Published
# Synopsys, Inc. (SNPS) — Business, Risks and Management's Discussion Fiscal period: third quarter of fiscal 2026, ended July 31, 2026. Synopsys' fiscal year ends October 31. Sources: Annual Report on Form 10-K for fiscal year ended October 31, 2025 (accession 0000883241-25-000028, filed December 22, 2025); Quarterly Report on Form 10-Q for the quarter ended July 31, 2026 (accession 0000883241-26-000025, filed August 26, 2026); Current Reports on Form 8-K as cited. --- ## Business *From the FY2025 10-K, accession 0000883241-25-000028, and Note 1 of the Q3 FY2026 10-Q, accession 0000883241-26-000025.* Synopsys describes itself as "the leader in engineering solutions from silicon to systems." It sells three broad things: electronic design automation (EDA) software used to design and verify integrated circuits; the Ansys portfolio of engineering simulation and analysis (S&A) software; and semiconductor intellectual property (IP) — pre-designed, silicon-proven circuit blocks that customers drop into their own chip designs. It also sells emulation and prototyping hardware, and design and consulting services. **Two reportable segments.** - **Design Automation** — advanced silicon design and verification products and services, the Ansys S&A products, system integration products and services, digital/custom/FPGA IC design software, verification software and hardware, and manufacturing software. Engineers use the EDA tools to automate chip design; they use the S&A tools to virtually test designs across physics domains (structural, thermal, electromagnetic, computational fluid dynamics, optics and photonics). - **Design IP** — logic libraries, embedded memories, wired interface IP, memory interface IP, security IP, and (through June 2026) embedded processor IP, plus IP subsystems and implementation services. Customers are primarily semiconductor and electronics companies. Revenue is also disclosed by four product groups. In fiscal 2025 the mix was EDA 62.0%, Design IP 24.8%, Ansys 10.7% (a partial year, from the July 17, 2025 close), and Other 2.5%. In fiscal 2024 the mix was EDA 66.4%, Design IP 31.1%, Other 2.5%. **Named products.** Digital design: Fusion Compiler, Design Compiler NXT, IC Compiler II, PrimeTime, PrimePower, StarRC, IC Validator, 3DIC Compiler. Custom design: Custom Compiler, the PrimeSim family (SPICE, Pro, HSPICE, XA), PrimeWave. Verification: VCS, Verdi, VC SpyGlass, VC Formal, ZeBu emulation, HAPS FPGA-based prototyping, Virtualizer, Platform Architect. Manufacturing: TCAD, Proteus mask synthesis, CATS, Yield Explorer, QuantumATK. Silicon Lifecycle Management: Yield Explorer, Silicon.da, TestMAX ALE, PVT IP. FPGA: Synplify. The Synopsys.ai stack layers AI/ML optimization across the flow (DSO.ai, 3DSO.ai, VSO.ai, TSO.ai, ASO.ai, Design.da, Silicon.da) plus a generative Copilot. Ansys: Mechanical, LS-DYNA, Sherlock, HFSS, Maxwell, Icepak, Fluent, Optics, Lumerical, and the semiconductor multiphysics line (RedHawk-SC, Totem-SC, RedHawk-SC Electrothermal, PathFinder-SC, Exalto, VeloceRF). **How it makes money.** Most EDA and Ansys semiconductor software is licensed under Technology Subscription Licenses (TSLs) — typically two- to three-year terms, recognized ratably as a single combined performance obligation with updates and support. Ansys S&A software is sold both as time-based subscriptions and as perpetual licenses; in those arrangements the license and the support are separate performance obligations, so the license portion is recognized upfront and the support ratably. Emulation and prototyping hardware is sold or leased, with the hardware recognized at shipment. IP licenses are recognized at a point in time on delivery, with support recognized over the term and royalties recognized in the quarter the customer sells product incorporating the IP. The practical consequence, which management repeats in both filings: revenue in any period largely reflects selling effort from prior periods, so changes in customer spending do not show up immediately — but upfront-recognized products (hardware, IP, Ansys licenses) inject quarterly volatility, and those have been growing faster than time-based products. **Distribution and customers.** Direct sales in the U.S. and principal foreign markets, plus a global network of independent channel partners for the S&A software. Sales and support offices across Canada, Europe, Israel and Asia (Japan, China, Korea, India, Taiwan). EDA and IP customers are semiconductor and electronics systems companies; S&A customers span high-tech, aerospace and defense, automotive, energy, industrial equipment, materials and chemicals, consumer products, healthcare and construction. Fiscal 2025 revenue by geography: United States $3,100.1 million, Korea $947.0 million, Europe $888.5 million, China $814.3 million, other $1,304.2 million, on $7,054.2 million total. One customer and its subsidiaries accounted for 12.6% of consolidated revenue in fiscal 2024 and 13.5% in fiscal 2023; the 10-K discloses no 10%-plus customer for fiscal 2025 and no customer over 10% of accounts receivable at either fiscal 2025 or fiscal 2024 year-end. **Competition.