# How Synopsys makes money

CXProWealth Business Lens · Synopsys (SNPS) · Q3 FY2026

Read from the 10-Q for the period 2026-05-01 to 2026-07-31, filed 2026-08-26 with the SEC (accession 0000883241-26-000025): https://www.sec.gov/Archives/edgar/data/883241/000088324126000025/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $2.5B (+42.4% on the year)
- Operating income: $357.5M (operating margin 14.4%)
- Net income: $545.8M (net margin 22.0%)
- Gross margin: 72.6%
- Free cash flow: $746.3M (30.1% of revenue)
- Cash conversion (operating cash flow / net income): 1.49x
- Capital expenditure: 2.7% of revenue

## Where the money goes (Q3 FY2026)

- Time-based products → Total revenue: $1.0B
- Upfront products → Total revenue: $665.2M
- Maintenance and service → Total revenue: $808.8M
- Total revenue → Total cost of revenue: $679.4M
- Total cost of revenue → Amortization of acquired intangible assets: $247.3M
- Total cost of revenue → Cost of goods and services sold: $432.1M
- Total revenue → Gross margin: $1.8B
- Gross margin → Total operating expenses: $1.4B
- Total operating expenses → Research and development: $719.7M
- Total operating expenses → Sales and marketing: $385.9M
- Total operating expenses → General and administrative: $177.0M
- Total operating expenses → Amortization of acquired intangible assets: $155.2M
- Total operating expenses → Restructuring charges: $2.2M
- Gross margin → Operating income: $357.5M
- Operating income → Interest expense: $133.2M
- Operating income → Income before income taxes: $224.3M
- Other income (expense), net → Income before income taxes: $459.7M
- Income before income taxes → Provision (benefit) for income taxes: $138.2M
- Income before income taxes → Net income from continuing operations: $545.7M
- Net income from continuing operations → Net income: $545.7M
- Net income → Net income attributed to Synopsys: $545.7M
- Less: Net income (loss) attributed to non-controlling interest and redeemable non-controlling interest → Net income attributed to Synopsys: $94.0K

## Where the revenue comes from

### Products and services (CONDENSED CONSOLIDATED STATEMENTS OF INCOME)

| Member | Value | Share |
|---|---:|---:|
| Time-based products | $1.0B | 40.5% |
| Maintenance and service | $808.8M | 32.7% |
| Upfront products | $665.2M | 26.9% |

The members sum to total revenue.

### Segments (Segment Disclosure - Schedule of Segment Reporting Information (Details))

| Member | Value | Share |
|---|---:|---:|
| Design Automation: | $2.0B | 80.9% |
| Design IP: | $473.9M | 19.1% |

The members sum to total revenue.

### Regions (Segment Disclosure - Schedule of Revenues Related to Operations by Geographic Areas (Details))

| Member | Value | Share |
|---|---:|---:|
| Other | $472.9M | 19.1% |
| Europe | $370.9M | 15.0% |

The members do not sum to total revenue.

