SYNOPSYS INC

Previous wording

This Quarterly Report on Form 10-Q (this Quarterly Report) includes forward-looking statements, which involve risks, uncertainties and other factors that could cause Synopsys, Inc.'s (Synopsys, we, our or us) actual results, time frames or achievements to differ materially from those expressed or implied in such forward-looking statements. Readers are urged to carefully review and consider the various disclosures regarding these risks and uncertainties made in this Quarterly Report, including those identified below in Part II, Item 1A, Risk Factors, and in other documents we file from time to time with the Securities and Exchange Commission (SEC). Forward-looking statements include any statements that are not statements of historical fact and include, but are not limited to, statements concerning strategies related to our products, technology and services; business and market outlook, opportunities, strategies and technological trends, such as artificial intelligence (AI); planned acquisitions and their expected impact, such as our pending acquisition of ANSYS, Inc. (Ansys), including, among other things, expectations regarding the financing of pending acquisitions; planned dispositions and their expected impact, such as the previously announced divestiture of our Software Integrity business (the Software Integrity Divestiture); the potential impact of the uncertain macroeconomic environment on our financial results, including, but not limited to, the effects of sustained global inflationary pressures and interest rates, potential economic slowdowns or recessions, supply chain disruptions, geopolitical pressures, including, among others, the unknown impact of current and future U.S. and Chinese trade regulations and regional or global military conflicts, and fluctuations in foreign exchange rates, and associated global economic conditions; the expected impact of U.S. and foreign government actions and regulatory changes, including export control restrictions, on our financial results; customer demand and market expansion; our planned product releases and capabilities; industry growth rates; the expected realization of our contracted but unsatisfied or partially unsatisfied performance obligations (backlog); software trends; planned stock repurchases; our expected tax rate; and the impact and result of pending legal, administrative and tax proceedings. Forward-looking statements may be identified by words including, but not limited to, “may,” “will,” “could,” “would,” “can,” “should,” “anticipate,” “expect,” “intend,” “believe,” “estimate,” “project,” “continue,” “forecast,” "likely," "potential," "seek," or the negatives of such terms and similar expressions. The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This Quarterly Report on Form 10-Q (this Quarterly Report) includes forward-looking statements, which involve risks, uncertainties and other factors that could cause Synopsys, Inc.'s (Synopsys, we, our or us) actual results, time frames or achievements to differ materially from those expressed or implied in such forward-looking statements. Readers are urged to carefully review and consider the various disclosures regarding these risks and uncertainties made in this Quarterly Report, including those identified below in Part II, Item 1A, Risk Factors, and in other documents we file from time to time with the Securities and Exchange Commission (SEC). Forward-looking statements include any statements that are not statements of historical fact and include, but are not limited to, statements concerning strategies related to our products, technology and services; business and market outlook, opportunities, strategies and technological trends, such as artificial intelligence (AI); planned acquisitions and their expected impact, such as our pending acquisition of ANSYS, Inc. (Ansys), including, among other things, expectations regarding the financing of pending acquisitions; planned dispositions and their expected impact; the potential impact of the uncertain macroeconomic environment on our financial results, including, but not limited to, the effects of sustained global inflationary pressures and elevated interest rates, potential economic slowdowns or recessions, supply chain disruptions, geopolitical pressures, including, among others, the unknown impact of current and future U.S. and foreign trade regulations, government actions and regulatory changes, such as export control restrictions and tariffs, and regional or global military conflicts, and fluctuations in foreign exchange rates, and associated global economic conditions; customer demand and market expansion; our planned product releases and capabilities; industry growth rates; the expected realization of our contracted but unsatisfied or partially unsatisfied performance obligations (backlog); software trends; planned stock repurchases; our expected tax rate; and the impact and result of pending legal, administrative and tax proceedings. Forward-looking statements may be identified by words including, but not limited to, “may,” “will,” “could,” “would,” “can,” “should,” “anticipate,” “expect,” “intend,” “believe,” “estimate,” “project,” “continue,” “forecast,” "likely," "potential," "seek," or the negatives of such terms and similar expressions. The information included herein represents our estimates and assumptions as of the date of this filing. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. All subsequent written or oral forward-looking statements attributabl…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Unless otherwise noted, this Management’s Discussion and Analysis of Financial Condition and Results of Operations relates solely to our continuing operations and does not include the operations of our Software Integrity business. See “Pending Software Integrity Divestiture” below and Note 3. Discontinued Operations of the Notes to Condensed Consolidated Financial Statementsfor additional information about the Software Integrity Divestiture.

