Synopsys Posts Financial Results for Second Quarter Fiscal Year 2024

Results Summary1 

  • Quarterly revenue of $1.455 billion, up approximately 15% year over year and at the high-end of guidance.
  • Quarterly GAAP earnings per diluted share of $1.92; non-GAAP earnings per diluted share of $3.00, up approximately 26% year over yearand exceeding guidance.
  • Raising full year targets for revenue and non-GAAP EPS, based on strong execution and continued business momentum.

SUNNYVALE, Calif., May 22, 2024 /PRNewswire/ — Synopsys, Inc. (Nasdaq: SNPS) today reported results for its second quarter of fiscal year 2024. Revenue for the second quarter of fiscal year 2024 was $1.455 billion, compared to $1.263 billion for the second quarter of fiscal year 2023.  


Synopsys headquarters in Sunnyvale, Calif. (PRNewsfoto/Synopsys, Inc.)

“We continued our strong operational execution and business momentum in Q2. Customers continue investing in Synopsys solutions to maximize their R&D and power their future innovations for this era of pervasive intelligence,” said Sassine Ghazi, president and CEO of Synopsys. “We expect our planned acquisition of Ansys, which was approved today by Ansys shareholders, to further our mission of empowering technology innovators everywhere with essential silicon to systems design solutions.”

“Synopsys’ strong Q2 results were driven by our team’s relentless focus on execution, our leading technology that is mission-critical to customers, and our resilient business model,” said Shelagh Glaser, Synopsys CFO. “We remain confident in our business, and as a result, we are again raising our full-year targets for revenue and non-GAAP EPS.”

________________________

1 Synopsys’ Software Integrity business has been presented as a discontinued operation in the consolidated financial statements for all periods presented herein and all financial results and targets are presented herein on a continuing operations basis unless otherwise noted.

Continuing Operations
On May 5, 2024, Synopsys entered into an agreement to sell its Software Integrity business. Unless otherwise noted, Synopsys’ Software Integrity business has been presented as a discontinued operation in the consolidated financial statements for all periods presented herein and all financial results and targets are presented herein on a continuing operations basis.

GAAP Results
On a U.S. generally accepted accounting principles (GAAP) basis, net income for the second quarter of fiscal year 2024 was $299.1 million, or $1.92 per diluted share, compared to $275.6 million, or $1.78 per diluted share, for the second quarter of fiscal year 2023.

Non-GAAP Results
On a non-GAAP basis, net income for the second quarter of fiscal year 2024 was $466.9 million, or $3.00 per diluted share, compared to non-GAAP net income of $368.3 million, or $2.38 per diluted share, for the second quarter of fiscal year 2023.

For a reconciliation of net income, earnings per diluted share and other measures on a GAAP and non-GAAP basis, see “GAAP to Non-GAAP Reconciliation” in the accompanying tables below. 

Business Segments 
Synopsys reports revenue and operating income in two segments: (1) Design Automation, which includes our advanced silicon design, verification products and services, system integration products and services, digital, custom and field programmable gate array (FPGA) IC design software, verification software and hardware products, manufacturing software products and other and (2) Design IP, which includes our Design IP products.

Financial Targets 
Synopsys also provided its consolidated financial targets for continuing operations for the third quarter and full fiscal year 2024. The fiscal year targets include the impact of an extra week in fiscal year 2024, which was included in the first quarter of fiscal year 2024. These financial targets assume no further changes to export control restrictions or the current U.S. government “Entity List” restrictions. 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. 

Third Quarter and Full Fiscal Year 2024 Financial Targets (1)(2)

(in millions except per share amounts)

 Range for Three Months Ending

Range for Fiscal Year Ending

July 31, 2024

October 31, 2024

Low

High

Low

High

Revenue

$              1,505

$              1,535

$              6,090

$              6,150

GAAP Expenses

$              1,099

$              1,119

$              4,559

$              4,614

Non-GAAP Expenses

$                 920

$                 930

$              3,770

$              3,810

Non-GAAP Interest and Other Income (Expense), net

$                     4

$                     6

$                   32

$                   36

Non-GAAP Tax Rate

15 %

15 %

Outstanding Shares (fully diluted)

