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Synopsys (NASDAQ:SNPS)

Q4 2012 Earnings Call

December 05, 2012 5:00 pm ET

Executives

Lisa Ewbank

Aart J. de Geus - Co-Founder, Chairman and Co-Chief Executive Officer

Brian M. Beattie - Chief Financial Officer

Analysts

Richard Valera - Needham & Company, LLC, Research Division

Thomas Yeh - BofA Merrill Lynch, Research Division

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Thomas Diffely - D.A. Davidson & Co., Research Division

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Mahesh Sanganeria - RBC Capital Markets, LLC, Research Division

Satya Kumar - Crédit Suisse AG, Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Synopsys Earnings Conference Call for the Fourth Quarter and Fiscal Year 2012. [Operator Instructions] Today's call will last 1 hour. 5 minutes prior to the end of the call, we will announce the amount of time remaining in the conference. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Lisa Ewbank, Vice President of Investor Relations. Please go ahead.

Lisa Ewbank

Thank you, Chris. Good afternoon, everyone. With us on the call today are Aart de Geus, Chairman and Co-CEO of Synopsys; and Brian Beattie, Chief Financial Officer.

Before we begin our remarks this afternoon, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss plans, forecasts and targets and will make other forward-looking statements regarding the company, its business and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results and performance are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect.

In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our most recent quarterly report on Form 10-Q and today's earnings press release. All financial information to be discussed on this conference call, the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures and supplemental financial information can be found in the 8-K, the earnings press release and the financial supplement that we released today. All these items are currently available on our website at www.synopsys.com.

With that, I'll turn the call over to Aart de Geus.

Aart J. de Geus

Good afternoon and thank you for joining us. Today, I'm happy to report that we closed an excellent Q4, achieving very strong fiscal 2012 results. We completed several important acquisitions during the year, and we're positioned well and feel momentum as we head into 2013.

Let me begin with our results. In Q4, we delivered revenue of $454 million, resulting in $1.756 billion for the fiscal year, a 14% increase over 2011. This revenue reflects both excellent organic growth and momentum from key strategic acquisitions.

With non-GAAP earnings per share of $0.47 in Q4, we delivered $2.10 for the year, 17% growth and substantially above the target range communicated at the beginning of fiscal '12. Simultaneously, we increased our non-GAAP operating margin over 100 basis points to 23.6% for the year while generating $486 million at operating cash flow. Our 3-year backlog grew to $2.7 billion, and we have approximately 80% of next year's revenue target already in hand. This provides us a high degree of stability in a difficult-to-predict economic environment.

In summary, it was a very strong year with double-digit growth in both top and bottom line and excellent momentum into FY '13. We therefore reiterate our intent to deliver ongoing high-single-digit earnings growth and are setting our FY '13 non-GAAP EPS objective of $2.26 to $2.31. Brian will provide more detail in just a minute.

Looking forward, let me briefly comment on the customer landscape. While the overall economy is certainly filled with question marks, the semiconductor industry is racing forward through a combination of technology pushes, efficiency drives and competition as our customers vie for share in ever-changing and demanding end markets.

While challenging in terms of both technology and support for EDA suppliers, we're observing that customers increasingly see EDA as a differentiator rather than a cost factor. This is very positive for our industry. Meanwhile, design moves forward aggressively, new technology nodes and even new transistor type are rapidly being adopted, and overall complexity demands a strong reliance on leading EDA capabilities. The heightened value of EDA bodes well for our industry. And as tool consumption and demand for new technology continues to rise, Synopsys is clearly benefiting. Our strong financial and backlog position anchors our ability for continued investment, our R&D focus continues to deliver the technology leadership needed by our customers to differentiate themselves and our recent strategic acquisitions form an excellent springboard to deliver some great next generation solutions.

From a technology perspective, our customers count on us for 3 fundamental task sets: one, the implementation of designs in smaller and more complex technologies; two, the verification of designs of enormous size and complexity; and three, the availability of a broadening set of the most important IP cores. We have made significant progress in all 3. Let me give a bit more detail while also highlighting the impact and opportunities created by the key acquisitions we closed this year.

Starting with the chip implementation flow, we see an unabated push for new technologies in terms of both smaller geometries and the emergence of a new type of vertical transistor called a FinFET. Looking at the now stable but still quite advanced 28-nanometer node, we find that over 90% of the tape-outs use the Synopsys Galaxy Implementation Platform. While much more design will be done in this node, the most advanced companies are now migrating to the 20-nanometer node and below technologies. This migration is done with extensive help on Synopsys' part, and we are now assisting on approximately 100 20-nanometer designs.

Leading edge companies such as Samsung and ST have described 20-nanometer designs using our tools for more than 2 years, attesting to the early robustness and reliability of our solutions. As a result, Galaxy has been used in approximately 90% of 20-nanometer tape-outs thus far.

