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); acquisitions and their expected impact, such as our recent acquisition of ANSYS, Inc. (Ansys), including unexpected difficulties or expenditures relating thereto, our ability to successfully integrate and to realize the anticipated synergies, on a timely basis or at all, and the diversion of management time on integration-related matters; planned dispositions and their expected impact, including the Regulatory Divestitures (as defined below), and their potential impact on our ability to realize the benefits of the Ansys Merger; the level of, and obligations associated with, our indebtedness, including the debts incurred in connection with the Ansys Merger (as defined below); our plan to reallocate resources in our Design IP segment to higher growth opportunities; the anticipated impact of China export control restrictions, including the Q3 2025 BIS Restrictions (as defined below); 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 concentration, 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…

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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; our acquisition of ANSYS, Inc. (Ansys), and its expected impact; business and market outlook, strategies, technological trends, such as artificial intelligence (AI), and initiatives and opportunities, including, among other things, our reallocation of resources in our Design IP segment to higher growth opportunities; the potential impact of the uncertain macroeconomic environment and global economic conditions on our financial results; the impact of current and future U.S. and foreign trade regulations, government actions and regulatory changes, such as export control restrictions and tariffs, including the anticipated impact of China export control restrictions; planned acquisitions or divestitures, and their anticipated impact; customer concentration, demand and market expansion; our planned product releases and capabilities, including the creation of joint solutions as a result of the Ansys Merger; industry growth rates; the expected realization of our contracted but unsatisfied or partially unsatisfied performance obligations (backlog); planned stock repurchases; our expected tax rate; and the status, expected outcome or expected impact of litigation and/or regulatory investigations. 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 attributable to Synopsys or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.

Previous wording

•Total cost of revenue and operating expenses was $4.0 billion, an increase of $559.2 million or 16% primarily due to increases of $330.2 million in employee-related costs resulting from headcount increases through organic growth, $121.3 million in legal, consulting and other professional fees mainly in connection with the Ansys Merger, and $63.7 million of amortization expense related to intangible assets acquired from the Ansys Merger.

Current wording

•Total cost of revenue and operating expenses was $2.2 billion, an increase of $1.0 billion or 83%, reflecting $394.1 million of amortization expense related to intangible assets acquired from the Ansys Merger, as well as an increase of $350.2 million in employee-related costs primarily due to the headcount increases as a result of the Ansys Merger.

Previous wording

Synopsys delivers industry-leading silicon design, IP, simulation and analysis (S&A) solutions as well as design services. We partner closely with our customers across a wide range of industries to maximize their R&D capability and productivity, 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.

Current wording

Synopsys delivers industry-leading silicon design, simulation and analysis (S&A) and IP solutions as well as design services. We partner closely with our customers across a wide range of industries to maximize their R&D capability and productivity, 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 revenue 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 two to 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

For more on risks related to the Ansys Merger, see Part II, Item 1A, Risk Factors, “Risks Related to the Ansys Merger" of this Quarterly Report.

Current wording

See Part II, Item 1A, Risk Factors for more on risks related to the Ansys Merger.

Previous wording

Impact of the Current Macroeconomic and Geopolitical Environment

Current wording

Impact of the Current Macroeconomic Environment

Previous wording

Uncertainty in the macroeconomic environment, including the effects of, among other things, changes in U.S. and global trade policy, including the recently proposed and enacted tariffs by the U.S. and other governments, 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 increased volatility in global 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.

Current wording

The current macroeconomic environment reflects the effects of, among other things, changes in U.S. and global trade policy, including the tariffs enacted beginning in 2025 by the U.S. and other governments and subsequent tariff and trade policy revisions, sustained global inflationary pressures and elevated interest rates, potential economic slowdowns or recessions, supply chain disruptions, geopolitical pressures, and fluctuations in foreign exchange rates. This uncertain macroeconomic environment has resulted in increased volatility in global 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.

