UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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| Item 2.02 | Results of Operations and Financial Condition. |
On August 16, 2023, Synopsys, Inc. (“Synopsys”, “we”, “our”, or “us”) issued a press release announcing the financial results of its third fiscal quarter ended July 31, 2023. A copy of the press release is furnished and attached hereto as Exhibit 99.1 and is incorporated herein by reference.
The information in this Current Report, including Exhibit 99.1 attached hereto and incorporated by reference herein, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. The information contained herein and in the accompanying exhibit shall not be incorporated by reference into any registration statement or other document filed with the Securities and Exchange Commission by Synopsys whether made before or after the date hereof, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.
The press release attached as Exhibit 99.1 includes measures that are not in accordance with, or an alternative for, U.S. generally accepted accounting principles (“GAAP,” such nonconforming measures, “non-GAAP measures”). The attached press release includes, among other non-GAAP measures, non-GAAP earnings per diluted share, non-GAAP net income, non-GAAP tax rate and non-GAAP operating margin for the periods presented. It also includes future estimated ranges for non-GAAP expenses, non-GAAP tax rate and non-GAAP earnings per diluted share.
These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles, and management exercises judgment in determining which items should be excluded in the calculation of non-GAAP measures. While we acknowledge that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP, we believe that these non-GAAP measures are valuable in analyzing our core operations as further described below. The presentation of non-GAAP financial information is not meant to be considered in isolation from, as superior to or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. These non-GAAP financial measures are meant to supplement, and be viewed in conjunction with, the corresponding GAAP financial measures. We believe that the presentation of non-GAAP measures, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors allowing them to view financial and business trends relating to our financial condition and results of operations through the eyes of management.
Synopsys’ management evaluates and makes decisions about our business operations primarily based on the income and costs that management believes are directly related to Synopsys’ core operational performance, both from a company-wide basis and on a business segment basis. For our internal budgeting and resource allocation process, and in reviewing our financial results, we use non-GAAP financial measures that exclude: (i) the amortization of acquired intangible assets; (ii) the impact of stock compensation; (iii) acquisition-related items; (iv) restructuring charges; (v) the effects of certain settlements, final judgments and loss contingencies related to legal proceedings; and (vi) the income tax effect of non-GAAP pre-tax adjustments, in each case, as further described below. We also utilize an annual non-GAAP tax rate in the calculation of our non-GAAP measures, as described further below.
We use these non-GAAP financial measures in making our operating and internal budgeting decisions because we believe these measures give us a better understanding of how we should invest in research and development, as well as fund infrastructure and product and market strategies. We use these measures to help us make budgeting decisions, for example, among product development expenses, research and development, sales and marketing, and general and administrative expenses. In addition, these non-GAAP financial measures facilitate our internal comparisons to our historical operating results and forecasted targets, and comparisons to competitors’ operating results.
Synopsys provides segment information, namely adjusted segment operating income and adjusted segment operating margin, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 280, Segment Reporting. These measures reflect how management evaluates the operating performance of its segments. In evaluating our business segments, management considers the income and costs that it believes are directly related to those segments. The items mentioned above that are excluded from non-GAAP measures are the same items that management does not allocate to the segments to evaluate their performance. Similarly, Synopsys does not allocate changes in the fair value of its non-qualified deferred compensation plan because these changes typically do not require cash settlement and they are not used by us to assess the core profitability of our business operations.
As described above, we exclude the following items from one or more of our non-GAAP measures:
(i) Amortization of acquired intangible assets. We incur expenses from amortization of acquired intangible assets, which include, among other things, core/developed technology, customer relationships, contract rights, trademarks and trade names, and other intangibles related to acquisitions. We amortize the intangible assets over their estimated useful lives. We do not enter into acquisitions on a predictable cycle. The amount of an acquisition’s purchase price allocated to intangible assets and their estimated useful lives can vary significantly and are unique to each acquisition. We believe that the presentation of non-GAAP financial measures that adjust for the amortization of intangible assets provides investors and others with a consistent basis for comparison across accounting periods. We also exclude this item because such expenses are non-cash in nature and we believe the non-GAAP measures excluding this item provide meaningful supplemental information regarding our core operational performance and liquidity, and ability to invest in research and development and fund future acquisitions and capital expenditures.
(ii) Stock compensation impact. Stock compensation expenses consist primarily of expenses related to restricted stock units, stock options, employee stock purchase rights and other stock awards, including such expenses associated with acquisitions. We exclude stock-based compensation expense from our non-GAAP measures primarily because it is not an expense that typically requires or will require cash settlement by us. Further, the expense for the fair value of the stock-based instruments we utilize may bear little resemblance to the actual value realized upon the vesting or future exercise of the related stock-based awards and, therefore, is not used by management to assess the core profitability of our business operations.
(iii) Acquisition-related items. In connection with our business combinations, we incur significant expenses that we would not have otherwise incurred as part of our business operations. These expenses include, among other things, compensation expenses, professional fees and other direct expenses, concurrent restructuring activities, including employee severance and other exit costs, changes to the fair value of contingent consideration related to the acquired company, and amortization of the fair value difference of below-market value assets arising from arrangements entered into or acquired in conjunction with an acquisition. We also recognize the gains and losses from the mark-up of equity or cost method investments to fair value upon obtaining control through acquisition. We exclude these items because they are related to acquisitions and have no direct correlation to the core operation of our business. Further, because we do not acquire or dispose of businesses on a predictable cycle and the terms of each transaction can vary significantly and are unique to each transaction, we believe it is useful to exclude such expenses when looking for a consistent basis for comparison across accounting periods.
