SYNOPSYS INC (SNPS)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q (this Quarterly Report) includes forward-looking statements, which involve risks, uncertainties and other factors that could cause Synopsys, Inc.'s (Synopsys, we, our or us) actual results, time frames or achievements to differ materially from those expressed or implied in such forward-looking statements. Readers are urged to carefully review and consider the various disclosures regarding these risks and uncertainties made in this Quarterly Report, including those identified below in Part II, Item 1A, Risk Factors, and in other documents we file from time to time with the Securities and Exchange Commission (SEC). Forward-looking statements include any statements that are not statements of historical fact and include, but are not limited to, statements concerning our short-term and long-term financial targets, expectations and objectives; our businesses, business segments, strategies, partnerships, initiatives and opportunities, including, among other things, the reallocation of resources in our Design IP segment to higher growth opportunities and planned restructuring activities; industry growth and technological trends, such as artificial intelligence (AI), including our development and planned commercialization thereof; business and market outlook; the potential impact of the uncertain macroeconomic environment and global economic conditions on our financial results; the impact of current and future U.S. and foreign trade regulations, government actions and regulatory changes, such as export control restrictions and tariffs; the ANSYS, Inc. (Ansys) integration and its expected impact, including expected synergies and the timing thereof, our ability to create joint solutions as a combined company, and related accounting changes; planned acquisitions or divestitures, including the expected completion of the sale of the Processor IP Solutions (Processor IP) business, and their anticipated timing and impact; our key customers, customer concentration, customer engagement, customer demand and market expansion; results and strategies related to our products, technology and services, including product development and our planned product releases and capabilities; the expected realization of our contracted but unsatisfied or partially unsatisfied performance obligations (backlog); planned stock repurchases; our expected tax rate; and the status, expected outcome or expected impact of litigation and/or regulatory investigations. Forward-looking statements may be identified by words including, but not limited to, “may,” “will,” “could,” “would,” “can,” “should,” “anticipate,” “expect,” “intend,” “believe,” “estimate,” “project,” “continue,” “forecast,” "likely," "potential," "seek," or the negatives of such terms and similar expressions. The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. All subsequent written or oral forward-looking statements attributable to Synopsys or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

The following summary and overview of our financial condition and results of operations are qualified in their entirety by the more complete discussions and should be read together with our condensed consolidated financial statements and the related notes thereto contained in Part I, Item 1 of this Quarterly Report, the risk factors set forth in Part II, Item 1A of this Quarterly Report, and with our audited consolidated financial statements and the related notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended October 31, 2025, as filed with the SEC on December 22, 2025 (our Annual Report).

Overview

Financial Performance Summary

For the second quarter of fiscal 2026, our results reflect continued, strong execution and the resiliency of our business, including 42% revenue growth compared to the second quarter of fiscal 2025, primarily due to strength across our business and Ansys' contribution of $652.4 million in revenue, partially offset by weakness in our Design IP segment.

The following table sets forth some of our key quarterly unaudited financial information:

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Financial performance summary for the three months ended April 30, 2026 compared to the same period of fiscal 2025:

•Revenues were $2.3 billion, an increase of $671.7 million or 42%, which includes revenues from Ansys of $652.4 million. The remaining growth came organically due to strength across our business, partially offset by weakness in our Design IP segment.

•Total cost of revenue and operating expenses was $2.2 billion, an increase of $927.8 million or 76%, reflecting $394.2 million of amortization expense related to intangible assets acquired from the acquisition of Ansys (the Ansys Merger), as well as an increase of $244.5 million in employee-related costs primarily due to the headcount increases as a result of the Ansys Merger.

Financial performance summary for the six months ended April 30, 2026 compared to the same period of fiscal 2025:

•Revenues were $4.7 billion, an increase of $1.6 billion or 53%, which includes revenues from Ansys of $1.5 billion. The remaining growth came organically due to strength across our business, partially offset by weakness in our Design IP segment.

•Total cost of revenue and operating expenses was $4.4 billion, an increase of $1.9 billion or 79%, reflecting $788.3 million of amortization expense related to intangible assets acquired from the Ansys Merger, as well as an increase of $594.7 million in employee-related costs primarily due to the headcount increases as a result of the Ansys Merger.