** In Design Automation, Synopsys says it competes against other EDA vendors — publicly traded companies offering broad ranges of products and services, alongside vendors whose products address only one or more discrete phases of the IC design process — and against its own customers' internally developed design tools and capabilities; for the Ansys S&A products the competitive set is publicly traded companies, small geographically focused firms, startups, and end users that produce solutions in-house. In Design IP it competes against numerous other silicon IP providers and, again, against customers' internally developed IP. The stated bases of competition differ by segment: in EDA and S&A, technology leadership, product quality and features including ease of use, license terms, price and payment terms, post-contract support, flexibility of tool use, and interoperability with its own and other vendors' products; in IP, product quality and reliability, features, availability of titles for new manufacturing processes, ease of integration with customer designs, compatibility with design tools, license and payment terms, and customer support. On both sides the company says no single factor drives the buying decision. The 10-K identifies no competitor by name. **Workforce and IP estate.** Total headcount grew roughly 40% in fiscal 2025, primarily from the Ansys merger, to more than 28,000 people across 30-plus countries; voluntary turnover was 5.7%. Synopsys holds more than 3,800 issued U.S. and foreign patents, with expirations running through 2044, and states that the business as a whole is not significantly dependent on any single patent, copyright, trademark or license. **Executive officers** (as of December 19, 2025): Sassine Ghazi, President and CEO; Aart J. de Geus, co-founder and Executive Chair; Shelagh Glaser, CFO; Mike Ellow, Chief Revenue Officer (joined November 2025 from Siemens EDA, where he was CEO); Janet Lee, General Counsel and Corporate Secretary (previously General Counsel of ANSYS, Inc.). See Subsequent events below for a change to that list. --- ## Risk factors *Condensed from Item 1A of the FY2025 10-K and Part II, Item 1A of the Q3 FY2026 10-Q. Where the two differ, the quarterly report's current formulation is used.* **Export controls and China.** This is the sharpest-edged risk for this issuer and it has already cost money. The Bureau of Industry and Security (BIS) has continued to publish changes to U.S. export control regulations, including additions of Chinese technology companies to the Entity List; restrictions on export of ECAD software specially designed for developing certain ICs; controls on ECAD software for advanced semiconductor packaging involving multiple chips or chiplets; and other restrictions on China's access to semiconductor and advanced computing technology. On May 29, 2025 Synopsys received an "is-informed" letter from BIS imposing a license requirement for the export, reexport or in-country transfer of EDA software and technology under ECCNs 3D991 and 3E991 where a party to the transaction is located in China or is a Chinese "military end user" wherever located. Those restrictions were rescinded on July 2, 2025. The company states plainly that China export control restrictions, including that episode, negatively impacted its business in China — specifically in the Design IP segment — and may continue to affect design starts and other aspects of the China business. Synopsys has also received administrative subpoenas from BIS requesting information and documentation relating to transactions with certain Chinese entities. Enhanced denied-party screening requirements have led to elongated transaction cycles with certain customers. Management says it anticipates further changes to trade restrictions but cannot forecast their scope, timing or impact. Separately, China has implemented national policies favoring domestic companies and formed government-backed investment funds as it seeks to build independent EDA capabilities. **Tariffs and macro.** Beginning in fiscal 2025 the U.S. imposed new and higher tariffs on imports from many countries, and certain countries responded with retaliatory tariffs; further changes are possible in fiscal 2026. Management states these changes in global trade policy have not had a material impact on results to date. The broader macro environment — inflation, elevated interest rates, supply chain disruption, geopolitical pressure, FX volatility — has led some customers to postpone decisions, delay drawdowns under non-cancellable commitments, cut spending, or delay payments. AI and high-performance computing remain strong; industrial, automotive and consumer electronics have grown more modestly. **Competition.