Previous wording

We expect growth across our geographies in fiscal 2025 with the exception of China, where we are continuing to experience a challenging economic environment due to the collective impact of macroeconomic factors and Trade Restrictions (as defined below). See the discussion below under the heading "Developments in Export Control Regulations" 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 Trade Restrictions, including export control regulations, on Synopsys.

Current wording

We expect growth across most geographies in fiscal 2026; however, we are expecting a challenging near-term environment, including in China, due to macroeconomic factors and Trade Restrictions (as defined below). See the discussion below under the heading "Impact of Global Trade Policy and the Current Geopolitical Environment" 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" for further discussion of the impact of Trade Restrictions, including export control regulations and geopolitical events, on Synopsys.

Previous 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.

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" for further discussion of the impact of global economic uncertainty on our business, operations and financial condition and potential fluctuations in our operating results, respectively.

Previous wording

We are also actively monitoring the recent changes in U.S. and global trade policy, such as the recently proposed and enacted tariffs by the U.S. government. Certain countries have responded to the U.S. tariffs by imposing or threatening retaliatory tariffs. There may be additional changes to tariff levels and other aspects of global trade policy in fiscal 2025 in the U.S. and other countries due to global trade negotiations and other factors. While we are actively monitoring these changes in global trade policy and the effects they may have on our business and broader macroeconomic environment, they have not had a material impact on our business, operating results or financial condition to date.

Current wording

We are actively monitoring changes to global trade policy, such as changes to U.S. Export Regulations (as defined below) and developments related to the tariffs enacted by the U.S. government. Beginning in fiscal 2025, the U.S. government has imposed a number of new and higher U.S. tariffs on imports from countries around the world. Certain countries have responded to the U.S. tariffs by imposing or threatening retaliatory tariffs. There may be additional changes to tariffs or new tariffs and other aspects of global trade policy in fiscal 2026 in the U.S. and other countries due to global trade negotiations and other factors. These changes in global trade policy have not had a material impact on our business, operating results or financial condition to date.

Previous wording

China export control restrictions, including the Q3 2025 BIS Restrictions, have negatively impacted our business in China, including in our Design IP segment, and may continue to impact design starts or other aspects of our business in China in the future. The evolving nature of U.S. Export Regulations, including the potential for new and expanded license requirements of this or similar nature, creates uncertainty regarding the current and future impacts on our business. We anticipate additional changes to the U.S. Export Regulations or other U.S. or non-U.S. export, sanctions, or similar trade requirements (collectively, the Trade Restrictions) 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, new or expanded license requirements, 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 (BIS) has continued to publish 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 certain ICs, as well as controls on ECAD software for advanced semiconductor packaging involving multiple chips or chiplets, and certain other restrictions on China’s access to certain semiconductor and advanced computing technology. U.S.-China relations remain fluid, in particular with respect to trade policy and export restrictions relating to dual-use technologies. China export control restrictions, including certain BIS restrictions that were imposed in the third quarter of 2025 and subsequently rescinded as disclosed in our prior filings, negatively impacted our business in China, including in our Design IP segment, and may continue to impact design starts or other aspects of our business in China in the future. The evolving nature of U.S. Export Regulations, including the potential for new and expanded license requirements of this or similar nature, creates uncertainty regarding the current and future impacts on our business. We anticipate additional changes to the U.S. Export Regulations or other U.S. or non-U.S. export, sanctions, or similar trade requirements (collectively, the Trade Restrictions) 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, new or expanded license requirements, 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. or non-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 U.S. Export Regulations, see 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.”

Previous wording

We are also monitoring other geopolitical pressures around the world, including, among others, changes in China-Taiwan and U.S.-China 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.

Current wording

We are also monitoring other geopolitical pressures around the world, including, among others, changes in China-Taiwan and U.S.-China relations, the conflicts in Ukraine and the Middle East and other regional or global military conflicts or instability. 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 ongoing conflicts, at this time they have not had a material impact on our business, operating results or financial condition to date.

