One year after closing the $34.9 billion Ansys acquisition, Synopsys is finally producing the cash the deal was supposed to deliver. Operating cash flow for the first nine months of fiscal 2026 reached $2.30 billion, up from $878.9 million a year earlier, and the company retired $3.46 billion of debt in the same period. GAAP earnings tell a much duller story, because $1.21 billion of purchase-accounting amortization sits between the cash and the bottom line. For a company whose balance sheet is now 80% goodwill and intangibles, the gap between those two numbers is the whole investment case.
Synopsys is the largest of the three firms that dominate electronic design automation (EDA) — the software chipmakers use to design and verify semiconductors. On 2024 market-share estimates, Synopsys and Cadence Design Systems sit at roughly 31% and 30% respectively, with Siemens EDA a distant third near 13%. Synopsys's lead over Cadence is a revenue lead, widened by Ansys, rather than a meaningful share lead. Its fiscal year ends October 31, so this quarter covers May through July 2026.
All figures below are drawn from the Synopsys Form 10-Q for the quarter ended July 31, 2026, unless otherwise noted.
1. Balance Sheet
1-1. Principal asset lines
| Item | Oct 31, 2025 ($M) | Jul 31, 2026 ($M) | Change |
|---|---|---|---|
| Cash and cash equivalents | 2,888.0 | 3,606.3 | +24.9% |
| Accounts receivable, net | 1,505.4 | 1,318.7 | -12.4% |
| Inventories | 365.2 | 479.1 | +31.2% |
| Property and equipment, net | 696.7 | 749.6 | +7.6% |
| Goodwill | 26,899.2 | 26,834.8 | -0.2% |
| Intangible assets, net | 12,679.6 | 11,458.7 | -9.6% |
| Total assets | 48,224.5 | 47,726.3 | -1.0% |
Goodwill and intangibles together are $38.29 billion, or 80.2% of total assets. Nearly all of it came from Ansys: that deal alone added $23.46 billion of goodwill and $12.99 billion of intangibles. Tangible book value is therefore negative — equity of $31.15 billion minus $38.29 billion of intangible assets leaves a deficit of $7.14 billion. This is normal for a large software roll-up, but it means the balance sheet offers no downside cushion. Any future write-down of the Ansys assets would hit equity directly.
Intangibles fell $1.22 billion in nine months purely through amortization, not impairment. Receivables dropped 12.4% while revenue rose, which is a genuinely good sign — days sales outstanding worked out to roughly 49 days on third-quarter revenue. Inventories rose 31.2%, reflecting the hardware-assisted verification systems Synopsys sells alongside software. That is the one part of this business that carries real inventory risk.
1-2. Debt versus operating liabilities
Financial debt fell from $13.48 billion to $10.04 billion, a 25.5% reduction. The entire term loan taken out for Ansys is gone; what remains is $10.0 billion of principal in senior notes issued on March 17, 2025. Net debt — borrowings less cash and short-term investments — dropped from $10.52 billion to $6.43 billion, down 38.9%.
The maturity ladder is unusually comfortable. Only $2.0 billion, or 20% of the notes, comes due within three years ($1.0 billion in April 2027, $1.0 billion in April 2028). The remaining $8.0 billion runs to 2030 and beyond, with $2.1 billion not maturing until 2055. The weighted average coupon is 5.07%, and 5.22% on an effective basis after issuance costs.
All of it is fixed rate, so policy-rate moves do not change Synopsys's interest expense. They are not irrelevant, though. The notes already trade below par — fair value was $9.7 billion against $10.0 billion of principal at July 31 — and rates will set the cost of refinancing the 2027 and 2028 maturities. Total borrowings also carry a $99.5 million deferred payment from the settlement of an interest-rate treasury lock, a reminder that the funding was hedged rather than simply fixed.
Operating liabilities moved little. Total deferred revenue — cash collected before the software is delivered — rose to $2.72 billion. Lease liabilities were flat at $804.4 million against $694.6 million of right-of-use assets.
