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DATE

Wednesday, May 27, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• President and CEO — Sassine Ghazi
• Chief Financial Officer — Shelagh Glaser

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TAKEAWAYS

• Total Revenue -- $2.276 billion, exceeding company guidance, reflecting broad-based strength across segments, including the integration of ANSYS (NASDAQ: ANSS).
• ANSYS Segment Revenue -- $652 million, incorporating a $12.5 million revenue increase from a new gross channel accounting approach, offset by an equal expense change, net neutral to EPS and cash flow.
• Design Automation Revenue -- $1.822 billion with EDA revenue growing over 8% year over year, driven by demand for hardware-assisted verification and advanced node solutions; excludes the divested Optical Solutions Group.
• Design Automation Adjusted Operating Margin -- 43.3%, indicating continued segment profitability.
• Design IP Segment Revenue -- $454 million, down about 6% year over year but up 12% sequentially from Q1; adjusted operating margin was 24.4% in this segment.
• Non-GAAP Operating Margin -- 39.5%, above guidance, supported by cost efficiency and synergy realization from the ANSYS integration.
• Non-GAAP Earnings Per Share -- $3.35, surpassing expectations due to operational execution.
• Free Cash Flow -- $575 million for the quarter, with cash and short-term investments totaling $2.48 billion at quarter end.
• Backlog -- $11 billion at quarter end, indicating ongoing contractual visibility.
• Total Debt -- Approximately $10 billion, unchanged from prior disclosures.
• Share Repurchases -- $250 million accelerated share repurchase program initiated in March (513,000 shares delivered), plus $50 million open market buyback for 127,000 shares.
• Full-Year Revenue Guidance Raised -- Now projected at $9.625 billion to $9.705 billion, accounting for stronger business performance, $60 million accounting impact from ANSYS channel revenue, and a $40 million expected revenue reduction from the pending processor IP divestiture.
• ANSYS Full-Year Revenue Guidance -- $2.96 billion, inclusive of the channel accounting effect.
• Expense Guidance -- Full-year GAAP costs and expenses guided to $8.469 billion to $8.599 billion; non-GAAP expenses to $5.675 billion to $5.725 billion; non-GAAP operating margin midpoint now 41% (up by 50 basis points).
• Full-Year Non-GAAP EPS Guidance Raised -- $14.72 to $14.80 (midpoint increase of $0.34), due to higher revenue and improved operational efficiency.
• Free Cash Flow Guidance Raised -- Full year outlook now $2 billion (up $100 million from prior guidance), with operating cash flow projected at $2.3 billion and CapEx unchanged at $300 million.
• Q3 Guidance -- Total revenue expected between $2.41 billion and $2.46 billion; non-GAAP EPS of $3.63 to $3.69; GAAP EPS of $0.84 to $0.98; non-GAAP costs and expenses between $1.44 billion and $1.47 billion.
• Pipeline and Segment Trends -- Early commercial activity in GPU-accelerated and agentic EDA, multiphysics fusion trials underway, and sequential IP recovery after a Q1 bottom.
• Board and Governance Development -- New cooperation agreement with Elliott Management and appointment of Jesse Cohn as independent director announced.
• Synopsys (SNPS 1.62%) delivered these results and provided the updated guidance.

SUMMARY

Management executed well on disciplined cost control and synergy capture, resulting in raised annual guidance for revenue, margins, non-GAAP EPS, and free cash flow. During the call, leaders disclosed that ANSYS channel accounting changes have a direct, neutral effect on EPS and cash flow but elevate reported revenue and expense baselines. The design IP segment returned to sequential growth and is expected to improve further in the second half, with management highlighting early signs of new monetization models in high-value segments and customized engagements. Additionally, management confirmed its commitment to complete targeted cost synergies by the end of the fiscal year and discussed a measured pace of workforce reduction while hiring for critical capabilities essential to sustain roadmap execution and go-to-market strength.

• CEO Ghazi emphasized, "Early results for our forthcoming multiphysics fusion technology demonstrate meaningful productivity gains. Including up to 3x faster design closure, with higher ECO success rates, and up to 2x faster turnaround times for complex analog designs."
• CFO Glaser clarified, "We are updating our full year revenue guide to account for 3 factors. First, the strong first half performance and increased confidence across the business increases our previous guidance by $35 million at the midpoint. Second, the ANSYS channel accounting impact increases revenue by $60 million, which is accompanied by an equivalent increase in expenses. And third, the previously announced divestiture of the processor IP solutions business is expected to close shortly."
• Management stated contract monetization for GPU-accelerated EDA and AI-driven agentic design workflows is at an early stage but is expected to impact future EDA and SNA business models.
• ANSYS’s multiphysics simulation demand is accelerating in industrial, automotive, and aerospace markets, with AI model training use cases but full monetization is expected after current evaluation cycles.
• The company acknowledged ongoing pragmatism regarding China guidance, noting quarter-over-quarter growth was influenced by ANSYS contributions and easier comparisons, rather than a shift in the risk environment.

INDUSTRY GLOSSARY

• AI Agentic EDA: Workflow automation in electronic design automation using specialized AI "agents" to autonomously perform or assist human engineers across verification, implementation, and analog flows.
• 3D-IC: Three-dimensional integrated circuit technology where multiple semiconductor dies are stacked or integrated for advanced electronic designs, enabling higher performance and lower power consumption.
• UCIE: Universal Chiplet Interconnect Express, an industry standard interface for die-to-die interconnects in multi-die system architectures.
• HAPS: High-performance ASIC prototyping system offered by Synopsys for FPGA-based hardware prototyping.
• COT: Customer-owned tooling business model, in which customers use their own manufacturing tooling, often in customized silicon production.
• PPA: Power, performance, and area — the primary optimization metrics for semiconductor design evaluation.