Previous wording

Design Automation. This segment includes our advanced silicon design, verification products and services, S&A solutions, 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. Engineers use our S&A solutions to virtually test and optimize designs across various physics domains, such as structural analysis, thermal analysis, and computational fluid dynamics (CFD).

Current wording

Design Automation. This segment includes our advanced silicon design, verification products and services, and Ansys products, and system integration products and services. This segment also includes digital, custom and field programmable gate array (FPGA) integrated circuit (IC) design software, verification software and hardware products, 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. Engineers use our S&A solutions to virtually test and optimize designs across various physics domains, such as structural analysis, thermal analysis, and computational fluid dynamics (CFD).

Previous 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.

Current wording

Design IP. This segment includes our logic libraries, embedded memories, wired interface IP, memory interface IP, security IP, and embedded processors 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

The accounting policies that most frequently require us to make estimates and assumptions and therefore are critical to understanding our results of operations, are Revenue Recognition and Business Combinations. We updated our critical accounting estimates for Business Combinations in the third quarter of fiscal 2025. There have been no material changes in our critical accounting estimates other than those related to Business Combinations during the nine months ended July 31, 2025 since our Annual Report for fiscal 2024.

Current wording

We believe the critical accounting policies that reflect more significant judgments and estimates used in the preparation of our consolidated financial statements regarding critical accounting estimates are Revenue Recognition and Business Combinations. There have been no material changes in our critical accounting estimates during the three months ended January 31, 2026 since our Annual Report for fiscal 2025.

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

•EDA solutions include digital, custom and FPGA IC design software, verification software and hardware products, Ansys semiconductor 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 two to 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

•Simulation and analysis (S&A) solutions allow engineers to virtually test and optimize designs across various physics domains, such as structural analysis, thermal analysis, and CFD. S&A software solutions are offered as subscription solutions and also as perpetual licenses. Software subscription arrangements include bundles of time-based software licenses with support services, which includes rights to technical support and software updates that are provided over the support term and are transferred to the customer over time. In such subscription arrangements, the updates to time-based software licenses are not considered integral to maintaining the utility of the software. We consider the license and support services as separate performance obligations. In these instances, we allocate the total consideration received for the revenue arrangement to the separate performance obligations based on the standalone selling prices of the time-based software license and support service. The time-based software license revenue is presented as upfront products revenue, recognized at a point of time upon the later of the delivery date or the beginning of the license period, and the revenue related to the support service is presented as maintenance and service revenue and is recognized over the term of the arrangement. Perpetual license arrangements typically include a perpetual license sold with support services, which includes a stand-ready obligation to provide technical support and software updates over the support term. We allocate the total consideration received for the bundled perpetual and support service arrangements based on the standalone selling prices of the perpetual license and support service. Revenue from perpetual licenses is presented as upfront product revenue and is recognized at a point in time upon the later of the delivery date or the beginning of the license period. Revenue from support service is classified as maintenance and service revenue and is recognized ratably over the term of the contract, as we satisfy the support service performance obligation.

Current wording

•S&A solutions allow engineers to virtually test and optimize designs across various physics domains, such as structural analysis, thermal analysis, and CFD. S&A software solutions are offered as subscription solutions and also as perpetual licenses. Software subscription arrangements include bundles of time-based software licenses with support services, which includes rights to technical support and software updates that are provided over the support term and are transferred to the customer over time. In such subscription arrangements, the updates to time-based software licenses are not considered integral to maintaining the utility of the software. We consider the license and support services as separate performance obligations. In these instances, we allocate the total consideration received for the revenue arrangement to the separate performance obligations based on the standalone selling prices of the time-based software license and support service. The time-based software license revenue is presented as upfront products revenue, recognized at a point of time upon the later of the delivery date or the beginning of the license period, and the revenue related to the support service is presented as maintenance and service revenue and is recognized over the term of the arrangement. Perpetual license arrangements typically include a perpetual license sold with support services, which includes a stand-ready obligation to provide technical support and software updates over the support term. We allocate the total consideration received for the bundled perpetual and support service arrangements based on the standalone selling prices of the perpetual license and support service. Revenue from perpetual licenses is presented as upfront product revenue and is recognized at a point in time upon the later of the delivery date or the beginning of the license period. Revenue from support service is classified as maintenance and service revenue and is recognized ratably over the term of the contract, as we satisfy the support service performance obligation.

