Synopsys
SNPS · NasdaqFree 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.
Q3 FY2026, the quarter to Jul 31, 2026 · 10-Q filed Aug 26, 2026
- Operating margin
- 14.4%
- Net income
- $545.8M
- Free cash flow, quarter
- $746.3M
Largest source of revenue: Time-based products, 40.5% of the total.
Where Synopsys's money goes
- 01
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.
Why it matters
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.1
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%.1
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.1
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.1
AnalysisAnalysis: 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.
- 02
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.
Why it matters
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.1
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.1
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.1
AnalysisAnalysis: 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.
- 03
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.
Why it matters
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.1
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.1
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.1
AnalysisAnalysis: 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.
- 04
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.
Why it matters
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.1
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.1
AnalysisAnalysis: 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.
Sources
- 1.Synopsys 10-Q for the period to 2026-07-31 (the filing), Aug 26, 2026, read Nov 2, 2026
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Growth, profit and margin
Revenue went from $1.3B in FY2008 to $7.1B in FY2025, the operating margin from 16.4% to 13.0%, over 17 years.
- Revenue$7.1B
- Operating income$914.9M
- Operating margin13.0%
- Period
- Q3 FY2026
- Revenue
- $2.5B
- Operating income
- $357.5M
- Operating margin
- 14.4%
- Net income
- $545.8M
- Free cash flow
- $746.3M
Does the profit turn into cash?
Q3 FY2026: free cash flow of $746.3M against net income of $545.8M in the quarter.
- Operating cash flow$1.5B
- Capital expenditure$169.5M
- Free cash flow$1.3B
- Net income$1.3B
Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.
Financial data and sources
How the revenue mix has shifted
Each breakdown the filing reports, as shares of revenue, for every period it restates.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME. The filing restates this breakdown for 1 period.
Click a member to isolate it across the years shown.
The figures
Margins, cash and growth for the period, each with what it was computed from.
Where revenue comes from
Every breakdown the filing reports for the period, with each item's share.
Revenue streams
| Time-based products | $1.0B | 40.5% |
| Maintenance and service | $808.8M | 32.7% |
| Upfront products | $665.2M | 26.9% |
Segments
| Design Automation: | $2.0B | 80.9% |
| Design IP: | $473.9M | 19.1% |
Geographic markets
| Other | $472.9M | 19.1% |
| Europe | $370.9M | 15.0% |
These items do not sum to total revenue; the filing states them beside it. Source10-Q, us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax, as reported in the 10-Q filed 2026-08-26
What it costs
The cost lines beneath operating income, each as a share of revenue, then the operating result.
Costs are reported by function: what it cost to make what was sold, then the expenses of selling, developing and administering.
| Cost line | Q3 FY2026 | Of revenue | Source |
|---|---|---|---|
| Total cost of revenue | $679.4M | 27.4% | Source10-Q, us-gaap:CostOfRevenue, as reported in the 10-Q filed 2026-08-26 |
| Operating income | $357.5M | 14.4% | Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-08-26 |
Operating income by segment
Where the operating profit is earned, as the filing reports it.
Segments
| Design Automation: | $905.0M | 253.2% |
| Design IP: | $125.4M | 35.1% |
Shares of operating income. The segments do not sum to the total; the filing states them beside it. Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-08-26
Operating figures the company states
From the text of the filing rather than its statements, each with the sentence that states it.
View source
Contracted but unsatisfied or partially unsatisfied performance obligations (backlog) were $10.9 billion as of July 31, 2026
View source
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.
The statements, as filed
The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.
Income statement37 lines, as presented in the 10-Q
Cash flow statement5 lines, as presented in the 10-Q
Year to date, as a quarterly filing reports it.
Balance sheet34 lines, as presented in the 10-Q
About this data
- Source
- Synopsys 10-Q, accession 0000883241-26-000025, filed Aug 26, 2026, read on Nov 2, 2026.
- History
- From the SEC's XBRL company facts, the value from the latest filing that stated each period.
- Reading
- Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
- Version
- methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02
What holds Synopsys's model up, and what could bend it
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.