155

157

155

157

GAAP EPS

$                2.22

$                2.35

$                9.14

$                9.36

Non-GAAP EPS

$                3.25

$                3.30

$              12.90

$              12.98

Operating Cash Flow

~ $1,300

Free Cash Flow(3)

~ $1,100

Capital Expenditures

~ $200

(1) Synopsys’ third quarter of fiscal year 2024 and its fiscal year 2024 will end on August 3, 2024 and November 2, 2024, respectively. For
presentation purposes, we refer to the closest calendar month end. The first quarter of fiscal year 2024 included one extra week.

(2) Presented on a continuing operations basis.

(3) Free cash flow is calculated as cash provided from operating activities less capital expenditures and capitalization of software
development costs.

For a reconciliation of Synopsys’ third quarter and fiscal year 2024 targets, including expenses, earnings per diluted share and other measures on a GAAP and non-GAAP basis and a discussion of the financial targets that we are not able to reconcile without unreasonable efforts, see “GAAP to Non-GAAP Reconciliation” in the accompanying tables below. 

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.investor.synopsys.com. Synopsys uses its website as a tool to disclose important information about Synopsys and comply with its disclosure obligations under Regulation Fair Disclosure. A webcast replay will also be available on the corporate website from approximately 5:30 p.m. Pacific Time today through the time Synopsys announces its results for the third quarter of fiscal year 2024 in August 2024. 

Effectiveness of Information
The targets included in this press release, the statements made during the earnings conference call, the information contained in the financial supplement and the corporate overview presentation, each of which are available on Synopsys’ corporate website at www.synopsys.com (collectively, the “Earnings Materials“), represent Synopsys’ expectations and beliefs as of May 22, 2024. Although these Earnings Materials will remain available on Synopsys’ website through the date of the earnings call for the third quarter of fiscal year 2024, their continued availability through such date does not mean that Synopsys is reaffirming or confirming their continued validity. Synopsys undertakes no duty and does not intend to update any forward-looking statement, whether as a result of new information or future events, or otherwise update, the targets given in this press release unless required by law.

Availability of Final Financial Statements
Synopsys will include final financial statements for the second quarter of fiscal year 2024 in its quarterly report on Form 10-Q to be filed on or before June 13, 2024.

About Synopsys
Catalyzing the era of pervasive intelligence, Synopsys, Inc. (Nasdaq: SNPS) delivers trusted and comprehensive silicon to systems design solutions, from electronic design automation to silicon IP and system verification and validation. We partner closely with semiconductor and systems customers across a wide range of industries to maximize their R&D capability and productivity, powering innovation today that ignites the ingenuity of tomorrow. Learn more at www.synopsys.com.

Reconciliation of Second Quarter Fiscal Year 2024 Results for Continuing Operations
The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP net income, earnings per diluted share, and tax rate for the periods indicated below.

GAAP to Non-GAAP Reconciliation of Second Quarter Fiscal Year 2024 Results(1)

(unaudited and in thousands, except per share amounts)

Three Months Ended

Six Months Ended

April 30,

April 30,

2024

2023

2024

2023

GAAP net income from continuing operations
attributed to Synopsys

$                299,111

$        275,602

$        736,561

$        545,286

Adjustments:

Amortization of acquired intangible assets

16,925

11,387

32,526

23,640

Stock-based compensation

162,346

130,114

327,487

252,352

Acquisition/divestiture related items

25,256

2,641

57,188

4,975

Restructuring charges

(5,578)

32,560

Gain on sale of strategic investments

(55,077)

Tax adjustments

(36,694)

(45,878)

(106,261)

(106,033)

Non-GAAP net income from continuing operations
attributed to Synopsys

$               466,944

$       368,288

$       992,424

$       752,780

Three Months Ended

Six Months Ended

April 30,

April 30,

2024

2023

2024

2023

GAAP net income from continuing operations per diluted share
attributed to Synopsys

$                      1.92

$              1.78

$              4.73

$              3.52

Adjustments:

Amortization of acquired intangible assets

0.11

0.07

0.21

0.15

Stock-based compensation

1.04

0.84

2.10

1.63

Acquisition/divestiture related items

0.16

0.02

0.37

0.03

Restructuring charges

(0.04)

0.21

Gain on sale of strategic investments

(0.35)

Tax adjustments

(0.23)

(0.29)

(0.68)

(0.68)

Non-GAAP net income from continuing operations per diluted share
attributed to Synopsys

$                      3.00

$              2.38

$              6.38

$              4.86

Shares used in computing net income per diluted share amounts:

155,770

154,730

155,610

155,044

(1) Synopsys’ second quarter of fiscal year 2024 and 2023 ended on May 4, 2024 and April 29, 2023, respectively. For
presentation purposes, we refer to the closest calendar month end. The first quarter of fiscal year 2024 included one
extra week.

 

GAAP to Non-GAAP Tax Rate Reconciliation (1)(2)

(unaudited)

Three Months Ended

Six Months Ended

April 30, 2024

April 30, 2024

GAAP effective tax rate

13.3 %

8.6 %

Income tax effect of above non-GAAP adjustments

1.7 %

6.4 %

Non-GAAP effective tax rate

15.0 %

15.0 %

(1) Synopsys’ second quarter of fiscal year 2024 ended on May 4, 2024. For presentation purposes, we refer to the closest
calendar month end. The first quarter of fiscal year 2024 included one extra week.

(2) Presented on a continuing operations basis.

Reconciliation of 2024 Targets for Continuing Operations
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 Third Quarter Fiscal Year 2024 Targets (1)(2)

(in thousands, except per share amounts)

 Range for Three Months Ending

July 31, 2024

Low

High

Target GAAP expenses

$        1,099,000

$        1,119,000

Adjustments:

      Amortization of acquired intangible assets

(17,000)

(20,000)

      Stock-based compensation

(162,000)

(169,000)

Target non-GAAP expenses

$           920,000

$           930,000

Range for Three Months Ending

July 31, 2024

Low

High

Target GAAP earnings per diluted share attributed to Synopsys

$                 2.22

$                 2.35

Adjustments:

      Amortization of acquired intangible assets

0.13

0.11

      Stock-based compensation

1.08

1.04

      Acquisition/divestiture related items (3)

0.10

0.07

      Tax adjustments

(0.28)

(0.27)

Target non-GAAP earnings per diluted share attributed to Synopsys

$                 3.25

$                 3.30

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

156,000

156,000

GAAP to Non-GAAP Reconciliation of Full Fiscal Year 2024 Targets (1)(2)

(in thousands, except per share amounts)

Range for Fiscal Year Ending

October 31, 2024

Low

High

Target GAAP expenses

$        4,559,099

$        4,614,099

Adjustments:

      Amortization of acquired intangible assets

(67,000)

(72,000)

      Stock-based compensation

(672,000)

(682,000)

      Acquisition/divestiture related items(3)

(50,099)

(50,099)

Target non-GAAP expenses

$        3,770,000

$        3,810,000

Range for Fiscal Year Ending

October 31, 2024

Low

High

Target GAAP earnings per diluted share attributed to Synopsys

$                 9.14

$                 9.36

Adjustments:

      Amortization of acquired intangible assets

0.46

0.43

      Stock-based compensation

4.37

4.31

      Acquisition/divestiture related items(3)

0.55

0.49

      Gain on sale of strategic investments

(0.35)

(0.35)

      Tax adjustments

(1.27)

(1.26)

Target non-GAAP earnings per diluted share attributed to Synopsys

$               12.90

$               12.98

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

156,000

156,000

(1) Synopsys’ third quarter of fiscal year 2024 and its fiscal year 2024 will end on August 3, 2024 and November 2, 2024,
respectively. For presentation purposes, we refer to the closest calendar month end. The first quarter of fiscal year 2024
included one extra week.

(2) Presented on a continuing operations basis.

(3) Adjustments reflect actual expenses incurred by Synopsys as of May 4, 2024 as well as certain contractually obligated
financing fees and related amortization expenses, and do not fully reflect all potential adjustments for future periods for the
reasons set forth in “GAAP to Non-GAAP Reconciliation” below.