Full Conference Call Transcript

Sassine Ghazi, President and CEO of Synopsys and Shelagh Glaser, CFO. Before we begin, I would like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts, targets and other forward looking statements regarding the company and its financial results. While these statements represent our best current judgment about future results, and performance as of today, our actual results 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 SEC reports, and today's earnings press release.

In addition, we will refer to certain non GAAP financial measures during the discussion. Reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release financial supplement and 8-Ks that we released earlier today. In addition, as mentioned, in our earnings press release today, we plan to host an Investor Day on September 30, 2026. All of these items, plus the most recent investor presentation, and the Investor Day information can be found on our website at www.synopsys.com. In addition, the prepared remarks will be posted on our website at the conclusion of the call. With that, I will turn the call over to Sassine Ghazi.

Sassine Ghazi: Good afternoon. Synopsys delivered a strong second quarter. Exceeding guidance on revenue, non GAAP operating margin and non GAAP EPS driven by solid execution and continued AI driven demand strength. This is an exceptional moment to be the leading engineering solutions provider. EDA IP and multiphysics simulation have emerged as essential capabilities in the AI supply chain. AI scaling semiconductor demand architectural diversity, and complexity of both chips and the systems they power, driving increased demand across our portfolio. Our opportunities expanding as customers design increasingly complex systems. From silicon to full scale AI and physical AI. Requiring more integrated engineering solutions across design, simulation and system validation. Synopsys is uniquely positioned to capture this opportunity.

And our recent Synopsys Converge event showcased the depth of our expanded portfolio, and the strength of our roadmap. Zooming out, Q2 further reinforced my confidence in our strategy and trajectory. Our global team showed continued strong execution on the Synopsys ANSYS integration disciplined focus on higher value IP opportunities and engineering excellence to advance our differentiated innovation pipeline with Agentic and multiphysics fusion technology. I look forward to diving deeper on these topics along with our strategy to increase value capture and expand margins, at our Investor Day in September. Based on our momentum, leadership road map, and market signals, we are raising our full year 2026 revenue, operating margin, EPS, and free cash flow guidance.

I will cover segment highlights before handing over to Shelagh for the financial details. Design automation delivered a strong quarter, reflecting robust AI driven design activity and sustained demand. For advanced node and 3D-IC solutions where Synopsys EDA leads. Hardware assisted verification remained a key growth driver. With particular demand from hyperscalers and leading semiconductor customers, who are scaling emulation and prototyping for increasingly complex AI designs. This drove multiple strategic system wins, across ZS5, Xebu and HAPS-200. In EDA, our leadership in 3D-IC is translating into production scale adoption. For example, in Q2, a leading HPC provider successfully taped out an incredibly complex next generation AI accelerator using Synopsys' unified multiphysics aware, designed to sign off solution.

This demonstrates the production proven capability of our 3D-IC Compiler and we expect sustained adoption as next generation AI designs increasingly move to multi die and chiplet based architectures. We also continue to lead at advanced nodes, with over 30 full flow technical wins in the quarter driven by our ability to deliver superior PPA for increasingly complex designs. Across our EDA portfolio, we are extending our competitive advantage by pioneering new capabilities including multiphysics fusion, GPU accelerated computing, and AI driven automation. Early results for our forthcoming multiphysics fusion technology demonstrate meaningful productivity gains. Including up to 3x faster design closure, with higher ECO success rates, and up to 2x faster turnaround times for complex analog designs.

Compared to traditional flows. Multiphysics fusion is currently in expanding trials with leading customers and will begin rolling into commercial availability in the second half of 26. As we deliver more value to customers, we expect to share in that value creation as contracts are renewed and expanded. For example, we are seeing early signs of monetization with GPU accelerated EDA. A premium capability driving both increased customer value and contract uplift. We are also advancing AI driven design, Our agentic EDA capabilities are gaining traction with 20 customers now evaluating solutions across more than 25 specialized AI agents spanning front end verification implementation and analog flows.

This agent-engineered technology, represents a meaningful long term opportunity to further increase productivity and drive higher value customer engagements. We are maintaining our EDA leadership position supported by the success of recent renewals pipeline activity and monetization trends. Turning to ANSYS. Which delivered another strong quarter, ANSYS extends our reach into system level design, and multiphysics simulation, strengthening our position as the leader in engineering solutions from silicon to systems. In Q2, we saw continued demand for system level digital engineering and physics based simulation across industries. For example, the AI data center build-out is driving SNA demand, including in and beyond semis as customers use the power of ANSYS simulation from chip to grid.

In aerospace and defense, customers are adopting ANSYS simulation to generate physics based synthetic data to train AI models for highly complex operating environments. And in automotive, manufacturers are increasingly digitizing engineering workflows and relying on simulation, for safety critical systems. Together, these trends reinforce our opportunity to deliver differentiated value at the intersection of silicon, systems and physics. Turning to design IP. We are increasing our alignment with hyperscaler demand for custom AI silicon, where our differentiated portfolio first to protocol leadership, and silicon proven quality enable higher value engagements. Demand for high speed interconnect IP continues to accelerate. Driven by AI's massive data requirements.

