Good afternoon, everyone. 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. As shown in today's financial statements, all of Ansys revenue appears under the Ansys product group, including the Ansys semiconductor products.

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 8-K that we released earlier today.

All of these items, plus the most recent investor presentation, are available on our website at www.synopsys.com. In addition, the prepared remarks will be posted on our website at the conclusion of the call.

With that, I'll turn the call over to Sassine Ghazi.

Good afternoon. In 2025, we redefined Synopsys.

With Ansys, Synopsys has transformed from an EDA leader to the leader in engineering solutions from silicon to systems. We achieved record annual revenue of $7.05 billion and exited FY '25 with more than $11 billion in backlog.

In Q4, we made strong progress executing the actions we identified to accelerate our strategy and drive long-term growth. More specifically, Ansys integration is well underway following completion of the planned divestitures of the Optical Solutions and PowerArtist businesses.

We've also initiated restructuring actions to drive efficiency and accelerate our committed synergies. Recently, we welcomed industry veteran Mike Ellow as our new Chief Revenue Officer.

Fourth quarter revenue was in line with our guidance, and EPS came in slightly ahead of guidance. Looking ahead to FY '26, we're guiding revenue of $9.61 billion at the midpoint, which factors the addition of Ansys, the completed divestitures, and continued pragmatism around China.

Zooming out, we are operating amidst a multi-trillion dollar AI infrastructure build-out, which is driving robust semiconductor demand and design starts for both specialized and general-purpose compute. We're also seeing stronger semiconductor demand in mobile and automotive, while markets like industrial and China broadly remain subdued.

AI will revolutionize every industry, demanding more compute performance while compounding engineering complexity. AI is driving chips to the atomic level, while scaling from factory to edge to intelligent devices everywhere.

As AI evolves from large language models to world models, engineering AI's future is not just a software challenge, it's a physics challenge. AI makes it both possible and imperative that we re-engineer how engineering is done.

Building complex, AI-powered systems with the right performance, scale, and efficiency requires new tools with multi-domain integration and new workflows to enable tight software and hardware co-design. That's why we're so excited about the combination of Synopsys and Ansys.

Ansys diversified our revenue, expanded our customer base, and supercharged our opportunity. Together, we can bridge digital and physical design to help engineering teams across industries deliver better products faster and at lower cost.

Our recently announced strategic partnership with NVIDIA further positions us to revolutionize design and engineering with AI and accelerated computing. Now more than ever, Synopsys is mission-critical to technology innovation.

I'll briefly share some Q4 business highlights, and then Shelagh will provide the financial details. First, Design Automation.

In Q4, we saw continued strong demand in hardware-assisted verification, driven by the increasing engineering complexity of AI and high-performance computing. Our HAV business ended a record year with 12 competitive wins in the fourth quarter.

We're also seeing continued demand for virtual prototyping among automotive and high-performance compute customers looking to accelerate their software development. Our leadership on advanced node, multi-die, and AI design drove steady demand and growth in the fourth quarter.

Last week's AWS Graviton5 launch is a great example. For years, we've collaborated with AWS to enable their custom silicon development, and Synopsys tools, including VCS, PrimeTime, Fusion Compiler, and IC Validator, were critical to the design of this new custom chip with impressive gen-on-gen performance gains.

Importantly, Synopsys continues to pioneer AI-driven chip design. Nearly 5,000 active users among our tier 1 semi customers are applying Synopsys.ai's assistive and generative capabilities to increase their engineering productivity.

We also continue to advance agent engineer technology with partners like NVIDIA and Microsoft. Agentic AI capabilities promise to transform engineering workflows and unlock new business models.

The Ansys business continues to demonstrate robust growth across key industries, including industrial, where customers are using simulation to virtualize and optimize production, saving time and money. At Microsoft Ignite, we partnered with Microsoft, NVIDIA, and Krones, a leader in packaging and bottling, to show what's possible.

Using Ansys accelerated physics solvers, NVIDIA Omniverse, and Microsoft Azure, Krones built a digital twin of its bottle-filling line to simulate and optimize operations in real time. A powerful example of how open ecosystems and cross-industry collaboration are redefining industrial innovation.

Turning to Design IP, which performed in line with our adjusted expectations. As interconnect standards evolve at an unprecedented pace, customers count on Synopsys's one-generation-ahead approach.

We saw strong momentum in the quarter for PCIe, 224-gig, and UCIe IP. Notably, we secured 13 PCIe 7.0 design wins during FY '25 and established first-to-market position with our silicon-proven 224-gig IP and the new standard UALink.

