filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
SYNOPSYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except par value amounts)
| January 31, 2025 | October 31, 2024 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 3,653,880 | $ | 3,896,532 | |||||||
| Short-term investments | 155,489 | 153,869 | |||||||||
| Total cash, cash equivalents and short-term investments | 3,809,369 | 4,050,401 | |||||||||
| Accounts receivable, net | 892,647 | 934,470 | |||||||||
| Inventories | 415,199 | 361,849 | |||||||||
| Prepaid and other current assets | 1,206,401 | 1,122,946 | |||||||||
| Total current assets | 6,323,616 | 6,469,666 | |||||||||
| Property and equipment, net | 546,406 | 563,006 | |||||||||
| Operating lease right-of-use assets, net | 545,867 | 565,917 | |||||||||
| Goodwill | 3,433,369 | 3,448,850 | |||||||||
| Intangible assets, net | 180,950 | 195,164 | |||||||||
| Deferred income taxes | 1,393,044 | 1,247,258 | |||||||||
| Other long-term assets | 617,837 | 583,700 | |||||||||
| Total assets | $ | 13,041,089 | $ | 13,073,561 | |||||||
| LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 938,679 | $ | 1,163,592 | |||||||
| Operating lease liabilities | 99,310 | 94,791 | |||||||||
| Deferred revenue | 1,320,605 | 1,391,737 | |||||||||
| Total current liabilities | 2,358,594 | 2,650,120 | |||||||||
| Long-term operating lease liabilities | 551,507 | 574,065 | |||||||||
| Long-term deferred revenue | 316,178 | 340,831 | |||||||||
| Long-term debt | 14,220 | 15,601 | |||||||||
| Other long-term liabilities | 495,689 | 469,738 | |||||||||
| Total liabilities | 3,736,188 | 4,050,355 | |||||||||
| Redeemable non-controlling interest | — | 30,000 | |||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock, $0.01 par value: 2,000 shares authorized; none outstanding | — | — | |||||||||
| Common stock, $0.01 par value: 400,000 shares authorized; 154,618 and 154,112 shares outstanding, respectively | 1,547 | 1,541 | |||||||||
| Capital in excess of par value | 1,127,181 | 1,211,206 | |||||||||
| Retained earnings | 9,278,950 | 8,984,105 | |||||||||
| Treasury stock, at cost: 2,643 and 3,148 shares, respectively | (860,967) | (1,025,770) | |||||||||
| Accumulated other comprehensive income (loss) | (241,919) | (180,380) | |||||||||
| Total Synopsys stockholders’ equity | 9,304,792 | 8,990,702 | |||||||||
| Non-controlling interest | 109 | 2,504 | |||||||||
| Total stockholders’ equity | 9,304,901 | 8,993,206 | |||||||||
| Total liabilities, redeemable non-controlling interest and stockholders’ equity | $ | 13,041,089 | $ | 13,073,561 |
See the accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
SYNOPSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share amounts)
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Time-based products | $ | 828,238 | $ | 805,063 | |||||||||||||||||||
| Upfront products | 368,124 | 442,366 | |||||||||||||||||||||
| Total products revenue | 1,196,362 | 1,247,429 | |||||||||||||||||||||
| Maintenance and service | 258,953 | 263,560 | |||||||||||||||||||||
| Total revenue | 1,455,315 | 1,510,989 | |||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Products | 168,842 | 175,498 | |||||||||||||||||||||
| Maintenance and service | 92,537 | 90,540 | |||||||||||||||||||||
| Amortization of acquired intangible assets | 8,596 | 13,155 | |||||||||||||||||||||
| Total cost of revenue | 269,975 | 279,193 | |||||||||||||||||||||
| Gross margin | 1,185,340 | 1,231,796 | |||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 553,216 | 525,534 | |||||||||||||||||||||
| Sales and marketing | 209,199 | 218,843 | |||||||||||||||||||||
| General and administrative | 167,086 | 131,264 | |||||||||||||||||||||
| Amortization of acquired intangible assets | 4,000 | 3,529 | |||||||||||||||||||||
| Total operating expenses | 933,501 | 879,170 | |||||||||||||||||||||
| Operating income | 251,839 | 352,626 | |||||||||||||||||||||
| Interest and other income (expense), net | 39,278 | 104,828 | |||||||||||||||||||||
| Income before income taxes | 291,117 | 457,454 | |||||||||||||||||||||
| Provision (benefit) for income taxes | (6,294) | 22,909 | |||||||||||||||||||||
| Net income from continuing operations | 297,411 | 434,545 | |||||||||||||||||||||
| Income from discontinued operations, net of income taxes | — | 11,662 | |||||||||||||||||||||
| Net income | 297,411 | 446,207 | |||||||||||||||||||||
| Less: Net income (loss) attributed to non-controlling interest and redeemable non-controlling interest | 1,728 | (2,905) | |||||||||||||||||||||
| Net income attributed to Synopsys | $ | 295,683 | $ | 449,112 | |||||||||||||||||||
| Net income attributed to Synopsys: | |||||||||||||||||||||||
| Continuing operations | $ | 295,683 | $ | 437,450 | |||||||||||||||||||
| Discontinued operations | — | 11,662 | |||||||||||||||||||||
| Net income | $ | 295,683 | $ | 449,112 | |||||||||||||||||||
| Net income per share attributed to Synopsys - basic: | |||||||||||||||||||||||
| Continuing operations | $ | 1.91 | $ | 2.87 | |||||||||||||||||||
| Discontinued operations | $ | — | $ | 0.08 | |||||||||||||||||||
| Basic net income per share | $ | 1.91 | $ | 2.95 | |||||||||||||||||||
| Net income per share attributed to Synopsys - diluted: | |||||||||||||||||||||||
| Continuing operations | $ | 1.89 | $ | 2.82 | |||||||||||||||||||
| Discontinued operations | $ | — | $ | 0.07 | |||||||||||||||||||
| Diluted net income per share | $ | 1.89 | $ | 2.89 | |||||||||||||||||||
| Shares used in computing per share amounts: | |||||||||||||||||||||||
| Basic | 154,408 | 152,311 | |||||||||||||||||||||
| Diluted | 156,189 | 155,334 |
See the accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
SYNOPSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Net income | $ | 297,411 | $ | 446,207 | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Change in foreign currency translation adjustment | (28,637) | 18,290 | |||||||||||||||||||||
| Change in unrealized gains (losses) on available-for-sale securities, net of tax of $0 for periods presented | (42) | 1,012 | |||||||||||||||||||||
| Cash flow hedges: | |||||||||||||||||||||||
| Deferred gains (losses), net of tax of $11,494 and $(3,003), respectively | (36,448) | 10,610 | |||||||||||||||||||||
| Reclassification adjustment on deferred (gains) losses included in net income, net of tax of $(1,403) and $(1,690), respectively | 3,588 | 3,278 | |||||||||||||||||||||
| Other comprehensive income (loss), net of tax effects | (61,539) | 33,190 | |||||||||||||||||||||
| Comprehensive income | 235,872 | 479,397 | |||||||||||||||||||||
| Less: Net income (loss) attributed to non-controlling interest and redeemable non-controlling interest | 1,728 | (2,905) | |||||||||||||||||||||
| Comprehensive income attributed to Synopsys | $ | 234,144 | $ | 482,302 |
See the accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
SYNOPSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)
| Capital in Excess of Par Value | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total Synopsys Stockholders’ Equity | Non-controlling Interest | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 31, 2024 | 154,112 | $ | 1,541 | $ | 1,211,206 | $ | 8,984,105 | $ | (1,025,770) | $ | (180,380) | $ | 8,990,702 | $ | 2,504 | $ | 8,993,206 | ||||||||||||||||||||||||||||||||||||
| Net income | 295,683 | 295,683 | 2,566 | 298,249 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax effects | (61,539) | (61,539) | (61,539) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued, net of shares withheld for employee taxes | 506 | 6 | (275,413) | 164,803 | (110,604) | (110,604) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 185,754 | 185,754 | 709 | 186,463 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments to redeemable non-controlling interest | (838) | (838) | (838) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Deconsolidation of non-controlling interest upon the sale of subsidiary | 5,634 | 5,634 | (5,670) | (36) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 31, 2025 | 154,618 | $ | 1,547 | $ | 1,127,181 | $ | 9,278,950 | $ | (860,967) | $ | (241,919) | $ | 9,304,792 | $ | 109 | $ | 9,304,901 | ||||||||||||||||||||||||||||||||||||
| Capital in Excess of Par Value | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Income (Loss) | Total Synopsys Stockholders’ Equity | Non-controlling Interest | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 31, 2023 | 152,053 | $ | 1,521 | $ | 1,276,152 | $ | 6,741,699 | $ | (1,675,650) | $ | (196,414) | $ | 6,147,308 | $ | 5,950 | $ | 6,153,258 | ||||||||||||||||||||||||||||||||||||
| Net income | 449,112 | 449,112 | (644) | 448,468 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax effects | 33,190 | 33,190 | 33,190 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | (74) | (1) | 1 | (45,000) | (45,000) | (45,000) | |||||||||||||||||||||||||||||||||||||||||||||||
| Equity forward contract, net | 45,000 | 45,000 | 45,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued, net of shares withheld for employee taxes | 557 | 5 | (318,516) | 181,310 | (137,201) | (137,201) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 179,338 | 179,338 | 1,314 | 180,652 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments to redeemable non-controlling interest | (2,261) | (2,261) | (2,261) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Recognition of non-controlling interest upon issuance of subsidiary stock | 1,498 | 1,498 | (2,030) | (532) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 31, 2024 | 152,536 | $ | 1,525 | $ | 1,183,473 | $ | 7,188,550 | $ | (1,539,340) | $ | (163,224) | $ | 6,670,984 | $ | 4,590 | $ | 6,675,574 | ||||||||||||||||||||||||||||||||||||
See the accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
SYNOPSYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
| Three Months Ended January 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 297,411 | $ | 446,207 | |||||||
