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01/10 19:45
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Synopsys reported strong financial performance with a significant EPS beat and robust cash flow. Despite challenges in the IP segment, the company shows promising growth in EDA and strategic partnerships, notably with NVIDIA. The strategic focus on AI-driven innovation and the Ansys integration are positive indicators. The Q&A reveals a cautious but optimistic outlook, with management addressing headwinds and emphasizing long-term growth. The partnership with NVIDIA and strategic cost management further bolster the positive sentiment, suggesting a positive stock price movement in the short term.
Annual Revenue $7.05 billion, up approximately 15% year-over-year, which included $757 million of Ansys revenue. The increase was driven by the integration of Ansys and strong bookings across the business.
Backlog $11.4 billion, up from $10.1 billion last quarter, driven by strength in bookings across the business.
Q4 Revenue $2.25 billion, at the high end of guidance. Ansys Q4 revenue was $668 million.
China Revenue Down 18% year-over-year. Excluding Ansys, China was down 22% due to continued challenges in the region.
GAAP Costs and Expenses (2025) $6.14 billion.
Non-GAAP Costs and Expenses (2025) $4.42 billion, resulting in a non-GAAP operating margin of 37.3%.
Q4 GAAP Costs and Expenses $2.13 billion.
Q4 Non-GAAP Costs and Expenses $1.43 billion, resulting in a non-GAAP operating margin of 36.5%.
GAAP Earnings Per Share (2025) $8.07, which included the gain on the sales from the recent divestitures.
Non-GAAP Earnings Per Share (2025) $12.91, ahead of guidance on lower expenses.
Design Automation Segment Revenue (2025) $5.3 billion, up 26% year-over-year. Excluding Ansys, the revenue grew approximately 8% with steady growth in EDA software and a record year in hardware.
Design IP Segment Revenue (2025) $1.75 billion, down 8% year-over-year due to a challenging second half and headwinds highlighted last quarter.
Free Cash Flow (2025) Approximately $1.35 billion, ahead of expectations due to accelerated timing of collections.
Cash and Short-term Investments $2.96 billion, which includes approximately $600 million in proceeds from the sale of the Optical Solutions Group and Ansys PowerArtist business.
Total Debt $13.5 billion. Approximately $850 million of term loans were repaid in Q4 '25, and $900 million in November.
Ansys Integration: Integration of Ansys is well underway, following the divestitures of Optical Solutions and PowerArtist businesses. Synopsys is set to deliver its first joint solutions with Ansys in the first half of 2026.
AI-driven Chip Design: Synopsys.ai has nearly 5,000 active users among Tier 1 semiconductor customers, enhancing engineering productivity. The company is advancing AgentEngineer technology with partners like NVIDIA and Microsoft.
Design Automation: Strong demand in hardware-assisted verification and virtual prototyping. Collaboration with AWS led to the development of the Graviton5 chip using Synopsys tools.
Market Expansion with Ansys: Ansys acquisition diversified revenue and expanded the customer base. The partnership with NVIDIA aims to revolutionize design and engineering with AI and accelerated computing.
AI Infrastructure Build-out: Operating amidst a multitrillion-dollar AI infrastructure build-out, driving semiconductor demand in mobile and automotive sectors.
Restructuring Actions: Initiated workforce reductions to improve efficiency and accelerate cost synergies.
Financial Performance: Achieved record annual revenue of $7.05 billion in FY 2025, with a backlog exceeding $11 billion. FY 2026 revenue guidance is set at $9.61 billion at the midpoint.
Strategic Partnership with NVIDIA: Announced a partnership with NVIDIA to enhance AI-driven design and engineering solutions.
Focus on AI and Engineering Complexity: AI is driving the need for new tools and workflows, emphasizing multi-domain integration and software-hardware co-design.
China Market Challenges: China's market remains subdued, with a reported 18% decline in revenue for 2025. Excluding Ansys, the decline was 22%, indicating significant challenges in this region.