We also had 10 competitive wins in FY '25 for LPDDR6 and MRDIMM Gen 2 memory IP, which address two critical challenges in AI hardware: data throughput and power efficiency, while also improving reliability and security. As stated last quarter, 2026 is a transitional year for the IP business, and we expect growth to be muted.

However, given our leadership position in essential interconnect and foundation IP, our healthy sales pipeline, and a renewed focus on the highest-value opportunities, we are confident in our long-term, mid-teens growth target. To sum it up, we continue to transform and drive our strategy forward with a focus on technology leadership, operational excellence, and financial discipline.

Our priorities for FY '26 include: advancing our technology leadership by continuing to pioneer the use of AI for engineering workflows and delivering our first Synopsys-Ansys joint solutions in the first half of 2026; and efficiently scaling to accelerate our strategy through disciplined cost and portfolio management, resulting in sustainable growth and margin expansion. I want to thank our global team for their commitment and adaptability navigating an unprecedented year of transformation.

Together, we've built the foundation for our future success. I'm also grateful to our shareholders, partners, and customers for your continued support, and I look forward to seeing many of you at CES in January.

Now, over to Shelagh.

Thank you. As Sassine said, 2025 was a transformational year, highlighted by the close of the Ansys acquisition, record revenue, and strong backlog.

Backlog came in at $11.4 billion, up from $10.1 billion last quarter, driven by strength in bookings across the business. We are acutely focusing on executing with financial discipline as we head into fiscal year 2026.

We are well into delivering on our plan to improve efficiency with the previously announced workforce reductions. These decisions are never easy, and I'm thankful to the Synopsys team as we execute these actions and accelerate realizing our cost synergy commitment.

Let me provide some highlights of our fourth quarter and full-year 2025. All comparisons are year-over-year unless otherwise noted.

As a reminder, full-year comparisons do not adjust for the 8 extra days in fiscal 2024. In 2025, we generated total revenue of $7.05 billion, up approximately 15%, which included $757 million of Ansys revenue.

Q4 revenue was $2.25 billion, coming in at the high end of our guidance. Ansys Q4 revenue was $668 million.

Geographically, China continued to be challenged, consistent with our commentary last quarter. China ended 2025 down 18%.

Excluding Ansys, China was down 22% this year. 2025 total GAAP costs and expenses were $6.14 billion, and total non-GAAP costs and expenses were $4.42 billion, resulting in non-GAAP operating margin of 37.3%.

Q4 GAAP costs and expenses were $2.13 billion, and total non-GAAP costs and expenses were $1.43 billion, resulting in non-GAAP operating margin of 36.5%. Q4 and full-year 2025 GAAP earnings per share were $2.39 and $8.07, respectively, which included the gain on the sales from the recent divestitures.

Q4 and full-year non-GAAP earnings per share were $2.90 and $12.91, respectively, ahead of our guidance on lower expenses. Now, on to our segments.

Full-year 2025 Design Automation segment revenue, which includes EDA, Ansys, and other, was $5.3 billion, up 26%. Excluding Ansys, Design Automation revenue grew approximately 8%, with steady growth in EDA software and a record year in hardware.

Design Automation adjusted operating margin was approximately 42% in 2025. Full-year Design IP segment revenue was $1.75 billion, down 8% due to the challenging second half with the headwinds highlighted last quarter.

The IP business performed in line with our revised Q3 expectations. Design IP adjusted operating margin was 24% in 2025.

Moving to cash, free cash flow for 2025 was approximately $1.35 billion and came in ahead of expectations, primarily due to the accelerated timing of collections. We ended the quarter with cash and short-term investments of $2.96 billion, which includes approximately $600 million in proceeds from the sale of the Optical Solutions Group and Ansys's PowerArtist business.

Total debt ended at $13.5 billion. We repaid approximately $850 million of our term loans in Q4 '25 and $900 million in November, and plan to prepay the balance of $2.55 billion in the first half of 2026.

We have incorporated this in our guidance that I will now discuss. For 2026, the full-year targets are: total revenue of $9.56 to $9.66 billion.

Within that, Ansys revenue contribution is expected to be $2.9 billion at the midpoint, growing double digits. Following the close of the Optical Solutions Group and PowerArtist divestiture in October, our fiscal year '26 guidance excludes revenue associated with those groups, resulting in an impact of approximately $110 million.

We expect the first half, second half revenue split to be approximately 48%, 52%. We expect Ansys revenue to be strongest in Q1 given their historical strength in the December quarter, driving the sequential revenue increase.