| Adjustments to reconcile net income to net cash used in operating activities: | |||||||||||
| Amortization and depreciation | 47,934 | 62,888 | |||||||||
| Reduction of operating lease right-of-use assets | 25,473 | 24,376 | |||||||||
| Amortization of capitalized costs to obtain revenue contracts | 12,466 | 18,726 | |||||||||
| Stock-based compensation | 186,463 | 180,652 | |||||||||
| Allowance for credit losses | 9,919 | 6,059 | |||||||||
| Gain on sale of strategic investments | — | (55,077) | |||||||||
| Amortization of bridge financing costs | 10,468 | 1,000 | |||||||||
| Deferred income taxes | (139,075) | (101,332) | |||||||||
| Other | 186 | (786) | |||||||||
| Net changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | |||||||||||
| Accounts receivable | 30,948 | (119,571) | |||||||||
| Inventories | (55,852) | (60,883) | |||||||||
| Prepaid and other current assets | (103,567) | (96,916) | |||||||||
| Other long-term assets | (43,494) | (72,096) | |||||||||
| Accounts payable and accrued liabilities | (313,651) | (266,704) | |||||||||
| Operating lease liabilities | (23,102) | (23,569) | |||||||||
| Income taxes | 86,992 | (117,798) | |||||||||
| Deferred revenue | (96,974) | 87,034 | |||||||||
| Net cash used in operating activities | (67,455) | (87,790) | |||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from maturities of short-term investments | 19,684 | 24,559 | |||||||||
| Proceeds from sales of short-term investments | 16,411 | — | |||||||||
| Purchases of short-term investments | (37,269) | (25,612) | |||||||||
| Proceeds from sales of strategic investments | — | 55,696 | |||||||||
| Purchases of strategic investments | (3,288) | (822) | |||||||||
| Purchases of property and equipment, net | (40,715) | (40,391) | |||||||||
| Acquisitions, net of cash acquired | — | (67,827) | |||||||||
| Proceeds from business divestiture, net of cash divested | 23,808 | — | |||||||||
| Other | (611) | — | |||||||||
| Net cash used in investing activities | (21,980) | (54,397) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repayment of debt | (1,289) | (1,303) | |||||||||
| Payment of bridge financing and term loan costs | — | (48,000) | |||||||||
| Issuances of common stock | 14,417 | 9,483 | |||||||||
| Payments for taxes related to net share settlement of equity awards | (124,966) | (147,330) | |||||||||
| Redemption of redeemable non-controlling interest | (30,000) | — | |||||||||
| Net cash used in financing activities | (141,838) | (187,150) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (9,676) | 9,320 | |||||||||
| Net change in cash, cash equivalents and restricted cash | (240,949) | (320,017) | |||||||||
| Cash, cash equivalents and restricted cash, beginning of year, including cash from discontinued operations | 3,898,729 | 1,441,187 | |||||||||
| Cash, cash equivalents and restricted cash, end of period, including cash from discontinued operations | 3,657,780 | 1,121,170 | |||||||||
| Less: Cash, cash equivalents and restricted cash from discontinued operations | — | 4,962 | |||||||||
| Cash, cash equivalents and restricted cash from continuing operations | $ | 3,657,780 | $ | 1,116,208 |
See the accompanying Notes to Condensed Consolidated Financial Statements (unaudited).
SYNOPSYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business
Synopsys, Inc. (Synopsys, we, our or us) 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 engineering and research and development capacity. We are catalyzing the era of pervasive intelligence, powering innovation today that ignites the ingenuity of tomorrow.
We are a global leader in supplying the mission-critical EDA software that engineers use to design and test integrated circuits (ICs), also known as chips or silicon, and we are pioneering artificial intelligence (AI) driven chip design across the full-stack EDA suite to improve efficiency and accelerate the design, verification testing and manufacturing of advanced digital and analog chips. We provide software and hardware used to validate the electronic systems that incorporate chips and the software that runs on them, including cloud-based digital design flow to boost chip-design development productivity. We also provide technical services and support to help our customers develop advanced chips and electronic systems. These products and services are part of our Design Automation segment.
We also offer a broad and comprehensive portfolio of semiconductor IP solutions, which are pre-designed circuits that engineers use as components of larger chip designs to reduce integration risk and speed time to market. Our high quality, silicon-proven semiconductor IP includes logic libraries, embedded memories, analog IP, wired and wireless interface IP, security IP, embedded processors and subsystems. To accelerate IP integration and silicon bring-up, our IP Accelerated initiative provides architecture design expertise, hardening, and signal and power integrity analysis. These products and services are part of our Design IP segment.
Note 2. Summary of Significant Accounting Policies and Basis of Presentation
We have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Pursuant to these rules and regulations, we have condensed or omitted certain information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The condensed consolidated financial statements are unaudited but, in management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary for a fair presentation of our quarterly results. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended October 31, 2024 as filed with the SEC on December 19, 2024 (our Annual Report).
Use of Estimates. To prepare financial statements in conformity with U.S. GAAP, management must make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates and could have a material impact on our operating results and financial position.
Principles of Consolidation. The condensed consolidated financial statements include our accounts and the accounts of our wholly and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Fiscal Year and Fiscal Quarter End. Historically, our fiscal year 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.
We have changed our fiscal year end from the Saturday nearest to October 31 and consisting of 52 or 53 fiscal weeks to a fiscal year end of October 31 each year. The fiscal year change became effective with our fiscal 2025, which began on November 3, 2024. Our fiscal quarters will end on January 31, April 30, July 31 and October 31 of each year.
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. For presentation purposes, the condensed consolidated financial statements and accompanying notes refer to the closest calendar month end.
Significant Accounting Policies. There have been no material changes to our significant accounting policies included in our Annual Report*.*
Recently Adopted Accounting Pronouncements
In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which applies to all equity securities measured at fair value that are subject to contractual sale restrictions. This change prohibits entities from taking into account contractual restrictions on the sale of equity securities when estimating fair value and introduces required disclosures for such transactions. We adopted the standard as of the beginning of fiscal 2025 on a prospective basis and the adoption did not have a material impact on our condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the Chief Operating Decision Maker (CODM) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The ASU is effective for our annual reports beginning in fiscal 2025, and interim period reports beginning in fiscal 2026. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. The ASU will be effective for us beginning in fiscal 2026 and will be applied on a prospective basis. Early adoption is permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income-Expense Disaggregation (Subtopic 220-40): Disaggregation of Income Statement Expenses. The ASU requires the disclosure of additional information related to certain costs and expenses, including amounts of inventory purchases, employee compensation, and depreciation and amortization included in each income statement line item. The ASU also requires disclosure of the total amount of selling expenses and our definition of selling expenses. The ASU will be effective for our annual reports beginning in fiscal 2028, and interim period reports beginning in fiscal 2029 either on a prospective or retrospective basis. Early adoption is permitted. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements and related disclosures.
Note 3. Discontinued Operations
On September 30, 2024, we completed the sale of our former Software Integrity business to entities controlled by funds affiliated with Clearlake Capital Group, L.P. and Francisco Partners (together, the Sponsors). The aggregate consideration for the sale was $1.65 billion, comprised of: (i) cash of $1.48 billion received upon closing; (ii) $121.5 million reflecting the present value of $125 million in deferred consideration receivable in equal installments over five fiscal quarters beginning on January 17, 2025, subject to acceleration at our option prior to the closing of our pending acquisition of ANSYS Inc. (Ansys); (iii) $22.2 million reflecting the fair value of contingent consideration of up to $475 million receivable upon the Sponsors achieving a specified rate of return in the event of one or more potential liquidity transactions; and (iv) additional consideration receivable of $27.1 million as a result of net working capital adjustments. As a result of the Software Integrity Divestiture, we derecognized net assets of $720.5 million and incurred transaction costs of $61.7 million, resulting in a pre-tax gain of $868.8 million in fiscal 2024, subject to certain post-closing adjustments that are expected to be finalized in the second quarter of fiscal 2025.
