Synopsys, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Acquisition Impact: Closed the ANSYS acquisition on July 17, with roughly two weeks of ANSYS financials included in Q3 results.
• Q3 Performance: Reported revenue of $1.74 billion and non-GAAP EPS of $3.39. IP business underperformed due to export restrictions in China, challenges with a major foundry customer, and roadmap/resource decisions.
• Business Highlights: Design automation up 23% led by hardware; EDA resilient with competitive wins; AI capabilities a differentiator; multi-die momentum; simulation and analysis products performed in line; IP business pivoting resources to high-growth opportunities.
• Company-Wide Actions: Conducting a strategic portfolio review, enterprise-wide GenAI initiative, and plan to reduce global headcount ~10% by end of FY2026.

Segment Performance

• Design Automation: Revenue was $1.31 billion, up 23% with an adjusted operating margin of 44.5%.
• Design IP: Revenue was $428 million, down 8%. Third-quarter adjusted operating margin was 20.1% due to lower revenue and investments in the IP roadmap.
• Simulation and Analysis (part of ANSYS): Vast majority of ANSYS revenue is under this segment, with the remainder in EDA.

Guidance

• FY2025: Revenue projected at $7.03 to $7 billion; non-GAAP earnings $12.76 to $12.80 per share; free cash flow ~$950 million.
• Q4 2025: Revenue expected to be between $2.23 and $2.26 billion; non-GAAP earnings $2.76 to $2.80 per share. More cautious view due to IP headwinds and external headwinds.

Risks

• Geopolitical Headwinds: Export restrictions in China impacting design starts and customer behavior.
• IP Business Challenges: Foundry customer impact and roadmap/resource decisions affecting IP revenue.
• Integration Risks: Delays in follow-on divestitures of Optical Solutions Group and PowerArtist elongating ANSYS integration.

Question and Answer

• Q: Ruben Roy on IT business challenges, export restrictions, foundry customer impact, and resource reallocation A: Sassine Ghazi discussed China BIS impact, foundry customer issues, and roadmap/resource realignment, including merging IP teams.
• Q: Ruben Roy on operating margin decline and ANSYS impact A: Shelagh Glaser explained IP revenue headwinds and ANSYS integration, noting long-term margin commitment.
• Q: Lee Simpson on IP business model transition, permanence of challenges A: Sassine Ghazi talked about IP business model shift to subsystems, transitional period due to China and foundry factors.
• Q: Charles Shi on ANSYS acquisition surprises, growth drivers A: Sassine Ghazi highlighted ANSYS integration benefits, 3D IC and physical AI opportunities driving growth.
• Q: Sitikantha Panigrahi on ANSYS acquisition synergy, growth drivers A: Sassine Ghazi discussed ANSYS integration and market opportunities for growth above mid-teens.
• Q: Harlan Sur on foundry revenue weakness, ANSYS integration cost synergies A: Sassine Ghazi and Shelagh Glaser addressed foundry customer impact and cost synergy plans.
• Q: Jay Vleeschhouwer on headcount reduction, ANSYS integration A: Sassine Ghazi and Shelagh Glaser discussed headcount reduction rationale and ANSYS channel integration.
• Q: Jason Celino on IP seasonality, derisking Q4 guide A: Sassine Ghazi mentioned transitional period and muted IP performance in Q4.