It has been about a month since the last earnings report for Synopsys (SNPS). Shares have lost about 5.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Synopsys due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important catalysts.
Synopsys Q2 Earnings Surpass Estimates, Revenues Rise Y/Y
Synopsys reported non-GAAP earnings of $3.35 per share for the second quarter of fiscal 2026, which beat the Zacks Consensus Estimate by 5.7%. The bottom line decreased 8.7% on a year-over-year basis.
Synopsys’ fiscal second-quarter revenues jumped 41.9% year over year to $2.28 billion, beating the Zacks Consensus Estimate by 1.1%. The top line was primarily driven by an increase in revenues of Time-Based Product, Upfront Product and Maintenance and Service businesses.
Synopsys’ Q2 Details
In the license-type revenue group, Time-Based Product revenues of $945.6 million (representing 41.5% of total revenues) increased 14.2% year over year. Upfront Product revenues (24% of total) rose 7% to $546.3 million. Maintenance and Service revenues (34.5% of total) surged to $784.1 million, up sharply from the year-ago quarter’s $265.3 million.
Segment-wise, Design Automation revenues, which include EDA, Ansys and Other, were $1.82 billion, representing 80% of total revenues and up 62.3% from the prior-year quarter. Design IP revenues were $454.2 million, representing 20% of total revenues and down from $482 million a year ago. With the addition of Ansys, the Simulation & Analysis group is now incorporated into the EDA segment, beginning the third quarter of fiscal 2025. Other revenues were $7 million, representing 0.3% of total revenues. Ansys contributed 28.7% of the total revenues.
Geographically, Synopsys generated $998.5 million from North America (44% of total) and $378.1 million from Europe (17%). Revenues from Korea (12%), China (10%) and Other regions (17%) were $265.4 million, $240.4 million and $393.6 million, respectively.
The non-GAAP operating margin for the quarter was 39.5%, which expanded 150 basis points from the year-ago period.
Within segments, Design Automation’s adjusted operating margin improved to 43.3%, up from 40.9% a year earlier, while the Design IP segment’s adjusted margin contracted to 24.4%, down from 31.2% last year.
Synopsys’ Balance Sheet & Cash Flow
Synopsys ended the second quarter of fiscal 2026 with $2.48 billion in cash, cash equivalents and short-term investments, up from $2.20 billion in the prior quarter. Total long-term debt was $10.01 billion.
During the second quarter of fiscal 2026, Synopsys generated $629 million in operating cash flow.
SNPS Raises Guidance for FY26
For fiscal 2026, Synopsys raised its revenue outlook to $9.625-$9.705, up from the prior guided range of $9.56-$9.66 billion. SNPS lifted the non-GAAP EPS target to $14.72-$14.80 per share, up from the prior guidance of $14.38-$14.46.
For the third quarter of fiscal 2026, the company expects revenues of $2.41-$2.4 billion and non-GAAP earnings of $3.63-$3.69 per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, Synopsys has a average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Synopsys has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