In Q2, our PCIe 7.0 IP achieved a greater than 90% win rate with 18 new licenses and a growing pipeline. We also continue to see strong momentum in advanced connect technologies, including 24 gig, with multiple wins across leading and emerging innovators. The shift to multi die and chiplet architectures is driving demand for die to die interoperability. In Q2, we secured additional UCIE design wins and achieved a 64-gig tape out on a 2 nanometer process. Bringing total UCIE lifetime wins to over 150. We are strengthening our position in memory IP, with design wins across hyperscalers, AI startups and leading semiconductor companies. In Q2, we also delivered the industry's first HBM4 IP test chip.

While we continue to expect muted IP growth for fiscal year 26 we believe the IP segment bottomed in Q1, and has begun its recovery. We expect sequential quarterly improvements throughout the second half, supported by our road map execution, and pipeline. Importantly, we are focusing our IP business on the highest value opportunities, aligned to AI driven demand and hyperscaler customization. These engagements, enable us to provide greater value as they increasingly involve deeper collaboration customized IP solutions and even broader Synopsys participation in the design process. Also, advancing our IP strategy, we expect to close the pending sale of the processor IP Solutions business shortly.

I am increasingly confident in the long term growth of this business and look forward to sharing more at our Investor Day. I am also pleased to share that today, we announced a cooperation agreement with Elliott Management and the appointment of Jesse Cohn to our board as an independent director. Jesse has deep appreciation for the company and our mission. We welcome his constructive insights and we look forward to working with him. In summary, the expansion of AI positions Synopsys for sustainable growth and margin expansion.

As AI scales both chip complexity and system level design requirements, our leadership portfolio of engineering solutions across EDA, IP and multiphysics simulation enables us to deliver differentiated value to customers and to capture a larger share of this expanding opportunity. I want to thank the Synopsys team for an impactful Q2 with disciplined execution, continued technology leadership, and engineering excellence driving our next gen solutions. Now over to Shelagh.

Shelagh Glaser: Thank you. As Sassine noted, we delivered a strong Q2, achieving revenue of $2.276 billion and non GAAP operating margin of 39.5%, and non-GAAP EPS of $3.35 all exceeding guidance. The results reflect continued strong execution and financial discipline across the business. Backlog ended at $11 billion. Before turning to the financials, I will briefly outline the drivers of our revenue outperformance. Q2 revenue exceeded guidance primarily due to the strong performance across the business. In addition, an accounting impact associated with recognizing ANSYS channel revenue on a gross basis added $12.5 million to revenue and an equal amount to expense. Thus neutral to EPS and cash flow. Let me provide more details on this change.

ANSYS integration is well underway. As we further align and improve our operations, we have deepened our understanding and experience with ANSYS' significant channel partner network by enhancing oversight and pricing visibility which requires us to recognize channel revenue on a gross basis. This also expands our reach to customer Synopsys historically did not serve, gives us clearer business insights, and allows us to offer a broader portfolio of Synopsys and ANSYS solutions. We will continue to update you on the quarterly impact through the rest of fiscal 2026, and I will quantify the estimated full year effect in our guidance shortly. I will now review our second quarter results. All comparisons are year-over-year unless otherwise stated.

We generated total revenue of $2.276 billion. ANSYS revenue was approximately $652 million including the accounting impact of $12.5 million related to channel revenue. Total GAAP costs and expenses were $2.156 billion coming in higher than expectations primarily due to the accelerated timing of restructuring costs. As a result, GAAP earnings per share was $0.09. Total non GAAP costs and expenses were $1.376 billion below our guided range, reflecting the progress we are making in improving efficiency and realizing synergies. Resulting in non GAAP operating margin of 39.5%. Non GAAP earnings per share were $3.35 ahead of our expectations on the strong operational beat. beat. Now onto our segments. Design automation segment revenue was $1.822 billion including ANSYS.

As a reminder, this excludes the Optical Solutions Group which was divested in Q4 2025. Within design automation, Q2 EDA revenue grew slightly over 8% year-over-year with strength in hardware assisted verification solutions. Design automation adjusted operating margin was 43.3%. Design IP segment revenue was $454 million down approximately 6% year-over-year and up 12% sequentially. Design IP adjusted operating margin was 24.4%. Turning to cash.

Free cash flow was approximately $575 million in Q2, and we ended the quarter with cash and short term investments of $2.48 billion Total debt at the end of Q2 was approximately $10 billion Based on our strong cash position, and our early paydown of term loans, we initiated a $250 million accelerated share repurchase in March. Under which we received an initial share delivery of approximately 513 thousand shares with final settlement expected by January 1. During the quarter, we also executed a $50 million open market share repurchase of approximately 127 thousand shares. Now to guidance.

Given the strong first half results, and continued confidence across the business, we are raising our full year revenue, operating margin, EPS, and free cash flow guidance. Let me explain further. We are updating our full year revenue guide to account for 3 factors. First, the strong first half performance and increased confidence across the business increases our previous guidance by $35 million at the midpoint. Second, the ANSYS channel accounting impact increases revenue by $60 million, which is accompanied by an equivalent increase in expenses. And third, the previously announced divestiture of the processor IP solutions business is expected to close shortly. Resulting in reduction of revenue of approximately $40 million for the remainder of fiscal year 26.