Recognizing our leadership, TSMC named Synopsys a Partner of the Year for 2012 for joint delivery of the TSMC 20-nanometer reference flow, which includes the entire Galaxy Platform. In this context, it is also worthwhile to note that the acquisition of Magma brought a number of new technologies and the opportunity to strengthen several customer relationships. After first conducting and listening to our customers, we delivered technical roadmaps within 90 days of closing the acquisition. We aligned with a number of key customers to accelerate their move to more advanced nodes, and we integrated the joint R&D teams to immediately fuse the best capabilities each company had to offer. For example, in the December release of our timing tools, we are delivering substantial accelerations and new capabilities resulting in part from the combination of best-in-class algorithms. This also holds true in the analog/mixed signal space where customers are already responding to the strength of our new FastSPICE roadmap.

The other technology drive is around FinFETs, which I mentioned are the leading new type of vertical transistor, enabling Moore's Law to continue to smaller nodes while dramatically reducing power consumption.

After investing for many years with the technology leaders, Synopsys is far ahead an EDA FinFET enablement. The technical challenges of FinFET require new approaches in the manufacturing area. Our market-leading TCAD products are used to perform 3-dimensional simulations of these new devices, and our mask synthesis products enable foundries to perform highly advanced corrections. Our sense of collaboration with all the partners within the ecosystem, including foundries, early adopters and research institutions, has led us to deliver best-in-class technologies throughout our portfolio.

We have developed and successfully deployed our own FinFET circuits in the form of FinFET-based embedded Memory and Logic IP, with a broad range of IP in the pipeline for 2013. Our Galaxy Platform is not only FinFET-ready, it has been extensively used for a number of successful production FinFET take-outs.

With a continued push towards smaller devices come the benefits but also the challenges of significantly more complex chips. Nowhere this more visible than in the growing amount of verification needed, which has become not only the biggest design time consumer but often the bottleneck to completing designs period.

Synopsys was already well placed, but the 2 acquisitions, EVE and SpringSoft, now enhance our portfolio and open the door to delivering a complete next generation verification solution. Even prior to these acquisitions, Synopsys was the clear leader in both advanced digital verification, in which 70% of advanced designs utilize Synopsys and analog simulation, where we serve approximately 80% of the market segment.

SpringSoft brings the leading debug environment, addressing what today takes up about 35% to 50% of engineers' verification effort. With EVE, we acquired the fastest hardware emulator in a rapidly growing industry. The feedback from customers has been remarkably positive. They see Synopsys as a company that has all the pieces, from simulation to emulation to rapid prototyping to verification IP to debugging, and also the track record of delivering a much better integrated overall solution.

Two more comments about the acquisitions. SpringSoft also brings an analog/mixed signal design solution that has broad and loyal penetration specifically in the growing Asia Pacific geography. Combining the SpringSoft product line with our existing efforts in custom tools increases our critical mass and gives us more momentum in an area where Synopsys is steadily building a market position.

The acquisitions of EVE in France and SpringSoft in Taiwan were financed by our international cash and on top of the significant Magma acquisition, were executed and integrated very efficiently. Even more important have been the extremely positive customer reactions, and the resulting business momentum is clearly visible and very encouraging.

The third area I would like to briefly highlight is the continued growth and breadth of our IP and Systems business. As chips contain still more transistors, the importance of commercial IP is twofold: improve designer productivity by providing a catalog of highly optimized and verified building blocks and reduce risk and effort by having these IP blocks available in the latest technology nodes when customers need them. Our portfolio of high-quality production proven IP is a clear differentiator for Synopsys as evidenced by excellent growth during the year. While the breadth of our offering continues to increase with new titles, such as the newly launched support of the emerging DDR4 memory interface standard, so does the span of silicon nodes supported, with much of our R&D efforts on migrating our cores to the 20-nanometer and 14- and 16-nanometer nodes while supporting FinFET technology.

Customer adoption of these advanced nodes is accelerating. Today, Synopsys is the market segment leader in interface IP, embedded memories and analog IP. Our position is appreciated by our foundry partners, and TSMC also recently awarded Synopsys its 2012 Interface IP Partner of the Year for an unprecedented third year in a row.

We're also highly complementary to the other IP providers in the processor and graphics space. Where in Q4, we announced a major agreement with ARM to broaden our collaboration through expanded access to key ARM technology and delivery of optimized implementation flows to speed time to market for our mutual customers. To give a sense of the importance and continued growth potential of our business, it's interesting to note that our DesignWare IP is shipped more than 1 billion chips per year and counting, that every 2 days, a chip is taped out using our USB. That every week, a chip tapes out with our PCI Express, and our customers have already shipped tens of millions of chips containing our 28-nanometer IP. Our objective is to continue to grow the IP business at a double-digit rate while gradually increasing profitability as we've successfully done in the last 2 years.

In summary, against the backdrop of rapid technical semiconductor and overall economic change, Synopsys is in a very good position with both product and market momentum. Our commitment to customer and partner success is built on a foundation of excellent financial execution. Our ongoing multiyear objective is to drive annual high single digit non-GAAP earnings per share expansion. This objective, formulated a couple of years ago, has actually been substantially exceeded in the past 2 years.