1-3. Capital structure
Paid-in capital rose $2.07 billion to $20.71 billion. The largest single driver was a private placement: in December 2025 Synopsys sold roughly 4.82 million shares to NVIDIA at $414.79 for gross proceeds of $2.0 billion. Stock-based compensation added another $712.6 million, partly offset by share-withholding settlements and buyback-related retirements. Retained earnings rose only $627.9 million to $10.94 billion, because Synopsys pays no dividend and nine-month GAAP profit was modest.
The composition matters. Of $31.15 billion of equity, two-thirds is paid-in capital, mostly the stock issued to Ansys shareholders. Only $10.94 billion is accumulated profit, against which sit accumulated other comprehensive loss of $310.5 million and a small treasury position of roughly $0.19 billion. The comprehensive loss widened on a $69.1 million currency translation swing from the newly enlarged overseas footprint.
2. Income Statement
2-1. Headline results
| Item | Q3 FY2025 ($M) | Q3 FY2026 ($M) | Change | 9M FY2025 ($M) | 9M FY2026 ($M) | Change |
|---|---|---|---|---|---|---|
| Revenue | 1,739.7 | 2,476.8 | +42.4% | 4,799.3 | 7,161.6 | +49.2% |
| Gross profit | 1,359.2 | 1,797.4 | +32.2% | 3,830.4 | 5,215.0 | +36.1% |
| Gross margin (%) | 78.1 | 72.6 | -5.5%p | 79.8 | 72.8 | -7.0%p |
| Operating income | 165.3 | 357.5 | +116.3% | 793.5 | 681.0 | -14.2% |
| Operating margin (%) | 9.5 | 14.4 | +4.9%p | 16.5 | 9.5 | -7.0%p |
| Net income (to Synopsys) | 242.5 | 545.8 | +125.1% | 883.5 | 627.9 | -28.9% |
| Diluted EPS ($) | 1.50 | 2.84 | +89.3% | 5.59 | 3.27 | -41.5% |
Revenue growth is real but flattered by timing. Ansys closed on July 17, 2025, so the prior-year quarter included only about two weeks of it. Maintenance and service revenue — where most Ansys sales land — jumped from $331.0 million to $808.8 million.
The organic picture is far more modest. On the company's own commentary alongside the release, core EDA revenue excluding Ansys grew roughly 8.5% year over year, and Design IP about 11%. That single-digit core EDA figure, not the headline 42.4%, is the underlying run rate a reader should carry forward. Over three fiscal years the reported trend is steadier: revenue went from $5.32 billion in FY2023 to $6.13 billion in FY2024 to $7.05 billion in FY2025, a two-year compound growth rate of 15.1%. Nine months of FY2026 have already surpassed all of FY2025.
The margin compression is almost entirely an accounting artifact. Amortization of acquired intangibles was $402.4 million in the quarter against $74.9 million a year earlier, and $1,210.3 million for nine months against $99.2 million. Add that back and operating income was $759.9 million in the quarter, or 30.7% of revenue, versus $240.2 million and 13.8% a year ago. The quarterly add-back uses amortization alone because restructuring charges in Q3 were only $2.2 million; almost the entire nine-month restructuring hit landed in the first half. For the nine months, adding back amortization and $236.3 million of restructuring gives $2,127.6 million, or 29.7% of revenue, against 18.6% a year earlier.
Synopsys reports its own adjusted operating income of $1,030.4 million for the quarter, a 41.6% margin against 38.5% last year. That figure excludes amortization of acquired intangibles, stock-based compensation, restructuring and certain acquisition-related costs, so treat it as a cash-proximate measure rather than profit. Non-GAAP EPS was $3.91 versus GAAP $2.84 — a $1.07 gap that reflects large purchase amortization nearly offset by the removal of the $380.5 million divestiture gain from non-GAAP figures.
Two one-off items need flagging. Other income of $459.7 million in the quarter includes a $380.5 million net gain on the June 1, 2026 sale of the Processor IP business to GlobalFoundries. Strip that out and pre-tax income was roughly $303 million rather than $683.9 million. On the other side, the prior-year quarter carried inflated general and administrative expense of $280.6 million (versus $177.0 million now) from deal costs, which is why the 116% jump in operating income overstates the improvement.
