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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

ý

Accelerated Filer

☐

Non-accelerated filer

¨

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ý

As of August 16, 2023, there were 152,083,817 shares of the registrant’s common stock outstanding.

Synopsys, Inc. (Synopsys, we, our or us) provides products and services used across the entire Silicon to Software spectrum, from engineers creating advanced semiconductors to software developers seeking to ensure the security and quality of their code.

We have prepared the accompanying condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Pursuant to these rules and regulations, we have condensed or omitted certain information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The condensed consolidated financial statements are unaudited but, in management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise indicated) necessary for a fair presentation of our quarterly results. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022 as filed with the SEC on December 12, 2022 (our Annual Report).

Use of Estimates. To prepare financial statements in conformity with U.S. GAAP, management must make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates and could have a material impact on our operating results and financial position.

Principles of Consolidation. The condensed consolidated financial statements include our accounts and the accounts of our wholly and majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Year End. Our fiscal year generally ends on the Saturday nearest to October 31 and consists of 52 weeks, with the exception that approximately every five years, we have a 53-week year. When a 53-week year occurs, we include the additional week in the first quarter to realign fiscal quarters with calendar quarters. Fiscal 2023 and 2022 are both 52-week years. Fiscal 2023 will end on October 28, 2023. Fiscal 2022 ended on October 29, 2022. For presentation purposes, the condensed consolidated financial statements and accompanying notes refer to the closest calendar month end.

Comparability. Certain reclassifications have been made to the prior period's condensed consolidated financial statements to conform to the current year presentation. The reclassifications did not have a material impact on the prior period's condensed consolidated balance sheets, statements of income, statements of comprehensive income and statements of cash flows.

Segment Reporting. Effective in the first quarter of fiscal 2023, we realigned our organizational structure to evaluate the results of our Design IP business separately. Our Chief Operating Decision Maker (CODM), our Chief Executive Officer (CEO), now regularly reviews disaggregated segment information, assesses performance against our key growth strategies and allocates resources based on this new organizational structure.

As a result, effective in the first quarter of fiscal 2023, we changed our reportable segments from two reportable segments to the following three reportable segments: (1) Design Automation, which includes EDA tools, system integration solutions and other associated revenue categories, (2) Design IP, which includes IP products, and (3) Software Integrity, which includes a comprehensive solution for building integrity—security, quality and compliance testing—into the customers' software development lifecycle and supply chain. As such, prior period reportable segment results and related disclosures have been reclassified to reflect our current reportable segments.

Goodwill. As a result of the change to our reportable segments, we reassessed our reporting units for the evaluation of goodwill during the first quarter of fiscal 2023. Prior to this change, our reporting units were determined to be the same as reportable segments for the purpose of goodwill impairment assessment. Our reassessment determined that we now have three reporting units, which are the same as our reportable segments.

Goodwill represents the excess of the aggregate purchase price over the fair value of the net tangible and identifiable intangible assets acquired by us. The carrying amount of goodwill at each reporting unit is tested for impairment annually on the first day of the fourth fiscal quarter, or more frequently if facts and circumstances warrant a review. We perform either a qualitative or quantitative assessment for goodwill impairment test. When a quantitative goodwill impairment assessment is performed, we use an income approach based on discounted cash flow analysis, a market approach based on market multiples, or a combination of both. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment loss is recorded for the difference.

The change in reporting units was considered a triggering event, indicating a test for goodwill impairment was required before and after the change in reporting units. We performed those impairment tests, which did not result in the identification of an impairment loss as of January 31, 2023.

If assumptions or estimates with respect to our future performance vary from what is expected, including but not limited to those assumptions relating to inflationary pressure on costs and geopolitical uncertainties, this may impact the impairment analysis and could reduce the underlying cash flows used to estimate fair values and result in a decline in fair value that may trigger future impairment charges.

Assets Held for Sale. Assets are classified as held for sale when all of the following criteria for a plan of sale have been met: (i) management, having the authority to approve the action, commits to a plan to sell the assets; (ii) the assets are available for immediate sale in their present condition, subject only to terms that are usual and customary; (iii) an active program to locate a buyer and other actions required to complete the plan to sell have been initiated; (iv) the sale of the assets is probable and is expected to be completed within one year; (v) the assets are being actively marketed for sale at a price that is reasonable in relation to their current fair value; and (vi) actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Significant Accounting Policies. There have been no material changes to our significant accounting policies included in our Annual Report.

