Synopsys, Inc. (SNPS) Earnings & Analysis

Latest quarter

Synopsys reported Q3 FY2026 revenue of $2.5 billion, up 42.4% from Q3 FY2025. The company’s revenue, as the consensus counts it, was $2.5 billion versus the consensus of $2.4 billion, while adjusted EPS of $3.91 exceeded the $3.67 consensus. Synopsys also said revenue was above its own Q3 guidance.

The filing attributed the year-over-year revenue increase partly to a full quarter of Ansys revenue following the prior-year partial-quarter contribution, as well as broad-based organic strength. Synopsys reported that EDA revenue grew 8.50%, while Design IP returned to year-over-year growth. GAAP diluted EPS was $2.84, compared with $1.50 a year earlier. Gross margin was 72.6%, versus 78.1%, while operating margin was 14.4%, versus 9.50%. Free cash flow was $746.3 million, compared with $632.4 million in Q3 FY2025. The company reported $10.9 billion of backlog at quarter-end.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

Sassine Ghazi said demand was highest among AI and high-performance-computing customers developing specialized chips with multi-die architectures, complex packaging and system requirements. He said this activity was supporting EDA demand, while Synopsys expected EDA growth to accelerate to double digits in Q4 and across FY2026. In response to questions on that outlook, Ghazi cited chip-design complexity, advanced-package 3D IC activity, AI-related engineering changes and record hardware revenue.

Ghazi said Design IP grew sequentially and year over year on AI-infrastructure demand. He described the company’s traditional standards-based IP business as Factory One and said Synopsys was expanding Factory Two, which combines customized IP with engineering expertise for customers developing custom silicon. In response to a question about commercial arrangements, Ghazi said Synopsys was in advanced discussions with customers about moving from license-plus-NRE contracts to license-plus-royalty arrangements, and said he expected to provide further detail at Investor Day.

Ghazi said Synopsys launched Multiphysics Fusion during Q3, combining thermal analysis with the chip-design flow. He said early customer engagements had validated faster design closure and runtime, and that revenue would begin when customers moved into production. Ghazi said the company expected the add-on capabilities to contribute to EDA growth in FY2027 and remained committed to $400 million of Ansys-related synergy in year four.

Shelagh Glaser said Q3 revenue outperformance was driven by EDA and Ansys. She said non-GAAP operating margin reached 41.6% as Synopsys improved operational efficiency and delivered Ansys cost synergies ahead of schedule. Glaser also said backlog was $10.9 billion, modestly lower sequentially because the Processor IP Solutions divestiture closed during the quarter, and that Synopsys had repaid its term loans earlier than planned.

Guidance

Synopsys raised FY2026 revenue guidance to $9.7 billion from $9.6 billion–$9.7 billion and raised non-GAAP EPS guidance to $15.07 from $14.72–$14.80. The company raised expected FY2026 free cash flow to $2.6 billion from $2.0 billion, operating cash flow to $2.8 billion from $2.3 billion, and lowered expected capex to $225.0 million from $300.0 million. It also guided Q4 FY2026 revenue to $2.53 billion to $2.58 billion and non-GAAP EPS to $4.10 to $4.16.