We plan to achieve our goal through a combination of the following: one, drive traditional EDA organic revenue growth generally in the mid-single-digit range; two, achieve IP and Systems organic revenue growth generally in the low double digits; three, continue to focus on operational efficiency with operating margins moving solidly into the mid-20s; four, continue to explore value and TAM-expanding M&A; and five, optimizing the use of our strong cash flow with our own M&A, debt reduction or stock buybacks.

I’ll now turn the call over to Brian Beattie.

Brian M. Beattie

Well, thank you, Aart, and good afternoon, everyone. In my comments today, I will summarize our financial results for the quarter and fiscal year, provide you with our 2013 guidance for Q1 and the full year and provide some financial details on the SpringSoft and EVE transactions. In my discussions, all my comparisons will be year-over-year unless I specify otherwise.

Now, as Aart mentioned, Synopsys delivered excellent fourth quarter and full year results highlighted by an increased run rate, double-digit growth in both revenue and non-GAAP earnings and considerable free cash flow generation. Additionally, we significantly exceeded our original 2012 targets for revenue, non-GAAP EPS and operating cash flow.

Q4 total revenue increased 16% to $454 million, and as expected, revenue contribution from SpringSoft and EVE was not material but came in at about $9 million. Annual revenue grew 14% to $1.756 billion. This, of course, includes the revenue contribution from our 2012 acquisitions, including approximately $60 million from Magma as expected. Even excluding these transactions, our organic business was quite robust.

For the year, we delivered growth across all product groups, with particular strength in IP and Systems. Greater than 90% of Q4 revenue came from beginning of quarter backlog, and one customer accounted for slightly more than 10% of Q4 and fiscal year revenue. The average length of our renewable customer license commitments was about 2.8 years for the quarter and about 2.7 years for all of fiscal 2012. We currently expect average duration in fiscal '13 to be about 2.7 years.

Three-year backlog increased to $2.7 billion from $2.5 billion due to our 2012 acquisitions and also reflects a solid base book-to-bill of about 1. Finally, we have approximately 80% of our target fiscal 2013 revenues in hand for the coming year and more than 90% for the coming quarter.

Turning to expenses. Q4 total GAAP costs and expenses were $415 million, which included $28 million of amortization of intangible assets, $17 million of stock-based compensation and $8 million of acquisition-related costs.

For the year, total GAAP costs and expenses were $1.566 billion, which included $100 million of amortization of intangible assets, $71 million of stock-based compensation and $44 million of acquisition-related costs.

Q4 total non-GAAP costs and expenses were $358 million. For the full year, total non-GAAP costs and expenses were $1.342 billion, an expected increase due mainly to our acquisitions, the extra fiscal week in Q1 and year-over-year cost increases such as employee compensation.

Excluding our 2012 acquisitions, total non-GAAP costs and expenses were slightly below our original expense budget. Non-GAAP operating margin was 21% for the quarter and 23.6% for the full year. This represents an increase of more than 100 basis points over full year 2011, even as we work through the integration of a number of 2012 acquisitions. For all of FY '13, we expect non-GAAP operating margin to increase over FY '12 levels by an additional 100 basis points.

Turning now to earnings. GAAP earnings per share were $0.19 for the quarter and $1.21 for the year compared to $1.47 for all of 2011. FY '12 GAAP earnings reflect $44 million or $0.30 per share of acquisition-related costs compared to $1.2 million or $0.01 per share in FY '11.

Q4 non-GAAP expenses -- earnings per share were $0.47, and full year non-GAAP earnings grew 17% to $2.10. FY '12 earnings growth was driven primarily by top line growth, including the extra fiscal week and operational execution.

Now turning to our cash flow, we generated $103 million in cash from operations in Q4 and $486 million for all of fiscal 2012, which exceeded our original expectations as higher business levels and better payment terms resulted in strong collections. As you recall, we also took on $250 million of debt in Q2 due to the Magma acquisition. Since then, we paid back the $100 million revolving debt along with $15 million of the term loan, leaving a remaining balance of $135 million term loan outstanding.

We also completed several important acquisitions during the year, which enabled us to use approximately 45% of our beginning-of-year offshore cash for acquisitions. As a result, we ended the year with cash and cash equivalents of $700 million, with 28% onshore and 72% offshore. At this time, we're targeting operating cash flow of at least $350 million in FY '13. And since cash flow tends to be lumpy from year-to-year, we continue to believe a fairly good indicator of operating cash flow over time is EBITDA.

For the 3-year period ended in FY '12, our cumulative operating cash flow was $1.267 billion, just slightly more than EBITDA over that same period. And finally, we expect our operating cash flow quarterly profile to be similar to last year, with a net operating cash outflow during the first quarter of fiscal 2013 due primarily to the timing of prior year's annual incentive compensation payments.

