Synopsys Beats on Q4 Earnings, Shares Fall - Analyst Blog

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Shares of Synopsys Inc. ( SNPS ) declined 4.1% on Wednesday in after-hours trade. Not only did the company miss the Zacks Consensus Estimate for revenue but also provided a tepid first quarter outlook.

Synopsys reported fiscal fourth-quarter 2013 adjusted earnings per share (including stock-based compensation and excluding all one time items) of 50 cents, which were ahead of the Zacks Consensus Estimate of 35 cents. Earnings increased 29.8% on a year-over-year basis.

Revenues

Total revenue for the quarter stood at $504.9 million, up 11.2% on a year-over-year basis but missed the Zacks Consensus Estimate of $507.0 million. More than 90% of the fourth-quarter revenues came from the backlog. A single customer accounted for slightly more than 11% of the revenues in the third quarter.

License revenues (including time-based and upfront) were $449.4 million, up 13.5% from the year-ago quarter. Maintenance and service revenues decreased 4.9% from the year-ago quarter to $55.5 million.

Operating Results

Gross profit was $385.8 million, up 9.7% from the year-ago quarter. Gross margin declined 102 basis points from the year-ago quarter to 76.4% as the company was unable to control its cost of sales.

Operating expenses for the quarter increased 7.2% on a year-over-year basis to $334.7 million primarily due to acquisitions and employee costs. Operating expenses as a percentage of revenues expanded 243 basis points (bps) from the year-ago quarter to 66.3%.

Synopsys' operating income for the quarter was up 29.2% on a year-over-year basis to $51.0 million, primarily due to higher operational efficiencies. Operating margin expanded 141 bps to 10.1% during the same period.  

The company reported net income of $56.9 million or 36 cents per share compared with $29.0 million or 19 cents per share in the year-ago quarter. Adjusted net income (including stock-based compensation and excluding all one-time items) in the same quarter was $77.9 million or 50 cents per share compared with $58.6 million or 38 cents per share in the year-ago quarter.

Balance Sheet

Synopsys ended the quarter with cash and cash equivalents of $1.02 billion compared with $892.4 million at the end of the previous quarter. Accounts receivable were $256.0 million, down from $278.9 million in the year-ago quarter.

Guidance

For the first quarter of fiscal 2014, the company expects revenues in the range of $475.0 million-$485.0 million. The company expects non-GAAP expenses in the range of $377.0 million-$387.0 million. Management expects non-GAAP earnings per share in the range of 51 cents-53 cents, higher than the Zacks Consensus estimate of 41 cents per share

For the full year 2014, the company expects revenues in the range of $2.06 billion-$2.085 billion, while non-GAAP earnings per share are projected within $2.55-$2.60. The company expects to generate $425.0-$450.0 million cash from operations in fiscal 2014.

Conclusion

Synopsys delivered mixed fiscal fourth-quarter 2013 results, with earnings beating the Zacks Consensus Estimate and revenues missing the same. However, revenues improved on a year-over-year basis.

The company provided a tepid first-quarter 2014 revenue guidance which is lower than the Zacks Consensus Estimates of $504.0 million. We believe the company's recent product launches, acquisitions and deal wins will boost results, going ahead. Moreover, the unique intellectual properties and global support provided by Synopsys will likely drive its forthcoming results. The company has a good cash reserve that is necessary for funding further acquisitions.

However, competition from Adobe Systems ( ADBE ), Advent Software ( ADVS ) and Ansys Inc. ( ANSS ) coupled with a challenging technology spending environment and uncertainty regarding proper time to realize acquisition synergies keep us on the sidelines.

Currently, Synopsys has a Zacks Rank #3 (Hold).



ADOBE SYSTEMS (ADBE): Free Stock Analysis Report

ADVENT SOFTWARE (ADVS): Free Stock Analysis Report

ANSYS INC (ANSS): Free Stock Analysis Report

SYNOPSYS INC (SNPS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ADBE , ADVS , ANSS , SNPS

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