Current wording

Unless otherwise noted, this Management’s Discussion and Analysis of Financial Condition and Results of Operations relates solely to our continuing operations and does not include the operations of our former Software Integrity business. See “Software Integrity Divestiture” below and Note 3. Discontinued Operations of the Notes to Condensed Consolidated Financial Statementsfor additional information about the Software Integrity Divestiture.

Previous wording

Three months ended July 31, 2024 compared to the same period of fiscal 2023 financial performance summary

Current wording

Financial performance summary for the three months ended January 31, 2025 compared to the same period of fiscal 2024:

Previous wording

•Total cost of revenue and operating expenses was $1.2 billion, an increase of $111.3 million or 11%, primarily due to an increaseof $49.6 million in employee-related costs resulting from headcount increases through organic growth and acquisitions.

Current wording

•Total cost of revenue and operating expenses was $1.2 billion, an increase of $45.1 million or 4%, primarily due to an increaseof $34.4 million in legal, consulting and other professional fees mainly in connection with the Ansys Merger, and $27.1 million in employee-related costs resulting from headcount increases through organic growth and acquisitions.

Previous wording

Synopsys delivers trusted and comprehensive silicon to systems design solutions, from electronic design automation (EDA), including system verification and validation solutions, to silicon intellectual property (IP). We partner closely with semiconductor and systems customers across a wide range of industries to maximize their research and development capability and productivity. Synopsys is catalyzing the era of pervasive intelligence to power innovation today that ignites the ingenuity of tomorrow. For more information about our business segments and product groups, see Part I, Item 1, Business in our Annual Report.

Current wording

Synopsys delivers trusted and comprehensive silicon to systems design solutions, from EDA, including system verification and validation solutions, to silicon IP. We partner closely with semiconductor and systems customers across a wide range of industries to maximize their engineering and research and development capacity. We are catalyzing the era of pervasive intelligence, powering innovation today that ignites the ingenuity of tomorrow. For more information about our business segments and product groups, see Part I, Item 1, Business in our Annual Report.

Previous wording

We have consistently grown our revenue since 2005, despite periods of global economic uncertainty. We achieved these results because of our solid execution, leading technologies and strong customer relationships, and because we generally recognize our revenue for software licenses over the arrangement period, which typically approximates three years. See Note 2. Summary of Significant Accounting Policies and Basis of Presentation of the Notes to Consolidated Financial Statementsin our Annual Report for a discussion on our revenue recognition policy. The revenue we recognize in a particular period generally results from selling efforts in prior periods rather than the current period. As a result, decreases as well as increases in customer spending do not immediately affect our revenues in a significant way.

Current wording

We have consistently grown our revenue since 2005, despite periods of global economic uncertainty. We achieved these results because of our solid execution, leading technologies and strong customer relationships, and because we generally recognize our revenue for software licenses over the arrangement period, which typically approximates three years. See Note 2. Summary of Significant Accounting Policies and Basis of Presentation of the Notes to Consolidated Financial Statementsin our Annual Report for a discussion on our revenue recognition policy. The revenue we recognize in a particular period generally results from selling efforts in prior periods rather than the current period. As a result, decreases as well as increases in customer spending do not immediately affect our revenue in a significant way.

Previous wording

Our growth strategy is based on maintaining and building on our leadership in our Design Automation products, expanding and proliferating our Design IP offerings and continuing to expand our product portfolio and our total addressable market. Our revenue growth from period to period is expected to vary based on the mix of our time-based and upfront products. Based on our leading technologies, customer relationships, business model, diligent expense management, and acquisition strategy, we believe that we will continue to execute our strategies successfully.

Current wording

Our growth strategy is based on maintaining and building on our leadership in our Design Automation products, expanding and proliferating our Design IP offerings and continuing to expand our product portfolio and our total addressable market. Our revenue growth from period to period is expected to vary based on the mix of our time-based and upfront products. Our upfront products have grown at a faster rate than our time-based products in recent periods, which has resulted in, and may in the future result in, increased fluctuation in our business, operating results and overall financial position on a quarterly basis. See Part II, Item 1A, Risk Factors,"Our operating results may fluctuate in the future, which may adversely affect our stock price" of this Quarterly Report for further discussion on potential fluctuations in our operating results. Based on our leading technologies, customer relationships, business model, diligent expense management, and acquisition strategy, we believe that we will continue to execute our strategies successfully.

Previous wording

The Ansys Merger was approved by the holders of a majority of the outstanding shares of Ansys common stock on May 22, 2024 and is anticipated to close in the first half of calendar year 2025. The Ansys Merger is subject to the satisfaction or waiver of customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the HSR Act), the clearance of the Ansys Merger under certain other antitrust and foreign investment regimes, and the continued effectiveness of the registration statement on Form S-4 (File No. 333-277912) filed by us on March 14, 2024 and declared effective by the SEC on April 17, 2024. We and Ansys each have termination rights under the Merger Agreement. A fee of $1.5 billion may be payable by us to Ansys, or a fee of $950.0 million may be payable by Ansys to us, upon termination of the Merger Agreement under specified circumstances, each as more fully described in the Merger Agreement. The receipt of financing by us is not a condition to complete the Ansys Merger.

