Q1 FY26 Revenue $2.41B at High End (ANSYS $886M Strong Seasonal Quarter); Non-GAAP EPS $3.77 Above Guide; Non-GAAP Op Margin 42.1%; FY26 EPS Guide Raised to $14.38-$14.46; $4.3B Term Loans Fully Repaid; $2B Buyback Reauthorized; ARC Processor IP to GlobalFoundries — Maintaining Hold

Coverage Update from Q4

We upgraded back to Hold three months ago at ~$480 with a $450-$580 fair value range, citing the FY26 framework + NVIDIA partnership + debt paydown trajectory as reasons to remove the Underperform rating. The Q1 print delivers cleanly on the framework: revenue at high end of guide, EPS above guide, term loans fully repaid (ahead of plan), $2B buyback reauthorized, ANSYS strong, IP transition in line with expectations. The thesis we wrote at upgrade is materializing. We maintain Hold because: (1) IP segment continues in transition (FY26 muted growth as flagged), (2) joint solutions monetization is FY27 catalyst, (3) China headwinds persist, (4) stock has rerated back from $430 lows to $520 — closer to fair value. Path to Outperform requires evidence of IP recovery acceleration + joint solutions monetization visibility.

Results vs. Consensus

Q1 FY26 Scorecard

Year-over-Year & Q4-to-Q1 Comparison

Quality-of-Beat Callout

Revenue / Margin / Cash Assessment

Q1 revenue $2.41B (+65% YoY incl. ANSYS). Ex-ANSYS ($886M), organic Synopsys revenue ~$1.52B (+4% YoY) — reflecting the muted IP profile + China decline + DA strength.

ANSYS Q1 $886M — strong seasonal quarter. Q1 reflects December historical strength + ANSYS sales team transitioning into Synopsys fiscal calendar. This was the largest ANSYS quarter in recent history. FY26 guide of $2.9B at midpoint implies remaining ~$2.0B over Q2-Q4 (~$680M/qtr average).

Non-GAAP op margin 42.1% — +140bp YoY despite IP transition. The combination of ANSYS strong contribution (higher op margin) + cost synergy realization + opex discipline drives the result. Q2 implied op margin ~37% as revenue declines sequentially (ANSYS seasonality reverses).

Non-GAAP EPS $3.77 (+6% YoY) — above $3.52-$3.58 guide. Drivers: revenue at high end + lower expenses + lower interest expense as term loans repaid. FY26 EPS guide raised $0.06 to $14.38-$14.46.

FCF $822M Q1 — well above plan. Collection timing + ANSYS first full quarter contribution. Cash $2.2B; debt $10.0B (term loans fully repaid). Capital structure significantly improved.

Capital Structure & Buyback Authorization

Capital allocation milestones in Q1:

• Term loans fully repaid: $4.3B in term loans associated with ANSYS acquisition fully paid off. Original plan was to prepay throughout FY26; achieved at end of Q1 — well ahead of plan.
• Remaining debt $10B: Outstanding debt now primarily long-term notes (the $10B bond issued in Q2 FY25). No further required principal payments until FY27-FY28.
• $2B buyback authorization: Board reauthorized the buyback program. Sassine/Shelagh framing: capital allocation priority is (1) business investment first, (2) opportunistic share repurchases, (3) paying down remaining debt.
• Cash $2.2B: Down from $2.96B Q4 due to debt repayment. Strong operating cash generation supports continued flexibility.

Assessment: The capital structure transformation is largely complete. From $30M debt entering FY25 to $14.3B at peak Q3 FY25 to $10B post Q1 FY26 — Synopsys absorbed and amortized the ANSYS funding rapidly. The $2B buyback reauthorization signals confidence in cash generation. With ~$1.9B annual FCF expected, capital return + remaining debt service is well-funded.

ARC Processor IP Divestiture

Q1 saw the announcement of the planned sale of Synopsys' ARC processor IP solutions business to GlobalFoundries. This is the third major portfolio rationalization move (after Optical Solutions Group and PowerArtist in Q4 FY25).