** Both segments operate in highly competitive industries into which new competitors keep entering, domestically and internationally, and in which technology evolves rapidly through frequent product introductions and shifting industry standards and customer requirements. Customers press for a lower total cost of design, which can lead them to consolidate purchases with a single vendor or to displace purchases with internal development. Synopsys frames its own success as turning on how early it anticipates critical development cycles and technological shifts, on whether it can keep an efficient supply chain so hardware is available when customers need it, and on whether it can balance innovative technology against a lower overall cost of design; missing on any of those would hurt results. It separately flags consolidation on the competitor side — Synopsys and its competitors both acquire businesses and technologies to expand their offerings, and a consolidated competitor with considerable financial resources, channel influence and broad geographic reach could be more competitive on product differentiation, breadth of technology portfolio, pricing, marketing, services and support. **Dependence on the semiconductor and electronics industries and on large customers.** Growth in both segments depends on new design project starts by chip makers and systems companies. The company depends on a relatively small number of large customers; it cites challenges with a major foundry customer as having negatively affected fiscal 2025 results. Consolidation among customers could reduce demand or increase their bargaining power. **Design IP underperformance and the resource reallocation.** The 10-Q's risk factors state that in response to recent market trends and the underperformance of the Design IP segment, Synopsys is reallocating resources in the IP business toward higher-growth opportunities, and that these efforts may not succeed or generate expected returns. This is the same reallocation that produced the June 2026 sale of the Processor IP business (below). **Ansys integration and acquisition risk.** The company warns that the anticipated benefits of the Ansys merger rest on projections and assumptions that may not materialize, and that the usual acquisition risks — integration difficulty, retention of key employees, margin dilution from lower-margin acquired businesses, failure to realize synergies on the expected timetable, assumption of unknown liabilities, diversion of management attention, regulator-imposed divestitures or conduct restrictions — are magnified by the scale of this one. **Divestiture risk.** Synopsys notes it has divested and may in the future divest product lines or technologies that no longer fit its long-term strategies, and that it may fail to realize the anticipated benefits or cost savings, or to offset the impact of the revenue lost along with the divested product lines. It adds that it may be unable to sell on satisfactory terms, within its anticipated timeframe, or at all, and that a disposal while pending — whether or not it is ultimately consummated — can disrupt regular operations, divert the workforce and management team, drive undesired turnover, and damage existing and prospective business relationships. **Leverage.** Substantial debt was incurred to fund the Ansys merger. The 10-K disclosed approximately $13.5 billion of total debt at October 31, 2025, including the Senior Notes and a $4.3 billion term loan; the 10-Q discloses approximately $10.0 billion of total debt at July 31, 2026, consisting of the Senior Notes after the term loan was repaid. Risks cited: increased vulnerability to changing conditions, reduced flexibility, competitive disadvantage versus less-levered competitors, higher interest expense consuming operating cash flow, constraints on repurchases and dividends, and constraints on further borrowing. Credit rating downgrades would raise borrowing costs. The indenture and credit agreements contain affirmative and negative covenants restricting mergers, liens, sale-leasebacks and subsidiary debt, and the revolving credit agreement carries a maximum consolidated leverage ratio covenant; breach could accelerate all outstanding debt. **Operating-result volatility.** Backlog, revenue and earnings fluctuate with demand for upfront-recognized products (hardware and IP especially), competitive pressure, the lengthy sales cycle, contract renewal timing and value, product mix (hardware carries lower gross margin), variability in IP drawdown timing, and acquisition and integration expense. Timing of revenue recognition is itself a swing factor. **Global operations.** Roughly half of revenue comes from outside the United States. Exposure includes uncertain economic, legal and political conditions in China, Europe and the Middle East; government trade restrictions; weaker IP protection abroad; anti-corruption compliance; longer payment cycles; and FX translation — a stronger dollar against the renminbi or yen reduces translated foreign revenue, and the company cannot hedge all of it. The Ansys business's reliance on independent channel partners adds partner-performance and compliance exposure. The 10-Q adds that Synopsys contracts with governmental entities and customers in heavily regulated industries, which brings broad audit and investigation rights and routine compliance audits. **Cybersecurity.