Previous 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.

Current wording

•Design IP includes our logic libraries, embedded memories, wired interface IP, memory interface IP, security IP, and embedded processors. 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

Our revenues are subject to fluctuations, primarily due to customer requirements including customer demand, timing requirements and the value of contract renewals. For example, we experience fluctuations in our revenues due to factors such as the timing of IP product sales, Flexible Spending Account (FSA) drawdowns, royalties, and hardware products sales. As revenues from IP products sales and hardware products sales are recognized upfront, customer demand and timing requirements for such IP products and hardware products could result in increased variability of our total revenues.

Current wording

Our revenues are subject to fluctuations, primarily due to customer requirements including customer demand, timing requirements and the value of contract renewals. For example, we experience fluctuations in our revenues due to factors such as the timing of IP product sales, Flexible Spending Account (FSA) drawdowns, royalties, and hardware products sales. As revenues from sales of IP products, hardware products and S&A product licenses are recognized upfront, customer demand and timing requirements for such IP products, hardware products and S&A product licenses could result in increased variability of our total revenues.

Previous wording

Contracted but unsatisfied or partially unsatisfied performance obligations (backlog) as of July 31, 2025 were $10.1 billion, which includes $1.3 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 46% of the backlog as of July 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.

Current wording

Contracted but unsatisfied or partially unsatisfied performance obligations (backlog) were $11.3 billion as of January 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. We have elected to exclude future sales-based royalty payments from the remaining performance obligations. Approximately 47% of the backlog as of January 31, 2026, 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, 2025, including our contract balances as of such date, see Note 5. 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, 2026, including our contract balances as of such date, see Note 4. 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, 2025 compared to the same periods in fiscal 2024 was primarily due to revenue growth of our business across a majority of product groups and geographies, offset by weakness in our Design IP segment due to several headwinds, including China export control restrictions, such as the Q3 2025 BIS Restrictions, weaker than expected demand from a major foundry customer, and certain roadmap and resource decisions that did not yield their intended results. The increase for the nine-month period was also partially offset bythe impact of the extra week in the first quarter of fiscal 2024 of approximately $63.2 million.

Current wording

The increase in total revenues for the three months ended January 31, 2026 compared to the same period in fiscal 2025 was primarily due to Ansys' contribution of $885.6 million in revenue for the three months ended January 31, 2026, and revenue growth of our business across a majority of product groups and geographies, offset by weakness in our Design IP segment as we take actions to sharpen our execution and reallocate resources to the highest growth opportunities.

Previous wording

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

Current wording

The increase in time-based products revenue for thethree months ended January 31, 2026 compared to the same period in fiscal 2025 was primarily attributable to Ansys' contribution of $78.4 million in time-based products revenue for the three months ended January 31, 2026, and an increase in TSL license revenue from arrangements booked in prior periods.

Previous wording

The increase in upfront products revenue for thethree andnine months ended July 31, 2025 compared to the same periods in fiscal 2024 was primarily due to an increase in the sale of hardware products, driven by higher demand from customers.

Current wording

The increase in upfront products revenue for the three months ended January 31, 2026 compared to the same period in fiscal 2025 was primarily due to Ansys' contribution of $383.0 million in upfront products revenue andan increase in the sale of hardware products driven by higher demand from customers, offset by a decrease in license revenue due to timing of customer requirements for IP products and the Optical Solutions Group divestiture, for the three months ended January 31, 2026.

Previous wording

Upfront products revenue as a percentage of total revenue will likely fluctuate based on the timing of IP and hardware product sales. Such fluctuations will continue to be impacted by the timing of shipments and FSA drawdowns due to customer requirements.

