Executive Summary

Revenue grew 14% year-over-year to $1.740B, but non-GAAP EPS of $3.39 missed Wall Street consensus; management cited IP underperformance amid China export restrictions and a foundry customer issue as key drivers .
Guidance reset: full-year revenue was raised to $7.03–$7.06B, while non-GAAP EPS and free cash flow were cut to $12.76–$12.80 and ~$950M, respectively, reflecting IP headwinds, Ansys integration costs/seasonality, and higher interest burden from acquisition financing .
Ansys acquisition closed July 17, expanding Synopsys into simulation/analysis; backlog reached $10.1B and hardware demand remained strong, but the company is taking a more conservative Q4 view and plans ~10% headcount reduction by FY26 to drive efficiency and accelerate synergies .
Stock-relevant narrative shifts: revenue raise alongside EPS/FCF cuts and explicit IP roadmap pivot are likely to drive estimate resets; longer-term bullish narrative anchored on AI, multi-die/3DIC, and silicon-to-systems with Ansys integration .

What Went Well and What Went Wrong

What Went Well

Design Automation strength: segment revenue up 23% YoY to $1.312B, adjusted operating margin 44.5%, driven by hardware wins (ZeBu/HAPS) and resilient EDA demand; Ansys S&A performed in line with expectations .
Strategic milestone: “Q3 was a transformational quarter… we closed the Ansys acquisition – expanding our portfolio, customer base and opportunity” (CEO) .
Multi-die/3DIC and AI momentum: customers piloting Synopsys.ai GenAI capabilities (~20 customers), multi-die tapeouts, and anticipated integrated thermal sign-off with Ansys next year .

What Went Wrong

IP underperformance: Design IP revenue fell 8% YoY to $427.6M; margin compressed to 20.1% as investments met lower-than-expected revenue .
Specific headwinds: China export restrictions disrupted design starts beyond the six-week window; a major foundry customer’s challenges delayed expected IP returns; resource/roadmap decisions diluted focus (CEO detailed three factors) .
EPS/FCF reset: FY25 non-GAAP EPS cut to $12.76–$12.80 and FCF to ~$950M due to lower IP revenue and interest impacts from cash utilization and new debt for Ansys .

Financial Results

Actuals (chronological order)

Metric	Q1 2025	Q2 2025	Q3 2025
Revenue ($USD Billions)	$1.455	$1.604	$1.740
GAAP Diluted EPS ($)	$1.89	$2.24	$1.50
Non-GAAP EPS ($)	$3.03	$3.67	$3.39
Non-GAAP Operating Margin (%)	36.5%	38.0%	38.5%

Year-over-Year (Q3 compare)

Metric	Q3 2024	Q3 2025
Revenue ($USD Billions)	$1.526	$1.740
GAAP Diluted EPS ($)	$2.73	$1.50
Non-GAAP EPS ($)	$3.43	$3.39

Q3 vs Wall Street Consensus (S&P Global)

Metric	Consensus	Actual	Beat/Miss
Revenue ($USD Billions)	$1.767*	$1.740	Miss ($0.027B)*
Non-GAAP EPS ($)	$3.745*	$3.39	Miss ($0.355)*

Values marked with * retrieved from S&P Global.

Segment Breakdown (Q3 2025)

Segment	Revenue ($USD Millions)	Adjusted Operating Margin (%)	YoY Revenue Change
Design Automation	$1,312.1	44.5%	+23% vs $1,062.6
Design IP	$427.6	20.1%	−8% vs $463.1

KPIs (Q3 2025)

KPI	Value
Backlog	$10.1B
Free Cash Flow	~$632M
Cash + Short-term Investments	$2.594B
Total Debt	$14.318B

Non-GAAP to GAAP reconciling items (Q3): Stock-based compensation $267.7M; amortization of acquired intangibles $74.9M; acquisition/divestiture items $120.0M; tax adjustments $(157.5)M .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($B)	FY 2025	$6.745–$6.805	$7.03–$7.06	Raised
Non-GAAP EPS ($)	FY 2025	$15.11–$15.19	$12.76–$12.80	Lowered
Operating Cash Flow ($B)	FY 2025	~$1.5	~$1.13	Lowered
Free Cash Flow ($B)	FY 2025	~$1.3	~$0.95	Lowered
Non-GAAP Expenses ($B)	FY 2025	$4.05–$4.09	$4.43–$4.44	Raised
Non-GAAP Tax Rate (%)	FY 2025	16	16	Maintained
Revenue ($B)	Q4 2025	n/a	$2.23–$2.26	New
GAAP EPS ($)	Q4 2025	n/a	$(0.27)–$(0.16)	New
Non-GAAP EPS ($)	Q4 2025	n/a	$2.76–$2.80	New
Non-GAAP I&O ($M)	Q4 2025	n/a	$(179)–$(181)	New
Shares (FD, M)	Q4 2025	n/a	187–188	New