This results in an updated revenue range of $9.625 billion to $9.705 billion Within that, ANSYS revenue contribution is expected to be approximately $2.96 billion including the accounting impact. This is consistent with prior guidance after including the channel accounting impact. Next, expenses. We are updating our expense guidance to account for 2 primary factors. First, cost discipline and accelerating synergies driving expenses down. We expect to be approximately halfway through our committed cost synergy realization by the end of fiscal year 26. Second, a $60 million increase in expenses due to the ANSYS channel accounting impact.

Thus, total GAAP costs and expenses are expected to be between $8.469 and $8.599 billion Total non GAAP costs and expenses are expected to be between $5.675 and $5.725 billion and non GAAP operating margin of 41% at the midpoint, a 50 basis point raise to our previous guidance. GAAP earnings is expected to be between $2.49 to $2.91 per share, We expect non GAAP earnings of $14.72 to $14.80 per share, a $0.34 increase at the midpoint from our prior guidance due to the higher revenue and increased operational efficiency.

We are raising our cash flow from operations guidance to approximately $2.3 billion Our CapEx guidance of approximately $300 million remains unchanged resulting in free cash flow of approximately $2 billion an increase of $100 million versus our previous guidance. Now to targets for the third quarter.

Total revenue between $2.41 billion and $2.46 billion total GAAP costs and expenses between $2.075 and $2.125 billion total non GAAP costs and expenses between $1.44 and $1.47 billion GAAP earnings of $0.84 to $0.98 per share, and non-GAAP earnings of $3.63 to $3.69 per share, our press release and financial supplement include additional targets and GAAP to non GAAP reconciliations as well as full year revenue guidance breakdown outlining the factors I mentioned earlier. Thanks to our global Synopsys team for a strong first half performance. Our disciplined execution and momentum across the business is a great setup for an even stronger second half.

At our September Investor Day, I look forward to discussing the compelling long term opportunity we have as a mission critical partner for our customers. With that, I will turn it over to our operator for questions.

Operator: Thank you. Before we begin the Q&A session, I would like to ask everyone to please limit yourself to 1 and 1 brief follow-up. Allow us to accommodate all participants. If you have additional questions, please reenter the queue, and we will take as many as time permits. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sitikantha Panigrahi from Mizuho. Please go ahead.

Analyst (Sitikantha Panigrahi): Thanks. it is Sitikantha Panigrahi from Mizuho. So Sassine, congrats on a good quarter. I want to ask you about the IP business. that is 1 of the question we get from investors after the weakness last year. it is good to see that you know, Q1 was kind of the bottom and sequential improvement. And you talked about some of the shift towards the higher value more customized IP segments and, with hyperscalers. Can you give us a sense, like, how these deals are compared to traditional IP and what other factors you give you that confidence of second half reacceleration, and how should we think about the growth opportunity going forward in IP?

Sassine Ghazi: Thank you, Siti, for the question. Overall, I cannot be more enthusiastic and confident about our portfolio, in particular, the IP opportunity. If you look at the Synopsys IP opportunity, we have the broadest portfolio, serving many markets. From AI, HPC, and data center build-out to mobile to consumer, automotive, etcetera. And that portfolio is available across multiple foundries, the area that we are focused on when we talk about high value IP opportunities is how do we capture the value that we are delivering to the customers in a different monetization and business model.

We are making actually very good progress, as I mentioned number of quarters ago, by the end of this fiscal year, we will have few customers with signed agreements with a new business model that provide the opportunity to capture more dollar than the traditional use fee or some level of NRE. And the reason the customer is willing to entertain that change in the business model is their-- essentially, their entire strategy, especially if you are a hyperscaler to build your own chips, like the COT, the direction and trajectory is built on the availability of the Synopsys IP. And that discussion is very positive.

I am confident that we will get to the direction I communicated number of quarters ago. Which will accelerate our opportunity of growth in IP. And as you mentioned, for the short term, what we are--or for this fiscal year, what we committed is sequential quarter over quarter growth And as you could see, we achieved the 12% Q2 over Q1, Q1, we hit the bottom. I have no doubt we will continue on delivering that sequential growth for the rest of the year.

Analyst (Sitikantha Panigrahi): that is good to hear that royalty update on IP. And so Shelagh, I have a follow-up question on your margin guidance. You raised the fiscal year. And if I heard you correctly, you said half of that committed ANSYS cost synergy expected for this year. So can you help us find the magnitude of the remaining synergy opportunity in the back half or in 2027? And how should we think about the primary driver for further margin expansion synergy? Any other additional levers you can talk about beyond Yeah.

Shelagh Glaser: Thanks. For the question. Really, since we finalized ANSYS last year, we have been on how we achieve synergies as quickly as possible. As I said, by the end of this fiscal year, we will have achieved about half of our committed synergies and we are doing that in a very systematic way ensuring that we are continuing to invest in building out the multiphysics portfolio. So in making sure that is happening and making sure that we have got the right go to market resources.

But really looking at areas where we have overlap and duplication and reducing those both in terms of headcount and in terms of where we might have had third party contract with a vendor combining those And so we have been working through in a very disciplined way. To make sure that we are achieving efficiency in really everything we are doing. In terms of, you know, when we will achieve the rest of the synergies, I will talk more about that in our investor day. We really do wanna, you know, get through the synergy work as quickly as possible because we want the teams really focusing on building the innovation going forward.

Analyst (Sitikantha Panigrahi): Great. Thank you both.

Sassine Ghazi: Thank you, Siti.