We received the first deferred consideration installment in the amount of $25 million in the first quarter of fiscal 2025 and remeasured the fair value of contingent consideration at the quarter end, with no material change noted.
The financial results of the Software Integrity business were presented as income from discontinued operations, net of income taxes in our condensed consolidated statements of income. The following table presents the major components of financial results of our Software Integrity business for the period presented:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | $ | 138,241 | |||||||||||||||||||||
| Cost of revenue | 49,982 | ||||||||||||||||||||||
| Operating expenses | 81,265 | ||||||||||||||||||||||
| Interest and other income, net | 656 | ||||||||||||||||||||||
| Income from discontinued operations before income taxes | 7,650 | ||||||||||||||||||||||
| Income tax benefits | 4,012 | ||||||||||||||||||||||
| Income from discontinued operations, net of income taxes | $ | 11,662 |
The following table presents significant non-cash items and capital expenditures of discontinued operations for the period presented:
| Three Months Ended January 31, | |||||||||||
| 2024 | |||||||||||
| (in thousands) | |||||||||||
| Amortization and depreciation | $ | 11,140 | |||||||||
| Reduction of operating lease right-of-use assets | $ | 1,304 | |||||||||
| Amortization of capitalized costs to obtain revenue contracts | $ | 7,486 | |||||||||
| Stock-based compensation | $ | 15,147 | |||||||||
| Deferred income taxes | $ | 13,562 | |||||||||
| Purchases of property and equipment | $ | 348 |
Note 4. Pending Acquisition of Ansys
On January 15, 2024, we entered into an Agreement and Plan of Merger (the Merger Agreement) to acquire all of the outstanding shares of Ansys, a provider of broad engineering simulation and analysis software and services, in a cash-and-stock transaction (the Ansys Merger) that values Ansys at approximately $35.0 billion, based on the closing price of Synopsys common stock on December 21, 2023.
Under the terms of the Merger Agreement, at the effective time of the Ansys Merger (the Effective Time), each share of Ansys common stock issued and outstanding immediately prior to the Effective Time (with certain exceptions set forth in the Merger Agreement) will be converted into the right to receive 0.3450 (the Exchange Ratio) of a share of Synopsys common stock and $197.00 in cash, without interest. The Merger Agreement also provides for Synopsys’ assumption of certain outstanding Ansys options and other unvested Ansys equity awards held by continuing Ansys employees. If the stock consideration to be issued by Synopsys in connection with the Ansys Merger exceeds 19.9999% of the shares of Synopsys common stock issued and outstanding immediately prior to the Effective Time, the Exchange Ratio will be reduced to the minimum extent necessary to ensure that the aggregate number of shares of Synopsys common stock to be issued in connection with the Ansys Merger does not exceed such threshold, and the cash consideration will be correspondingly increased to offset such adjustment.
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 (OSG) to Keysight Technologies, Inc. (such sale, 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. As such, the Optical Solutions Divestiture is not considered probable and thus the assets and liabilities of OSG have not been classified as assets held for sale in the condensed consolidated balance sheets.
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.
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. 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.
Transaction costs for acquisitions were $56.8 million and $31.9 million during the three months ended January 31, 2025 and 2024, respectively. These costs mainly consisted of professional fees and administrative costs for closed and pending acquisitions and were expensed as incurred in our condensed consolidated statements of income.
Note 5. Revenue
Disaggregated Revenue
The following table shows the percentage of revenue by product groups:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| EDA | 67.3 | % | 64.2 | % | |||||||||||||||||||
| Design IP | 29.9 | % | 34.8 | % | |||||||||||||||||||
| Other | 2.8 | % | 1.0 | % | |||||||||||||||||||
| Total | 100.0 | % | 100.0 | % |
Contract Balances
The contract assets indicated below are presented as prepaid and other current assets in the condensed consolidated balance sheets. The contract assets are transferred to receivables when the rights to invoice and receive payment become unconditional. Unbilled receivables are presented as accounts receivable, net, in the condensed consolidated balance sheets.
Contract balances are as follows:
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Contract assets, net | $ | 830,450 | $ | 757,075 | |||||||
| Unbilled receivables | $ | 102,575 | $ | 44,166 | |||||||
| Deferred revenue | $ | 1,636,783 | $ | 1,732,568 |
During the three months ended January 31, 2025, we recognized revenue of $739.4 million that was included in the deferred revenue balance as of October 31, 2024, including previously unfulfilled contracts that have expired and are no longer subject to an implied promise to provide future services.
Contracted but unsatisfied or partially unsatisfied performance obligations (backlog) were approximately $7.7 billion as of January 31, 2025, which includes $1.1 billion in non-cancellable Flexible Spending Account (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 to be recognized thereafter. The majority of the remaining backlog is expected to be recognized in the following three years.
During the three months ended January 31, 2025 and 2024, we recognized $25.0 million and $25.4 million, respectively, from performance obligations satisfied from sales-based royalties earned during the periods.
Costs of Obtaining a Contract with Customer
Capitalized commission costs, net of accumulated amortization, as of January 31, 2025 were $65.3 million and are included in other long-term assets in our condensed consolidated balance sheets. Amortization of these assets was $12.5 million and $11.2 million during the three months ended January 31, 2025 and 2024, respectively, and are included in sales and marketing expense in our condensed consolidated statements of income.
Note 6. Goodwill and Intangible Assets
Goodwill
The changes in the carrying amount of goodwill during the three months ended January 31, 2025 are as follows:
| (in thousands) | |||||
| Balance at October 31, 2024 | $ | 3,448,850 | |||
| Effect of foreign currency translation | (15,481) | ||||
| Balance at January 31, 2025 | $ | 3,433,369 |
Intangible Assets
Intangible assets as of January 31, 2025 consist of the following:
| Gross Carrying Amount | Accumulated Amortization | Net Amount | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Core/developed technology | $ | 809,306 | $ | 691,524 | $ | 117,782 | |||||||||||
| Customer relationships | 313,129 | 250,771 | 62,358 | ||||||||||||||
| Contract rights intangible | 176,233 | 175,428 | 805 | ||||||||||||||
| Trademarks and trade names | 12,925 | 12,920 | 5 | ||||||||||||||
| Total | $ | 1,311,593 | $ | 1,130,643 | $ | 180,950 |
Intangible assets as of October 31, 2024 consist of the following:
| Gross Carrying Amount | Accumulated Amortization and Impairment | Net Amount | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Core/developed technology | $ | 904,347 | $ | 777,518 | $ | 126,829 | |||||||||||
| Customer relationships | 314,140 | 247,025 | 67,115 | ||||||||||||||
| Contract rights intangible | 176,382 | 175,170 | 1,212 | ||||||||||||||
| Trademarks and trade names | 12,925 | 12,917 | 8 | ||||||||||||||
| Total | $ | 1,407,794 | $ | 1,212,630 | $ | 195,164 |
Amortization expense related to intangible assets consists of the following:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Core/developed technology | $ | 8,189 | $ | 11,963 | |||||||||||||||||||
| Customer relationships | 3,996 | 3,525 | |||||||||||||||||||||
| Contract rights intangible | 407 | 1,192 | |||||||||||||||||||||
| Trademarks and trade names | 4 | 4 | |||||||||||||||||||||
| Total | $ | 12,596 | $ | 16,684 |
The following table presents the estimated future amortization of acquired intangible assets as of January 31, 2025:
| Fiscal year | (in thousands) | ||||
| Remainder of fiscal 2025 | $ | 33,673 | |||
| 2026 | 35,945 | ||||
| 2027 | 30,998 | ||||
| 2028 | 25,405 | ||||
| 2029 | 22,577 | ||||
| 2030 and thereafter | 32,352 | ||||
| Total | $ | 180,950 |
Note 7. Balance Sheet Components
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Other long-term assets: | |||||||||||
| Deferred compensation plan assets | $ | 414,002 | $ | 386,757 | |||||||
| Capitalized commission, net | 65,287 | 72,801 | |||||||||
| Other | 138,548 | 124,142 | |||||||||
| Total | $ | 617,837 | $ | 583,700 | |||||||
| Accounts payable and accrued liabilities: | |||||||||||
| Payroll and related benefits | $ | 354,061 | $ | 624,823 | |||||||
| Accrued income taxes | 243,999 | 147,115 | |||||||||
| Other accrued liabilities | 239,099 | 184,321 | |||||||||
| Accounts payable | 101,520 | 207,333 | |||||||||
| Total | $ | 938,679 | $ | 1,163,592 | |||||||
| Other long-term liabilities: | |||||||||||
| Deferred compensation plan liabilities | $ | 414,002 | $ | 386,757 | |||||||
| Other | 81,687 | 82,981 | |||||||||
| Total | $ | 495,689 | $ | 469,738 |
Assets Held for Sale
During the three months ended January 31, 2025, we commenced a plan to sell one office building with approximately 118,000 square feet. As of January 31, 2025, the office building had a carrying value of approximately $15.3 million, which was included within prepaid and other current assets in the condensed consolidated balance sheets.