Forward-Looking Statements
This press release and the investor conference call contain forward-looking statements, including, but not limited to, statements regarding short-term and long-term financial targets, expectations and objectives, including, among others, the anticipated effects of our pending acquisition of ANSYS, Inc. (the Ansys Merger); strategies related to our products, technology and services; business and market outlook, opportunities, strategies and technological trends, such as artificial intelligence; the pending  Ansys Merger, including, among other things, its anticipated benefits; planned  dispositions and their expected impact, such as the previously announced divestiture of our Software Integrity business (the Software Integrity Divestiture); the potential impact of the uncertain macroeconomic and geopolitical environment on our financial results; the expected impact of U.S. and foreign government actions and regulatory changes, including export control restrictions on our financial results; customer demand and market expansion; our planned product releases and capabilities; industry growth rates; the expected realization of our contracted but unsatisfied or partially unsatisfied performance obligations (backlog); software trends; planned stock repurchases; our expected tax rate; and the impact and result of pending legal, administrative and tax proceedings. 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 such forward-looking statements. Such risks, uncertainties and factors include, but are not limited to: macroeconomic conditions and geopolitical uncertainty in the global economy; uncertainty in the growth of the semiconductor and electronics industries; the highly competitive industry we operate in; actions by the U.S. or foreign governments, such as the imposition of additional export restrictions or tariffs; 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; failure to complete the Ansys Merger on the terms described in our filings with the SEC, if at all; failure to obtain required governmental approvals related to the Ansys Merger or the imposition of conditions to such governmental approvals that may have an adverse effect on us; failure to realize the benefits expected from the Ansys Merger; failure to complete the Software Integrity Divestiture, or the Software Integrity Divestiture disrupting our business or failing to achieve its intended benefits, and more. Additional information on potential risks, uncertainties and other factors that could affect Synopsys’ results is included in filings we make with the SEC from time to time, including in the sections entitled “Risk Factors” in our latest Annual Report on Form 10-K and in our latest Quarterly Report on Form 10-Q. The financial information contained in this press release should be read in conjunction with the consolidated financial statements and notes thereto included in Synopsys’ most recent reports on Forms 10-K and 10-Q, each as may be amended from time to time. Synopsys’ financial results for its second quarter of fiscal year 2024 are not necessarily indicative of Synopsys’ operating results for any future periods. The information provided herein is as of May 22, 2024. Synopsys undertakes no duty to, 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 Condensed Consolidated Statements of Income (1)

(in thousands, except per share amounts)

Three Months Ended

Six Months Ended

April 30,

April 30,

2024

2023

2024

2023

Revenue:

  Time-based products

$            781,714

$            717,845

$          1,586,777

$          1,408,135

  Upfront products

396,389

335,009

838,755

665,978

    Total products revenue

1,178,103

1,052,854

2,425,532

2,074,113

  Maintenance and service

276,609

209,890

540,169

422,128

      Total revenue

1,454,712

1,262,744

2,965,701

2,496,241

Cost of revenue:

  Products

198,719

169,062

374,217

325,686

  Maintenance and service

88,178

68,687

178,718

136,855

  Amortization of acquired intangible assets

13,500

10,492

26,655

21,689

      Total cost of revenue

300,397

248,241

579,590

484,230

Gross margin

1,154,315

1,014,503

2,386,111

2,012,011

Operating expenses:

  Research and development

493,136

460,463

1,018,670

899,650

  Sales and marketing

209,783

180,658

428,626

352,212

  General and administrative

114,763

84,685

246,027

174,656

  Amortization of acquired intangible assets

4,561

1,900

8,090

3,935

  Restructuring charges

(5,578)

32,560

      Total operating expenses

822,243

722,128

1,701,413

1,463,013

Operating income

332,072

292,375

684,698

548,998

Interest and other income (expense), net

9,458

4,212

114,286

27,147

Income before income taxes

341,530

296,587

798,984

576,145

Provision (benefit) for income taxes

45,437

23,947

68,346

36,730

Net income from continuing operations

296,093

272,640

730,638

539,415

Income (loss) from discontinued operations, net of income taxes

(7,004)

