A month has gone by since the last earnings report for Synopsys, Inc. SNPS . Shares have added about 4.4% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Synopsys Tops Q2 Earnings & Revenues, Guides Well
Synopsys reported second-quarter fiscal 2017 earnings per share (excluding all one-time items but including stock-based compensation expenses) of $0.71, which were 4.4% higher than the year-ago quarter's adjusted earnings of $0.68. The Zacks Consensus Estimate is pegged at $0.56.
On a Non-GAAP basis, the company's earnings per share came in at $0.88 compared with $0.81 reported in the year-ago quarter.
On a GAAP basis, the company's earnings per share came in at $0.34 compared with $0.45 reported in the year-ago quarter. Quarter Details
Total revenue increased approximately 12.4% year over year to $680.1 million and exceeded the previously guided range of $665-$680 million. Reported revenues also surpassed the Zacks Consensus Estimate of $665 million. On a year-over-year basis, revenues were positively impacted by higher adoption of Synopsys' products and strength in hardware products.
About 90% of the revenues came from backlog for the beginning of the quarter and the remaining 10% was contributed by one customer.
Segment wise, License revenues (including time-based and upfront) were $584.5 million, up nearly 7.8% from the year-ago quarter. Maintenance and service revenues increased 52.4% year over year to $95.5 million.
Adjusted gross profit (excluding all one-time items but including stock-based compensation expenses) was $537.7 million, up approximately 8% from the year-ago period. However, as a percentage of revenues, it contracted 320 basis points (bps) from the year-ago quarter to 79.1%.
Adjusted operating expenses increased 7.2% on a year-over-year basis to $403.9 million, primarily due to higher employee compensation expenses, research and development expenses and sales and marketing. As a percentage of revenues, the same decreased 290 bps from the year-ago quarter to 59.4%.
Synopsys' adjusted operating income (excluding all one-time items but including stock-based compensation expenses) was up 10.3% on a year-over-year basis and came in at $133.7 million. However, operating margin decreased 30 bps on a year-over-year basis to 19.7%.
The company's adjusted net income (excluding all one-time items but including stock-based compensation expenses) for the quarter came in at $115.9 million, marking a year-over-year increase of 12.7%.
On a non-GAAP basis, Synopsys reported earnings of 135.8 million compared with 125.6 million reported in the year-ago quarter.
On a GAAP basis, net income was $53.3 million compared with $69.4 million in second-quarter fiscal 2016. Balance Sheet & Cash Flow
Synopsys exited the quarter with cash, cash equivalents and short-term investments of $1.131 billion million compared with $966.3 million at the end of the previous quarter. Accounts receivables were $373.8 million compared with $331.9 million in the last quarter. During the quarter, cash flow from operational activities was $123 million. The company repurchased $100 million worth of its common stock during the quarter. The company has a remaining $235 million for its current authorization. Guidance
Synopsys provided guidance for the third quarter and raised its fiscal 2017 outlook. The company now expects fiscal 2017 revenues to come in the range of $2.650-$2.670 billion (previous guidance $2.58-$2.61 billion).
Non-GAAP earnings per share are now projected between $3.24 and $3.29 (previously $3.21 and $3.26). GAAP earnings are projected between $1.84 per share and $1.97 per share. The company now projects cash from operations to be approximately $580 million to $600 million ($500 million to $520 million).
For the third quarter, the company expects revenues in the range of $685-$700 million (mid-point $692.5 million). The company expects non-GAAP expenses within $517-$527 million. Management expects non-GAAP earnings per share in the range of $0.91-$0.94, while GAAP earnings are projected between $0.51 and $0.59.
How have estimates been moving since then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
Synopsys, Inc. Price and Consensus
Synopsys, Inc. Price and Consensus | Synopsys, Inc. Quote
At this time, the stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
The consensus estimate moved down over the last 30 days. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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