Business Summary

Synopsys delivers industry-leading silicon design, IP, simulation and analysis (S&A) solutions and design services. We partner closely with our customers across a wide range of industries to maximize their R&D capability and productivity, powering innovation today that ignites the ingenuity of tomorrow. For more information about our business segments and product groups, see Part I, Item 1, Business in our Annual Report.

We have consistently grown our revenue since 2005, despite periods of global economic uncertainty. We achieved these results because of our solid execution, leading technologies and strong customer relationships, and because we generally recognize our revenue for software licenses over the arrangement period, which typically approximates two to three years. See Note 2. Summary of Significant Accounting Policies and Basis of Presentation of the Notes to Consolidated Financial Statements in our Annual Report for a discussion on our revenue recognition policy. The revenue we recognize in a particular period generally results from selling efforts in prior periods rather than the current period. As a result, decreases as well as increases in customer spending do not immediately affect our revenue in a significant way.

Our growth strategy is focused on expanding our total addressable market by maximizing the capabilities of R&D teams across industries spanning semiconductor, high-tech, industrial, aerospace, and more with engineering solutions from silicon to systems. Our priorities are to maintain and expand our technology leadership, drive sustainable growth and efficiently scale to accelerate our strategy. Our revenue growth from period to period is expected to vary based on the mix of our time-based and upfront products. Our upfront products have grown at a faster rate than our time-based products in recent periods, which has resulted in, and may in the future result in, increased fluctuation in our business, operating results and overall financial position on a quarterly basis. Such fluctuation may be more pronounced depending on demand from our larger customers. See Part II, Item 1A, Risk Factors, "Our operating results may fluctuate in the future, which may adversely affect our stock price" of this Quarterly Report for further discussion on potential fluctuations in our operating results. Based on our leading

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technologies, customer relationships, business model, diligent expense management, and acquisition strategy, we believe that we will continue to execute our strategies successfully.

Acquisition of Ansys

On July 17, 2025 (the Acquisition Date), we completed our acquisition of ANSYS, Inc. (Ansys) pursuant to the terms of the previously announced Agreement and Plan of Merger, dated as of January 15, 2024 (the Merger Agreement) by and among Synopsys, Ansys and ALTA Acquisition Corp. (Merger Sub), a Delaware corporation and a wholly owned subsidiary of Synopsys (the Ansys Merger). See Note 4. Acquisition of Ansys of the Notes to Condensed Consolidated Financial Statements for more information on the Ansys Merger.

See Part II, Item 1A, Risk Factors for more on risks related to the Ansys Merger.

Impact of the Current Macroeconomic Environment

The current macroeconomic environment reflects the effects of, among other things, changes in U.S. and global trade policy, including the tariffs enacted beginning in 2025 by the U.S. and other governments and subsequent tariff and trade policy revisions, sustained global inflationary pressures and elevated interest rates, potential economic slowdowns or recessions, supply chain disruptions, geopolitical pressures and instability, and fluctuations in foreign exchange rates. This uncertain macroeconomic environment has resulted in increased volatility in global markets. While we have seen continued strength in the artificial intelligence and high-performance computing sectors, certain industries such as industrial, automotive and consumer electronics have experienced more modest growth. The current uncertain macroeconomic environment has led some of our customers to postpone their decision making, delay their drawdowns under non-cancellable commitments, decrease their spending and/or delay their payments to us.

We expect growth across most geographies in fiscal 2026; however, we are expecting a challenging near-term environment, including in China, due to macroeconomic factors and Trade Restrictions (as defined below). See the discussion below under the heading "Impact of Global Trade Policy and the Current Geopolitical Environment" and in Part II, Item 1A, Risk Factors, "We are subject to governmental export and import requirements that could subject us to liability and restrict our ability to sell our products and services, which could impair

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following overview is qualified in its entirety by the more complete discussion contained in this Item 7, the risk factors set forth in Part I, Item 1A of this Form 10-K, and our consolidated financial statements and the notes thereto set forth in Item 8 of this Form 10-K. Please also see the cautionary language at the beginning of Part I of this Annual Report regarding forward-looking statements.