Rationale

ARC processor IP — embedded processor cores — has gone through multiple transitions (RISC-V ISA architecture migration, etc.). Many customers are increasingly developing their own processor IP using Synopsys EDA + hardware verification tools. Synopsys is sharpening focus on:

• Interconnect IP: PCIe (now 8.0), UCIe, 224-gig SerDes, HBM, LPDDR6
• Foundation IP: Standard library + custom cells

"The ARC business went through a couple of transformations from the ARC itself architecture to the RISC-V ISA architecture. And what we are seeing is many of our customers are developing their own processor IP using, for the most part, our software, EDA software to design and verify using the EDA software, our hardware portfolio, etc., to develop their own processor for all kind of embedded applications, which is still a great opportunity for Synopsys. … From an IP point of view, we believe when we look at our broad IP business and the portfolio we have, there's a much bigger opportunity and the growth opportunity for the interface IP."
— Sassine Ghazi, CEO

Assessment: The ARC divestiture is the third clean portfolio move and signals Synopsys' continued discipline in IP focus. ARC is in Q1 FY26 financials until close — small contribution to overall FY26 revenue. The strategic clarity is positive.

Segment / Product Detail

Design Automation — $2.0B (incl. ANSYS)

Hardware-Assisted Verification — Marquee Wins

Continued strong demand. Q1 highlight: marquee emulation win versus the incumbent at a leading AI HPC customer. Growing demand for software-defined, configurable systems supporting both emulation + prototyping. Synopsys is positioned to capture the expanding digital twin opportunity across industries.

EDA Software — Synopsys.ai Productivity Gains

Major semi + hyperscale customers using Synopsys.ai have seen:

• Up to 50% faster knowledge assistance
• Up to 70% faster workflow assistance
• Up to 5x faster formal test bench generation

Agent engineer technology advancing rapidly with multiple customer engagements (design + verification agents).

Multi-Die Leadership

Multi-die momentum accelerated with 3DIC Compiler platform adoption growing among leading semiconductor + foundry customers. Combined with industry-leading multiphysics analysis (ANSYS) for signal/power integrity + thermal efficiency + design convergence.

Advanced Node Design Wins

100% Synopsys digital flow usage on critical 2-nanometer and below tape-outs. Including Fusion Compiler and PrimeTime. Synopsys' design technology co-optimization (DTCO) with foundries is the structural advantage at leading edge.

ANSYS Strong Performance

ANSYS Q1 $886M reflects:

• December historical seasonal strength for ANSYS (now falls in Synopsys Q1)
• Large multi-year agreements across aerospace, hyperscale, industrial, automotive
• Now supports 90%+ of top 100 automotive suppliers
• CES January showcase with Audi: reduced physical prototyping, shorter development cycles
• AI-enabled design flows demand growing

Sassine: "Our confidence in this business is only increasing as global demand for electrification, autonomy, digital twins, advanced semiconductor design and mission engineering remains resilient and expanding."

Design IP — $407M (-6% YoY) — In Line with Transition Expectations

IP performed in line with FY26 muted-growth framework. Notable Q1 wins:

• 40+ PCIe design wins (HPC + automotive customers)
• Industry-first PCIe 8.0 demonstration
• First-to-market 224 gig SerDes on advanced nodes (10 lifetime wins)

IP strategy:

• One-generation-ahead approach maintained
• Focus on interconnect + foundation IP (sharpened by ARC divestiture)
• Multi-foundry support to enable customer foundry optionality
• Standards evolving at unprecedented pace (now 2-3 year cycles vs 3-4 year historical)

Q1 IP backlog supports back-half FY26 weighting per CFO. Engineering team progressing on roadmap delivery for HPC titles. Sequential improvement expected through Q2-Q4 FY26.

FY26 Framework Update

FY26 framework reiterated with modest EPS raise from lower interest expense + Q1 outperformance. FY26 H1/H2 split 48/52% revenue, 46/54% EPS as previously framed.

Key Topics & Management Commentary

1. 40th Anniversary Year — Strong Start

Synopsys' 40th anniversary year (founded 1986). Sassine framed as off to a strong start with operational excellence, financial discipline, and "the most competitive compelling road map ever."

2. ARC Processor IP Divestiture

Sold to GlobalFoundries. Sharpens IP focus on interconnect + foundation IP. Third major portfolio rationalization after OSG + PowerArtist.

