Ladies and gentlemen, welcome to the Synopsis Earnings Conference call for the third quarter fiscal year 2026. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question at that time, please press star 1 on your telephone keypad. To remove yourself from that queue, it is star 1 again. If you require assistance during the call, please press star zero and an operator will assist you. Today's call will last one hour. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Tushar Jain, Vice President. Please go ahead.

Good afternoon, everyone. Welcome to Synopsys' third quarter fiscal year 2026 earnings call. With us today are Sassine Ghazi, President and CEO of Synopsys, and Shelagh Glaser, CFO. Before we begin, I'd like to remind everyone that during the course of this conference call, Synopsys will discuss forecasts, targets, and other forward-looking statements regarding the company and its financial results. While these statements represent our best current judgment about future results and performance as of today, our actual results are subject to many risks and uncertainties that could cause actual results to differ materially from what we expect. In addition to any risks that we highlight during this call, important factors that may affect our future results are described in our most recent SEC reports and today's earnings press release. In addition, we will refer to certain non-GAAP financial measures during the discussion. Reconciliations to their most directly comparable GAAP financial measures and supplemental financial information can be found in the earnings press release, financial supplement, and 8K that we released earlier today. All of these items, plus the most recent investor presentation, prepared remarks, and investor day information can be found on our website at www.synopsys.com. With that, I'll turn the call over to Sassine Ghazi.