Now DSO was 58 days, reflecting the timing of invoices. And we ended Q4 with 8,135 employees, about 1/3 in low-cost geographies. Approximately 1,120 of the 1,335 employees we added during the year were from acquisitions, with the majority coming from Magma, SpringSoft and EVE.

Before moving on to guidance, let me provide some additional commentary around the SpringSoft and EVE transactions, which were both funded with offshore cash. On October 1, we acquired a 92% controlling interest in SpringSoft, and their results are included in our consolidated financials as of that date but were not material. We subsequently closed the full transaction on November 30. We also closed the EVE acquisition during the quarter, and as expected, the transaction did not have a material impact on our Q4 financials.

We expect the combination of SpringSoft and EVE to contribute approximately $100 million of revenue in fiscal 2013 as we work through the SpringSoft transition to the Synopsys 90% time-based model, and we expect the 2 transactions to be slightly accretive to FY '13 non-GAAP earnings per share.

Now let's address our first quarter and fiscal 2013 guidance, which excludes the impact of any future acquisitions. As a reminder, Q1 of FY '12 included an extra fiscal week, affecting both revenue and total non-GAAP expenses by $25 million and $16 million respectively. For the first quarter of FY '13, our targets are: revenue between $468 million and $478 million, an approximate growth rate of 18%, excluding the extra week in 2012; total GAAP costs and expenses between $403 million and $419 million, which includes approximately $17 million of stock-based compensation expense; total non-GAAP costs and expenses between $356 million and $366 million; other income and expense between 0 and a negative $2 million; a non-GAAP tax rate of 25% to 26%; outstanding shares between 153 million and 157 million; GAAP earnings of $0.30 to $0.35 per share; and non-GAAP earnings of $0.54 to $0.56 per share and we expect greater than 90% of the quarter's revenue to come from backlog.

Now, our fiscal 2013 outlook: revenue between $1.955 billion and $1.975 billion, a growth rate of approximately 11% to 12%, or 13% to 14% excluding the extra week in 2012; with the additional hardware revenue from EVE, we would expect some increased variability in quarterly revenue but continue to expect a 90% time-based revenue model in 2013; other income and expense between 0 and negative $4 million; a non-GAAP tax rate of 25% to 26%; outstanding shares between 155 and 159 million; GAAP earnings per share of $1.32 to $1.46, which includes the impact of approximately $69 million in stock-based compensation expense; non-GAAP earnings per share of $2.26 to $2.31, a growth rate of approximately 8% to 10%, or 10% to 13% excluding the extra week; capital expenditures of approximately $70 million; and we're targeting cash flow from operations of at least $350 million.

And finally, to help you with your modeling, let me provide some brief commentary on our 2013 quarterly expense profile. At this time, we expect Q1 expenses to be lower than the rest of the year, with quarters 2, 3 and 4 at about equal levels.

So in summary, we're pleased with our excellent fourth quarter and full year results highlighted by top and bottom line growth, solid operating margin and strong cash flow generation. We enter 2013 with a unique combination of stability and growth, which positions us well in many macroeconomic scenarios.

And with that, I'll turn it over to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today is from Richard Valera with Needham & Company.

Richard Valera - Needham & Company, LLC, Research Division

Aart, just first wondering if you could comment on the environment you're seeing, if there's been any change in customer behavior, whether there's any tightening up at all as it relates to perhaps things going on in Washington or just the choppiness of semiconductor revenue as we head into '13?

Aart J. de Geus

I think we can say that we have not seen any change whatsoever regarding EDA. We suddenly feel that customers are speaking with a little bit more caution about the end of this year and maybe the first 2 quarters next year with a little bit more hope or confidence beyond that. But that's the nature of the industry that we're in. And I would say yes, there is a tightening in terms of competitiveness, but that is really not new. And we've seen that in the last 2 to 3 years. And so the uncertainty is something that people just reflect on, that's just the situation around us. But meanwhile, they're forging ahead at high speed.

Richard Valera - Needham & Company, LLC, Research Division

Great. And then you mentioned you had a book-to-bill of about 1 in the quarter. So in backlog, it sounds like it would've been about flat x acquisitions. Wondering if you could comment at all on revenue run rate coming out of backlog x acquisitions. Would we have seen any increase in run rate x acquisitions year-to-year as we enter '13?

Aart J. de Geus

Yes, you would.

Richard Valera - Needham & Company, LLC, Research Division

Okay, that's helpful. And then, Brian, with respect to cash flow, you mentioned lumpiness. And obviously, you had significant outperformance this year, and you're guiding for, at least at this point, lower next year. Was there anything that was favorable in terms of timing for cash flow, things that maybe happened earlier than you might have thought that helped this year at the expense of next year?

Brian M. Beattie

I just look back to the fourth quarter, and we saw very strong cash flow as we came through into the fourth. And then we're able to overachieve the fourth quarter just based on the timing of when customers paid and looking at the profile of our disbursements. So it came in about $35 million to $40 million higher than we expected in the fourth quarter of FY '12. So naturally, you have to take that into account as you look at the expected operating cash flows for 2013. Still a very strong number though in '13, and at this point, feel being at least $350 million is a very good number.