Current wording

The Ansys Merger was approved by the holders of a majority of the outstanding shares of Ansys common stock on May 22, 2024 and is anticipated to close in the first half of calendar year 2025. The Ansys Merger is subject to the satisfaction or waiver of customary closing conditions, including, among other things, the clearance of the Ansys Merger under certain antitrust and foreign investment regimes, and the continued effectiveness of the registration statement on Form S-4 (File No. 333-277912) filed by us on March 14, 2024 and declared effective by the SEC on April 17, 2024. Following the determination that it was a necessary step towards obtaining governmental approval of and successfully closing the Ansys Merger, on September 3, 2024, we signed a definitive agreement for the sale of our Optical Solutions Group to Keysight Technologies, Inc. (the Optical Solutions Divestiture). The Optical Solutions Divestiture is subject to customary closing conditions, including review by regulatory authorities, and the successful closing of the Ansys Merger.

Previous wording

In connection with the execution of the Merger Agreement, we entered into a commitment letter on January 15, 2024 (the Bridge Commitment Letter) with certain financial institutions that committed to provide, subject to the satisfaction of customary closing conditions, a senior unsecured bridge facility (the Bridge Commitment). The Bridge Commitment currently provides for an aggregate principal amount of up to $11.7 billion. On February 13, 2024, we entered into a term loan facility credit agreement (the Term Loan Agreement), which provides us with the ability to borrow up to $4.3 billion at the closing of the Ansys Merger, subject to the satisfaction of customary closing conditions for similar facilities, for the purpose of financing a portion of the cash consideration to be paid in the Ansys Merger and paying related fees and expenses in connection with the Ansys Merger and the other transactions contemplated by the Merger Agreement. See Note 11. Bridge Commitment Letter, Term Loan and Revolving Credit Facilities of the Notes to Condensed Consolidated Financial Statements for more information on the Bridge Commitment and the Term Loan Agreement.

Current wording

In connection with the execution of the Merger Agreement, we entered into a commitment letter on January 15, 2024 (the Bridge Commitment Letter) with certain financial institutions that committed to provide, subject to the satisfaction of customary closing conditions, a senior unsecured bridge facility (the Bridge Commitment). On October 3, 2024, we reduced the Bridge Commitment by $1.1 billion to $10.6 billion following the closing of the Software Integrity Divestiture (as defined below). The Bridge Commitment currently provides for an aggregate principal amount of up to $10.6 billion. On February 13, 2024, we entered into a term loan facility credit agreement (the Term Loan Agreement), which provides us with the ability to borrow up to $4.3 billion at the closing of the Ansys Merger, subject to the satisfaction of customary closing conditions for similar facilities, for the purpose of financing a portion of the cash consideration to be paid in the Ansys Merger and paying related fees and expenses in connection with the Ansys Merger and the other transactions contemplated by the Merger Agreement. See Note 10. Bridge Commitment Letter, Term Loan and Revolving Credit Facilities of the Notes to Condensed Consolidated Financial Statements for more information on the Bridge Commitment and the Term Loan Agreement.

Previous wording

Uncertainty in the macroeconomic environment, including the effects of, among other things, sustained global inflationary pressures and interest rates, potential economic slowdowns or recessions, supply chain disruptions, geopolitical pressures, fluctuations in foreign exchange rates, and associated global economic conditions, have resulted in volatility in credit, equity and foreign currency markets. We expect growth across our geographies in fiscal 2024; however, we are expecting a challenging near-term growth environment in China due to macroeconomic factors as well as, to a lesser degree, entity list and trade restrictions as further discussed below and in Part II, Item 1A, Risk Factors of this Quarterly Report.

Current wording

Uncertainty in the macroeconomic environment, including the effects of, among other things, sustained global inflationary pressures and elevated interest rates, potential economic slowdowns or recessions, supply chain disruptions, geopolitical pressures, fluctuations in foreign exchange rates, and associated global economic conditions, have resulted in volatility in credit, equity and foreign currency markets. While we have seen continued strength in the artificial intelligence and high-performance computing sectors, certain industries such as industrial, automotive and consumer electronics have recovered more slowly from recent macroeconomic uncertainty. The current uncertain macroeconomic environment has led some of our customers to postpone their decision-making, delay their drawdowns under non-cancellable commitments, decrease their spending and/or delay their payments to us. We expect growth across our geographies in fiscal 2025; however, we are expecting a challenging near-term growth environment in China due to macroeconomic factors as well as global trade restrictions. See the discussion below and in Part II, Item 1A, Risk Factors, "We are subject to governmental export and import requirements that could subject us to liability and restrict our ability to sell our products and services, which could impair our ability to compete in international markets" of this Quarterly Report for further discussion of the impact of export control regulations on Synopsys.