Design IP Segment Performance: The Design IP segment faced an 8% revenue decline in 2025 due to a challenging second half, with muted growth expected in 2026. This reflects ongoing headwinds in this business area.
Restructuring Actions: Workforce reductions and restructuring actions are being implemented to improve efficiency and achieve cost synergies. These actions, while necessary, could impact employee morale and operational stability in the short term.
Economic and Market Conditions: Subdued industrial and China markets, along with economic uncertainties, pose risks to growth and revenue stability.
Integration of Ansys: The integration of Ansys and the associated restructuring actions are critical but complex, posing execution risks that could impact the realization of expected synergies and operational efficiency.
Debt Levels: The company has a significant debt burden of $13.5 billion, with plans to repay $2.55 billion in the first half of 2026. This financial obligation could constrain flexibility and impact financial health.
FY '26 Revenue Guidance: Guiding revenue of $9.61 billion at the midpoint, factoring in the addition of Ansys, completed divestitures, and continued pragmatism around China.
AI Infrastructure Build-Out: Operating amidst a multitrillion-dollar AI infrastructure build-out, driving robust semiconductor demand and design starts for both specialized and general-purpose compute.
Market Trends: Stronger semiconductor demand in mobile and automotive sectors, while industrial and China markets remain subdued.
AI Evolution: AI is evolving from large language models to world models, demanding more compute performance and compounding engineering complexity. This requires new tools with multi-domain integration and new workflows for software and hardware codesign.
Synopsys-Ansys Joint Solutions: First Synopsys-Ansys joint solutions to be delivered in the first half of 2026.
Design IP Business Outlook: 2026 is a transitional year for the IP business with muted growth expected. However, long-term mid-teens growth target remains due to leadership in interconnect and foundation IP, a healthy sales pipeline, and focus on high-value opportunities.
Non-GAAP Operating Margin: Expected to be 40.5% at the midpoint for FY '26, up approximately 320 basis points versus 2025, driven by the inclusion of Ansys and cost synergy acceleration.
Cash Flow from Operations: Projected at approximately $2.2 billion for FY '26, up $700 million year-on-year, including impacts of restructuring costs and incremental cash taxes from divestitures.
CapEx: Expected to be approximately $300 million for FY '26, up $130 million versus 2025, driven by investments primarily in compute infrastructure.
Q1 FY '26 Revenue Guidance: Total revenue expected between $2.365 billion and $2.415 billion.
The selected topic was not discussed during the call.
Synopsys reported strong financial performance with a significant EPS beat and robust cash flow. Despite challenges in the IP segment, the company shows promising growth in EDA and strategic partnerships, notably with NVIDIA. The strategic focus on AI-driven innovation and the Ansys integration are positive indicators. The Q&A reveals a cautious but optimistic outlook, with management addressing headwinds and emphasizing long-term growth. The partnership with NVIDIA and strategic cost management further bolster the positive sentiment, suggesting a positive stock price movement in the short term.
The earnings call indicates several challenges: underperformance in the IP business, lower free cash flow, and a slight decline in operating margins. Although there are positive developments like AI and HPC growth, the persistent issues in the Design IP business and cautious outlook for Q4 margins suggest a negative sentiment. The reluctance to provide specific guidance on the backlog and revenue contribution from Ansys further adds to uncertainty, leading to a likely negative stock price movement.
The earnings call summary shows strong financial performance with a 10% YoY revenue increase and EPS exceeding expectations. While there are concerns about geopolitical risks and non-AI market demand, the positive outlook from AI and HPC sectors, a $500 million share repurchase program, and optimistic guidance suggest a positive stock price movement. The Q&A section highlighted management's confidence in overcoming challenges, despite some regulatory uncertainties with the ANSYS acquisition. Overall, the positive elements outweigh the negatives, indicating a likely stock price increase in the next two weeks.
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