Synopsys Management Discusses Q2 2012 Results - Earnings Call Transcript

Synopsys (SNPS)

Q2 2012 Earnings Call

May 23, 2012 5:00 pm ET

Executives

Lisa Ewbank

Aart J. de Geus - Co-Founder, Chairman and Chief Executive Officer

Brian M. Beattie - Chief Financial Officer

Analysts

Richard Valera - Needham & Company, LLC, Research Division

Raj Seth - Cowen and Company, LLC, Research Division

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Krish Sankar - BofA Merrill Lynch, Research Division

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Synopsys Earnings Conference Call for the Second Quarter Fiscal Year 2012. [Operator Instructions] Today's call will last 1 hour. 5 minutes prior to the end of the call, we 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, Kathy. Good afternoon, everyone. With us on the call today are Aart de Geus, Chairman and Co-CEO of Synopsys; and Brian Beattie, Chief Financial Officer.

Before we begin our remarks this afternoon, I'd like to remind everyone that 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 quarter ended January 31, 2012, and our earnings release for the second quarter of fiscal year 2012.

All financial information to be discussed on this conference call, 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 second 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 J. de Geus

Good afternoon, and thank you for joining us. Today, I'm pleased to report excellent Q2 results, very rapid progress on the integration of Magma Design Automation and raise guidance for fiscal year 2012.

Let me begin with a financial summary. Our business in Q2 was strong across all metrics with revenue of $433 million and non-GAAP earnings per share of $0.53, which includes $0.01 of dilution from Magma that was not included in our previous guidance range. For the year, we are raising our outlook based on increased visibility and confidence and the progress made on the Magma integration to a range of $2.03 to $2.07.

From the perspective of our long-term financial management, you may recall that in 2010, we communicated to you a high single-digit EPS growth objective based on 5 pillars: One, organic revenue growth in core EDA of low to mid-single-digits; two, double-digit organic revenue growth in IP and systems; three, continued M&A; four, efficient allocation of resources; and five, keeping share count roughly flat at approximately 150 million shares.

Clearly, we continue to deliver against these objectives and are already well on track to achieve double-digit EPS growth again this year. We will provide 2013 guidance in our December earnings release, but I will say already now that our objective is to achieve high single-digit EPS growth for next year as well.

For the present quarter and year, Brian will provide more financial detail in just a minute. Before addressing the product highlights, let me comment on the current landscape. For as the economic ups and downs are readily visible in the press on a daily basis, the electronics and semiconductor industries are racing forward from a technology point of view. While electronic consumption is staying high, the battle for share among the providers is quite intense, resulting in some consolidation and accelerated push towards the 28-nanometer production of advanced chips and substantial investments into the next generations of technology.

For our industry, this clearly means additional pressure as we support challenged and very competitive customers. But also, a solid landscape of renewals, add-on purchases and emphasis on value selling.

We expect that going forward, customers will rely more on EDA for improved design efficiency and product differentiation, which bodes well for our sustained growth prospects. In that sense, EDA feels healthier than it has been in a number of years.

These analysts are particularly positive for Synopsys. For many years, we have focused on building a set of complete solutions, ranging from system design to chip implementation to manufacturing. In addition, our time-based business model, supported by a substantial multiyear backlog, lets us continually invest in R&D and support in virtually any phase of the economic cycle.

Consequently, it's not surprising that the majority of the state-of-the-art designs are done with Synopsys tools and rely on the skills of our global support teams, which brings me to the highlights for the quarter, starting with our core EDA and manufacturing offerings.

One of the advanced areas in which both stress and excitement are visible on a daily basis, is in the design of processors, graphics and SSE. Clearly, our customers aim to achieve highest performance at lowest power. In this area, Synopsys shines. One example is with Samsung, who completed the first-ever production tape-out of a high-speed ARM Cortex-A15 processor relying exclusively on IC Compiler and Galaxy for physical design.

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