3. Term Loans Fully Repaid

$4.3B in term loans completely paid off in Q1 — ahead of original FY26 plan. Capital structure transformation largely complete.

4. $2B Buyback Reauthorized

Board reauthorized up to $2B in stock repurchases. Capital allocation priority: business → buybacks → remaining debt.

5. AI Disruption Thesis Addressed

"AI's rapid progress is also prompting healthy debate about whether it will disrupt established software companies. Let me explain why we're different. Our deep tech solutions power the world's most complex engineering efforts. Synopsys decades of deep domain expertise, proprietary code basis and solvers and native foundry design technology co-optimization deliver optimal deterministic silicon-proven results that probabilistic AI models do not replicate, while AI will transform engineering software, Synopsys is already leading that transformation."
— Sassine Ghazi, CEO

6. Synopsys Converge Conference Preview

Synopsys Converge (combined Synopsys + ANSYS user conference) scheduled for early March 2026. Will showcase joint solutions + agentic AI roadmap + customer adoption.

7. Joint Solutions H1 FY26 Delivery

First Synopsys + ANSYS joint solutions targeted for H1 FY26 release. Monetization expected to begin in FY27 as customer adoption ramps.

8. NVIDIA Partnership Maturing

Joint R&D delivering GPU-accelerated products on track for FY26 release. Multiple products in pipeline (Proteus already; expanding to others). Omniverse integration progressing.

9. ANSYS Integration Well Underway

"It's great how our teams have come together at pace to solve engineering's biggest challenges. We'll have a lot more to say and show at Synopsys Converge in March."
— Sassine Ghazi, CEO

10. World Economic Forum Honor with AMD

Synopsys received WEF honors for AI-accelerated chip design work with AMD — concrete validation of Synopsys.ai impact.

Analyst Q&A

IP segment back-half weighting + visibility

Q: "So the first one, I want to dig a little bit more into the IP segment. Thanks for the commentary, muted growth for the year, but sequential improvement from here for the remainder of the year, but it does look to me that the second half IP revenue should see some pickup. … wondering what gives the confidence on the second half IP business, the pickup?"
— Charles Shi, Needham & Company

A: "The confidence in our IP business is driven by the design starts. As I mentioned in the prepared remarks, for the AI segment, the design starts remain very robust. And that's where we engage the customers early and have the opportunity to sell the IP as a portfolio with the various needs that these customers have. … The other aspect that has changed over the last number of years is the pace and time in which these standards are evolving, where historically, the standard life used to be 3 to 4 years. Right now, it's about half that time. … as far as the second half, as we have communicated a number of quarters ago that we have some work to do on some of the schedule on delivering on a few of the titles, and we're on track to deliver to that."
— Sassine Ghazi, CEO

RPO trajectory + bookings seasonality

Q: "Maybe this is a question for Shelagh, but I noticed the RPOs are down modestly on a sequential basis. And it's clear that the fourth quarter of last year was a strong bookings quarter. So maybe if you could speak to the seasonality of the bookings as you see it unfold for the balance of this fiscal year."
— Gary Mobley, Loop Capital Markets

A: "Well, as you know, it's an ebb and flow of building and consuming backlog. We feel great. We are sitting at $11.3 billion of backlog. So we've got a strong understanding of what our customer demands are and what we need to deliver to them. And as you say, that just kind of ebbs and flows with the renewal timing. So there's nothing about backlog that does anything other than give us confidence sitting at $11.3 billion."
— Shelagh Glaser, CFO

Agentic AI orchestration + data + traceability

Q: "You began your remarks by noting how AI could be variously constructive to your business rather than disruptive. … I'd like to ask about 3 ingredients that you might have to execute upon to make sure that continues to be the case. We hear a lot, for example, about orchestration requirements across Agentic AI. … Secondly, data repository across a broad apps portfolio that you now have. And then finally, traceability, particularly for simulation."
— Jay Vleeschhouwer, Griffin Securities