Unless otherwise noted, this Management’s Discussion and Analysis of Financial Condition and Results of Operations does not include the operations of our former Software Integrity business. See Note 3. Discontinued Operations of the Notes to Consolidated Financial Statements in this Annual Report for additional information about the sale of our former Software Integrity business (the Software Integrity Divestiture).

Fiscal 2025 Financial Performance Summary

For fiscal 2025, our results reflect continued, strong execution and the resiliency of our business, including 15% revenue growth compared to fiscal 2024, primarily due to revenue growth across a majority of product groups and geographies and the closing of the Ansys Merger, which contributed $756.6 million in revenue, which was offset by weakness in our business in China, which saw revenue decrease 22% compared to fiscal 2024, excluding Ansys. We saw strength in our Design Automation segment, including strong demand for our hardware products. This was offset by weakness in our Design IP segment, due to several headwinds, including China export control restrictions, such as the Q3 2025 BIS Restrictions (as defined below), which disrupted customer design starts in China, weaker than expected demand from a major foundry customer, and certain roadmap and resource decisions that did not yield their intended results. We have begun taking actions to sharpen our execution and reallocate resources to the highest growth opportunities in our Design IP segment, but expect to see muted growth in fiscal 2026.

The following table sets forth some of our key consolidated financial information for each of our last three fiscal years:

Fiscal 2025 compared to fiscal 2024 financial performance summary

•Revenues were $7.1 billion, an increase of $926.8 million or 15%, which includes revenues from Ansys of $756.6 million. The remaining growth came organically across a majority of products and geographies and was partially offset by the impact of the extra week in the first quarter of fiscal 2024 of approximately $63.2 million, and by weakness in our business in China, which saw revenue decrease 22% compared to fiscal 2024, excluding Ansys, and in our Design IP segment due to several headwinds, including China export control restrictions, such as the Q3 2025 BIS Restrictions, weaker than expected demand from a major foundry customer, and certain roadmap and resource decisions that did not yield their intended results.

•Total cost of revenue and operating expenses was $6.1 billion, an increase of $1.4 billion or 29%, primarily due to an increase of $664.5 million in employee-related costs from headcount increases as a result of the Ansys Merger of $432.1 million and the balance from organic growth, as well as $457.8 million of amortization expense related to intangible assets acquired from the Ansys Merger.

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Fiscal 2024 compared to fiscal 2023 financial performance summary

•Revenues were $6.1 billion, an increase of $809.4 million or 15%, primarily due to revenue growth across all products and geographies.

•Total cost of revenue and operating expenses was $4.8 billion, an increase of $726.9 million or 18%, primarily due to an increase of $325.8 million in employee-related costs resulting from headcount increases through organic growth and acquisitions.

•Operating income was $1.4 billion, an increase of $82.5 million or 6%.

•Net income from discontinued operations was $821.7 million, an increase of $818.9 million, primarily due to the gain on Software Integrity Divestiture.

Business Summary

Synopsys delivers industry-leading silicon design, simulation and analysis (S&A) and IP solutions as well as design services. We partner closely with our customers across a wide range of industries to maximize their R&D capability and productivity, powering innovation today that ignites the ingenuity of tomorrow. For more information about our business segments and product groups, see Part I, Item 1, Business in our Annual Report.

We have consistently grown our revenue since 2005, despite periods of global economic uncertainty. We achieved these results because of our solid execution, leading technologies and strong customer relationships, and because we generally recognize our revenue for software licenses over the arrangement period, which typically approximates two to three years. See Note 2. Summary of Significant Accounting Policies and Basis of Presentation of the Notes to Consolidated Financial Statements in this Annual Report for a discussion on our revenue recognition policy. The revenue we recognize in a particular period generally results from selling efforts in prior periods rather than the current period. As a result, decreases as well as increases in customer spending do not immediately affect our revenue in a significant way.