Current wording

Upfront products revenue as a percentage of total revenue will likely fluctuate based on the timing of IP, hardware and S&A product sales. Such fluctuations will continue to be impacted by the timing of shipments and FSA drawdowns due to customer requirements.

Previous wording

The increase in maintenance revenue for the threeand nine months ended July 31, 2025 compared to the same periods in fiscal 2024 was primarily due to an increase in the volume of arrangements that include maintenance largely due to contributions from Ansys following the completion ofthe Ansys Merger.

Current wording

The increase in maintenance revenue for the three months ended January 31, 2026 compared to the same period in fiscal 2025 was primarily due to an increase in the volume of arrangements that include maintenance largely due to Ansys' contribution of $404.4 million in maintenance revenue for the three months ended January 31, 2026.

Previous wording

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

Current wording

The increase in professional service and other revenue for the three months ended January 31, 2026 compared to the same period in fiscal 2025 was primarily due to Ansys' contribution of $19.8 million in professional service and other revenue and the timing of IP customization projects.

Previous wording

We divide cost of revenue into three categories: cost of products revenue, cost of maintenance and service revenue, and amortization of acquired intangible assets.

Current wording

Our cost of revenue is comprised of three categories: cost of products revenue, cost of maintenance and service revenue, and amortization of acquired intangible assets.

Previous 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.

Current 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.

Previous wording

The increase in cost of revenue for the nine months ended July 31, 2025 compared to the same period in fiscal 2024 was primarily due to increases of $53.8 million in employee-related costs as a result of headcount increases from organic growth, $39.5 million in hardware-related costs including inventory provisions, and $21.4 million in amortization of acquired technology-related and contract rights intangible assets mainly in connection with the Ansys Merger, partially offset by decreases of $8.6 million in costs to fulfill IP consulting arrangements, $4.9 million in IT and facility costs, and $2.0 million in the change in the fair value of our executive deferred compensation plan assets.

Current wording

The increase incosts of products revenue and costs of maintenance and service revenue for the three months ended January 31, 2026 compared to the same period in fiscal 2025 wasprimarily due to increases in employee-related costs as a result of headcount increases from the Ansys Merger, which contributed $28.7 million, and organic growth, which contributed $5.5 million, $23.9 million in hardware-related costs including inventory provisions, $14.9 million in costs to fulfill IP consulting arrangements, and $12.1 million in IT and facility costs. The increase in amortization of acquired intangible assetsfor the three months ended January 31, 2026 compared to the same period in fiscal 2025 was primarily due to an increase of $242.1 million in connection with the Ansys Merger.

Previous wording

The increase in research and development expenses for thenine months ended July 31, 2025 compared to the same period in fiscal 2024 was primarily due to increases of $164.7 million in employee-related costs as a result of headcount increases from organic growth, as we continue to expand and enhance our product portfolio, $28.8 million in IT and facility costs, and $26.3 million in consultant and contractor costs, partially offset by a decrease of $15.4 million in the change in the fair value of our executive deferred compensation plan assets.

Current wording

The increase in research and development expenses for the three months ended January 31, 2026 compared to the same period in fiscal 2025 was primarily due toincreases of $127.0 million in employee-related costs due to headcount increases from the Ansys Merger and $37.6 million in IT and facility costs, partially offset by a decrease of $4.8 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, 2025 compared to the same period in fiscal 2024 was primarily due to increases of $33.5 million in employee-related costs due to headcount increases from organic growth as well as from the Ansys Merger, $8.8 million in IT and facility costs, and $2.6 million in the change in the fair value of our executive deferred compensation plan assets.

Current wording

The increase in sales and marketing expenses for the three months ended January 31, 2026 compared to the same period in fiscal 2025 was primarily due toincreases of $143.8 million in employee-related costs due to headcount increases from the Ansys Merger and $19.3 million in IT and facility costs.

