SI
SYNOPSYS INC (SNPS)·Q2 2025 Earnings Summary
Executive Summary
- Q2 FY25 revenue $1.604B (+10% YoY) and non-GAAP EPS $3.67 both exceeded guidance; GAAP EPS was $2.24. Strength skewed to Design IP (+21% YoY) and solid EDA resilience; non‑GAAP operating margin was 38% .
- Versus S&P Global consensus, revenue beat by ~$4.1M (+0.3%)* and EPS beat by ~$0.27 (+7.9%)* .
- Management initially reaffirmed full‑year revenue and non‑GAAP operating margin targets and guided Q3 revenue $1.755–$1.785B and non‑GAAP EPS $3.82–$3.87, but suspended both Q3 and FY25 guidance the next day after receiving a BIS export‑restriction letter related to China .
- Backlog rose to $8.1B (+$0.4B q/q), cash and ST investments $14.3B with $10.1B debt after a $10B bond issuance; FCF was ~ $220M. China demand remains a headwind; Ansys regulatory process is advanced ex‑China (SAMR ongoing) .
What Went Well and What Went Wrong
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What Went Well
- Broad beat: Revenue $1.604B (+10% YoY) and non‑GAAP EPS $3.67 exceeded the company’s range; CFO cited 38% non‑GAAP op margin and strong Design IP (+21% YoY) .
- Backlog and pipeline: Backlog reached $8.1B, up $400M q/q, underscoring visibility; hardware (HAPS 200, ZeBu 200) “off to a strong start” with record momentum .
- AI/advanced nodes: CEO highlighted wins in multi‑die/3DIC, DSO.ai/VSO.ai adoption, PCIe 7.0/UALink leadership, and 2nm enablement; quote: “Synopsys is a trusted partner… and a leader in applying AI to help customers innovate faster.” .
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What Went Wrong
- China risk escalated: After the call, SNPS received a BIS letter and suspended Q3/FY25 guidance; on the call, mgmt had noted China decline YoY and no BIS notice at that time .
- Cash flow/interest impacts: FY25 FCF target cut to ~$1.3B (from ~$1.6B in Feb.) due to financing/acquisition costs; Q2 non‑GAAP EPS included ~$0.06 net charges from the $10B bond; Q3 guide included ~$0.13 bond cost before suspension .
- Mix/recurring optics: Recurring % fluctuated with strong IP pull‑downs; mgmt flagged this as normal timing (and recurring softness impression in Q1/Q2) .
Financial Results
Revenue mix (Q2 2025 vs Q2 2024):
- Time‑based: $828.3M vs $781.7M
- Upfront: $510.7M vs $396.4M
- Maintenance & service: $265.3M vs $276.6M
Versus S&P Global consensus (Q2 2025):
*Values retrieved from S&P Global.
Segment performance (Q2 2025 vs Q2 2024):
Select KPIs (Q2 2025):
- Backlog: $8.1B (+$0.4B q/q)
- Cash & ST investments: $14.3B; Total debt: $10.1B
- Free cash flow: ~ $220M
- Non‑GAAP operating margin: 38%
Non‑GAAP notes: Q2 non‑GAAP EPS included ~$0.28 benefit from a building sale and ~$0.06 net bond‑related charges .
Guidance Changes
Context: In February, SNPS had guided FY25 FCF ~ $1.6B before reducing to ~$1.3B on May 28 due to financing/acquisition costs .
Earnings Call Themes & Trends
Management Commentary
- “We delivered a strong quarter… Synopsys is a trusted partner… and a leader in applying AI to help customers innovate faster.” — Sassine Ghazi, CEO
- “Backlog came in at $8.1B, up $400M q/q… We are reaffirming our full-year targets for revenue and non‑GAAP operating margin…” — Shelagh Glaser, CFO (pre‑suspension) .
- “We have regulatory clearances in all jurisdictions other than China… actively negotiating with SAMR to secure China regulatory clearance… anticipate closing in the first half of this year.” — CEO .
- “Non‑GAAP earnings included a $0.28 benefit from the sale of a building, as well as approximately $0.06 of net charges associated with the $10B bond issuance in Q2.” — CFO .
- “We are aware of the reporting and speculations, but Synopsys has not received a notice from BIS.” (during call, before letter) — CEO .
- Next day press release: “Synopsys… has suspended its financial guidance for the third quarter… and full fiscal year 2025” after receiving a BIS export restrictions letter. — Company statement .
Q&A Highlights
- China/BIS: Management reiterated China would decline YoY but full‑year (pre‑letter) was reiterated on strength elsewhere; at the time of the call, no BIS notice had been received .
- Largest customer/Intel: Multi‑year EDA agreements remain stable; IP/hardware pull‑downs can shift quarter timing despite non‑cancelable commitments .
- Financing impact: $10B bond led to ~$0.06 net Q2 EPS charge and ~$0.13 Q3 EPS headwind in prior guidance cadence .
- Hardware supply: No material constraints; supply better in Q4; ZeBu Cloud offers interim capacity while customers add power/space .
- Recurring mix/pricing: Recurring % variability tied to IP timing; pricing aligned to delivered value, including GPU‑accelerated flows (e.g., Proteus 15× speedup) .
Estimates Context
- Q2 FY25 actuals vs S&P Global consensus: Revenue $1,604.3M vs $1,600.1M*; non‑GAAP EPS $3.67 vs $3.40*. Beat driven by strong IP pull‑downs and disciplined OpEx; partially offset by bond‑related interest costs .
- Post‑quarter, consensus estimates will likely be reset lower/withdrawn near term due to the company suspending guidance following the BIS letter; magnitude depends on scope of new export restrictions (undisclosed) .
*Values retrieved from S&P Global.
Key Takeaways for Investors
- Core beat with improving GAAP operating margin trajectory; EPS quality included a ~$0.28 non‑recurring building gain offset by ~$0.06 bond costs .
- Design IP and hardware are key 2H drivers; expect continued lumpiness in upfront revenue and recurring % optics .
- China/BIS is now the central risk: guidance suspension supersedes prior reaffirmation and is likely the dominant stock driver near term .
- Balance sheet is robust (cash/short‑term investments $14.3B; debt $10.0B), providing flexibility to navigate export headwinds and the Ansys close process .
- Strategic AI positioning (DSO/VSO/ASO, agentic AI roadmap) and leadership in advanced nodes/multi‑die underpin medium‑term growth independent of near‑term China noise .
- Watch for: clarity on BIS scope/timing, SAMR outcome for Ansys, hardware delivery cadence in 2H, and any changes to backlog/run‑rate orders.