(2,692)

4,658

(840)

Net income

289,089

269,948

735,296

538,575

Less: Net income (loss) attributed to non-controlling interest and
redeemable non-controlling interest

(3,018)

(2,962)

(5,923)

(5,871)

Net income attributed to Synopsys

$            292,107

$            272,910

$            741,219

$            544,446

Net income (loss) attributed to Synopsys

 Continuing operations

$            299,111

$            275,602

$            736,561

$            545,286

 Discontinued operations

(7,004)

(2,692)

4,658

(840)

 Net income

$            292,107

$            272,910

$            741,219

$            544,446

Net income (loss) per share attributed to Synopsys – basic:

  Continuing operations

$                  1.96

$                  1.81

$                  4.83

$                  3.58

  Discontinued operations

(0.05)

(0.02)

0.03

(0.01)

  Basic net income per share

$                  1.91

$                  1.79

$                  4.86

$                  3.57

Net income (loss) per share attributed to Synopsys – diluted:

  Continuing operations

$                  1.92

$                  1.78

$                  4.73

$                  3.52

  Discontinued operations

(0.04)

(0.02)

0.03

(0.01)

  Diluted net income per share

$                  1.88

$                  1.76

$                  4.76

$                  3.51

Shares used in computing per share amounts:

  Basic

152,971

152,187

152,629

152,294

  Diluted

155,770

154,730

155,610

155,044

(1) Synopsys’ second quarter of fiscal year 2024 and 2023 ended on May 4, 2024 and April 29, 2023, respectively. For
presentation purposes, we refer to the closest calendar month end. The first quarter of fiscal year 2024 included one
extra week.

 

SYNOPSYS, INC.

Unaudited Condensed Consolidated Balance Sheets (1)

(in thousands, except par value amounts)

April 30, 2024

October 31, 2023

ASSETS:

Current assets:

  Cash and cash equivalents

$          1,502,920

$          1,433,966

  Short-term investments

156,780

151,639

          Total cash, cash equivalents and short-term investments

1,659,700

1,585,605

  Accounts receivable, net

834,918

856,660

  Inventories

377,875

325,590

  Prepaid and other current assets

760,269

548,115

  Current assets held for sale

1,020,358

114,654

          Total current assets

4,653,120

3,430,624

Property and equipment, net

566,832

549,837

Operating lease right-of-use assets, net

528,011

559,923

Goodwill

3,427,424

3,346,065

Intangible assets, net

276,877

239,577

Deferred income taxes

1,004,660

853,526

Other long-term assets

554,913

444,820

Long-term assets held for sale

908,759

           Total assets

$        11,011,837

$        10,333,131

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND
STOCKHOLDERS’ EQUITY:

Current liabilities:

  Accounts payable and accrued liabilities

$            635,916

$          1,059,914

  Operating lease liabilities

84,550

79,832

  Deferred revenue

1,457,282

1,559,461

  Current liabilities held for sale

330,602

286,244

           Total current liabilities

2,508,350

2,985,451

Long-term operating lease liabilities

543,207

579,686

Long-term deferred revenue

307,965

150,827

Long-term debt

16,960

18,078

Other long-term liabilities

446,514

381,531

Long-term liabilities held for sale

33,257

           Total liabilities

3,822,996

4,148,830

Redeemable non-controlling interest

31,043

31,043

Stockholders’ equity:

  Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding

  Common stock, $0.01 par value: 400,000 shares authorized; 153,204 and
152,053 shares outstanding, respectively

1,532

1,521

  Capital in excess of par value

1,182,829

1,276,152

  Retained earnings

7,478,366

6,741,699

  Treasury stock, at cost: 4,056 and 5,207 shares, respectively

(1,321,554)

(1,675,650)

  Accumulated other comprehensive income (loss)

(188,013)

(196,414)

           Total Synopsys stockholders’ equity

7,153,160

6,147,308

Non-controlling interest

4,638

5,950

           Total stockholders’ equity

7,157,798

6,153,258

           Total liabilities, redeemable non-controlling interest and stockholders’ equity

$        11,011,837

$        10,333,131

(1) Synopsys’ second quarter of fiscal year 2024 ended on May 4, 2024 and its fiscal year 2023 ended on October 28, 2023,
respectively. For presentation purposes, we refer to the closest calendar month end. The first quarter of fiscal year 2024 included
one extra week.