Total GAAP costs and expenses between $8.47 and $8.61 billion. Total non-GAAP costs and expenses between $5.69 and $5.75 billion, resulting in non-GAAP operating margin of 40.5% at the midpoint, up approximately 320 basis points versus 2025, driven by the inclusion of Ansys and cost synergy acceleration.

We are adopting a normalized non-GAAP tax rate of 18% projected through 2028 to provide consistency across future periods. The 2-point increase is driven by geographic mix of earnings, inclusiveness of Ansys, and recent tax law changes.

GAAP earnings of $2.49 to $2.90 per share. Non-GAAP earnings of $14.32 to $14.40 per share.

We expect the first half, second half EPS split to be 46, 54, with the second half benefiting from the debt repayment. Cash flow from operations of approximately $2.2 billion, up approximately $700 million year on year.

The cash flow guide includes the impact of certain nonrecurring outflows, such as restructuring costs of approximately $225 million and $135 million of incremental cash taxes from recent divestitures. We expect CapEx of approximately $300 million, up $130 million versus 2025, driven by investments primarily in compute infrastructure, resulting in free cash flow of approximately $1.9 billion.

Fully diluted shares outstanding are expected to be between 192 and 194 million shares. This includes the impact of the recent share issuance to NVIDIA as part of our strategic partnership.

With our plans to accelerate our term loan repayment, we expect the net impact to be accretive to EPS in fiscal year 2026, which is incorporated in the guidance. Now to targets for the first quarter.

Total revenue between $2.365 and $2.415 billion. Total GAAP costs and expenses between $2.165 and $2.23 billion.

Total non-GAAP costs and expenses between $1.395 and $1.425 billion. GAAP earnings of 22 cents to 41 cents per share.

Non-GAAP earnings of $3.52 to $3.58 per share. Our press release and financial supplement include additional targets and GAAP to non-GAAP reconciliations.

Before we take your questions, I'd like to reiterate our focus on driving sustainable growth and margin expansion through unmatched innovation and disciplined execution. 2025 was a transformational year that redefined Synopsys.

In 2026, we will expand our position as a leader in engineering solutions from silicon to systems. With that, I'll turn it over to the operator for questions.

Thank you.

Great. Thank you for taking my question.

Maybe my first one for Shelagh. The embedded organic growth rate in the 2026 guide, I don't know if there's a way for us to understand what that might be and what that might imply for IP growth.

I'm okay at math, but I'm just a sell-side analyst. If we adjust for the Ansys and the divestitures, I'm getting 8% growth organic.

I ask the question cuz I'm just trying to understand the level of conservatism.

It's definitely in that ballpark. I think two things that I would highlight: one is, and I had it in my prepared remarks, we did have the disposition of the Optical Solutions Group and the PowerArtist group, it's $110 million, so that's about a point and a half, just point that out to you.

As we talked about in Q3, we do anticipate a muted year of growth for IP. We are very much well into repositioning workforce to build out the HPC titles so that we've got those fully available for customers, but we do expect the group to be in transition this year, and so we've factored in muted growth for the IP business, you're seeing that.

As I talked about Ansys, our guide for Ansys is $2.9 billion at the midpoint, and that's double-digit growth for Ansys. We're trying to be pragmatic with our forecast in light of the body of work that the IP team needs to do in '26 to be able to get us back to the long-term growth rate in IP.

Okay. Then the operating margin EPS guide is pretty fabulous, even when considering the extra dilution from the NVIDIA investments.

I don't know if I heard you talk about a specific synergy number, but curious if there's any extra details there. Thank you.

Sure. One of things we had talked about last time that we're well on way to do is the 10% workforce reduction that encompasses a body of work that we've been doing on synergies.

We've already done an action November timeframe, we anticipate that we're largely complete with that in 2026. We're very much on the path of working to accelerate those synergies as quickly as possible.

As Jason, we've been very focused on driving margin expansion over multiple years with this guide. It's about a 12-point margin expansion since 2020.

We're very focused on that, very focused on driving both sustainable growth and expansion of margin.

Great. Thank you.

Thank you.

Good afternoon. Thanks for taking my question.

If I exclude Ansys to the person that asked the question before me, the core EDA plus IP is growing about 8, 8.5% year over year in the fiscal year guidance. Can you just help us understand what you're embedding for growth in EDA and IP in the guidance?

For example, if I assume IP is growing modestly, as you guys say, let's say 5%, then your EDA business is growing around 9%, which is still below your forward target of 12, 13%. Is that kind of the way to think about it?

If so, why is the EDA business still undergrowing your long-term forward target CAGRs?