In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (ASU 2022-03), which applies to all equity securities measured at fair value that are subject to contractual sale restrictions. This change prohibits entities from taking into account contractual restrictions on the sale of equity securities when estimating fair value and introduces required disclosures for such transactions. The standard will become effective for us beginning on November 1, 2024 and will be applied prospectively. Early adoption is permitted. Any future impact from the adoption of this guidance will depend on the facts and circumstances of future transactions.

The following table showed the percentage of revenue by product groups:

			Three Months Ended   July 31,												Nine Months Ended   July 31,
			2023						2022						2023						2022
EDA			65.5		%				63.8		%				64.7		%				62.2		%
Design IP			23.5		%				25.1		%				24.3		%				26.9		%
Software Integrity			8.9		%				9.5		%				9.3		%				8.9		%
Other			2.1		%				1.6		%				1.7		%				2		%
Total			100.0		%				100.0		%				100.0		%				100.0		%

The contract assets indicated below are presented as prepaid and other current assets in the condensed consolidated balance sheets. The contract assets are transferred to receivables when the rights to invoice and receive payment become unconditional. Unbilled receivables are presented as accounts receivable, net, in the condensed consolidated balance sheets.

Contract balances were as follows:

			As of
			July 31, 2023						October 31, 2022
			(in thousands)
Contract assets, net			$	270,105					$	260,498
Unbilled receivables			$	49,261					$	46,254
Deferred revenue			$	1,939,186					$	2,065,294

During the three and nine months ended July 31, 2023, we recognized revenue of $344.9 million and $1.6 billion, respectively, including previously unfulfilled contracts that have expired and are no longer subject to an implied promise to provide future services, that was included in the deferred revenue balance as of October 31, 2022.

Contracted but unsatisfied or partially unsatisfied performance obligations were approximately $7.1 billion as of July 31, 2023, which includes $1.4 billion in non-cancellable Flexible Spending Account (FSA) commitments from customers where actual product selection and quantities of specific products or services are to be determined by customers at a later date. We have elected to exclude future sales-based royalty payments from the remaining performance obligations. Approximately 42% of the contracted but unsatisfied or partially unsatisfied performance obligations as of July 31, 2023, excluding non-cancellable FSA, are expected to be recognized over the next 12 months, with the remainder recognized thereafter.

During the three and nine months ended July 31, 2023, we recognized $24.2 million and $75.8 million, respectively, from performance obligations satisfied from sales-based royalties earned during the periods. During the three and nine months ended July 31, 2022, we recognized $33.9 million and $103.5 million, respectively, from performance obligations satisfied from sales-based royalties earned during the periods.

Capitalized commission costs, net of accumulated amortization, as of July 31, 2023 were $96.7 million and included in other long-term assets in our condensed consolidated balance sheets. Amortization of these assets was $22.1 million and $61.7 million during the three and nine months ended July 31, 2023, respectively, and included in sales and marketing expense in the condensed consolidated statements of income. Amortization of these assets was $19.9 million and $54.4 million during the three and nine months ended July 31, 2022, respectively, and included in sales and marketing expense in the condensed consolidated statements of income.

During the nine months ended July 31, 2023, we completed two acquisitions for aggregate purchase consideration of $48.6 million, net of cash acquired. The purchase consideration was allocated as follows: $24.6 million to identifiable intangible assets and $28.5 million to goodwill. The total purchase consideration is preliminary, and as additional information becomes available, we may further revise it during the remainder of the measurement period, which will not exceed 12 months from the closing of the acquisition. The goodwill recognized from both acquisitions was assigned to the Design Automation reporting unit, and $5.7 million was deductible for income tax purposes.

We have included the financial results of these acquisitions in our condensed consolidated financial statements from the date of acquisition. These results were not material to our condensed consolidated financial statements.

Transaction costs were $4.5 million and $9.8 million during the three and nine months ended July 31, 2023, respectively. Transaction costs were $5.2 million and $11.3 million during the three and nine months ended July 31, 2022, respectively. These costs mainly consisted of professional fees and administrative costs and were expensed as incurred in our condensed consolidated statements of income.

