Financial Trends -- 4/10

Financial trends are dominated by the ~$35B Ansys acquisition (closed July 2025). Strip the inorganic boost and the picture is mixed-to-soft: headline revenue accelerates (+41.9% latest quarter) but the inflection is entirely Ansys consolidation, GAAP operating margin compressed ~910bps (22.1% to 13.0% FY25) and GAAP operating income FELL 32% even as revenue rose 15%, and the stock-funded deal diluted shareholders ~23% while loading ~$13.5B of debt onto a formerly net-cash balance sheet. Genuine positives: a resilient ~37% non-GAAP operating margin, intact ~77-80% gross margins, and positive, growing free cash flow (~$1.35B FY25 toward ~$1.9B guided FY26). Two mandatory penalty modifiers applied. Weight: 25%

F26Q2 Revenue

$2.28B

src | +41.9% YoY | Ansys-driven

GAAP Op Margin

Compressing

~-910bps FY25 | Ansys amortization

FCF

Growing

$1.35B FY25 to ~$1.9B guided | Bright spot

Share Count

Diluting

~+23% YoY | Ansys stock issuance

Quarterly Revenue Trajectory ($M)

Quarter (Fiscal)	F25Q1	F25Q2	F25Q3	F25Q4	F26Q1	F26Q2
Total Revenue	$1,455.3M	$1,604.3M	$1,739.7M	$2,254.9M	$2,408.8M	$2,276.0M
YoY	-11.8%	+10.3%	+14.0%	+37.8%	+65.5%	+41.9%

Headline acceleration is inorganic. The sharp inflection from F25Q4 onward (+37.8% to +65.5%) is entirely Ansys consolidation, not organic demand. Organic core EDA growth is high-single/low-double digit and roughly stable; core Design IP went negative YoY for two straight quarters before recovering. Per investing principles, revenue growth alone is not a financial strength -- the M&A-driven top line must be read net of the margin compression, dilution, and leverage the deal created.

Margin Compression -- GAAP vs Non-GAAP (Annual)

Metric	FY2024	FY2025	YoY
GAAP Op Income	$1,355.7M	$914.9M	-32.5%
GAAP Op Margin	22.1%	13.0%	-910 bps
Non-GAAP Op Income	$2,362.1M	$2,632.9M	+11.5%
Non-GAAP Op Margin	38.5%	37.3%	-120 bps

GAAP operating income FELL 32% while revenue rose 15% -- the textbook "revenue growing but operating income declining" red flag. GAAP operating margin collapsed from a 22.1% FY24 peak to 13.0% FY25 (-910bps), driven by Ansys amortization, acquisition, and restructuring charges, and sits at just 5.3% in the latest quarter. Non-GAAP held up far better (-120bps to 37.3%), and the latest quarter's 39.5-42.1% shows the underlying franchise is intact -- but even non-GAAP is flat-to-modestly-down, not expanding.

Annual Financial Summary (FY ends October 31)

Metric	FY2021	FY2022	FY2023	FY2024	FY2025
Total Revenue ($M)	$4,204.2M	$5,081.5M	$5,842.6M	$6,127.4M	$7,054.2M
Rev YoY	—	+20.9%	+15.0%	+4.9%	+15.1%
Gross Margin %	79.5%	79.1%	79.1%	79.7%	77.0%
Non-GAAP Op Margin	30.5%	33.0%	35.1%	38.5%	37.3%
Non-GAAP Dil. EPS	$6.84	$8.90	$11.19	$13.20	$12.91
Non-GAAP EPS YoY	—	+30.1%	+25.7%	+18.0%	-2.2%
Diluted Shares (000)	157,340	156,485	155,195	155,944	165,656
Long-term Debt ($M)	$25.1M	$20.8M	$18.1M	$15.6M	$13,462.4M

Note on GAAP EPS quality. FY24 GAAP net income/EPS was inflated by a large one-time divestiture gain (Software Integrity sale), so FY25 GAAP falling despite revenue growth is partly an artifact of a poor-quality comparison. The clean read is non-GAAP: EPS compounded strongly through FY24 ($6.84 to $13.20) before dipping -2.2% in FY25 to $12.91 as Ansys integration and dilution weighed.

