SNPS -- FQ2 FY2026 Earnings Review

| Metric | FQ2 FY24 | FQ3 FY24 | FQ4 FY24 | FQ1 FY25 | FQ2 FY25 | FQ3 FY25 | FQ4 FY25 | FQ1 FY26 | FQ2 FY26 | |--------|----------|----------|----------|----------|----------|----------|----------|----------|--------------| | Total Revenue ($M) | $1,455 | $1,526 | $1,636 | $1,455 | $1,604 | $1,740 | $2,255 | $2,409 | $2,276 | | Total Rev YoY % | -- | -- | -- | -- | +10.3% | +14.0% | +37.8% | +65.5% | +41.9% | | Design Automation Rev ($M)¹ | $1,055 | $1,063 | $1,118 | $1,020 | $1,122 | $1,312 | $1,848 | $2,002 | $1,822 | | DA YoY % | -- | -- | -- | -- | +6.4% | +23.4% | +65.3% | +96.2% | +62.4% | | Design IP Rev ($M) | $400 | $463 | $518 | $435 | $482 | $428 | $407 | $407 | $454 | | Design IP YoY % | -- | -- | -- | -- | +20.6% | -7.6% | -21.4% | -6.4% | -5.8% | | DA Adj Op Margin | 40% | 41% | -- | 40% | 41% | 44% | -- | 47% | 43.3% | | Design IP Adj Op Margin | 31% | 37% | -- | 29% | 31% | 20% | -- | 16% | 24.4% | | Recurring Rev (% Total) | 81% | 78% | 76% | 80% | 73% | 75% | 81% | 84% | 83% | | Non-GAAP Op Margin | 37.3% | 40.0% | 36.9% | 36.5% | 38.0% | 38.5% | 36.5% | 42.1% | 39.5% | | GAAP Op Margin | 22.8% | 23.6% | 19.0% | 17.3% | 23.5% | 9.5% | 5.4% | 8.4% | 5.3% |

¹Design Automation segment includes ANSYS revenue from FQ4 FY25 forward following merger close.

Trajectory verdict: A two-track print. EDA (core Design Automation organic) accelerating from ~+6% to +8% YoY, with hardware-assisted verification a standout driver — directly correlated with hyperscaler chip development. But Design IP has now decelerated for three consecutive quarters (from +20% in FQ2 FY25 to -6% now), and the segment margin has been volatile (31% → 20% → 16% → 24%). The Q2 IP sequential rebound (+12% QoQ) reads as customer mix recovery rather than secular re-acceleration. ANSYS integration is the bright spot: DA margin holding ~43% despite absorbing a lower-margin business says synergies are landing on schedule.

Data sourced from Daloopa

| Metric | Prior Guide Midpoint | Actual | Variance | Beat/Miss | |--------|---------------------|--------|----------|-----------| | Revenue ($M) | $2,240-2,270 (mid ~$2,255) | $2,276 | +$21 | BEAT +0.9% | | Non-GAAP Op Margin | ~38.5% | 39.5% | +100bps | BEAT | | Non-GAAP EPS | ~$3.20 | $3.35 | +$0.15 | BEAT +4.7% | | GAAP EPS | ~$0.35 | $0.09 | -$0.26 | MISS (restructuring acceleration) |

Beat composition (per Glaser): $12.5M of the revenue beat was an accounting change (ANSYS channel recognition gross vs. net) — neutral to EPS. The "real" operational revenue beat is ~$8-10M. The Non-GAAP cost line came in below guidance ($1.376B vs. guide), driving the EPS upside via efficiency, not revenue. GAAP miss is timing — accelerated ANSYS integration restructuring charges pulled forward.

FY26 Full-Year Guidance (per Shelagh Glaser, CFO):

| Metric | Prior Guide | New Guide | Bridge | |--------|-------------|-----------|--------| | Revenue | ~$9.61B (midpoint) | $9.625-9.705B | +$35M underlying strength +$60M ANSYS channel accounting -$40M processor IP divestiture | | ANSYS revenue contribution | ~$2.95B | ~$2.96B | Unchanged ex-accounting impact | | Non-GAAP Op Margin (mid) | 40.5% | 41.0% | +50bps from synergy pull-forward | | Non-GAAP EPS | $14.42 (mid) | $14.72-$14.80 | +$0.34 at mid | | FCF | ~$1.9B | ~$2.0B | +$100M | | CapEx | ~$300M | $300M | Unchanged | | Total GAAP costs | TBD | $8.469-$8.599B | Raised primarily for ANSYS channel gross-up |

FQ3 FY26 Guidance:

| Metric | Guide | |--------|-------| | Revenue | $2.41B - $2.46B (midpoint $2.435B) | | Non-GAAP costs | $1.44B - $1.47B | | GAAP EPS | $0.84 - $0.98 | | Non-GAAP EPS | $3.63 - $3.69 |

Implied H2 FY26 trajectory: With $4.685B reported H1 and ~$9.665B full-year midpoint, H2 implies $4.98B (+6% vs H1, accelerating). FQ4 implied at ~$2.55B = a step-up function from FQ3's ~$2.43B, consistent with management's expectation that ANSYS synergies and Design IP recovery drive a back-half ramp.

Cost synergy commentary: Glaser: "We expect to be approximately halfway through our committed cost synergy realization by the end of fiscal year 26." This is ahead of original schedule and implies meaningful additional margin tailwind in FY27.