Good afternoon. Synopsys delivered an outstanding third quarter with revenue, non-gap operating margin, and EPS all exceeding the high end of guidance. These results reflect broad-based strength, including outperformance in EDA and ANSYS, and continued growth in IP. We are raising our full-year revenue, non-GAAP operating margin and EPS guidance. In addition, we expect EDA growth to accelerate in Q4 and to deliver double-digit growth for the full year. The key takeaway from Q3 is that the fundamentals across our portfolio are strengthening. EDA is accelerating. Design IP has returned to growth and ANSYS is performing strongly while beginning to create new growth opportunities across the combined portfolio. This quarter marked one year since the ANSYS acquisition close. And in Q3, we launched our first joint Synopsys and ANSYS solutions, Multiphysics Fusion. I want to recognize our global team for executing with focus and agility to integrate our world-class capabilities. The combination has strengthened our competitive position, expanded our opportunity and enabled us to deliver differentiated solutions addressing the physics challenges of modern chip design. Industry trends are aligned to our strategy and our strengths as the leading provider of engineering solutions from silicon to systems. Unprecedented design complexity driven by the demands of AI is fueling the need for the IP and design solutions necessary to deliver next-generation AI compute These trends are evident in our Q3 results, starting with design automation, which achieved healthy growth in Q3, underpinned by strength in EDA, including record hardware revenue. We expect this momentum to continue, with EDA growth accelerating to double digits in Q4 and for the full year. Design activity is highest among AI and high-performance compute customers, developing increasingly specialized chips with multi-die architectures, more complex packaging and system requirements. These are all areas where Synopsys leads. AMD's recently launched Instinct MI455X GPU is a good example. To deliver this highly sophisticated new product series, AMD leveraged Synopsys' 3D IC compiler, the industry's only exploration-to-sign-off platform for multi-die and advanced package co-design and optimization. The complex software and system requirements of AI compute also drive demand for our hardware-assisted verification solutions. We secured 12 new and 66 repeat HAV customer wins in the quarter. As I mentioned, the launch of Multiphysics Fusion was a major EDA milestone in Q3 and creates a new growth opportunity for Synopsys. Multiphysics Fusion combines Synopsys and ANSYS technology in the industry's only solution with thermal analysis fully integrated into the chip design flow. Customers including NVIDIA, Cisco, MediaTek, and Samsung Foundry have validated up to 10x faster design closure and 3x faster runtime. This drives greater value for our customers and also for our products. We expect these add-on capabilities to begin contributing to EDA growth in 2027. Egentic AI is another growth vector for Synopsys, and we demonstrated strong progress in Q3. At the DAC conference with NVIDIA, we showcase the fully autonomous, long-running design verification agent that can orchestrate the entire chip verification cycle and deliver up to 50x faster time-to-validated RTL while achieving 20% additional coverage improvement. With Microsoft and AMD, we introduced the first autonomous EDA workflows on Microsoft Discovery that can automate debug, implementation, and design closure. Early engagements show up to 40% reduction in debug cycle time, saving weeks of engineering effort while improving design quality. Thank you very much. They orchestrate our underlying EDA tools at a significantly higher rate. That allows customers to run more design and verification workloads, creating an incremental growth opportunity for Synopsys, as we capture our fair share of the value that these agentic workflows and foundational tools provide for our customers. Turning to ANSYS. One year into our integration, ANSYS continues to see strong demand. From semis to aerospace to industrial and more, companies are embracing digital engineering. Across industries, ANSYS simulation is accelerating innovation while reducing development risk and cost. For example, a leading automaker is using ANSYS SimAI to achieve roughly 98% prediction accuracy and move crash analysis to near real-time. And a leading heavy equipment manufacturer achieved more than 10x faster motor design. We're applying AI to extend our SNA leadership and further automate the simulation of complex systems. This includes expanding our portfolio of GPU accelerated ANSYS applications. And in Q3, our largest ANSYS deal was for GPU-accelerated ANSYS CFD to support a company-wide digital twin at a multinational electronics component maker, turning to design IP, which grew sequentially and year-over-year on broad AI infrastructure demand. As AI drives demand for higher bandwidth, faster connectivity and more complex system architectures, our interface, memory and die-to-die IP portfolio sits at the center of the stack. and our Q3 results showed it. We won more than 95% of PCIe 7 opportunities, including a subsystem win at a marquee enterprise storage customer. In LPDDR6, silicon proven across multiple nodes and foundries, we've secured 25 design wins year to date. Our die-to-die business is on pace to double year over year, and we now have more than 100 cumulative design wins. The industry continues to rely on Synopsys for silicon-proven quality and unrivaled scale. Our standards-based, build once, sell many, IP model remains foundational to our growth strategy. will continue to invest and grow this business, what I call Factory One, which benefits from strong chip start activity and solid traction across industries. For example, in automotive, we've sustained a 90% plus design win rate for three consecutive quarters as ADAS platforms refresh onto five and three nanometer. In mobile consumer and edge AI, our USB IP has now crossed $2 billion in lifetime bookings, with tier one design wins already moving to the leading edge node. As AI extends beyond digital infrastructure into physical products, demand for silicon will continue to expand, providing a tailwind for our standards-based IP business. The higher growth opportunity in IP lies with a growing set of AI customers who are asking for deeper collaboration and IP solutions optimized to their specific workloads and architectures. To meet that demand, we are expanding into differentiated IP subsystems and enabling custom silicon solutions. Customers ranging from hyperscalers, ASIC vendors, foundries, and classic semiconductors want to partner with Synopsys to accelerate their chip development efforts and leverage our IP and engineering expertise to build increasingly differentiated custom silicon. This is our Factory 2 model for customized IP. It moves us up the value chain from licensing alone to licensing plus royalties and positions us to capture the fast-growing custom silicon opportunity. This is a large focus and we are making strong progress. We are in active discussions with multiple Factory 2 customers and I look forward to sharing more at Investor Day. To summarize, I want to thank the entire Synopsys team for their continued focus, innovation and execution. Q3 reinforced the strength of our strategy and our confidence in a strong finish to the year. AI is driving demand for advanced silicon, system-level engineering, and AI-powered design. Our leadership portfolio positions us to capture a greater share of R&D investment across industries. We remain focused on translating our technology leadership into sustainable growth and margin expansion. Now, over to Shelagh.

