SNPS 10-Q Deep Dive: Ansys Deal Boosts Sales, Squeezes Margins

In the high-stakes world of semiconductor design, Synopsys, Inc. (SNPS) is a titan, providing the essential software and intellectual property (IP) that powers the creation of microchips. The company recently filed its quarterly report for the period ending July 31, 2025, and a deep dive into the numbers reveals a company in the midst of a massive transformation. You can review the full 10-Q filing here.

The big story is the monumental acquisition of Ansys, a leader in engineering simulation software. This deal has fundamentally reshaped Synopsys's financial structure, and its effects are readily apparent across the income statement.

Revenue Growth Meets Soaring Costs

At first glance, the top-line numbers look strong. Synopsys reported total revenue of $1.74 billion for the quarter, a solid 14% increase from the $1.53 billion in the same period last year. This growth highlights continued demand for its critical design tools.

To see how that revenue flows through the company's operations, the following flow diagram visualizes the income statement for the quarter.

As the diagram illustrates, despite the healthy revenue growth, profitability took a significant hit. Operating income plummeted to $165 million from $360 million a year ago. Diluted net income per share fell accordingly to $1.50 from $2.61.

So, where did the money go? The primary drivers of this profit decline are costs directly associated with the Ansys acquisition:

• Interest Expense: To finance the deal, Synopsys took on significant debt. As a result, interest expense ballooned to $146.5 million for the quarter, compared to just $11.7 million last year.
• Amortization of Intangible Assets: When one company acquires another, it also acquires "intangible assets" like technology, customer relationships, and brand names. The value of these assets is gradually expensed over time, a process called amortization. This non-cash expense for Synopsys jumped to nearly $75 million in the quarter (across both cost of revenue and operating expenses), up from about $19 million a year ago.
• Operating Expenses: General and administrative expenses alone nearly doubled to $281 million, reflecting the substantial costs of integrating a company the size of Ansys.

A Tale of Two Segments

Digging into the company's business segments reveals a split performance.

1. Design Automation: This is Synopsys's core business of electronic design automation (EDA) software, now bolstered by Ansys's simulation and analysis portfolio. This segment performed exceptionally well, with revenue growing 23% to $1.3 billion. Its adjusted operating margin expanded from 41% to 44%, signaling strong demand and successful initial integration.
2. Design IP: This segment licenses pre-verified, reusable circuit designs to chipmakers. This part of the business faced headwinds, with revenue declining 8% to $428 million. More concerningly, its adjusted operating margin was nearly cut in half, falling from 37% to 20%.

The Road Ahead

Synopsys is navigating a pivotal moment. The Ansys acquisition has supercharged its core automation business and vastly expanded its market opportunity. However, the immediate financial consequence is a sharp increase in costs that are currently weighing on profitability.

The challenge ahead is clear: management must execute a seamless integration of Ansys to unlock the promised long-term value, all while managing a much heavier debt load and addressing the slowdown in its Design IP segment. Investors will be watching closely to see if this bold, strategic bet can translate from top-line growth into bottom-line results.