Operator

And next, we'll go to the line of Krish Sankar with Bank of America Merrill Lynch.

Thomas Yeh - BofA Merrill Lynch, Research Division

This is Thomas calling for Krish. Based on FY '13 guidance, you're estimating sales growth of about 12% year-over-year compared to EPS growth of about 9% at the midpoint. How should we think about margins within this framework and the levers around margins, and whether the ongoing integration of acquisitions is baked into this full year assumption?

Aart J. de Geus

Yes, it is. They're completely baked in because by the time we go into a new year, we sort of uphold the numbers as a function of whatever acquisition we did. Just be aware that meanwhile, there's a number of license transitions, maybe some haircut leftovers and things like that from the acquisitions. But overall, our objective remains the same, which is an ongoing basis deliver high-single-digit EPS growth. And that is really what we're optimizing the business for.

Thomas Yeh - BofA Merrill Lynch, Research Division

And so the linearity of the operating expenses, you're saying that it's probably going to remain at these relatively higher levels?

Aart J. de Geus

Well, we're essentially managing a, really, multiyear business model. And so by definition, all in all, our business model is extremely stable. And so as we make gradual improvements to the ops margin, they gradually reflect themselves, obviously, in the bottom line. But the singular most important aspect is really the ongoing growth on the top line. From quarter-to-quarter, things can be lumpy and somewhat unpredictable. And certainly for me, I’ve always heard that the way we reflect on the business is on sort of the rolling averages basis, which looks very solid.

Thomas Yeh - BofA Merrill Lynch, Research Division

Great, that's helpful. And last one for me. Your IP and Systems segment show a very strong growth in FY '12, up 25% year-over-year. What outlook do you have baked in for this segment for FY '13? Is it safe to assume it's around that same level?

Aart J. de Geus

No. Specifically, actually we said that we were looking forward to a low-double-digit growth rate for the IP. Now that may be a little lower than the average, partially because this year or the end of the year was particularly strong. And so this is overall a very good growth business, so doing very well. Just from one year to another, it can be a little lumpy, and so we wanted to be on the conservative side and really manage as a multiyear perspective.

Operator

Next, we'll go to the line of Sterling Auty with JPMorgan.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Just want to circle up on a couple of housekeeping here. On the backlog, how much of that backlog was organic, if you can say?

Aart J. de Geus

It was the $200 million growth, up to $2.7 billion, was all from the acquisitions we completed during the year. And the rest of the organic business was a 1:1 book-to-bill ratio for the year. So again, very solid in line with the revenue growth and booking that nicely.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Got it. And you said even though they're immaterial, can you give us a sense what -- I think you mentioned the revenue on one of the acquisitions, but what was the revenue and, just as important, the expense contribution for the quarter from the acquisition?

Brian M. Beattie

Well, the revenue impact from the 2 acquisitions that were closed in October were approximately $9 million. The expenses were about the same level. So again, it was not a material impact to EPS during the quarter just in view of the integration work that was ongoing and transition to a new business model and so on.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Okay. And I heard the comments on cash flow, but I'm curious, it looks like there was a spike in accounts receivable here. Again, the DSOs were up in the 50s. Was that from acquisition contribution or what else is happening on the AR side?

Brian M. Beattie

Yes, it's -- AR is in very good shape. It just reflects the profile, the timing of our billings out at end of the year. Our fourth quarter was very strong, and as a result of invoicing at the end of the year, during the month of October, those collections just didn't come in. So you see us typically running kind of a mid-30s type of DSO levels. And just for this particular, given the business was so strong and the timing, it came in over 50. It'll go back down, though.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Okay. And last question, then I'll go back in the queue. Magma hit your expectations for the year. How are you thinking about the contribution to the coming year granted you're going to get to a point where you'll annualize it? And I know you're not running it separately. But in terms of how you think it's going to grow and contribute, as you started to get maintenance contracts that come back up for renewal, contracts that come back where you're getting opportunity to upsell? So what have you kind of factored in, in terms of what Magma can help in this fiscal year?

Aart J. de Geus

Well, one of the objectives is actually to have FY '13 with there not being a old Synopsys or old Magma. And I think we're already well on our way with that. And we ourselves at times find, therefore, it's difficult to look back on acquisitions and say, “How well did "the acquisition" do?” because the whole point is for the acquisition to help the overall company do well. And that means that we transition customers as fast as we possibly can to the resulting product portfolio. But the tradition -- that transition has 2 other components. One is the fact that in that also comes the opportunity to come out with better products that have more capabilities or are better integrated or that accelerates some area, and I think we've already seen positive impact of that. And I mentioned some of the things in the preamble. And the second thing, just as important, is how does it give us an opportunity to improve or broaden or accelerate the relationship with customers. And there's no question that the Magma acquisition has helped us go back to those customers, look at the roadmaps together and actually plot a path that turned out to be better for the customer than either scenarios they would've had with us individually. And so that is probably the best accomplishment that we've had to date with this. So looking forward, we think actually it is very much part of growing the company to the high-single-digit EPS number for this coming year.