Thank you, Sassine. We delivered an outstanding Q3, achieving revenue of $2.477 billion, non-GAAP operating margin of 41.6%, and non-GAAP EPS of $3.91, all beating the high end of our guidance range. With broad-based strength across the business, the revenue outperformance was driven by EDA, as well as strength in the ANSYS business. Backlog remains very strong at $10.9 billion, modestly down quarter over quarter due to the divestiture of the processor IP solutions business that closed in Q3. With the strength in Q3, strong cash flow generation, and continued momentum into Q4, we are raising our full year revenue, non-gap operating margin, EPS, and cash flow guidance. I'll now review our third quarter results. All comparisons are year-over-year unless otherwise stated. We generated total revenue of $2.477 billion, up approximately 42%, including ANSYS revenue of approximately $711 million. As Sassine noted, one year into the combination, ANSYS continues to perform strongly. We are also ahead of the schedule on the cost synergy commitments we made at close, and have repaid the term loans earlier than planned. Total GAAP costs and expenses were $2.119 billion with GAAP earnings per share of $2.84. Q3 gap EPS includes a gain associated with the sale of the processor IP solutions business that closed in the quarter. Total non-gap costs and expenses were $1.446 billion on the lower end of our guided range as we continue to improve operational efficiency and deliver ANSYS costs synergies ahead of schedule, resulting in non-gap operating margin of 41.6%. Non-gap earnings per share were $3.91 ahead of our guidance, underscoring our strong operational execution in the quarter. Now, on to our segments. Design automation segment revenue was approximately $2 billion. As a reminder, this excludes the optical solutions group, which was divested in Q4-25. Within the design automation segment, Q3 EDA revenue increased 8.5% year-over-year, reflecting robust EDA software performance and another record quarter for hardware-assisted verification solutions. Design automation adjusted operating margin was 45.2%. The design IP segment returned to growth with revenue of $474 million, up approximately 11% year-on-year. Consistent with our outlook, this represents continued sequential growth in the IP segment as we've repositioned the portfolio to focus on the highest value opportunities. Design IP adjusted operating margin was 26.5%. Turning to cash, free cash flow was $746 million in Q3, and we ended the quarter with cash and short-term investments of $3.6 billion. Total debt at the end of Q3 was approximately $10 billion. Now to guidance for the full year. We are raising our total revenue guidance by $50 million at the midpoint, driven by strength and design automation segment led by EDA. As Sassine stated, momentum in EDA remains strong, and we expect double-digit organic EDA revenue growth in Q4 and for the full year 2026. We continue to expect the IP business to grow sequentially in Q4. This results in a revenue range of $9.69 to $9.74 billion. Within that, ANSYS revenue contribution is expected to be approximately $2.98 billion, up $20 million versus our prior guidance. Next, expenses. Total gap costs and expenses are expected to be between $8.667 and $8.742 billion. This includes an increase in expected charges for fiscal year 2026 in relation to our previously announced restructuring program as we continue to accelerate our committed synergies. Total non-GAAP costs and expenses are expected to be between $5.67 and $5.70 billion and non-GAAP operating margin of 41.5% at the midpoint, a 50 basis point raise to our previous guidance. Gap earnings are expected to be between $3.84 to $4.08 per share. We expect non-gap earnings of $15.04 to $15.10 per share, a $0.31 increase at the midpoint from our prior guidance due to higher revenue and increased operational efficiency. We are raising our cash flow from operations guidance by $500 million to approximately $2.8 billion on strong cash collections and reducing our capex guidance to approximately $225 million, resulting in free cash flow of approximately $2.6 billion, an increase of $600 million versus our previous guidance. Now to targets for the fourth quarter. Total revenue between 2.53 and $2.58 billion. Total gap costs and expenses between $2.225 and $2.3 billion. Total non-GAAP costs and expenses between $1.45 and $1.48 billion. GAAP earnings of $0.60 to $0.85 per share and non-GAAP earnings of $4.10 to $4.16 per share. Our press release and financial supplement include additional targets and GAAP to non-GAAP reconciliations. Thanks to our global synopsis team for another strong quarter. These results reflect strong execution across the business, continued demand for our technology, and disciplined operating performance as we build the foundation for the next phase of growth. We look forward to seeing many of you at our September Investor Day to discuss the compelling, long-term opportunity we have as a mission-critical partner for our customers. With that, I'll turn it over to the operator for questions.