(iv) Restructuring charges. We initiate restructuring activities to align our costs to our operating plans and business strategies based on then-current economic conditions, and such activities have a specific and defined term. Restructuring costs generally include severance and other termination benefits related to voluntary retirement programs, involuntary headcount reductions and facilities closures. Such restructuring costs include elimination of operational redundancy, permanent reductions in workforce and facilities closures and, therefore, are not considered by us to be a part of the core operation of our business and are not used by management when assessing the core profitability and performance of our business operations.
(v) Legal matters. From time to time, we are party to legal proceedings including, but not limited to, tax-related matters, lawsuits and other matters that are not incident to the ordinary course of our business, which could result in an expense or benefit due to settlements, final judgments or accruals for loss contingencies. We exclude these types of expenses or benefits because management does not believe they are reflective of the core operation of our business.
(vi) Income tax effect of non-GAAP pre-tax adjustments. Excluding the income tax effect of non-GAAP pre-tax adjustments from the provision for income taxes assists investors in understanding the tax provision associated with those adjustments and the effect on net income.
We utilize an annual non-GAAP tax rate in calculating non-GAAP financial measures to provide better consistency across interim reporting periods by eliminating the effects of certain non-recurring and other period-specific items, which can vary in size and frequency and do not necessarily reflect our normal operations, and to more closely align our tax rate with our expected geographic earnings mix. Our annual non-GAAP tax rate is based on an evaluation of our historical and projected mix of U.S. and international profit before tax, taking into account the impact of non-GAAP adjustments, U.S. tax law changes, as well as other factors such as our current tax structure, existing tax positions and expected recurring tax incentives.
On February 17, 2023, following a re-evaluation of federal tax laws that require research and development expense to be
capitalized commencing in Synopsys’ first quarter of fiscal year 2023, we updated our annual non-GAAP tax rate for fiscal year 2023 to 16%. We do not currently anticipate any additional significant changes to U.S. corporate tax law, our geographic earnings mix, or significant tax law changes in major jurisdictions where we operate that would result in further adjustment to our fiscal year 2023 annual non-GAAP tax rate.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits
| Exhibit Number |
Exhibit Title | |
| 99.1 | Press release dated August 16, 2023 containing Synopsys, Inc.’s results of operations for its third fiscal quarter ended July 31, 2023. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| SYNOPSYS, INC. | ||||||
| Dated: August 16, 2023 | By: | /s/ John F. Runkel, Jr. | ||||
| John F. Runkel, Jr. | ||||||
| General Counsel and Corporate Secretary | ||||||
Exhibit 99.1
PRESS RELEASE
INVESTOR CONTACT:
Trey Campbell
Synopsys, Inc.
650-584-4289
Synopsys-ir@synopsys.com
EDITORIAL CONTACT:
Cara Walker
Synopsys, Inc.
650-584-5000
corp-pr@synopsys.com
Synopsys Posts Financial Results for Third Quarter Fiscal Year 2023
Announces Sassine Ghazi to Assume President and CEO Role Effective Jan. 1, 2024
Q3 FY 2023 Summary
| • | Record quarterly revenue of $1.487 billion, up 19% year over year. |
| • | GAAP earnings per diluted share of $2.17; non-GAAP earnings per diluted share of $2.88, exceeded high end of guidance. |
| • | Raising full-year 2023 revenue, non-GAAP operating margin improvement, and earnings guidance; committed to long-term model of double-digit annual revenue growth. |
SUNNYVALE, Calif. – Aug. 16, 2023 – Synopsys, Inc. (Nasdaq: SNPS) today reported results for its third quarter of fiscal year 2023. Revenue for the third quarter of fiscal year 2023 was $1.487 billion, compared to $1.248 billion for the third quarter of fiscal year 2022. Also today, the company announced that its Board of Directors has appointed Sassine Ghazi as President and Chief Executive Officer effective on January 1, 2024.1
“We achieved another record quarter as semi design starts and R&D investments continue, unabated, to capitalize on the AI-driven, ‘Smart Everything’ era,” said Aart de Geus, chair and CEO of Synopsys. “Our relentless drive for innovation has made us a catalyst for our customers, with excellent forward momentum for Synopsys. Against this backdrop, I am thrilled with
Sassine’s transition into the CEO role. He’s a proven leader, innovator, and trusted partner who will further inspire and grow our company. Sassine has my full support!”
| 1 | https://news.synopsys.com/2023-08-16-Synopsys-Announces-Sassine-Ghazi-to-Assume-President-and-CEO-Role-Jan-1,-2024 |
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“I am incredibly honored, humbled, and profoundly grateful to the board, and Aart, for placing their unwavering trust in me,” said Sassine Ghazi, president and COO of Synopsys. “Aart built Synopsys from a disruptive start-up into one of the world’s essential semiconductor ecosystem companies. I am so proud to have been a part of that journey for the last 25 years. I am determined to build upon our strong foundation, drive innovation, and propel Synopsys to even greater heights of success.”
