Synopsys(SNPS) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported total revenue of $2.41 billion for Q1 2026, at the high end of guidance, primarily due to timing of Ansys deals [15] - Non-GAAP operating margin was 42.1%, and non-GAAP EPS was $3.77, exceeding expectations [13][16] - Backlog ended at $11.3 billion, indicating a strong and resilient business model [13] Business Line Data and Key Metrics Changes - Design Automation segment revenue was approximately $2 billion, with strong growth in hardware-assisted verification [16] - Design IP segment revenue was $407 million, down approximately 6% year-over-year, indicating a transitional year for the business [16] - Ansys revenue was approximately $886 million, reflecting strong demand for system-level digital engineering and multiphysics simulation [15][16] Market Data and Key Metrics Changes - China revenue grew approximately 21% year-over-year due to the inclusion of Ansys, although excluding Ansys, revenue declined slightly [15] - The company noted a robust design start activity for AI compute, while design starts in consumer, automotive, and industrial markets remained subdued [4][5] Company Strategy and Development Direction - The company is focused on delivering technology promises from the integration of Synopsys and Ansys, with a strong emphasis on AI-driven design capabilities [4][12] - The strategy includes advancing technology leadership and focusing on sustainable growth and margin expansion [11][12] - The planned sale of the processor IP solutions business to GlobalFoundries is aimed at sharpening focus on interconnect and foundation IP [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the IP business driven by robust design starts, particularly in the AI segment [24] - The company anticipates continued demand for silicon-to-system solutions, particularly in industries like semiconductors, aerospace, and automotive [6][10] - Management acknowledged challenges in the Chinese market due to geopolitical factors but remains optimistic about the overall demand for their products [68] Other Important Information - The company has replenished its stock repurchase program with authorization to purchase up to $2 billion of common stock [18] - Free cash flow was approximately $822 million in Q1, with total debt at $10 billion [17] Q&A Session Summary Question: Insights on the IP segment and expected growth - Management highlighted confidence in the IP business due to robust design starts and evolving standards, with expectations for a pickup in the second half of the year [24][25] Question: Seasonal trends in bookings and renewal activity - Management noted that backlog is strong at $11.3 billion, and renewal timing can cause fluctuations, but overall confidence remains high [34] Question: AI's impact on the business - Management stated that AI is amplifying their strategic advantage rather than disrupting it, with ongoing developments in AI-driven design capabilities [5][42] Question: Ansys business forecastability - Management expressed confidence in Ansys's ability to service multiple market segments, indicating broad growth opportunities despite accounting variability [44][46] Question: Updates on the NVIDIA partnership - The partnership is focused on GPU acceleration and creating digital twins for physical AI opportunities, with expectations for product delivery in 2026 [90][92]