Before we begin the Q&A session, I would like to ask everyone to please limit yourself to one question and one brief follow-up to allow us to accommodate all participants. If you have additional questions, please re-enter the queue and we'll take as many as time permits. Your first question comes from the line of Jason Salino with KeyBank Capital Markets. Your line is open. Please go ahead.

Great. Thank you. Hi, Sassine. Hi, Sheila. Thank you for taking my question. You know, really good results here. I think what really stuck out to me was the 8% EDA growth, which was stable with last quarter despite the harder comp. You mentioned it's supposed to accelerate to double digits in Q4 and the full year. I mean, how would you describe, you know, what's driving that incremental acceleration? Is it design start activity? Is it agentic? Is it just better monetization strategies? Just help us understand. Thanks.

Thanks, Jason, for the question. Yes, we're very excited about the overall performance in EDA and the acceleration to wrap up the year with double digits growth, exactly what we have committed to in terms of our segment growth. What's driving the increase in confidence in our business in EDA is driven by multiple factors. The complexity of chip design, the move to advanced package 3D IC, the example I mentioned in my prepared remarks like an AMD expansion and use of 3D IC compiler, and there are a number of other customers that are designing this advanced package are using our technology. AI is definitely a tailwind as customers are rethinking of how to re-engineer their chip design engineering. It's requiring different methods for that engineering. So that's driving another tailwind for us. And hardware. We had a record revenue year on hardware. So all in all, that 8 plus percent is organic growth for EDA that we're fairly excited about.

Yeah, and I just point out, Jason, that the 8.5 Q3 EDA growth that you saw was against a really tough compare. Q3 25 was 16%. And so, as Sassine said, it really just shows the strength of the business to be able to perform against that tough compare and then have the full year continue to have double digits.

Yep, thank you. And then, Sassine, you mentioned something You talked about your customers having to re-engineer their processes. We're seeing a lot of innovation happening. Everyone always talks about these new AI models. I think yesterday there was an example, OpenAI talked about the development of their new chip. They talked about using their own AI models to accelerate the design process. Maybe can you speak to When you hear examples like this, because a lot of your customers have used their own models in the past, what is involved in the re-engineering of a design process? How much is supplemental or incremental or replacement of something that might be existing? I don't know if that makes sense.

Yeah, of course. Yes, thank you for the question. For at least a year and a half now to two years, we've been talking about how AI is reshaping how engineering is done. The investment that Synopsys has been making and leading in delivering agent engineers to our customers in rethinking the workflow, including AI models that will absolutely participate and contribute to that reengineering of engineering. In every case, the underlying Thank you very much. and a great opportunity for synopsis on the EDA front. Not to mention it's a huge opportunity on the IP as well because that's rethinking the whole architecture as you customize the silicon.

Wonderful. Thank you for the explanation. Thanks, Jason.

Your next question comes from the line of Joe Vrewink with Baird. Your line is open. Please go ahead.

Great, thanks for the time today. I wanted to go back a few years, but at your 2024 Investor Day, you shared an outlook back then around how 30% of EDA software demand might end up coming from multi-die efforts by next year. I'm curious how that figure might be tracking and maybe what you see after 2027 I think we all appreciate there's been quite a lot of recent attention even this week on HBM. How might EDA content change for you when thinking about DRAM processes moving to Logic, that sort of thing? Is it actually strengthening maybe relative to what you thought a few years ago?

Yeah, Joe, actually that forecast has accelerated. As I mentioned in the prepared remark as well, the die-to-die and many more. and on the EDA side is 3D IC compiler and this is where the emphasis of the joint solution with ANSYS is essential. You cannot build these systems without taking into account physics, thermal structure, fluid. into the chip design phase. So the 30% back then was a figure we thought was a stretch, but it absolutely accelerated given all the investments our customers are making to build these efficient custom silicon.

Okay, that's great. I wanted to ask the double-digit organic growth and EDAs, If you think about splitting that up between software and hardware, is the performance in your software business where you would like it to be here at year-end? It seems like hardware has remained a very large and strong driver. I'm more curious about the software performance.

