Synopsys Inc. (SNPS) swung to a profit in the fourth quarter from a loss last year, helped by a benefit for income taxes as well as an increase in orders from the semiconductor clients. The top line exceeded analysts’ expectations while the bottom line came in line with consensus estimates. The chip-design software maker will adopt new revenue recognition requirements in the first quarter.

Net income was $254.3 million or $1.66 per share compared to a loss of $120.1 million or $0.80 per share in the previous year quarter. Adjusted earnings increased 13% to $0.78 per share.

Revenue grew 14% to $795.1 million. The results were benefited from the strength across all product groups and all geographies. The increasing demand from semiconductor clients along with emerging technology areas such as artificial intelligence, autonomous driving and the Internet of Things (IoT) has benefited the company’s top line.

Over the past five years, the company had made significant investments in developing next-generation electronic design automation (EDA) platforms, elevating the impact of its IP portfolio, and diversifying into an exciting new software security and quality market.

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As looking to the next phase of growth to $4 billion in revenue and beyond, the company lifted its long-term financial objectives. Synopsys’ objective is to drive annual double-digit adjusted EPS growth, through a mix of continued solid revenue growth and expansion of adjusted operating margins to the high 20s over time, with a goal of about 26% in 2021.

Synopsys said it will adopt new revenue recognition requirements under ASC 606, “Revenue from Contracts with Customers,” in the first fiscal quarter of 2019. Revenue during the fiscal 2019 transition year is estimated to be about $40 million lower under ASC 606 than it would be under ASC 605, “Revenue Recognition,” and the impact is expected to decline to roughly neutral within two years.

For the first quarter, under the ASC 606 rules, the company expects revenue in the range of $775 million to $810 million and earnings in the range of $0.56 to $0.64 per share. Adjusted earnings are anticipated to be in the range of $0.95 to $1.00 per share.

For the fiscal year 2019, Synopsys predicts revenue in the range of $3.29 billion to $3.34 billion. Earnings are projected to be in the range of $2.80 to $2.90 per share on a GAAP basis and $4.20 to $4.27 per share on an adjusted basis.

Shares of Synopsys ended Tuesday’s regular session down 3.71% at $89.45 on the Nasdaq. The stock has risen over 4% in the year so far and over 2% in the past year.

 

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