Thank you, Harlan, for the question. Your math is in the ballpark.

What we're taking into account for the EDA growth, because on IP you captured it well, we're guiding a muted growth for IP. In EDA, we're taking a couple things into account: one, the China environment, where the cumulative impact of restrictions is something that we are seeing and have seen in '25 that has had an impact, is different than, say, 2020, '21 timeframe where many startups and a significant spending was happening in China.

The other factor is we're still operating in a tale of two markets. There are number of companies that they're building chips for industrial, automotive, and anything outside the AI infrastructure build, their roadmap is somewhat muted.

They're not driving at the same pace as what we're seeing with the other group of customers that they're delivering chips for the AI infrastructure. Then, as with EDA, there are number of components.

There is the software and the hardware-assisted verification. On HAV, we continue on seeing a significant demand due to the complexity of verification.

The long-term view is double digits, but that's what we have took into account in terms of the guide for '26.

The other thing that I would add that's just a mechanical item, Harlan, is the divestiture of the Optical Solutions Group and the PowerArtist group, so that's a $110 million headwind, but that's just a mechanical thing just to add that into what Sassine outlined.

No, got it. Thank you.

That was insightful. Then, Shelagh, a question for you.

Total expenses exiting Q4 was about $1.43 billion. You're guiding that to roughly about $1.41 billion in the first quarter, but if I look at your average quarterly expense run rate through the year on the full-year guidance, it's still averaging about $1.43 billion per quarter.

Doesn't seem like there's much in the way of synergy unlock in fiscal '26, or are cost synergies being offset by increased spending in other areas? Where do you expect the total expense to be run-rating exiting fiscal '26?

Yeah. Our commitment on the cost synergies, you're really seeing that flow through back to Jason's question on the op margin, the 40.5%.

Obviously, we've committed to mid-40s long term, we're well on the way to that. When we think about the profile of expense structure, it is changing a little bit just because the ingested ingestion of Ansys as to how the quarterly splits run.

Our expectation is, throughout the pace of the year, we're going to continue to have reductions in workforce, but we're still going to focus our main investment on driving innovation and driving the roadmap. The reductions will still allow us to have significant investment in R&D.

Great. Thank you.

Thanks, Harlan.

Good afternoon. Thanks for taking my question.

I was wondering if you could maybe give us a bit of an update on the IP business and your expectations you laid out last quarter around some of the headwinds that you're seeing, whether that be your foundry customer, China, and the execution on custom IP blocks. Can you maybe give us an update on sort of the level of progress you had in each of those three dimensions and how that sort of plays into the overall IP outlook for the year?

Is expected to be sort of low single digit, or you think mid single digit is possible? Thank you.

Thank you, James. I want to start with, as we zoom out, my confidence in our long-term mid-teens for our IP business only gets stronger.

I know when we talked 90 days ago, we have focused on some of the headwinds, but the overall strength of the portfolio we have is such a privilege to have the portfolio as we engage our customers in various markets, not only AI HPC, because, as the market of semiconductor is much broader. Today, we are the leader in providing the IP for automotive, for mobile, for many other segments.

In the AI HPC, we have a very strong position, and our customers constantly reminding us how mission-critical we are to their roadmap and development. We outlined 90 days ago three headwinds: China, and the whole foundry uptake, we're assuming in our guide that the not much change going into FY '26.

In other words, we are being balanced and pragmatic the way we're taking into account in our guide for IP these two factors. In terms of resources and prioritization, we made number of changes.

We made changes in our development leadership, we made some changes in the sales leadership as it relates to IP, and we are well on our way to close some of the gaps. You're going to see from a customer engagement point of view on some a couple of the titles that we are being pressed on timing of delivery is that we will close these gaps by mid-year '26, FY '26.

All in all, we're looking at '26 as a transitional year, muted growth, with the long-term objective of mid-teens, and that we feel very strongly about.

That's helpful. Thank you.

Then maybe just as a follow-up, obviously, last week you had your announcement of the NVIDIA partnership and the investment in the company. Can you maybe give us a little bit more color on sort of the rationale for why an investment made sense?

what could have been done with an investment that couldn't have been done simply through a strategic partnership, and maybe kind of walk us through the logic around that. Thank you.

Sure, I'm I'm happy to walk through how it ended up being an investment. Where the discussion started with NVIDIA is enthusiasm and excitement about the new Synopsys, the silicon-to-systems engineering solutions that addresses not only the silicon part, it's going up to the whole physical AI and delivering solutions to the future of engineering in every industry.