Management attributes FY guide changes to IP weakness, interest impact from the $4.3B term loan, and Ansys integration/seasonality, while maintaining confidence in revenue growth and synergies .

Earnings Call Themes & Trends

Topic	Q1 2025	Q2 2025	Q3 2025	Trend
China/export controls	Anticipated below corporate average; deceleration from macro and restrictions	Reiterated decline YoY; BIS speculation addressed; China −28% 1H pacing	Export restriction disrupted design starts; continued headwinds	Deteriorating then persistent headwind
IP business model	Fluctuation vs tough compare; expanding interface/foundation IP for AI	IP +21% YoY; strong interface demand (SerDes/PCIe)	Shift toward subsystems/chiplets; exploring royalty elements; resource pivot	Transition to higher-value subsystems
Hardware (ZeBu/HAPS)	New HAPS 200/ZeBu 200 launched; back-half weighted supply	Strong momentum; verification demand	Record shipments; hyperscaler wins	Strengthening
Multi-die/3DIC	3D heterogeneous design wins	Displacing manual flows; >40 chiplets engagement	Integrating Ansys thermal sign-off; first integrated solution 1H next year	Accelerating integration
AI in EDA	GenAI assistants, 30–35% productivity gains	.ai adoption across stack; optimization momentum	~20 customers piloting GenAI; Agentic AI vision (L2→L5)	Expanding capability and roadmap
Ansys integration	Regulatory progress; pending close	Near-term clearance; confidence in synergies	Closed; buyer approval for OSG/PowerArtist pending; Q4 seasonality shift	Integration underway; divestiture pending
Cost actions	Normal expense timing	Bond issuance effects; margin steady	~10% headcount reduction by FY26 to drive scale/efficiency	Cost discipline rising

Management Commentary

“Q3 was a transformational quarter… we closed the Ansys acquisition – expanding our portfolio, customer base and opportunity.” (CEO) .
“Strength in Design Automation was offset by weakness in Design IP… taking a more conservative view of Q4, while guiding another consecutive year of profitable growth.” (CFO) .
IP headwinds: export restrictions in China extended impact beyond six weeks; foundry customer delays; roadmap/resource allocation decisions now being pivoted toward higher-growth opportunities (CEO) .
Efficiency plan: actions starting soon to reduce global headcount roughly 10% by end of FY26 to accelerate strategy and synergies (CEO/CFO) .
Integration and seasonality: Ansys conformed to Synopsys fiscal calendar; strength historically in Nov–Dec will hit Synopsys Q1; buyer approval for Optical Solutions Group and PowerArtist still pending (CFO) .

Q&A Highlights

IP outlook and durability: Management expects a transitional/muted IP year into FY26; pivot to subsystems and possible royalty components to better monetize customization; capacity scaling via AI/methodology changes .
Margin bridge: Q4 margin decline driven primarily by IP revenue pressure despite higher-margin Ansys; long-term mid-40% operating margin target unchanged (CFO) .
Debt and liquidity: Cash well above operating minimums; interest payments in 2025 and principal paydown to begin in 2026; term loans due 2027–2028; cash inflow expected upon OSG/PowerArtist divestiture completion (CFO) .
Ansys growth drivers: confidence in synergies; 3DIC and physical AI (digital twin) create near-term opportunities; channel preserved and leveraged (CEO/CFO) .
Customer concentration: Efforts to diversify exposure; Ansys expands regional/customer mix (e.g., Europe vs China) (CEO) .

Estimates Context

Q3 2025 results missed S&P Global consensus on both revenue ($1.767B*) and non-GAAP EPS ($3.745*), with actuals of $1.740B and $3.39, respectively .
Estimate reset likely: FY25 EPS/FCF guidance reductions and IP caution point to downward revisions, while revenue raise and backlog support top-line resilience .