Synopsys, Inc.

As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Tushar Jain, Investor Relations. Please go ahead.

Good afternoon, everyone. With us today are Saseen Ghazi, President and CEO of Synopsys, and Sheila Glazer, CFO. Before we begin, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts, targets, and other forward-looking statements. regarding the company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release. Pursuant to the close of the ANSYS acquisition on July 17th, our results include roughly two weeks of ANSYS financials. As shown in today's financial statements, the vast majority of ANSYS revenue appears under the simulation and analysis product group, with the remainder included under EDA. In addition, we will refer to certain non-GAAP financial measures during this discussion. Reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release, financial supplement, and 8K that we released earlier today. All of these items, plus the most recent investor presentation, are available on our website at www.synopsys.com. In addition, the prepared remarks will be posted on our website at the conclusion of the call. With that, I'll turn the call over to Saseen Ghazi. Good afternoon.

Q3 was a transformational milestone quarter for Synopsys. Against an unprecedented and challenging geopolitical backdrop, we closed the ANSYS acquisition, expanding our revenue, our customer base, and our long-term opportunity. We delivered third-quarter revenue of $1.74 billion and non-gap EPS of $3.39. Our results were primarily impacted by underperformance in the IT business as we had the expectation of deals that did not materialize, driven largely by the following three factors. One, new export restrictions disrupted design starts in China, compounding China weakness. Two, challenges at a major foundry customer are also having a sizable impact on the year. And finally, we made certain roadmap and resource decisions that did not yield their intended results. We are actively pivoting our IP resources and roadmap towards the highest growth opportunities, which I'll discuss in more detail. Looking ahead, we believe we have de-risked our forecast, knowing that transformation takes time and the external headwinds I cited will continue. We are taking a more cautious view of Q4 while still expecting to deliver a record revenue year. Let me provide more color on our Q3 execution and the actions we're taking to accelerate our strategy before Sheila covers the financials in more detail. Zooming out, AI continues to drive unprecedented investment in infrastructure and R&D. Demand for high-performance computing and AI applications continues, while semiconductor demand in markets like industrial and automotive remains subdued. Despite the uncertainties and industry dynamics that we must navigate, I remain very optimistic about Synopsys' future. The increasing complexity, cost, and time to market pressure of designing and delivering AI-powered systems is a trend that persists across industries and underpins our opportunity. Now more than ever, we believe Synopsys will be a mission-critical partner in addressing these challenges. Adding ANSYS gold standard simulation and analysis solutions to our portfolio dramatically expands our long-term growth opportunity. We are now not only the EDA leader, we are the global leader in engineering solutions from silicon to systems. This acquisition marks a significant milestone for not only Synopsys, but also our customers and the industry. As products evolve into more sophisticated intelligent systems, their designs grow increasingly complex while development cycles continue to accelerate. The rise of physical AI underscores the importance of our combined expertise. R&D teams must not only optimize product design for performance and efficiency, but also consider the real-world interactions of these products. That's why, for example, we're embedding NVIDIA Omniverse technology into our Ansys simulation solutions, making it easier to develop, train, test, and validate autonomous systems with greater speed and confidence. Not only can we deliver new innovation, with ENSYS now part of Synopsys, we have diversified our portfolio and our global customer base. Together, we will maximize the capabilities of engineering teams across industries, from semiconductor to automotive, industrial, aerospace, and beyond. enabling them all to rapidly innovate AI-powered products. Let's move on to business highlights. Design automation revenue, inclusive of NSYS products, was up 23% year-over-year, led by strength in hardware, as the complexity of designing silicon for AI workloads drives demand for synopsis-powerful emulation and prototyping solutions. In Q3, we achieved multiple competitive wins with leading hyperscalers and shipped record Zibu Server 5 and HAPS 200 Zibu 200 units. EDA continues to demonstrate resiliency. Our Q3 results reinforce our leadership in next-generation chip design. Synopsys continues to win competitive bids for full-flow digital implementations. including a multi-year commitment with a leading AI customer. Synopsys sign-off and extraction platforms also continue to set the industry standard with broader customer deployments and successful tape-outs on advanced designs. Synopsys' leading AI capabilities are a key differentiator. Today, roughly 20 customers are broadly piloting Synopsys.AI GenAI-powered capabilities. These capabilities paved the way for agent-engineered technology. We believe the evolution of AI from a helper to a doer will truly transform engineering workflows. Multi-die momentum also continued in Q3. We enabled multiple successful multi-die tape-outs, for leading AI semi-companies. Customers are enthusiastic about the promise of integrating our semiconductor timing and power sign-off capabilities with ENSYS gold standard of thermal sign-off. And we expect to deliver our first fully integrated solution in the first half of next year. I'll turn now to simulation and analysis products which empower users to build and test products virtually. These solutions represent the largest portion of our NCIS acquisition and performed in line with our expectations for the quarter. As is typically the case, the largest contributors were in the high-tech aerospace and automotive verticals. In Q3, We released ANSYS 2025 R2, providing customers access to groundbreaking advancements in AI-driven simulation, GPU acceleration, system-level modeling, and cloud computing. These newly released products extend Synopsys AI leadership into simulation and analysis to help customers more efficiently develop and deliver their innovations. Turning to design IP, which was down 8% year over year due to the headwinds I previously mentioned. Again, we need to pivot our IP resources and roadmap to the highest growth opportunities. These changes are already underway. Let me give some context. Zooming out, evolving data center architectures particularly those focused on AI, are accelerating the demand for faster data movement. This trend is driving strong demand for high speed protocol IP and solutions that enable both scaling up and scaling out of large scale systems. At the same time, the semiconductor and IP landscape is undergoing profound change. What was once a business rooted in individual IP licensing is rapidly evolving. The industry is increasingly requiring more sophisticated subsystems and chiplet-based solutions to combat complexity and accelerate time to market. In summary, our high-performance, silicon-proven IP portfolio positions us as the leader in the fast-growing interface IP market. We support a broad spectrum of applications, including HPC, Edge AI, automotive, mobile, and consumer. By retargeting our resources and portfolio toward higher value solutions, we are further strengthening our leadership in advanced interface and foundation IP. Before handing over to Sheila, I want to address the company-wide steps we're taking to achieve greater scale and efficiency to accelerate our silicon-to-systems strategy and drive long-term growth. Synopsys transformation, which began with the divestiture of the software integrity group, followed by our strategic acquisition of ANSYS continues. Specifically, We are conducting a strategic portfolio review and will be taking actions to focus our investments and our execution on the highest growth opportunities. We look forward to delivering with ANSYS a differentiated design solutions roadmap and remain firmly committed to realizing the projected synergies of the merger. In addition, Our enterprise-wide initiative to develop and deploy custom gen AI is boosting productivity. We will continue harnessing AI efficiencies to optimize our cost structure. Taken together, we expect to undertake related actions starting soon that will reduce our global headcount roughly 10% by the end of fiscal year 2026. A few closing thoughts. Synopsys is transforming. With Ansys, we are now the leader in engineering solutions from silicon to systems. We've expanded our opportunity, broadened our portfolio, and increased the resiliency of our business. We remain focused on maintaining our leadership position while pioneering new solutions that will shape the next wave of innovation. Near term, we are deeply committed to prioritizing our IP execution and improving our efficiency to scale the business, accelerate our strategy, and capitalize on the highest growth opportunities. Thank you to our employees, customers, and partners for your continued commitment. Engineering is undergoing unprecedented transformation and Synopsys is seizing the opportunity to re-engineer engineering. Now, over to Sheila.