $0.43 and $0.12 respectively.

The fiscal year targets include the impact of an extra week in fiscal year 2018, and a revenue shift due to a hardware shipment, for which revenue was originally expected in fiscal year 2018 but recognized late in the fourth quarter of fiscal year 2017.

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. 

First Quarter of Fiscal Year 2018 Targets:

• Revenue: $740 million - $765 million
• GAAP expenses: $625 million - $641 million
• Non-GAAP expenses: $560 million - $570 million
• Other income (expense), net: ($1 million) - $1 million
• Normalized annual tax rate applied in non-GAAP net income calculations: 19 percent
• Fully diluted outstanding shares: 153 million - 156 million
• GAAP earnings per share: $0.62 - $0.70
• Non-GAAP earnings per share: $0.98 - $1.02

Full Fiscal Year 2018 Targets:

• Revenue: $2.88 billion - $2.91 billion, or $2.820 billion - $2.855 billion, excluding Black Duck
• Other income (expense), net: ($6 million) – ($2 million)
• Normalized annual tax rate applied in non-GAAP net income calculations: 19 percent
• Fully diluted outstanding shares: 153 million - 156 million
• GAAP earnings per share: $2.24 - $2.38, or $2.68 - $2.80 excluding Black Duck
• Non-GAAP earnings per share: $3.46 - $3.53, or $3.58 - $3.65 excluding Black Duck
• Cash flow from operations: approximately $500 million - $550 million, which includes the impact of approximately $105 million of one-time cash payments associated with the fiscal fourth quarter repatriation of offshore cash, and a Hungarian tax dispute.

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, (vi) a material tax impact resulting from the repatriation of offshore cash, and (vii) 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. 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 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. Notwithstanding the foregoing, in the fourth quarter of fiscal year 2017, a repatriation of approximately $825 million of offshore cash resulted in a $166 million tax expense that we are treating as separate from the 19% normalized tax rate as the repatriation is an unusual and infrequent event. 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 in Item 2.02 of the Current Report on Form 8-K filed on November 29, 2017 for additional information about the measures Synopsys uses to evaluate its core business operations.