We're very happy with the software component, actually. Very, very pleased. The part that actually I'm most excited about is the delivery of our joint solution with ANSYS. And that gives us the platform to deliver to where the future of engineering challenges is heading. As we just talked about, the advanced package, the need for physics into electronics, gives us even the confidence to look at the trajectory and continue on delivering these double-digit growth.

Your next question comes from the line of Charles Shi with Needham & Company. Your line is open. Please go ahead.

All right, thanks for taking my question, Sassine, Sheila. Maybe this is for Sassine. I have a high level, maybe a long term question. Sassine, we know that going back probably more than 10 years, you played a very pivotal role in terms of infusing AI. I know back then it was not the large language model, probably more like a reinforcement learning type of AI into the synopsis Tool Flows, DSO.AI, all those great products. But AI has advanced so much over the last 10 years, especially the last three. So the question I constantly hear from investors is about that. Is there any risk for AI to actually disrupt the commercial EDA business? And I think at least one school of thought was thinking, could there be an end to end What they call AI-native chip design that bypasses all the commercial EDA tools, especially maybe with some AI models trained by the commercial EDA-generated synthetic data. Is that a real threat, in your opinion, to the overall EDA industry at all? Or where do you see where AI can be more substitutive or complementary to the commercial EDA business?

Thank you, Charles. I don't need to go back or go as far as 10 years ago. You're right. Around 2017, we introduced and invested and saw great results with DSO.AI centered around reinforcement learning. If you look at the last three years, the focus was around co-pilot, generative AI, move to agents. Right now, we're talking about autonomous designs. As you start looking at autonomous workflow, the most important thing is accuracy and determinism. Customers will not invest hundreds of millions of dollars in a product without having the confidence that is going to work. The portfolio we have with the sign-off leadership is essential to building these autonomous workflows. We are participating with our customers on how to achieve an autonomous workflow. It's not like it's happening without our participation. We're proactively engaged with them to re-engineer how they're looking at the future of engineering with AI being the center of that evolution. I am not worried at all that at some point Thank you very much. that faster design to deal with the complexity and we're at the center of it.

Thanks. Maybe to see on the agentic AI, agents opportunities and how should we think about any uplift to the overall revenue growth, especially EDA growth and and can you give us an update on the changing the business model more to the subscription plus consumption, at least for the agents, any discussion with your customers so far? Thank you.

Yes, number of engagements. Actually, to the first question you had, as our customers are exploring whether to use an agent from Synopsys or an agent from Synopsys plus their own agents to keep their special sauce inside their workflow, the customer workflow or the customer agent, the need is for more licenses. We are defining with our customers multiple ways on how to engage from a subscription of our agents, subscription of our workflow as well as a consumption Thank you very much. Thank you. I appreciate the answers.

Thank you, Charles.

Your next question comes from the line of Lee Simpson with Morgan Stanley. Your line is open. Please go ahead.

Great, thanks for squeezing me in. Maybe just a couple of quick ones on IP, actually. Maybe just pre-empting the analyst day. I wonder, Sassine, if you can maybe just give us a little bit of outline on the speed of shift to the Factory 2 opportunity you outlined with licensing and royalties. And then secondly, it's been about a year, I think, since we've seen the intrinsic ID and I think at the time you talked about security IP as being a new vector of growth in IP. Just wondering here if you could maybe outline the size of that opportunity, how you've seen engagements go, and where in particular you think deployments will happen. Thanks.

Thank you, Lee. On Fact 3.2, actually, all you need to look at is the momentum in every hyperscaler Investing and are at various stages of delivering their own custom silicon. These chips will not happen without our interface IP. These customers need our interface IP in order to build their own chips and to connect to the ecosystem, be it the memory provider or if they're investing in their XPU, but they need a networking chip from their supplier. connecting them together come through our interface IP. So that's the opportunity. What we could see as well, and the reason we started talking about Factory 2 is the need to customize these standards and to accelerate the delivery of these customizations. Synopsys is in a unique position given our scale and the knowledge, the skills, the market position to deliver on that customization and acceleration. We are in advanced discussions with a number of these customers to change the business model from the traditional IP license plus some NRE to a license plus a royalty. I look forward in a few weeks to again help you model what does that look like but I cannot be more excited about the investment that we've made and the agility in pivoting in that direction while absolutely continue on leading and investing in Factory One because that's another significant opportunity that will continue. As for security, The reason we started looking at the portfolio and we divested the processor IP is to focus on the areas of growth. Security is one of them. As you said, we don't split it out as a separate item, but we have a great market position in security and will only continue on becoming more and more important given you need to secure the chip not only at the software level, as much as you can do at the hardware level, and that's where our security portfolio comes in. Thank you. Thank you, Lee.