** Systems are routinely targeted. The 10-Q states that Synopsys has discovered unauthorized third-party access to its own and customers' proprietary information in various incidents by cybercriminals suspected of being financially motivated and/or state-sponsored, that it believes these incidents are contained, and that it has informed affected customers, federal law enforcement and applicable regulatory agencies where appropriate. It also states it has not identified material cybersecurity incidents or incurred material expenses from any incident to date. Security maturity varies across the business, and newly acquired businesses may have less mature programs. **AI.** Both a growth thesis and a risk: failure to ship competitive AI features, or slower-than-expected development of AI-enabled end markets, would hurt; and evolving law on IP ownership, copyright, privacy and data protection around AI creates compliance cost and uncertainty. **Litigation and activism.** Securities class actions and derivative suits are pending (detailed under Current quarter below). The 10-Q also notes that stock price volatility has attracted, and may again attract, securities litigation and activist stockholders seeking to influence the company, and that responding can be costly and divert management attention. **Other.** Product errors and defects; hardware-specific risks (production and delivery delays, sole-supplier dependence for certain hardware, lower gross margins, longer sales cycles and inventory risk, longer warranty periods); third-party IP licensing and open-source obligations; infringement claims and customer indemnification; tax law changes across many jurisdictions and audits of income and non-income tax filings; evolving corporate governance and sustainability disclosure regimes including California climate disclosure law and the EU Corporate Sustainability Reporting Directive; recruitment and retention of senior management and engineers; and catastrophic events, with headquarters, a significant share of R&D, data centers and other critical operations concentrated in California near earthquake faults and recent wildfire sites. --- ## Management's discussion — fiscal 2025 *From Item 7 of the FY2025 10-K, accession 0000883241-25-000028.* **The year in one line.** Revenue grew 15% to $7,054.2 million, but operating income fell to $914.9 million from $1,355.7 million as the Ansys merger loaded on amortization and integration cost, and the Design IP segment deteriorated. **Revenue.** Total revenue of $7,054.2 million, up $926.8 million or 15% over fiscal 2024's $6,127.4 million. Ansys contributed $756.6 million from the July 17, 2025 close. The remainder was organic growth across a majority of products and geographies, offset by the fiscal 2024 extra week (approximately $63.2 million of revenue in a 53-week year) and by China weakness — China revenue fell 22% year over year excluding Ansys. By segment: Design Automation $5,302.4 million, up 26%; Design IP $1,751.8 million, down 8% from $1,906.3 million. By revenue type: time-based products $3,489.6 million (49% of revenue, up 8%, including $86.5 million from Ansys); upfront products $2,010.6 million (29% of revenue, up 12%, including $198.7 million from Ansys, with the balance driven by higher hardware demand); maintenance and service $1,554.0 million (22% of revenue, up 41%), within which maintenance revenue of $954.2 million more than doubled on $449.0 million from Ansys, while professional service and other revenue fell 11% to $599.8 million on IP customization project timing. **Costs.** Cost of revenue $1,623.5 million (23% of revenue, versus 20% in fiscal 2024), including $311.8 million of acquired-intangible amortization — up $203.8 million, mainly $257.3 million more technology and contract-rights amortization from Ansys, partly offset against a prior-year $53.5 million impairment. Operating expenses $4,515.7 million: R&D $2,479.3 million (up 19%, of which $146.8 million of the employee-cost increase came from Ansys and $172.9 million from organic hiring); sales and marketing $1,074.2 million (up 25%, with $156.3 million of the employee-cost increase from Ansys); G&A $769.6 million (up 35%, driven by $94.8 million more legal, consulting and professional fees mostly tied to the merger and $69.5 million more employee cost); and amortization of acquired intangibles in operating expense of $192.5 million, up from $16.2 million. **Below the line.