## Income statement, as filed

| Line | Q3 FY2026 | Of revenue |
|---|---:|---:|
| Total revenue | $2.5B | 100% |
|   Products | $1.7B | 67.3% |
|   Time-based products | $1.0B | 40.5% |
|   Upfront products | $665.2M | 26.9% |
|   Maintenance and service | $808.8M | 32.7% |
| Products | $275.6M | 11.1% |
| Maintenance and service | $156.5M | 6.3% |
| Amortization of acquired intangible assets | $247.3M | 10.0% |
| **Total cost of revenue** | $679.4M | 27.4% |
| **Gross margin** | $1.8B | 72.6% |
| Research and development | $719.7M | 29.1% |
| Sales and marketing | $385.9M | 15.6% |
| General and administrative | $177.0M | 7.1% |
| Amortization of acquired intangible assets | $155.2M | 6.3% |
| Restructuring charges | $2.2M | 0.1% |
| **Total operating expenses** | $1.4B | 58.1% |
| **Operating income** | $357.5M | 14.4% |
| Interest expense | ($133.2M) | 5.4% |
| Other income (expense), net | $459.7M | 18.6% |
| **Income before income taxes** | $683.9M | 27.6% |
| Provision (benefit) for income taxes | $138.2M | 5.6% |
| **Net income from continuing operations** | $545.7M | 22.0% |
| Loss from discontinued operations, net of income taxes | $0 | 0.0% |
| **Net income** | $545.7M | 22.0% |
| Less: Net income (loss) attributed to non-controlling interest and redeemable non-controlling interest | -$94.0K | 0.0% |
| **Net income attributed to Synopsys** | $545.8M | 22.0% |
| Continuing operations | $545.8M | 22.0% |
| Discontinued operations | $0 | 0.0% |
| **Net income attributed to Synopsys** | $545.8M | 22.0% |
| Continuing operations (in USD per share) | $3 | 0.0% |
| Discontinued operations (in USD per share) | $0 | 0.0% |
| **Basic net income per share (in USD per share)** | $3 | 0.0% |
| Continuing operations (in USD per share) | $3 | 0.0% |
| Discontinued operations (in USD per share) | $0 | 0.0% |
| **Diluted net income per share (in USD per share)** | $3 | 0.0% |
| Basic (in shares) | 191,536,000 |  |
| Diluted (in shares) | 192,319,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2008 | $1.3B | $219.1M | $190.0M | $331.1M | $38.9M | $292.2M |
| FY2009 | $1.4B | $208.3M | $167.7M | $239.2M | $39.2M | $200.0M |
| FY2010 | $1.4B | $184.1M | $237.1M | $341.0M | $39.2M | $301.8M |
| FY2011 | $1.5B | $212.8M | $221.4M | $440.3M | $57.3M | $383.0M |
| FY2012 | $1.8B | $190.0M | $181.9M | $486.1M | $54.2M | $431.9M |
| FY2013 | $2.0B | $246.5M | $247.8M | $496.7M | $65.5M | $431.2M |
| FY2014 | $2.1B | $248.7M | $259.1M | $551.0M | $103.3M | $447.7M |
| FY2015 | $2.2B | $266.5M | $225.9M | $495.2M | $87.0M | $408.2M |
| FY2016 | $2.4B | $317.4M | $266.8M | $586.6M | $66.9M | $519.7M |
| FY2017 | $2.7B | $347.6M | $136.6M | $632.5M | $70.3M | $562.2M |
| FY2018 | $3.1B | $360.2M | $432.5M | $424.4M | $99.0M | $325.4M |
| FY2019 | $3.4B | $520.2M | $532.4M | $800.5M | $198.1M | $602.4M |
| FY2020 | $3.7B | $620.1M | $664.3M | $991.3M | $154.7M | $836.6M |
| FY2021 | $4.2B | $734.8M | $757.5M | $1.5B | $93.8M | $1.4B |
| FY2022 | $4.6B | $1.1B | $984.6M | $1.7B | $136.6M | $1.6B |
| FY2023 | $5.3B | $1.3B | $1.2B | $1.7B | $189.6M | $1.5B |
| FY2024 | $6.1B | $1.4B | $2.3B | $1.4B | $139.5M | $1.3B |
| FY2025 | $7.1B | $914.9M | $1.3B | $1.5B | $169.5M | $1.3B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +15.1% (year before +15.2%): steady
- Operating income: -32.5% (year before +6.5%): slowing
- Net income: -41.1% (year before +84.0%): slowing
- Free cash flow: +6.4% (year before -16.3%): accelerating

## Operating figures stated in the filing

- Backlog (contracted but unsatisfied performance obligations): $10.9B (as of 2026-07-31). "Contracted but unsatisfied or partially unsatisfied performance obligations (backlog) were $10.9 billion as of July 31, 2026" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Non-cancellable FSA commitments in backlog: $1.9B (as of 2026-07-31). "Contracted but unsatisfied or partially unsatisfied performance obligations (backlog) were $10.9 billion as of July 31, 2026, which includes $1.9 billion in non-cancellable FSA commitments from customers where actual product selection and quantities of specific products or services are to be determined by customers at a later date." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)

## Key insights

### Free cash flow is double reported operating profit

Free cash flow of $746.3M was 208.8% of operating income of $357.5M, a gap driven largely by acquisition amortization, which cuts reported profit but uses no cash.