 

SYNOPSYS, INC.

Unaudited Condensed Consolidated Statements of Cash Flows (1)

(in thousands)

Six Months Ended April 30,

2024

2023

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$            735,296

$            538,575

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization and depreciation

123,886

116,922

Reduction of operating lease right-of-use assets

48,179

48,073

Amortization of capitalized costs to obtain revenue contracts

37,912

39,588

Stock-based compensation

358,487

277,485

Allowance for credit losses

9,987

6,134

Gain on sale of strategic investments

(55,077)

Amortization of bridge financing costs

7,085

Deferred income taxes

(170,854)

(125,090)

Other non-cash

(2,607)

4,972

Net changes in operating assets and liabilities, net of acquired assets and assumed liabilities:

Accounts receivable

20,889

9,289

Inventories

(60,518)

(48,648)

Prepaid and other current assets

(191,595)

49,437

Other long-term assets

(104,551)

(75,324)

Accounts payable and accrued liabilities

(142,086)

(162,840)

Operating lease liabilities

(48,709)

(31,634)

Income taxes

(229,536)

94,587

Deferred revenue

52,612

76,165

Net cash provided by operating activities

388,800

817,691

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales and maturities of short-term investments

63,159

67,717

Purchases of short-term investments

(65,861)

(68,738)

Proceeds from sales of strategic investments

55,696

7,248

Purchases of strategic investments

(860)

Purchases of property and equipment

(78,763)

(91,368)

Acquisitions, net of cash acquired

(139,557)

(41,324)

Capitalization of software development costs

(1,247)

Net cash used in investing activities

(166,186)

(127,712)

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayment of debt

(1,303)

(1,294)

Payment of bridge financing and term loan costs

(54,715)

Issuances of common stock

115,111

132,808

Payments for taxes related to net share settlement of equity awards

(212,577)

(116,838)

Purchase of equity forward contract

(45,000)

Purchases of treasury stock

(560,724)

Other

(1,096)

(122)

Net cash used in financing activities

(154,580)

(591,170)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

2,423

27,708

Net change in cash, cash equivalents and restricted cash

70,457

126,517

Cash, cash equivalents and restricted cash, beginning of year, including cash from discontinued operations

1,441,187

1,419,864

Cash, cash equivalents and restricted cash, end of period, including cash from discontinued operations

1,511,644

1,546,381

Less: Cash, cash equivalents and restricted cash from discontinued operations

6,445

4,140

Cash, cash equivalents and restricted cash from continuing operations

$          1,505,199

$          1,542,241

(1) Synopsys’ second quarter of fiscal year 2024 and 2023 ended on May 4, 2024 and April 29, 2023, respectively. For
presentation purposes, we refer to the closest calendar month end. The first quarter of fiscal year 2024 included
one extra week.

Synopsys provides segment information, namely revenue, adjusted segment operating income and adjusted segment operating margin, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 280, Segment Reporting. Synopsys’ chief operating decision maker (“CODM“) is our Chief Executive Officer. In evaluating our business segments, the CODM considers the income and expenses that the CODM believes are directly related to those segments. The CODM does not allocate certain operating expenses managed at a consolidated level to our business segments and, as a result, the reported operating income and operating margin do not include these unallocated expenses as shown in the table below. These unallocated expenses are presented in the table below to provide a reconciliation of the total adjusted operating income from segments to our consolidated operating income from continuing operations:

SYNOPSYS, INC.