** Interest expense of $446.7 million versus $36.8 million in fiscal 2024, on the Senior Notes and term loan borrowings. Other income of $924.9 million, up $729.9 million, driven by a $548.9 million pre-tax gain on the regulatory divestitures, $277.7 million of interest income on higher average cash balances, and a $51.4 million gain on a building sale. The effective tax rate was 4.0%, helped by $64.8 million of U.S. federal research credits, $106.9 million of foreign-derived intangible income deduction, and $148.0 million of valuation allowance release (of which $111.0 million was the full release against state research credits). Net income from continuing operations attributable to Synopsys was $1,336.1 million, or $8.07 per diluted share, versus $1,441.7 million and $9.25 in fiscal 2024. **Segment profitability.** Design Automation adjusted operating income $2,213.5 million at a 42% adjusted margin, up from 39%, on revenue from arrangements booked in prior periods. Design IP adjusted operating income $419.3 million at a 24% adjusted margin, down from $730.2 million and 38% — a 43% decline. Management attributes the Design IP fall to lower revenue from China export control restrictions, weaker than expected demand from a major foundry customer, and "certain roadmap and resource decisions that did not yield their intended results," plus higher employee costs from headcount growth. Adjusted segment results exclude acquired-intangible amortization, stock-based compensation, deferred compensation fair value changes, restructuring, and acquisition/divestiture items; those unallocated items totaled $1,717.9 million in fiscal 2025, bridging $2,632.9 million of total segment adjusted operating income down to $914.9 million of consolidated operating income. **The Ansys merger.** Completed July 17, 2025 under a merger agreement dated January 15, 2024. Consideration was $199.91 in cash plus 0.3399 of a Synopsys share for each Ansys share — approximately $34.9 billion in total, comprising $17.6 billion of cash, $17.1 billion of Synopsys stock (30.0 million shares at $571.20 per share on the acquisition date), and the balance in assumed equity awards and settlement of pre-existing relationships. The purchase price allocation recorded $23.5 billion of goodwill (assigned entirely to the Design Automation reporting unit, not tax-deductible) and $13.0 billion of identified intangibles: core/developed technology $6.5 billion (6–9 year lives), customer relationships $5.1 billion (9 years), trademarks and trade names $950 million (23 years), and contract rights $440 million (2 years). Transaction costs, primarily for the merger, were $267.1 million in fiscal 2025 and $161.8 million in fiscal 2024. **Regulator-required divestitures.** To obtain governmental approval for the merger, Synopsys agreed on September 3, 2024 to sell its Optical Solutions Group to Keysight Technologies, Inc., and Ansys agreed to sell its PowerArtist RTL business to Keysight as well. Both closed October 17, 2025 for combined cash consideration of $604.0 million, against $55.1 million of net assets disposed (including $19.5 million of goodwill), producing a $548.9 million pre-tax gain and, after $32.6 million of divestiture expenses, a $516.3 million net pre-tax gain. Both businesses had sat in the Design Automation segment. **Other portfolio moves.** The former Software Integrity business was sold September 30, 2024 to entities controlled by funds affiliated with Clearlake Capital Group, L.P. and Francisco Partners; a fiscal 2025 working capital true-up reduced the recorded gain by $8.3 million to $860.5 million pre-tax net of transaction costs, and it remains presented as discontinued operations. Synopsys exercised a call option on December 23, 2024 to buy Juniper Networks' remaining OpenLight Photonics interest for $30.0 million, taking ownership to 95%, then divested its entire OpenLight interest on December 30, 2024 at an immaterial loss. **Liquidity.** $3.0 billion of cash, cash equivalents and short-term investments at October 31, 2025, of which approximately $1.4 billion was held abroad. Operating cash flow $1,518.6 million, up $111.6 million on higher receivable collections, partly offset by lower net income, a $121.6 million unrealized loss on settlement of the interest rate treasury lock, and higher operating disbursements. Investing used $15.9 billion, dominated by $16.5 billion of acquisition spend net of cash acquired. Financing provided $13.4 billion: $14.3 billion from the Senior Notes issuance and term loan borrowing, less an $850.0 million term loan prepayment. Debt at year-end: $10.0 billion principal of fixed-rate Senior Notes (fair value $10.1 billion) plus $3.5 billion of floating-rate term loans, with an undrawn $850.0 million revolver (plus a $150.0 million uncommitted incremental facility) maturing December 14, 2027. The stock repurchase program was suspended in connection with the merger until expected debt levels come down; $194.3 million remained authorized at year-end. Other cash requirements: $812.4 million of lease obligations ($132.8 million within 12 months), $1.2 billion of purchase obligations ($832.2 million within 12 months), and $93.8 million of long-term accrued income taxes for uncertain tax benefits. **Backlog.