Synopsys, Inc. Q1 FY2026 earnings call

• Market trends: AI driving system level and semiconductor R&D with design start activity for AI compute, but some markets subdued; engineering transformation from physical testing to digital twins with demand for silicon-to-system solutions. - Q1 business highlights: Design automation saw strength in hardware with competitive wins, EDA trends including AI application, multi-die momentum, and sustain design wind; ANSYS had strong Q1 with large multi-year agreements; Design IP performed in line with expectations with progress on aligning portfolio. - 40th anniversary: Off to strong start with operational excellence, financial discipline, and competitive roadmap. - ANSYS integration: Well underway with teams coming together to solve engineering challenges, more to be said at Synopsys Converge.

Design Automation: Revenue ~$2 billion, adjusted operating margin 47.3%. Strength in hardware-assisted verification, ANSYS contribution, and EDA trends like AI application, multi-die momentum, and sustain design wind. ANSYS: Revenue ~$886 million, strong Q1 performance driven by system-level digital engineering, multi-physics simulation, and AI-enabled design flows. Design IP: Revenue $407 million, down ~6% Y/Y and flat Q/Q, transitional year with focus on aligning with fastest growing silicon market segments.

• Full-year revenue: $9.56B - $9.66B. - ANSYS revenue contribution midpoint $2.9B, growing double digits. - Non-GAAP operating margin midpoint 40.5%. - GAAP earnings per share: $2.21 - $2.62; non-GAAP earnings per share: $14.38 - $14.46, up 6 cents from prior guidance. - Cash flow from operations ~$2.2B, CapEx ~$300M, free cash flow ~$1.9B. - Board replenished stock repurchase program with authorization to purchase up to $2B of common stock. - Q2 revenue: $2.225B - $2.275B.

• Geopolitical and macro uncertainty, especially China headwinds affecting IP business. - Risks related to actual results differing from forward-looking statements due to various uncertainties. - Impact of market trends and competitive landscape on business performance.

Q: Dig into IP segment muted growth and second half pickup.

A: Confidence in IP business driven by design starts, standards evolution pace, and customer foundry optionality.

Q: Seasonality of bookings and renewal activity.

A: Backlog ebb and flow with renewal timing, sitting at $11.3B backlog.

Q: AI and agent engineers ingredients.

A: L1-L5 agent engineer roadmap, data visibility, and traceability.

Q: ANSYS forecastability and end market assumptions.

A: Broad opportunity in ANSYS market segments, 606 impact muted as accounting policies harmonized.

Q: ARC processor divestiture rationale.

A: Focus on interface IP growth, GF as partner for joint customers.

Q: ANSYS cost and revenue synergies.

A: First wave of joint solutions in H1 26, monetization in FY27, sales teams cross-selling.

Q: IP delivery risk and normalized operating margins.

A: Depends on customer schedule, muted operating margin this year due to muted revenue, but long-term potential.

Q: NVIDIA partnership progress.

A: Joint R&D on GPU acceleration products, expectation to deliver in 26 with monetization upside.

Q: GenZig customer penetration.

A: Working on both front-end and back-end, progress seen in early engagements.

Q: EDA software growth.

A: Renewals and upsell opportunities, joint solutions with ANSYS as new opportunity.