Note 8. Financial Assets and Liabilities
Cash Equivalents and Short-term Investments
As of January 31, 2025, the balances of our cash equivalents and short-term investments are as follows:
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses Less Than 12 Continuous Months | Gross Unrealized Losses 12 Continuous Months or Longer | Estimated Fair Value**(1)** | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||||||||
| Money market funds | $ | 672,567 | $ | — | $ | — | $ | — | $ | 672,567 | |||||||||||||||||||
| U.S. Treasury, agency & T-bills | 10,485 | 2 | — | — | 10,487 | ||||||||||||||||||||||||
| Total: | $ | 683,052 | $ | 2 | $ | — | $ | — | $ | 683,054 | |||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||||||||
| U.S. Treasury, agency & T-bills | $ | 18,354 | $ | 21 | $ | (4) | $ | — | $ | 18,371 | |||||||||||||||||||
| Corporate debt securities | 109,596 | 314 | (96) | — | 109,814 | ||||||||||||||||||||||||
| Asset-backed securities | 27,210 | 112 | (3) | (15) | 27,304 | ||||||||||||||||||||||||
| Total: | $ | 155,160 | $ | 447 | $ | (103) | $ | (15) | $ | 155,489 | |||||||||||||||||||
*(1)*See Note 9. Fair Value Measurements for further discussion on fair values.
The contractual maturities of our available-for-sale debt securities as of January 31, 2025 are as follows:
| Amortized Cost | Fair Value | ||||||||||
| (in thousands) | |||||||||||
| 1 year or less | $ | 65,977 | $ | 66,158 | |||||||
| 1-5 years | 84,803 | 84,943 | |||||||||
| 5-10 years | 2,823 | 2,833 | |||||||||
| >10 years | 1,557 | 1,555 | |||||||||
| Total | $ | 155,160 | $ | 155,489 |
As of October 31, 2024, the balances of our cash equivalents and short-term investments are as follows:
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses Less Than 12 Continuous Months | Gross Unrealized Losses 12 Continuous Months or Longer | Estimated Fair Value**(1)** | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||||||||
| Money market funds | $ | 869,972 | $ | — | $ | — | $ | — | $ | 869,972 | |||||||||||||||||||
| U.S. Treasury, agency & T-bills | 7,984 | 1 | — | — | 7,985 | ||||||||||||||||||||||||
| Total: | $ | 877,956 | $ | 1 | $ | — | $ | — | $ | 877,957 | |||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||||||||
| U.S. Treasury, agency & T-bills | $ | 19,411 | $ | 44 | $ | (6) | $ | — | $ | 19,449 | |||||||||||||||||||
| Corporate debt securities | 105,024 | 349 | (115) | (2) | 105,256 | ||||||||||||||||||||||||
| Asset-backed securities | 29,061 | 130 | (7) | (20) | 29,164 | ||||||||||||||||||||||||
| Total: | $ | 153,496 | $ | 523 | $ | (128) | $ | (22) | $ | 153,869 | |||||||||||||||||||
*(1)*See Note 9. Fair Value Measurements for further discussion on fair values.
Restricted cash. We include amounts generally described as restricted cash in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown in the condensed consolidated statements of cash flows. Restricted cash is primarily associated with office leases and employee loan programs.
The following table provides a reconciliation of cash, cash equivalents and restricted cash included in the condensed consolidated balance sheets and the condensed consolidated statements of cash flows:
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Cash and cash equivalents | $ | 3,653,880 | $ | 3,896,532 | |||||||
| Restricted cash included in prepaid and other current assets | 3,178 | 1,529 | |||||||||
| Restricted cash included in other long-term assets | 722 | 668 | |||||||||
| Cash, cash equivalents and restricted cash | $ | 3,657,780 | $ | 3,898,729 |
Non-marketable equity securities. Our portfolio of non-marketable equity securities consists of strategic investments in privately held companies. During the first quarter of fiscal 2024, we completed the sale of strategic investments in privately-held companies. The gain recognized from the sales was $55.1 million and included in interest and other income (expense), net, in our condensed consolidated statements of income. There were no impairments of non-marketable equity securities during the three months ended January 31, 2025 and 2024.
Derivatives
We recognize derivative instruments as either assets or liabilities in the condensed consolidated balance sheets at fair value and provide qualitative and quantitative disclosures about such derivatives. We operate internationally and are exposed to potentially adverse movements in foreign currency exchange and interest rates. We enter into hedges in the form of foreign currency forward contracts to reduce our exposure to foreign currency rate changes on non-functional currency denominated forecasted transactions and balance sheet positions including: (1) certain assets and liabilities, (2) shipments forecasted to occur within approximately one month, (3) future billings and revenue on previously shipped orders, and (4) certain future intercompany invoices denominated in foreign currencies.
The majority of the forward contracts are short-term with maturity of up to 30 months at inception. We do not use foreign currency forward contracts for speculative or trading purposes. We enter into foreign exchange forward contracts with high credit quality financial institutions that are rated "A" or above and to date have not experienced nonperformance by counterparties. In addition, we mitigate credit risk in derivative transactions by permitting net settlement of transactions with the same counterparty and anticipate continued performance by all counterparties to such agreements.
The assets or liabilities associated with the forward contracts are recorded at fair value in other current assets or accrued liabilities in the condensed consolidated balance sheets. The accounting for gains and losses resulting from changes in fair value depends on the use of the foreign currency forward contract and whether it is designated and qualifies for hedge accounting. The cash flow impact upon settlement of the derivative contracts is included in net cash used in operating activities in the condensed consolidated statements of cash flows.
Additionally, in order to manage interest rate exposure related to anticipated debt transactions, in the first quarter of fiscal 2025, we entered into treasury rate lock agreements to hedge against unfavorable interest rate changes. The accounting for gains and losses resulting from changes in fair value depends on whether these are designated and qualify for hedge accounting. The assets or liabilities associated with these derivatives are recorded at fair value in other current assets or accrued liabilities in the condensed consolidated balance sheets. The cash flow impact upon settlement of the derivative contracts will be included in net cash used in operating activities in the condensed consolidated statements of cash flows.
Cash Flow Hedging Activities
Certain foreign exchange forward contracts are designated and qualify as cash flow hedges. These contracts have durations of up to 30 months or less. Certain forward contracts are rolled over periodically to capture the full length of exposure to our foreign currency risk, which can be up to three years. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on the hedged transactions. The related gains or losses resulting from changes in fair value of these hedges is initially reported, net of tax, as a component of other comprehensive income (loss) in stockholders’ equity and reclassified into revenue or operating expenses, as appropriate, at the time the hedged transactions affect earnings. We expect a majority of the hedge balance in other comprehensive income (loss) to be reclassified to the statements of income after the next 12 months.
During the three months ended January 31, 2025, we entered into 6-month interest rate hedge contracts to manage the variability in cash flows due to changes in benchmark interest rates related to anticipated debt transactions with 10-year and 30-year terms. The contracts had an aggregate notional amount of $2.0 billion and were designated as cash flow hedges with changes in fair value, net of tax, of $(20.1) million, reported in other comprehensive income (loss) and accounts payable and current liabilities in the condensed consolidated balance sheets as of January 31, 2025. To receive hedge accounting treatment, the hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on the hedged transactions. These derivatives are designated as cash flow hedges with unrealized gains and losses deferred in other comprehensive income. Upon the issuance of the underlying debt, the contracts will be settled and the accumulated balance in other comprehensive income (loss) will be subsequently amortized to interest expense over the life of the related debt. We expect a majority of the hedge balance in other comprehensive income (loss) to be reclassified to the statements of income after the next 12 months.
We did not record any gains or losses related to discontinuation of cash flow hedges during the three months ended January 31, 2025 and 2024.
Non-designated Hedging Activities
Our foreign exchange forward contracts that are used to hedge non-functional currency denominated balance sheet assets and liabilities are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in interest and other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the underlying assets and liabilities, which are also recorded in interest and other income (expense), net. The duration of the forward contracts for hedging our balance sheet exposure is approximately one month.