Previous wording

We are also actively monitoring geopolitical pressures around the world, including, among others, changes in China-Taiwan relations, the conflicts in Ukraine and the Middle East and other regional or global military conflicts. Any significant disruption caused by these or other geopolitical pressures or conflicts could materially affect our employees, business, operating results, financial condition or customers in those regions of the world. For example, Synopsys has employees, operations, customers and strategic partners in the Middle East and in Armenia, which are each impacted by geopolitical conflicts. While we are actively monitoring these conflicts, at this time, these geopolitical conflicts have not had a material impact on our business, operating results or financial condition.

Current wording

We are also actively monitoring geopolitical pressures around the world, including, among others, changes in China-Taiwan relations, the conflicts in Ukraine and the Middle East and other regional or global military conflicts. Any significant disruption caused by these or other geopolitical pressures or conflicts could materially affect our employees, business, operating results, financial condition or customers in those regions of the world. For example, Synopsys has employees, operations, customers and strategic partners in the Middle East. While we are actively monitoring the conflicts in the Middle East, at this time they have not had a material impact on our business, operating results or financial condition to date.

Previous wording

While our time-based business model provides stability to our business, operating results and overall financial position, the broader implications of these macroeconomic or geopolitical events, particularly in the long term, remain uncertain. Further, the negative impact of these events or disruptions may be deferred due to our business model.

Current wording

While our time-based model provides stability to our business, operating results and overall financial position, the broader implications of these macroeconomic or geopolitical events, particularly in the long term, remain uncertain. Further, the negative impact of these events or disruptions may be deferred due to our business model. See Part II, Item 1A, Risk Factors,“Uncertainty in the macroeconomic environment, and its potential impact on the semiconductor and electronics industries, may negatively affect our business, operating results and financial condition” and "Our operating results may fluctuate in the future, which may adversely affect our stock price" of this Quarterly Report for further discussion of the impact of global economic and geopolitical uncertainty on our business, operations and financial condition and potential fluctuations in our operating results, respectively.

Previous wording

On October 7, 2022, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce published changes to U.S. export control regulations (U.S. Export Regulations), including new restrictions on Chinese entities' ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors. Further, on October 14, 2022, a new rule went into effect imposing U.S. export controls on additional technologies, including electronic computer-aided design software specially designed for the development of ICs with Gate-All-Around Field-Effect Transistor structures. On October 17, 2023, the Department of Commerce, Bureau of Industry and Security, published clarifications of and other adjustments to the regulations promulgated on October 7, 2022, pertaining, among other things, to China’s access to certain semiconductor and advanced computing technology. Based on our current understanding, we believe these regulations will not have a material impact on our business. We anticipate additional changes to U.S. Export Regulations in the future, but we cannot forecast the scope or timing of such changes. We will continue to monitor such developments, including potential additional trade restrictions, and other regulatory or policy changes by the U.S. and foreign governments.

Current wording

The Bureau of Industry and Security of the U.S. Department of Commerce has published changes to U.S. export control regulations (the U.S. Export Regulations), including, among other things, the inclusion of certain Chinese technology companies on the Entity List, restrictions on the export of electronic computer-aided design (ECAD) software specially designed for the development of ICs with Gate-All-Around Field-Effect Transistor structures, as well as controls on ECAD software for advanced semiconductor packaging involving multiple chips or chiplets, and certain other restrictions to China’s access to certain semiconductor and advanced computing technology. We currently believe that the U.S. Export Regulations and non-U.S. export requirements (collectively, the Export Regulations) do not materially impact our business. We anticipate additional changes to the Export Regulations in the future, but we cannot forecast the scope or timing of such changes, nor the impact on our business. We will continue to monitor such developments, including potential additional trade restrictions, and other regulatory or policy changes by the U.S. and foreign governments.

Previous wording

For more on risks related to government export and import restrictions such as the U.S. government’s Entity List and other U.S. Export Regulations, see Part I, Item 1A, Risk Factors, “We are subject to governmental export and import requirements that could subject us to liability and restrict our ability to sell our products and services, which could impair our ability to compete in international markets.”

Current wording

For more on risks related to government export and import restrictions such as the U.S. government’s Entity List and other export regulations, see Part I, Item 1A, Risk Factors, “We are subject to governmental export and import requirements that could subject us to liability and restrict our ability to sell our products and services, which could impair our ability to compete in international markets.”

