Synopsys, a leading provider of software solutions for the design and verification of semiconductor chips, reported its financial results for the third quarter of fiscal year 2023 on Tuesday. The company surpassed analysts’ expectations on both revenue and earnings, and announced that its president and COO, Sassine Ghazi, will succeed Aart de Geus as CEO effective January 1, 2024.
Strong Revenue Growth Driven by Design Automation
Synopsys posted revenue of $1.487 billion for the third quarter of fiscal year 2023, up 19% year over year and above the consensus estimate of $1.467 billion. The company attributed the strong revenue growth to its design automation segment, which delivered its first billion-dollar-revenue quarter. Design automation revenue was $1.015 billion, up 25% year over year, driven by demand for digital and custom IC design software, verification hardware and software products, and manufacturing-related design products.
The company’s other two segments also performed well in the quarter. Design IP revenue was $261.9 million, up 8% year over year, reflecting the strength of Synopsys’ IP portfolio. Software Integrity revenue was $210.2 million, up 13% year over year, reflecting the growing demand for solutions that test software code for security vulnerabilities and quality defects.
Synopsys also reported a record backlog of $7.6 billion at the end of the quarter, up 23% year over year, indicating strong visibility and customer confidence.
Impressive Earnings Growth and Margin Expansion
Synopsys reported GAAP net income of $336.3 million, or $2.17 per diluted share, for the third quarter of fiscal year 2023, compared to $222.6 million, or $1.43 per diluted share, for the same period last year. The company’s GAAP earnings per share exceeded the high end of its guidance range of $1.91 to $2.15.
On a non-GAAP basis, Synopsys reported net income of $444.5 million, or $2.88 per diluted share, for the third quarter of fiscal year 2023, compared to $327.4 million, or $2.10 per diluted share, for the same period last year. The company’s non-GAAP earnings per share also exceeded the high end of its guidance range of $2.67 to $2.82.
Synopsys achieved significant operating margin improvement in the quarter, reflecting its operational excellence and leverage. The company’s GAAP operating margin was 27%, up from 21% in the same quarter last year. The company’s non-GAAP operating margin was 35.3%, up from 31.4% in the same quarter last year.
Leadership Transition Announced
Synopsys also announced that its board of directors has appointed Sassine Ghazi as president and CEO effective January 1, 2024. Ghazi will succeed Aart de Geus, who co-founded Synopsys in 1986 and has served as CEO since then. De Geus will continue as chair of the board and will work closely with Ghazi to ensure a smooth transition.
Ghazi joined Synopsys in 1998 and has held various leadership positions in engineering, sales, marketing, and business development. He was promoted to president and COO in February 2020 and has been instrumental in driving Synopsys’ growth strategy and execution.
De Geus praised Ghazi as a proven leader, innovator, and trusted partner who will further inspire and grow Synopsys. Ghazi expressed his gratitude to de Geus and the board for their trust and confidence in him. He said he is determined to build upon Synopsys’ strong foundation, drive innovation, and propel Synopsys to even greater heights of success.
Raised Full-Year Guidance
Synopsys raised its full-year guidance for fiscal year 2023 based on its strong performance in the third quarter and its positive outlook for the fourth quarter. The company now expects revenue in the range of $5.675 billion to $5.725 billion, representing a growth rate of 14% to 15% year over year. The company previously expected revenue in the range of $5.615 billion to $5.715 billion.
The company also expects non-GAAP operating margin improvement of approximately three percentage points year over year, up from its previous expectation of approximately two percentage points improvement.
The company expects GAAP earnings per share in the range of $7.62 to $7.92 for fiscal year 2023, up from its previous range of $7.32 to $7.82. The company expects non-GAAP earnings per share in the range of $10.55 to $10.75 for fiscal year 2023, up from its previous range of $10.25 to $10.55.
The company expects to generate cash flow from operations of approximately $1.5 billion for fiscal year 2023.
Synopsys’ stock price rose 3.5% in after-hours trading on Tuesday, following the release of its earnings results and leadership transition announcement. The stock has gained 25% year to date, outperforming the S&P 500 index, which has gained 18% in the same period.