Operator: Your next question comes from the line of Joe Quatrochi from Wells Fargo. Please go ahead.

Analyst (Joe Quatrochi): Yes. Thanks for taking the question. I was wondering if you could help us just kind of understand of the $35 million increase to the full year guide on the revenue outlook from business performance how much of that was related to EDA versus IP?

Sassine Ghazi: Yeah. So we saw strength across the business. The key driver for the strength is the continued AI semiconductor from a chip point of view opportunities that our customers are seeing and therefore translating into chip start, or design start system companies, I. E, the hyperscalers, integrating the silicon or expanding into their own chips. The COT model. For us, it is a great opportunity on both ends, on the semiconductor, as well as the hyperscalers. Because for any of these designs, you will need EDA software, You need hardware assisted verification to verify the chip in the context of the software, and IP. For any chip start, you need IP. So the strengths was across the portfolio.

The other part that is actually proving to be increase in demand and essentialness is the SNA solution. Most of these chips are advanced package, Thermal is essential. All the physics simulation, like fluid structure, are essential. So we are seeing the strengths across the portfolio.

Analyst (Joe Quatrochi): Thanks for that. And then I guess maybe as a follow-up, wondering if you could just kind of provide us any sort of color on you talked about the engagements that you are seeing on Agentic and agents. How should we think about, like, just the structure of those contracts? And then, I guess, as we look further, you know, how should we think about Agentic driving EDA's share of R&D spend higher?

Sassine Ghazi: The whole AI-for-EDA started from the journey of reinforcement learning where we insert AI in every part of our products. to a copilot or an assistant for the human engineer And we have always thought at some point, the workflow will change toward an autonomous set of engineers or agent engineers and we are seeing it happen right now. What we are witnessing is the traditional EDA product delivery where the focus was on the user interface simplifying out of the box results. For the human engineer to manage and tame the complexity of the chips that they are designing to a combination of human engineers and agent engineers running our tools.

And that is a fantastic opportunity for us because in both cases, you need more of our products in order to deal with the complexity and the new workflow that our customers are trying to evolve to the current thinking and we are in early exploration, with customers is how do we build from the subscription license that our customer has for the human engineers to run our product to subscription plus consumption for the agents to utilize our products. So that is that is absolutely an upside for our EDA and SNA business as agents become more pervasive in our customers' workflow. Thank you.

Shelagh Glaser: Thank you.

Operator: Your next question comes from the line of Vivek Arya from BofA Securities. Please go ahead.

Analyst (Liam Pharr): Hi. This is Liam Pharr on for Vivek. Thank you so much for taking our questions. So I guess just to start, in regards to your largest customer, it sounds like 18 a and 14 a pipeline is building. Have you seen any of that benefit And if not, how and when does it start to impact your numbers?

Sassine Ghazi: So the great news for Synopsys is any new foundry or a new technology within the same foundry is a tailwind, in particular, for our IT business. Because you cannot on-ramp a customer to any technology process technology or foundry, without our IP. It starts with the foundation IP, which is the library, etcetera, and the interface IP. So, when we see or you hear about customers like Intel, Intel Foundry, expanding their engagements We are, of course, aware of these engagements very early on when that target is evaluating the technology. Now to remind you, we get paid once the customer commits to the technology and they wanna go into production.

During the eval phase is just an eval Once it goes into production, we get paid for it. So in terms of how are we taking it into account, for FY 2026, we are not accounting or taking into account or in our guidance any upside. But as these wins, move from an eval into production, we will absolutely see the upside.

Analyst (Liam Pharr): Makes sense. And as my follow-up, new investors, new board members, what do you expect to change from pricing or operational perspective?

Sassine Ghazi: The you are referring to Jesse and Elliott. Actually, from day 1, our interaction with Elliot and in particular in number of interactions I had with Jesse. There was an immediate alignment on the value creation that Synopsys provide. The essentialness of our assets. There was no debate on that point where passionate about the portfolio and the leadership we have. The 2 other points that were made, given the value creation and essentialness of the asset, is there an opportunity to monetize further? And the third point, can we improve the efficiency, profitability, and translating it into a better operating margin for the company.

As we have been talking about for at least 3 quarters now, we see the same thing. You need an inflection point in order to go from that value creation to broader value capture. And we are seeing it on the software side with AI, as I mentioned earlier, with the opportunity to have broader set of users of our technology, from human engineers to agentic engineers. And on the IP side, with the move from a merchant silicon to COT and the essentialness of the IP portfolio we absolutely see the opportunity to change the business model and capture more dollars. For the value we are delivering.

On the operating margin, there is no debate. there is an efficiency as well that we can drive. We are demonstrating it in the last number of quarters. This year, we are raising our operating margin by more than 300 basis points in terms of delivery to where we finished last year. And we see the opportunity to continue on improving on both the top line and bottom line.

Analyst (Liam Pharr): Thank you very much.

Sassine Ghazi: Thank you.

Operator: Your next question comes from the line of Jason Celino from KeyBanc Capital Markets. Please go ahead.

Analyst (Jason Celino): Great. Thanks for taking my question. Wow, Sassine, not shying away from, you know, tough questions. So, for me, I wanted to ask about your IP business. You know, it seems like it was, you know, through the trough as you might call it. Did you close, you know, any business earlier than expected or see some earlier, you know, drawdowns. I am just trying to, you know, understand the sequential improvement commentary. Like, are you uptaking on IP here? Maybe that is my first part.