The detail
Chip-design tools are mostly sold as Technology Subscription Licenses of generally two to three years, recognized evenly over the term. The filing says revenue in a period 'generally results from selling efforts in prior periods rather than the current period', so changes in customer spending do not immediately affect revenue in a significant way.1
Annual revenue rose in every year shown, from $3.12B in FY2018 to $7.05B in FY2025. Backlog includes $1.9B, 17.4% of the total, in non-cancellable Flexible Spending Account commitments whose products and quantities customers choose later.1
The filing cautions that backlog is not indicative of future sales or revenue and that its amount will fluctuate, and says some customers have delayed drawdowns under non-cancellable commitments in the current environment.1
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.
The detail
The filing says Ansys was acquired to combine semiconductor design automation with simulation and analysis, to meet growing demand for integrated design and simulation tools. Engineers use the simulation software to test designs for structural, thermal and fluid behavior before building them.1
Customers 'generally request a broader portfolio of solutions' and negotiate the total value of an arrangement rather than unit prices. The filing notes that pressure for a lower total cost of design can lead customers to consolidate purchases with one vendor.1
AnalysisAnalysis: breadth works in two directions. One contract can cover more of a customer's engineering workflow, which raises the cost of replacing any single piece; it also concentrates negotiation into fewer, larger renewals. The filing's own warning that the benefits expected from Ansys rest on projections applies here.
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.
The detail
Interest expense fell 9.1% from $146.5M, which the filing attributes to repaying and terminating the term loan in the first quarter of the fiscal year. It was 5.4% of revenue and 17.9% of free cash flow of $746.3M.1
The filing warns that the debt taken on for Ansys could increase vulnerability to changing conditions, limit flexibility, take a substantial portion of operating cash flow for debt payments and constrain buybacks, and that covenants restrict some mergers, liens and subsidiary borrowing. A lower credit rating would raise borrowing costs.1
AnalysisAnalysis: the pressure falls on reported profit more than on cash. Interest and amortization both weigh on earnings while cash generation covers interest comfortably; the test is whether that holds through a weaker year for new chip design projects.
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.
The detail
US export regulations restrict design software specially designed for certain advanced chips and for multi-chip packaging. The company has received administrative subpoenas from the Commerce Department's export agency about transactions with certain Chinese entities.1
China has formed government-backed funds to build independent design-tool capabilities, and the filing warns that trade restrictions may push customers toward domestic, foreign or open-source alternatives. The company derives roughly half of its revenue from outside the United States.1
AnalysisAnalysis: because licenses are recognized over two to three years, a loss of access would reach backlog and renewals before it reached reported revenue, so the delay can hide the damage for several quarters.
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.
The detail
Demand depends on new chip design projects in the semiconductor and electronics industries. The filing sees continued strength in AI and high-performance computing while industrial, automotive and consumer electronics grow more modestly, and says some customers have postponed decisions, delayed drawdowns or reduced spending.1
Customer consolidation could mean fewer customers, more bargaining power and lower spending. The filing names key customers' renewals, their timing and their value among the causes of swings in backlog, revenue and earnings.1
Sources
- 1.Synopsys 10-Q for the period to 2026-07-31 (the filing), Aug 26, 2026, read Nov 2, 2026
Synopsys, further in
Member research, then your own questions on ChatGPT.
What could change the outlook
What Synopsys's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
- What Synopsys earns once Ansys accounting is set aside
How much of the gap between cash and reported profit lasts, how long amortization keeps weighing on margins, and what the note maturities ask of free cash flow.
- Is the Design IP turnaround more than timing?
What the segment's results would need to show over several quarters, on a narrower portfolio after the Processor IP sale, for the reallocation the filing describes to read as working.
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Have a question about Synopsys?
Explore its profit drivers, competitive edge, risks, or your own investment and business questions with CXProWealth on ChatGPT.
- How much of the gap between Synopsys's free cash flow and operating income comes from Ansys amortization?
- Why does Synopsys's Design Automation segment earn more than the company's total operating income?
- How should I read Synopsys's net income this quarter once the Processor IP sale gain is set aside?
Business Lens describes Synopsys from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.