We also have certain foreign exchange forward contracts for hedging certain international revenues and expenses that are not designated as hedging instruments. Accordingly, any gains or losses from changes in the fair value of the forward contracts are recorded in interest and other income (expense), net. The gains and losses on these forward contracts generally offset the gains and losses associated with the foreign currency in operating income. The duration of these forward contracts is usually less than one year. The overall goal of our hedging program is to minimize the impact of currency fluctuations on the net income over the fiscal year.
The effects of the non-designated foreign currency derivative instruments in the condensed consolidated statements of income are summarized as follows:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Gains (losses) recorded in interest and other income (expense), net | $ | (4,421) | $ | 3,290 |
The notional amounts in the table below for foreign currency derivative instruments provide one measure of the transaction volume outstanding:
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Total gross notional amounts | $ | 1,589,684 | $ | 1,686,341 | |||||||
| Net fair value | $ | (12,648) | $ | 1,819 |
Our exposure to the market gains or losses will vary over time as a function of currency exchange rates. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.
The following table represents the condensed consolidated balance sheets location and amount of foreign currency derivative instrument fair values segregated between designated and non-designated hedge instruments:
| Fair values of derivative instruments designated as hedging instruments | Fair values of derivative instruments not designated as hedging instruments | ||||||||||
| (in thousands) | |||||||||||
| Balance at January 31, 2025 | |||||||||||
| Other current assets | $ | 6,879 | $ | 32 | |||||||
| Accrued liabilities | $ | 19,468 | $ | 91 | |||||||
| Balance at October 31, 2024 | |||||||||||
| Other current assets | $ | 8,839 | $ | 12 | |||||||
| Accrued liabilities | $ | 6,918 | $ | 114 |
The following table represents the location of the amount of gains and losses on forward contracts fair values for designated foreign currency hedge instruments, net of tax in the condensed consolidated statements of income:
| Location of gains (losses) recognized in OCI on derivatives | Amount of gains (losses) recognized in OCI on derivatives (effective portion) | Location of gains (losses) reclassified from OCI | Amount of gains (losses) reclassified from OCI (effective portion) | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Three months ended January 31, 2025 | |||||||||||||||||||||||
| Foreign exchange contracts | Revenue | $ | 513 | Revenue | $ | (1,002) | |||||||||||||||||
| Foreign exchange contracts | Operating expenses | (16,891) | Operating expenses | (2,586) | |||||||||||||||||||
| Total | $ | (16,378) | $ | (3,588) | |||||||||||||||||||
| Three months ended January 31, 2024 | |||||||||||||||||||||||
| Foreign exchange contracts | Revenue | $ | (58) | Revenue | $ | (3,263) | |||||||||||||||||
| Foreign exchange contracts | Operating expenses | 10,668 | Operating expenses | (15) | |||||||||||||||||||
| Total | $ | 10,610 | $ | (3,278) | |||||||||||||||||||
Note 9. Fair Value Measurements
ASC 820-10, Fair Value Measurements and Disclosures, defines fair value, establishes guidelines and enhances disclosure requirements for fair value measurements. The accounting guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The accounting guidance also establishes a fair value hierarchy based on the independence of the source and objective evidence of the inputs used. There are three fair value hierarchies based upon the level of inputs that are significant to fair value measurement:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical instruments in active markets;
Level 2—Observable inputs other than quoted prices for identical instruments in active markets, quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in inactive markets, and model-driven valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3—Unobservable inputs derived from fair valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
On a recurring basis, we measure the fair value of certain assets and liabilities, which include cash equivalents, short-term investments, non-qualified deferred compensation plan assets, contingent consideration receivable, foreign currency and interest rate derivative contracts.
Our cash equivalents and short-term investments are classified within Level 1 or Level 2 because they are valued using quoted market prices in an active market or alternative independent pricing sources and models utilizing market observable inputs.
Our non-qualified deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets and are therefore classified within Level 1.
Our foreign currency and interest rate derivative contracts are classified within Level 2 because these contracts are not actively traded, and the valuation inputs are based on quoted prices and market observable data of similar instruments.
Our borrowings under our Credit and Term Loan facilities are classified within Level 2 because these borrowings are not actively traded and have a variable interest rate structure based upon market rates currently available to us for debt with similar terms and maturities. See Note 10. Bridge Commitment Letter, Term Loan and Revolving Credit Facilities of the Notes to Condensed Consolidated Financial Statements for more information on these borrowings.
Our contingent consideration receivable, which was recorded in connection with the Software Integrity Divestiture, was classified within Level 3 because it was estimated using significant inputs that were not observable in the market. See Note 3. Discontinued Operation of the Notes to Condensed Consolidated Financial Statements for additional information.
Assets/Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below as of January 31, 2025:
| Fair Value Measurement Using | |||||||||||||||||||||||
| Description | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | 672,567 | 672,567 | $ | — | $ | — | ||||||||||||||||
| U.S. Treasury, agency & T-bills | 10,487 | — | 10,487 | — | |||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| U.S. Treasury, agency & T-bills | 18,371 | — | 18,371 | — | |||||||||||||||||||
| Corporate debt securities | 109,814 | — | 109,814 | — | |||||||||||||||||||
| Asset-backed securities | 27,304 | — | 27,304 | — | |||||||||||||||||||
| Prepaid and other current assets: | |||||||||||||||||||||||
| Foreign currency derivative contracts | 6,911 | — | 6,911 | — | |||||||||||||||||||
| Contingent consideration receivable | 22,202 | — | — | 22,202 | |||||||||||||||||||
| Other long-term assets: | |||||||||||||||||||||||
| Deferred compensation plan assets | 414,002 | 414,002 | — | — | |||||||||||||||||||
| Total assets | $ | 1,281,658 | $ | 1,086,569 | $ | 172,887 | $ | 22,202 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Accounts payable and accrued liabilities: | |||||||||||||||||||||||
| Foreign currency derivative contracts | $ | 19,559 | $ | — | $ | 19,559 | $ | — | |||||||||||||||
| Interest rate derivative contracts | 26,180 | — | 26,180 | — | |||||||||||||||||||
| Other long-term liabilities: | |||||||||||||||||||||||
| Deferred compensation plan liabilities | 414,002 | 414,002 | — | — | |||||||||||||||||||
| Total liabilities | $ | 459,741 | $ | 414,002 | $ | 45,739 | $ | — |
Assets and liabilities measured at fair value on a recurring basis are summarized below as of October 31, 2024:
| Fair Value Measurement Using | |||||||||||||||||||||||
| Description | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | 869,972 | $ | 869,972 | $ | — | $ | — | |||||||||||||||
| U.S. Treasury, agency & T-bills | 7,985 | — | 7,985 | — | |||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| U.S. Treasury, agency & T-bills | 19,449 | — | 19,449 | — | |||||||||||||||||||
| Corporate debt securities | 105,256 | — | 105,256 | — | |||||||||||||||||||
| Asset-backed securities | 29,164 | — | 29,164 | — | |||||||||||||||||||
| Prepaid and other current assets: | |||||||||||||||||||||||
| Foreign currency derivative contracts | 8,851 | — | 8,851 | — | |||||||||||||||||||
| Contingent consideration receivable | 22,202 | — | — | 22,202 | |||||||||||||||||||
| Other long-term assets: | |||||||||||||||||||||||
| Deferred compensation plan assets | 386,757 | 386,757 | — | — | |||||||||||||||||||
| Total assets | $ | 1,449,636 | $ | 1,256,729 | $ | 170,705 | $ | 22,202 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Accounts payable and accrued liabilities: | |||||||||||||||||||||||
| Foreign currency derivative contracts | $ | 7,032 | $ | — | $ | 7,032 | $ | — | |||||||||||||||
| Other long-term liabilities: | |||||||||||||||||||||||
| Deferred compensation plan liabilities | 386,757 | 386,757 | — | — | |||||||||||||||||||
| Total liabilities | $ | 393,789 | $ | 386,757 | $ | 7,032 | $ | — |
Assets/Liabilities Measured at Fair Value on a Non-Recurring Basis
Non-Marketable Equity Securities
Non-marketable equity securities are classified within Level 3 as they are valued using a combination of observable transaction price and unobservable inputs or data in an inactive market due to the absence of market price and inherent lack of liquidity.
Note 10. Bridge Commitment Letter, Term Loan and Revolving Credit Facilities
On January 15, 2024, we entered into the Bridge Commitment Letter with certain financial institutions that committed to provide, subject to the satisfaction of customary closing conditions, the Bridge Commitment. The Bridge Commitment currently provides for an aggregate principal amount of up to $10.6 billion. The proceeds of any borrowing under the Bridge Commitment will be used 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.
The commitments to provide the Bridge Commitment may be terminated in whole or reduced in part, at our discretion. In addition, the Bridge Commitment Letter provides that net cash proceeds received from certain debt and equity issuances or the sale of certain businesses and assets, including the Software Integrity Divestiture, as well as term loan commitments under certain qualifying term loan facilities, will result in mandatory commitment reductions under 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.
