A month has gone by since the last earnings report for Synopsys (SNPS). Shares have lost about 10% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Synopsys due for a breakout? 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 Q4 Earnings Beat, Revenues Match Estimates
Synopsys reported fourth-quarter fiscal 2022 non-GAAP earnings of $1.91 per share, beating the Zacks Consensus Estimate of $1.84. The bottom line improved 4.9% year over year.
Revenues surged 11.3% year over year to $1.28 billion, driven by growth across its business segments. The top line was in line with the Zacks Consensus Estimate.
Synopsys benefited from the increasing demand for its products amid the rapid adoption of Big Data, faster computation and Machine Learning. Complex, connected, specialized and secure chips and systems witnessed strong momentum and drove Synopsys’ quarterly performance.
Quarter in Detail
In the license-type revenues group, Time-Based Product revenues (62.9% of total revenues) of $808.2 million were up 17.5% year over year. Upfront Product revenues (19.7%) declined 7.7% to $253.2 million. Maintenance and Service revenues (17.4%) increased 17.3% year over year to $222.9 million from the year-ago quarter’s $190 million.
Segment-wise, Semiconductor & System Design revenues (90% of total revenues) were $1.16 billion, up 11.5% year over year. Within the segment, Electronic Design Automation revenues (53% of revenues) were $685 million, while IP &Systems Integration revenues (35% of revenues) amounted to $454.3 million.
Software Integrity revenues totaled $127.1 million, contributing approximately 10% to the top line in the reported quarter.
Geographically, Synopsys’ revenues in North America (47% of the total) and Europe (9%) were $610 million and $117.2 million, respectively. Revenues from Korea (13%), China (14%) and Other (16%) were $172.7 million, $177.9 million and $206.5 million, respectively.
The non-GAAP operating margin was 27.5%, contracting 200 basis points (bps) year over year.
Semiconductor & System Design delivered an adjusted operating margin of 29.6%, shrinking 170 bps on a year-over-year basis. Software Integrity margin contracted 370 bps year over year to 8.4%.
Balance Sheet & Cash Flow
Synopsys had cash and short-term investments of $1.57 billion as of Oct 31, 2022 compared with $1.53 billion as of Jul 31, 2022.
Total long-term debt was $20.8 million in the reported quarter, down from $22 million as of Jul 31, 2022.
During fiscal 2022, operating cash flow was $1.74 billion.
Guidance
For the first quarter of fiscal 2023, Synopsys expects revenues between $1.340 billion and $1.370 billion. Management estimates non-GAAP earnings between $2.48 and $2.53 per share. Non-GAAP expenses are anticipated in the band of $875-$885 million.
For fiscal 2023, SNPS projects revenues to be $5.775-$5.825 billion.
The non-GAAP earnings for the fiscal year are expected to be between $10.28 and $10.35 per share.
Non-GAAP expenses are estimated in the range of $3.810-$3.840 billion. Synopsys forecasts an operating cash flow of approximately $1.700 billion for fiscal 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
The consensus estimate has shifted 13% due to these changes.
VGM Scores
Currently, Synopsys has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Synopsys has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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