Synopsys(SNPS) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q3 revenue reached $1.74 billion, representing a 14% year-over-year increase, with non-GAAP EPS at $3.39 [5][16] - Non-GAAP operating margin was 38.5%, while GAAP earnings per share were $1.50 [17] - Backlog stood at $10.1 billion, indicating business resilience despite challenges [16] 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] - Adjusted operating margin for design automation was 44.5%, while design IP's adjusted operating margin was 20.1% [17] Market Data and Key Metrics Changes - Strong performance was noted in Europe and North America, while challenges persisted in China [16] - 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 [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 [14][21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth despite external headwinds, particularly in AI and semiconductor design [7][8] - The company is taking a cautious view for Q4 while still expecting a record revenue year [7][16] - Management acknowledged the challenges in the IP business and the need for resource reallocation [5][40] Other Important Information - The integration of Ansys is progressing, with no significant surprises reported post-acquisition [66] - The company is focused on delivering synergies from the merger despite delays in divestitures [21][66] Q&A Session Summary Question: Challenges around the IP business - Management identified three main challenges: export restrictions in China, issues with a major foundry customer, and roadmap/resource allocation decisions [24][25] Question: Impact on operating margins - The decline in operating margins is primarily due to the underperformance in the IP business, with a commitment to long-term targets in the mid-40% range [30][33] Question: Ansys acquisition revenue expectations - Ansys revenue was $78 million in Q3, with expectations for stronger performance in Q4, although only one month of revenue will be included [68][69] Question: Future business models for IP - Discussions are ongoing regarding potential changes to business models, including royalties, to capture value from increased customization demands [57][58] Question: Headcount reduction rationale - The planned headcount reduction was part of a strategic review and not solely a reaction to current IP challenges [88][89]