Synopsys CFO, Shelagh Glaser, commented on the transition and the financial results: “I look forward to partnering with Aart and Sassine on this leadership transition as we continue to deliver value for shareholders and customers. We outperformed our financial guidance for the third quarter led by record revenue in design automation, which delivered its first billion-dollar-revenue quarter. Strong operational execution drove non-GAAP operating margin expansion of roughly four points year over year to 35.3%, and non-GAAP earnings per share were up an impressive 37% versus the prior year. We are raising our full-year guidance and expect revenue growth of 14-15%, and non-GAAP earnings per share growth of 24-25% year over year.”
GAAP Results
On a generally accepted accounting principles (GAAP) basis, net income for the third quarter of fiscal year 2023 was $336.3 million, or $2.17 per diluted share, compared to $222.6 million, or $1.43 per diluted share, for the third quarter of fiscal year 2022.
Non-GAAP Results
On a non-GAAP basis, net income for the third quarter of fiscal year 2023 was $445.9 million, or $2.88 per diluted share, compared to non-GAAP net income of $327.4 million, or $2.10 per diluted share, for the third quarter of fiscal year 2022.
For a reconciliation of net income, earnings per diluted share and other measures on a GAAP and non-GAAP basis, see “GAAP to Non-GAAP Reconciliation” in the accompanying tables below.
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Business Segments
Synopsys reports revenue and operating income in three segments: (1) Design Automation, which includes digital and custom integrated circuit (IC) design software, verification hardware and software products, manufacturing-related design products, field-programmable gate array (FPGA) design software, optical products, professional services, and other; (2) Design IP, which includes our Synopsys IP portfolio; and (3) Software Integrity, which includes solutions that test software code for security vulnerabilities and quality defects, as well as professional and managed services. Further information regarding these segments is provided at the end of this press release.
Financial Targets
Synopsys also provided its consolidated financial targets for the fourth quarter and full fiscal year 2023. These financial targets assume no further changes to export control restrictions or the current U.S. government “Entity List” restrictions. These targets constitute forward-looking statements and are based on current expectations. For a discussion of factors that could cause actual results to differ materially from these targets, see “Forward-Looking Statements” below.
Fourth Quarter and Fiscal Year 2023 Financial Targets (1)
(in millions except per share amounts)
| Range for Three Months Ending October 31, 2023 |
Range for Fiscal Year Ending October 31, 2023 |
|||||||||||||||
| Low | High | Low | High | |||||||||||||
| Revenue |
$ | 1,567 | $ | 1,597 | $ | 5,810 | $ | 5,840 | ||||||||
| GAAP Expenses |
$ | 1,184 | $ | 1,204 | $ | 4,544 | $ | 4,564 | ||||||||
| Non-GAAP Expenses |
$ | 1,005 | $ | 1,015 | $ | 3,780 | $ | 3,790 | ||||||||
| Non-GAAP Other Income (Expense) |
$ | 1 | $ | 3 | $ | 10 | $ | 12 | ||||||||
| Non-GAAP Tax Rate |
16 | % | 16 | % | 16 | % | 16 | % | ||||||||
| Outstanding Shares (fully diluted) |
155 | 157 | 155 | 157 | ||||||||||||
| GAAP EPS |
$ | 2.17 | $ | 2.28 | $ | 7.85 | $ | 7.96 | ||||||||
| Non-GAAP EPS |
$ | 3.01 | $ | 3.06 | $ | 11.04 | $ | 11.09 | ||||||||
| Operating Cash Flow |
~ $1,650 | |||||||||||||||
| (1) | Synopsys’ fourth quarter of fiscal year 2023 and fiscal year 2023 will end on October 28, 2023. For presentation purposes, we refer to the closest calendar month end. |
For a reconciliation of Synopsys’ fourth quarter and fiscal year 2023 targets, including expenses, earnings per diluted share and other measures on a GAAP and non-GAAP basis, see “GAAP to Non-GAAP Reconciliation” in the accompanying tables below.
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Earnings Call Open to Investors
Synopsys will hold a conference call for financial analysts and investors today at 2:00 p.m. Pacific Time. A live webcast of the call will be available on Synopsys’ corporate website at www.synopsys.com. A webcast replay will also be available on the corporate website from approximately 5:30 p.m. Pacific Time today through the time Synopsys announces its results for the fourth quarter and fiscal year 2023 in November 2023.
Effectiveness of Information
The targets included in this press release, the statements made during the earnings conference call, the information contained in the financial supplement and the corporate overview presentation, each of which are available on Synopsys’ corporate website at www.synopsys.com (collectively, the “Earnings Materials”), represent Synopsys’ expectations and beliefs as of August 16, 2023. Although these Earnings Materials will remain available on Synopsys’ website through the date of the earnings call for the fourth quarter and fiscal year 2023, their continued availability through such date does not mean that Synopsys is reaffirming or confirming their continued validity. Synopsys undertakes no duty and does not intend to update any forward-looking statement, whether as a result of new information or future events, or otherwise update, the targets given in this press release unless required by law.
Availability of Final Financial Statements
Synopsys will include final financial statements for the third quarter of fiscal year 2023 in its quarterly report on Form 10-Q to be filed on or before September 7, 2023.