Free cash flow was $746.3M, 30.1% of revenue, against an operating margin of 14.4%. Operating cash flow of $812.8M was 1.49 times net income, and capital spending of $66.6M took only 2.7% of revenue, so almost all operating cash became free cash flow. _(from the filing)_
The filing ties the margin pressure to amortization of intangible assets acquired with Ansys. It runs through cost of revenue, which rose 78.5% to $679.4M and pulled gross margin down 5.6 points to 72.6%, and through operating expenses, where amortization was $155.2M against $28.6M a year earlier, up 443.1%. _(from the filing)_
The gap opened with the merger. In FY2024, before Ansys, free cash flow was $1.27B, 93.5% of operating income of $1.36B. In FY2025, which included Ansys from mid-July, free cash flow was $1.35B, 147.5% of operating income of $914.9M. _(from the filing)_
Quarterly cash is uneven: free cash flow was negative $108.2M in Q1 FY2025. The filing says cash depends on billing terms, and time-based licenses are often paid quarterly or annually over the term rather than upfront. _(from the filing)_
Analysis: amortization is a non-cash charge for assets already paid for, so cash flow is the closer read of what the business generates while it runs. Stock compensation cuts the other way: it uses no cash either, but it is a real cost paid in shares, so free cash flow flatters the economics in that respect. _(analysis)_

### Design Automation out-earns the company before central costs

Design Automation's adjusted operating income of $905.0M was 253.2% of consolidated operating income, so costs held centrally, led by acquisition amortization, absorb most segment profit.

Design Automation, the chip-design and verification software, hardware and Ansys simulation tools, earned $905.0M of adjusted operating income on $2.0B of revenue, a 45.2% margin. Design IP earned $125.4M on $473.9M, a 26.5% margin. Design IP's figure alone equals 35.1% of consolidated operating income of $357.5M. _(from the filing)_
The filing explains the difference: amortization of acquired intangibles, stock-based compensation, restructuring, acquisition and divestiture items and deferred compensation are managed at the consolidated level and charged to neither segment. The chief executive assesses the segments on this adjusted measure. _(from the filing)_
The filing calls Design IP underperforming and says resources are being moved to higher-growth opportunities; the Processor IP business was sold in June. It attributes this quarter's higher Design IP profit to the timing of customer demand for IP products. _(from the filing)_
Analysis: the two views answer different questions. Segment margins show what the products earn as they are run today; consolidated operating income adds the cost of how the company was assembled and how it pays people in shares. Comparing periods needs both, because the Ansys amortization shrinks only as the acquired assets are written down over years. _(analysis)_

### A business sale lifted net profit above operating profit

Net income of $545.8M was 152.7% of operating income, because other income, mostly the Processor IP sale gain, supplied 67.2% of pre-tax income.

Other income was $459.7M against $170.5M a year earlier, up 169.5%, and equal to 67.2% of pre-tax income of $683.9M. The filing attributes the increase mainly to the pre-tax gain on the June sale of the Processor IP business, partly offset by lower interest income on smaller average cash balances. _(from the filing)_
Tax moved the other way: a $138.2M charge, 20.2% of pre-tax income, against a $53.0M benefit a year earlier, when the company released a valuation allowance on California research credits. Net income attributed to Synopsys rose 125.1% to $545.8M, or $2.84 per diluted share against $1.50, on 192.3M diluted shares against 161.7M. _(from the filing)_
Earlier in the fiscal year the relationship ran the other way. Net income was $65.0M in Q1 FY2026 and $17.1M in Q2 FY2026, against operating income of $203.0M and $120.4M. _(from the filing)_
Analysis: the gain came from selling a business, not from running one, so this quarter's earnings per share is a weak base for comparison. Operating income and the segment results behind it describe the continuing business more closely. _(analysis)_

### Ansys support made services a third of revenue

Maintenance and service rose 144.4% to $808.8M, 32.7% of revenue, while ratable time-based licenses lost 10.8 points of share, changing how revenue arrives.

