Synopsys, Inc. — FY2021 Form 10-K
Business context and reporting period. Synopsys supplies electronic design automation (EDA) software, semiconductor intellectual property and system-validation products, and software-security and quality tools. Its reportable segments are Semiconductor & System Design and Software Integrity. This is the annual report for fiscal 2021, a 52-week year ended October 30, 2021 (presented as October 31); comparisons below are with fiscal 2020.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $4.204 billion | $3.685 billion | +14% |
| Gross profit / margin | $3.342 billion / 79.5% | $2.891 billion / 78.4% | Margin +1.1 percentage points |
| Operating income / margin | $734.8 million / 17.5% | $620.1 million / 16.8% | Income +18% |
| Net income attributable to Synopsys | $757.5 million | $664.3 million | +14% |
| Diluted EPS | $4.81 | $4.27 | +13% |
| Cash from operations | $1.493 billion | $991.3 million | +$501.3 million |
| Cash used in investing / financing | $549.0 million / $748.7 million | $360.4 million / $140.6 million | Higher outflows in both |
- Revenue mix: Time-based products were $2.634 billion (+11%); upfront products $861.1 million (+17%); maintenance and service $709.4 million (+21%). Time-based products contributed 63% of revenue. By product group, EDA was 55.5% of revenue, IP & System Integration 34.8%, and Software Integrity 9.4%.
- Segments: Semiconductor & System Design revenue was $3.810 billion (+15%), with adjusted operating income of $1.243 billion and adjusted margin of 33% (30% in FY2020). Software Integrity revenue was $393.8 million (+10%); adjusted operating income declined to $38.3 million from $40.8 million, and adjusted margin was 10% versus 11%. Segment adjusted figures exclude certain centrally managed costs and are not the same as consolidated operating income.
- Liquidity and debt: Cash, cash equivalents and short-term investments totaled $1.581 billion at year-end. Debt was approximately $100.1 million: $75.0 million under the term loan and $25.1 million under a China facility; no revolver borrowings were outstanding. The $75.0 million term-loan balance was repaid November 26, 2021. The company reported sufficient liquidity for expected needs and its capital-return program.
- Margins and cash generation: Revenue grew faster than total cost of revenue and operating expenses, which rose 13%. Operating cash flow increased mainly due to higher operating income and cash collections. Purchases of property and equipment were $93.8 million; operating cash flow less those purchases was approximately $1.399 billion.
- Capital returns: Synopsys repurchased 2.8 million shares for $753.1 million in FY2021. A new authorization of up to $1.0 billion was approved in December 2021.
Material changes, outlook and risks
- Growth reflected higher demand across products and geographies, including customer investment in complex designs. Upfront revenue increased with IP and hardware sales; management cautioned that their timing can make quarterly revenue less predictable.
- Research and development expense rose 18% to $1.505 billion, principally due to employee costs and headcount growth. Total costs and operating expenses increased by $404.3 million, including $342.2 million of higher employee-related costs.
- The effective tax rate was 6.1%, compared with a tax benefit rate of 4.0% in FY2020. FY2021 included benefits from federal research credits, the foreign-derived intangible income deduction and excess tax benefits from stock-based compensation. Other income included a $71.6 million gain on deferred-compensation plan assets, offset by an equal expense recorded across costs and operating expenses; the filing says this had no net-income impact.
- A FY2021 restructuring plan incurred $33.4 million in charges; total plan charges were expected to be $42–$53 million, with completion anticipated in FY2022’s first quarter.
- Management reported only minor operating disruption from COVID-19 to date, including hardware supply-chain challenges and slower Software Integrity customer commitments. It reported no significant customer requests to defer payments or modify contracts, but emphasized uncertainty about future pandemic effects. No quantified FY2022 revenue or earnings guidance is provided in the supplied filing text.
- Key risks include dependence on semiconductor and electronics investment, competition and customer consolidation, reliance on a relatively small number of large customers, international trade and export restrictions, cybersecurity threats, hardware supply constraints and foreign-exchange exposure. One customer and its subsidiaries generated 10.6% of FY2021 revenue.
- Contingencies: Synopsys was appealing a Hungarian tax assessment; approximately $25 million of tax plus $11 million of interest and penalties had been paid, and a further appeal hearing was scheduled for January 27, 2022. The company also disclosed an administrative subpoena from the U.S. Bureau of Industry and Security concerning transactions with certain Chinese entities; it said it was cooperating and could not predict the outcome.
Important facts for investors to verify
- Whether time-based renewals, contracted obligations and customer demand continue to support growth; contracted but unsatisfied or partially unsatisfied obligations were about $6.9 billion, including $890.9 million of non-cancellable flexible spending commitments.
- Whether Software Integrity can improve profitability while growing, given its FY2021 margin decline.
- Cash deployment, including the new buyback authorization, acquisitions, debt repayment and the concentration of approximately 51% of worldwide cash and cash equivalents in foreign subsidiaries.
- Developments in the Hungarian tax appeal, the BIS inquiry, and changes to tax rules or trade restrictions.
- Execution and final costs of the restructuring plan, and any continuing effects of COVID-19 or hardware supply constraints.