Operator

Next, we'll go to the line of Tom Diffely with D.A. Davidson.

Thomas Diffely - D.A. Davidson & Co., Research Division

First, I was wondering if your view of the -- just the overall EDA market has changed as far as growth for the next few years. Are you still kind of in that mid-single-digits range?

Aart J. de Geus

Well, I think the ramp of our -- on our industry is a little bit that it's in a good phase in the sense that precisely because customers are so competitive and precisely because they are adopting new technology, maybe faster than what many of the providers of the technology even would have expected, the need and demand for a really strong EDA tool has increased. And so in that context, we certainly think that the core can be very solidly in the mid-single-digit growth. Some of the other areas we've said are in the low-double-digit growth. And so for us, we keep essentially setting the same objective over multiyears, which is high-single-digit growth on EPS as the final result. And as mentioned, ever since we started to do that, we have certainly beaten up that objective. But every year is a new year, and so we'll try again.

Thomas Diffely - D.A. Davidson & Co., Research Division

Okay. And you talked about you had low double digits for the IP side. Is that where you think the market's going out as well, is that you just taking a little share, getting a little bigger in that space?

Aart J. de Geus

Well, I think the market is doing well across-the-board for us. There's no question that our field is very competitive and Synopsys is doing well. But the impression initially I get is that overall EDA is in a good position.

Thomas Diffely - D.A. Davidson & Co., Research Division

Okay. And then now that you're in the emulation business, are you also seeing strength? And as we're hearing from Mentor and Cadence that it’s a pretty strong market right now.

Aart J. de Geus

Well, obviously, we were aware of that before we acquired emulation, otherwise we wouldn't have done so. We are now going through the very same process as we have with some of this other acquisition, which is this very fast, go to the customers, understand exactly what matters most to them and then come back to them with very strong roadmaps. And this is particularly relevant to the area of emulation because it is not standalone. It is very much part of the overall verification solution. You heard from the initial introduction that we also acquired SpringSoft, which brings also a lot of verification technologies specifically in the debug area. And, of course, Synopsys is very well known for the superfast simulator. And so you take some of those things together, you have the potential for really a next generation solution. And that is really what we're driving at. Emulation itself is very promising to us, and the next few quarters, we'll probably demonstrate that quickly.

Thomas Diffely - D.A. Davidson & Co., Research Division

I mean, emulation is strong today. Do you also view that as a leading indicator for the industry, if you will, that...

Aart J. de Geus

No, I do not, partially because there are many variables on an industry, and the type of people that use emulation have a particular set of challenges that some will actually in a downturn accelerate their investment, some in a downturn do just the opposite, which is stop buying hardware. And so I do think that, as with all the other technologies that we provide, at the end of the day is how much can we accelerate the competitiveness of our customers. And that is why it's actually good for us to take the time with these new technologies, and by the way also some fantastic technologists in the team, to really visit the most important customers and plot out how we can help them over a multiyear outlook. And so far the resonance is quite positive.

Thomas Diffely - D.A. Davidson & Co., Research Division

Okay. And then finally, when you look at the range of the share cap that you typically give, is the variable there just share repurchases?

Brian M. Beattie

It's both sides. The issuance of new equity, and again, there we see our stock overhangs dropping below the double-digit points and moving that in good condition. And it's really a function of what we issue and what we buy back. Our last buybacks were back in Q1, and it's a factor that given the significant levels of M&A in 2012 specifically, that is the ongoing top priority for use of our cash in that period. And finally, the last thing is the price of the stock is also reflected in the fully diluted share count as well.

Thomas Diffely - D.A. Davidson & Co., Research Division

Okay. Maybe just one more here. You talked about a 100-basis-point improvement in the operating margin over the next year. Is that benefiting from both IP and the core space or is it mainly the core space?

Brian M. Beattie

It is both, actually, we've had very nice in our 100-point improvement in 2012, all product lines contributed to that operating margin improvement, and we'd expect that again in '13.

Operator

Next, we'll go to the line of Jay Vleeschhouwer with Griffin Securities.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Brian, would it be fair to say that for the fourth quarter, the strength of your maintenance and services business was highly correlated to the strength of your IP and Systems business and that both of those in turn were highly correlated to the strength of your Asia-Pac business as well in the fourth quarter?

Brian M. Beattie

Yes, good connection between the dots. There has been a very significant growth in our IP and Systems business this year overall, almost 22%. Of that, the level of maintenance and support provided by the business unit has also been very, very strong, reflecting increased positioning we've got in the market and the ability for us to offer a small level of customization to make sure all of those products will continue to work in that way. And it's not necessarily just Asia, but it really is growth across the -- all of our regions for growth in IP and Systems and growth in services, too. But Asia was a very strong grower this year.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Okay. And over the past 2 years, particularly since you bought Virage, would it be fair to say that the profitability of the IP business has increased more quickly than the overall corporate growth and profitability? And if so, would you think that can continue into fiscal '13?