The discussion with NVIDIA started around how do we accelerate at the computational level with the GPU, and that's something that is already number of our products we have a roadmap for that acceleration. Then it went up to the Omniverse level: how to modernize, or the way we refer to it, how do we re-engineer engineering for intelligent systems.

This is where the Ansys portfolio is very unique, as they bring in a multiphysics simulation leadership to bring that physical simulation, physical AI into effect and providing that that modernization of engineering. The third The third element is our go-to-market reach.

Ansys has built a very strong channel partnership and direct sales channel that we touch thousands and thousands of customers in many industries. As the discussion with NVIDIA started evolving on defining the technology partnership, the the discussion with Jensen moved to, 'I want to I want to endorse it with an investment because I know we can make money.'

I I know you heard his own words as we announced the partnership. The the financial aspect was second because, as you can see, we have a very strong balance sheet, and we welcomed the $2 billion investment.

As Shelagh outlined, we will accelerate some of the debt payment and and and and help us with accelerating some of the strategy we have. That's how it really came about.

Hi, Sassine and Shelagh. Thanks for taking my question.

I'd like to tap on the EDA growth rate again. You mentioned that the lower EDA growth in fiscal year '26 is due to slower chip design momentum in China.

Is that the same reason for the lower growth rate this year as well? Are there any share shifts dynamics happening over there?

If synergies with Ansys could drive that revenue growth back to target?

As it relates to China, there is some share shift happening inside China. Because, when you restrict the sale of EDA or IP, the customers in China are looking for alternatives.

That is happening, and it's happening at an accelerated rate. The customers we can serve, we're fine selling to, and they're buying from Synopsys or other.

The companies we cannot sell to, they're looking for alternatives, and these alternatives are typically organic, local EDA or IP companies. In terms of the longer-term growth opportunities for EDA, and that's why we're still standing behind double-digit growth for EDA, is going to come from the joint solutions between Synopsys and Ansys.

We are targeting the first half of '26 to deliver the first wave of these solutions. There's a need for customers from customers to address the current challenges they're facing as they're designing the most advanced chips, advanced package, 3D IC, where they need the physics analysis to be taken into account during the design phase of the chip.

This is something we're very excited about. The team is already working toward the goal of delivering the first wave of the solution, and that's a monetization opportunity.

Of course, that opportunity in terms of monetization will happen over time as customer adopt, etc. The second monetization opportunity is, as the agentic AI solutions start maturing and start changing the workflow, that's another opportunity for our industry to rethink: how do we sell our solution for the value and impact?

Again, the China impact, we're taking it into account in our guide, and the upside opportunity as we look at the long term is joint solutions and the AI changing the workflow.

Got it. Thank you.

On the IP business, I noticed that Synopsys provides several IPs for a large foundry customer, including the EMIB advanced packaging technology. It seems that there are several customers evaluating that using that technology from a large foundry customer.

Will that be incrementally positive for Synopsys, given the given the muted growth that you have provided? Also, relating to that, on the operating margins, I believe R&D expenses related to those IPs have been consistently recognized over the prior quarters, despite the lack of customers.

Does that imply that operating margins for that segment should trend back to historical average when the revenue for that large foundry customers are being recognized?

Let me address the first part of your question, then I'll turn it to Shelagh. The way we monetize our IP, the first step is to build it.

What you build on Foundry A is not the same on what you build on Foundry B, even though it's the same protocol, the same title. It does require what's called porting, and that's not a simple effort.

It requires quite a bit of an R&D effort to achieve the same performance, power, etc. Now, that's one part of the monetization.

Where we look for the incremental monetization is when that foundry start on-ramping customers. If whichever foundry has expansion of customers that are using the technology that we already developed the IP, that's an incremental opportunity for us.

There we sell to the end customer who is ramp on-ramping to the foundry customer. For us, we're as we're looking at FY '26 for that particular foundry that we talked about in Q3, we're assuming a status quo in terms of new customers being on-ramped.

Shelagh, if you want to address the operating margin.

Sure. In terms of operating margin, Kelsey, you're right, we still are investing and building the titles out.

We've repositioned the workforce to be able to build the HPC titles out, as Sassine talked about, and so it is really we're going to have, muted growth in '26, which will mean there'll be some pressure on the operating margins. As we get back to that mid-teens growth long term, we'll see expansion in the margins.

I do expect that IP margins are always slightly below the corporate average because it's such a people-intensive body of work to deliver. It's really a short-term effect just because of the, kind of the headwinds on revenue of the op margin challenge through '26 on IP.

Got it. Thank you.

Thank you.

Thank you.