A: "If you recall, last year at Converge, we put our road map for agent engineers. … in that road map, we mapped out L1 through L5, where L1, think of it as a reinforcement learning applied to every aspect of the technology that we offer. In L2, where we have what we call a task agent, an L3 into orchestration of these agents and L5 and then L4 into the planning. … what stitches all of that together is a visibility and continuum of data, exactly the second point that you're mentioning. And then, of course, the traceability, visibility into the accuracy of the verification because at the end of the day, what we do, our agents cannot hallucinate. They have to be 100% accurate."
— Sassine Ghazi, CEO

ARC processor IP divestiture rationale

Q: "Sassine, I wanted to ask about the ARC processor business that you're divesting. So I understand portfolio review and you're sharpening your focus in other areas. But presumably, this was a core part of your portfolio before and should be well positioned for physical AI. If physical AI is such a big opportunity on the come, maybe it's not a growth driver today, but could be. I guess, why the rationale on the divestiture?"
— Jason Celino, KeyBanc Capital Markets

A: "The ARC business went through a couple of transformations from the ARC itself architecture to the RISC-V ISA architecture. And what we are seeing is many of our customers are developing their own processor IP using, for the most part, our software, EDA software to design and verify using the EDA software, our hardware portfolio, etc., to develop their own processor for all kind of embedded applications, which is still a great opportunity for Synopsys. … From an IP point of view, we believe when we look at our broad IP business and the portfolio we have, there's a much bigger opportunity and the growth opportunity for the interface IP."
— Sassine Ghazi, CEO

ANSYS revenue + cost synergies progression

Q: "You closed ANSYS in July last year. What have you noticed by way of cost or revenue synergies thus far for fiscal '26 as been speaking with customers on joint Synopsys ANSYS products?"
— Vivek Arya (Liam Pharr), Bank of America

A: "What we communicated was the first half of '26 will be when we delivered the first wave of the joint solutions. And I'm looking really forward to communicating at Converge … the rollout of a number of the joint solutions with clear visibility to which market, which customer. And then, of course, once you release a product, you focus on the customer adoption and monetization. And we are anticipating the monetization of the joint solution to start in FY '27 with quite a bit of excitement from our customers to solve real problems."
— Sassine Ghazi, CEO

"The teams are already trained on cross-selling, so existing products, so Synopsys sales team being able to sell ANSYS products, ANSYS sales team being able to sell Synopsys products. So we're well underway in that. And we do have revenue this year. We haven't given specific amounts. Our commit is $400 million in revenue synergies run rate by year 4 … In terms of cost synergies, our commit was $400 million run rate by year 3. We're well underway accelerating that. And as you — as we've worked through, we're working on accelerating that into year 1 and year 2, which is 2026."
— Shelagh Glaser, CFO

China dynamics + competition

Q: "I want to go a little deeper on China. I understand it remains challenging. But what are the puts and takes around it being flat or even growing year-over-year this year? And have you seen any change in the competitive landscape against a peer who continues to see a healthy design activity environment there?"
— Vivek Arya (Liam Pharr), Bank of America

A: "China for the quarter, for Q1 performed in line with expectations. As we mentioned as well in the prepared remarks, the classic Synopsys was down slightly, whereas Ansys portfolio performed fairly well. Now the reason you're seeing that mix per se in the performance is the cumulative impact of the restrictions, both in entity list and technology are truly having an impact on our customer commitment and demand. The reason it impacts Synopsys in a greater way, I want to say, is the mix in our portfolio. We have a leadership position in our IP business that part of the business in China, customers may decide not to go for an external foundry and look at the domestic foundry."
— Sassine Ghazi, CEO

IP timing risk + competitive pressure

Q: "So I understand that Synopsys is a leader in interconnect IP with PCIe 8 [ 224 Certus ]. But the company is also late in terms of IP delivery. Is there a risk that Synopsys may miss customer design starts or customers may shift away from using the IP that Synopsys has developed?"
— Kelsey Chia, Citi

A: "It depends. And let me explain why it depends. What we sell to is a customer schedule. Customers' engagement starts with aligning what we have to when do they need the IP and their tape-out. So a number of the one that you mentioned, the PCIe or the 224, I'll expand it into an HBM, LPDDR, UCIe, which are all titles that customers need in order to design a high-end HPC chip. And for a number of those customers, we are engaged with selling that whole portfolio based on aligning the schedule."
— Sassine Ghazi, CEO