On February 13, 2024, we entered into the Term Loan Agreement in connection with the financing of the pending Ansys Merger. The Term Loan Agreement 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.
The Term Loan Agreement provides for two tranches of senior unsecured term loans: a $1.45 billion tranche (Tranche 1) that matures two years after funding and a $2.85 billion tranche (Tranche 2) that matures three years after funding. There was no outstanding balance under the Term Loan Agreement as of January 31, 2025.
The Term Loan Agreement contains a financial covenant requiring that Synopsys maintain a maximum consolidated leverage ratio commencing the last day of the first fiscal quarter ending on or after the completion of the Ansys Merger, as well as other non-financial covenants. Under the Term Loan Agreement, borrowings will bear interest on the principal amount outstanding at a floating rate based on, at Synopsys’ election, (i) the Adjusted Term SOFR Rate (as defined in the Term Loan Agreement) plus an applicable margin based on the credit ratings of Synopsys ranging from 0.875% to 1.375% (in the case of Tranche 1) or 1.000% to 1.500% (in the case of Tranche 2) or (ii) the ABR (as defined in the Term Loan Agreement) plus an applicable margin based on the credit ratings of Synopsys ranging from 0.000% to 0.375% (in the case of Tranche 1) or 0.000% to 0.500% (in the case of Tranche 2).
On May 14, 2024, a ticking fee began to accrue under the Term Loan Agreement in an amount equal to a rate per annum equal to 0.10% times the actual daily undrawn portion of the commitments in respect of the term loan facility. This ticking fee will accrue until the earlier of (i) termination or expiration of the commitments under the term loan facility or (ii) the funding of the commitments, at which point the accrued amount of the ticking fee will become payable.
On February 13, 2024, we entered into a Sixth Amendment Agreement (the Sixth Amendment), which amended and restated our previous revolving credit agreement, dated as of December 14, 2022 (as amended and restated, the Revolving Credit Agreement).
The Revolving Credit Agreement provides an unsecured $850.0 million committed multicurrency revolving credit facility and an unsecured uncommitted incremental revolving loan facility of up to $150.0 million. The maturity date of the revolving credit facility is December 14, 2027, which may be extended at our option.
Under the Sixth Amendment, certain amendments became effective on February 13, 2024 and certain additional amendments will become effective upon the completion of the Ansys Merger. Upon the effective date, the Sixth Amendment amended the financial covenant to allow netting of the cash proceeds of certain debt incurred to finance the Ansys Merger as well as certain other modifications set forth therein. Upon the completion of the Ansys Merger, the Sixth Amendment, among other things: (i) amends the applicable margin used to determine the interest that accrues on loans and the facility fee payable under the revolving credit facility to be based on our credit ratings, (ii) amends the financial covenant thresholds under the financial covenant in the Revolving Credit Agreement requiring us to maintain a maximum consolidated leverage ratio and (iii) amends certain conditions to borrowing, other non-financial covenants and events of default.
The Revolving Credit Agreement contains a financial covenant requiring us to maintain a maximum consolidated leverage ratio, as well as other non-financial covenants. As of January 31, 2025, we were in compliance with the financial covenant.
Interest accrues on dollar-denominated loans at a floating rate based on, at Synopsys’ election, (i) the Adjusted Term SOFR Rate (as defined in the Revolving Credit Agreement) plus an applicable margin or (ii) the ABR (as defined in the Revolving Credit Agreement) plus an applicable margin. The applicable margin for Adjusted Term SOFR Rate based loans ranges from 0.785% to 0.975%, based upon Synopsys’ consolidated leverage ratio. The applicable margin for ABR based loans is 0.000%. In addition to the interest on any outstanding loans, Synopsys is also required to pay a facility fee on the entire portion of the revolving credit facility ranging from 0.09% to 0.15% based on Synopsys’ consolidated leverage ratio on the daily amount of the revolving commitment.
Subject to the completion of the Ansys Merger, interest under the Revolving Credit Agreement will accrue on dollar-denominated loans at a floating rate based on, at Synopsys’ election, (i) the Adjusted Term SOFR Rate plus an applicable margin based on our credit ratings ranging from 0.795% to 1.200% or (ii) the ABR plus an applicable margin based on our credit ratings ranging from 0.000% to 0.200%. In addition to the interest on any outstanding loans, Synopsys will also be required to pay a facility fee on the entire portion of the revolving credit facility ranging from 0.080% to 0.175% based on the credit ratings of Synopsys on the daily amount of the revolving commitment.
There was no outstanding balance under the Revolving Credit Agreement as of January 31, 2025 and October 31, 2024.
In July 2018, we entered into a 12-year 220.0 million Renminbi (approximately $33.0 million) credit agreement with a lender in China to support our facilities expansion. Borrowings bear interest at a floating rate based on the 5-year
Loan Prime Rate plus 0.74%. As of January 31, 2025, we had $14.2 million outstanding balance under the agreement.
The carrying amount of the short-term and long-term debt approximates the estimated fair value.
Note 11. Leases
We have operating lease arrangements for office space, data center, equipment and other corporate assets. These leases have various expiration dates through December 31, 2042, some of which include options to extend the leases for up to 10 years. Because we are not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term and associated potential option payments are excluded from lease payments.
The components of our lease expense during the period presented are as follows:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Operating lease expense (1) | $ | 25,052 | $ | 22,234 | |||||||||||||||||||
| Variable lease expense (2) | 6,760 | 5,627 | |||||||||||||||||||||
| Total lease expense | $ | 31,812 | $ | 27,861 |
(1) Operating lease expense includes immaterial amounts of short-term leases, net of sublease income.
(2) Variable lease expense includes payments to lessors that are not fixed or determinable at lease commencement date. These payments primarily consist of maintenance, property taxes, insurance and variable indexed based payments.
Supplemental cash flow information during the period presented is as follows:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities(1) | $ | 24,925 | $ | 24,172 | |||||||||||||||||||
| ROU assets obtained in exchange for operating lease liabilities(2) | $ | 8,848 | $ | 5,004 |
(1) Cash paid for amounts included in the measurement of operating lease liabilities included cash from discontinued operations of $1.5 million during the three months ended January 31, 2024.
(2) ROU assets obtained in exchange for operating lease liabilities included ROU assets from discontinued operations of $0.1 million during the three months ended January 31, 2024.
Lease term and discount rate information related to our operating leases as of the end of the period presented are as follows:
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| Weighted-average remaining lease term (in years) | 7.39 | 7.59 | |||||||||
| Weighted-average discount rate | 2.87 | % | 2.86 | % |
The following table represents the maturities of our future lease payments due under operating leases as of January 31, 2025:
| Lease Payments | |||||
| Fiscal year | (in thousands) | ||||
| Remainder of fiscal 2025 | $ | 86,521 | |||
| 2026 | 113,525 | ||||
| 2027 | 110,515 | ||||
| 2028 | 94,352 | ||||
| 2029 | 87,014 | ||||
| 2030 and thereafter | 232,254 | ||||
| Total future minimum lease payments | 724,181 | ||||
| Less: Imputed interest | 73,364 | ||||
| Total lease liabilities | $ | 650,817 |
In addition, certain facilities owned by us were leased to third parties under non-cancellable operating lease agreements. These leases have annual escalating payments and have expiration dates through March 31, 2031 in accordance with the terms and conditions of the existing agreement. The lease receipts from owned facilities, including sublease income from other facilities leased by us, due to us as of January 31, 2025 are as follows:
| Lease Receipts | |||||||||||
| Fiscal year | (in thousands) | ||||||||||
| Remainder of fiscal 2025 | $ | 18,415 | |||||||||
| 2026 | 25,333 | ||||||||||
| 2027 | 26,452 | ||||||||||
| 2028 | 27,246 | ||||||||||
| 2029 | 28,063 | ||||||||||
| 2030 and thereafter | 28,429 | ||||||||||
| Total | $ | 153,938 |
Note 12. Redeemable Non-controlling Interest
During the second quarter of fiscal 2022, we acquired a 75% equity interest in OpenLight Photonics, Inc. (OpenLight) for cash consideration of $90.0 million. The remaining 25% equity interest in OpenLight was held by Juniper Networks, Inc. (the Minority Investor) from their contribution of IP and certain tangible assets.
The agreement with the Minority Investor contained redemption features whereby the interest held by the Minority Investor was redeemable either (1) at the option of the Minority Investor on or after the third anniversary of the acquisition or sooner in certain circumstances or (2) at our option beginning on the third anniversary of the acquisition. This option was exercisable at the greater of fair value at the time of redemption or $30.0 million. The fair value of the option was initially valued at $10.1 million, resulting in a total consideration of $100.1 million.