Your next question comes from the line of Josh Tilton with Wolf Research. Your line is open. Please go ahead.

Hi, this is Arseny on for Josh. Just, Sassine, first, you talked about seeing strong early customer interest in multiphysics fusion following the launch, and just historically, chip design and simulation often were kind of handled by different engineering teams and different workflows and tools. I guess when you're bringing thermal analysis directly into the design flow, how are customers structurally, I guess, approaching that convergence? Are you seeing those teams start to work more closely together and consolidate around more common workflows? Or does adoption still kind of require navigating distinct engineering teams and maybe separate budgets? Thanks.

You're absolutely right. These teams or the skills and expertise of engineering were separate domains. They had a different handshake as the design steps are moving from the synthesis to the physical design to sign-off, etc. The requirements to have co-design is essential to reduce margin and deliver to these competitive products. Absolutely, leading customers are requiring to take thermal into account during the design implementation, to take structure, stress, as they're building these 3D IC into the architecture of the chip, not only the synthesis or the implementation of the multiple chiplets. Yes, absolutely. This is where we have invested. that the implementation engineer that's sitting in the upfront part of the design flow are able without too much effort to be able to bring in sign-off accuracy early in the design flow. And that's exactly where we see the opportunity of the combined portfolio and delivering to the fusion of physics with electronics. From a budget point of view, as we have committed, 1 plus 1 will be greater than 2. What it means, even if it's coming from an EDA budget, the joint solution will capture an upside in revenue to the existing separate point tools.

Got it. That's helpful. And then, Sheila, just clarifying just one topic, specifically on ANSYS, the raise $20 million to the $2.98 billion. Last quarter, you helped us with $12.5 million contribution from that accounting dynamic, and it was $60 million for the full year. Is it still $60 million for the full year and that raise on that $20 million increase in ANSYS is just core upside from good execution there?

Yeah. So last quarter, we talked about the accounting change. and so we made that accounting change and we'll be making that accounting change and then the guidance that we're giving incorporates that so we're seeing strength in the ANSYS business including the channel business.

Got it. And what was it I guess in Q3 for ANSYS's accounting change and it's still 60 million for the full year or is it a different number this time?

It's still in that same range for the full year.

Got it. And the quarter it was 12 and a half or?

We didn't disclose the in quarter.

Cool. Thank you very much.

Thank you.

Your next question comes from the line of Joe Quattrocchi with Wells Fargo. Your line is open. Please go ahead.

Yeah, thanks for taking the question.

You know, you talked about a tale of two markets with, you know, AI versus non-AI and EDA. I'm just wondering if the acceleration that you're seeing is AI becoming a larger piece or in offsetting kind of the non-AI or have you started to see also some acceleration from the non-AI part of your business as well?

Yeah, Joe, so the reason for our assertion to begin with, what we do on a quarterly basis, that these are internal measures that we have, is we track chip starts. And the reason we have a good coverage on design starts is our IP portfolio. There is no customer that is planning a new chip start that we don't engage very early on through our IP portfolio. And of course, EDA will follow. The observation is on the non-AI, in the last two quarters, it has stabilized. What it means was we were observing a slowdown in design start in the non-AI segment. In the last couple quarters, stabilization, so it's not declining anymore. Now, on the flip side for AI, where we have been seeing and continue on seeing an acceleration in design start, which is a great balance for the opportunity that we have. That's helpful.

And then maybe as a follow-up, just wondering if you could give any puts and takes on the RPO, you know, the down and touches quarter. Was there any impact from the divestiture and did it come in as expected with your plan?