About Synopsys
Synopsys, Inc. (Nasdaq: SNPS) is the Silicon to Software™ partner for innovative companies developing the electronic products and software applications we rely on every day. As an S&P 500 company, Synopsys has a long history of being a global leader in electronic design automation (EDA) and semiconductor IP and offers the industry’s broadest portfolio of application security testing tools and services. Whether you’re a system-on-chip (SoC) designer creating advanced semiconductors, or a software developer writing more secure, high-quality code, Synopsys has the solutions needed to deliver innovative products. Learn more at www.synopsys.com.
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GAAP to Non-GAAP Reconciliation
Synopsys continues to provide all information required in accordance with GAAP, but acknowledges evaluating its ongoing operating results may not be as useful if an investor is limited to reviewing only GAAP financial measures. Accordingly, Synopsys presents non-GAAP financial measures in reporting its financial results to provide investors with an additional tool to evaluate Synopsys’ operating results in a manner that focuses on what Synopsys believes to be its core business operations and what Synopsys uses to evaluate its business operations and for internal budgeting and resource allocation purposes. These non-GAAP measures may be different from non-GAAP measures used by other companies. Synopsys’ management does not itself, nor does it suggest that investors should, consider such non-GAAP financial measures in isolation from, as superior to, or as a substitute for, financial information prepared in accordance with GAAP. Synopsys’ management believes it is useful for itself and investors to review, as applicable, both GAAP financial measures that include: (i) the amortization of acquired intangible assets, (ii) the impact of stock compensation, (iii) acquisition-related items, (iv) restructuring charges, (v) the effects of certain settlements, final judgments and loss contingencies related to legal proceedings, and (vi) the income tax effect of non-GAAP pre-tax adjustments, in each case as described further in Item 2.02 of Synopsys’ Current Report on Form 8-K filed on August 16, 2023. In addition, the non-GAAP financial measures that exclude such information help facilitate internal comparisons to Synopsys’ historical operating results and forecasted targets, planning and forecasting in subsequent periods and comparisons to competitors’ operating results.
Synopsys utilizes an annual non-GAAP tax rate in calculating non-GAAP financial measures to provide better consistency across interim reporting periods by eliminating the effects of certain non-recurring and other period-specific items, which can vary in size and frequency and do not necessarily reflect Synopsys’ normal operations, and to more closely align its tax rate with its expected geographic earnings mix. This annual non-GAAP tax rate is based on an evaluation of Synopsys’ historical and projected mix of U.S. and international profit before tax, taking into account the impact of non-GAAP adjustments, U.S. tax law changes, as well as other factors such as our current tax structure, existing tax positions and expected recurring tax incentives.
On February 17, 2023, following a re-evaluation of federal tax laws that require research and development expense to be capitalized commencing in Synopsys’ first quarter of fiscal year 2023, Synopsys updated its annual non-GAAP tax rate for fiscal year 2023 to 16%. Synopsys does not currently anticipate any additional significant changes to U.S. corporate tax law, its geographic earnings mix, or significant tax law changes in major jurisdictions where it operates that would result in further adjustment to its fiscal year 2023 annual non-GAAP tax rate.
5
When possible, Synopsys provides a reconciliation of non-GAAP financial measures to their most closely applicable GAAP financial measures. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed below, as well as Item 2.02 of Synopsys’ Current Report on Form 8-K filed on August 16, 2023, for additional information about the measures Synopsys uses to evaluate its core business operations. Synopsys is unable to provide a reconciliation of certain non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis because doing so would not be possible without unreasonable effort due to, among other things, the potential variability and limited visibility of the excluded items. For the same reasons, Synopsys is unable to address the probable significance of the unavailable information.
Reconciliation of Third Quarter Fiscal Year 2023 Results
The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP net income and earnings per diluted share for the periods indicated below.
GAAP to Non-GAAP Reconciliation of Third Quarter Fiscal Year 2023 Results(1)
(unaudited and in thousands, except per share amounts)
| Three Months Ended July 31, |
Nine Months Ended July 31, |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| GAAP net income attributed to Synopsys |
$ | 336,252 | $ | 222,626 | $ | 880,698 | $ | 831,094 | ||||||||
| Adjustments: |
||||||||||||||||
| Amortization of intangible assets |
24,014 | 26,454 | 71,841 | 70,181 | ||||||||||||
| Stock compensation |
144,060 | 127,605 | 420,939 | 333,437 | ||||||||||||
| Acquisition-related items |
4,540 | 5,232 | 9,846 | 11,332 | ||||||||||||
| Restructuring charges |
33,385 | — | 78,384 | 12,057 | ||||||||||||
| Tax settlement |
(23,752 | ) | — | (23,752 | ) | — | ||||||||||
| Tax adjustments |
(72,620 | ) | (54,508 | ) | (192,131 | ) | (162,964 | ) | ||||||||
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| Non-GAAP net income attributed to Synopsys |
$ | 445,879 | $ | 327,409 | $ | 1,245,825 | $ | 1,095,137 | ||||||||
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| Three Months Ended July 31, |
Nine Months Ended July 31, |
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| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| GAAP net income per diluted share attributed to Synopsys |
$ | 2.17 | $ | 1.43 | $ | 5.68 | $ | 5.31 | ||||||||
| Adjustments: |
||||||||||||||||
| Amortization of intangible assets |
0.15 | 0.17 | 0.46 | 0.45 | ||||||||||||
| Stock compensation |
0.93 | 0.82 | 2.71 | 2.13 | ||||||||||||
| Acquisition-related items |
0.03 | 0.03 | 0.06 | 0.07 | ||||||||||||
| Restructuring charges |
0.22 | — | 0.51 | 0.08 | ||||||||||||
| Tax settlement |
(0.15 | ) | — | (0.15 | ) | — | ||||||||||
| Tax adjustments |
(0.47 | ) | (0.35 | ) | (1.24 | ) | (1.04 | ) | ||||||||
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| Non-GAAP net income per diluted share attributed to Synopsys |
$ | 2.88 | $ | 2.10 | $ | 8.03 | $ | 7.00 | ||||||||
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| Shares used in computing net income per diluted share amounts: |
154,947 | 155,806 | 155,119 | 156,545 | ||||||||||||
| (1) | Synopsys’ third quarter of fiscal year 2023 and 2022 ended on July 29, 2023 and July 30, 2022, respectively. For presentation purposes, we refer to the closest calendar month end. |
Reconciliation of 2023 Targets
The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP targets for the periods indicated below.