Agentic monetization business model

Q: "We did hear from a peer last week that the monetization perhaps on Agentic Play would come on a value-based basis, perhaps even on a token-based basis. I wonder if you guys had looked at doing things on that similar format and whether or not this business could — and I'm talking about Agent engineer here, whether or not that could be margin accretive from day 1."
— Lee Simpson, Morgan Stanley

A: "On the Agentic, as we communicated about a year ago when we introduced the agent engineer is that the workflow will change. The moment. The workflow will change, it's an opportunity for us to adjust the monetization based on value. So yes, what you commented on will value-based be in consideration? Absolutely. That's what we've been communicating for about a year now that the workflow will change and there will be a monetization adjustment and the customers, by the way, they are very receptive for that conversation because they understand that they have to change as the workflow changes."
— Sassine Ghazi, CEO

NVIDIA partnership progress

Q: "I want to switch to your NVIDIA partnership that you announced recently. There was a big investment from NVIDIA. I'm wondering how that partnership coming along? And how should we see about the product priorities evolve and how you think about the monetization there?"
— Sitikantha Panigrahi, Mizuho

A: "This is not a press release partnership. It's a deep commitment from both companies that we both saw a market opportunity that we want to accelerate and capture. And it comes in 2 forms. The first form is a road map we communicated on bringing a number of our products, EDA as well as the legacy ANSYS products into GPU acceleration and delivering the multiples of acceleration that is — that we set as a target and a goal between the 2 companies. So we have a joint R&D working on these products with an expectation to deliver a number of them in '26. And that will come with an upside in a business model, meaning if you're using a product A from Synopsys running on a CPU, that will continue — that road map will continue, and we'll have a parallel product of that product A running on a GPU. And if it's delivering 15, 20x, then there's an uplift for that value we're delivering to the customer."
— Sassine Ghazi, CEO

FY27+ growth outlook

Q: "Sassine, I think the words you used were 2026 is the year that you begin to deliver on the technology promise of Synopsys plus ANSYS. … when you guys do deliver on this technology promise in 2026, what does it mean for the direction of growth for your business in '27 and beyond?"
— Joshua Tilton, Wolfe Research

A: "As far as the long-term growth view, it has not changed on EDA double digits, on IP, mid-teens as well as on the simulation and analysis, it's a double-digit growth. So that puts the company as a whole in a double-digit growth opportunity driven by the demand and the leadership we have in our portfolio. … 2026 is the year where we begin delivering on our technology and the value promises, there are, today, problems are not being solved with the current offering that the industry is providing the customers. And when we talk about the joint solutions, how to bring in physics analysis into the design phase when you're designing a multi-die system."
— Sassine Ghazi, CEO

What They're Not Saying

• Specific ARC divestiture financials. Size of ARC business + sale price not disclosed.
• Joint solutions specific products. "First wave" coming H1 FY26 but no specific product names yet.
• Joint solutions monetization timing. FY27 expected start but no revenue targets.
• FY27 framework. "Long-term double-digit" reiterated but no specific FY27 numbers.
• NVIDIA partnership revenue contribution. Product roadmap detailed but financial impact undefined.
• Buyback execution timing. $2B authorization in place but no specific pacing.

Market Reaction

• Pre-print (Feb 24 close): ~$505. Stock had drifted up from Q4 close on Synopsys Converge anticipation.
• Day-of (Feb 25): Print landed after-hours. Initial reaction +3% on Q1 beat + buyback + debt paydown completion + EPS guide raise.
• Day-after (Feb 26): Stock closed ~$520 (+3%). Volume ~2.5M shares (~1.3x 30-day average).
• Peers (Feb 26): Cadence (CDNS) +1%; KLA flat; semis mixed.
• Sell-side flow: Several PT raises into $540-$600 range. Bull narrative around capital structure repair + cost synergy acceleration + ANSYS strong + buyback reauthorization. Bears focused on IP transition + China headwinds + valuation.

Interpretive read: The market processed Q1 as confirmation that the recovery from Q3 disappointment is on track. Stock at ~$520 reflects the rerate back toward fair value. The next catalysts: Synopsys Converge (March) for joint solutions visibility; Q2 print for IP trajectory; H1 FY26 close for joint solutions delivery.