Sassine Ghazi: Yeah. Jason, the current IP sequential improvement is based on the pipeline that we have had and the closing the engagements that we could see in our forecast with the existing business model that we have with our customers, where you are seeing a strong and enthusiasm is the engagements around the new business model in particular, in HPC and the AI based chips with the hyperscalers. Yeah.

Shelagh Glaser: And Jason, I would just add that as we talked about last time, a part of the sequentiality is as we move the resources, to more fully deploy on HPC, there is title availability that becomes available as we move throughout the back half of the year. And so we need those titles, obviously, to be available for the customers to pull down.

Analyst (Jason Celino): Okay. Helpful. Then when we look at the ANSYS business, it looks like it is growing, you know, in the mid-teens even when excluding, the accounting stuff. But keeping the guidance the same for the year, I think the guidance assumes roughly 10%. Ish growth. Help me understand the strength in ANSYS and why you are seeing these mid-teens growth levels and what would drive that steep decel, you know, down to double digits in the second half for the full year? Thank you.

Sassine Ghazi: So the 1 thing I will start with is our very successful integration the 2 companies. As you know, acquiring a company like ANSYS with a broad portfolio as well as a go to market motion making sure we are not missing a beat on both the technology integration as well as the go to market. I cannot be more thankful and happy to see that integration coming along. From a market dynamics point of view for the portfolio, there is the semiconductor part of ANSYS. Think of it like the EDA part of ANSYS. And that is where the multiphysics fusion into the portfolio is taking place.

The number of the engagements with customers with that new technology is happening at a rapid pace. With very good outcome. Now the monetization of that is not happening yet because we are in an eval phase with those customer with the new technology. The part of ANSYS that serves industrial automotive, aerospace, and defense, we are seeing an uptick. And the reason we are seeing that uptick is, picture those products that are being designed for the future. They are intelligent systems, they are very complex, The need for more simulation and analysis to reduce the cost as well as increase the fidelity of delivering to that product is the sweet spot of ANSYS portfolio.

Because it is the trusted multiphysics simulation for these markets. So that is the tailwind that we are seeing in, outside of the semiconductor.

Shelagh Glaser: And I would Jason, I would just add there is a mechanical aspect here as we closed the acquisition of ANSYS in July last year. We retooled them to be on our fiscal year which means that their December, their prior Q4 is actually our Q1, and so you saw kind of outsized growth in Q1. Our fiscal Q1. And then as we go throughout the year, they are, you know, reprofiled to ours. And so we do see strong growth for ANSYS, but it is just kinda got a different seasonality to it. And we anticipate that, you know, that seasonality remains with their strongest quarter always being a Q1 because that traditionally had been their Q4.

So there is a bit of mechanical nature to things too.

Analyst (Jason Celino): Okay. Perfect. Wonderful. Perfect. Wonderful. Thank you.

Operator: Your next question comes from the line of Gary Mobley from Loop Capital. Please go ahead.

Analyst (Gary Mobley): Hi, everybody. Thanks for taking my question. Just seeing over the last several quarters when describing chip design activity broadly, you talked about a tale of 2 cities. Where in the analog design community, I think you were, you know, hopeful you would see some acceleration in chip design activity, but not quite yet. Know, I think the evidence is there in the marketplace that a lot of these you know, big analog chip companies are seeing, you know, much improved much improved business environment. So, therefore, have you seen sort of resurgence in that customer base from a renewal activity perspective or just general chip design activity?

Sassine Ghazi: You know, Gary, we track chip starts very, very closely. What we are seeing is a chip start increase or a design start increase in anything AI related. In industrial and automotive, while customers are reporting strength in revenue, there are multiple reasons for that. But the design starts are not growing definitely not growing at the pace as we are seeing for the other cohort. Now where we are seeing customers excitement in the analog space is things related to physical AI. Because you need sensors, you need actuators, you need the actual analog to interface with the real world and translating it into the digital world. But from a design start, it is still fairly muted.

Design start activity in that domain.

Analyst (Gary Mobley): Good. Appreciate that color. As my follow-up, I want to sort of get a gauge on the monetization of maybe the half dozen or so jointly collaborated products between Synopsys and ANSYS as outlined at Converge. When would you expect the first phase of that $400 million in revenue synergies, you know, post acquisition and then eventually that $1 billion in revenue synergy.

Sassine Ghazi: FY 2027, because the we released to limited set of partners the technology. We are expanding it further as we are getting more feedback and input from the early customers that they are evaluating the technology. And the key principle here, Gary, the key principle that we are putting guardrails around with the sales organization and the engagement with customers is 1 plus 1 must be greater than 2. Many of these customers, they have access to Synopsys technology, they have access to ANSYS technology, The new multiphysics fusion it is additive. To the baseline. So 1 plus 1 must be greater than 2 to get access to that technology. And, that will start in FY 27.

We did communicate a 400 million in revenue synergy for that base. The base meaning the semiconductor related multiphysics opportunity. And we, I want to say, had a thesis that is accelerating around the whole physical AI. Digital twin, etcetera, etcetera. So we are still on track, to what we have committed. And, the confidence is higher given the early customer, feedback that we are receiving. Thank you.

Shelagh Glaser: Thank you, Gary.

Operator: Your next question comes from the line of Andrew DeGaspari from BNP Paribas. Please go ahead.