As of the end of fiscal 2024, upon issuance of new OpenLight stock, our ownership interest in OpenLight was reduced to 71% and Juniper's was reduced to 24%. On December 23, 2024, we exercised the call option to purchase the remaining ownership interest held by Juniper at a redemption price of $30.0 million, bringing our ownership interest in OpenLight to 95%.
Subsequently on December 30, 2024, we divested our entire ownership interest in OpenLight. We had previously recorded an impairment charge of $53.5 million related to acquired intangible assets in OpenLight in fiscal 2024. See Note 7. Goodwill and Intangible Assets of the Notes to Consolidated Financial Statements in our Annual Report for more information. The goodwill related to the OpenLight acquisition was assigned to our Design Automation reporting unit. The resulting loss on the OpenLight divestiture, included in interest and other income (expense), net in the condensed consolidated statements of income, was not material to our results of operation.
During the first quarter of fiscal 2025, prior to the exercise of the call option, OpenLight incurred a net loss of $3.5 million, of which $0.8 million was attributable to redeemable non-controlling interest. We have excluded the financial results of OpenLight from our condensed consolidated financial statements from the date of sale.
Note 13. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss), on an after-tax basis where applicable, are as follows:
| As of | |||||||||||
| January 31, 2025 | October 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Cumulative currency translation adjustments | $ | (190,591) | $ | (161,954) | |||||||
| Unrealized gains (losses) on derivative instruments, net of taxes | (51,660) | (18,800) | |||||||||
| Unrealized gains (losses) on available-for-sale securities, net of taxes | 332 | 374 | |||||||||
| Total | $ | (241,919) | $ | (180,380) |
The effect of amounts reclassified out of each component of accumulated other comprehensive income (loss) into net income is as follows:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Reclassifications: | |||||||||||||||||||||||
| Gains (losses) on cash flow hedges, net of taxes | |||||||||||||||||||||||
| Revenues | $ | (1,002) | $ | (3,263) | |||||||||||||||||||
| Operating expenses | (2,586) | (15) | |||||||||||||||||||||
| Total | $ | (3,588) | $ | (3,278) |
Amounts reclassified during the three months ended January 31, 2025 and 2024 primarily consisted of gains (losses) from our cash flow hedging activities. See Note 8. Financial Assets and Liabilities of the Notes to Condensed Consolidated Financial Statements.
Note 14. Stock Repurchase Program
In fiscal 2022, our Board of Directors approved a stock repurchase program (the Program) with authorization to purchase up to $1.5 billion of our common stock. As of January 31, 2025, $194.3 million remained available for future repurchases under the Program. However, in connection with the pending Ansys Merger, we have suspended the Program until we reduce our expected debt levels.
Stock repurchase activities as well as the reissuance of treasury stock for employee stock-based compensation purposes are as follows:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024**(1)** | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Total shares repurchased | — | 74 | |||||||||||||||||||||
| Total cost of the repurchased shares | $ | — | $ | 45,000 | |||||||||||||||||||
| Reissuance of treasury stock | 506 | 557 |
(1) Included the 73,903 shares and $45.0 million equity forward contract from the August 2023 Accelerated Share Repurchase (ASR) settled in November 2023.
Note 15. Stock-Based Compensation
The compensation cost recognized in the condensed consolidated statements of income for our stock compensation arrangements is as follows:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of products | $ | 20,477 | $ | 16,261 | |||||||||||||||||||
| Cost of maintenance and service | 8,991 | 9,176 | |||||||||||||||||||||
| Research and development expense | 102,696 | 91,137 | |||||||||||||||||||||
| Sales and marketing expense | 34,950 | 30,573 | |||||||||||||||||||||
| General and administrative expense | 19,349 | 18,358 | |||||||||||||||||||||
| Stock-based compensation expense from continuing operations before taxes | 186,463 | 165,505 | |||||||||||||||||||||
| Stock-based compensation expense from discontinued operations before taxes | — | 15,147 | |||||||||||||||||||||
| Total stock-based compensation expense before taxes | 186,463 | 180,652 | |||||||||||||||||||||
| Income tax benefit | (30,655) | (29,410) | |||||||||||||||||||||
| Stock-based compensation expense after taxes | $ | 155,808 | $ | 151,242 |
During the three months ended January 31, 2025 and 2024, we recognized stock-based compensation expense relating to restricted stock units (RSUs) granted to senior executives with certain market, performance and service conditions (market-based RSUs). The grant date fair value of the market-based RSUs and the assumptions used in the Monte Carlo simulation model to determine the grant date fair value during the periods are as follows:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Expected life (in years) | 2.79 years | 2.89 years | |||||||||||||||||||||
| Risk-free interest rate | 4.39% | 4.41% | |||||||||||||||||||||
| Volatility | 34.72% | 34.03% | |||||||||||||||||||||
| Grant date fair value | $464.17 | $600.29 |
As of January 31, 2025, we had $1.6 billion of total unrecognized stock-based compensation expense relating to options, RSUs and restricted stock awards, which is expected to be recognized over a weighted-average period of 2.4 years. As of January 31, 2025, we had $88.7 million of unrecognized stock-based compensation expense relating to our Employee Stock Purchase Plan, which is expected to be recognized over a period of approximately 2.0 years.
The intrinsic values of equity awards exercised during the periods are as follows:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Intrinsic value of awards exercised | $ | 20,359 | $ | 27,855 |
Note 16. Net Income Per Share
We compute basic net income per share by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share reflects the dilution from potential common shares outstanding such as stock options and unvested RSUs and awards during the period using the treasury stock method.
The table below reconciles the weighted average common shares used to calculate basic net income per share with the weighted average common shares used to calculate diluted net income per share:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands, except per share amounts) | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income from continuing operations attributed to Synopsys | $ | 295,683 | $ | 437,450 | |||||||||||||||||||
| Net income from discontinued operations attributed to Synopsys | — | 11,662 | |||||||||||||||||||||
| Net income attributed to Synopsys | $ | 295,683 | $ | 449,112 | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average common shares for basic net income per share | 154,408 | 152,311 | |||||||||||||||||||||
| Dilutive effect of common share equivalents from equity-based compensation | 1,781 | 3,023 | |||||||||||||||||||||
| Weighted average common shares for diluted net income per share | 156,189 | 155,334 | |||||||||||||||||||||
| Net income per share attributed to Synopsys - basic: | |||||||||||||||||||||||
| Continuing operations | $ | 1.91 | $ | 2.87 | |||||||||||||||||||
| Discontinued operations | $ | — | $ | 0.08 | |||||||||||||||||||
| Basic net income per share | $ | 1.91 | $ | 2.95 | |||||||||||||||||||
| Net income per share attributed to Synopsys - diluted: | |||||||||||||||||||||||
| Continuing operations | $ | 1.89 | $ | 2.82 | |||||||||||||||||||
| Discontinued operations | $ | — | $ | 0.07 | |||||||||||||||||||
| Diluted net income per share | $ | 1.89 | $ | 2.89 | |||||||||||||||||||
| Anti-dilutive employee stock-based awards excluded | 352 | 702 |
Note 17. Segment Disclosure
Segment reporting is based upon the “management approach,” i.e., how management organizes our operating segments for which separate financial information is (1) available and (2) evaluated regularly by the CODM in deciding how to allocate resources and in assessing performance. Our CODM is our CEO.
We have two reportable segments: (1) Design Automation, which includes our advanced silicon design, verification products and services, system integration products and services, digital, custom and field programmable gate array (FPGA) IC design software, verification software and hardware products, manufacturing software products and other; and (2) Design IP, which includes our interface, foundation, security, and embedded processor IP, IP subsystems, and IP implementation services.
The financial information provided to and used by the CODM to assist in making operational decisions, allocating resources, and assessing performance includes consolidated financial information as well as revenue, adjusted operating income, and adjusted operating margin information for the Design Automation and Design IP segments, accompanied by disaggregated information relating to revenue by geographic region.
The Software Integrity business constituted its own reportable segment under Topic 280. In accordance with applicable accounting guidance, the results of the Software Integrity business were presented as discontinued operations in the condensed consolidated statements of income and, as such, have been excluded from both continuing operations and segment results for all periods presented. See Note 3. Discontinued Operations of the Notes to Condensed Consolidated Financial Statements.