** Approximately $11.4 billion at October 31, 2025, including $2.0 billion of non-cancellable Flexible Spending Account commitments, versus approximately $8.1 billion (including $1.2 billion of FSA) a year earlier. About 45% of the backlog excluding non-cancellable FSA was expected to convert to revenue within 12 months, most of the rest over the following three years. Future sales-based royalties are excluded. **Restructuring and outlook.** In November 2025 the Board approved a restructuring plan (the 2026 Plan) for involuntary terminations as part of a business reorganization following the merger, with charges then estimated at $300.0 million to $350.0 million, to run through the end of fiscal 2027 with most of the workforce reduction in fiscal 2026. Management said it expected growth across geographies in fiscal 2026 but a challenging near-term environment, particularly in China, and specifically expected muted growth in Design IP while it reallocates resources. **Fiscal year convention.** Effective with fiscal 2025 (which began November 3, 2024), the fiscal year end changed from the Saturday nearest October 31 to a fixed October 31. Fiscal 2024 was a 53-week year ended November 2, 2024; the extra week added roughly $63.2 million of revenue and $52.5 million of expense. --- ## Current quarter — Q3 fiscal 2026 *From the Form 10-Q for the quarter ended July 31, 2026, accession 0000883241-26-000025, and the earnings release furnished with the Form 8-K dated August 26, 2026, accession 0001193125-26-368620.* **Results.** Revenue of $2,476.8 million, up $737.1 million or 42% from $1,739.7 million. Ansys accounted for $622.2 million of the increase, reflecting a full quarter in fiscal 2026 against a partial quarter in fiscal 2025 following the July 17, 2025 close; management attributes the remainder to broad-based organic strength led by EDA, with Design IP returning to year-over-year growth. Total cost of revenue and operating expenses rose 35% to $2.1 billion, including $330.0 million more Ansys-related intangible amortization and $174.3 million more employee cost (of which $169.2 million from Ansys). GAAP operating income was $357.5 million, a 14.4% operating margin. Other income, net was $459.7 million, including the $425.4 million pre-tax gain on the Processor IP sale, against $170.5 million a year earlier — interest income fell to $18.5 million from $131.4 million on lower average cash balances. The effective tax rate was 20.2%, up from a negative 28.0% a year earlier when a full valuation allowance against California research credits was released. Net income attributable to Synopsys was $545.8 million, or $2.84 per diluted share, versus $242.5 million and $1.50. On the company's non-GAAP basis, net income was $752.5 million or $3.91 per diluted share, versus $548.9 million and $3.39; non-GAAP operating margin was 41.6%. **Nine months.** Revenue $7,161.6 million, up $2.4 billion or 49%, with $2.2 billion of the increase from Ansys. Operating income of $681.0 million was *below* the prior-year nine-month figure of $793.5 million, because the year-to-date period absorbed $1,210.3 million of acquired-intangible amortization (versus $99.2 million) and $236.3 million of restructuring charges (versus none). Net income attributable to Synopsys was $627.9 million or $3.27 per diluted share, versus $883.5 million and $5.59. **Segments.** Design Automation revenue $2,003.0 million for the quarter, adjusted operating income $905.0 million, adjusted operating margin 45% (44% a year earlier); nine-month revenue $5,826.6 million at a 45% adjusted margin. Design IP revenue $473.9 million for the quarter, adjusted operating income $125.4 million, adjusted operating margin 27% — up from 20% — on IP product revenue timing; but nine-month Design IP revenue of $1,335.0 million was slightly below the prior year's $1,344.7 million and nine-month adjusted operating income fell to $302.2 million from $363.1 million on higher expenses and lower revenue as the resource reallocation continues. Consolidated adjusted operating margin across segments was 42% for the quarter and 41% for nine months. **Geographic revenue for the quarter:** United States $1,051.9 million, Other $472.9 million, Europe $370.9 million, Korea $325.6 million, China $255.5 million. China revenue for the nine months was $706.9 million, versus $578.7 million a year earlier. **Revenue type.** Time-based products $1,002.8 million for the quarter (40% of revenue, up 12%); upfront products $665.2 million (27%, up 29%, with $161.4 million from Ansys, partly offset by lost Optical Solutions Group license revenue); maintenance and service $808.8 million (33%, up 144%), within which maintenance revenue nearly tripled to $575.0 million on $367.0 million from Ansys. **Accounting change worth noting.