Analyst: Yes. I wanted to ask 1 on where you mentioned about the leading HPC provider successfully taping out the next generation of AI accelerator. I am just wondering is this like a first 1 in terms of what you have seen from a data center customer? And you know, how meaningful could this be for you?

Sassine Ghazi: If you are referring to hyperscaler taping out and accelerator, no. it is not the first 1. There are, of course, different hyperscalers at different stages of maturity when it comes to their ability to bring their own silicon inside their data centers. We, in each 1 of these engagements, Synopsys IP, hardware, EDA, ANSYS portfolio is in use. And when I say everyone, it is everyone. There are none of the COT that does not use the EDA, HAV, IP, and SNA.

The point I am emphasizing for IP in particular, as these customers are moving to more sophisticated complex COT, they need to make sure they have a customized IP, the latest IP that is competitive with what they get from a merchant silicon. And that is the opportunity we are seeing that is expanding, and I am very excited about and confident we will be able to change the current engagement model.

Analyst: that is helpful. And Sheila, I just want to ask a question on the organic revenue for the quarter. Just given the noise around the channel, and also the divestitures, I mean, we are shaking out somewhere between 3-4% ex-ANSYS. Is that what you are seeing or are we missing something? Thanks.

Shelagh Glaser: Yeah. I think in terms of the channel piece, you saw it is $60 million for the year that included the $12.5 million that was in Q2, and you can think about that growing through the year as we are building with the channel. And so and we have talked about IP sequentially, growing, which we you saw from Q1 to Q2, so we will have sequential growth. And then really for the balance of the business, it is really timing of when, you know, because we have got the upfront hardware piece. In EDA, so it is really timing between Q3 and Q4 of hardware. Got it. And referring to Q2 this quarter specifically is the organic growth accurate?

Oh, in Q2? Yes. In Q2, it is really the upfront piece. We saw IP grow. We had a good hardware quarter also. In Q2, and then you have got the specifics on that ANSYS performance too. Got it. ANSYS obviously had the much bigger Q1. Thanks.

Operator: Your next question comes from the line of Joe Vruwink from Baird. Please go ahead.

Analyst (Joe Vruwink): Hi. Thanks for the time tonight. I wanted to go back to multiphysics fusion and is the greatest initial applicability really within sign offs? And I asked because you it is synopsis and ANSYS already had very high market share and sign off respectively. But think the opportunity is probably accelerating at the category level just given what is happening around advanced packaging and that certainly brings a lot more sign off challenges since the design efforts. So is it really a case where the overall pie is starting to grow and the bringing together of your 2 companies into this new format. They are gonna capitalize on that.

Sassine Ghazi: Yeah. Joe, you are absolutely right. The sign off is always an essential part before a customer commit to the next phase of the workflow. And we are fortunate that we have the sign off leadership across multiple physics as well as timing, power, etcetera. The opportunity and the innovation we are driving is customers are moving more and more towards 3D-IC and chiplet in an advanced package. The complexity of beyond electronics into structure. Fluid, thermal, Taking these factors into account during the design phase, we have the leadership position in 3D-IC compiler and Fusion compiler.

Bringing that technology in during the design phase so our customers has a convergent flow So they are not running into surprises later in the flow is the value we are adding to customers. As much as, the sign off piece is important bringing some of these algorithm and solvers early in the design phase is the value that we are will engage the customer on.

Analyst (Joe Vruwink): that is great. And then, on backlog, I know is just really noisy right now, but the quarter over quarter declined to $11 billion Is that as expected, and is it relating to just when renewals happen to fall within the fiscal year?

Shelagh Glaser: Yeah. You got that right, Joe. it is you know, there is a normal ebb and flow We build and then we burn, and it is really based on when renewals are, and it is very much what we expected.

Sassine Ghazi: Thank you.

Operator: Your next question comes from the line of Jay Vleeschhouwer from Griffin Securities. Please go ahead.

Analyst: Thank you. A question for you, Shelagh, first on expense then I will follow-up with Sassine for the follow-up. Your headcount as of the end of Q2 was down about 7% from the peak at the close in Q3 after ANSYS. Added about 6 thousand or more employees. So it would seem, on the 1 hand, that you have a few points left to go to fully complete the RIF that you announced, some time ago. The other hand, what is interesting is that over the last number of months, there is been an unmistakable sequential uptrend in your open positions. For both Synopsys Classic and ANSYS Classic.

As an example, Synopsys Classic positions are more than 4x the number at the end of Q4. ANSYS Classic more than double where they were a few months ago. So maybe talk about what you are thinking of in with respect to bringing people in as per those numbers versus on the other hand, reducing your headcount to keep the margins in line? And then my follow-up.

Shelagh Glaser: Yeah. So you are right, Jay. We still have some more reductions to go for our 10%. So as we had said, we are you know, doing that through the course of the year. So there is still some more actions that are taking place. But at the same time, we are also investing in critical areas. And making sure that we have got the right technical folks both in the go to market and on the engineering side to deliver the road map that Sassine has been talking about.

So we are doing a mix of reducing in areas that are not priorities for us, while we are investing in key priorities for ourselves, and we are being very disciplined about the roles that we are hiring for. And it is really about building the road map out and then making sure that we have got the right robust go to market team to be able to support that. But we are still committed to the 10%. You are right. We have done a majority of the reduction. So what we have left to go is a bit more measured But, nonetheless, we are still investing and making sure that we have got, CREE critical technologies funded properly.