Business Segment Reporting (1)(2)(5)

(in millions)

Three Months Ended
April 30, 2024

Three Months Ended
April 30, 2023

Six Months Ended
April 30, 2024

Six Months Ended
April 30, 2023

Revenue by segment

– Design Automation

$                        1,054.9

$                           927.5

$                        2,040.3

$                        1,817.4

% of Total

72.5 %

73.5 %

68.8 %

72.8 %

– Design IP

$                           399.8

$                           335.2

$                           925.4

$                           678.8

% of Total

27.5 %

26.5 %

31.2 %

27.2 %

Adjusted operating income by segment

– Design Automation

$                           418.2

$                           353.4

$                           777.7

$                           692.8

– Design IP

$                           124.8

$                             81.5

$                           370.5

$                           194.9

Adjusted operating margin by segment

– Design Automation

39.6 %

38.1 %

38.1 %

38.1 %

– Design IP

31.2 %

24.3 %

40.0 %

28.7 %

 

Total Adjusted Segment Operating Income Reconciliation (1)(2)(5)

(in millions)

Three Months Ended
April 30, 2024

Three Months Ended
April 30, 2023

Six Months Ended
April 30, 2024

Six Months Ended
April 30, 2023

GAAP total operating income – as reported

$                           332.1

$                           292.4

$                           684.7

$                           549.0

Other expenses managed at consolidated level

-Amortization of acquired intangible assets (3)

18.1

12.4

34.7

25.6

-Stock-based compensation (3)

162.7

130.4

328.2

253.0

-Non-qualified deferred compensation plan

11.1

2.8

50.5

22.6

-Acquisition/divestiture related items (4)

19.2

2.6

50.1

5.0

-Restructuring charges

(5.6)

32.6

Total adjusted segment operating income

$                           543.0

$                           435.0

$                        1,148.2

$                           887.7

(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) Synopsys’ second quarter of fiscal year 2024 and 2023 ended on May 4, 2024 and April 29, 2023, respectively. For presentation purposes, we refer to the
closest calendar month end. The first quarter of fiscal year 2024 included one extra week.

(3) The adjustment includes non-GAAP expenses attributable to non-controlling interest and redeemable non-controlling interest.

(4) The adjustment excludes the amortization of bridge financing costs entered into in connection with the pending acquisition of Ansys, that was recorded in
interest and other income (expense), net in our unaudited condensed consolidated statements of income.

(5)  Presented on a continuing operations basis.

GAAP to Non-GAAP Reconciliation
Synopsys continues to provide all information required in accordance with GAAP but acknowledges 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 budgeting and resource allocation purposes. This press release includes non-GAAP earnings per diluted share, non-GAAP net income and non-GAAP tax rate for the periods presented. It also includes future estimated ranges for non-GAAP expenses, non-GAAP interest and other income (expense), non-GAAP tax rate, non-GAAP earnings per diluted share and free cash flow. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies.

When possible, Synopsys provides a reconciliation of non-GAAP financial measures to their most closely applicable GAAP financial measures. Synopsys is unable to provide a full reconciliation of certain third quarter and full fiscal year 2024 non-GAAP financial targets to the corresponding GAAP financial measures on a forward-looking basis because Synopsys believes that it would not be possible for it to have the required information necessary to quantitatively reconcile such measures with sufficient precision without unreasonable efforts due to, among other things, the potential variability and limited predictability of the excluded adjustment items necessary for a full reconciliation such as certain acquisition/divestiture related items, restructuring charges, tax deduction variability, changes in the fair value of non-qualified deferred compensation plan, and gains (losses) on the sale of strategic investments. For the same reasons, Synopsys is unable to address the probable significance of the unavailable information. 

Synopsys’ management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, as superior to, or as a substitute for, financial information prepared in accordance with GAAP. These non-GAAP financial measures are meant to supplement, and be viewed in conjunction with, the corresponding GAAP financial measures. Synopsys’ management believes presentation of non-GAAP financial measures, when shown in conjunction with the corresponding GAAP financial measures, provides useful information to investors allowing them to view financial and business trends relating to our financial condition and results of operations through the eyes of management. Synopsys’ management evaluates and makes decisions about our business operations using both GAAP financial measures and non-GAAP financial measures to help facilitate internal comparisons to Synopsys’ historical operating results and forecasted targets, planning and forecasting in subsequent periods and comparisons to competitors’ operating results.