Key trends

Revenue compounding, but FY25 acceleration is inorganic: $4.2B (FY21) to $7.1B (FY25); the headline +15.1% and the quarterly re-acceleration to +41.9% are Ansys consolidation, not organic demand
GAAP margins compressing: GAAP operating margin fell ~910bps (22.1% to 13.0%) and GAAP operating income dropped 32% in FY25 on Ansys amortization and deal charges
Non-GAAP franchise intact: ~77-80% gross margins and ~37% non-GAAP operating margin held up; the latest quarter ran 39.5-42.1%
Heavy dilution: diluted shares jumped from 155.9M (FY24) to 165.7M (FY25) and to 192.1M in the latest quarter -- roughly +23% YoY from the stock-funded deal

Segment Revenue ($M, Quarterly)

Quarter (Fiscal)	Design Automation	Design IP	Design IP YoY
F25Q1	$1,020.2M	$435.1M	+8.8%
F25Q2	$1,122.2M	$482.0M	+20.6%
F25Q3	$1,312.2M	$427.6M	-7.7%
F26Q1	$2,001.8M	$407.0M	-6.5%
F26Q2	$1,821.8M	$454.2M	+13.6%

Ansys lands inside the Design Automation segment from F26Q1, inflating its growth. Design Automation YoY is uninterpretable post-deal (it jumps from organic to organic+Ansys). The one clean organic signal is Design IP, which went negative for two consecutive quarters (-7.7%, -6.5%) before recovering to +13.6% -- the transitional IP year that management flagged.

Free Cash Flow

Period	FCF
F25Q3 (qtr)	$632M
F26Q1 (qtr)	$822M
F26Q2 (qtr)	$575M
FY2025 (full year)	$1,350M
FY2026 (mgmt guide)	~$1,900M

FCF positive and growing -- the reason this is not a bottom-tier score. FY25 FCF of $1,350M (~19.1% FCF margin) with management guiding FY26 toward ~$1.9B (OCF ~$2.2B less ~$300M capex), growing both absolutely and as the post-Ansys revenue base ramps. No negative-FCF penalty applies.

Penalty Modifiers Applied

Modifier	Detail	Penalty
Revenue up, Op Income down	FY25 revenue +15.1% while GAAP operating income fell 32% ($1,355.7M to $914.9M)	-1
Share dilution >10% YoY	Diluted shares ~+23% YoY (155.9M to 192.1M) from stock-funded Ansys deal; just under the 25% severe threshold	-1
Negative FCF	N/A -- FCF positive and growing	None
Debt > revenue growth 3+ qtrs	N/A -- one-time spike for the deal, now actively declining ($14.3B to $10.0B); net debt/EBITDA ~3.1x	None

Score Rationale

Base read against the rubric sits around a 6 (headline acceleration + growing FCF, offset by compressing GAAP margins and heavy dilution). Two mandatory penalty modifiers bring it to 4/10: 6 − 1 (revenue up / operating income down) − 1 (share dilution >10% YoY) = 4/10.

Supports the score off the bottom:

FCF positive and growing (~$1.35B FY25 toward ~$1.9B guided FY26)
Resilient ~37% non-GAAP operating margin and intact ~77-80% gross margins
Latest quarter's 39.5-42.1% non-GAAP margin shows the underlying franchise is intact

Drags the score below average:

Headline revenue acceleration is M&A-driven, not organic
GAAP operating margin compressed ~910bps and GAAP operating income fell 32% while revenue rose 15%
~23% share dilution from the stock-funded deal
~$13.5B of new debt on a formerly net-cash balance sheet; net debt/EBITDA now ~3.1x

Per investing principles -- "revenue growth alone is not a financial strength" -- the combination of compressing GAAP profitability, heavy dilution, and a leveraged balance sheet earns a below-average 4/10. The franchise quality is high, but the current financial trajectory is being weighed down by integration costs and a worse capital structure than 12 months ago.

Data sourced from Daloopa (company_id: 176). Fiscal year ends October 31. All financials in USD. Daloopa labels SNPS by calendar quarter; fiscal labels shown here map calendar 2025Q4 = fiscal 2026Q1.