Maintenance and service gained 13.6 points of revenue share. The filing attributes the rise in maintenance mainly to Ansys, whose simulation software is sold with support recognized over the support term. Time-based products, the multi-year chip-design subscriptions recognized evenly, grew 12.4% to $1.0B and fell to 40.5% of revenue. _(from the filing)_
Ansys licenses are recorded as upfront revenue at delivery, even when sold as subscriptions. Upfront products grew 28.8% to $665.2M, 26.9% of revenue. The filing says upfront products have grown faster than time-based products in recent periods, which has increased fluctuation in quarterly results. _(from the filing)_
Analysis: the company's long record of smooth revenue rested on spreading licenses evenly over their term. With a larger share now recognized at delivery or tied to support contracts, a single quarter says less about the trend, and backlog becomes a steadier gauge than quarterly revenue. _(analysis)_

### Competitive edge

- **Contracted backlog exceeds a full year of revenue** Backlog of $10.9B equals 154.5% of FY2025 revenue of $7.05B, because multi-year licenses commit revenue years before it is recognized.
- **One catalog from chip design to physical simulation** Synopsys now offers chip design and physical simulation in one segment, $2.0B or 80.9% of revenue, as customers consolidate design purchases with fewer vendors.

### What to watch

- **Merger debt costs over a third of operating profit** Interest expense of $133.2M equaled 37.3% of operating income, though free cash flow of $746.3M covered it with room to spare.
- **Export controls have already hurt the China business** Restrictions imposed and later rescinded hurt China sales, including Design IP, and the filing anticipates further trade rule changes it cannot forecast.
- **A few large customers carry much of revenue** The filing says a relatively small number of large customers provide a large portion of revenue, and a major foundry customer's problems hurt last fiscal year.

## Operating income by segment

- Design Automation:: $905.0M (253.2% of operating income)
- Design IP:: $125.4M (35.1% of operating income)

## Investor view

**Ansys support contracts lifted maintenance and service to 32.7% of Synopsys revenue, while acquisition amortization held margins down**

### How it makes money

Synopsys sells the software engineers use to design and verify chips and, since buying Ansys, the simulation software used to test physical products for heat, stress and airflow. The Design Automation segment brought in $2.0B of the quarter's $2.48B revenue, or 80.9%. Design IP, pre-built circuit blocks that customers place inside their own chips, brought in $473.9M, or 19.1%. _(from the filing)_
The largest revenue line is time-based products, $1.0B or 40.5% of revenue. Chip-design tools are mostly sold as Technology Subscription Licenses that bundle every tool and its updates, run 'generally two to three years', and are recognized evenly over the term. In the filing's words, 'the revenue we recognize in a particular period generally results from selling efforts in prior periods rather than the current period.' _(from the filing)_
Upfront products, $665.2M or 26.9% of revenue, are booked when delivered: emulation and prototyping hardware, IP licenses, and Ansys simulation licenses, which are recorded upfront even when sold as subscriptions. The support sold with those licenses is recognized over the support term in maintenance and service, $808.8M or 32.7% of revenue, alongside professional services such as IP customization. _(from the filing)_
Gross margin was 72.6% of revenue. Research and development, $719.7M, was the largest expense at 29.1% of revenue, ahead of sales and marketing at 15.6% and general and administrative at 7.1%. Cash ran well ahead of reported profit: free cash flow was $746.3M, 30.1% of revenue, against an operating margin of 14.4%. _(from the filing)_