ANSYS channel accounting change explanation: Now recognizing ANSYS distribution partner revenue gross (was net). Adds $60M revenue + $60M expense for FY26 = zero EPS/FCF impact, but optically inflates top-line growth. Bear-side flag: investors should look at organic growth excluding the channel gross-up to compare to consensus.

Sassine Ghazi (CEO): "AI scaling, semiconductor demand, architectural diversity, and complexity of both chips and the systems they power, driving increased demand across our portfolio."

Demand drivers cited:

• Hardware-assisted verification: Surge from hyperscalers — companies designing in-house silicon (likely Amazon Trainium, Google TPU, Microsoft Maia, Meta MTIA) need emulation and prototyping at scale before tapeout. This is the highest-margin EDA category.
• Advanced node + 3D-IC: TSMC N2/A16 and chiplet adoption pulling EDA tool spend up the cost curve.
• Agentic + multiphysics fusion: Sassine flagged Synopsys Converge as showcasing AI-native EDA tooling. Expect this to be the Investor Day (Sept 2026) headline.

| Quarter | Design IP Rev | YoY % | What management cited | |---------|---------------|-------|----------------------| | FQ2 FY25 | $482M | +20.6% | Strong period — pre-China export controls escalation | | FQ3 FY25 | $428M | -7.6% | China design starts slowdown | | FQ4 FY25 | $407M | -21.4% | Processor IP softness, customer push-outs | | FQ1 FY26 | $407M | -6.4% | Channel-mix headwind | | FQ2 FY26 | $454M | -5.8% | Sequential rebound on a few large IP deals; processor IP divestiture lining up |

Bull case: -6% YoY is the best print in 4 quarters; +12% sequential rebound shows the trough may be in. With processor IP divestiture closing imminently, remaining IP business is higher-margin and structurally more attractive.

Bear case: Three consecutive quarters of negative YoY in a previously +20% growth business is a serious flag. Margin compression (31% → 16% → 24%) suggests competitive pressure or mix shift. China geopolitical risk persists.

Q: Why is hardware-assisted verification so strong this quarter? A (Sassine): Hyperscaler in-house silicon programs are using more verification cycles than ever. Customers are pulling tape-out schedules forward. Well answered — bull confirmation.

Q: Are the synergy targets being raised, given you'll be 50% done by year-end? A (Shelagh): Original committed synergies remain in place. Will revisit at Investor Day in September. Don't extrapolate the pace linearly. Hedged — leaving Investor Day room.

Q: Design IP -- what's the path to flat or growth? A (Sassine): Processor IP divestiture removes a drag. Remaining business is interface IP (PCIe, USB, CXL, HBM, UCIe) which is structurally tied to AI infrastructure. Expect return to growth in FY27. Reasonable but not validated by current data — watch closely.

Q: China exposure -- updated risk framing? A (Sassine): Continuing to monitor; bookings remained constructive in Q2 vs. Q1. No specific reset to expectations. Slight positive but vague.

Q: ANSYS gross-up accounting change -- is this a one-time signaling issue or recurring quarterly noise? A (Shelagh): Will continue to disclose impact each quarter. Reflects integration progress. Well answered — transparency is high.

Minor. Sassine noted "raising our full year 2026 revenue" while Shelagh broke down that the revenue raise includes a $40M divestiture reduction. Net effect is still a raise (~$55M underlying), but communications could have led with the divestiture for cleaner framing. Not material — just optics.

Macro:

• AI capex remains intact and broadening to hyperscaler custom silicon.
• China continues to be a structural overhang (specifically processor IP / general design starts), but no incremental deterioration.

Specific Company Mentions / Read-Throughs:

| Company | Read-Through | |---------|--------------| | CDNS (Cadence) | Read-positive for EDA peer: SNPS confirming +8% EDA organic and accelerating verification suggests Cadence Q2 (already reported) commentary on hyperscaler design momentum was directionally correct. | | TSM, AVGO, MRVL | Positive: advanced node + 3D-IC + chiplet adoption pulling EDA tool spend = bullish for foundry/fabless leading edge. | | GOOGL, MSFT, META, AMZN | Validates the in-house silicon thesis — verification demand surge tied to TPU/MTIA/Maia/Trainium programs. | | NVDA | Indirect positive: NVDA verification spend grows with each new architecture cycle (Blackwell → Rubin → Feynman). | | ARM | Slight negative if SNPS interface IP is taking share at advanced nodes. | | ANSYS-implied customers (auto, aero/defense) | Multiphysics demand reframed as "essential AI supply chain capability" — broadens TAM positioning. |

| Catalyst | Timing | What to Watch | |----------|--------|---------------| | Processor IP divestiture close | Imminent (within FQ3 FY26) | Cleaner Design IP segment mix; ~$40M revenue impact already in guide | | FQ3 FY26 print | Aug 2026 | Validation of revenue $2.41-2.46B guide; Design IP YoY trajectory | | Investor Day | September 2026 | Long-term ANSYS synergy update; FY27+ growth/margin framework; Agentic EDA roadmap | | ANSYS full integration milestone | End of FY26 | 50% synergy realization target; FY27 organic growth rate ex-merger | | China export control updates | Ongoing | Risk to Design IP / EDA exposure |