Yeah, it came in as expected. And as I said, and I prepared marks, the modest changes really due to the divestiture of the processor IP business that happened inside the quarter. As you recall, we were close to closing the deal when we did last earnings. It closed a few days after we did the earnings. So that's why you're seeing it this quarter.

Yep. Thank you.

Thanks for the question.

Your next question comes from the line of Siddhi Pergrahi with Mizuho. Your line is open. Please go ahead.

Thanks for taking my question, Sassine. It's really a good quarter. Congratulations. Going back to the ANSYS and Synopsys, the integrated products that you launched, I think you talked about that multiphase fusion is not expected to contribute to EDA growth until 2027. So can you talk about the adoption of pipeline trajectory that we should expect from now and then? And is that 2027 contribution more likely to show up as an incremental EDA growth or as share gains from your ANSYS simulation base? Any color like what you are seeing in terms of pricing benefit, value to the customer on that, that will be great.

Yes, so from a value to the customer, the 10x faster design closure or a 3x faster spice accurate multi-physics timing, that is a significant value to customers. What does it mean for the customer? Less iteration, better design, faster. So our customers in these early engagements have validated and they're in early stages of deployment. The moment we move to production, which those customers will move to production, we'll start seeing the revenue upside. As we've said from the beginning, FY26, we will not have much contribution in the joint solution. It was a year of execution delivering to these products. As we look at FY27, absolutely it will contribute to our growth in EDA. We are absolutely committed as well to the $400 million synergy in year four. So as we meet in September, we'll be able to start talking about 27 and the longer term contribution of this differentiated solution.

That's helpful. And then a quick follow-up. I know Mike Yellow has been there now a few quarters. How is he driving the sales organization? Any kind of specific changes he's contemplating or has been working towards as you roll out this integrated product?

Yeah, Mike has been doing a great job in leveraging what the organization does incredibly well. and the areas that we need to increase our investment from portfolio, go to market point of view, et cetera, et cetera. The priority as we look at FY27 and beyond is how to engage the customers in the areas of differentiation and ensure we have the right investment with the customer We're enabling the customers successfully so we capture the monetization opportunity. So Mike has been spending a lot of energy internally with the team to prepare the organization for IP Factory 2, for the AI monetization, for the joint solutions. All this is a significant time where Mike is spending as we look at 27 and beyond.

Thank you. He's a great hire. Thank you.

He is. We're happy having him.

Your next question comes from the line of Jay Fleashour with Griffin Securities. Your line is open. Please go ahead.

Thank you. Good evening. Sassine, for you first, this may be an imperfect analogy, but how would you compare the prospective migration or adoption benefit of the new multi-physics cohort and the and other cohorts to follow might compare with the ICC, the fusion compiler transition that obviously didn't include ANSYS component at the time, but that was your last big architectural or generational change in your stack. So how would you think this one now that it's underway might compare to that? And then a follow-up.

Yeah, Jake, thank you. Actually, very good question. What we've done with fusion was bringing our sign-off capability and strength into the design physical implementation phase because the customers at the time were having to iterate late stage to correlate or to sign off the chip. It's exactly the same here, but you're including physics. Now, the Redhawk, the HFSS, the rest of the portfolio of ANSYS Thank you very much. with a common interface or a user interface. We made a significant investment at the data model level so our R&D team can write code, optimize on the same exact infrastructure and data model. And that's where Shankar and team have been investing quite heavily from day one of the integration start to deliver to exactly the same value that we were able to build on with Fusion.

Okay. Secondly, the reengineering of engineering concept that you've talked about now since Converge last year remains a very interesting concept and prospect for you and your customers. The question is, what are the ingredients that customers need to make that work? Is it a set of variables or changes they need to make? Is there a single magic bullet that they can implement to make that happen. The demos that you did jointly, for example, at DAC with AMD and Microsoft around discovery seemed quite interesting as perhaps a catalyst for some of those changes. So maybe talk about what actually has to happen for the whole re-engineering thing to really happen.

