Synopsys SNPS delivered better-than-expected first-quarter fiscal 2025 results. The company reported non-GAAP earnings of $3.03 per share for the first quarter, surpassing the Zacks Consensus Estimate of $2.81 and the guided range of $2.77-$2.82. However, the bottom line decreased 10.4% due to a year-over-year decline in revenues.

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Synopsys’ earnings beat the Zacks Consensus Estimate thrice in the trailing four quarters and missed once, the average surprise being 3.7%.

Synopsys’ first-quarter revenues jumped 12% year over year to $1.46 billion, which marginally surpassed the Zacks Consensus Estimate of $1.45 billion. The top line primarily declined due to a fall in revenues of the Upfront Product and Maintenance and Service businesses.

The stronger-than-expected first-quarter performance has pushed upward the share price of SNPS by more than 3% during Wednesday’s extended trading session. Strong guidance released by the company might help SNPS shares to recover, which have already plunged 18% in the past year, underperforming the Computer - Software industry’s growth of 2.4%.

Synopsys’ Q1 Details

In the license-type revenue group, Time-Based Product revenues (56.9% of the total revenues) of $828.2 million were up 2.9% year over year. Upfront Product revenues (25.3%) moved downward by 16.7% to $368.1 million. Maintenance and Service revenues (17.8%) increased 1.7% to $259 million from the year-ago quarter’s $263.6 million.

Segment-wise, Electronic Design Automation (EDA) revenues (67.3% of revenues) were $978.7 million, up 0.8% year over year. Design IP revenues (29.9% of revenues) amounted to $435.1 million, down from the year-ago quarter’s $525.7 million. Other revenues, which were $41.5 million, represented 2.8% of the total revenues, increasing a whopping 184.2% year over year.

Geographically, Synopsys’ revenues in North America (43% of the total) and Europe (11%) were $622.6 million and $153.7 million, respectively. Revenues from Korea (17%), China (12%) and Other (18%) were $250.4 million, $173.9 million and $254.7 million, respectively.

The non-GAAP operating margin was 36.5%, down 360 basis points (bps) year over year.

Synopsys’ EDA’s adjusted operating margin showed a massive improvement of 310 bps to 39.7%. The Design IP segment’s margin reduced drastically from 46.7% to 29.1% on a year-over-year basis.

Synopsys’ Balance Sheet & Cash Flow

Synopsys had cash and short-term investments of $3.81 billion as of Jan. 31, 2025, compared with $4.05 billion as of Oct. 31, 2024.

The total long-term debt was $14 million at the end of the reported quarter, lower than the $16 million reported in the previous quarter.

SNPS posted a negative cash flow from operating activities, including discontinued operations, of $67 million for the reported quarter against the year-ago quarter’s negative cash flow of $88 million.

SNPS’ Guidance for Q2 and FY25

For fiscal 2025, SNPS still expects revenues between $6.745 billion and $6.805 billion. Non-GAAP earnings are still expected in the range of $14.88-$14.96. The Zacks Consensus Estimate for revenues is pegged at $6.77 billion and the consensus mark for earnings is pinned at $14.90 per share.

Non-GAAP expenses are expected in the range of $4.045-$4.085 billion.

For the second quarter of fiscal 2025, Synopsys expects revenues between $1.585 billion and $1.615 billion. The Zacks Consensus Estimate for revenues is pegged at $1.60 billion. Management estimates non-GAAP earnings per share between $3.37 and $3.42. The consensus mark for earnings is pegged at $3.37.

Zacks Rank and Stocks to Consider

Currently, SNPS carries a Zacks Rank #3 (Hold).

Celestica CLS, Arista Networks ANET and Pitney Bowes PBI are some better-ranked stocks that investors can consider in the broader Zacks Computer & Technology sector. While CLS and PBI presently sport a Zacks Rank #1 (Strong Buy) each, ANET carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus mark for CLS’ 2025 earnings has been revised 31 cents upward to $5.67 per share over the past 30 days, indicating a 6.78% year-over-year increase. CLS shares have risen 251.2% in the past year.

The consensus mark for ANET’s 2025 earnings has been revised upward by a penny to $2.42 per share over the past 60 days, indicating a 6.6% year-over-year increase. ANET shares have gained 60.2% in the past year.

The consensus mark for PBI’s 2025 earnings has been revised nine cents downward to $1.21 per share over the past seven days, indicating a 47.6% year-over-year decline. PBI shares have gained 172.8% in the past year.

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