On an adjusted basis, operating leverage is clean and consistent: revenue up 42.4% produced adjusted operating income up 53.8% in the quarter, a ratio of 1.27 times. The nine-month ratio is effectively the same — adjusted operating income of $2,943.8 million against $1,810.3 million is a 62.6% gain on 49.2% revenue growth, or 1.27 times. Every extra dollar of revenue is dropping through at better than the average margin.
2-2. Cost structure and segments
| Segment | Q3 FY2025 ($M) | Q3 FY2026 ($M) | Change | 9M FY2025 ($M) | 9M FY2026 ($M) | Change |
|---|---|---|---|---|---|---|
| Design Automation | 1,312.2 | 2,003.0 | +52.6% | 3,454.6 | 5,826.6 | +68.7% |
| Design IP (derived) | 427.5 | 473.8 | +10.8% | 1,344.7 | 1,335.0 | -0.7% |
| Total | 1,739.7 | 2,476.8 | +42.4% | 4,799.3 | 7,161.6 | +49.2% |
Design IP figures are derived by subtracting the disclosed Design Automation revenue from the total. The divergence is the most important operating fact in the filing. Design Automation, which now absorbs Ansys, grew 68.7% over nine months — but that number is an acquisition, not a growth rate, and the ~8.5% organic EDA figure is the honest comparison. Design IP — the pre-built circuit blocks chipmakers license — is flat to slightly down over the nine months, though it recovered to 10.8% growth in the quarter, and did so while shedding two months of Processor IP revenue after the June divestiture. Some of the nine-month weakness is that divestiture; the filing does not break out how much.
Fixed costs dominate. Research and development was $2,134.8 million over nine months, or 29.8% of revenue, down from 36.1% a year ago. That decline is dilution from the Ansys revenue base, not reduced spending — R&D dollars rose 23.2%. Synopsys expenses essentially all R&D as incurred, as US software peers typically do, because the window between technological feasibility and release is too short to produce material capitalizable cost under ASC 985-20. Peers reporting under IFRS may capitalize qualifying development spend under IAS 38, which flatters their reported operating margins relative to Synopsys. Stock-based compensation was $712.6 million, or 10.0% of revenue, improved from 13.7%.
3. Cash Flow
| Item | 9M FY2025 ($M) | 9M FY2026 ($M) | Change |
|---|---|---|---|
| Operating cash flow | 878.9 | 2,298.6 | +161.5% |
| Investing cash flow | (16,445.7) | 353.8 | turned positive |
| Financing cash flow | 14,191.6 | (1,901.9) | turned negative |
| Ending cash (incl. restricted) | 2,532.2 | 3,610.8 | +42.6% |
This table is the story of the year. Last year's investing line is the Ansys purchase: $16.68 billion of acquisition outflow, netted against other investing inflows to the $16,445.7 million shown above, funded by $14.33 billion of new debt in financing. This year both reverse. Investing turned positive on $440.0 million of divestiture proceeds, and financing turned to a $1.90 billion outflow as the company repaid debt.
Free cash flow — operating cash flow less capital spending of $156.1 million — was $2,142.5 million, up 188.0% from $744.0 million. Capital intensity is negligible at 2.2% of revenue, as it should be for a software business.
Earnings quality needs care here. Operating cash flow was 3.66 times net income, against 0.99 times last year. That looks spectacular but reflects $1.36 billion of non-cash depreciation and amortization and $712.6 million of stock-based compensation flowing back, partly offset by the $380.5 million non-cash divestiture gain reversal. A better read is operating cash flow against adjusted operating income: $2,298.6 million versus $2,943.8 million, or 78% conversion. Working capital helped, with receivables releasing $165.3 million and deferred revenue adding a further $116.2 million, together contributing roughly $281 million of the operating cash flow improvement; inventory absorbed $133.9 million.
Capital allocation for the nine months was decisive: $3,463.7 million to debt repayment, $300.0 million to buybacks, offset by $2,000.0 million raised from NVIDIA. Deleveraging clearly ranks first.
4. What Else Matters
Guidance went up; the stock went down. Alongside the release Synopsys raised full-year fiscal 2026 revenue guidance to $9.69–9.74 billion and lifted its operating and free cash flow targets to roughly $2.8 billion and $2.6 billion, with the non-GAAP EPS midpoint moved to $15.07. The guidance range implies fourth-quarter revenue of about $2.53–2.58 bill