Thanks for taking my question. I want to drill into the Ansys.

Double-digit growth for next year is pretty good. Would love to hear what's baked into that in terms of assumptions there.

It's been now more than 4 months since you closed Ansys. Do you expect, in terms of business model or contract, which are different, do you expect them to convert to subscription?

If you do so, what kind of uplift or any kind of multiplier effect we should expect there? Sassine, in terms of integration, where are you so far?

Any color will be helpful.

Sure. Thank you, Siti, for the question.

In terms of what's driving our confidence in double-digit growth for Ansys, the way we look at it, there is two markets we're serving with the Ansys portfolio: there is the semiconductor market, that the joint solutions will bring an opportunity to uplift our pricing as we integrate the Ansys solution into the EDA solution that we offer today. Then the rest of the Ansys market, if you look at the significant transformation that's happening on how to develop a modern car, robot, any industrial applications, drones, etc., aerospace, those are all customers of Ansys, and the demand, the increase in R&D investment that we are seeing in those markets is giving us the confidence to continue on expanding the growth opportunity.

In terms of the business that Ansys has, they've always had a mix of subscription and perpetual. That will continue based on the customer need, requirement, demand.

That's what's driving the double-digit growth assumption for the portfolio, which, by the way, is no different than what the legacy Ansys team has delivered in the prior years. It's consistent in line with prior expectations.

In terms of integration, since we finalized the divestitures in October, we're full force ahead in terms of integrating the teams. Our R&D teams right now, they're one team.

They're delivering on the joint solutions I just mentioned. From a go-to-market point of view, we are maintaining a separate go-to-market engagement.

The one that they deal with semiconductor, those are integrated given the relationship Synopsys has with semiconductor companies. The slew of other customers, and I'm talking multiple factors larger than the classic Synopsys in terms of the space that the legacy Ansys has served, that will remain separate so we don't miss a beat in terms of how to go to market with the existing portfolio that we have.

I would just add, Siti, that the portion that Sassine talked about of Ansys that's, in lockstep with the EDA business, that is moving to a similar ratable, and that's included in our guidance.

Okay. Then just want to clarify that when it's the same customer now using the Synopsys EDA and Ansys, when you launch your combined product, should we expect any kind of uplift there, or what kind of uplift should we expect?

Is that 1 + 1 would be more than 2 or less than $2 there? Sassine, quickly, any update on that royalty model for IP you talked about, any traction you're seeing?

Sure. When we talk about joint solutions, the customers have the options.

They have the choice. If they don't have a need for that new joint solution, they can continue buying the classic Synopsys and legacy Ansys products, and we'll negotiate those based on value and usage and need, etc.

If the customer is looking for the joint solutions because we're solving a new problem, 1 + 1 is greater than 2, for sure. That's where we will capture that monetization opportunity over time as they start adopting the technology.

As I stated, the first wave where the customers start using, feeling the technology and evaluating it is the first half of '26. In terms of the IP value capture, the focus we put together in Q4 that I'm very pleased with, we looked at it from, I want to say, two pathways: the first one is just the discipline in pricing and guardrails because we have a differentiated IP portfolio, and I was very pleased with the go-to-market team in monetizing around the newly established, I want to say, guardrail and disciplines we put in place.

Then the second aspect of it, and that's where we spent quite a bit of time 90 days ago talking about, there's an increase in customization in IP. We're having discussions with number of strategic customers that were happy to allocate resources to deliver on that work, but we need to change the business model from an NRE plus a use fee to NRE plus use fee plus royalty and upside.

These discussions are happening, and I feel very good that in FY '26 we'll be able to lock up some customers in that new business model where they see the value of bringing that customization and portfolio to their roadmap.

Thank you.

You're welcome.

Thanks for taking my question. For the first one, Sassine, I'm trying to gauge whether the IP business is derisked because if I look at your Q4 IP and I just annualize that, that's about $1.6 billion and change.

If I assume that it grows modestly, that's more like $1.8 billion, right or so. From a year-on-year perspective, it seems derisked, but off of Q4 levels not as much, and I wanted to get your sense.

Is that a fair pushback? Just how are you thinking about the sequential recovery in your IP business?

If Shelagh, if you have a number for Q1, that would be very helpful also.

I really urge you not to look at it at from a quarter basis because the IP business, as we often refer to, is can be lumpy. I am very confident, very confident in our portfolio, as well as the market position we have.

We've We were very transparent in Q3 that there were couple titles that we needed to do some work to accelerate our roadmap to deliver to customers. For those titles, we're having ongoing customer engagement with the customers with our revised roadmap, and I have no doubt that we will capture the opportunity for these couple titles.