Brian M. Beattie

Yes, it has. Very strong growth in our profitability levels. We continue to indicate that overall operating margins for that business are less than the corporate average. But it just reflects the fact that it is more resource-intensive as we port the IP to various geometries and all of the manufacturing platforms. So -- but very, very good growth in Systems and IP profitability, a very good contributor.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Okay. For Aart, technical question regarding EVE. Could you comment at all on whether you foresee expanding the range of functionality that they've been offering to date in emulation to give broader coverage of various types of emulation and simulation that those kinds of hardware perform? And then related to that, how do you see the positioning or prospects of your emulation business versus your prototyping business?

Aart J. de Geus

Excellent question. Obviously, we have a set of capabilities within Synopsys that is very strong specifically in the compilation side of things. And the reason that's obvious is because we were first and foremost a very, very strong simulation company. And so bringing some of those capabilities to the emulator dramatically broadens its appeal because while it is well known to be the fastest emulator in run time, from a mapping to circuit onto the emulator, we can certainly improve and we have all the technology in-house to do that. Now with that, obviously, comes the opportunity to do many other types of checks, embed various testing schemes for example. The other aspect is the relationship to prototyping, and that's also a very good question because it illustrates that in all of our solution, we really have a very broad continuum of solutions that range from completely software to completely hardware. These things are extremely complementary. And we have actually customers that use both in the same solution. And so in different phases of the verification, one tends to use one over the other for different types of tasks. But the fact that we can essentially reduce the risk of moving from one to the other going forward is actually of high benefit to our customers.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Okay. A couple of last ones. For Brian, for the $100 million of combined EVE and SpringSoft revenue in fiscal '13, could you talk about how much each might contribute within the $100 million, and what the deferred revenue hit was, if any, that you're baking in?

Brian M. Beattie

We're not breaking out the financials for EVE. As you know, they were a private company. The element of SpringSoft, again a publicly traded company in Taiwan, we wanted to highlight that the combination of both of those would contribute about $100 million in revenue only to ensure that we get aligned on the Synopsis model. SpringSoft is a little bit more upfront revenue, and again, we're moving all of that into the Synopsys model of how we've got it lined up. The deferred revenue haircut was not a meaningful impact, given the various accounting standards being used in Taiwan and France and had a minimal impact in terms of deferred revenue adjustments for those 2 transactions.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Okay. If I could just follow up on a question Sterling asked earlier about the LAVA expectation for fiscal '13, early on right after you bought them, I think you had targeted something close to $100 million for LAVA in fiscal '13. I didn't hear if you reaffirmed that number or not.

Brian M. Beattie

It's at the point where we have fully integrated, again, the businesses as we try to extract the both ongoing backlog of products acquired from Magma and integrate that with the integration of our new Synopsys/Magma product integrations. It's something we're -- again, we're reconfirming, it's about $100 million run rate on that business. That's the amount we expected when we started with the acquisition. It was about $60 million in 2012, and we anticipated the impact of that on Synopsys would be about $100 million. And we're still on track for that, and that's factored into the 2013 guidance.

Operator

[Operator Instructions] Next, we'll go to the line of Mahesh Sanganeria with RBC Capital Markets.

Mahesh Sanganeria - RBC Capital Markets, LLC, Research Division

Aart, a question on several OEMs entering the design market more recently, LG and Apple is a well-known one, is that driving an incremental growth to the EDA industry?

Aart J. de Geus

Well, in general, it's an indication that some of the end users would like to have a stronger tie from their system solutions all the way to the silicon technology and/or may want to become more proprietary about the secrets of what they're putting in their devices. And so the way we look at this is this is all part of a very, very competitive landscape with an enormous amount of very rapid changes. The good news is that Synopsys is used in all of the very advanced solutions extensively and that our support teams are actually very instrumental at helping people be successful. And so in that context, the answer to your question is yes, we do see this as an additional opportunity for growth in those systems houses that in the past didn't do all that much design but now are certainly very, very dependent on it and actually banking on it for their differentiation. So these are good opportunities for us.

Mahesh Sanganeria - RBC Capital Markets, LLC, Research Division

And one more question on your revenue guidance. Is it fair to say that you're building in a lot of conservatism? I mean your historical pattern has been you have most of the time beat the guidance. So I would think that you're probably airing on the side of conservatism because of -- the organic growth is more low single digit in your guidance?

Aart J. de Geus

Well, that's a judgment call you have to make. If there's one thing that we have been very steady on is that we're setting roughly the same guidance partially because we want to adhere to a general multiyear driving of the company, which is to achieve high-single-digit EPS. Now if we can do better, obviously we'll do our best to do that. But at this point in time, we just started the year. There's no reason to be more aggressive. But we did mention that we feel that we're entering the year with strong momentum. We've made some fabulous acquisitions. There's a lot of work to do in an unknown landscape. So the company, I think, is in a very good shape.