** Beginning in the second quarter of fiscal 2026, Synopsys reports revenue from reseller arrangements on a *gross* basis. It attributes this to enhanced channel partner arrangements that gave it visibility into end-customer pricing, improved delivery control over key distributors, and the ability to provide routine maintenance to end customers. **Divestiture: Processor IP.** On June 1, 2026 Synopsys completed the sale of its Processor IP Solutions business — part of the Design IP segment — to **GlobalFoundries Inc.**, as part of the reallocation of resources toward higher-growth Design IP opportunities. Total cash consideration was **$443.3 million**; net proceeds were $440.0 million. Synopsys derecognized $17.9 million of net assets including $38.0 million of goodwill and recognized a $425.4 million pre-tax gain, or $380.5 million net of $44.9 million of divestiture-related expenses. It was not treated as a discontinued operation. **Balance sheet and capital structure.** $3.6 billion of cash, cash equivalents and short-term investments at July 31, 2026, approximately $1.7 billion of it held abroad. Total debt of $10,037.4 million: $9,926.9 million of Senior Notes net of discount and issuance costs, $99.5 million under the deferred payment agreement from the 2025 rate lock settlement, and $10.9 million on a China facility loan. The Senior Notes are six fixed-rate tranches totaling $10.0 billion principal — 4.550% due 2027 ($1.0 billion), 4.650% due 2028 ($1.0 billion), 4.850% due 2030 ($2.0 billion), 5.000% due 2032 ($1.5 billion), 5.150% due 2035 ($2.4 billion) and 5.700% due 2055 ($2.1 billion) — with a fair value of $9.7 billion at quarter end. **The $4.3 billion term loan is gone:** after an $850.0 million prepayment in October 2025, Synopsys paid off the remaining $3.5 billion during the first quarter of fiscal 2026 and the facility was terminated. The $850.0 million revolver was undrawn and all covenants were in compliance. **Cash flow, nine months.** Operating activities provided more cash than the prior-year period on Ansys contributions, organic growth, higher receivable collections and the absence of the prior year's $121.6 million treasury lock settlement loss, partly offset by higher disbursements and $257.5 million lower net income. Investing *provided* $353.8 million (against $16.4 billion used a year earlier), driven by $440.0 million of Processor IP net proceeds and $69.8 million net from investment maturities, less $156.1 million of capital expenditures. Financing used $1.9 billion: the $3.5 billion term loan repayment and $300.0 million of buybacks, offset by $2.0 billion of net proceeds from the NVIDIA share sale. **Equity issuance and buybacks.** The $2.0 billion of net proceeds noted above came from the private placement of common stock to NVIDIA Corporation, which the quarterly report records under a securities purchase agreement entered in December 2025. The two companies announced the investment alongside an expanded multi-year partnership to run Synopsys' compute-intensive design and simulation applications on NVIDIA's accelerated computing and AI stack, with joint go-to-market initiatives; the partnership is not exclusive. In February 2026 the Board replenished the repurchase authorization to $2.0 billion; $1.7 billion remained available at July 31, 2026. A March 2026 accelerated share repurchase agreement retired approximately 564.7 thousand shares at an average $442.69, settling June 1, 2026, and the company bought approximately 126.7 thousand additional shares on the open market in the second quarter at an average $394.78. Nine-month repurchases totaled $300.0 million (691 thousand shares). **Restructuring.** $2.2 million of charges in the quarter and $236.3 million for the nine months under the 2026 Plan, with $171.4 million paid in the nine months and $64.9 million of liability outstanding at quarter end. **Backlog.** $10.9 billion at July 31, 2026, including $1.9 billion of non-cancellable FSA commitments. Approximately 49% of backlog excluding non-cancellable FSA is expected to be recognized as revenue over the next 12 months. **Litigation.** Three shareholder class actions were filed in the Northern District of California — *Kim v. Synopsys* (October 31, 2025), *New England Teamsters Pension Fund v. Synopsys* (November 25, 2025), and *City of Sterling Heights Police & Fire Retirement System v. Synopsys* (December 30, 2025) — alleging material misstatements or omissions about Design IP segment performance; the third brings Securities Act claims on behalf of stockholders who received Synopsys stock in exchange for Ansys shares in the merger. They have been consolidated as *In re Synopsys, Inc. Securities Litigation*; lead plaintiffs were appointed July 21, 2026, with a consolidated complaint due September 23, 2026 and defendants' response due by November 4, 2026. Three derivative actions (*Taylor*, *Podems*, *Brooks*) raising similar allegations have been consolidated as *In re Synopsys, Inc. Stockholder Derivative Litigation* and stayed pending resolution of any motion to dismiss in the class actions. Synopsys believes the claims are without merit, intends to defend vigorously, and has accrued no loss. Separately, a Korean subsidiary, Ansys Korea, is in Tax Tribunal and High Court appeals over National Tax Service withholding tax assessments for calendar years 2017 through 2023. **Board and governance.