The rest of the portfolio is performing incredibly well. Yes, I feel very good that we have derisked the headwinds that we communicated last quarter as we look into '26.

Vivek, what I'd give you with the sort of flavor for the year is IP will be back-half loaded. That's really got to do with the availability of all the HPC titles.

The team is actively working, hitting all the milestones to be able to deliver that, but a few of them are not going to be available until the second part of the year. That's really kind of how we built the forecast.

As Sassine said, the demand is there from the customers and, very solid, but some of our delivery is more back-half weighted. Understood.

For my follow-up, what are you assuming for your China sales on an absolute dollar basis relative to the $814 million or so that you're doing in fiscal '25? I guess, Sassine, that the broader question there is, can your EDA and IP business get back to double-digit growth if you continue to see these China restrictions, or if you proactively derisk your business from China engagement?

Thank you.

Thank you, Vivek. We expect the environment to remain challenging in China.

That's why when we look at FY '26 compared to '25, what we are taking into account in our forecast and guide is truly a pragmatic, balanced view. We're not assuming that the environment is going to change in the next one or two quarters to the positive.

Therefore, we continue on derisking it in our guide for FY '26. In terms of the double-digits growth for EDA, we still feel strongly about the opportunity to achieve double digits on the from a long-term basis, and it's driven by the complexity and the need for the joint solutions.

As AI evolves from generative to agentic, it will change the workflow, and that's a great opportunity for our industry to find a new way to monetize for the value that we will be delivering to the customers. Again, from a China point of view, we continue on derisking with an assumption of the environment remains the same, and the long term for EDA, double digits is something we were holding for that commitment.

Thank you.

Thank you, Vivek.

Great. Thanks for taking my question.

I just wanted to stay on the IP topic and given everything that's come up so far in terms of the titles you're seeking availability on mid-year and some of the other strategic elements, the custom IP and potentially changing the business model, that mid-year timeframe, would you expect to know by then the magnitude of commitments you have in hand so that FY '27, you can maybe make the statement it will be back to mid-teens growth? I guess my question is mid-teens growth, is that capable for FY '27 based on the pipeline of opportunities you see today?

To just let me clarify the mid-year. We're not waiting for us to talk to the customer until mid-year.

We talk to the customer we have active engagement and even in contract phases with customer based on their roadmap and based on our roadmap of delivery. We have established very strong trust with those customers, and they build their roadmap based on our ability and delivery.

The other thing I'll point out in terms of IP and in general is the strength of the backlog we're entering the year. Entering the year at $11.4 billion in backlog, that shows the strength of the bookings, the commitment we've had with customers, and it's all about execution and delivery.

Joe, in general, as I keep repeating, my confidence in our IP portfolio is driven by the discussions we're having with customers and the essentialness of what we're delivering here.

No. Thanks.

Thanks for that clarification. I guess I'll next ask about cash flow performance.

I looked at your adjusted EBIT margins, better than 40%, that's nearing the mid-40s goal. Cash flow, I think the guide implies something closer to 20%, obviously, a lot of upside still to the margin framework there.

Just would you expect some of these one-time cash items, restructuring, do those start to settle out of the model as we think forward into the out-years?

Absolutely, Joe. That's why I called them out because I very much think they're one-time kind of one-off items.

The two that I called out was the restructuring, and then obviously, as a part of the OSG PowerArtist, there's a gain, and so there's the tax on the gain. Those are not recurring, and we're very much focused, that's a $700 million improvement year on year.

We're very much focused on driving to that, long-term commit of unlevered free cash flow in the mid-30s margin.

Great. Thank you.

Thanks for the question, Joe.

Hey thanks for taking my question. Hey, Sassine, maybe a question for you, a little bit longer term, a little bit beyond fiscal '26.

A lot of the pushbacks I'm hearing from the investment community on Synopsys, and actually not just on Synopsys, but the entire EDA industry, entire group, is AI is doing very well, but the sector you're in continue to show deceleration, I would say, since 2022. It's kind of hard for a lot of folks to understand, given you have all the exposures to all the AI players there, but your business didn't really turn up and over the past a few years.

Is that a monetization problem? If yes, how do you plan to solve the monetization problem?

Thank you.

Charles, if I understood your question correctly, when you look at the AI from a semiconductor roadmap development point of view, it continues on being very strong. If you're a hyperscaler, and pretty much every hyperscaler, they have three parts to satisfy their infrastructure build-out: they're buying merchant chips, they're engaging ASIC, and pretty much each one of them, they have their own COT where the customer own tooling where they're developing their own semiconductor chips.