The following are descriptions of the adjustments made to reconcile non-GAAP financial measures (other than free cash flow) to the most directly comparable GAAP financial measures:

(i) Amortization of acquired intangible assets. We incur expenses from amortization of acquired intangible assets, which include, among other things, core/developed technology, customer relationships, contract rights, trademarks and trade names, and other intangibles related to acquisitions. We amortize the intangible assets over their estimated useful lives. We do not enter into acquisitions on a predictable cycle. The amount of an acquisition’s purchase price allocated to intangible assets and their estimated useful lives can vary significantly and are unique to each acquisition. We believe that the presentation of non-GAAP financial measures that adjust for the amortization of intangible assets provides investors and others with a consistent basis for comparison across accounting periods. We also exclude this item because such expenses are non-cash in nature and we believe the non-GAAP financial measures excluding this item provide meaningful supplemental information regarding our core operational performance and liquidity, and ability to invest in research and development and fund future acquisitions and capital expenditures.

(ii) Stock-based compensation. Stock-based compensation expenses consist primarily of expenses related to restricted stock units, stock options, employee stock purchase rights and other stock awards, including such expenses associated with acquisitions. We exclude stock-based compensation expense from our non-GAAP financial measures primarily because it is not an expense that typically requires or will require cash settlement by us. Further, the expense for the fair value of the stock-based instruments we utilize may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards and, therefore, is not used by management to assess the core profitability of our business operations.

(iii) Acquisition/divestiture related items. In connection with certain of our business combinations and/or divestitures, we incur significant expenses that we would not have otherwise incurred as part of our business operations. These expenses include, among other things, compensation expenses, professional fees and other direct expenses, concurrent restructuring activities and divestiture activities, including employee severance and other exit costs, bridge financing costs, costs related to integration activities, changes to the fair value of contingent consideration related to the acquired company, and amortization of the fair value difference of below-market value assets arising from arrangements entered into or acquired in conjunction with an acquisition. We also recognize the gains and losses from the mark-up of equity or cost method investments to fair value upon obtaining control through acquisition. We exclude these items because they are related to acquisitions and have no direct correlation to the core operation of our business. Further, because we do not acquire businesses on a predictable cycle and the terms of each transaction can vary significantly and are unique to each transaction, we believe it is useful to exclude such expenses when looking for a consistent basis for comparison across accounting periods.

(iv) Restructuring charges. We initiate restructuring activities to align our costs to our operating plans and business strategies based on then-current economic conditions, and such activities have a specific and defined term. Restructuring costs generally include severance and other termination benefits related to voluntary retirement programs, involuntary headcount reductions and facilities closures. Such restructuring costs include elimination of operational redundancy, permanent reductions in workforce and facilities closures and, therefore, are not considered by us to be a part of the core operation of our business and are not used by management when assessing the core profitability and performance of our business operations.

(v) Gains (losses) on the sale of strategic investments. We exclude gains and losses on the sale of equity investments in privately held companies because we do not believe they are reflective of our core business and operating results.

(vi) Deferred compensation. We exclude changes in the fair value of our non-qualified deferred compensation plan because we do not use these to assess the core profitability of our business operations.

(vii) Income tax effect of non-GAAP pre-tax adjustments. Excluding the income tax effect of non-GAAP pre-tax adjustments from the provision for income taxes assists investors in understanding the tax provision associated with those adjustments and the effect on net income. We utilize an annual non-GAAP tax rate in calculating non-GAAP financial measures to provide better consistency across interim reporting periods by eliminating the effects of certain non-recurring and other period-specific items, which can vary in size and frequency and do not necessarily reflect our normal operations, and to more closely align our tax rate with our expected geographic earnings mix. This annual non-GAAP tax rate is based on an evaluation of our historical and projected mix of U.S. and international profit before tax, taking into account the impact of non-GAAP adjustments, U.S. tax law changes, as well as other factors such as our current tax structure, existing tax positions and expected recurring tax incentives. Based on these considerations, we have elected to adopt a non-GAAP tax rate of 15% for fiscal year 2024.

INVESTOR CONTACT:
Trey Campbell
Synopsys, Inc.
650-584-4289
[email protected]

EDITORIAL CONTACT:
Cara Walker
Synopsys, Inc.
650-584-5000
[email protected]

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SOURCE Synopsys, Inc.