Information by reportable segment is as follows:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Total Segments: | |||||||||||||||||||||||
| Revenue | $ | 1,455,315 | $ | 1,510,989 | |||||||||||||||||||
| Adjusted operating income | 531,217 | 605,192 | |||||||||||||||||||||
| Adjusted operating margin | 37 | % | 40 | % | |||||||||||||||||||
| Design Automation: | |||||||||||||||||||||||
| Revenue | $ | 1,020,216 | $ | 985,339 | |||||||||||||||||||
| Adjusted operating income | 404,670 | 359,465 | |||||||||||||||||||||
| Adjusted operating margin | 40 | % | 36 | % | |||||||||||||||||||
| Design IP: | |||||||||||||||||||||||
| Revenue | $ | 435,099 | $ | 525,650 | |||||||||||||||||||
| Adjusted operating income | 126,547 | 245,727 | |||||||||||||||||||||
| Adjusted operating margin | 29 | % | 47 | % |
Certain operating expenses are not allocated to the segments and are managed at a consolidated level. The unallocated expenses managed at a consolidated level, including amortization of acquired intangible assets, stock-based compensation, changes in the fair value of deferred compensation plan, and acquisition/divestiture related items, are presented in the table below to provide a reconciliation of the total adjusted operating income from segments to our consolidated operating income from continuing operations:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Total segment adjusted operating income | $ | 531,217 | $ | 605,192 | |||||||||||||||||||
| Reconciling items: | |||||||||||||||||||||||
| Amortization of acquired intangible assets | (12,596) | (16,684) | |||||||||||||||||||||
| Stock-based compensation expense | (186,463) | (165,505) | |||||||||||||||||||||
| Deferred compensation plan | (19,638) | (39,445) | |||||||||||||||||||||
| Acquisition/divestiture related items | (60,681) | (30,932) | |||||||||||||||||||||
| Total operating income | $ | 251,839 | $ | 352,626 |
The CODM does not use total assets by segment to evaluate segment performance or allocate resources. As a result, total assets by segment are not disclosed.
In allocating revenue to particular geographic areas, the CODM considers where individual “seats” or licenses to our products are located. Revenue is defined as revenue from external customers. Revenue related to operations in the United States and other geographic areas are:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| United States | $ | 610,710 | $ | 723,821 | |||||||||||||||||||
| Europe | 153,671 | 137,269 | |||||||||||||||||||||
| China | 173,948 | 241,064 | |||||||||||||||||||||
| Korea | 250,385 | 182,044 | |||||||||||||||||||||
| Other | 266,601 | 226,791 | |||||||||||||||||||||
| Consolidated | $ | 1,455,315 | $ | 1,510,989 |
Geographic revenue data for multi-regional, multi-product transactions reflect internal allocations and are therefore subject to certain assumptions and to our allocation methodology.
Note 18. Interest and Other Income (Expense), Net
The following table presents the components of interest and other income (expense), net:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Interest income | $ | 35,721 | $ | 13,150 | |||||||||||||||||||
| Interest expense | (10,683) | (1,324) | |||||||||||||||||||||
| Gains (losses) on assets related to deferred compensation plan | 19,638 | 39,445 | |||||||||||||||||||||
| Foreign currency exchange gains (losses) | 63 | 3,365 | |||||||||||||||||||||
| Gain on sale of strategic investments | — | 55,077 | |||||||||||||||||||||
| Other, net | (5,461) | (4,885) | |||||||||||||||||||||
| Total | $ | 39,278 | $ | 104,828 |
Note 19. Income Taxes
Effective Tax Rate
We estimate our annual effective tax rate at the end of each fiscal quarter. The effective tax rate takes into account our estimations of annual pre-tax income, the geographic mix of pre-tax income and interpretations of tax laws and possible outcomes of audits.
The following table presents the provision for income taxes and the effective tax rates:
| Three Months Ended January 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Income before income taxes | $ | 291,117 | $ | 457,454 | |||||||||||||||||||
| Provision (benefit) for income taxes | $ | (6,294) | $ | 22,909 | |||||||||||||||||||
| Effective tax rate | (2.2) | % | 5.0 | % |
Our effective tax rate for the three months ended January 31, 2025, is lower than the statutory federal corporate tax rate of 21% primarily due to the capital loss on the sale of our ownership in OpenLight in the first quarter of 2025, U.S. federal research tax credits, foreign-derived intangible income deduction, excess tax benefits from stock-based compensation and U.S. foreign tax credits, partially offset by state taxes and the effect of non-deductible stock-based compensation.
Our effective tax rate decreased in the three months ended January 31, 2025, as compared to the same period in fiscal 2024, primarily due to the capital loss on the sale of our ownership in OpenLight in the first quarter of 2025.
The timing of the resolution of income tax examinations, and the amounts and timing of various tax payments that are part of the settlement process, are highly uncertain. Variations in such amounts and/or timing could cause large fluctuations in the balance sheet classification of current and non-current assets and liabilities. We believe that in the coming 12 months, it is reasonably possible that either certain audits and ongoing tax litigation will conclude or the statute of limitations on certain state and foreign income and withholding taxes will expire, or both. Given the uncertainty as to ultimate settlement terms, the timing of payment and the impact of such settlements on other uncertain tax positions, the range of the estimated potential decrease in underlying unrecognized tax benefits is between $0 and $13.0 million.
Non-U.S. Examinations
We are under examination by the tax authorities in certain jurisdictions. No material assessments have been proposed in these examinations.
Legislative Developments
Effective in fiscal 2024, we are subject to the new 15% corporate alternative minimum tax (CAMT) enacted as part of the Inflation Reduction Act of 2022 (IR Act). We do not expect any impact of CAMT in fiscal 2025, due to our regular tax liability exceeding CAMT. The details of the computation will be subject to final regulations to be issued by the U.S. Department of the Treasury. We will monitor regulatory developments and will continue to evaluate the impact, if any, of the CAMT.
The IR Act generally imposes a 1% excise tax on the fair market value of stock repurchases made by covered corporations after December 31, 2022. In general, the total taxable value of shares repurchased is reduced by the fair market value of any newly issued shares during the taxable year. As of fiscal 2025, this has not had any impact on our condensed consolidated financial statements.
On June 27, 2024, California enacted SB-167, which suspends the use of California net operating loss and limits the use of California research tax credits to $5 million for our fiscal 2025-2027. On June 29, 2024, California enacted SB-175, which provides a refund mechanism effective beginning in our fiscal 2025 for the incremental tax that was paid as a result of SB-167.
The Organization for Economic Co-operation and Development (OECD) has a two-pillar solution to address tax challenges arising from digitalization of the economy. Included in this two-pillar solution is the Pillar Two Model Rules (Pillar Two) which define global minimum tax rules and include a 15% minimum tax rate. Various countries have started to enact new laws related to Pillar Two, including certain new laws effective beginning in fiscal 2025. As of January 31, 2025, we do not expect the impact of Pillar 2 to be material.
Note 20. Contingencies
Legal Proceedings
We are subject to routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate outcome of any litigation is often uncertain and unfavorable outcomes could have a negative impact on our results of operations and financial condition. We regularly review the status of each significant matter and assess its potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount is estimable, we accrue a liability for the estimated loss. Legal proceedings are inherently uncertain and as circumstances change, it is possible that the amount of any accrued liability may increase, decrease or be eliminated.
We have determined that, except as set forth below, no disclosure of estimated loss is required for a claim against us because: (1) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (2) a reasonably possible loss or range of loss cannot be estimated; or (3) such estimate is immaterial.
Mentor Patent Litigation
Prior to the legal settlement as further described below, we were engaged in complex patent litigation with Mentor Graphics Corporation (Mentor) involving several actions in different forums. We succeeded to the litigation when we acquired Emulation & Verification Engineering S.A. on October 4, 2012.
Legal Settlement
In March 2017, Siemens PLM Software (now Siemens Industry Software Inc. or SISW) acquired Mentor. On June 29, 2018, we, SISW and Mentor settled all outstanding patent litigation between us and Mentor for a $65.0 million payment made from us to Mentor. As a result of the settlement, the litigation with Mentor was dismissed and the injunction entered in connection with that litigation was vacated. The settlement included mutual seven-year patent cross-licenses between us and SISW, and between us and Mentor. We and Mentor also amended an existing interoperability agreement to collaborate on a wide range of EDA products for the benefit of our mutual customers (the interoperability amendment). The interoperability amendment includes a one-time termination charge between $0.0 and $25.0 million, payable to SISW under certain conditions. Mentor no longer exists as an independent entity and is succeeded by SISW.
In June 2024, the parties extended the existing patent cross-license to December 31, 2031, and entered into a new cross-license of patents related to certain computer-aided engineering technology. The new cross-license is conditioned on the close of the Ansys Merger and expires on December 31, 2031. The interoperability amendment expires by its terms on June 29, 2025.
Tax Matters
We undergo examination from time to time by U.S. and foreign authorities for non-income based taxes, such as sales, use and value-added taxes, and are currently under examination by tax authorities in certain jurisdictions. If the potential loss from such examinations is considered probable and the amount or the range of loss could be estimated, we would accrue a liability for the estimated expense.
In addition to the foregoing, we are, from time to time, party to various other claims and legal proceedings in the ordinary course of our business, including with tax and other governmental authorities. For a description of certain of these other matters, see Note 19. Income Taxes of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
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