Our growth strategy is focused on expanding our total addressable market by maximizing the capabilities of R&D teams across industries spanning semiconductor, high-tech, industrial, aerospace, and more with engineering solutions from silicon to systems. Our priorities are to maintain and expand our technology leadership, drive sustainable growth and efficiently scale to accelerate our strategy. Our revenue growth from period to period is expected to vary based on the mix of our time-based and upfront products. Our upfront products have grown at a faster rate than our time-based products in recent periods, which has resulted in, and may in the future result in, increased fluctuation in our business, operating results and overall financial position on a quarterly basis. Such fluctuation may be more pronounced depending on demand from our larger customers. See Part I, Item 1A, Risk Factors, "Our operating results may fluctuate in the future, which may adversely affect our stock price" of this Annual Report for further discussion on potential fluctuations in our operating results. Based on our leading technologies, customer relationships, business model, diligent expense management and acquisition strategy, we believe that we will continue to execute our strategies successfully.

Acquisition of Ansys

On July 17, 2025 (the Acquisition Date), we completed our acquisition of ANSYS, Inc. (Ansys) pursuant to the terms of the previously announced Agreement and Plan of Merger, dated as of January 15, 2024 (the Merger Agreement) by and among Synopsys, Ansys and ALTA Acquisition Corp. (Merger Sub), a Delaware corporation and a wholly owned subsidiary of Synopsys (the Ansys Merger). See Note 4. Business Combinations of the Notes to Consolidated Financial Statements for more information on the Ansys Merger.

For more on risks related to the Ansys Merger, see Part I, Item 1A, Risk Factors, “Risks Related to the Ansys Merger" of this Annual Report.

Impact of the Current Macroeconomic Environment

The current macroeconomic environment, including the effects of, among other things, changes in U.S. and global trade policy, including the tariffs enacted in 2025 by the U.S. and other governments, sustained global inflationary pressures and elevated interest rates, potential economic slowdowns or recessions, supply chain disruptions, geopolitical pressures, and fluctuations in foreign exchange rates, have resulted in increased volatility in global markets. While we have seen continued strength in the artificial intelligence and high-performance computing sectors, certain industries such as industrial, automotive and consumer electronics have recovered more slowly from recent macroeconomic uncertainty. The current uncertain macroeconomic environment has led some of our

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customers to postpone their decision-making, delay their drawdowns under non-cancellable commitments, decrease their spending and/or delay their payments to us.

We expect growth across our geographies in fiscal 2026; however, we are expecting a challenging near-term environment, including in China, due to macroeconomic factors and Trade Restrictions (as defined below). See the discussion below under the heading "Impact of Global Trade Policy and the Current Geopolitical Environment" and in Part I, Item 1A, Risk Factors, "We are subject to governmental export and import requirements that could subject us to liability and restrict our ability to sell our products and services, which could impair our ability to compete in international markets" of this Annual Report for further discussion of the impact of Trade Restrictions, including export control regulations and geopolitical events on Synopsys.

While our time-based model provides stability to our business, operating results and overall financial position, the broader implications of these macroeconomic or geopolitical events, particularly in the long term, remain uncertain. Further, the negative impact of these events or disruptions may be deferred due to our business model. See Part I, Item 1A, Risk Factors, “Uncertainty in the macroeconomic environment, and its potential impact on the semiconductor and electronics industries, may negatively affect our business, operating results and financial condition” and "Our operating results may fluctuate in the future, which may adversely affect our stock price" of this Annual Report for further discussion of the impact of global economic uncertainty on our business, operations and financial condition and potential fluctuations in our operating results, respectively.

See Part I, Item 1A, Risk Factors of this Annual Report for further discussion of the impact of global economic and geopolitical uncertainty on our business, operations and financial condition.

Impact of Global Trade Policy and the Current Geopolitical Environment

We are actively monitoring changes to global trade policy, such as changes to U.S. Export Regulations (as defined below) and developments related to the tariffs enacted by the U.S. government. In fiscal 2025, the U.S. government imposed a number of new and higher U.S. tariffs on imports from countries around the world. Certain countries have responded to the U.S. tariffs by imposing or threatening retaliatory tariffs. There may be additional changes to tariffs or new tariffs and other aspects of global trade policy in fiscal 2026 in the U.S. and other countries due to global trade negotiations and other factors. These changes in global trade policy have not had a material impact on our business, operating results or financial condition to date.

The Bureau of Industry and Security of the U.S. Department of Commerce (BIS) ha

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