The reason they're counting on all three, it's because of the optimization they need to do for different workloads from a cost and power consumption and the overall ownership of the consumption, it makes sense for them to have a strategy based on these three vectors. From a Synopsys point of view, that's a great opportunity because, remember, we don't sell based on volume, we sell based on chip start.

If the chip is coming from a merchant or coming from ASIC or the customer themselves building it, for us and the industry, that's an upside. We don't see that changing, actually, and we see these hyperscalers are doubling down on that strategy.

Sassine, maybe I should make my question clear, cuz I think all the trends you described, I think that's pretty well understood, but at the same time, folks were looking at your revenue growth and especially the EDA, IP part. Maybe not just the Synopsys, but also Cadence and some of your peers.

This whole EDA/IP industry seems to have quite a bit of a deceleration, a gross deceleration over the last couple years. This is a kind of in the opposite way of semis, which has seen the very strong AI uplift.

Kind of let us to kind of think maybe you what the problem you have is not exposure, not that you don't have exposure to AI, but that you have a little bit difficulty to monetize AI. I think one of the things you mentioned about the maybe opening up a third avenue of monetization for IP business, basically going getting into the royalty, is the right direction, but we still kind of curious what do you do about that on the EDA side?

It has been a segment that's kind of growing in the single-digit range for a couple years, and looks like it's going to be another single-digit growth year again. Thanks.

Charles, thank you for clarifying. Absolutely, as an industry, we can do better in capturing more value for the impact we're delivering to our customers.

No question. Given the complexity of these chips, what these customers are building, it's not possible without Synopsys and the industry to deliver to the complexity of what we're building.

If you look at it from an EDA point of view, the hardware part of EDA is growing at a pace that each year we're saying we're breaking the prior record. Customers are willing to pay in order to deal with that complexity.

On the EDA software, there is a challenge in terms of the inflection point of monetization. From a Synopsys perspective, every one of these advanced customers are looking for that joint solutions between Ansys and Synopsys.

That's an opportunity, 1 + 1 to be greater than 2. As we move to a different workflow for agentic AI, that's another opportunity for the industry to rethink: how do we sell that solution?

From an IP standpoint, the conversations are happening. That's why when we talked about it 90 days ago, we were talking about it from a position of strength and an opportunity that those customers are expecting and wanting to engage differently.

We're having the right conversations right now to say we're happy to do it, but we need a different monetization upside for these engagements. Good observation, Charles, and I hope my the way I'm describing where we've been, where we are, where we're going, it's giving you confidence and shedding some light to it.

Thanks, Sassine.

Thank you. Sassine, you spent a lot of time talking about China, but I do have one question on sort of where you are with China revenue.

It's still a meaningful exit rate around 10% of overall revenue, and yeah, I'm wondering if you could talk about the mix there, and if the headwinds that you're sort of seeing in the pragmatism is across, the mix, meaning is it core EDA plus IP plus hardware and Ansys, or, are there specific areas that you're more concerned about, as you think about, this year or even longer term relative to China? I guess I'm trying to get to is this a reasonable floor, once you get past maybe, some of the IP issues that you had there, or, are there other shoes to maybe drop, in China as we think about, the longer-term model?

Thank you.

Thank you, Ruben. I want to clarify, and I know Shelagh mentioned it in her prepared remarks, the Synopsys classic had a decline in China.

The Ansys portfolio performed fairly well in China because they sell to a very broad market that is not restricted. We believe a lot of those customers will continue on seeing the value in the legacy Ansys portfolio, and that will continue on growing.

On the classic Synopsys side, what we're facing in China is primarily our inability to sell to the market that needs the most advanced solution. You're familiar not only with Entity List, but with technology restrictions.

From a Synopsys standpoint, where it impacts us the most is in IP, given the proportion of our business and our leadership in IP not only in China broadly, but in China that has a fairly big impact on Synopsys. From EDA in general, as I answered it earlier, we're not losing share to our standard or the peers that you think about.

When we're losing share in China are for customers our industry cannot sell to, and therefore, there's an erosion that is happening on the EDA side on customers that we cannot deliver or support due to Entity restriction or technology. so we believe we have derisked it in our guide for '26.

Of course, when you pass '26 and assuming the environment is the same, meaning no additional restrictions, then the comps get easier in terms of comparing year

Thank you all for joining the call. We look forward to talking to you during the quarter and meeting you at CES.

Lisa, you can go and close us out. Thanks.

Thank you.

Thank you.