Business Context and Reporting Period
Company: Synopsys, Inc. (SNPS)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended July 31, 2026
Business Overview: Synopsys is a global leader in electronic design automation (EDA), semiconductor intellectual property (IP), and simulation and analysis (S&A) software. The reporting period includes the first full quarter of results from the acquisition of Ansys, Inc., completed on July 17, 2025.
Key Financial Metrics
| Metric (in millions) | Q3 2026 | Q3 2025 | 9M 2026 | 9M 2025 |
|---|---|---|---|---|
| Total Revenue | $2,476.8 | $1,739.7 | $7,161.6 | $4,799.3 |
| Gross Margin | $1,797.4 | $1,359.2 | $5,215.0 | $3,830.4 |
| Operating Income | $357.5 | $165.3 | $681.0 | $793.5 |
| Net Income (Attributed to Synopsys) | $545.8 | $242.5 | $627.9 | $883.5 |
| Diluted EPS | $2.84 | $1.50 | $3.27 | $5.59 |
| Cash & Equivalents (End of Period) | $3,606.3 | $2,888.0 | $3,606.3 | $2,888.0 |
| Total Debt (Short + Long Term) | $10,037.4 | $13,484.5 | $10,037.4 | $13,484.5 |
Note: Debt figures include Senior Notes and deferred payment agreements. Short-term debt increased significantly in Q3 2026 due to the classification of the deferred payment on the interest rate treasury lock settlement.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 42% year-over-year (YoY) in Q3 and 49% for the nine-month period. This growth is primarily driven by the inclusion of a full quarter of Ansys revenue ($622.2M in Q3) compared to a partial quarter in the prior year, alongside organic growth.
- Segment Performance:
- Design Automation: Revenue grew 53% in Q3 and 69% in 9M, driven by EDA and Ansys S&A solutions. Adjusted operating margin expanded to 45% in Q3.
- Design IP: Revenue grew 11% in Q3 but declined 1% in 9M. The segment is undergoing resource reallocation to higher growth opportunities.
- Cost Structure: Total cost of revenue and operating expenses increased 35% in Q3 and 62% in 9M. This reflects higher amortization of acquired intangible assets from Ansys ($200.9M increase in Q3 amortization) and increased employee-related costs due to the full-period inclusion of Ansys.
- Restructuring: The company recorded $236.3 million in restructuring charges for the nine months ended July 31, 2026, related to a business reorganization plan (the "2026 Plan").
- Divestiture Gain: A pre-tax gain of $425.4 million was recognized in Q3 from the sale of the Processor IP Solutions business to GlobalFoundries.
Guidance, Outlook, and Risks
- Outlook: Management cites continued strong execution and resiliency, with broad-based strength across the business. The company expects revenue growth to vary based on the mix of time-based and upfront products.
- Restructuring Plan: The "2026 Plan" is anticipated to be completed by the end of fiscal 2027, with total charges now estimated between $425.0 million and $500.0 million.
- Capital Allocation:
- Debt: The company fully repaid its $4.3 billion Term Loan in Q1 2026. Outstanding Senior Notes total approximately $10.0 billion.
- Stock Repurchases: $300.0 million was spent on treasury stock in the first nine months of 2026. $1.7 billion remains available under the current repurchase program.
- Risks & Contingencies:
- Legal Proceedings: Multiple shareholder class action and derivative lawsuits are pending, alleging misstatements related to the Design IP segment and the Ansys Merger. No loss has been accrued as the outcome is uncertain.
- Geopolitical & Trade: Ongoing U.S.-China trade tensions and export control restrictions (BIS Entity List) pose risks to revenue in China and the Design IP segment.
- Macroeconomic: Inflation, interest rates, and potential economic slowdowns may cause customers to delay spending or drawdowns.
Investor Verification Checklist
- Ansys Integration: Verify the realization of projected synergies and the timeline for cost savings from the Ansys Merger.
- Restructuring Execution: Monitor the progress of the 2026 Plan and the final total cost, which has been revised upward to a range of $425M-$500M.
- Design IP Segment: Assess the success of the resource reallocation strategy in the Design IP segment following recent underperformance.
- Legal Exposure: Track the status of the consolidated securities litigation regarding the Ansys Merger and Design IP disclosures.
- Debt Servicing: Confirm cash flow sufficiency to service the $10 billion Senior Notes, particularly given the recent repayment of the Term Loan.
- Backlog: Review the $10.9 billion backlog, noting that $1.9 billion consists of non-cancellable Flexible Spending Account (FSA) commitments where product selection is pending.