** The quarterly report's exhibit index incorporates a cooperation agreement dated May 26, 2026 with Elliott Investment Management L.P. and affiliated funds. Under it the Board was expanded by one seat and Jesse Cohn, a Managing Partner at Elliott, joined as an independent director effective June 1, 2026, also taking a seat on the Corporate Governance and Nominating Committee, with an initial term expiring at the 2027 Annual Meeting and a company commitment to include him in the slate of nominees for election there. Elliott gave voting commitments and accepted customary standstill and mutual non-disparagement restrictions — including a cap of 4.9% beneficial ownership and 7.5% aggregate economic exposure — for a cooperation period running roughly a year. **Tax legislation.** The One Big Beautiful Bill Act, signed July 4, 2025, restored immediate expensing of domestic research and experimental expenditures beginning in fiscal 2026, lowering current cash taxes but raising the effective tax rate by shrinking the foreign-derived intangible income deduction. Synopsys does not expect to be subject to the 15% corporate alternative minimum tax in fiscal 2026. California SB-122, enacted June 29, 2026, extends limits on certain business tax credits and expands sales and use tax to certain digital products and software transactions from January 1, 2027; Synopsys is evaluating it but does not expect a material fiscal 2026 impact. Pillar 2 global minimum tax is not material as of July 31, 2026. **Guidance.** With the third-quarter results Synopsys raised its full-year targets. For the fourth quarter ending October 31, 2026: revenue of $2,530 million to $2,580 million, GAAP expenses of $2,225 million to $2,300 million, non-GAAP expenses of $1,450 million to $1,480 million, GAAP EPS of $0.60 to $0.85 and non-GAAP EPS of $4.10 to $4.16, on 192–194 million fully diluted shares at an 18% non-GAAP tax rate. For full fiscal 2026: revenue of $9,690 million to $9,740 million, GAAP EPS of $3.84 to $4.08, non-GAAP EPS of $15.04 to $15.10, GAAP operating margin of approximately 10.4% and non-GAAP operating margin of approximately 41.5% at the midpoints, operating cash flow of approximately $2,800 million, free cash flow of approximately $2,600 million, and capital expenditures of approximately $225 million. The full-year revenue target includes $2.98 billion of expected Ansys revenue and reflects roughly $110 million of revenue lost to the divested Optical Solutions Group and PowerArtist RTL businesses plus $40 million from the Processor IP divestiture. The targets assume no further changes to export control restrictions or current Entity List restrictions. --- ## Subsequent events The quarterly report for the period ended July 31, 2026 does not present a separate subsequent-events note. The material post-period items disclosed in it and in the company's current reports are: - **Restructuring plan enlarged.** In August 2026 the Board approved updated estimates for the 2026 Plan, raising expected pre-tax charges to a range of **$425.0 million to $500.0 million** from the prior $300.0 million to $350.0 million, consisting primarily of severance and other one-time termination benefits plus other costs such as certain site closures under a global site strategy. The plan is still expected to be complete by the end of fiscal 2027, with the majority of the workforce reduction in fiscal 2026. The Board action was taken August 21, 2026 (Form 8-K/A, accession 0001193125-26-368858, amending the Form 8-K reporting the November 9, 2025 plan approval). - **General Counsel transition.** On August 12, 2026 Synopsys announced that Janet Lee will cease serving as General Counsel and Corporate Secretary effective the earlier of December 31, 2026 or the appointment of her successor, after which she will move to an advisory role through June 30, 2027 or later as determined by the company, to ensure a smooth transition (Form 8-K, accession 0001193125-26-345878). - **Third-quarter results and raised fiscal 2026 targets** were announced August 26, 2026 (Form 8-K, accession 0001193125-26-368620); the targets are set out under Current quarter above. No post-period acquisition, divestiture, financing or borrowing is disclosed. For completeness on the prior year: the fiscal 2025 annual report's subsequent-event disclosures — early term loan repayments of $600.0 million and $300.0 million on November 17, 2025 and $2.2 billion on December 17, 2025, and the December 2025 NVIDIA private placement — have since been completed and are reflected in the July 31, 2026 balance sheet described above.