Previous wording

On May 5, 2024, we entered into an Equity Purchase Agreement (the Purchase Agreement), by and between Synopsys, Inc. and Sapphire Software Buyer, Inc. (Buyer), an entity controlled by funds affiliated with Clearlake Capital Group, L.P. and Francisco Partners (together, the Sponsors). Pursuant to the Purchase Agreement, and subject to the satisfaction or waiver of customary closing conditions specified therein, we will sell our Software Integrity business to Buyer for a purchase price of up to $2.1 billion in cash, comprised of: (i) $1.5 billion, payable at closing; (ii) $125 million, payable in equal installments over five fiscal quarters beginning on the first business day after the 75th day of our first full fiscal quarter following the closing, subject to acceleration at our option prior to the closing of the Ansys Merger; and (iii) up to $475 million (the Conditional Transaction Consideration), payable upon the Sponsors achieving a specified rate of return in connection with one or more potential liquidity transactions. The Software Integrity Divestiture is currently expected to close in the second half of 2024, subject to customary closing conditions including the receipt of required regulatory approvals. The Software Integrity business met the criteria to be disclosed as discontinued operations in the second quarter of fiscal 2024. See Note 3. Discontinued Operations of the Notes to Condensed Consolidated Financial Statements for additional information on discontinued operations.

Current wording

On May 5, 2024, we entered into an Equity Purchase Agreement (the Purchase Agreement), by and between Synopsys and Sapphire Software Buyer, Inc. (Buyer), an entity controlled by funds affiliated with Clearlake Capital Group, L.P. and Francisco Partners (together, the Sponsors). On September 30, 2024, we completed the previously announced sale of our Software Integrity business to entities controlled by funds affiliated with the Sponsors (the Software Integrity Divestiture). We previously determined that the Software Integrity business met the criteria to be disclosed as discontinued operations in the second quarter of fiscal 2024. See Note 3. Discontinued Operations of the Notes to Condensed Consolidated Financial Statements for additional information on discontinued operations.

Previous wording

Design Automation. This segment includes our advanced silicon design, verification products and services and system integration products. This segment also includes digital, custom and field programmable gate array (FPGA) integrated circuit (IC) design software, verification software and hardware products, system integration products and services, and manufacturing software products. Designers use these products to automate the highly complex IC design process and to reduce defects that could lead to expensive design or manufacturing re-spins or suboptimal end products.

Current wording

Design Automation. This segment includes our advanced silicon design, verification products and services and system integration products. This segment also includes digital, custom and field programmable gate array (FPGA) integrated circuit (IC) design software, verification software and hardware products, system integration products and services, and manufacturing software products. Designers use our EDA products to accelerate and automate the chip design process, reduce errors and enable more powerful and robust designs, with improved productivity for faster time to market.

Previous wording

Design IP. This segment includes our Design IP products that serve companies primarily in the semiconductor and electronics industries. We are a leading provider of high-quality, silicon-proven IP solutions for system-on-chips (SoCs). This includes IP that has been optimized to address specific application requirements for the mobile, automotive, digital home, internet of things and cloud computing markets, enabling designers to quickly develop SoCs in these areas.

Current wording

Design IP. This segment includes our interface, foundation, security, and embedded processor IP, IP subsystems, and IP implementation services that serve companies primarily in the semiconductor and electronics industries. We are a leading provider of high-quality, silicon-proven IP solutions for system-on-chips (SoCs). This includes IP that has been optimized to address specific application requirements for the mobile, automotive, digital home, Internet of Things and AI/data center markets, enabling designers to quickly develop SoCs in these areas.

Previous wording

Our fiscal year ends on the Saturday nearest to October 31 and consists of 52 weeks, with the exception that approximately every five years, we have a 53-week year. When a 53-week year occurs, we include the additional week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 2024 is a 53-week year ending on November 2, 2024, which impacts our revenue, expenses and operating results. Fiscal 2023 was a 52-week year and ended on October 28, 2023.

Current wording

Historically, our fiscal years had been 52- or 53-week periods ending on the Saturday nearest to October 31. Fiscal 2024 was a 53-week year ending on November 2, 2024, which impacted our revenue, expenses and operating results.

Previous wording

Our results of operations for the first nine months of fiscal 2024 and 2023 included 40 weeks and 39 weeks, respectively, and ended on August 3, 2024 and July 29, 2023, respectively. The extra week in the first quarter of fiscal 2024 resulted in approximately $70.5 million of additional revenue, and approximately $61.0 million of additional expenses, including approximately $11.0 million in stock-based compensation costs. For presentation purposes, this Form 10-Q refers to the closest calendar month end.