Analyst: Understood. Thank you. Sassine, the accounting thing with regard to the ANSYS channel is interesting, but I am more interested in the operational plan you have for that channel. In ANSYS last year, it was a more than $600 million business, overwhelmingly not EDA. The first batch of the multiphysics fusion cohort is largely about EDA integrations that probably would have happened anyway. So could you talk about what the product set has to look like beyond this first batch in multiphysics to really enable you to sell more conjoint products into that ANSYS channel beyond just the EDA products. Then maybe speak more broadly about what your new CRO has been doing over the last half year.

Sassine Ghazi: Yeah. Jay, your observation is correct. ANSYS sales channel had the direct the sales organization had the direct sales and the channel. Most of the EDA was handled with direct. Very little was handled in the channel. So the semiconductor customers and the customers that they are classic to Synopsys and the multiphysics fusion that will continue on happening primarily through the direct channel.

And in most of the direct channel is the Synopsys classic channel Where we have integrated the Ansys-system EDA into the Synopsys classic go to market team. there is some co selling opportunity with some of these customers, and that is why Mike, the CRO, is working on and ensuring that there is a smooth interface to the customers. So far, actually, I have been very pleased with the way that integration is going from a go to market point of view. Then you have the channel partner that ANSYS has built over decades which is truly impressive.

The ability to go after long tail of customers and capture the opportunities is something that the Classic Synopsys would like to leverage in areas of the portfolio that we did not have the similar investment or coverage. So we are moving some products from the Classic Synopsys into the channel in order to just do what they do best, engage with customers in a light touch and broadly to sell that portfolio. Mike, as you know, brings in a very strong knowledge of both. EDA semiconductor and has a very strong, view and, experience in the whole system level design and the whole industrial, automotive, aerospace, from just the fact where he came from.

So he is been very deliberate on architecting the organization to deliver the current. As we are building the future opportunities. Okay. Thank you. Thank you.

Operator: Your final question comes from the line of Joshua Tilton from Wolfe Research LLC. Please go ahead.

Analyst (Josh Tilton): Thanks, guys. I have never sounded so official in my life. I have 2. The first 1 is more of a clarification question. I was just hoping that you can maybe, you know, help us unpack some of the strength you saw from a geographic perspective. China was up sequentially, but North America and I think Europe declined. So anything to call out on what kind of drove the dispersion there? And then I have a follow-up.

Sassine Ghazi: No. Overall, actually, I will comment on China first, but then the rest of the regions is there are no surprises per se. And even with China, there is not much in terms of change from what we have communicated before. Where the design start environment in China remains challenged given all the restrictions and the cumulative impact of the restrictions. And as we have communicated, we are fairly pragmatic when it comes to our guide in China. As far as The US, Europe, where we are seeing strength, as outlined in our SNA portfolio, a number of areas outside of semi, like aerospace and defense, automotive, industrial, and that is happening across the board.

Shelagh Glaser: Mhmm. And on China in particular, that did show strong growth and that is also the addition of ANSYS because we did not have ANSYS. And then it is also it was a pretty easy compare. Versus Q2. So we have not changed our anything in terms of our forecast of China for the year. We are continuing to be pragmatic about China.

Analyst (Josh Tilton): Makes sense. Maybe just a follow-up and a very high-level 1 and kind of stepping back. A lot of investors listening to this call and even myself kinda look at Synopsys and see a whole laundry list of reasons as to why we are all hoping and betting and, you know, looking to a future where we think growth can be better, whether it is pricing on multiphysics fusion, the IP business recovering, you know, agentic opportunities, new hardware. Like, the list is endless. But, Sassine, when I listened to you in the prepared remarks, it felt like you used the word durability of growth. A lot more than kind of this talk track around improving growth.

And I am just kinda curious. You know, I do not want to ruin what you are going to give us the investor day, but just, like, how do you think about the potential for Synopsys to improve the growth rate from here versus more of that durable type of growth you were talking to? Anything you could just help us you know, understand maybe the shape or just how you are thinking about you know, the future growth power of the business given that whole laundry list of opportunities that I kind of just rattled off. Would be great.

Sassine Ghazi: Yeah. Yeah. Thank you, Joshua. The part I wanna emphasize is there is a beauty about having the durability of the business, but at the same time, there are number of inflection points you just, as you said, rattled. A number of them, the few I outlined that there is commitment focus, discipline, in changing the monetization capture is around IP, is around EDA and SNA when it comes to the inflection point with AI we are not expecting the customer to pay 20-30% more by just delivering the same.

But as they are injecting a change in their workflow, with agents, with, collaborating with humans, and there is a massive increase in demand for licenses to train and influence these agents We are absolutely expecting that the change in monetization and business model will happen. And we will drive it and we will make it happen. that is what I am really looking forward for the investor day to share with you all how are we thinking about it? And this is not something new. Started thinking about it in the last couple months.

We have been talking about it for a number of quarters that we are determined Given the value we are delivering and creating, we will capture different value and different business model to drive it home. And, we will talk about it more at Investor Day. And I know we are out of time with that. I will I will take the opportunity to just really wrap up with my enthusiasm to be the leading provider of engineering solutions from silicon to systems. Our portfolio spanning the EDA, IP, multiphysics simulation, are all essential for the AI innovation.

A huge thank you to our global Synopsys team for an amazing quarter and thanks to our customers, shareholders for your continued commitment. Thank you.

Operator: This concludes today's call. Thank you all for attending. You may now disconnect.