GAAP to Non-GAAP Reconciliation of Fourth Quarter Fiscal Year 2023 Targets (1)
(in thousands, except per share amounts)
| Range for Three Months Ending October 31, 2023 |
||||||||
| Low | High | |||||||
| Target GAAP expenses |
$ | 1,184,000 | $ | 1,204,000 | ||||
| Adjustments: |
||||||||
| Amortization of intangible assets |
(25,000 | ) | (28,000 | ) | ||||
| Stock compensation |
(154,000 | ) | (161,000 | ) | ||||
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| Target non-GAAP expenses |
$ | 1,005,000 | $ | 1,015,000 | ||||
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| Range for Three Months Ending October 31, 2023 |
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| Low | High | |||||||
| Target GAAP earnings per diluted share attributed to Synopsys |
$ | 2.17 | $ | 2.28 | ||||
| Adjustments: |
||||||||
| Amortization of intangible assets |
0.18 | 0.16 | ||||||
| Stock compensation |
1.03 | 0.99 | ||||||
| Tax adjustments |
(0.37 | ) | (0.37 | ) | ||||
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| Target non-GAAP earnings per diluted share attributed to Synopsys |
$ | 3.01 | $ | 3.06 | ||||
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| Shares used in non-GAAP calculation (midpoint of target range) |
156,000 | 156,000 | ||||||
7
GAAP to Non-GAAP Reconciliation of Full Fiscal Year 2023 Targets (1)
(in thousands, except per share amounts)
| Range for Fiscal Year Ending October 31, 2023 |
||||||||
| Low | High | |||||||
| Target GAAP expenses |
$ | 4,544,230 | $ | 4,564,230 | ||||
| Adjustments: |
||||||||
| Amortization of intangible assets |
(100,000 | ) | (103,000 | ) | ||||
| Stock compensation |
(576,000 | ) | (583,000 | ) | ||||
| Acquisition-related items |
(9,846 | ) | (9,846 | ) | ||||
| Restructuring charges |
(78,384 | ) | (78,384 | ) | ||||
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| Target non-GAAP expenses |
$ | 3,780,000 | $ | 3,790,000 | ||||
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| Range for Fiscal Year Ending October 31, 2023 |
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| Low | High | |||||||
| Target GAAP earnings per diluted share attributed to Synopsys |
$ | 7.85 | $ | 7.96 | ||||
| Adjustments: |
||||||||
| Amortization of intangible assets |
0.64 | 0.62 | ||||||
| Stock compensation |
3.74 | 3.70 | ||||||
| Acquisition-related items |
0.06 | 0.06 | ||||||
| Restructuring charges |
0.51 | 0.51 | ||||||
| Tax settlement |
(0.15 | ) | (0.15 | ) | ||||
| Tax adjustments |
(1.61 | ) | (1.61 | ) | ||||
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| Target non-GAAP earnings per diluted share attributed to Synopsys |
$ | 11.04 | $ | 11.09 | ||||
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| Shares used in non-GAAP calculation (midpoint of target range) |
156,000 | 156,000 | ||||||
| (1) | Synopsys’ fourth quarter of fiscal year 2023 and fiscal year 2023 will end on October 28, 2023. For presentation purposes, we refer to the closest calendar month end. |
Forward-Looking Statements
This press release contains forward-looking statements, including, but not limited to, statements regarding Synopsys’ executive management transition, short-term and long-term financial targets, expectations and objectives; strategies related to our products, technology and services; business and market outlook, opportunities and strategies; the expected impact of U.S. and foreign government actions and regulatory changes, including export control restrictions on our financial results; the potential impact of the uncertain macroeconomic environment on our financial results; customer demand and market expansion; our planned product releases and capabilities; industry growth rates;
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software trends; planned acquisitions and stock repurchases; our expected tax rate; and the impact and result of pending legal, administrative and tax proceedings. These statements involve risks, uncertainties and other factors that could cause our actual results, time frames or achievements to differ materially from those expressed or implied in such forward-looking statements. Such risks, uncertainties and factors include, but are not limited to: macroeconomic conditions and uncertainty in the global economy; uncertainty in the growth of the semiconductor and electronics industries; the highly competitive industry we operate in; actions by the U.S. or foreign governments, such as the imposition of additional export restrictions or tariffs; consolidation among our customers and our dependence on a relatively small number of large customers; risks and compliance obligations relating to the global nature of our operations; and more. Additional information on potential risks, uncertainties and other factors that could affect Synopsys’ results is included in filings we make with the SEC from time to time, including in the sections entitled “Risk Factors” in our latest Annual Report on Form 10-K and in our latest Quarterly Report on Form 10-Q. The financial information contained in this press release should be read in conjunction with the consolidated financial statements and notes thereto included in Synopsys’ most recent reports on Forms 10-K and 10-Q, each as may be amended from time to time. Synopsys’ financial results for its third quarter of fiscal year 2023 are not necessarily indicative of Synopsys’ operating results for any future periods. The information provided herein is as of August 16, 2023. Synopsys undertakes no duty to, and does not intend to, update any forward-looking statement, whether as a result of new information, future events or otherwise, unless required by law.