Current wording

The first quarter of fiscal 2025 and 2024 ended on January 31, 2025 and February 3, 2024, respectively. Our results of operations for the first quarter of fiscal 2024 included 14 weeks. The extra week in the first quarter of fiscal 2024 resulted in approximately $63.2 million of additional revenue, and approximately $52.5 million of additional expenses, including approximately $10.6 million in stock-based compensation costs from continuing operations.

Previous wording

Our condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In preparing these financial statements, we make assumptions, judgments and estimates that can affect the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we evaluate our estimates based on historical experience and various other assumptions we believe are reasonable under the circumstances. Our actual results may differ from these estimates. See Note 2. Summary of Significant Accounting Principles and Basis of Presentationof the Notes to Condensed Consolidated Financial Statements in this Quarterly Report for more information on our significant accounting policies.

Current wording

Our condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In preparing these financial statements, we make estimates and assumptions that can affect the reported amounts of assets, liabilities, revenues and expenses, and net income. On an ongoing basis, we evaluate our estimates based on historical experience and various other assumptions we believe are reasonable under the circumstances. Our actual results may differ from these estimates.

Previous wording

The accounting policies that most frequently require us to make assumptions, judgments and estimates, and therefore are critical to understanding our results of operations, are:

Current wording

The accounting policies that most frequently require us to make estimates and assumptions and therefore are critical to understanding our results of operations, are:

Previous wording

•EDA solutions include digital, custom and FPGA IC design software, verification software and hardware products, system integration products and services, and obligations to provide unspecified updates and support services. EDA products and services are typically sold through Technology Subscription License (TSL) arrangements that grant customers the right to access and use all of the licensed products at the outset of an arrangement; software updates are generally made available throughout the entire term of the arrangement. The duration of our TSL contracts is generally three years, though it may vary for specific arrangements. We have concluded that the software licenses in TSL contracts are not distinct from the obligation to provide unspecified software updates to the licensed software throughout the license term, because the multiple software licenses and support represent inputs to a single, combined offering, and timely, relevant software updates are integral to maintaining the utility of the software licenses. We recognize revenue for the combined performance obligation under TSL contracts ratably over the term of the license.

Current wording

License (TSL) arrangements that grant customers the right to access and use all of the licensed products at the outset of an arrangement; software updates are generally made available throughout the entire term of the arrangement. The duration of our TSL contracts is generally three years, though it may vary for specific arrangements. We have concluded that the software licenses in TSL contracts are not distinct from the obligation to provide unspecified software updates to the licensed software throughout the license term, because the multiple software licenses and support represent inputs to a single, combined offering, and timely, relevant software updates are integral to maintaining the utility of the software licenses. We recognize revenue for the combined performance obligation under TSL contracts ratably over the term of the license.

Previous wording

•Design IP includes our Synopsys IP portfolio. These arrangements generally have two performance obligations which consist of transferring of the licensed IP and providing related support, which includes rights to technical support and software updates that are provided over the support term and are transferred to the customer over time. Revenue allocated to the IP licenses is recognized at a point in time upon the later of the delivery date or the beginning of the license period, and revenue allocated to support is recognized over the support term. Royalties are recognized as revenue in the quarter in which the applicable customer sells its products that incorporate our IP. Payments for IP contracts are generally received upon delivery of the IP. Revenue related to the customization of certain IP is recognized over time, generally using costs incurred or hours expended to measure progress.

Current wording

•Design IP includes our interface, foundation, security, and embedded processor IP, IP subsystems, and IP implementation services. These arrangements generally have two performance obligations which consist of transferring of the licensed IP and providing related support, which includes rights to technical support and software updates that are provided over the support term and are transferred to the customer over time. Revenue allocated to the IP licenses is recognized at a point in time upon the later of the delivery date or the beginning of the license period, and revenue allocated to support is recognized over the support term. Royalties are recognized as revenue in the quarter in which the applicable customer sells its products that incorporate our IP. Payments for IP contracts are generally received upon delivery of the IP. Revenue related to the customization of certain IP is recognized over time, generally using costs incurred or hours expended to measure progress.

Previous wording

Contracted but unsatisfied or partially unsatisfied performance obligations (backlog) as of July 31, 2024 were $7.9 billion, which includes $1.2 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. We have elected to exclude future sales-based royalty payments from the remaining performance obligations. Approximately 40% of the backlog as of July 31, 2024, excluding non-cancellable FSA, is expected to be recognized as revenue over the next 12 months, with the remainder recognized thereafter. The majority of the remaining backlog is expected to be recognized in the following three years.