### What shifted

Revenue rose 42.4% to $2.48B from $1.74B. The filing attributes most of the gain to a full quarter of Ansys against a partial quarter a year earlier, with the rest from 'broad-based strength across our business'. The mix moved with it: maintenance and service rose 144.4% and gained 13.6 points of revenue share, mainly Ansys support, while time-based products grew 12.4% and lost 10.8 points of share. _(from the filing)_
Gross margin fell 5.6 points to 72.6%, from 78.1% a year earlier. Cost of revenue rose 78.5% to $679.4M, which the filing ties mainly to amortization of the technology acquired with Ansys. The same purchase accounting reaches operating expenses: amortization there was $155.2M against $28.6M, up 443.1%. _(from the filing)_
Operating income rose 116.3% to $357.5M from $165.3M, and operating margin rose 4.9 points to 14.4%. The main lever was general and administrative expense, down 36.9% to $177.0M from $280.6M, because the prior-year quarter carried Ansys deal fees and stock compensation accelerated by the merger. Research and development grew 15.1%, slower than revenue, so its share fell 6.9 points to 29.1%. _(from the filing)_
Below the operating line, other income was $459.7M against $170.5M, mostly the pre-tax gain on the June sale of the Processor IP business, and equal to 67.2% of pre-tax income of $683.9M. Tax was a $138.2M charge, 20.2% of pre-tax income, against a $53.0M benefit a year earlier, when California research credits were released. Net income attributed to Synopsys rose 125.1% to $545.8M, or $2.84 per diluted share against $1.50. _(from the filing)_

### Risks in the filing

Trade rules. US export controls cover chip-design software for certain advanced chips and multi-chip packaging. Restrictions imposed and later rescinded hurt the China business, including Design IP, and the company has received subpoenas from the Commerce Department's export agency about transactions with certain Chinese entities. China is also funding domestic design-tool makers, and restrictions can push customers toward local or open-source substitutes. _(from the filing)_
Concentration. Demand depends on new chip design projects in the semiconductor and electronics industries, and a relatively small number of large customers provide a large portion of revenue. The filing says challenges with a major foundry customer hurt results last fiscal year, and that customer consolidation or tighter research budgets could cut spending. _(from the filing)_
Acquisitions and debt. The benefits expected from Ansys rest on projections that may not materialize, including synergies, joint products and the channel-partner network Ansys sells through. The debt taken on for the merger could limit flexibility, raise vulnerability to downturns and constrain buybacks, and its covenants restrict some mergers and borrowing. _(from the filing)_
Lumpy quarters. Hardware, IP and simulation licenses are recognized upfront, so their timing, customer drawdowns of committed spending, and contract renewals make revenue and earnings swing. Hardware carries lower gross margins than software, depends in part on a sole supplier, and brings inventory risk. The filing also names AI execution, cybersecurity incidents it has already experienced, and retaining engineers. _(from the filing)_
Two of these risks are already visible in the quarter's figures. The acquisition risk shows as amortization pressing on gross and operating margin, and the lumpiness risk shows as revenue mix moving away from even-spread subscriptions toward upfront licenses and support recognized on different schedules. Trade restrictions and customer concentration are described in the filing but do not appear as a decline in this quarter's totals. _(analysis)_

## Founder view: mechanisms

### Ratable licenses make revenue lag sales

Synopsys bundles its design tools and every update into one multi-year license and treats them as a single obligation, so the fee is recognized evenly over the term. Each quarter's revenue is mostly the tail of deals signed earlier. Revenue therefore moves slowly in both directions, and a large share of next year's revenue is contracted before the year starts. _(analysis)_

### Purchase accounting depresses reported profit, not cash

Buying Ansys put large intangible assets on the balance sheet: technology, customer relationships, contracted backlog and the brand. Each is written off as an expense over years. Those charges cut reported margins without using cash, so management judges its segments on an adjusted operating income that leaves them out, along with stock compensation and restructuring. _(analysis)_

### Committed spend, chosen later

Through Flexible Spending Account commitments, customers agree a non-cancellable amount now and pick the products and quantities later. The vendor secures the budget before the customer knows exactly what it needs; the customer keeps flexibility across a broad catalog. Revenue arrives only as the commitment is drawn down, so its timing follows the customer's projects. _(analysis)_

### Reusable building blocks, sold per design

Design IP licenses tested, 'silicon-proven' circuit blocks, such as memory interfaces and logic libraries, so customers do not design them in-house. The license is recognized at delivery, support over time, and royalties when the customer's chips ship. Because blocks are often customized and must be qualified for each manufacturing process, this business earns less per dollar than the software. _(analysis)_

## Member research

Signed-in members read, on the page: what Synopsys's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Synopsys 10-Q for the period to 2026-07-31: https://www.sec.gov/Archives/edgar/data/883241/000088324126000025/ (2026-08-26)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02