Financial Data and Key Metrics Changes - Q3 revenue was reported at $1.74 billion, representing a 14% year-over-year increase, with non-GAAP EPS at $3.39 [5][16] - Non-GAAP operating margin stood at 38.5%, while GAAP earnings per share were $1.50 [16][17] - Backlog reached $10.1 billion, indicating business resilience despite challenges [16][21] Business Line Data and Key Metrics Changes - Design automation revenue, including Ansys products, increased by 23% year-over-year to $1.31 billion, driven by hardware strength [9][17] - Design IP segment revenue decreased by 8% year-over-year to $428 million due to various headwinds [17][18] - Design automation adjusted operating margin was 44.5%, while design IP adjusted operating margin was 20.1% [17][18] Market Data and Key Metrics Changes - Strong performance was noted in Europe and North America, while challenges persisted in China despite sequential improvements [16][18] - The semiconductor demand in industrial and automotive markets remained subdued [7] Company Strategy and Development Direction - The acquisition of Ansys is seen as a transformational milestone, expanding revenue and customer base, and enhancing long-term growth opportunities [5][8] - The company is pivoting its IP resources towards higher growth opportunities and is conducting a strategic portfolio review [14][15] - A 10% reduction in global headcount is planned by the end of fiscal year 2026 to optimize cost structure and drive efficiency [14][21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing the increasing complexity and demand for AI-powered systems as a key growth driver [7][8] - The company is taking a cautious view of Q4 while still expecting to deliver a record revenue year [7][16] - Management acknowledged the challenges faced in the IP business and the need for resource reallocation to address these issues [24][40] Other Important Information - The integration of Ansys is progressing well, with no significant surprises reported post-acquisition [63][66] - The company is focused on delivering synergies from the merger despite delays in divestitures of certain business units [21][66] Q&A Session Summary Question: Challenges around the IP business - Management detailed three main challenges: export restrictions affecting design starts in China, issues with a major foundry customer, and roadmap/resource allocation decisions [24][25] Question: Operating margin outlook - The decline in operating margins is primarily due to the underperformance in the IP business, but long-term targets remain intact [30][33] Question: Design IP slowdown permanence - Management indicated that the slowdown is not just a Q3 issue and anticipates a transitional period for the IP business [40][41] Question: Ansys revenue integration - Ansys revenue is included in the Q4 guidance, with expectations for strong performance in the November-December timeframe [67][68] Question: Headcount reduction rationale - The planned headcount reduction was part of a strategic review and not solely due to current challenges in the IP business [87][88] Question: Future business models for IP - Discussions are ongoing regarding potential changes to business models, including royalties, to capture value from customization opportunities [56][57]

Financial Data and Key Metrics Changes - Q3 revenue was $1.74 billion, representing a 14% year-over-year increase, with non-GAAP EPS at $3.39 [15][4] - Non-GAAP operating margin was 38.5%, while GAAP earnings per share were $1.50 [15][16] - Backlog reached $10.1 billion, indicating business resilience despite challenges [15] Business Line Data and Key Metrics Changes - Design automation revenue, including Ansys products, increased by 23% year-over-year to $1.31 billion, driven by hardware strength [8][16] - Design IP segment revenue decreased by 8% year-over-year to $428 million due to various headwinds [16][10] - Adjusted operating margin for design automation was 44.5%, while design IP's adjusted operating margin was 20.1% [16] Market Data and Key Metrics Changes - Strong performance was noted in Europe and North America, while challenges persisted in China [15] - Semiconductor demand in industrial and automotive markets remained subdued [5] Company Strategy and Development Direction - The acquisition of Ansys is seen as a transformational milestone, expanding revenue and customer base [4][6] - The company is focusing on high-growth opportunities in IP and design automation, pivoting resources accordingly [12][10] - A strategic portfolio review is underway to optimize investments and execution [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth despite external headwinds, particularly in AI and semiconductor design [5][4] - The company anticipates a transitional and muted year in IP due to ongoing challenges [38][10] - A commitment to achieving synergies from the Ansys acquisition remains strong, despite integration challenges [19][66] Other Important Information - The company plans to reduce global headcount by approximately 10% by the end of fiscal year 2026 to enhance efficiency [12][19] - Ansys revenue for Q3 was $78 million, with expectations for continued growth in Q4 [69][15] Q&A Session Summary Question: Can you elaborate on the challenges in the IP business? - Management identified three main challenges: export restrictions affecting China, issues with a major foundry customer, and roadmap/resource allocation decisions that did not yield expected results [22][23] Question: How will the company address the decline in operating margins? - The decline is primarily due to the IP business's revenue headwinds, but the long-term commitment to mid-40% operating margins remains intact [27][31] Question: What is the outlook for the Ansys acquisition? - The integration is progressing well, with no significant surprises, and the company is focused on delivering on revenue synergies [66][67] Question: How does the company plan to manage the transition in the IP business model? - The company is pivoting towards more customized solutions and subsystems, which may require new business models to capture value [47][50] Question: What is the expected impact of the headcount reduction? - The reduction is part of a broader strategy to optimize resources and improve efficiency, which has been planned for some time [91][12]