Current wording

Contracted but unsatisfied or partially unsatisfied performance obligations (backlog) as of January 31, 2025 were $7.7 billion, which includes $1.1 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. We have elected to exclude future sales-based royalty payments from the remaining performance obligations. Approximately 42% of the backlog as of January 31, 2025, excluding non-cancellable FSA, is expected to be recognized as revenue over the next 12 months, with the remainder recognized thereafter. The majority of the remaining backlog is expected to be recognized in the following three years.

Previous wording

The amount and composition of unsatisfied performance obligations will fluctuate period to period. We do not believe the amount of unsatisfied performance obligations is indicative of future sales or revenue, or that such obligations at the end of any given period correlates with actual sales performance of a particular geography or particular products and services. For more information regarding our revenue during the three and nine months ended July 31, 2024, including our contract balances as of such date, see Note 6. Revenue of the Notes to Condensed Consolidated Financial Statementsin this Quarterly Report.

Current wording

The amount and composition of unsatisfied performance obligations will fluctuate period to period. We do not believe the amount of unsatisfied performance obligations is indicative of future sales or revenue, or that such obligations at the end of any given period correlates with actual sales performance of a particular geography or particular products and services. For more information regarding our revenue during the three months ended January 31, 2025, including our contract balances as of such date, see Note 5. Revenue of the Notes to Condensed Consolidated Financial Statementsin this Quarterly Report.

Previous wording

The increase in total revenues for the three and nine months ended July 31, 2024 compared to the same periods in fiscal 2023 was due principally to revenue growth across a majority of products and geographies. The increase for the nine-month period also included the impact of the extra week in the first quarter of fiscal 2024 of approximately $70.5 million.

Current wording

The decrease in total revenues for the three months ended January 31, 2025 compared to the same period in fiscal 2024 was primarily due tothe impact of the extra week in the first quarter of fiscal 2024 of approximately $63.2 million, as well as a decrease in the revenue of IP and hardware products of approximately $74.0 million driven by the timing of customer spending and strong IP revenue in the first quarter of fiscal 2024.

Previous wording

The increase in time-based products revenue for the nine months ended July 31, 2024 compared to the same period in fiscal 2023 was primarily attributable to an increase in TSL license revenue from arrangements booked in prior periods and the impact of the extra week in the first quarter of fiscal 2024.

Current wording

The increase in time-based products revenue for the three months ended January 31, 2025 compared to the same period in fiscal 2024 was primarily attributable to an increase in TSL license revenue from arrangements booked in prior periods, partially offset by the impact of the extra week in the first quarter of fiscal 2024.

Previous wording

The increase in upfront products revenue for the three and nine months ended July 31, 2024 compared to the same periods in fiscal 2023 was primarily due to an increase in the sale of IP and hardware products, driven by higher demand from customers.

Current wording

The decrease in upfront products revenue for the three months ended January 31, 2025 compared to the same period in fiscal 2024 was primarily due to a decrease in the sale of IP and hardware products, driven by the timing of customer spending.

Previous wording

The decrease in maintenance revenue for the three months ended July 31, 2024 compared to the same period in fiscal 2023 was primarily due to a decrease in the volume of arrangements that include maintenance. The increase in maintenance revenue for the nine months ended July 31, 2024 compared to the same period in fiscal 2023 was primarily due to an increase in the volume of arrangements that include maintenance.

Current wording

The increase in maintenance revenue for the three months ended January 31, 2025 compared to the same period in fiscal 2024 was primarily due to an increase in the volume of arrangements that include maintenance.

Previous wording

The increase in professional service and other revenue for the three and nine months ended July 31, 2024 compared to the same periods in fiscal 2023 was primarily due to the timing of IP customization projects.

Current wording

The decrease in professional service and other revenue for the three months ended January 31, 2025 compared to the same period in fiscal 2024 was primarily due to the timing of IP customization projects.

Previous wording

Cost of products revenue. Cost of products revenue includes costs related to products sold and software licensed, hardware-related costs including inventory provisions, allocated operating costs related to product support and distribution, royalties paid to third-party vendors, and the amortization of capitalized software development costs.

Current wording

Cost of products revenue. Cost of products revenue includes costs related to products sold and software licensed, hardware-related costs including inventory provisions, allocated operating costs related to product support and distribution, and royalties paid to third-party vendors.

Previous wording

Amortization of acquired intangible assets. Amortization of acquired intangible assets, included in cost of revenue, consists of the amortization of core/developed technology and certain contract rights intangible assets related to acquisitions.

Current wording

Amortization of acquired intangible assets. Amortization of acquired intangible assets, included in cost of revenue, consists of the amortization and impairment charges of core/developed technology and certain contract rights intangible assets related to acquisitions.