Street Perspective

Debate 1: Can FY27 reaccelerate to double-digit growth?

Bull view: Joint Synopsys + ANSYS solutions start monetizing in FY27. IP transition stabilizes by mid-FY26 + recovers in FY27. ANSYS continues growing double-digit. EDA double-digit returns as China stabilizes + joint solutions monetize.

Bear view: Multiple dependencies — joint solutions execution, IP recovery, China stabilization — all need to hit. Realistic FY27 growth more likely mid-to-high single digits.

Our take: FY27 framework will be a December 2026 catalyst. Visible drivers support reacceleration but timing depends on multiple execution items. We model FY27 ~+10% growth — between bear and bull.

Debate 2: Is the IP segment poised to recover?

Bull view: Roadmap pivots in flight. Strong design wins (PCIe 8.0, 224 gig SerDes first-to-market). Sequential improvement framework on track. Long-term mid-teens achievable from FY27.

Bear view: Op margin at 16% reflects continued investment + revenue weakness. Foundry customer overhang persists. China BIS impact ongoing.

Our take: IP transition stabilizing — flat sequential Q1 to Q4 is positive signal. FY26 muted but trending toward FY27 recovery. Operating margin should expand as revenue scales.

Debate 3: Capital allocation framework + buyback execution

Bull view: $2B buyback + accelerated debt paydown demonstrates disciplined capital allocation. With FCF $1.9B+ annually, the framework supports both incremental capital return + remaining debt service.

Bear view: Buyback authorization doesn't mean execution. Synopsys historically slow on buyback execution.

Our take: The framework is reasonable. We model $500M-$1B in actual buyback execution FY26 + continued debt service.

Model Implications & Thesis Scorecard

Model Update

• FY26 estimates: Revenue $9.61B (+36% YoY incl. full ANSYS); EPS $14.42 midpoint of raised guide; op margin 40.5%
• FY27 estimates: Revenue $10.5-11B (+10%); EPS $16-17; op margin 41-42%
• FY28 estimates: Revenue $11.5-12.5B (+12%); EPS $18-20
• Long-term: Combined platform mid-40s op margin by FY28-29

Thesis Scorecard

Rating & Action

Maintaining Hold. Q1 confirms the FY26 framework is reasonable and execution is on track. Strong operating performance (margin +160bp above FY guide), capital structure repair complete (term loans repaid), buyback reauthorization, ANSYS strong, IP stabilizing. The thesis we wrote at Q4 upgrade is materializing. We maintain Hold (rather than upgrade to Outperform) because:

1. IP segment still in transition. FY26 muted growth as framed; back-half weighting; FY27 catalysts depend on roadmap delivery + customer adoption
2. Joint solutions monetization is FY27 catalyst. First wave delivery H1 FY26 but revenue contribution is FY27 story
3. China headwinds persist. Ex-ANSYS China declined YoY; structural challenges continue
4. Stock has recovered. $520 vs Q3 lows of $430 — rerated back to upper-middle of fair value range
5. FY27 framework dependent on multiple execution items. Need Synopsys Converge + Q2/Q3 prints to validate FY27 trajectory

Fair value range: $480-$580 (modestly narrowed from $450-$580). Stock at ~$520 sits in the upper-middle of our range. We re-evaluate up to Outperform on (a) Synopsys Converge delivering credible joint solutions visibility + customer engagement, (b) Q2/Q3 prints confirming IP sequential improvement, (c) FY27 framework formalization in December showing return to double-digit growth. We re-evaluate down on (a) IP transition extending into FY27, (b) China BIS expansion materializing, (c) FY26 framework slippage.

Key watch items into Q2 FY26:

• Synopsys Converge (March 2026) — joint solutions roadmap + customer engagement
• Q2 FY26 print — IP sequential trajectory; ANSYS post-seasonal performance
• First joint solutions delivery in H1 FY26
• Buyback execution pace
• NVIDIA partnership customer engagement signals
• ARC divestiture close timing
• China revenue trajectory
• FY27 framework signals (typically previewed Q4 FY26 print)