Operator

Next, we'll go to the line of Satya Kumar with Crédit Suisse.

Satya Kumar - Crédit Suisse AG, Research Division

I was having a similar question. If I exclude the acquisitions' contribution of $200 million from Magma, EVE and SpringSoft, the core business is roughly flat for fiscal '13. And that is a fair bit lower than the mid-single-digit type growth you mentioned for the core business. I just wanted to make sure that, that was more conservatism from your part or is it some reflection of what you're seeing that customer trends? We've seen at least one customer, TI, talk about reducing some of the design activities. I was wondering if it's customer-driven or more conservatism.

Brian M. Beattie

Yes, Satya, let me run with that one. First off, I don't know if I misheard you, but I think you might have said $200 million of revenue from Magma, right? We're saying...

Satya Kumar - Crédit Suisse AG, Research Division

No. Magma, EVE and SpringSoft, all 3 put together.

Brian M. Beattie

Yes, all 3 of them in terms of growth for '13 over '12, first of all, take into account that there was a 2% impact on revenues. Our revenue forecast right now is 11% to 12% or that would have been 13% to 14% adjusting for the extra week. When we look at the growth of SpringSoft and EVE, we saw growth of approximately $100 million. And then secondly, recall that if Magma's going to do -- Magma equivalent is about $100 million in '13, that's up from $60 million in '12. So there's about $40 million of growth there. So it's very close. Both the organic businesses are growing very solidly, and the M&A impact of the deals completed in 2012 are going to have a very positive impact as well in setting us up in '13 and for growth beyond that point. So it's very balanced between growth of both the overall numbers of 13% to 14% adjusted for the week and a nice balance between organic and M&A impact. Both are solid.

Satya Kumar - Crédit Suisse AG, Research Division

Okay. I should have -- I could follow up with you guys, but I think I took out the IP and Systems growth as well as a higher growth piece. And I looked at the IP Systems and the 3 pieces taking out the rest of the core business was a bit flat, but I can follow up with you guys on that. And separately on the EVE and SpringSoft, you mentioned that it added $9 million in incremental revenues and about a similar amount in terms of cost. Is that the type of operating margin contribution you're expecting just mainly positive in 2013?

Aart J. de Geus

No, we've said the impact would be slightly accretive in 2013. And again, it's more a function of aligning the previous businesses into the Synopsys time-based license capabilities so that we'll have that 90% of revenue going forward coming from the backlog. So in combination, the 2 businesses would contribute about $100 million of revenue and be slightly accretive in '13. So obviously expenses, nicely less than $100 million. And that's just the transition year, if you like, the first full year that we have the business and continue to focus on improvements and synergies across the company with those.

Satya Kumar - Crédit Suisse AG, Research Division

How will the margins from that piece look in fiscal '13?

Brian M. Beattie

We're not projecting that yet. And in fact, the businesses will be totally integrated by that point. And again, the value is harder to identify than the acquisitions, as both for a very deep comprehensive perspective on verification technology throughout the company and enhancing our position in some of the analog services, particularly inside of APAC in that. So a lot of strategic value as well as very strong financials coming from a combination of these businesses.

Operator

[Operator Instructions] And we have a follow-up from Sterling Auty with JPMorgan.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

One follow-up. I'm kind of curious, have you guys made any moves in terms of your pricing on any of the products? Have you raised any prices in the last several quarters? Or how do you think about the pricing dynamics as you look to 2013?

Aart J. de Geus

Well, I think that in general, it's always hard to see that pricing would change rapidly. It has not in the past, either up or down. However, I do think that we see that EDA industry right now is doing relatively well, and so that gives a little bit more backbone in terms of the pricing as we negotiate going forward because customers are very much looking at us as their best bet of their own success and differentiation. So I don't want to overstate it because it's hard to have really specific evidence when you do a lot of 3-year deals. On the other hand, in general, I think we're in a stronger position than we were, let's say, a year ago.

Operator

Thank you. And as [indiscernible] speakers at this time, there are no additional questions.

Aart J. de Geus

In that case, we thank you for your participation in this earnings release. I think it's clear to say that not only was Q4 a strong year, there's no question that fiscal '12 was a very strong year, not only by virtue of execution but also by virtue of the acquisition and technology leaps we did forward. And so if nothing else, I would like to leave you with the strong sense that Synopsys feels momentum going into '13 that notwithstanding whatever the landscape looks around us, we feel that we're a very solid company financially speaking and technically. And so we're actually entering FY '13 with very good hopes for good results. Thank you for your attention, and thank you for your support for FY '12.

Operator

And ladies and gentlemen, that concludes your conference for today. Thank you for your participation and for using AT&T Executive TeleConference service. You may now disconnect.

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