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Synopsys (SNPS) Gains 5% as Q1 Earnings Surpass Estimates

Synopsys SNPS shares gained 4.7% during Wednesday’s extended trading session after the company reported better-than-expected first-quarter fiscal 2024 results. The company’s first-quarter non-GAAP earnings per share (EPS) of $3.56 beat the Zacks Consensus Estimate of $3.43. The bottom line improved 35.9% year over year, primarily driven by higher revenues and better cost management.

Revenues jumped 21% year over year to $1.65 billion, driven by growth across its business segments. The top line was in line with the Zacks Consensus Estimate.

Synopsys’ top-line results benefited from momentum across the 3DIC Compiler platform, digital EDA, 2nm and 3nm projects and analog/mixed-signal customers. SNPS’ fiscal first quarter accounted for an extra week, contributing to its revenues and non-GAAP EPS by $70.5 million and 11 cents, respectively.

Synopsys, Inc. Price, Consensus and EPS Surprise

Synopsys, Inc. price-consensus-eps-surprise-chart | Synopsys, Inc. Quote

Quarter in Detail

In the license-type revenue group, Time-Based Product revenues (58.8% of the total revenues) of $904.4 million were up 15.6% year over year. Upfront Product revenues (27.1%) moved upward by 33% to $447.9 million. Maintenance and Service revenues (18%) increased 22.5% to $297 million from the year-ago quarter’s $242.4 million.

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Segment-wise, Electronic Design Automation (EDA) revenues (58.9% of revenues) were $970.7 million, up 11% year over year. Design IP revenues (31.9% of revenues) amounted to $525.7 million, while Software Integrity revenues totaled $138.2 million, contributing approximately 8.4% to the top line in the reported quarter. Other revenues were $14.6 million, representing 0.8% of the total revenues.

Geographically, Synopsys’ revenues in North America (50% of the total) and Europe (10%) were $819 million and $159.1 million, respectively. Revenues from Korea (11%), China (15%) and Other (14%) were $184.6 million, $250 million and $236.6 million, respectively.

The non-GAAP operating margin was 38.7%, expanding 350 basis points (bps) year over year.

Software Integrity’s adjusted operating margin expanded 520 bps year over year to 17.3%, while EDA’s adjusted operating margin declined 190 bps to 37%. The Design IP segment margin showed a massive improvement to 47.5% from 34.2% in the year-ago quarter.

Balance Sheet & Cash Flow

Synopsys had cash and short-term investments of $1.27 billion as of Jan 31, 2023 compared with $1.59 billion as of Oct 31, 2023.

The total long-term debt was $17 million at the end of the reported quarter, down from $18.1 million as of Oct 31, 2023.

The company’s cash utilization was $88 million in the first quarter compared with the year-ago quarter’s cash flow generation of $115 million.

Guidance Update

For fiscal 2024, SNPS expects revenues between $6.57 billion and $6.63 billion. Non-GAAP earnings have been revised to $13.47-$13.55 per share, up from the previous guidance of $13.33-$13.41 per share. Non-GAAP expenses are expected in the range of $4.14-$4.18 billion.

For the second quarter of fiscal 2024, Synopsys expects revenues between $1.56 billion and $1.59 billion. Management estimates non-GAAP earnings per share between $3.09 and $3.14. Non-GAAP expenses are anticipated in the band of $1.005-$1.015 billion.

Zacks Rank and Stocks to Consider

Currently, Synopsys carries a Zacks Rank #3 (Hold). Shares of SNPS have gained 48.7% in the past year.

Some better-ranked stocks from the broader technology sector are BlackLine BL, Arista Networks ANET and Dell Technologies DELL, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for BlackLine’s first-quarter 2024 earnings has remained unchanged at 47 cents per share for the past 90 days. Shares of BL have lost 20.6% in the past year.

The Zacks Consensus Estimate for Arista’s first-quarter 2024 earnings has been revised by 4 cents northward to $1.71 per share in the past seven days. Shares of ANET have rallied 86% in the past year.

The Zacks Consensus Estimate for DELL’s fourth-quarter 2024 earnings per share has been revised downward by a penny to $1.73 in the past 60 days. Shares of DELL have surged 93.6% in the past year.

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