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SYNOPSYS, INC.
Unaudited Condensed Consolidated Statements of Income (1)
(in thousands, except per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| July 31, | July 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue: |
||||||||||||||||
| Time-based products |
$ | 922,874 | $ | 754,322 | $ | 2,513,383 | $ | 2,185,626 | ||||||||
| Upfront products |
297,967 | 268,584 | 980,149 | 973,483 | ||||||||||||
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|
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| Total products revenue |
1,220,841 | 1,022,906 | 3,493,532 | 3,159,109 | ||||||||||||
| Maintenance and service |
266,447 | 224,860 | 749,959 | 638,141 | ||||||||||||
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|
|
|
|
|
|||||||||
| Total revenue |
1,487,288 | 1,247,766 | 4,243,491 | 3,797,250 | ||||||||||||
| Cost of revenue: |
||||||||||||||||
| Products |
190,809 | 164,077 | 549,908 | 480,166 | ||||||||||||
| Maintenance and service |
98,299 | 87,774 | 285,056 | 253,665 | ||||||||||||
| Amortization of intangible assets |
18,374 | 19,330 | 54,886 | 47,145 | ||||||||||||
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|
|
|
|||||||||
| Total cost of revenue |
307,482 | 271,181 | 889,850 | 780,976 | ||||||||||||
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|
|
|
|||||||||
| Gross margin |
1,179,806 | 976,585 | 3,353,641 | 3,016,274 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
507,402 | 444,826 | 1,458,328 | 1,218,761 | ||||||||||||
| Sales and marketing |
227,134 | 199,246 | 660,034 | 571,329 | ||||||||||||
| General and administrative |
109,714 | 91,461 | 298,161 | 246,426 | ||||||||||||
| Amortization of intangible assets |
6,697 | 7,124 | 19,996 | 23,036 | ||||||||||||
| Restructuring charges |
33,385 | — | 78,384 | 12,057 | ||||||||||||
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|
|
|
|||||||||
| Total operating expenses |
884,332 | 742,657 | 2,514,903 | 2,071,609 | ||||||||||||
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|
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|
|||||||||
| Operating income |
295,474 | 233,928 | 838,738 | 944,665 | ||||||||||||
| Other income (expense), net |
25,808 | 2,426 | 53,353 | (41,280 | ) | |||||||||||
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|
|||||||||
| Income before income taxes |
321,282 | 236,354 | 892,091 | 903,385 | ||||||||||||
| Provision (benefit) for income taxes |
(11,773 | ) | 16,708 | 20,461 | 76,506 | |||||||||||
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|
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|
|||||||||
| Net income |
333,055 | 219,646 | 871,630 | 826,879 | ||||||||||||
| Net income (loss) attributed to non-controlling interest and redeemable non-controlling interest |
(3,197 | ) | (2,980 | ) | (9,068 | ) | (4,215 | ) | ||||||||
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|
|
|
|
|||||||||
| Net income attributed to Synopsys |
$ | 336,252 | $ | 222,626 | $ | 880,698 | $ | 831,094 | ||||||||
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|
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|
|||||||||
| Net income per share attributed to Synopsys: |
||||||||||||||||
| Basic |
$ | 2.21 | $ | 1.46 | $ | 5.79 | $ | 5.43 | ||||||||
| Diluted |
$ | 2.17 | $ | 1.43 | $ | 5.68 | $ | 5.31 | ||||||||
| Shares used in computing per share amounts: |
||||||||||||||||
| Basic |
152,023 | 152,938 | 152,204 | 153,082 | ||||||||||||
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| Diluted |
154,947 | 155,806 | 155,119 | 156,545 | ||||||||||||
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| (1) | Synopsys’ third quarter of fiscal year 2023 and 2022 ended on July 29, 2023 and July 30, 2022, respectively. For presentation purposes, we refer to the closest calendar month end. |
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SYNOPSYS, INC.