As a result of the change in reporting units effective in the first quarter of fiscal 2023, we estimated the fair value of our new reporting units and reallocated goodwill to the reporting units using a relative fair value method. No impairment of goodwill was identified for any period presented.

The changes in the carrying amount of goodwill during the nine months ended July 31, 2023 were as follows:

			(in thousands)
Balance at October 31, 2022			$	3,842,234
Additions			28,503
Adjustments			3,097
Effect of foreign currency translation			14,026
Balance at July 31, 2023			$	3,887,860

During the nine months ended July 31, 2023, we finalized certain estimates impacting total preliminary purchase consideration for certain acquisitions and recorded the resulting measurement period adjustments which increased goodwill.

Intangible assets as of July 31, 2023 consisted of the following:

Intangible assets as of October 31, 2022 consisted of the following:

			Gross Carrying Amount						Accumulated Amortization						Net Amount
			(in thousands)
Core/developed technology			$	1,083,703					$	813,226					$	270,477
Customer relationships			426,242						333,984						92,258
Contract rights intangible			190,666						188,262						2,404
Trademarks and trade names			52,795						34,054						18,741
Capitalized software development costs			48,591						46,025						2,566
Total			$	1,801,997					$	1,415,551					$	386,446

Amortization expense related to intangible assets consisted of the following:

			Three Months Ended   July 31,												Nine Months Ended   July 31,
			2023						2022						2023						2022
			(in thousands)
Core/developed technology			$	17,816					$	18,603					$	53,566					$	45,180
Customer relationships			5,801						6,322						17,314						20,819
Contract rights intangible			558						727						1,320						2,180
Trademarks and trade names			896						802						2,682						2,002
Capitalized software development costs(1)			557						619						1,626						2,052
Total			$	25,628					$	27,073					$	76,508					$	72,233

(1) Amortization of capitalized software development costs is included in cost of products revenue in the condensed consolidated statements of income.

The following table presented the estimated future amortization of intangible assets as of July 31, 2023:

Fiscal year			(in thousands)
Remainder of fiscal 2023			$	25,684
2024			93,465
2025			75,385
2026			61,840
2027			41,638
2028 and thereafter			38,711
Total			$	336,723

During the three months ended July 31, 2023, we commenced a plan to sell two office buildings with approximately 226,000 square feet. As of July 31, 2023, the office buildings had a carrying value of approximately $9.5 million, which was included within property and equipment, net in the condensed consolidated balance sheets.

As of July 31, 2023, the balances of our cash equivalents and short-term investments were as follows:

			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses Less Than 12 Continuous Months						Gross Unrealized Losses 12 Continuous Months or Longer						Estimated Fair Value(1)
			(in thousands)
Cash equivalents:
Money market funds			$	200,288					$	—					$	—					$	—					$	200,288
U.S. government agency securities			2,284						—						—						—						2,284
Total:			$	202,572					$	—					$	—					$	—					$	202,572
Short-term investments:
U.S. government agency & T-bills			$	20,595					$	—					$	(82)					$	(6)					$	20,507
Municipal bonds			1,535						—						—						(22)						1,513
Corporate debt securities			96,614						42						(462)						(529)						95,665
Asset-backed securities			30,971						12						(109)						(116)						30,758
Total:			$	149,715					$	54					$	(653)					$	(673)					$	148,443

(1)See Note 8. Fair Value Measurements for further discussion on fair values.

The contractual maturities of our available-for-sale debt securities as of July 31, 2023 were as follows:

As of October 31, 2022, the balances of our cash equivalents and short-term investments were as follows:

			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses Less Than 12 Continuous Months						Gross Unrealized Losses 12 Continuous Months or Longer						Estimated Fair Value(1)
			(in thousands)
Cash equivalents:
Money market funds			$	77,683					$	—					$	—					$	—					$	77,683
Total:			$	77,683					$	—					$	—					$	—					$	77,683
Short-term investments:
U.S. government agency & T-bills			$	25,816					$	—					$	(174)					$	(39)					$	25,603
Municipal bonds			2,970						—						(12)						(80)						2,878
Corporate debt securities			95,899						7						(747)						(1,135)						94,024
Asset-backed securities			25,826						—						(149)						(269)						25,408
Total:			$	150,511					$	7					$	(1,082)					$	(1,523)					$	147,913