Yeah, we talked about Fusion as an essential part to have the entire complete set from a spec all the way to sign off. So that's an essential component that Synopsys has that complete set of assets. Now, from bringing together a workflow that can leverage the AI speed from a co-pilot generative AI all the way to autonomy is where we're putting significant investment and racing. The two demos we've done, and thank you for mentioning the Microsoft AMD, which was a demonstration of a full autonomous EDA workflow on the Microsoft Discovery. Think how powerful that is, where you can start from a spec and you have a cognitive layer that can orchestrate multiple tasks agents. In order to deliver to the outcome of the spec. At the same time, what we've done at DAC actually is a demonstration with NVIDIA on an autonomous long-running agent capability. So that's part of, essential part of re-engineering the workflow. What I'm most excited about, as you double-click into what I just described, is Not only the assets that we have, the consumption of these assets is exponential in order to allow for an autonomous flow to deliver to the promise that the customer is looking for, which is an efficient design, better power, better performance, better cost. And that's exactly what we're doing.

Thank you, Sassine.

Thank you, Jake.

Your next question comes from the line of Gary Mobley with Stonex. Your line is open. Please go ahead.

Good afternoon, everybody. Thanks so much for fitting in my question. Christine, you mentioned in your prepared remarks the largest deal in the quarter for Ansys was a GPU-based digital twin. Was that a large deal because it is accelerated compute runs and accelerated compute versus CPU-based compute. I'm asking because I'm just trying to get a sense of whether the efficiency from the accelerated compute digital twin system accrues to NVIDIA or accrues to you as well.

Thank you, Gary, for the question. So simulation is a perfect application for GPU acceleration. These are jobs you can, for the most part, not only paralyze, you can achieve a significant speed-up. The speed-up does not stop or has limitations at 10 or 15x. In CFD, we're seeing 40, 50, 60x speed-up. The bottleneck for our customers is the time to results, the time to accurate results. and the investment actually started with the GPU acceleration even before the acquisition of ANSYS by Synopsys. After the acquisition, we just accelerated even further the commitment, the investment and of course the NVIDIA investment and alignment towards this opportunity only helped. In terms of who gets the value, We sell and we capture the entire value and uplift of the GPU. NVIDIA, of course, in the back end, you need GPU to run from the traditional CPU to GPU. They benefit that way. So the large yield is large because of the benefit to the customer and the speed up we were able to deliver to the customer.

Thank you. In my follow-up, I wanted to ask about and Tushar Jain. Thank you very much.

I'm not sure about the speculation. One thing I can tell you is our relationship with Samsung, with SK Hynix, with the broad market in Korea has been a great collaboration in an area and a region that are leading with a very essential part of the AI infrastructure. and we are leading with those customers and not limited to those two in the broader region itself across the portfolio. So you need to think of it from IP with our custom HBM and HBM engagements with the lead customers to EDA and to ANSYS. So very pleased with the performance that we have. Thank you, Safiq. Thank you, Katie.

Your next question comes from the line of Kelsey Chia with Citi. Your line is open. Please go ahead. Hi, Sassine and Shelagh.

Great to see the IT business getting back on track. I believe the team outlined a long-time growth of about 18 for IT business several years ago. I mean, since then, we have seen significant acceleration in the chip design activity, particularly among hyperscalers. and it seems that the non-AI portion of the business is also stabilizing. Given that backdrop, is it unreasonable to think that IP business could achieve a much stronger growth than the teams laid out over the next couple of quarters? And if so, are there any factors that could prevent that growth algorithm from being reset higher?

Kelsey, thank you for the question. Your assumptions are good ones, which is more chip starts, A huge opportunity with custom chips, which I refer to as Factory 2, as Factory 1 continues on delivering and expanding. And for now, the mid-teens is our long-term guide. We'll look forward for September, where we can share more and provide any updates as necessary.

Thank you. We have reached the end of the Q&A session. I will now turn the call back to Sassine Ghazi for closing remarks.

Thank you for all the questions. One year after the transformational acquisition of Ansys, we're executing with focus, gaining momentum, and extending our leadership from silicon to systems. I look forward to seeing many of you at Investor Day in September. Thank you very much.

Thank you for attending. You may now disconnect.