Unaudited Condensed Consolidated Balance Sheets (1)
(in thousands, except par value amounts)
| July 31, 2023 | October 31, 2022 | |||||||
| ASSETS: |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 1,686,144 | $ | 1,417,608 | ||||
| Short-term investments |
148,443 | 147,913 | ||||||
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|
|||||
| Total cash, cash equivalents and short-term investments |
1,834,587 | 1,565,521 | ||||||
| Accounts receivable, net |
666,577 | 796,091 | ||||||
| Inventories |
282,791 | 211,927 | ||||||
| Prepaid and other current assets |
484,357 | 439,130 | ||||||
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|
|||||
| Total current assets |
3,268,312 | 3,012,669 | ||||||
| Property and equipment, net |
535,973 | 483,300 | ||||||
| Operating lease right-of-use assets, net |
574,727 | 559,090 | ||||||
| Goodwill |
3,887,860 | 3,842,234 | ||||||
| Intangible assets, net |
336,723 | 386,446 | ||||||
| Deferred income taxes |
813,810 | 670,653 | ||||||
| Other long-term assets |
505,826 | 463,695 | ||||||
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|
|
|
|||||
| Total assets |
$ | 9,923,231 | $ | 9,418,087 | ||||
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|
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| LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY: |
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| Current liabilities: |
||||||||
| Accounts payable and accrued liabilities |
$ | 905,464 | $ | 809,403 | ||||
| Operating lease liabilities |
80,192 | 54,274 | ||||||
| Deferred revenue |
1,744,326 | 1,910,822 | ||||||
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|
|||||
| Total current liabilities |
2,729,982 | 2,774,499 | ||||||
| Long-term operating lease liabilities |
590,827 | 581,273 | ||||||
| Long-term deferred revenue |
194,860 | 154,472 | ||||||
| Long-term debt |
18,165 | 20,824 | ||||||
| Other long-term liabilities |
389,516 | 327,829 | ||||||
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|
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| Total liabilities |
3,923,350 | 3,858,897 | ||||||
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|
|||||
| Redeemable non-controlling interest |
35,877 | 38,664 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding |
— | — | ||||||
| Common stock, $0.01 par value: 400,000 shares authorized; 152,125 and 152,375 shares outstanding, respectively |
1,521 | 1,524 | ||||||
| Capital in excess of par value |
1,257,382 | 1,487,126 | ||||||
| Retained earnings |
6,389,825 | 5,534,307 | ||||||
| Treasury stock, at cost: 5,136 and 4,886 shares, respectively |
(1,542,889 | ) | (1,272,955 | ) | ||||
| Accumulated other comprehensive income (loss) |
(147,284 | ) | (234,277 | ) | ||||
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|
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| Total Synopsys stockholders’ equity |
5,958,555 | 5,515,725 | ||||||
| Non-controlling interest |
5,449 | 4,801 | ||||||
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|
|||||
| Total stockholders’ equity |
5,964,004 | 5,520,526 | ||||||
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| Total liabilities, redeemable non-controlling interest and stockholders’ equity |
$ | 9,923,231 | $ | 9,418,087 | ||||
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| (1) | Synopsys’ third quarter of fiscal year 2023 ended July 29, 2023 and its fiscal year 2022 ended on October 29, 2022, respectively. For presentation purposes, we refer to the closest calendar month end. |
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SYNOPSYS, INC.
Unaudited Condensed Consolidated Statements of Cash Flows (1)
(in thousands)
| Nine Months Ended July 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 871,630 | $ | 826,879 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Amortization and depreciation |
180,033 | 169,708 | ||||||
| Reduction of operating lease right-of-use assets |
72,647 | 65,980 | ||||||
| Amortization of capitalized costs to obtain revenue contracts |
61,677 | 54,438 | ||||||
| Stock-based compensation |
421,949 | 333,437 | ||||||
| Allowance for credit losses |
11,937 | (4,516 | ) | |||||
| Deferred income taxes |
(166,061 | ) | 5,843 | |||||
| Other non-cash |
8,649 | 10,356 | ||||||
| Net changes in operating assets and liabilities, net of acquired assets and liabilities: |
||||||||
| Accounts receivable |
112,511 | (121,786 | ) | |||||
| Inventories |
(77,919 | ) | 118 | |||||
| Prepaid and other current assets |
8,373 | (56,075 | ) | |||||
| Other long-term assets |
(116,487 | ) | (20,058 | ) | ||||
| Accounts payable and accrued liabilities |
48,574 | (46,356 | ) | |||||
| Operating lease liabilities |
(52,914 | ) | (66,187 | ) | ||||
| Income taxes |
123,924 | (60,739 | ) | |||||
| Deferred revenue |
(131,310 | ) | 254,353 | |||||
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|
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| Net cash provided by operating activities |
1,377,213 | 1,345,395 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Proceeds from sales and maturities of short-term investments |
104,139 | 70,847 | ||||||
| Purchases of short-term investments |
(102,457 | ) | (73,330 | ) | ||||
| Proceeds from sales of long-term investments |
7,248 | 582 | ||||||
| Purchases of long-term investments |
(435 | ) | (7,000 | ) | ||||
| Purchases of property and equipment |
(136,520 | ) | (102,934 | ) | ||||
| Acquisitions, net of cash acquired |
(51,324 | ) | (416,323 | ) | ||||
| Capitalization of software development costs |
(2,204 | ) | (1,970 | ) | ||||
| Other |
— | (1,200 | ) | |||||
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|
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| Net cash used in investing activities |
(181,553 | ) | (531,328 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Repayment of debt |
(2,603 | ) | (76,838 | ) | ||||
| Issuances of common stock |
164,841 | 161,416 | ||||||
| Payments for taxes related to net share settlement of equity awards |
(198,969 | ) | (149,130 | ) | ||||
| Purchase of equity forward contract |
(45,000 | ) | (40,000 | ) | ||||
| Purchases of treasury stock |
(860,724 | ) | (717,266 | ) | ||||
| Other |
(122 | ) | (3,413 | ) | ||||
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| Net cash used in financing activities |
(942,577 | ) | (825,231 | ) | ||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash |
14,997 | (38,155 | ) | |||||
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| Net change in cash, cash equivalents and restricted cash |
268,080 | (49,319 | ) | |||||
| Cash, cash equivalents and restricted cash, beginning of year |
1,419,864 | 1,435,183 | ||||||
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| Cash, cash equivalents and restricted cash, end of period |
$ | 1,687,944 | $ | 1,385,864 | ||||
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| (1) | Synopsys’ third quarter of fiscal year 2023 and 2022 ended on July 29, 2023 and July 30, 2022, respectively. For presentation purposes, we refer to the closest calendar month end. |
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SYNOPSYS, INC.
