SNPS

Synopsys, Inc. (SNPS)

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Synopsys, Inc. (SNPS)

F4Q2010 Earnings Call Transcript

December 1, 2010 5:00 pm ET

Executives

Lisa Ewbank – VP, IR

Aart de Geus – Chairman and CEO

Brian Beattie – CFO

Analysts

Rich Valera – Needham & Company

Tom Diffely – D.A. Davidson

Raj Seth – Cowen & Company

Sterling Auty – JP Morgan

K.C. Rajkumar – RBC Capital Markets

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Synopsys earnings conference call for the fourth quarter and fiscal year 2010. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

Today's call will last one hour. Five minutes prior to the end of the call, I will announce the amount of time remaining in the conference. As a reminder, today's call is being recorded.

At this time, I would like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations. Please go ahead.

Lisa Ewbank

Thank you, Karen. Good afternoon, everyone. With us today are Aart de Geus, Chairman and CEO of Synopsys; and Brian Beattie, Chief Financial Officer.

During the course of this conference call, Synopsys will discuss forecasts and targets and will make other forward-looking statements regarding the Company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results and performance are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect.

In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our quarterly report on Form 10-Q for the fiscal quarter ended July 31, 2010 and in our earnings release for the fourth quarter of fiscal year 2010 issued earlier today.

In addition, all financial information to be discussed on this conference call, as well as the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures and supplemental financial information can be found in the current report on Form 8-K that we filed today, our fourth quarter earnings release, and our financial supplement. All of these items are currently available on our website at www.synopsys.com.

With that, I'll turn the call over to Aart de Geus.

Aart de Geus

Good afternoon. I am happy to report that we had a very strong end to the year, and enter fiscal '11 with an excellent outlook. In Q4 and in fiscal '10, we delivered better than expected revenue growth, continued strong operating margin, very strong cash flow, and significant technical and customer momentum. Just as importantly in 2010, we transformed Synopsys opportunity space, we extend our technical lead in the core business, while simultaneously expanding our total addressable market in several key adjacencies.

Given this strong backdrop and an improved economic outlook, we currently foresee good growth for both the top and bottom line in 2011 and beyond. Summarizing our financial results for the quarter and year, we met or exceeded virtually every goal we set at the beginning of the year even with the initially dilutive impact of a number of acquisitions. With non-GAAP earnings per share of $0.39 in Q4, we delivered $1.60 for the year, which is at the high end of the target range we communicated at the beginning of 2010.

With Q4 revenue of $375 million, we grew our business 1.5% to $1.38 billion for the year; well above the 2% decline we expected entering the year. Our business in the second half was excellent. Our book-to-bill for the year was slightly above 1 and we have more than 80% of next year's revenue in hand.

With continued focus on expense control and strong cash collection, we are entering the next fiscal year with $939 million in cash. Our strong outlook for 2011 is further supported by a customer landscape that while changing has improved and stabilized.

For 2011, industry analysts are predicting semiconductor revenue growth to migrate towards its long-term trend line in the upper single-digits. As global demand for electronics continues to expand, we see large customers design mostly in the demanding 40-nanometer node and drive their advanced products towards the ambitious 32 and 28-nanometer technologies.

Meanwhile, leading IDMs and the foundries are investing substantially in preparing for 22 and 20-nanometer. This continued quest will require both sophisticated EDA and new IP investments, and we feel a market pool that is refreshing after the last few of years of extreme caution.

Based on this outlook, for the next few years, we are aiming at a business model with annual high single-digit earnings per share expansion. We plan to achieve our objective by, one, a renewed focus on organic revenue growth in the low to mid single-digits for our traditional EDA products, two, double-digit organic growth in our IP and systems adjacencies, three, continued exploration of M&A opportunities that broaden our total available markets, four, continued focus on corporate efficiency and allocation of resources towards the growing segments in our market; and fifth, maintenance of our roughly flat diluted share count around the 151 million shares. For 2011, we're aiming for non-GAAP EPS of $1.67 to $1.77 with solid revenue and cash flow.

Brian will provide details on the past and upcoming year, but closing the chapter of a 2.5 year economic downturn, we succeeded in increasing our market share, navigating the recession with slight revenue growth and continued strong investments in R&D, bringing to market a set of brand new products, and expanding our TAM through adjacent M&A. All-in-all, this is an excellent outcome resulting in forward momentum and a good outlook.

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