Previous wording

The increase in cost of revenue for the three months ended July 31, 2024 compared to the same period in fiscal 2023 was primarily due to increases of $16.1 million in costs to fulfill IP consulting arrangements, $7.2 million in employee-related costs as a result of headcount increases from hiring, $3.9 million in hardware-related costs including inventory provisions, and $3.5 million in amortization of acquired technology-related intangible assets.

Current wording

The decrease in cost of revenue for the three months ended January 31, 2025 compared to the same period in fiscal 2024 was primarily due to decreases of $5.2 million in hardware-related costs including inventory provisions, $4.6 million in amortization of acquired technology-related intangible assets, $3.0 millionin facility costs, and$2.4 million in costs to fulfill IP consulting arrangements, partially offset by an increase of $6.5 million in employee-related costs as a result of headcount increases from hiring.

Previous wording

The increase in research and development expenses for the nine months ended July 31, 2024 compared to the same period in fiscal 2023 was primarily due to increases of $102.2 million in employee-related costs as a result of headcount increases as we continue to expand and enhance our product portfolio, $15.9 million in the change in the fair value of our executive deferred compensation plan assets, $9.1 million in consultant and contractor costs, and $6.6 million in facility costs.

Current wording

The increase in research and development expenses for the three months ended January 31, 2025 compared to the same period in fiscal 2024 was primarily due to increases of $19.4 million in employee-related costs as a result of headcount increases as we continue to expand and enhance our product portfolio, $10.3 million in consultant and contractor costs, and $7.4 million in facility costs, partially offset by a decrease of $7.9 million in the change in the fair value of our executive deferred compensation plan assets.

Previous wording

The increase in sales and marketing expenses for the three months ended July 31, 2024 compared to the same period in fiscal 2023 was primarily due to increases of $16.6 million in employee-related costs due to headcount increases, and $2.2 million in the change in the fair value of our executive deferred compensation plan assets.

Current wording

The decrease in sales and marketing expenses for the three months ended January 31, 2025 compared to the same period in fiscal 2024 was primarily due to a decrease of $9.4 million in the change in the fair value of our executive deferred compensation plan assets.

Previous wording

The increase in general and administrative expenses for the three months ended July 31, 2024 compared to the same period in fiscal 2023 was primarily due to increases of $39.2 million in legal, consulting and other professional fees mainly in connection with the Ansys Merger, $9.5 million in employee-related costs due to headcount increases from hiring, and $3.3 million in depreciation and maintenance expense.

Current wording

The increase in general and administrative expenses for the three months ended January 31, 2025 compared to the same period in fiscal 2024 was primarily due to an increase of $34.4 million in legal, consulting and other professional fees mainly in connection with the Ansys Merger.

Previous wording

The increase in interest and other income (expense) for the three and nine months ended July 31, 2024 as compared to the same periods in fiscal 2023 was primarily due to the change in the fair value of our executive deferred compensation plan assets. The increase for the nine-month period also included the impact of gain recognized from the sale of strategic investments.

Current wording

The decrease in interest and other income (expense) for the three months ended January 31, 2025 as compared to the same period in fiscal 2024 was primarily due tothe impact of gain recognized from the sale of strategic investments in the first quarter of fiscal 2024 and a decrease in the change in fair value of our executive deferred compensation plan assets.

Previous wording

We do not allocate certain operating expenses managed at a consolidated level to our reportable segments. These unallocated expenses consist primarily of amortization of acquired intangible assets, stock-based compensation expense, changes in the fair value of deferred compensation plan, restructuring charges, and acquisition/divestiture related items. See Note 18. Segment Disclosure of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report for more information.

Current wording

We do not allocate certain operating expenses managed at a consolidated level to our reportable segments. These unallocated expenses consist primarily of amortization of acquired intangible assets, stock-based compensation expense, changes in the fair value of deferred compensation plan, and acquisition/divestiture related items. See Note 17. Segment Disclosure of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report for more information.

Previous wording

The increase in adjusted operating income for the three and nine months ended July 31, 2024 compared to the same periods in fiscal 2023 was primarily due to an increase in revenue from arrangements booked in prior periods.

Current wording

The increase in adjusted operating income for the three months ended January 31, 2025 compared to the same period in fiscal 2024 was primarily due to an increase in revenue from arrangements booked in prior periods.

Previous wording

The increase in adjusted operating income for the three and nine months ended July 31, 2024 compared to the same periods in fiscal 2023 was primarily due to an increase in the revenue of IP products driven by timing of customer demands.

Current wording

The decrease in adjusted operating income for the three months ended January 31, 2025 compared to the same period in fiscal 2024 was primarily due to a decrease in the revenue of IP products driven by timing of customer spending.