Business Segment Reporting (1)(2)
(in millions)
| Three Months Ended July 31, 2023 |
Three Months Ended July 31, 2022 |
Nine Months Ended July 31, 2023 |
Nine Months Ended July 31, 2022 |
|||||||||||||
| Revenue by segment |
||||||||||||||||
| - Design Automation |
$ | 1,004.2 | $ | 816.5 | $ | 2,821.5 | $ | 2,438.1 | ||||||||
| % of Total |
67.6 | % | 65.4 | % | 66.4 | % | 64.2 | % | ||||||||
| - Design IP |
$ | 350.2 | $ | 313.0 | $ | 1,029.1 | $ | 1,020.4 | ||||||||
| % of Total |
23.5 | % | 25.1 | % | 24.3 | % | 26.9 | % | ||||||||
| - Software Integrity |
$ | 132.9 | $ | 118.3 | $ | 392.9 | $ | 338.8 | ||||||||
| % of Total |
8.9 | % | 9.5 | % | 9.3 | % | 8.9 | % | ||||||||
| Total segment revenue |
$ | 1,487.3 | $ | 1,247.8 | $ | 4,243.5 | $ | 3,797.3 | ||||||||
| Adjusted operating income by segment |
||||||||||||||||
| - Design Automation |
$ | 415.7 | $ | 297.2 | $ | 1,121.8 | $ | 911.9 | ||||||||
| - Design IP |
$ | 86.7 | $ | 83.6 | $ | 290.6 | $ | 373.5 | ||||||||
| - Software Integrity |
$ | 22.4 | $ | 11.3 | $ | 56.3 | $ | 36.3 | ||||||||
| Total adjusted segment operating income |
$ | 524.8 | $ | 392.1 | $ | 1,468.6 | $ | 1,321.7 | ||||||||
| Adjusted operating margin by segment |
||||||||||||||||
| - Design Automation |
41.4 | % | 36.4 | % | 39.8 | % | 37.4 | % | ||||||||
| - Design IP |
24.7 | % | 26.7 | % | 28.2 | % | 36.6 | % | ||||||||
| - Software Integrity |
16.9 | % | 9.5 | % | 14.3 | % | 10.7 | % | ||||||||
| Total adjusted segment operating margin |
35.3 | % | 31.4 | % | 34.6 | % | 34.8 | % | ||||||||
Total Adjusted Segment Operating Income Reconciliation (1)(2)(3)
(in millions)
| Three Months Ended July 31, 2023 |
Three Months Ended July 31, 2022 |
Nine Months Ended July 31, 2023 |
Nine Months Ended July 31, 2022 |
|||||||||||||
| GAAP total operating income – as reported |
$ | 295.5 | $ | 233.9 | $ | 838.7 | $ | 944.7 | ||||||||
| Other expenses managed at consolidated level |
||||||||||||||||
| -Amortization of intangible assets (4) |
25.1 | 26.5 | 74.9 | 70.2 | ||||||||||||
| -Stock compensation (4) |
144.5 | 127.6 | 421.9 | 333.4 | ||||||||||||
| -Non-qualified deferred compensation plan |
21.8 | (1.1 | ) | 44.8 | (50.0 | ) | ||||||||||
| -Acquisition-related items |
4.5 | 5.2 | 9.8 | 11.3 | ||||||||||||
| -Restructuring charges |
33.4 | — | 78.4 | 12.1 | ||||||||||||
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| Total adjusted segment operating income |
$ | 524.8 | $ | 392.1 | $ | 1,468.6 | $ | 1,321.7 | ||||||||
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| (1) | Synopsys manages the business on a long-term, annual basis, and considers quarterly fluctuations of revenue and profitability as normal elements of our business. Amounts may not foot due to rounding. |
| (2) | Synopsys’ third quarter of fiscal year 2023 and 2022 ended on July 29, 2023 and July 30, 2022, respectively. For presentation purposes, we refer to the closest calendar month end. |
| (3) | These segments results are consistent with the information required by ASC 280, Segment Reporting. Synopsys’ chief operating decision maker (CODM) is our Chief Executive Officer. The CODM does not allocate certain operating expenses managed at a consolidated level to our reportable segments and, as a result, the reported operating income and operating margin do not include these unallocated expenses as shown in the table above. |
| (4) | The adjustment includes non-GAAP expenses attributable to non-controlling interest and redeemable non-controlling interest. |
13