Previous wording

The increase in sales and marketing expenses for thenine months ended July 31, 2025 compared to the same period in fiscal 2024 was primarily due to increases of $47.2 million in employee-related costs due to headcount increases from organic growth as well as from the Ansys Merger, and $5.5 million in IT and facility costs, partially offset by a decrease of $12.9 million in the change in the fair value of our executive deferred compensation plan assets.

Current wording

The increase in general and administrative expenses for the three months ended January 31, 2026 compared to the same period in fiscal 2025 was primarily due to increases of $47.2 million in employee-related costs due to headcount increases from the Ansys Merger, which contributed $39.7 million, and organic growth, which contributed $7.5 million, $3.4 million in depreciation and maintenance expense and $2.0 million in IT and facility costs, partially offset by a decrease of $41.9 million in consulting and other professional fees.

Previous wording

The increase in amortization of acquired intangible assets for the three and nine months ended July 31, 2025 compared to the same periods in fiscal 2024 was primarily due to amortization expense related to intangible assets acquired from the Ansys Merger. See Note 6. Goodwill and Intangible Assetsof the Notes to Condensed Consolidated Financial Statements for a schedule of future amortization amounts.

Current wording

The increase in amortization of acquired intangible assets for the three months ended January 31, 2026 compared to the same period in fiscal 2025 was primarily due to amortization expense related to intangible assets acquired from the Ansys Merger. See Note 5. Goodwill and Intangible Assetsof the Notes to Condensed Consolidated Financial Statements in this Quarterly Report for a schedule of future amortization amounts.

Previous wording

The increase in interest expense for the three and nine months ended July 31, 2025 as compared to the same periods in fiscal 2024 was primarily due to interest on the Senior Notes issued in the second quarter of fiscal 2025 and the borrowing under the Term Loan Agreement in the third quarter of fiscal 2025 in connection with the Ansys Merger. See Note 10. Senior Notes, Bridge Commitment Letter, Term Loan and Revolving Credit Facilitiesof the Notes to Condensed Consolidated Financial Statementsfor further detail on our debt obligations.

Current wording

The increase in interest expense for the three months ended January 31, 2026 as compared to the same period in fiscal 2025 was primarily due to interest on the Senior Notes issued in the second quarter of fiscal 2025 and the borrowing under the Term Loan Agreement in the third quarter of fiscal 2025 in connection with the Ansys Merger. See Note 10. Senior Notes, Bridge Commitment Letter, Term Loan and Revolving Credit Facilitiesof the Notes to Condensed Consolidated Financial Statementsin this Quarterly Report for further detail on our debt obligations.

Previous wording

The increase in other income (expense) for the three months ended July 31, 2025 as compared to the same period in fiscal 2024 was primarily due to higher interest income as a result of higher average cash balances and an increase in the change in fair value of our executive deferred compensation plan assets.

Current wording

The decrease in other income (expense) for the three months ended January 31, 2026 as compared to the same period in fiscal 2025 was primarily due to lower interest income as a result of lower average cash balances 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, 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.

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, restructuring charges, and acquisition/divestiture related items. See Note 16. 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, 2025 compared to the same periods in fiscal 2024 was primarily due to an increase in revenue from our hardware business and arrangements booked in prior periods.

Current wording

The increase in adjusted operating income for the three months ended January 31, 2026 compared to the same period in fiscal 2025 was primarily due to an increase in revenue from arrangements booked in prior periods.

Previous wording

The decrease in adjusted operating income for the three and nine months ended July 31, 2025 compared to the same periods in fiscal 2024 was primarily due to lower revenue from the impact of China export control restrictions, including the Q3 2025 BIS Restrictions, weaker than expected demand from a major foundry customer, and certain roadmap and resource decisions that did not yield their intended results, as well as an increase in employee-related costs due to headcount increases.

Current wording

The decrease in adjusted operating income for the three months ended January 31, 2026 compared to the same period in fiscal 2025 was primarily due to lower revenueas we take actions to sharpen our execution and reallocate resources to the highest growth opportunities.